Navigating Rights, Titles and Transactions

Author: Overseas Indian Desk, at ZEUS Law

The term ‘exchange’ dates back to the age when the barter system was the main mode of trade. Barter means exchange of goods or services for other goods or services. With the invention of money, goods and services were not exchanged but purchased by means of a medium i.e. money. The Transfer of Property Act, 1882 has taken further this old concept of exchange of one property for another and covers the exchange of both movable and immovable property within India. As per the Indian law, the term exchange is defined as : “When two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an ‘exchange’. A transfer of property in completion of an exchange can be made only in manner provided for the transfer of such property by sale.”

To constitute a transaction of exchange it is necessary that the ownership of property is transferred in exchange for another property and not in lieu of money, unlike sale of a property between parties. However, exchange is a transaction similar to sale thus, exchange of property can be done only in the prescribed manner provided for the transfer of such property through sale. To exchange properties, an exchange deed has to be executed between the parties. An exchange deed should make it clear that there is an exchange of properties without the use of money as a medium. However, in case the worth of the properties exchanged is not equivalent, then the difference in value is rewarded to the apt party to equalize the values of the properties. The rights and liabilities of the parties involved in an exchange are the same as those of sellers and buyers of immovable properties.

Since exchange of properties through an exchange deed results in the transfer of rights, title and interest in property, an exchange deed should be duly stamped and registered as per the Indian Stamp Act, 1899 and Indian Registration Act, 1908. The stamp duty payable on the exchange deed under the Indian Stamp Act, 1899 (Entry 31 of Schedule I) is the same as the conveyance on value of the property of the greatest value as set forth in the exchange deed. As per the Indian Stamp Act, 1899, the parties, unless otherwise agreed between them, will be liable to share applicable stamp duty equally. It is important to note that failure to get the exchange deed registered will not create or transfer any rights, title and interest in favour of the parties. Also, it can lead to disputes in the future as an unregistered exchange deed is inadmissible as evidence in a court of law in view of amended Section 49 of the Indian Registration Act, 1908. The Hon’ble Supreme Court in Paul Rubber Industries (P) Ltd. v. Amit Chand Mitra, 2023 SCC OnLine SC 1216, reiterated this provision of law while holding that an unregistered instrument is inadmissible in evidence.

While contemplating exchange of properties, the parties should conduct proper due diligence of the property to be received to ascertain that the title and rights are not defective. However, where one of the properties in an exchange transaction suffers from a defective title, the person affected has two remedies available to him -i.e., either seek damages for the loss caused, or claim the return of the property transferred, if possible.

Exchange of property is different from sale or partition of a property. An essential element in a sale is the presence of a monetary consideration. If the consideration is not money but some other valuable consideration, it can be termed as an exchange and not a sale. Further, where all parties who have shares in the properties affected by an arrangement by which some of the owners possessing undivided shares in several properties take a specific property in lieu of their shares in the properties, then such arrangement or transaction is called partition and not exchange.

Thus, due care should be taken while drafting an exchange deed to ensure that it retains the characteristics of an exchange and does not become a sale or partition of the property.

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