Exchange (Sections 118–121)

Sections 118 to 121 of the Transfer of Property Act, 1882 govern exchange — the transaction in which two persons mutually transfer the ownership of one thing for the ownership of another, neither thing being money only. Exchange sits between sale and gift in the Act's architecture: like sale, it presupposes consideration, but the consideration moves in kind, not in price; like gift, it requires a bilateral act of two transfers but, unlike gift, neither side is gratuitous. The Act's drafting strategy is to treat exchange as a near-cousin of sale and to import the sale rules so far as they fit. The four sections are short, but each carries doctrinal weight that the judiciary papers test repeatedly.

The phrase "barter" captures the popular sense of exchange. The TPA, however, makes no such restriction to goods: an exchange under Section 118 may be of any kind of transferable property, movable or immovable, tangible or intangible. The only structural condition is mutuality of ownership transfers and the negative condition that neither subject-matter shall consist of money alone. The moment one party gives money for the other's thing, the transaction is a sale and Sections 54 to 57 apply, not Sections 118 to 121.

Statutory anchor — Section 118 TPA

The definition has three components, each of them load-bearing. First, there must be two persons. Second, there must be a mutual transfer of ownership — not of mere possession, not of an interest short of ownership. Third, neither thing nor both things may be money only. The Andhra Pradesh High Court in Mohammadin v Asibun Nissa AIR 2005 Jhar 1 emphasised that mutuality is the essential characteristic of an exchange and that the transaction is incomplete unless each party transfers and accepts ownership in the other's subject-matter.

Mutuality of ownership — what is and is not exchange

The case-law on mutuality is the deepest part of the chapter. A series of decisions has clarified the boundary between exchange and other transactions that resemble it.

1. Partition is not exchange. The Calcutta High Court in Gyanessa v Moharakannessa (1898) ILR 25 Cal 210 held that for an exchange the ownership of one party must be exclusive of the ownership of the other. A partition between co-owners adjusts antecedent rights in the same property; it is not a mutual transfer of separate ownerships.
2. Family settlement is not exchange. The Allahabad High Court in Ram Gopal v Tulsi Ram AIR 1928 All 641 held that a family arrangement, in which each party takes a share by virtue of an antecedent title that is admitted, does not involve an alienation and falls outside Section 118.
3. Surrender of lease followed by a fresh lease is not exchange. The Calcutta court in Waliul Hassan v Maharaj Kumar Gopal (1901) 6 Cal WN 905 held that where the lessee surrenders his leasehold and the lessor grants him a lease of another property, the transaction is not an exchange — there is no transfer of ownership at all on the lessee's side.
4. Maintenance settlement is not exchange. The Madras High Court in Madan Pillai v Badrakali AIR 1922 Mad 311 held that a transfer by a husband to his wife in discharge of her claim to maintenance is not an exchange — the wife transfers no ownership in anything.
5. Equality money is permitted. Where two parties exchange unequal properties and one pays the other a sum of money to equalise the bargain, the transaction does not lose its character as an exchange. The Allahabad High Court in Fateh Singh v Prithi Singh AIR 1930 All 426 confirmed the rule, since Section 118 only excludes the case where neither thing or both things are money only — not the case where money is added merely for equality.
6. Both properties must be in India. Where the exchange is of immovable property falling within Section 118, the Supreme Court in Harendra H Mehta v Mukesh H Mehta AIR 1999 SC 2054 held that both properties must be situated in India.

The illustration to Section 118 (drawn from Ismail Shah v Saleh Muhammad AIR 1925 Lah 326) makes the equality-money rule concrete: A transfers a house worth Rs 1,50,000 to B, and B transfers to A a field worth Rs 1,00,000 plus Rs 50,000 in cash. The transaction is an exchange and is not subject to pre-emption as a sale.

Mode of effecting an exchange — Section 118 paragraph 2

The second paragraph of Section 118 imports the formalities applicable to a sale. For an exchange of immovable property, the rules of Section 54 — registration where the value is Rs 100 or upwards, delivery of possession where the value is below Rs 100 — apply with full force. The rule was applied in Chidambara Chettiar v Vaidilinga (1915) ILR 38 Mad 519: an exchange of tangible immovable property of Rs 100 or above, if not made by a registered instrument, is invalid.

The Allahabad High Court in Debi Prasad v Jaldhar Chaube AIR 1946 All 125 made the registration rule explicit. The Bombay High Court in Hoshang v State 2021 SCC OnLine Bom 3654 reiterated that the exchange of immovable property is complete only on execution of a registered document and on exchange of possession. An oral exchange of immovable property is consequently not permissible after the 1929 amendment to Section 49 of the Registration Act, which extended the consequences of non-registration to documents whose registration is required by the TPA. The Punjab and Haryana High Court in Satyapal v Raghbir AIR 2002 P&H 290 confirmed that an unregistered exchange deed is inadmissible in evidence.

Two practical points follow. First, the parties usually execute mutual conveyances, but two separate deeds are not required — a single registered instrument can effect the exchange (Gopi Ram v Durjan AIR 1929 All 63). Second, the rules in the Sale of Goods Act, 1930 apply where the exchange is of movables, since the maxim permutatio est vicina emptioni long pre-dates the codification of either statute.

Exchange v sale — the practical line

The doctrinal distinction between exchange and sale is settled but the cases continue to throw up borderline patterns. The Madras High Court in K V Rathnam v P B Prince Andrew AIR 2018 Mad 151 framed the relationship neatly: "sale is a species" while exchange is the genus. The defining feature of sale is that the transfer of ownership is for a price paid or promised; the defining feature of exchange is that the transfer of ownership of one thing is for the transfer of another thing.

Two pivots are important. First, the consideration in an exchange may take the form of shares or other kinds of property, not only land or goods — the Supreme Court in Commissioner of Income-Tax v Motor & General Stores (P) Ltd AIR 1968 SC 200 held that a transaction in which the consideration for the transfer of certain properties is shares in a limited company is an exchange. Second, where one party in fact pays a price (not equality money but the consideration itself), the Kerala High Court in John Thomas v Joseph Thomas AIR 2000 Ker 408 held the transaction was a sale and not an exchange, even though the parties had so labelled it.

Section 119 — right of party deprived of thing received

Section 119, as recast by the Amending Act 20 of 1929, gives the deprived co-exchanger two alternative remedies. He may either claim compensation for loss, or, at his option, claim the return of the thing he transferred — provided that thing remains in the possession of the other party, his legal representative, or a transferee from him without consideration. The right does not extend against a transferee for value, who is protected.

The implied undertaking that Section 119 imports is similar to the implied covenant for title under Section 55(2) of the Act, which deals with sale, and to the implied undertaking as to title under Section 14 of the Sale of Goods Act, 1930. The result is uniform: the transferor of any kind of property warrants that he has the title he purports to convey, and is answerable in damages or restitution if he does not.

Scope of the remedy

The Orissa High Court in Ch Seetha Ramaswamy v Narasingha Panda AIR 1975 Ori 73 extended the principle to the case where the deprived party never received possession at all. If a party to an exchange has failed to obtain possession of the property he is entitled to receive, he may equally invoke Section 119 and elect for the return of the property he transferred, provided that property is still in the possession of the other party, his legal representative or a gratuitous transferee. The Allahabad High Court took the same view in Hari Shanker Mishra v Vice Chairman, Kanpur Development Authority AIR 2001 All 139.

In Jattu Ram v Hakam Singh AIR 1994 SC 1653, the Supreme Court applied the section where the appellant had exchanged his lands with the respondent and had then suffered a partition decree dispossessing him of 52 kanals 10 marlas. The respondent was held liable to return to the appellant land equivalent to the area lost.

The election of remedies

The deprived party must elect between rescission and damages. He cannot have both. The Madras High Court in Veera Pillai v Ponnambala Pillai (1899) 9 Mad LJ 137 held that if the party rescinds and is evicted from a portion of the land, he is entitled to recover the whole of the land he gave; he cannot retain the portion from which he has not been evicted. The Punjab decision in Salabat v Abdul Rahman (1917) PR 51 added that he cannot both rescind and claim damages other than restitutio ad integrum by re-entry.

The right of re-entry cannot, however, be exercised against a transferee for consideration without notice. As the Andhra Pradesh High Court explained in T Bhaskara Rao v Tangella Mudi Gabriel AIR 2004 AP 106, the sine qua non of Section 119 is deprivation of possession by virtue of a defect in the title of the property received, and not by some independent wrongful act of a stranger.

Privy Council on defective title — Khunni Lal

The Privy Council in Khunni Lal v Govind Krishna Narain (1911) ILR 33 All 356 dealt at length with the consequences of a defective title in an exchange and laid down the framework on which Section 119 was later codified — that the deprived party's remedies are alternative and that the section's underlying rationale is the same as the implied covenant for title in Section 55. The Privy Council's judgment is the foundation of the modern doctrine and continues to be cited.

Contrary intention

Section 119 operates "unless a contrary intention appears from the terms of the exchange". Express covenants as to title in the deeds of exchange will displace the implied undertaking. The Madras High Court in Subramania Ayyar v Saminatha (1898) ILR 21 Mad 69 held that an express clause binding one party to settle disputes and to compensate at a fixed rate was a substitute for the statutory remedy and excluded the deprived party's right under Section 119.

Section 120 — rights and liabilities of the parties

Section 120 completes the analogy with sale. Each party to an exchange becomes, simultaneously, a seller of the thing given and a buyer of the thing taken. The covenants in Section 55 — implied warranties as to title, disclosure of material defects, the buyer's right to a clear title — apply to each party in respect of his respective role.

Two qualifications must, however, be remembered. First, an exchange does not involve payment of a price; consequently, there is no charge for unpaid price, no equivalent of the seller's lien for unpaid purchase money. Even where money is paid for equality of exchange, no statutory charge attaches for that sum: Krishna Nair v Kundu Nair (1912) Mad WN 535. Second, the right of pre-emption that arises out of a sale does not necessarily arise out of an exchange — the Allahabad High Court so held in Samar Bahadur v Jit Lal AIR 1924 All 390.

The estoppel rule of Section 43 — feeding the grant by estoppel — applies in the same way to exchange as to sale. The Calcutta High Court in Bhairab Chandra v Jiban AIR 1921 Cal 748 held that where one party purported to give the whole of a property in exchange but only had half of it, and subsequently acquired the other half, the other party became entitled to that other half as soon as the title was perfected.

Section 121 — exchange of money

The opening clause of Section 118 excludes the case where the property exchanged on both sides is money only. But the legislature recognised that money is, in commerce, often exchanged for money — coins for notes, smaller denominations for larger, one currency for another. Section 121 covers that case and imposes a single, narrow obligation: each party warrants the genuineness of the money he tenders. The word "money" includes not only coins but also currency notes (Mathura Lalbhai (1901) ILR 25 Bom 702).

In an exchange of money, no warranty of title is needed — title to money passes by mere delivery to one who receives it honestly. What is needed is a warranty of genuineness. A false coin or a forged currency note would involve total failure of consideration, on the principle of the English decisions in Jones v Ryde (1814) 5 Taunt 488 (forged banknote) and Timmins v Gibbins (1852) 18 QB 722 (worthless cheque), both of which the Indian courts have followed.

Partition v exchange — the recurring confusion

Few questions recur as often in judicial-service papers as the distinction between partition and exchange. The Calcutta and Allahabad lines on partition are uniform: a partition between co-owners is the recognition and adjustment of pre-existing antecedent rights; it is not a transfer of property at all in the technical sense and certainly not an exchange. Gyanessa (supra) and Ram Gopal v Tulsi Ram (supra) state the rule.

However, where the parties first partition shares in property X, and then one party transfers his divided share in X to the other in consideration of receiving the other's share in property Y, the transaction is an exchange of those divided shares. The Madras High Court so held in Ariyaputhira v Muthukomaraswami (1912) 15 IC 343. The test is whether each party transfers ownership of a thing exclusive of the other's antecedent ownership. If yes, exchange; if not, partition.

Part performance and exchange

The doctrine of part performance under Section 53A can in principle protect a transferee under an exchange in the same way as it protects a transferee under a sale. The 2001 amendment to Section 53A and the corresponding amendments to Sections 17 and 49 of the Registration Act now require that the contract be in writing and registered for the doctrine to be invoked. An unregistered exchange deed cannot be set up as a defence under Section 53A; the parties must comply with the registration requirement that Section 118 imports from Section 54.

Selected leading authorities

• Ram Kristo v Dhankisto AIR 1969 SC 204 — the Supreme Court's authority that a transfer in completion of an exchange must follow the manner provided for sale.
• Harendra H Mehta v Mukesh H Mehta AIR 1999 SC 2054 — both properties exchanged under Section 118 must be in India.
• Commissioner of Income-Tax v Motor & General Stores (P) Ltd AIR 1968 SC 200 — the leading SC ruling on the genus-species relationship of sale and exchange; consideration in shares is exchange, not sale.
• Khunni Lal v Govind Krishna Narain (1911) ILR 33 All 356 — the Privy Council foundation for Section 119.
• Jattu Ram v Hakam Singh AIR 1994 SC 1653 — Section 119 applied to partial deprivation in the context of an exchange of agricultural land.
• Sailendra Nath Talukdar v Kalipada Mukherjee AIR 1956 Cal 626 — the Calcutta High Court's reasoned application of the chapter to a typical mofussil exchange dispute.
• Hadi Ali v Akbar Ali (1898) ILR 20 All 262 — early Allahabad authority on the formal requirements of exchange of immovable property.
• Doraiswami Iyer v Sambasiva Iyer AIR 1929 Mad 410 — Madras High Court on the consequences of failure of consideration in exchange.
• Mool Chand v Lalji AIR 1972 All 187 — exchange of money for money is excluded from Section 118 and falls under Section 121.
• Joseph John Peter Sandy v Veronica Thomas Rajkumar AIR 2013 SC 2028 — when parties agree to rectify a mistake under Section 26 of the Specific Relief Act, the document cannot be read as an agreement to exchange.

Conveyancing checklist for the drafting paper

For the drafting and pleadings paper, three points are worth carrying forward. First, an exchange of immovable property worth Rs 100 or above must be by a registered instrument; the unregistered deed is inadmissible. Second, the deed should expressly recite the mutuality of the transfer and identify each side's subject-matter with sufficient certainty; vague or partial descriptions invite disputes under Section 119. Third, where one party intends to displace the implied covenant for title, the contrary intention must be drafted with precision — a bare recital that "neither party shall claim against the other" was held in Salabat v Abdul Rahman not to amount to a contrary intention but a mere recital of effect.

The exchange chapter is also a useful test of the candidate's grasp of the wider framework — the rules on competence to transfer, on what may be transferred, on the operation of transfer, and on notice — actual and constructive, all of which feed into the validity of any exchange. A void exchange of land is also vulnerable to the doctrines of lis pendens and fraudulent transfer; these are the cross-doctrines a serious answer should weave in where the facts permit.

Exam-angle takeaways

1. The constitutive element of an exchange is mutual transfer of ownership; neither thing nor both things may be money only.
2. An exchange of immovable property of Rs 100 or above must be effected by a registered instrument; the formalities of sale (Section 54) are imported by paragraph 2 of Section 118.
3. Section 119 gives the deprived co-exchanger an election between damages and re-conveyance; the right is barred against a transferee for value.
4. Section 120 makes each party at once a seller of what he gives and a buyer of what he takes; Section 55 covenants apply mutatis mutandis.
5. Section 121 is the only provision in the chapter that contemplates money on both sides — and confines the obligation to a warranty of genuineness.

For state mains, candidates should weave in the partition-versus-exchange distinction (Gyanessa; Ariyaputhira) and the equality-money rule (Fateh Singh). For CLAT PG, a single-line statement that exchange is a mutual transfer of ownership where neither side is money only, paired with Section 118 paragraph 2, will usually suffice.

Frequently asked questions

What is the difference between exchange and sale under the TPA?

A sale under Section 54 transfers ownership for a price paid or promised; an exchange under Section 118 transfers ownership of one thing for the ownership of another, neither being money only. The Madras High Court in K V Rathnam v P B Prince Andrew AIR 2018 Mad 151 framed the relationship as one of genus and species — sale is a species of exchange. The Supreme Court in CIT v Motor & General Stores (P) Ltd AIR 1968 SC 200 confirmed that consideration in the form of shares is an exchange, not a sale.

Is a partition between co-owners an exchange under Section 118?

No. The Calcutta High Court in Gyanessa v Moharakannessa (1898) ILR 25 Cal 210 held that for an exchange the ownership of one party must be exclusive of the ownership of the other. A partition adjusts antecedent co-ownership rights in the same property; it is not a mutual transfer of separate ownerships and falls outside Section 118. Where, however, parties first partition property X and then exchange divided shares for property Y, the second leg is an exchange (Ariyaputhira v Muthukomaraswami).

Can an exchange of immovable property worth Rs 100 or more be made orally?

No. The second paragraph of Section 118 imports the formalities of sale, and Section 54 requires a registered instrument for any tangible immovable property of Rs 100 or above. The Punjab and Haryana High Court in Satyapal v Raghbir AIR 2002 P&H 290 confirmed that an unregistered exchange deed is inadmissible in evidence after the 1929 amendment to Section 49 of the Registration Act, which extended the consequences of non-registration to documents required to be registered by the TPA.

What remedies does Section 119 give if a co-exchanger is deprived of the property received?

Section 119 gives the deprived party an election. He may either claim compensation for loss, or, at his option, claim the return of the thing he transferred — provided that thing is still in the possession of the other party, his legal representative or a transferee from him without consideration. The right does not survive against a transferee for value. The Orissa High Court in Ch Seetha Ramaswamy v Narasingha Panda AIR 1975 Ori 73 extended the section to the case where the deprived party never obtained possession at all.

Does Section 121 apply only to coins?

No. Section 121 deals with the case where money is exchanged for money — the only situation in which both sides of the bargain are money. The Bombay decision in Mathura Lalbhai (1901) ILR 25 Bom 702 made clear that 'money' here includes both coins and currency notes. The single warranty implied is that of genuineness; a false coin or a forged note involves total failure of consideration, on the principle of Jones v Ryde (1814) 5 Taunt 488 and Timmins v Gibbins (1852) 18 QB 722.