Actionable Claim

Introduction:

The Transfer of Property Act, 1882 incorporates the laws which are related to the transfer of properties. This act does not codify all sorts of transfers and therefore it is non-exhaustive in nature. Though there exist other acts which include other modes of transfer like the Sales of Goods Act, 1930.

The transfers in carrying out of a court’s orders are also not included in this act. It basically deals with the transfers between the humans through expressed or implied contract and includes the provisions related to the transfer of immovable property. Though there are certain sections which also deals with movable properties.

The transfer and the type of property which is being transferred is mandatory to determine in order to acknowledge that whether Transfer of Property Act, 1882 will be applied to a specific transaction or not.  An actionable claim is one of the intangible properties which is covered in this act.

What is Actionable Claim?

Actionable claim is a claim on which action can be undertaken in a Court of law for comfort or relief. The perception of ‘actionable claim’ is well-defined under section 3 of Transfer of Property Act, 1882 as a claim for any unsecured debt which is associated to any benefit emerging out from any movable property, other than the obligation secured by mortgage of immovable property or by hypothecation or pledge of movable property, which is not in possession and for which relief can be claimed in civil court. The word ‘Actionable’ stands for approaching the court in order to enforce such a claim. These claims are considered as a safe haven for such issues notwithstanding whether it is existent, accruing, conditional or contingent.

For instance, B took a loan of Rs. 1,00,000 from A without providing any security for the same. So, here, if B fails to repay the amount, A can enforce an actionable claim.

Unsecured Debt

As we all are aware of the fact that ‘debt’ is the liquidated amount of money which is unpaid, i.e. it’s a sort of a debt. If any mortgage, pledge or hypothecation does not back any debt, i.e., there is no such collateral or security, then such debt is said to be an unsecured debt. The major disadvantage of unsecured debt for lenders is that at the time of default of payment, they have no recourse towards the debt, since the security is not available, making it a risky affair.

According to Sunrise Associates v. Govt. of NCT of Delhi, AIR 2006 SC 1908 an actionable claim may exist in the three forms stated below:

1. Existent Debt
2. Accruing Debt
3. Conditional or Contingent Debt

1. Existing Debt

When a debt has already become due very recently or some time ago, i.e., it can be enforced in the present and is not paid for yet, it is called an existing debt. For instance, when B buys a car from A then B becomes liable for it, then this debt in that instant itself becomes an existent debt for B.

2. Accruing Debt

When an amount is due in present and ought to be paid on a future date, then such debt becomes Accruing debt. For example, talking about rents, rents become accruing on the day when the month starts and remains accruing if not paid till the end where the claimant can move to a courtroom in case of non-payment of debt.

3. Conditional or Contingent Debt

When an amount becomes payable on the completion of a performance of a particular act then it is said to be a condition or contingent debt. Conditional debt is when the act is controllable. For example, A agrees to pay Rs. 5000 if B buys C’s house, then it becomes a conditional debt which can only be claimed by B after the condition has been fulfilled.

In comparison to this, when the performance of a particular act is uncontrollable, then it is a contingent debt. For instance, if A promises to pay a particular amount to B if C’s ship sinks, then since the parties cannot prevent the ship from sinking, so this sort of situation comes under contingent debt.

Beneficial Interest in Moveable Property

In the relationship of beneficial interest between a person and a movable property, there exists no such evident or actual proprietorship of the personal estate by the person. Nevertheless, the person has the right to possess the property.

Thus, to summarize the specifics,

• The property is a movable property, not possessed by the claimant in any way.
• The claimant has the right to possess the property.

The right to recover the money that has been paid to buy something which has been cancelled, the right to receive the dividends of a share in a company, right to receive the insurance amount after the death of an insured person, etc are few examples that fall under the umbrella of Actionable Claims which can also be transferred.

As discussed above, the claimant must have certain legal rights so as to possess the property that is enforceable in the law court. In this example, A is lunatic. A sells 10 bags of grains to Mr B, who pays the required amount, that is, he fulfils his debts, and he also cannot claim his possession. This is so since the lawful right to own does not lie with Mr B as A is incapable to enter into a contract, and the agreement between A and Mr B is void ab initio. So, because the possession rights of Mr B are legally unacceptable, this does not come under actionable claim.

Below are some Examples of Actionable Claims

• Insurance Policy which is not secured by the method of mortgage or hypothecation or pledge
• Right to credit in a provident fund
• Claim for unsecured debt
• Share in a partnership property
• Right to claim arrears of rent since it is unsecured.
• Right to claim the benefit of a contract
• Lottery ticket
• Interests on shares, debentures and negotiable instruments.
• A right under a license
• Rights shares or option to purchase shares
• Bank guarantee

Claims Uncovered under Actionable Claim

1. Right to claim damages– If it occurs from tortuous liability or contractual liability then it is not considered as an actionable claim. This is primarily because the amount of money deemed to be payable is uncertain. Additionally, provided that the right mentioned here is part of a personal breach or injury, the remedy of which cannot be transferred.
2. Mesne profits– The profit received by a tenant for possessing an immovable property, where the tenant himself does not have any permission to allow the possession of the property. In the case of Jai Narayan v. Kishun Dutta,[1] the court held that a claim related to mesne profits is not included in the actionable claim as they are basically unliquidated damages.
3. Decree or judgement of debt- it is not transferrable under actionable claim because the action cannot be transferred once such a judgement has been pronounced.
4. Intellectual Property– Patents, copyrights etc. classify as special rights rather than claims and a person is already entitled to it. These are not transferrable as actionable claims and have altogether separate legislation governing it.

Incapable Transferees of Actionable Claim

The process of transferring an Actionable claim as laid down in section 130 of the Transfer of Property Act, initiates with a Document in writing which is to be signed by the Transferor or his authorised agent after which the transfer comes into effect. After the instrument has been duly authorised, the Transferee becomes responsible for all the rights and redressals either by ways of damage or otherwise. The condition required for the aforesaid events is that there should be a valid dealing of the actionable claim wherein the debtor or the claimant or any person as the Transferor would, has the power to enforce his actionable claim and recover the debt.

To conclude, the major conditions that make a transfer effective are:

• The document or instrument must be in a written format.
• Signature of the Transferor or his duly assigned Agent is necessary to make it effective.
• Only on the execution of such a transfer, will it be deemed effective and completed.

Section 136 of the act deals with the incapacity of certain officers who are in connection with the court of justice like:

• A Legal practitioner
• Court’s judges
• Legal officer concerned with the justice of the Court.

Section 6(h)(3) brings forth the concept of not transferring the property to a legally disqualified person. Or in other words, a property cannot be transferred to a transferee who is disqualified(legally) from receiving that property. 

So, section 136 of the act disqualifies the above-mentioned group of people from being transferees of actionable claims or receiving any interest on the part of an actionable claim, thus, it cannot be transferred to these people.

Case Laws

• H. Anraj v. State of Tamil Nadu[2] 
  
  In this case, since Lottery tickets as issued by a person (dealer) and it is a marketable product, i.e., it can be transferred from person to person in exchange for a consideration, these tickets come under the inventory or Stock in trade for the person or body dealing in it. Hence, they can be referred to as “goods”. The head which Lottery tickets come under is ‘goods’ and not actionable claims because of its existence in the presence. To the contrary, Actionable claims are claims which are enforceable in the future. Thus, there is a fundamental difference between such claims and lottery tickets.

• Sunrise Associates vs. Govt. of NCT of Delhi & Ors[3] 
  
  It was added by the Supreme Court that a lottery ticket is nothing but just a paper and it has no such incentive in itself. The value of the ticket depends on the conditional benefit which is gained on winning the prize of greater value than the consideration paid for the transfer of that chance. There are three main elements regarding the sale of lottery tickets:
  • prize;
  • chance; and
  • consideration.

Therefore, when a lottery ticket is purchased, it is purchased in an attempt to win the prize, which depends on the luck and the consideration is the price of the ticket. The distinction drawn in H. Anraj case between the opportunity to win and the option to participate in the draw was held to be unwarranted and presumptive. Regardless of whether taken as a separate right, it would, in any case, be viewed as an actionable claim. A Constitutional Bench of S.C. reversed the verdict in the H Anraj case, holding the selling of a lottery ticket comes under the heading of an actionable claim.

Actionable Claim is Moveable Property

Things which have physical existence and which can be possessed are said to be tangible. The touchable movables are car, chairs, bikes, etc., an actionable claim is also a movable property as stated under section 2(7) of the Sale of Goods Act, 1930. This section defines ‘goods’ as all sorts of movable property other than actionable claims. If the actionable claim was immovable property, it would not have been excluded. It is also a claim for unsecured debt and any beneficial interest in the moveable property and the property is not in any kind of possession.

Therefore, we can conclude that section 2(7) of the Sale of Goods Act, 1930 clearly states actionable claim as movable property.

For instance- A takes a loan of 60,000/- from B. And B does not take any security. So, the debt or claim given by B is an actionable claim. And if A fails to repay the money to B, B can move to the Court.

Conclusion

Actionable Claim is an important concept in Law which is used in various aspects. Basically, it revolves around claims that have not been received and the claimant can move to court for the enforcement of the same. It falls under an intangible movable property which is transferable. Unsecured debt and Beneficial interest in movable property are the types under which Claims can be made and transferred with the exclusion of some people as transferee in order to keep the integrity of courts intact.

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References:

[1] Jai Narayan v. Kishun Dutta, 1924 Pat 551. 

[2] H. Anraj v. State of Tamil Nadu, (1986) 1 SCC 414.

[3] Sunrise Associates vs. Govt. of NCT of Delhi & Ors, 2006 (5) SCC 603.