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Transfer of Actionable Claims in TPA


Transfer of Actionable Claims
Transfer of Actionable Claims

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Mode of Transfer

Mode of transfer of actionable claims is governed by Section 130 of the Transfer of Property Act. According to this provision, an actionable claim can be assigned or alienated through various modes such as sale, mortgage, gift, or exchange.


For the transfer to be valid, it must be carried out through a written instrument signed by the transferor or their authorised agent. This written instrument serves as evidence of the transfer and helps in establishing the rights and obligations of the parties involved. 


In cases where the actionable claim is documented in a written instrument, such as a promissory note or bond, the transfer can be effected through an endorsement made on the back of the document. This endorsement acts as a formal declaration of the transfer, providing clarity and legal validity to the transaction.


Overall, adherence to the prescribed mode of transfer ensures the legality and enforceability of the transaction, protecting the interests of both the transferor and the transferee.



Effect of Transfer

Effect of the assignment of actionable claims is outlined in Section 130 of the Transfer of Property Act. Once the assignment is executed through a written instrument, it becomes effective from the date of its execution. This means that all the rights and remedies associated with the actionable claim are transferred from the transferor to the transferee.


One significant effect of the assignment is that the transferee gains the authority to sue for the actionable claim in their own name, without the need for the transferor's consent or involvement in the legal proceedings.


The transferee becomes the sole person entitled to recover the claim, assuming full control over the claim's enforcement.


Additionally, the assignment subjects the transferee to all the liabilities and equities that the transferor was subject to at the time of the transfer.


This means that any obligations or legal responsibilities associated with the actionable claim are transferred along with the rights.


For example, if there are any counterclaims or debts owed by the transferor related to the actionable claim, the transferee becomes liable to address them.


In practical terms, this means that a debtor who owes money on the actionable claim retains the right to set off any counterclaim against the transferee, just as they could have done against the transferor.


This ensures that the transferee assumes not only the benefits but also the responsibilities associated with the actionable claim upon its assignment.



Notice of Transfer

Notice of transfer is not always required to perfect the title of the transferee, but until the debtor receives proper notice, their dealings with the original creditor remain protected.


Therefore, it is in the transferee's best interest to provide notice of the transfer to the debtor as soon as possible. Once notice is given, the debtor becomes obligated to pay the debt to the transferee alone. However, for the transfer of arrears of rent, such notice is not necessary.


According to Section 131 of the Transfer of Property Act, every notice of transfer of an actionable claim must be in writing and signed by either the transferor or the transferee, stating the name and address of the transferee. 


For example, if A owes money to B, and B transfers the debt to C without A receiving proper notice, A's payment to B is still considered valid, and C cannot sue A for the debt.


Similarly, if A transfers a debt owed to them by B to C, and A is indebted to B at the same time, B can set off the debt owed by A to them against the debt owed by B to A, even if C was unaware of it at the time of the transfer.


In another scenario, if A executed a bond in favor of B under certain circumstances that entitled A to have it canceled, and B assigns the bond to C without knowing about these circumstances, C cannot enforce the bond against A.



Incapacity

Section 136 prohibits judges, legal practitioners, or court officers from engaging in the purchase, trading, or agreeing to receive any share or interest in actionable claims.


This provision aims to uphold the integrity and impartiality of the judiciary and legal system by preventing those involved in the administration of justice from having financial interests in actionable claims. Such restrictions help maintain public trust and confidence in the legal system's fairness and impartiality.



Case Laws

In Doriarwami Mudaliar v D. Aiyangar (AIR 1925 Mad 753), the court emphasised several key points regarding the transfer of actionable claims.


Firstly, while Section 130 of the Transfer of Property Act does not specify the language or wording to be used in the transfer, it is essential for the intention to transfer to be clearly discernible from the language employed.


Secondly, the entirety of the debt or beneficial interest must be transferred; partial transfers are not permissible as they would divide a single cause of action into multiple causes of action. Lastly, the letter of transfer must be specifically addressed to the transferee to ensure clarity and validity.


In Jafer Meher Ali v Budge Jute Mills (1907) 34 Cal 289, the court addressed exceptions to the general rule of transferability of benefits under a contract due to the principle of privity of contract.


Two exceptions were identified: contracts induced by personal obligations and contracts induced by personal qualifications. In such cases, the benefits under the contract are not transferable.


In Official Assignee v Hukum Chand (AIR 1941 Mad 147), the court ruled on the necessity of a written instrument for the transfer or assignment of an actionable claim.


It clarified that a mere deposit of an insurance policy with a bank does not suffice to transfer the claim to the bank; instead, a written instrument explicitly effecting the transfer is required for validity.

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