Basic Concept of Exchange

WHAT IS EXCHANGE:

SECTION 118 OF TRANSFER OF PROPERTY ACT, 1882 defines Exchange as "when two persons mutually transfer ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an "Exchange".

From above we understand that for being an "Exchange";

1. There must be two people transferring ownership of one thing for the ownership of another;
2. Neither thing nor both things being money only.

We are aware that the transfer of any property against consideration is called "Sale", and transfer without consideration is called "Gift". Now when a property has been exchanged with another property it is called "Exchange".

There may be both immovable or movable property, which can be transferred through an exchange. In some cases where the transfer of ownership of a property along with some money against some ownership of another property happens, it also comes under the definition of exchange.

Example: Suppose Mr. A is transferring his residential property in Banaras, valued Rs. 20.00 Lakhs against the property of Mr. B in Lucknow of Rs. 17.00 Lakhs. Now in this case Mr. B is transferring ownership of his property and giving cash of Rs. 3.00 Lakhs against ownership of property belonging to Mr. A. This case also falls under the definition of "Exchange", and not "Sale".

Note: Oral exchange is not permissible in view of the amendment of Section 49 of the Registration Act, 1908 brought about by Act No. 21 of 1929, which by inserting in Section 49 of the Registration Act, 1908 the words" or by any provision of the Transfer of Property Act, 1882", has made it clear that the documents of which registration is necessary under the Transfer of Property Act, 1882 but not under the Registration Act, 1908 fall within the scope of Section 49 of the Registration Act, 1949. And if not registered they are not admissible as evidence of any transaction affecting any immovable property comprised therein and do not affect any such immovable property.

Transaction by Exchange which requires to be affected through a registered instrument is if it was to affect any immovable property worth of Rs. 100 or more. [Satyvan Vs. Raghuvir, AIR 2002 P&H (2002) (3) ICC112(Punj)LR467].

FEATURES OF EXCHANGE:

1. Transfer of ownership; Exchange involves the transfer of ownership in some existing property. In a transfer of ownership, the absolute interest of the owner is transferred. A partition of immovable property is not considered as exchange.

2. Property need not be immovable property; In Exchange, properties may be immovable or movable. Immovable property can be transferred against a movable property and vice versa.

3. Exchange includes "Barter"; the Exchange of one immovable property with another immovable property is known as "Barter" and the same in case of transfer of one movable property against another moveable property.

4. Mode of Transfer;

• Section 118 provides that a transfer of property in completion of an exchange can be made only in a manner prescribed for transfer of such property by "Sale";
• The formalities of Section 54 (dealing with the sale of properties) will be complied with;
• Where both properties are of movable, then an exchange may be effected by delivery of properties and registration is not essential;
• Where properties are immovable, but the value is less than Rs. 100, then registration is optional;
• Where the properties exchanged are immovable properties and their value is more than Rs. 100/- then registration of exchange of ownership through the instrument is necessary.

Note:

1. It is necessary that the Deed of Exchange is a valid contract and not void under the Contract Act. Let us suppose, people are exchanging ownership of their properties to hide the act of crime or financial crime or Benami properties then the instrument of exchange becomes void. [ Srihari Jena Vs. Khetramohan Jena, AIR (2002) Orissa 195; 2002 (4) Civ LJ 279].
2. When in an exchange of properties one party did not get possession of the property he was entitled to receive in exchange, he was held entitled to return property transferred by him. Hari Shankar Mishra Vs. Vice-Chairman, Kanpur Development Authority, AIR 2001 All 139;2001(42) ALL LR 839.
3. Balakrishnan Bhagwanji Lodi Vs. Prakash Sheshrao Lodi, AIR 2005 NOC 89(Bombay); it was held that in case of partition of joint family property, once the partition is affected, whether, by way of family arrangement or deed of partition, there is a severance of jointness of properties. Two brothers thereafter exchanged properties which were held by them separately. The properties being worth more than Rs. 100/- in value. They could exchange them only through registered instruments.

LET'S CONSIDER DIFFERENCE BETWEEN EXCHANGE AND PARTITION;

1. Exchange is a mutual transfer of ownership by two persons of two different properties.

A partition is merely an arrangement by which the several co-owners hold property separately, which they held in a common pool previously.

2. Exchange is brought about a contract between the parties.

The right of partition is a natural right and there is no need to enter into a contract.

3. In an Exchange the parties exchanging their properties have not interested prior to exchange in each other properties.

In a partition, each party has as much interest in the entire property as the other. There is no exclusive ownership under the partition.

LET'S CONSIDER RIGHT OF A PARTY DEPRIVED OF THING RECEIVED IN EXCHANGE; [ Section 119 of the Transfer of Property Act, 1882]

if any party to an exchange or any person claiming through or under such party is by reason of any defect in the title of the other party deprived of the thing or part of the thing received by him in exchange, then, unless a contrary intention appears from the terms of the exchange, such other party is liable to him or any person claiming through or under him for loss caused thereby, or at the option of the person so deprived for the return of thing transferred, if still in the possession of such other party or his legal representative or a transferee from him without consideration.

From the above we understand that if a party has deprived of the thing, whose ownership has been transferred in exchanged due to defective title of another party, he has two remedies under Section 119;

1. He can recover for compensation for loss suffered to him;
2. He can take back things transferred by him.

Note: The second remedy is available only in the below-mentioned cases;

1. Where property is still in possession of another party, or
2. In possession of his legal representatives, or
3. A transferee from him without consideration.

Jattu Ram Vs. Hakama Singh, AIR 1994 SC 1653; 1994 where there was a defect in the title of land received by one party to exchange due to false entries made by patwari, and the party was deprived of some portion of land as per the Deed of Exchange. It was held by Supreme Court that entries made by patwari in the official records do not create a title, therefore the opposite party was liable to return land(property) to the extent.

Note:

1. The provisions of Section 119 are applicable only in cases, where one party in an Exchange has been deprived of the thing/property transferred due to a defect in the title of another person transferring that thing /property.
2. The provisions of Section 119 of the Transfer of Property Act, 1882 cannot be invoked in a case where a person has been forcefully disposed of by another person from the property/thing acquired by him in an exchange.

Example: Lets' suppose Mr. A and Mr. B have transferred ownership of their residential properties and Mr. C is the brother of Mr. A, who has forcefully disposed Mr. B for taking possession of the residential property, whose ownership was transferred under exchange to Mr. B.

RIGHTS AND LIABILITIES OF PARTIES TO THE EXCHANGE; [ Section120 of the Transfer of Property Act,1882]

Section 120 does not specifically mention the rights and liabilities of the parties to the Exchange. It provides only that each party has the rights and is subject to the liabilities of a seller as to that he gives and has rights and is subject to the liabilities of a buyer as to that which he takes. Therefore, the rights and liabilities of parties in case of exchange are the same as in the case of sale. In Exchange, one thing is given and another thing has been taken, so parties play the role of a seller as well as a buyer, both. In the case of movable properties, the provisions of the Sale of Goods Act, 1930 are applicable in exchange also.

EXCHANGE OF MONEY [Section 121 of the Transfer of Property Act, 1882];

"On an exchange of money, each party thereby warrants the genuineness of the money given by him". In this case, the money transferred must be genuine money and not be a counterfeit currency or fake money.

DISCLAIMER: The entire contents of this article have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, the author assumes no responsibility, therefore users of this information are expected to refer to the relevant existing provisions of applicable Laws and take appropriate advice of consultants. The user of the information agrees that the information is not professional advice and is subject to change without notice. The author assumes no responsibility for the consequences of the use of such information.