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Actionable Goods Under Section 130 of TPA 1882

A debt or a claim that gives rise to a lawsuit in a court of law for compensation or relief is referred to as an actionable claim. Whether these claims are conditional, accruing, or contrary, the civil courts recognize them for providing the basis for remedies. Section 3 of the Transfer of Property Act of 1882 defines an actionable claim. A debt or claim that allows a party to file a lawsuit and seek court recovery is, in broad terms, referred to as an actionable claim. However, the Act does not cover all kinds of properties and their transfer. Hence, it is not exhaustive in nature.

The Transfer of Property Act deals only with the transfer of property through an express contract or an implied contract. Therefore, transfers by will, succession, etc. are not included by it. Moreover, the misconception that the Act just addresses immovable property is inaccurate. Moveable property transfers are covered by some of its provisions (such as those found in Ss. 5 to 37).

Regarding GST, an actionable claim is any debt claim, secured or unsecured, with the exception of lotteries, betting, and gaming. With important business implications, GST handles actionable claims differently from other goods and services. Actionable Claims are included in the definition of "Goods" under Section 2(52) of the CGST Act, 2017.

Actionable claims are defined as those specified in section 3 of the Transfer of Property Act, as the GST Law does not define these terms separately under the Act. An Actionable Claim is referred to as a "Chose in Action". This refers to a debt or claim that is subject to legal action.

Statutory references:
Under Transfer of property act 1882 "Actionable claim" is defined in Sec. 3 as a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the claimant's actual or constructive possession.

Therefore according to act Actionable claim can be implied on:
  1. Any Unsecured debt
  2. Any beneficial interest in a movable property that is not in the claimant's possession, either actual or constructive.
A proper review of "unsecured debt" and "beneficial interest in movable property" is required in order to understand exactly what constitutes as an actionable claim.

Secured debt
Claims that are supported by a security or collateral are known as secured actionable claims. Simply stated, these claims are accompanied by assets or property that, in the event that the debtor defaults, may be seized or liquidated. These actionable claims provide a substantial amount of security to the creditor.

Hypothecation describes a scenario in which a person or an organization borrows a specific amount of money from the lender in order to buy a specific asset or assets. The characteristic that sets it apart from other forms of debt is that, in the event that the borrower defaults on the loan, the asset or assets for which the loan was obtained get turned over to the creditor.

Examples of Secured Actionable Claims:
  1. Mortgage
  2. Car loans
  3. Business loan
Unsecured debt.
Unsecured actionable claims lack the presence of specific collateral. The only foundation for these claims is the debtor's pledge to pay back the creditor. They are prevalent in many financial transactions and contracts, although giving the creditor with less security than secured claims.

Examples of unsecured Actionable claims:
  • Credit card loans
  • Personal loan
  • Trade credit

Important provision of actionable claim under Transfer Of Property Act,1882
The Transfer of Property Act, Section 130, describes the procedure for transferring an actionable claim. In line with Section 130[1],
  1. Only a written instrument may be used to complete the transfer;
  2. and bearing the transferor's or his legal representative's signature; and
  3. There will be a successful transfer.

Section 130 exceptions: The transfer of a maritime insurance policy and a fire insurance policy are exempt from Section 130.

Important provision of actionable claim under GST
There are distinct legal and tax processes for the transfer of actionable claims under the TPA and GST. The TPA provide the legal foundation for transferring actionable claims, while GST controls the tax consequences of such transfers. Comprehending the subtle differences between the two systems is crucial for handling actionable claims in different types of transactions.

Actionable claims are those which satisfy the definition given to them in Section 3 of the Transfer of Property Act, 1882, according to Section 2(1) of the CGST Act, 2017.

The Transfer of Property Act defines an actionable claim as follows:
a claim to any debt, excluding debts secured by mortgages on real estate, hypothecations on or pledges of movable property, and claims to any beneficial interest in real estate that is not the claimant's actual or constructive ownership.

Transfer of Actionable Claim:
  1. By Assignment: The claimant assigns to another party, who becomes the new claimant, their rights in the actionable claim.
  2. By Negotiation: In this scenario, the claim is endorsed to the new holder through the negotiation of a negotiable document, such as a promissory note.
Section 130 of Transfer Of Property Act
A transferable claim may be made:
  1. With or without thought
  2. By means of a written document duly executed and signed by the transferor or his duly authorized representative.
Therefore, it is not allowed to transmit actionable claims orally. Its registration is not required, though, and no additional transfer instrument needs to be completed.

Section 131 of Transfer of Property Act
The notice is not necessary to ensure perfection of the transferee's title of actionable claim. However, the dealings of the debtor with the creditor are protected until the former receives the notice of such an assignment in observance of the conditions enumerate under Section 131 of the TOPA. It states that:
  1. The notice of transfer of the actionable claim has to be made in writing.
  2. It must be signed by the transferor or his agent authorized on his behalf.
  3. However, if the transferor refuses to sign it, then, in that case, it must be signed by the transferee of actionable claim or his duly authorized agent.

Section 132 of Transfer of Property Act
This section's underlying concept is that the transferee and the transferor have identical titles. As a result, the transferee inherits all of the transferor's assets and liabilities that existed at the time of the assignment.

Section 133 of Transfer of Property Act
The debtor's guarantee of solvency is covered by this clause. The risk of the transferee losing the claim in the event of insolvency exists when a debt is assigned. Consequently, the transferor of the actionable claim assures the debtor's solvency at the date of assignment as a precaution. However, a contract stating otherwise may apply. Furthermore, the sole restriction is on the quantity or value of the consideration that is transferred in exchange for it.

Section 134 of Transfer of Property Act
A mortgage may be used to transfer an actionable claim since it is property. A transfer of actionable claim by way of a mortgage occurs when one debt is transferred to pay off another debt, either current or future. The next clause in this section specifies the circumstances in which the amount so realized may be appropriated:
  1. The expense of such recovery is to be met by the debt that the transferor received or that the transferee recovered.
  2. It must be used to satisfy the sum that the transfer secured.
  3. The transferor will get any money that is left over after the previous payments.
An actionable claim may only be transferred 2[with or without consideration] by the execution of a written document signed by the transferor or his duly authorized agent. This document will become complete and effective upon execution, at which point the transferee will acquire all of the transferor's rights and remedies, including those for damages and other remedies, regardless of whether the transferor gives the transferee the notice of the transfer as provided below.

Except in cases where the debtor or other person is a party to the transfer or has received express notice thereof as hereinafter provided, every dealing with the debt or other actionable claim by the debt or other person from or against whom the transferor would, but for the aforementioned instrument of transfer, have been entitled to recover or enforce such debt or other actionable claim, shall be valid as against such transfer

After the aforementioned transfer document is executed, the transferee of an actionable claim may file a lawsuit or start legal proceedings on his own behalf without the transferor's consent or inclusion as a party in the lawsuit or legal proceedings.

Exception: Nothing in this section impacts the terms of Section 38 of the Insurance Act of 1938 or applies to the transfer of a marine or fire insurance policy.

Analysis by Judicial Pronouncement
Indu Kakkar vs. Haryana State Industrial Development Corporation Ltd.
As decided by the Supreme Court, the transferee is not entitled to treat himself as an allottee of the corporation that is granting the land. In this instance, the Industrial Development Corporation granted the allottee a plot so they could develop an industrial unit within a given time frame. Plot has been transferred by original allottee without corporation approval. The corporation could not be forced to treat him as an initial allottee, according to the Supreme Court's ruling. He does not have the right to contest the corporation's order of resumption.

In terms of notification in the event of an assignment of an actionable claim, Section 131 of The Transfer of Property Act, 1882 states that all notices of transfer of actionable claims must be in written and signed by the transferor or his properly authorized agent. The transferee or his agent must sign the notice if the transferor declines to sign. The notice needs to be specific in its wording and include the transferee's name and address in legible writing. Unconditional notice is required.

State of Kerala and Ors. Vs. Mini Shamsudin and Ors,
The Court stated that actionable claims are "goods" and movable property, but not for the purposes of the sales tax legislation.

SECTION 137 of the Transfer of Property Act, 1882 states that all stocks, shares, and debentures, as well as any mercantile document of title to goods, are exempt from the provisions of Sections 130 to 136 of the Transfer of Property Act, 1882, which deal with the transfer of actionable claim.

Sunrise Associates v. Government of the NCT of Delhi
According to the Honourable Supreme Court, this privilege grants a beneficial interest in transportable property. This is due to the fact that winning the draw is the main goal of such transactions. A lottery ticket is worthless in and of itself. It represents a conditional benefit of winning the lottery, which is where its value comes from.

Interestingly, the prize money that was earned is worth more than what was paid to transfer it. Transferring such a right entail transferring a beneficial interest in transportable property. As a result, it was determined that the lottery was an actionable claim. Court enlisted few examples under actionable claim which can be assigned.
  • Reclamation for unpaid rent.
  • Claim for return of earnest money
  • Claim for the insurance amount owed under the policy
  • Request a refund of the purchase money from the sale in consideration of setting aside the sale transaction.
  • Making a benefit claim under a goods purchase agreement
  • A partner's lawsuit alleging they should be compensated for the disbanded partnership firm's account.
  • Make a claim on the profits from the business

Infrastructure Leasing & Financial Services Ltd. v. HDFC Bank Ltd 2023.
The essential issue under this case was Whether the documents executed by IL&FS by which rents were made over to HDFC constituted an assignment and thus fell outside the scope of an asset and security freeze order made by the NCLAT.

Hence analyzing the issue, the honorable court held that the condition in the assignment and administration agreement clearly indicates that rents payable to IL&FS stood unconditionally assigned to HDFC. The use of the expression "pledge" in this context cannot be made much of, as the assignment is not hedged with any condition; it entitles HDFC to appropriate the proceeds, to the extent of liability of IL&FS.

The Court further said that the future rent payable is actually an unsecured debt that the owner/borrower would have been otherwise entitled to claim, but for the assignment or transfer, to the lender/creditor. Because the owner is a debtor of the bank, the latter becomes the creditor of the tenant or the lessee as the case may be. This arrangement has the advantage of virtually ring fencing the creditor from the eventuality of bankruptcy or an insolvency event, which the borrower might be exposed to.

The Reserve Bank of India ('RBI') has formulated guidelines which regulate all banks' conduct regarding the Lease Rental Discounting ('LRD') facilities, and they extend to a class of borrowers who own commercial properties.

After taking note of the definition of "Actionable claim" defined by the Transfer of Property Act, 1882, the Court held that the said arrangement is an assignment and not a pledge. The reference to pledge, in some places in the documents, did not undermine the fact that the rents payable to and receivable by IL&FS stood absolutely assigned to HDFC.

Thus, there can be a transfer of debts, which are defined as actionable claims. In the present case, the rents payable by IL&FS tenants, lessees and licensees are debts, which stood transferred to the creditor, i.e. HDFC Bank. Therefore, the Court held that NCLAT's conclusions are unexceptionable to challenge to its correctness, therefore fails.

Actionable claims, as defined by Section 3 of the TOPA, are transferable in nature, it can be inferred after carefully examining all pertinent provisions of the agreement. It is an ephemeral, intangible property that may be assigned in accordance with the guidelines and regulations outlined in Chapter VIII of the TOPA.

For there to be a legitimate transfer of an actionable claim, it is therefore necessary to be clear about the nature of the property, the procedure for transferring the actionable claim, and the legal standards established by numerous Indian court rulings. A "movable property" debt of any kind that the court could enforce is referred to as a "actionable claim." This means that a claim for any form of money, regardless of whether its value was set or indeterminate, is actionable. There were occasionally misunderstandings and conflicting rulings, and the legislation was either unclear or inconsistent.

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