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Doctrine Of Priority In Property Law

The right to property[1] was a fundamental right under Article 31 of the Indian Constitution since the independence of India. The nation witnessed havoc during the national emergency in 1975, where the 1st woman Prime Minister of India attempted to establish absolute monarchy rule in India by 42nd Constitutional Amendment Act, 1976 also known as the mini-constitution of India. The imposition of a national emergency and the 42nd Constitutional Amendment Act brought chaos to the nation. In order to calm the nerves, the 44th Constitutional Amendment Act, 1978 was enacted by Morarji Ranchhodji Desai-led Janta Party. The 44th Constitutional Amendment Act brought several changes to the Indian Constitution and led to peace and harmony in the nation. Right to property was removed from Fundamental Rights in the 44th Constitutional Amendment Act and became a Constitutional Right under Article 300A of the Indian Constitution. The Transfer of Property Act, 1882 deals with the transfer of immovable properties from one person to another. Today’s piece of writing is based on explanation, limitation, and illustration of the doctrine of priority under the Transfer of Property Act, 1882.

Doctrine Of Priority [2]

Frequently, there are disputes between parties regarding conflicting rights over the same immovable property. The doctrine of priority under section 48 of the Transfer of Property Act, 1882 deals with the determination of rights of the conflicting parties over the same immovable property. It assists the court in determining the parties to whom rights are given priority over the other in case of conflicting interests between the parties. The doctrine of priority is based on the Principle of Natural Justice.

The doctrine of priority[3] states that when rights over immovable properties are made in favour of different individuals at different times it resulted in a conflict of interest between the parties. In order to resolve the deadlock between the parties, the doctrine was inspired by a legal maxim of qui prior est tempore potiorest jure which means one who is first in time in greater in law. In other words, an individual who has an advantage in time will get the advantage in law. The rights are given to an individual according to the procedure established by law. Subsequently, the rights of the same property executed in favour of another individual. In such cases, the entitlement of immovable property is awarded to the individual who received the rights first from the transferor according to the procedure established by law.

Essentials For Doctrine Of Priority

1) Immovable property: The doctrine of priority under the Transfer of Property Act, 1882 applies to only immovable properties.

2) The property is transferred to two or more transferees: The concerning immovable property belongs to one transferor and is transferred to more than one transferee.

3) The property must have been transferred at different times: The transfer of rights of immovable property is made in favour of different individuals at different times and the rights of the transferee must have been created over the property.

4) The rights cannot be exercised at the same time: The rights of the transferee shall not be exercised to their fullest capacity at the same time.

Illustration

1) Amit is the owner of a 2-acre land and intended to transfer his piece of land to Xena without mandatory registration in January 2019. Subsequently, Amit transfer the same property in favour of Zubair by completing all legal formalities including mandatory registration in January 2020. According to the doctrine of priority, rights of the immovable property awarded to Zubair and the transfer of rights made to Xena in a void contract.

2) Zain is the owner of Z&Z restaurant in New Delhi, India. Zain is going through some financial hardships and decides to mortgage the Z&Z restaurant. In order to cope with the financial troubles. Zain Mortgaged Z&Z restaurant to Jalal on 28 March 2020, but the situation got worse with the passing days. Zain decided to sell Z&Z restaurant to recover losses incurred in due course of time. On 1 January 2021, Zain completed the legal paperwork and sold Z&Z restaurant to Kabir. The conflict of interest arises between Jalal and Kabir over Z&Z restaurant. According to the doctrine, the rights of Z&Z restaurant were awarded to Jalal because there was a mortgage before the sale of Z&Z restaurant.

Limitations And Exceptions To The Doctrine Of Priority

The doctrine is subjected to limitations and exceptions which resulted in the different outcomes of the cases. The analysis of the cases are based on the following exception such as-

1) Cancellation and postponement of mortgage: The cancellation and postponement of prior mortgages are covered under section 78 of the Transfer of Property Act, 1882. It deals with the mortgages which conduct fraud, gross negligence, misrepresentation, coercion, or use of any unfair means to obtain consent and security money from the mortgager. Such mortgagee was postponed and the subsequent mortgagees will have priority in the rights of the property over the prior mortgagee.

2) Estoppel: According to the exception of estoppel, if first, the transferee is aware of the subsequent transfer of property, then the subsequent transferee will get the opportunity to be in priority. It is not necessary to know the exact detail of the transfer.

3) Registration: The doctrine of priority depends upon the dates of execution of deeds and not on the dates of deeds registration.

4) Notice: It is a general exception where the holder of a registered deed holds priority over the unregistered deed holder at the time of execution of the deed. In such cases, the holder of the registered deed had notice of the prior unregistered deed at the time of execution. Section 50 of the Registration Act, 1908 provides various classifications of registered document for sale, purchase, or transfer of rights of immovable properties from one person to another which give priority against unregistered documents.

5) Court Orders: The court has the authority to pass an order or a decree to prioritize the subsequent transfer over the prior transfer of immovable property. In such cases, the doctrine of priority shall not apply to the concerned transfer of property.

6) Failed to comply with the procedure of law: The transfer of immovable properties must follow the procedure established by law for executing the decree. Any sort of failure to comply with or breach of law leads to the invalidation of the decree.

Case Law

In Duraiswami Reddi V. Angappa Reddi, Madras High Court held that the prior transferee got priority even if the records of transfer are enrolled later and an earlier transferee would be qualified for implementation of rights over the property. Regardless of the fact, whether the consequent transferee went into the exchange.

In SFL Industries V. Reliance Capital Ltd. a crucial question of law arose before the court is whether the provision of the Companies Act shall have the effect of the doctrine of priority which belongs to the Property Act. After analysis, the Hon’ble court pronounced that the doctrine of priority shall apply to the Companies Act under Section 48 of the Transfer of Property Act, 1882. The court pronounced that the right of 1st charge holder must have prevailed over the claim of the subsequent charge holder.

In ICICI Bank Ltd. V. SIDCO Leather Ltd. the court held that 1st charge holder prevails over the 2nd charge holder.

Conclusion

The doctrine of priority in property law is based on time to resolve the deadlock between the parties involved in the transfer of immovable properties. It offers priority to an individual who is advanced in time and will get the advantage in law over the execution of the transfer deed. The conflict between the parties arises due to the transfer of one single immovable property to more than one person at different times. Therefore, the transferor must transfer the rights of the immovable property to more than one individual to enforce the doctrine of priority under 48 of the Transfer of Property Act, 1882.

Can we use the doctrine of priority for the sale or transfer of rights of movable property?

No. Movable properties are not the subject matter of the Transfer of Property Act, 1882. Transfer of Property Act deals with immovable properties only.

[1] The Constitution of India.

[2] Doctrine of Priority, Lawyers Club India, 15 July 2022, The Doctrine Of Priority In Property Law (lawyersclubindia.com)

[3] Doctrine of Priority, Legal Service India, 16 July 2022, Doctrine Of Priority In Property Law (legalservicesindia.com)

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Prashant Sharma

Prashant Sharma is a law student at Government Law College, Mumbai. He secured AIR 46 in MHCET 2021. He used to write content based on legal issues, social issues, economic aspects, current issues, maritime industries, technology and other related topics.