Actionable Claims: Definition, Types, and Legal Framework

These claims are recognized in courts of law as providing grounds for legal relief. Other types of claims, such as secured debts and tortuous suits like defamation or nuisance, though actionable in courts of law, do not fall within the definition of actionable claim under this provision. The term "actionable claim" specifically encompasses the aforementioned two types of claims.

Unsecured Debts

Unsecured debt encompasses all monetary obligations of a specified amount that lack any form of collateral security such as mortgage, pledge, or hypothecation. It includes not only loans advanced by a creditor to a principal debtor but also various other financial obligations such as rent or payments arising from property transactions.

For a transaction to qualify as unsecured debt, it must meet three criteria:

1. Involvement of a monetary obligation,

2. Absence of any security backing the obligation,

3. Clarity regarding the amount of money owed.

Sunrise Associates v. Govt. of NCT of Delhi

Held: It was established that an actionable claim can be present, accruing, conditional, or contingent. Therefore, unsecured debts can be classified into three types:

1. Existing debts,

2. Accruing debts,

3. Conditional or contingent debts.

Existent Debt:

This refers to a debt that is presently due, enforceable, and payable immediately. For example, if Mr. A sells a house to Mr. B and the monetary consideration is due upon the sale, it constitutes an existent debt.

Accruing Debt

An accruing debt is one where the monetary obligation is presently due but becomes payable at a future date. For instance, if Mr. A, an employee of Mr. B, earns a salary throughout the month but receives it only on the last day of the month, the salary constitutes an accruing debt until it becomes payable on the last day of the month.

Conditional or Contingent Debt:

Conditional debt arises when payment depends on a specific condition controlled by the parties. For example, if A agrees to pay Rs. 1000 to B upon B's purchase of C's house, the debt is conditional upon B fulfilling the condition of buying the house.

Conversely, contingent debt arises when payment depends on an uncertain event beyond human control. For example, if A promises to pay B a certain amount if C's ship sinks, the debt is contingent upon the occurrence of the sinking of the ship, an event beyond the control of the parties.

Beneficial Interest in Movable Property:

Beneficial interest in movable property refers to the entitlement of a person to possess such property. When a person has this entitlement but lacks actual possession, they hold what is termed as an actionable claim. The conditions for establishing such an actionable claim are as follows:

1. The property in question must be movable.

2. The claimant does not currently possess the movable property.

3. The claimant possesses the right to possess the movable property.

For instance, if A sells a car to B and B fulfills their part of the agreement by paying the consideration, B is entitled to possess the car. However, if B is unable to take physical possession of the car, they may seek relief from the Court to enforce their right to possession.

Examples of Actionable Claims

1. Claim for unpaid rent arrears.

2. Claim for money owed under an insurance policy.

3. Right of a partner to demand an account of dissolved partnership assets.

4. Right to seek benefits under a contract for the purchase of goods.

In each of these cases, the amounts involved in the lawsuits are specific and definite. Therefore, these claims are categorized as actionable claims and are transferrable accordingly.

If the movable property is already under the claimant's possession, whether actual or constructive, they cannot claim possession through an actionable claim. For example, if A gives the car keys to B after the sale, B is deemed to have constructive possession, and thus cannot seek court intervention for possession.

Additionally, the claimant's right to possess must be legally recognized. For instance, if A, who lacks contractual capacity due to being of unsound mind or a minor, sells 100 bags of wheat (or any other movable property) to Mr. B, and B fulfills their obligations, B cannot claim possession. This is because A's incapacity renders the agreement void ab initio, and therefore B's legal right to possess is not recognized. Consequently, such a scenario does not fall under the category of actionable claim.

Types of Claims Not Qualifying as Actionable Claims:

Claims for damages arising from tortious or contractual liabilities do not qualify as actionable claims. Unlike unsecured debts, these claims have two distinguishing characteristics: they involve uncertain amounts of money and they are not part of the original transaction. Actionable claims under unsecured debts exclusively cover specific amounts related to the original transaction, including definite principal and interest. Damages, due to their uncertain nature regarding amount, do not meet the criteria for actionable claims.

Moreover, in cases of tortious liabilities such as defamation or nuisance, damages are uncertain and are either personal or related to immovable property, thereby making them non-transferable

Case: Jai Narayan v. Kishun Dutta

It was concluded that a claim for mesne profits does not constitute an actionable claim because mesne profits are unliquidated damages and do not represent a beneficial interest in movable property. Therefore, such claims are classified as mere rights to sue and do not meet the actionable claim criteria.

Additionally, rights such as copyright, patent, or trademark are excluded from actionable claims because they are intellectual property rights vested exclusively in the rights holder. Governed by specific legislation, these rights are non-transferable and cannot be asserted by any other party.

Instances of Claims not Recognized as Actionable Claims:

1. Rights to claim damages under tort law or for breach of contract: These involve uncertain monetary amounts and are therefore ineligible for transfer.

2. Claims for mesne profits: Since these involve uncertain amounts, they cannot be transferred.

3. Copyrights, patents, and trademarks: These rights are inherently personal and specific to their holders.

4. Decrees or judgments for debts: These cannot be transferred as actionable claims because once a judgment is pronounced, there is no further action that can be transferred.

Formalities of Transfer:

•The Transfer of Property Act (TPA) outlines the formalities required for the valid transfer of actionable claims.

•Section 130 of the TPA mandates that the transfer be executed through a written instrument signed by the transferor or their authorized agent.

•Upon execution of this instrument, the transfer is considered complete, and all rights and remedies associated with the claim are vested in the transferee, regardless of whether the debtor is notified of the transfer (as prescribed in Section 131).

Exceptions to Transferability:

•While the TPA generally allows for the transfer of actionable claims, there are some exceptions.

•Section 132 of the TPA restricts the transfer of actionable claims arising from personal injuries (excluding death).

•These claims are considered personal to the injured party and are not transferable to another person.

Modes of Transfer:

•The TPA recognizes two primary modes for transferring actionable claims:

-Assignment: This is the most common mode, where the transferor completely relinquishes their rights in the claim to the transferee.

-Negotiation: This mode is applicable only to certain negotiable instruments, such as promissory notes or bills of exchange. Negotiation involves transferring the instrument to another person, who then becomes entitled to enforce the claim against the debtor.

Notice to Debtor:

• Though not mandatory for a valid transfer, Section 131 of the TPA encourages providing notice to the debtor regarding the transfer.

• This protects the transferee by preventing the debtor from discharging the debt to the original creditor if they were unaware of the transfer.

Incapable Transferees of Actionable Claims:

Section 136 of the Transfer of Property Act, 1882 specifies categories of individuals who are prohibited from dealing in the transfer of actionable claims. According to Section 136:

"No judge, legal practitioner, or officer associated with any Court of Justice shall buy, trade, stipulate for, or agree to receive any share or interest in any actionable claim. Furthermore, no Court of Justice shall enforce, at the instance of such persons or those claiming through them, any actionable claim that has been so dealt with."

This provision prohibits judges, legal practitioners, or court officers from acquiring any interest in actionable claims, thereby disqualifying them as transferees. Section 6(h)(3) further stipulates that property cannot be transferred to individuals who are legally disqualified from receiving it. Section 136's disqualification of these individuals from acting as transferees of actionable claims underscores their inability to participate in such transactions.

The rationale behind this prohibition is to uphold the impartiality of the judiciary. The Privy Council emphasized the importance of this restriction in the case of Kerakoose v. Serle, stating: It is crucial that no officer of a Court of Justice should even appear to be influenced in the discharge of official duties by personal considerations.

Actionable Claim as Movable Property

An actionable claim is classified as intangible movable property. This interpretation is drawn from Section 2(7) of the Sale of Goods Act, 1930, which defines "goods" as encompassing all types of movable property, excluding actionable claims.

Section 2(7) of the Sale of Goods Act, 1930 delineates the definition of "goods," explicitly excluding actionable claims from the category of movable property. This exclusion implies that actionable claims are not considered immovable property. Therefore, according to the interpretation of Section 2(7) of the Sale of Goods Act, 1930, actionable claims are identified as movable property.

Conclusion

Actionable claim pertains to intangible movable property and is transferrable. It primarily denotes claims that can be enforced through legal proceedings in courts. Within this category, actionable claims encompass two specific types: claims for unsecured debt and beneficial interest in movable property. While transferable to another individual, certain parties are prohibited from receiving actionable claims to uphold the integrity of judicial proceedings. Understanding the concept of actionable claims is crucial for law students due to its significance in legal contexts.