Transfer of Actionable Claims (Sections 130–137)

Chapter VIII of the Transfer of Property Act, 1882 opens a portal in the law of property that the rest of the Act keeps closed: it lets a person sell or gift away a right that he has against another person, even though he has no thing in his possession to deliver. An unsecured debt, a contingent insurance entitlement, the unpaid arrears of rent, the right to draw a prize in a lottery, the future dividend of a company share — these are not things in the ordinary sense; they are choses in action, claims that come alive only on the action of a court. Sections 130 to 137 supply the machinery by which they are assigned, the notice that protects the debtor, the equities that travel with the assignment, the warranty that limits the assignor's exposure, and the carve-outs for marine and fire policies, court officers, and negotiable instruments. The chapter is short, but its application reaches into banking, insolvency, intellectual property and the modern law of securitisation.

What is an actionable claim?

The phrase "actionable claim" is defined not in Chapter VIII but in Section 3 of the Act. It means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or any beneficial interest in movable property not in possession (actual or constructive) of the claimant, which the civil courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent. The definition gathers two distinct categories under one head: (i) unsecured debts and (ii) beneficial interests in movable property not in possession.

The category of unsecured debts excludes precisely those debts that are secured by a mortgage on immovable property or by a pledge or hypothecation of movables — those are not transfers of claims to property but transfers of the property itself, and they are governed by the rules on mortgage and charge. The category of beneficial interests in movable property covers contingent contractual entitlements, future income streams, claims under endowment policies, and intangible rights such as copyright royalties. The Privy Council in Mulraj Khatau v. Vishwanath (1913) ILR 37 Bom 198 (PC) treated the deposit of an insurance policy without a written transfer as ineffective to create even a charge — the assignment of the actionable claim has to be in writing under Section 130, and an oral or merely possessory dealing will not do.

What counts — and what does not

The case law has tested the contours of "actionable claim" in many contexts. The following are actionable claims: arrears of rent that have crystallised into a debt; an existing or future debt; a right to recover money left in the hands of a vendee under a rescinded sale; the proceeds of a business; the right to participate in the draw of a lottery; future dividends of company shares; the price of goods to be delivered; a claim under an insurance policy that has matured by death or expiry of the endowment period; copyright (which a Calcutta decision in Saregama India Ltd v. New Digital Media (2022) treated as a species of actionable claim assignable under Section 130); and the right of a partner to sue for the accounts of a dissolved firm, treated as a beneficial interest in movable property not in possession.

The following are not actionable claims, although students often mistake them for such: a judgment debt or decree (because no further action is needed to realise it — it has already been the subject of an action); a mortgage debt (because it is secured); a claim to mesne profits (because mesne profits are unliquidated damages, hence a mere right to sue under Section 6(e)); a claim for damages for breach of contract; a claim for compensation for tort, including defamation; the salaries of public officers and military, civil and political pensions (excluded by Section 6(f) and (g)); a fixed deposit treated otherwise than as a debt to the depositor (a fixed deposit receipt represents a debt and may be assigned, but it is not a deposit of specie); and shares (excluded from the chapter by Section 137 and transferable only under the Companies Act).

The single most influential expansion of the category in recent years came from the Supreme Court in Sunrise Associates v. Govt of NCT of Delhi (2006) 5 SCC 603, which held that a lottery ticket is an actionable claim — a chance to win, a beneficial interest in movable property not in possession of the claimant. The decision overruled the earlier line that treated lottery tickets as goods, and pulled lottery transactions out of the sales-tax net into which the older view had placed them. The reverberations of the decision continue under the GST regime, where lottery tickets are now goods only to the extent that the law of indirect taxation expressly designates them so; the underlying private-law character remains that of an actionable claim.

Section 130 — the mode of transfer

Section 130 prescribes the form. The transfer of an actionable claim, whether with or without consideration, must be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent. The transfer becomes complete and effectual on the execution of the instrument, and thereupon all the rights and remedies of the transferor — whether by way of damages or otherwise — vest in the transferee, whether or not notice of the transfer has been given.

The proviso to sub-section (1) protects the debtor. Until the debtor has either been a party to the transfer or received express notice of it, any dealing of the debtor with the original assignor — payment, set-off, settlement — is valid as against the assignee. Sub-section (2) lets the assignee sue or institute proceedings in his own name, without obtaining the assignor's consent and without joining him as a party. The departure from the older English common-law rule, which required the assignee to sue in the name of the assignor, is deliberate.

The writing requirement

No particular form of words is necessary. What the section demands is an intention to transfer evidenced in writing and signed by the transferor. A letter, an endorsement on a contract, a deed of assignment, an entry in a settled account between assignor and assignee — any of these may suffice. The writing need not be addressed to the debtor; it is the writing that effects the transfer, and the notice that follows under Section 131 is a separate, debtor-protecting requirement. An oral assignment is invalid, and the deposit of a document of title without a writing of transfer creates no charge or assignment, as the Privy Council confirmed in Mulraj Khatau.

The Supreme Court in Bharat Nidhi Ltd v. Takhatmal AIR 1969 SC 313 held that an irrevocable power of attorney coupled with the endorsement of a bill in favour of the holder for collection constituted an equitable assignment. The court read Section 130 alongside the equitable assignment doctrine to give effect to the parties' commercial intention. The earlier decision in Loknarayan Sethia v. State Bank of Jaipur AIR 1969 SC 73 had taken the same approach for a power of attorney to execute a decree, treating it as an engagement to pay out of a specific fund and so an equitable assignment.

Assignment vs pay order

The frequently litigated question is whether a particular writing is an assignment or a mere pay order. A pay order is a revocable mandate; it gives the payee no interest in the fund and ceases to be operative on the death of the creditor. An assignment creates an interest in the fund, is irrevocable, and survives the death of the assignor. The test is whether the writing transfers an interest in the fund — if it does, it is an assignment; if it merely directs the debtor to make payment, with the right to revoke retained by the writer, it is a pay order. The line is thin, but the cases resolve it by reading the writing in context: a direction with no element of irrevocability is a pay order, while a direction coupled with a transfer of the underlying right is an assignment.

Debts, contracts and future rights

Future debts, future rents, and accruing book debts can all be assigned under Section 130, drawing on the equitable principle confirmed in Holroyd v. Marshall (1862) 10 HLC 191 that an equitable assignment of after-acquired property attaches to the property when it comes into existence. The benefit of a contract may be assigned, but not the burden; the promisor cannot shift his obligation to perform without a novation. The Supreme Court in Khardah Co Ltd v. Raymon & Co (India) Pvt Ltd AIR 1962 SC 1810 set out the principle: contracts involving personal qualifications (an employment contract, a contract for personal services, a contract whose performance turns on the personal credit of the assignor) are not assignable; contracts not so coloured may be assigned, and the assignee steps into the shoes of the assignor.

An assignment of future rent is valid but must be in writing; a letter from the solicitor of the assignee to the tenant is not such an instrument. The Supreme Court has also held in ICICI Bank Ltd v. Official Liquidator of APS Star Industries Ltd (2010) 10 SCC 1 that the assignment of non-performing assets between banks and other financial institutions is a legitimate banking activity governed by RBI guidelines and is not violative of the TPA. The case is now the leading authority on the validity of NPA-portfolio sales under Section 130. The principles around the operation of transfer apply with appropriate adjustment to the chose-in-action context.

Jugalkishore and the assignment of decrees

A decree, as already noted, is not an actionable claim — it is the result of an action and not the subject of one. Yet the Supreme Court in Jugalkishore Saraf v. Raw Cotton Co Ltd AIR 1955 SC 376 held that a decree may be assigned under the general law and the assignee may execute the decree under the rules of the Code of Civil Procedure. The decision is the standard reference for the assignment of decrees and for the proposition that the procedural devices of Order XXI Rule 16 CPC supply the route for the assignee to step into the shoes of the decree-holder. Section 130 does not govern that route, but the equity that animates Section 130 informs it.

Section 131 — notice to the debtor

Section 131 is the formal counterpart to the proviso in Section 130. Every notice of transfer of an actionable claim must be in writing, signed by the transferor or his agent, or — if the transferor refuses to sign — by the transferee or his agent, and must state the name and address of the transferee. The provision is to be construed strictly. A notice without the address of the transferee has been held bad. A notice given by the transferee without showing that the transferor refused to sign is irregular. But the section is satisfied if the writing brings home to the debtor with reasonable certainty the fact of the assignment.

Notice need not be given forthwith. What is reasonable is a question of fact; one year has been held to be reasonable in some cases. The notice must, however, be unconditional. A notice that says "pay the assignee unless I have already been paid" is bad because it leaves the debtor to grope at his own peril. The function of the notice is to extinguish the debtor's right to deal with the assignor; an equivocal notice does not perform that function and so does not extinguish that right.

Constructive notice does not satisfy Section 131. The protection of the debtor under the proviso to Section 130 is lost only on the receipt of express notice in compliance with Section 131. Until then, any payment or set-off that the debtor effects with the assignor is good against the assignee. Where a sub-mortgage is in question, the principle of the proviso has been carried over, and the redemption of a mortgage by the mortgagor without notice of the sub-mortgage is good as against the sub-mortgagee, even though Section 130 does not strictly apply to a sub-mortgage transaction.

Section 132 — the assignee takes subject to equities

Section 132 is the old equitable rule preserved in statutory form. The transferee of an actionable claim takes it subject to all the liabilities and equities to which the transferor was subject at the date of the transfer. The rule is in two parts: liabilities (the assignee gets no better title than the assignor; if nothing is due, nothing passes) and equities (such as a right of set-off, a right to have a bond cancelled for misconduct, a right to scale down a debt that was inflated by usury). Both pass with the chose in action, even if the assignee had no notice of them.

The illustrations to Section 132 are exact. If A transfers to C a debt owed to him by B, and A is then indebted to B on an independent transaction, C suing B is met with B's right of set-off against A. The assignee's lack of notice does not defeat the set-off. The principle was put squarely in Mangles v. Dixon (1852) 3 HLC 702 and has been applied in India through a long line of cases including the Calcutta line that runs from Kristo Ramani v. Kedarnath (1889) onwards. The position differs from the law of negotiable instruments — a holder in due course takes free of equities — and Section 137 preserves that distinction.

Sections 133 and 134 — warranty of solvency and mortgaged debt

Section 133 provides that if the transferor warrants the solvency of the debtor, the warranty (in the absence of contract to the contrary) applies only to solvency at the time of the transfer and is limited, where the transfer is for consideration, to the amount of the consideration. The provision lets parties allocate solvency-risk by agreement, but limits the default warranty to a sum that is, in effect, the indemnity-cap. There is no implied warranty of solvency under Section 133; it must be expressed.

Section 134 deals with the case where a debt is transferred as security for an existing or future debt. The proceeds of the transferred debt — when received by the transferor or recovered by the transferee — are applied first to the costs of recovery, then in or towards satisfaction of the secured amount, and the residue belongs to the transferor. The section is the chose-in-action analogue of the rules on the mortgagor's right of redemption: an assignment by way of security is, in effect, a mortgage of the debt, and the mortgagee-by-assignment must account for the surplus. The principles of marshalling and contribution are also pressed into service where the same debtor faces multiple secured assignees competing for the same fund.

Sections 135 and 135A — insurance policies

Section 135 governs the assignment of fire-insurance policies. Every assignee by endorsement or other writing of a fire-insurance policy, in whom the property in the subject insured is absolutely vested at the date of the assignment, has all rights of suit as if the contract in the policy had been made with himself. The section was inserted in 1900 to displace the older common-law rule that a fire policy was a personal contract of indemnity not assignable apart from the property insured. The exception is now narrow: it lets the buyer of insured property, on transfer of the policy by the seller, sue on the policy in his own name.

Section 135A, dealing with marine-insurance policies, was repealed by Section 92 of the Marine Insurance Act, 1963, and the position is now governed by Sections 52, 79 and 91 of that Act. A marine policy may be assigned even after a loss, as the English authority in Lloyd v. Fleming (1872) LR 7 QB 299 settled — a position that distinguishes marine insurance from life and fire insurance and reflects the indemnity character of the marine cover.

Section 136 — incapacity of officers connected with the courts

No judge, legal practitioner or officer connected with any Court of Justice may buy or traffic in, or stipulate for, or agree to receive any share of, or interest in, any actionable claim; no court may enforce, at his instance or that of any person claiming under him, any actionable claim so dealt with. The section rests on a public-policy principle articulated by the Privy Council in Kerakoose v. Serle (1846) 3 MIA 329: an officer of a court should not be exposed to the suspicion that the discharge of his duties may be influenced by personal considerations.

The prohibition is wide. It applies whether or not a suit is pending on the actionable claim — a purchase after a suit is filed has indeed been treated as more offensive than one before. It is not restricted to actionable claims in respect of which the practitioner has a professional duty to perform; it covers all dealings in actionable claims by court officers in their personal capacity. The section does not extend to a judgment-debt or decree (because a decree is not an actionable claim) or to purchases at court sales (which are governed by Order XXI Rule 73 CPC). Where a person prohibited under Section 136 has obtained an assignment by mistake and instituted suit, the assignor may be substituted as plaintiff under Order I Rule 10 CPC and the suit may proceed.

Section 137 — saving for negotiable instruments and documents of title

Nothing in the foregoing sections of the chapter applies to stocks, shares or debentures, or to instruments which are for the time being, by law or custom, negotiable, or to any mercantile document of title to goods. The Explanation gives a wide list of mercantile documents of title — bill of lading, dock-warrant, warehouse-keeper's certificate, railway receipt, warrant or order for delivery of goods, and any other document used in the ordinary course of business as proof of possession or control of goods or as authorising the holder to transfer or receive the goods.

The carve-out matters because the law of negotiable instruments runs on a different track from the law of actionable claims. A holder in due course of a promissory note or bill of exchange takes free of the equities to which his transferor was subject — the very rule that Section 132 displaces for actionable claims. Bearer debentures are now, by general custom, treated as negotiable instruments. Shares are transferred only as provided by the Companies Act, 2013. A railway receipt entitles the endorsee to delivery as a document of title; an endorsement coupled with delivery is sufficient and no separate writing is necessary. The chapter steps back, and the rules of the relevant statute take over.

Interaction with the Sale of Goods Act, GST and IBC

Sections 130 to 137 interact with several other statutes in ways that recur in modern practice. The Sale of Goods Act, 1930 carves out a regime for documents of title to goods that overlaps with Section 137 but uses different definitional language; the two should be read together, with Section 137 acting as the gateway through which the Sale of Goods Act regime applies. The Goods and Services Tax framework, after Sunrise Associates, treats lottery tickets as goods for tax purposes by express statutory designation, while leaving the underlying private-law character of the lottery as an actionable claim untouched. The Insolvency and Bankruptcy Code, 2016 has introduced the avoidance regime for preferential, undervalued and fraudulent transactions, and an assignment of an actionable claim during the look-back period preceding insolvency commencement may be liable to be set aside under Sections 43 to 50 of the Code.

Securitisation has reshaped the practical importance of the chapter. Banks routinely assign portfolios of debts to asset-reconstruction companies, and the validity of those assignments rests on the orthodoxy of Section 130 read with the SARFAESI Act, 2002. The Supreme Court in ICICI Bank confirmed that the assignment of debts, including non-performing assets, by one bank to another is a transaction that the TPA permits and that public policy does not prevent. The chapter is, in this sense, the silent foundation of a large part of modern Indian banking practice. Where the underlying debt itself is secured by immovable property, the assignment carries the security with it, and the chapter on subrogation supplies the rules for the assignee's standing in the security.

Transfers of actionable claims by operation of law

Section 130 governs voluntary transfers, but actionable claims pass by operation of law in several circumstances. On the death of the holder, the actionable claim passes to his legal representative. On the insolvency of the holder, it vests in the official assignee or the resolution professional. On the dissolution of a partnership, the right to sue for the accounts of the dissolved firm — itself an actionable claim — passes to the representatives of the partners. The cognate rules around apportionment apply where the actionable claim represents an income stream that needs to be distributed across periods or persons.

Where the death of the assured triggers a life-insurance claim, or the expiry of an endowment period crystallises the claim into a payable sum, the claim ceases to be merely contingent and becomes an existing debt that may be sued upon. Where a Hindu widow remarries, the actionable claims that vested in her during her widow's estate pass to the next reversioner along with the property — a result that interlocks with the rules on competence to transfer. The point is that Section 130 is not the only route by which an actionable claim changes hands; it is the only route by which a holder may voluntarily transfer one inter vivos with effect against the debtor.

Why Chapter VIII matters

The chapter solves a problem that the rest of the TPA does not touch. The rest of the Act is concerned with property in the strict sense — land, things, interests in things — and with the rules for transferring it. Chapter VIII recognises that a great deal of modern wealth consists not of things but of rights against persons: bank balances, insurance entitlements, copyright royalties, dividend streams, lottery prizes, the proceeds of executory contracts. Without Section 130, those rights would be confined to the original holder and could not be deployed as security, sold to raise cash, or gifted to a successor. The chapter opens up the entire category to the machinery of transfer, while protecting the debtor through Section 131, preserving equitable defences through Section 132, and carving out the special regimes for negotiable instruments and insurance under Sections 135 and 137. Read alongside the rules on actual and constructive notice, the chapter on actionable claims completes the law's account of how rights to performance — as opposed to rights in things — change hands.

Frequently asked questions

What is the difference between an actionable claim and a mere right to sue?

An actionable claim under Section 3 is a claim to an unsecured debt (a liquidated sum) or to a beneficial interest in movable property not in possession; it is recognised as property and is transferable under Section 130. A mere right to sue — for example, a claim for damages for breach of contract or for compensation for tort — is unliquidated until a court ascertains it and is therefore not property; Section 6(e) expressly forbids its transfer. The Supreme Court in Economic Transport Organization v. Charan Spinning Mills (2010) drew the line by treating a letter of subrogation, where the underlying claim was an indemnification debt, as a valid actionable-claim assignment and not a transfer of a mere right to sue.

Is a lottery ticket an actionable claim after Sunrise Associates?

Yes. The Supreme Court in Sunrise Associates v. Govt of NCT of Delhi (2006) held that a lottery ticket is an actionable claim — a chance to win, a beneficial interest in movable property not in possession of the claimant. The decision overruled the older line that treated lottery tickets as goods. The lottery ticket therefore falls outside the sales-tax regime as it stood, and its transfer is governed by Section 130. Under the Goods and Services Tax framework, lottery tickets are treated as goods only for the limited purpose of indirect taxation by express statutory designation; the underlying private-law character remains that of an actionable claim.

Is notice to the debtor under Section 131 essential to make the assignment effective?

No. Section 130 makes the assignment complete and effectual on the execution of the instrument; the title to the chose in action vests in the assignee from that date, regardless of whether notice has been given to the debtor. The function of notice under Section 131 is to extinguish the debtor's right to deal with the original assignor. Until the debtor receives express written notice in compliance with Section 131, any payment, set-off or settlement between the debtor and the assignor is valid as against the assignee, by virtue of the proviso to Section 130. Notice protects the debtor; it does not perfect the assignee's title.

Can the assignee of an actionable claim take free of equities?

No. Section 132 provides that the assignee takes subject to all the liabilities and equities to which the assignor was subject at the date of the transfer, regardless of whether the assignee had notice. This is the rule in Mangles v. Dixon (1852) preserved in Indian statutory form. So a debtor sued by the assignee may set off independent debts owed to him by the assignor, and equitable defences (such as the right to have a bond cancelled for fraud) travel with the claim. The position contrasts with the law of negotiable instruments — a holder in due course of a promissory note takes free of equities — and Section 137 preserves that distinction.

Can a legal practitioner buy an actionable claim under Section 136?

No. Section 136 prohibits any judge, legal practitioner or officer connected with any Court of Justice from buying or trafficking in, or agreeing to receive any share or interest in, any actionable claim. The court will not enforce such a claim at his instance. The rule rests on the public-policy principle stated by the Privy Council in Kerakoose v. Serle (1846): an officer of a court should not be exposed to the suspicion that his official conduct is influenced by personal interest. The prohibition does not extend to a decree (which is not an actionable claim) or to purchases at court sales (which are governed by Order XXI Rule 73 CPC).

Are bank deposits assignable as actionable claims?

Yes. A fixed deposit is not a deposit of specie; it represents a debt due from the bank to the depositor and is therefore an actionable claim that may be assigned under Section 130 by an instrument in writing signed by the transferor. A fixed deposit receipt is not a negotiable instrument. A current-account balance and a savings-account balance are similarly debts owed by the bank and are assignable. The assignment must comply with Section 130, and notice to the bank in compliance with Section 131 is necessary to bind the bank to pay the assignee. Bank-to-bank assignments of deposit liabilities are regulated separately by RBI guidelines and the Banking Regulation Act.