India: The Sixth Type Of Transfer

Last Updated: 17 August 2018
Article by Pranav Phadke and Snehali Karkera

In India, there are several types of Transfers of Immovable Property and which are covered by various statues.

Broadly speaking, there are voluntary transfers and Involuntary Transfers.

Involuntary Transfers would involve transfers by operation of law, such as the sale by the order of a court, auction or forfeiture along with transfers after the death of a person through Testate Succession (in the event the deceased has left a Will) or Intestate Succession (in the event there is no will of the deceased), which are covered by the respective Succession Laws that are applicable to the deceased.

Then there are voluntary Transfers. In India, the statute governing the Voluntary Transfers is called as Transfer of Property Act, 1882 ("TOPA"). The TOPA mainly recognizes five types of transfers, i.e., Sale, Mortgage, Exchange, Gift and Lease and hence the person acquiring these rights becomes an Owner, Mortgagee or Lessee.

However, in the state of Maharashtra, Maharashtra Land Revenue Code, 1966 ("Code") looks at every person as a 'holder' of the land. Section 2(12) of the Code defines "to hold land" or "to be a landlord or holder of land" as a person who is lawfully in possession of land, whether such possession is actual or not.

The Code envisages three kinds of holders, i.e., Private Persons, Government and persons holding land from the State.

Section 20 of the Code contemplates the Government as the owner of everything including all lands, public roads, lanes and paths, bridges, ditches, bed of sea, rivers, streams, lakes, tanks etc., which are not the property of persons legally capable of holding property. Therefore, it is clear that everything apart from what is legally owned by private persons is owned by the Government.

Thereafter, Section 29 of the Code provides for three classes of persons holding land from the Government, i.e., (a) Occupant Class I, (b) Occupant Class II and (c) Government Lessee.

Occupant Class I means all persons who hold unalienated land in perpetuity and without any restrictions on the right to transfer. It can be safely interpreted that the rights of an Occupant Class I holder are akin to an 'Owner' of the Property.

A Government Lessee has been defined in Section 2(11) read with Section 38 of the Code as a person who has been granted a lease of unalienated unoccupied land for such period, for such purpose and on such conditions as may be provided in the lease and such a person, i.e., the grantee, shall be called a Government lessee in respect of the land so granted. Such a person shall have rights akin to a Lessee under the TOPA.

Occupant Class II means all persons who hold unalienated land in perpetuity but are subject to restrictions on the right to transfer.

The transfer contemplated by the Code is not as absolute as a Sale as there is a restriction on transfer and it is neither a Lease as certain aspects of a lease like a Lease Rent, Tenure, etc. do not exist and hence it is clear from the aforesaid definitions that an Occupancy Class II holder has rights neither of an Owner nor of a Lessee.

As such, the State Legislation has in effect created a sixth type of transfer, which is over and above the five types of transfers contemplated under TOPA.

Conversion of Rights

In 2012, the State Government had come out with a policy providing the manner of renewal of leases. Along with that, it also provided for the manner in which the Leasehold rights granted to a person could be converted to Occupancy Class II rights upon payment of conversion premium (thus establishing the fact that leasehold rights and Occupancy Class II rights are different).

Also, in 2016, Section 29A was introduced in the Code, which provided for the conversion of the Occupancy Class II rights or Leasehold rights into Occupancy Class I rights, upon payment of conversion premium and after following due procedure provided for by the State Government.

Typical Restrictions:

  1. Mortgage:
    The holder of an Occupancy Class II Land may mortgage the land subject to prior permission of the State Government (Collector) and upon payment of transfer premium. Generally, 0.5% of the value of the land is prescribed as transfer premium.
  2. Transfer:
    Similarly, transfers by holders of Occupancy Class II lands are subject to prior permission of the State Government (Collector) and upon payment of transfer premium and/or unearned income. The quantum of unearned income prescribed is 50% of current value of the land less the permitted costs including cost of acquisition thereof.

The genesis behind the restrictions seems to be that when a holder is granted Occupancy Class II rights by the State Government, it is charged a very negligible amount for such acquisition compared to full market value of that date. Hence, it is in the interest of the public that premium is charged to the holder at the time of mortgage/ transfer as the holder itself received the land for a fraction of the price.

This genesis is further supported by the fact that the validity of charging such premium under Section 37A and the proviso to Section 295 of the Code was upheld by the Hon'ble Bombay High Court in a recent judgement of May, 2018 where it was held that the charging of transfer premium and unearned income is in the interest of the public. The Court has also directed the State Government of Maharashtra to formulate a standard policy for the transfer of Occupancy Class II lands providing for uniform rates and procedure for the same.

Now, it is only a matter of time when such a policy is formulated and introduced to the public at large.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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