Introduction

The concept of the doctrine of priority is set by Section 48 of the Transfer of Property Act, 1882 (TPA).

• This Section is based on the maxim, qui prior est tempore potior est jure, which means that one who is first in time is better in law. The transferor cannot prejudice the right of the transferee by any subsequent dealing with the property.

The Doctrine of Priority

• This doctrine is drawn from the Principles of Natural Justice which states that if the rights are made in favour of two different people at different times, then the one who has the advantage in time will get the advantage in law as well. However, this principle applies only within the cases where the conflicting equities of the parties involved are otherwise equal.
• This Section lays down a crucial principle that no man can convey a better title apart from what he has.
• When a transferor transfers the same property in favour of more than one transferee, then each transferee will enjoy the property together with its right as the former transferee.
• Under this doctrine, if an individual has already created a transfer of the property in motion, then he cannot ignore his grant and treat the property free from the rights that were created in an earlier transaction.

Example

• X is the owner of the immovable property. He mortgaged that property to Y in the month of June. Later, in July X transferred the same property to Z. Here in this case, all the essentials are satisfied and as per the rule of priority, Y will get all the rights of the property prior to Z. In case of default on the payment of the loan, the mortgagee can sell the property as the latter transfer is in accordance with the earlier transfer.

Essentials of the Doctrine

The doctrine is provided under Section 48 of TPA and its ingredients are:

• It is only applicable to immovable property.
• There should be one transferor and more than one transferee.
• The transfer should have been made at different times and should have created the rights in the transferee.

Case Laws

• Duraiswami Reddi v. Angappa Reddi (1945): Madras High Court held that even if the documents of a prior transferor are registered later on, he will still be given priority over subsequent transferee.
  • This also holds true even when the latter transferee didn’t have any knowledge about the previous transaction.
• SFL Industries Ltd v. Reliance Capital Ltd (2015): Section 529A in the Companies Act, 1956 does not specifically provide for rights of priorities over mortgaged assets. In such circumstances Section 48 of TPA becomes applicable. The Punjab & Haryana High Court accordingly held that the claim of the first charge holder would prevail over the claim of the second charge holder.

Exceptions of the Doctrine of Priority

Postponement of Prior Mortgagee

• Section 78 of the TPA is an exception to the doctrine of priority.
  • Postponement of prior mortgagee — Where, through the fraud, misrepresentation or gross neglect of a prior mortgagee, another person has been induced to advance money on the security of the mortgaged property, the prior mortgagee shall be postponed to the subsequent mortgagee.
  • Under this provision, if the prior mortgagee conducts some fraud, gross negligence, or misrepresentation and induces any person to give security money for the same property, then the prior mortgagee is postponed to the subsequent mortgagees.
  • As a result, the subsequent mortgagee will have priority in the rights of the property over the prior mortgagee.

Non-Compliance with the Procedure of Law in Prior Transfer

• Assuming that the prior transfer is created and is non-compliant to the procedure laid down by the law, then subsequent transfer would be given all the rights prior to the previous transfer.
  • For instance, A executed a lease deed of immovable property in favor of B for a period of 5 years but did not get it registered which was mandatory. Afterward, A sold the same property to C. Here, the rights of C would be given priority over B.

Estoppel

• For this situation, if the primary transferee had some awareness of the subsequent transfer, then subsequent transferee will get the priority.

By Registration

• Each instrument commences its pursuit from the date of its execution. In situations where subsequent deeds are done on the same date and the order for execution is obscure, then all the deeds will be carried out simultaneously.
• Additionally, in situations where two deeds comprise of different dates and are carried on various days, then, for such a situation, priority will be on the dates on the deeds and not on their particular registered dates.

By Notice

• The presence of notice implies being familiar with the facts. Therefore, when a Bonafide contract, whether oral or written is composed for the sale of property, and further the third party purchases the property concerning the notice of the previous exchange, the title of the party claiming under the previous exchange would get priority over the subsequent purchaser. However, the exchange that has been made in time should be bona fide.
• Section 50 of the Registration Act, 1908 also provides various classifications of the registered document which is in relation to the immovable property to draw effect against the unregistered document. Consequently, in situations where the holder of the registered deed had notice of the prior unregistered deed, at the time of execution, gives the registered deed of the past holder a priority because of his deed over the subsequent holder of an unregistered deed for not being ought to be registered.

By court

• If or when the court orders or passes a decree to take the subsequent transfer or the second transfer, then such transfer would prevail over the previous transfer and the rights of the subsequent transfer would be given preference. Thus, the rule of priority will not be applicable in such cases.

Conclusion

Section 48 helps the court take decisions in situations where there are incomplete or conflicting rights arising from the sale of immoveable property. It safeguards the rights of the first transferee in absence of a special contract or reservation.