Doctrine of Priority       

Introduction:

In a case where the court’s interests are in conflict, the Doctrine of Priority aids the court in choosing which party’s rights should take precedence over the other. The necessity for this notion emerges when a property transferor deals with the same property with two different people at the same time. As a result, this answers the court’s difficulty to a considerable part. Transfer of Property Act, 1882 governs the concept of doctrine of priority under section 48.

Legal Principle:

This doctrine is founded on Natural Justice Principles, which state that if rights are granted to two people at separate times, the person who has the advantage in time will also have the advantage in law. This principle, however, only applies in situations where the parties’ competing equities are otherwise equal. The Section 48 priority theory is based on the legal maxim, who prior est tempore potior est jure, which essentially means “first in time, best in law.”

This section establishes an important principle: no one can convey a title other than the one he has. This means that if a transferor transfers the same property to multiple transferees, each transferee will have the same claim to the property as the previous transferee. According to this doctrine, if a person has previously set a transfer of property in motion, he cannot disregard his grant and deal with the property without regard to the rights established in a previous transaction. This section is absolute in nature and protects or reserves in favour of the transferee, who may not be aware of the previous transfer.

Exceptions to the doctrine:

  • Postponement of prior mortgagee-

The prior mortgagee is postponed to the following mortgagees if the prior mortgagee commits fraud, gross negligence, or deception and encourages anyone to give security money for the same property. As a result, the succeeding mortgagee will have priority over the earlier mortgagee in the property’s rights.

  • Non-compliance with the procedure of law in prior transfer-

If the preceding transfer was made without following the legal procedure, the subsequent transfer would be awarded all of the rights that the previous transfer had.

  • By registration-

Every instrument begins to function on the day it is executed. If multiple deeds are executed on the same day and the order of execution is uncertain, all of the deeds will be executed at the same time. In circumstances where two deeds have different dates on them and are registered on different days, the priority shall be determined by the dates on the deeds rather than the registered dates.

  • By court-

When a court orders or decrees that the subsequent transfer or second transfer be taken, that transfer will take precedence over the earlier transfer, and the subsequent transfer’s rights will be given priority. As a result, the priority rule will not apply in certain situations.

  • Estoppel-

If the initial transferee was aware of the following transfer, the subsequent transferee would be given priority. This is an exception to the priority rule. It is not necessary for the initial transferee to know the exact contents of the transfer in this case.

Judicial Precedents:

In the case of Duraiswami Reddi v. Angappa Reddi[i], it was held that even if the earlier transferee’s documents were not registered until later, he would be able to exercise his rights. Even if the subsequent transferee’s documents were previously registered and he entered into a transaction with good faith and without knowledge of the preceding transaction, he is not entitled to the prior rights. The result of the foregoing case was likewise deemed to be implied and a direct result of the combined operation of Section 47 of the Registration Act and Section 48 of the Transfer of Property Act. It was decided that the earlier transferee’s right of priority would be postponed only if the latter transferee could prove any specific circumstances such as fraud, esstoples, or gross carelessness.

On the suggestion of the Board of Industrial and Financial Reconstruction (BIFR), the court ordered the petitioner company to be wound up in SFL Industries Ltd. v. Reliance Capital Ltd[ii]. The question in this case was whether the Companies Act clause would have the impact of the doctrine of priority, which includes whether the first charge holder’s claim would prevail over the second charge holder’s claim. The court determined that the Companies Act has no particular provision for the right of priority. In such instances, the priority rule set forth in Section 48 of the Transfer of Property Act may be applied. As a result, in this case, the court decided that the first charge holder’s claim would take precedence over the second charge holder’s claim.

Conclusion:

When there are many transferees, Section 48 establishes the priority. In the absence of a special contract or reservation, it protects the rights of the first transferee. It expresses the fundamental notion that no one can bear one’s rights and titles more effectively than oneself. As a result, the transferor cannot infringe on the transferee’s rights by engaging in subsequent transactions with the property. It cannot disregard the rights established by the previous transfer. In addition, the doctrine of priority now applies to the Registration Act and the Insolvency and Bankruptcy Code.

References:

  1. Pallavi ghorpade, Doctrine of Property in Property law, Legal Services India, article/757/Doctrine-Of-Priority-In-Property-Law.html#:~:text=It%20provides%20that%20where%20a,or%20reservation%
  2. Niharika Agrawal, Doctrine of priority : all you need to know, Blog iPleaders, https://blog.ipleaders.in/doctrine-of-priority-all-you-need-to-know/

[i] Duraiswami Reddi v. Angappa Reddi, (1945) 1 MLJ 425.

[ii] SFL Industries Ltd. v. Reliance Capital Ltd, AIR 2015 P&H 116.

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