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INTRODUCTION

Sections 38 to 53A are applicable to transfer of immovable property only. Section 38 is

one of them. The definition of the term immovable property is given in section 3 of the Transfer
of Property Act, it says that immovable property does not include standing timber, growing
crops or grass. The term is also defined under the General Clauses Act, 1897. Accordingly,
immovable property shall include land, the benefits to arise out of land andf the things attached
to earth or permanently fastened to anything attached to the earth. The term is also defined
under the Registration Act, 1908
Therefore, immovable property includes land buildings, hereditary allowances, right to
ways, lights, ferries, fisheries or any other benefit to arise out of land and things attached to earth
or permanently fastened to anything which is attached to the earth, but not standing timber,
growing crops nor grass.

Section 38 Provides Transfer by person authorized only under certain circumstances to transfer Where any
person authorized only under circumstances in their nature variable to dispose of immovable
property, transfers such property for consideration, alleging the existence of such circumstances,
they shall as between the transferee on the one part and the transferor and other persons (if any)
affected by the transfer on the other part, be deemed to have existed, if the transferee, after using
reasonable care to ascertain the existence of such circumstances, has acted in good faith.
Illustration

A, a Hindu widow, whose husband has left collateral heirs, alleging that the property held by her
as such is insufficient for her maintenance, agrees, for purpose neither religiou nor charitable to
sell a field, part of such property, to be. B satisfies himself by reasonable enquiry that the income
of the property is insufficient for As maintenance, and that the sale of the field is necessary, and

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acting in good faith buys the field from A. As between B on the one part and A and the collateral
heirs on the other part, a necessity for the sale shall be deemed to have existed.
This provision of the Transfer of Property Act is for the circumstance where the power of
a person to transfer immovable property is limited. He can transfer only if certain circumstances
exist. These circumstances are in their very nature variable, that is, different for different persons.
When such persons transfer immovable property for consideration then this section comes into
play and declares that as between the transferee on the one part and the transferor and other
persons (if any) affected by the transfer on the other part, such circumstances shall be deemed to
have existed, provided that the following conditions are fulfilled:
(1) if the transferee has used reasonable care to ascertain the existence of such
circumstances, and
(2) has acted in good faith.

Such provision has been made in order to protect innocent transferee and other persons
affected by the transfer for value.
Thus for example a Hindu widow who became a widow before the passing of the Hindu
Succession Act, 1956 could dispose of immovable property got by her in succession from her
deceased husband only in case of legal necessity where the income from the property was to
insufficient to maintain her or for the purpose of discharge of the debts of her deceased husband.
Similarly a manager of a joint Hindu Family can also dispose of immovable property but only in
the case of legal necessity as for instance for the discharge of debt incurred in business run by
Joint Hindu Family or for the benefit of family estate. The father of a joint Hindu family can also
sell or mortgage joint family property to discharge his own antecedent debts not incurred for an
illegal or immoral purpose. A natural guardian of a Hindu minor can also transfer a part of
minors property but only in case of some legal necessity or for the benefit of the estate.
Essentials conditions for the applicability of Section 38 are:1. Transfer is made for consideration;
2. Transfer is made under circumstances in which the transferor has power to dispose;

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3. The transferee has taken reasonable care to ascertain the existence of the circumstance
under which a transferor has power to dispose of property, and;
4. Has acted in good faith.

General Principle
This section relates to transfer by a specific category to transferor having qualified power of
alienation, i.e., who can transfer property not generally like an owner, but can do it only in a
variable circumstances. They have limited power of alienation over the property and if they
exceed their powers, the transfer can be challenged and may be declared void. The section seeks
to protect the bona fide transferees acting in good faith who enter into the transactions with
transferor who do not have an absolute, but, only a qualified power of alienation of the property.
In such situation if the transfer were declared void, it would cause gross injustice to the bona fide
transferees.

Limited Power of Alienation

The principle applies to largely to cases arising under personal laws or family laws. For instance
it applies to the case of a Hindu father transferring the joint Hindu property for his own benefit,
manager for an infant1, guardian of property of a ward, alienation by a Hindu widow who took
the property as a limited owner, other limited hires 2 alienation by a mohunt or shebait of debutter
property, or an unauthorized alienation are by karta of the coparcenary property, or by an
executor of an minors estate.

Circumstances Variable in Nature

1 Hanooman Persad v. Baboon, (1856) 6 Mad

2 Debi Persuade v. Gopal Bhagat (1913) ILR 40Cal 721

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The transferor is empowered to sell the property, but only under certain specific circumstances
that may vary from case to case. This is the reason why they are called variable in nature. The
circumstances are specific, but when they would exist in a particular case, or whether they exist
or not, is not certain. For instance, under Hindu law , in case of alienation of joint Hindu property
by the karta, the permission to sell in not available generally, but only when if there is a legal
necessity, or the transition would amount to benefit of estate or if it is for the performance of
indispensable religious and charitable duties, and that is variable in nature as it may vary from
each and every case depending upon the facts and the status of the transferor. The father can sell
the property for continuation of the family business in case of trading families, but not for
starting a new business. Similarly, a guardian of the property of a minor cannot sell the property
with the permission of the court even if for the benefit of the minor. A Hindu father can sell the
joint family property for the satisfaction of his father debts. Likewise a Hindu son was permitted
to sell the property for the satisfaction of his Fathers debt. A step mother purporting to act on
behalf of the minor step son is a person authorised only under circumstances in their nature
variable to dispose off immovable property3.
Where any person authorised under circumstances in their nature variable to dispose of
immovable property, transfers such property for consideration alleging the existence of such
circumstances, they shall, as between the transferee on one part and the transferor and other
persons affected by transfer on the other part, be deemed to have cumstance has acted in good
faith.

Reasonable Care
Since the transfer affected in favour of the transferee can be challenged and has the potentiality
of being declared void in certain situation, the transferee has to be extra vigilant and must show
that he had taken reasonable care to ascertain the competency of the transferor in the given
situation. It is he who has to show that either the need existed, or he had made proper and
reasonable inquiries as to the competency of the transferor and had also acted honestly. In case
the transferor is the karta of a joint Hindu family, and the sale is for legal necessity, it is the

3 Balappa v. Durgabatti (1915)

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transferor who has to make the enquiries from the transferor about whether the need actually
exists. Similarly in case of alienation by a Hindu father for an antecedent debt, the existences of
a debt must be shown by the transferee. Thus where the sale deed executed by Hindu widow
recites the payment of family debt as the necessity justifying the sale, but the purchaser makes no
enquiry of the creditors named in the deed, his rights will not be protected.4

Recitals In The Sale Deed

Existence of recitals in the transfer deed that circumstances justifying the sale exist in a
particular situation are not sufficient5, and proof that the transferee made reasonable enquiries
and acted honestly must be supplemented by evidence are dead due to passage of time and the
circumstances are such as to justify a reasonable belief that such an inquiry would have
confirmed the truth and presumption are admissible to fill in the details. A transferee must show
that he made reasonable inquiries, took care and acted honestly.

Partial Necessity
The joint family may confronted with a need of specific amount of money. However, it may not
be possible to raise an exact amount of money by the sale of the property. If the amount fetched
was more then what is actually needed, the alienation can be justified by partial necessity
because the whole of the amount may not be utilized for the necessity.6 It is irrespective of
whether the amount utilized is considerable or small. An exact amount can be raised by a
mortgage, in case a karta raises money by mortgage of the family property for a loan, in excess

4 Junhabi v. Balbhadra, (1910) 15 Cal WN 793.

5 Maharaja of Bobbili v. Zamindar of Chundi, (1912)
6 Krishna Das v. Nathu Ram, AIR 1927

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of the amount required, the coparcenors will not be bound by the excess amount raised, and the
transfer could be declared partly valid and partly void at their instance.

Guardians Power over Minors Property

In case of property belonging to a minor, the guardian of the property again has qualified powers
of alienation the same. The natural, testamentary, or a guardian appointed by the court has the
power to alienate minors properties for legal necessity and benefit of estate, but a natural
guardian cannot, without the prior permission of the court , mortgage or charge or transfer by the
way of sale , gift or exchange, or lease out his property for more than five year or for more than
one year beyond the date on which the minor would attain majority.
A guardian can alienate and bind the property of the minor only in case of the minors necessity,
and has no power to bind the minor personally.
When the guardian obtain prior permission of the court to alienate minors property and enters
into a contract of sale, the contract can be specifically enforced.

Actual Application of Money not Required to be Seen

For the validation of the transfer, the alienee is not bound to see as to the actual application of
money as that would be subsequent to alienation. It is neither practical nor feasible, as after the
money passes in the hands of the transferor having qualified powers of alienation, the alienee can
never control the utilisations of money.

Burden of Proof
The burden of proving justifying circumstances and proper inquires is on the transferee. Thus,
whenever an alienation has to prove that tree was legal necessity. If the alienation is by a father
for payment of antecedent debt, the burden is on transferee to prove that the debt existed or that
after proper inquiry he believed that it existed, but where the son contented that it was contacted
for immoral purpose and the transferee had notice of it, that burden would shift on the son to

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prove the same. A mortgagee from a Hindu widow seeking to enforce his mortgage, or a person
claiming title under a conveyance from a woman as against the reversionary, have to prove not
only the genuineness of the conveyance but the full comprehension by the limited owner of the
nature of the alienation she makes and also if the alienation is justified and the alienee satisfied
himself reasonable about the existence of such necessity.

CASE:Meenakshi Achi, Appellant v. N. M. Manikkam Chettiar

and others, Respondents
(AIR 1960 MADRAS 99)

Bench Rajagopalan and Ramachandra Iyer JJ.

Facts

This was an appeal against the judgment of the Subordinate court in which the second
plaintiff was the appellant. The plaintiffs were (1) Lakshmanan Chettiar and (2) Meenakshi Achi,
the appellant and the wife of the first plaintiff. The respondents were (1) Manikkam Chettiar, (2)
& (3) were the sons of 1st respondent. the first plaintiff, Lakshmanan Chettiar died, pending the
suit.
The first respondent mortgaged three items that is (1) half share in a house (hereinafter
mentioned as A), (2) Lands in the village of Rangiyam (hereinafter mentioned as B) and half
share in certain lands in Ammampatti village (hereinafter mentioned as C) to the appellants
Husband as a security for the loan of Rs. 10750 with subsequent interest rate of 9% per annum

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compoundable every 12 years. The suit was laid in the Sub Court by the plaintiffs for the
recovery of the loan amount along with the interest which comes out to be a sum of Rs. 30,236.
At the time of the mortgage the respondent was a member of a Joint Hindu Family
consisting of himself and his younger brother. The property mortgaged that is A, B&C belonged
jointly to both the brothers. Subsequent to the mortgage there were disputes between the
mortgagor and his brother. A suit was filed in the subordinate court which lead to the partition of
the Joint family Property. In the partition decree the first respondent did not get the items A and
B mentioned above for his share but was allotted the whole of item C, besides certain other
properties.
In the mortgage suit out of which the appeal arises the appellant and her husband claimed
that the amount due should be made recoverable on the security of the other items that fell to the
share of the first respondent as they should be properly held to be substituted security.
The subordinate court found that out of the total loan amount of Rs. 10,750, Rs. 3,750
was used by the respondent for the discharge of the antecedent debt of the first respondent which
was to be discharged in the favor of A. S. Manickam and the rest was used for starting a new bus
service business.
The creditor that is the plaintiff had made bona fide enquiry about the existence of an
antecedent debt and the loan was advanced only after confirming that an antecedent debt existed.
Although, the loan was taken to discharge the debt, but was also partly used for starting a new
business therefore the learned Subordinate court held that the protection given to a bona fide
alienee who satisfied himself as to the existence of necessity would not be available to the case
of one whose money were ostensibly required for the discharge of antecedent debts of the father
but such money was not so utilized. Therefore the alienee has to not only prove existence of the
necessity or the antecedent debts but also to prove the application of the money in the purpose
for which the money is been lent.
Therefore, on the question of the liability of the 2nd and he 3rd respondent under the
mortgage the Sub Court held that the mortgage would be binding on the 2 nd and 3rd respondents
only to extent of Rs. 3750. The reason given by the Subordinate Court was that the respondent
no. 1 had used the loan amount partly for starting a new bus service business and partly for

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discharging his antecedent debts. The respondent 2 and 3 cannot be held liable for the money
which was used by the respondent 1 for the purpose starting a new business because it was not a
legal necessity for the respondents to start a new business thus the transferee was not required to
make any inquiry about this use of the loan amount. In the latter case where the part of the loan
amount was used for the purpose of discharging the debts, the liability of the father having
accrued already, the alienation made by him to secure payment or for the discharge of such a
debt would be justified on the footing that it was for the purpose of securing or paying off
antecedent debt. Thus, the father i.e. the respondent 1 along with the sons i.e. respondent 2 and 3
can be held liable for the part of the loan amount which was used for securing the debt and about
which a bonafide enquiry could be made by the lender.
As the decision of the lower court went against the plaintiff the 2 nd plaintiff preferred the
appeal in the High Court in regard to the liability of the respondent 2 and 3 for the entire amount
under the mortgage.

Legal issue

In the appeal by the appellant in the Madras High Court firstly the Honble Court was
concerned with the only question as to what extent the transferee needs to enquire the existence
of necessity of the money and whether he is also bound to enquire the application of the money
and on basis of that how far the claim under the mortgage suit can be enforced against the sons
of the first respondent i.e. the respondent 1 and 2.

Judgment

The court held that in the present case the existence of antecedent debt was proved as
there was a representation by the mortgagor that moneys borrowed under the mortgage was

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required for the purpose of paying off that debt, the mortgagee did not merely rely upon the
representation made by the mortgagor, but made bona fide enquiries and satisfied himself that
the money was required for discharge of the antecedent debt. The court held that it was further
not necessary for the mortgagee to see to the application of the money, He having proved to have
made bona fide enquiries as to the existence of the antecedent debt for discharge of which the
moneys were borrowed ostensibly, would be protected, notwithstanding the fact that the moneys
borrowed were not proved to have been actually utilized for the discharge of the entire amount
due under the decree.
The Honble High Court did not agree with the conclusion arrived at by the learned
Subordinate Judge that protection given to a bona fide alienee who satisfied himself as to the
existence of necessity, would not be available to the case of one whose moneys were ostensibly
required for the discharge of antecedent debts of the father, but such moneys were not so utilized.
Respondents 2 and 3 were therefore held to be liable for the entire amount due under the
mortgage.

Reason of Judgment

The reason for the judgment given by the Honble Court was that the alienee is not bound
to inquire and prove that the money was actually utilized for the discharge of the antecedent debt
because the purpose for which a loan is wanted are often future, as respects the actual
application, and a lender can rarely have, unless he enters on the management, the means of
controlling and rightly directing the actual application.
According to that rule of enquiry mentioned in Section 38 of the Transfer of Property Act
alienation by a Hindu father for payment of antecedent debt could be justified if the transferee
proved that the debt existed and that after an honest and proper enquiry he was satisfied that the
money is referred for the discharge of the same. It is not further necessary for the alienee to
prove that the money was actually utilized for the discharge of the antecedent debt. Thus the
mortgagee need not prove the actual application of the money lent according to the rule and if

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the respondents have not used the whole money lent for the fulfillment of the necessity for which
the money was lent then also the respondents will be liable for the whole amount. Thus
respondent 2 and 3 were held liable for the whole loan amount.

Findings

(i) Alienation by the father to discharge his antecedent debt is by virtue of a power vested
in him to alienate in certain circumstances, and not for the reason that there would be sufficient
consideration from the point of view of his sons. In either case it is a power vested in the
manager or father to lawfully alienate family property if certain circumstances exist. The alienee
has to prove that those circumstances existed in order to justify the alienation.
(ii) There is difference in the actual application of the rule as to enquiry in case of
necessity and in antecedent debt. In the former case the existence of necessity would itself be a
matter of representation and enquiry and if a bona fide lender satisfied himself as to the existence
of necessity, it would not be necessary that the necessity should have actually existed. But in the
case of an antecedent debt, the existence of the debt should be proved, as otherwise it would not
be held that in enquiry was full and bona fide.
(iii) The rule as to enquiry found statutory recognition in Section 38 of the Transfer of
Property Act. Alienation by a Hindu father for payment of antecedent debt could be justified if
the transferee proved that the debt existed and that after an honest and proper enquiry he was
satisfied that the money is referred for the discharge of the same. It is not further necessary for
the alienee to prove that the money was actually utilized for the discharge of the antecedent debt.

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Conclusion

The provision or the rule related to the transfer of property by a person under certain
circumstances and the rule regarding the enquiry by the transferee provided under Section 38 of
the Transfer of Property Act, 1889 has been made in order to protect innocent transferee and
other persons affected by the transfer for value. The judgment of the Honble High Court in the
present appeal was a perfect interpretation and implementation of the above mentioned law of
transfer of property to save the interests of the transferee. In addition to this the court must have
also made some binding rules regarding the application of the money lent, that the money thus
lent must be strictly used for the purpose of the circumstance for which the transferee lent the
money and not for any other ulterior purpose. If the money is used for some ulterior purpose then
it must be properly notified to the transferee, some percentage of fines must also have been
inflicted on the transferor for acting otherwise. Then, it would have been a landmark judgment in
the field of Transfer of Property.

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References
. Lexis Nexis, Student Series, Property Law, 2nd Edition Dr. Poonam Pradhan Saxena
. www.indiankannon.com