Assignment of liability in Commercial Contracts

Elgin Matt John

Business Contracts

copyright credits


That there has been a recent trend in drafting terms of contract where an attempt is made to transfer the liability under the agreement to a third party. The trend seems to be a result of the natural analogy being drawn by many including those involved in vetting commercial contracts, from the practice of factoring “accounts receivables” against liquidity provided by banks also called factoring. The belief being that if benefits under a contract can be assigned then so could the losses provided of course the transferor of the liability gives a prior notice about the assignment to the creditor.

The frequency with which this clause has been appearing in contracts is such that it has over the years come to have been recognized as a standard term in a contract and understandably, hardly comes up for discussion between negotiating parties . But nothing could be further from the truth.

The Indian Government passed, The Insolvency Bankruptcy Code 2016 that gave an easy route of unprofitable companies to quickly wind up their operation and have an easy exit. The earlier trends where defunct companies could continue to hold on to their assets while their creditors were left high and dry now stood broken. There was no incentive for holding on to its assets despite existence
of the first right with its creditors. Companies started looking at an avenue by which they could pre-empt liability by securing their right to transfer the same to a third party, drawing on, from the analogy that if it was legal to transfer “actional Benefits” so was the liabilities.  

However, this trend of shifting liability does seems to defy all aspect associated with basic principle in any testament namely “privity of contract” as well as its solemn nature which in its essence rests on the belief that parties would perform both their rights as well as their liabilities arising from the term of the contract. It therefore begs to raise a legitimate question on the validity of such term.

In the present Article an attempt is being made to decipher the legal status of such terms in a contract within the parameters of the Indiana Contract Act 1872 .   That as the issue at hand arise out Law on Contracts and the transfer of Property it will be in the fitness of things that the legal issues involved are discussed preceding the Answer to the queries posed.


What agreements are contracts.—All agreements are contracts if they are
made by the free consent of parties competent to contract, for a lawful
consideration and with a lawful object, and are not hereby expressly declared
to be void. —

Nothing herein contained shall affect
any law in force in 1[India], and not hereby expressly repealed, by which any
contract is required to be made in writing or in the presence of witnesses, or
any law relating to the registration of documents.

3.        The basic ingredients of an enforceable contract are enumerated asunder:

  • There must be 2 or more parties  to the agreement
    • The said parties must be competent to enter into a contract
    • The parties must “Freely consent” to the terms
    • the agreement must be for a lawful consideration
    • That agreement must be for a lawful object or purpose

4.        Each of these ingredients must be satisfied in order make the agreement an enforceable contract. Hence it follows that an agreement will become unenforceable if the agreement is made for a consideration or object that is unlawful. Further, what will constitute as an act that will be an unlawful consideration or object has been defined under Sec 23 of the contract Act.

Sec 23. What consideration and objects are lawful, and what not.—The consideration or object of an agreement is lawful, unless—

it is forbidden by law; 14 or

is of such a nature that, if permitted, it would defeat the provisions of any law; or

is fraudulent; or involves or implies, injury to the person or property of another; or

the Court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.

Therefore for any consideration or object to be illegal and therefore void : 

(i)  if the purpose of the agreement is to do an illegal act

(ii) If the agreement is to do an act which is expressly or implied prohibited under law

(iii) if the performance of the agreement is not possible without the disobedience of any law.


Loss - Free Creative Commons Chalkboard image

copyright credits

5.        An issue that frequently crops up in the matters of interpretation of contracts is when 
contract be decreed void and when can it be rendered illegal. What renders an agreement to be void and what renderes it to be illegal has been discussed by the Hon’ble Supreme Court in the case of Gherulal Prakash v/s Mahadeodas Maiya (AIR 1959 SC 781) as well as Manna Lal Khetan v/s Kedar Nath Khetan (AIR  1977 SC 536)  where the court held

“A contract is void if prohibited by statute under a penalty, even  without express declaration that the contract is void because such a penalty implies prohibition”

6.        The Supreme court therefore considered both illegal as well as void agreement being at par under law. However, the Hon’ble High courts of Allahabad and Orrisa have proceeded to give and distinguish both these category of agreements asunder:

Nutan Kumar v/s II Additional District Judge, Banda (AIR 1994 All 298)

“74. In Manna Lal Khetan v. Kedar Nath Khetan, (1977) 2 SCC 424 : (AIR 1977 SC 536) at    

       p. 430 para 11, it
has been observed by the Supreme Court as under.

“A contract is void if prohibited by statute under a penalty, even without express declaration that the contract is void, because such a penalty implies a prohibition.”

The above authorities lead to a conclusion that although for all practical purposes, illegal contracts and void contracts are taken at par with each other nevertheless the distinction between the two is there. Illegality of a contract arises as a result of infraction, contravention or breach of any express or implied provisions of law properly so-called that is a constitutionally valid enactment made by the legislature or of a subordinate legislation i.e. rules, bye-laws, regulations or orders — or even usages and customs — having the force of law. On the other hand, the void contract is one which is declared as such by virtue of sections 23 to 30 etc. of the Contract Act or by a provision
of any other enactment.”

Rajat Kumar Rath v/s Government of India (AIR 2000 Ori 32)

“7. Under Section 23, contracts opposed to public policy and immoral would be really void and not illegal, and in that respect Indian law seems to deviate from English law. At this stage, the distinction between void contracts and illegal contracts may be noticed. Avoid contract is one which has no legal effect. An illegal contract though resembling the void contract in that it also has no legal effect as between the immediate parties, has this further effect that even transactions collateral to it become tainted with illegality and are, therefore, in certain circumstances not enforceable. If an agreement is merely collateral to another or constitutes an aid facilitating the carrying out of the object of the other agreement which though void, is not prohibited by law it may be enforced as a collateral agreement. If on the other hand it is part of a mechanism meant to carry out that the law has actually prohibited, Court cannot countenance a claim based on the agreement it being tainted with an illegality of the object sought to be achieved, which is hit by the law. Where a person entering into an illegal contract premises expressly or by implication that the contract is blameless such a promise amounts to collateral agreement upon which the other party if in fact innocent of turpitude may sue for damages.”

Resultantly, a contract will be void if the same has been stated to be so or otherwise between section 23-30 of the Contract Act while as it will be illegal if the provisions provide for a penalty against forming such agreements.


7.        A contract is normally enforceable between the parties to the agreement and not against strangers or those who are not party to the agreement this principle also a part of the common law doctrine is an essential part of the contract law in India where it is recognized as the principle of “Privity of Contract” there is however instances when this principle may be departed from. These departures have been covered under Chapter IV of the Contract Act between Sec 37-65 dealing with the performance of contracts.

Obligation of parties to contract.—The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law. —

Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract 

8.        The Section suggests that the obligation cast upon of the parties under a contract needs to be performed or offered to be performed by the parties themselves unless the same has been specifically dispensed with under The Contract Law or any other Law in force that is to suggest that unless there is a specific provision under The contract Act or any other Law obligations and corresponding liability needs to be performed and bourn by the parties to the agreement and
the same cannot be transferred to any other III Party to the agreement.


9.        The following are the provisions under the Contract Act wherein the parties are allowed to transfer the responsibility of performance of the a contract to III Party or where the Act allows performance by a 3rd party

Sec 40  Person by whom promise is to be performed.—If it appears from the nature of the case that it was the intention of the parties to any contract that any promise contained in it should be performed by the promisor himself, such promise must be performed by the promisor. In other cases, the promisor or his representative may employ a competent person to perform it.  

10.      The provisions of this Section are applicable only to the Promisor or the one who makes the promise of performance or executing the terms of the agreement. The provision allows the promisor to assign the performance of the contract to another person or entity.

This section must be read in conjunction with Sec 37 and 62. The explanation given under Sec 62 can be considered herein.

Sec 40. Effect of accepting performance from third person.—When a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor.

11.      The Section applies only where a contract has been in fact performed by  another person other than by a person bound thereby. The underlying theme being that the contract has been performed by another person and accepted by the promisee in which case he cannot afterwards
seek enforcement against the promisor.

12.      In City Bank N.A. v/s Standard Charter Bank (AIR 2003 SC 250) the hon’ble court has further clarified the scope of this section as by suggesting that the section doesnot give a cause of action to the promisee, but, to the promisor to take a stand that since the promisee had accepted the satisfaction from a III Party he cannot now seek satisfaction/performance  from the promisor as well.

Section 41 of the Indian Contract Act only provides that the promisee cannot have double satisfaction of its claim i.e. from the promisor as well as third party. It does not give a cause of action to the promisee, but, to the promisor, to contend that the promisee who has accepted satisfaction from the third party cannot insist of the satisfaction of its claim from the promisor as well.”

13.      The cases covered under the Section though will not deal with the case pertaining to assignment by the promisor and performance for the agreement by his assignee which is in fact covered by Sec 40 instead.

Sec 63  Promisee may dispense with or remit performance of promise.—Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance,1or may accept instead of it any satisfaction which he thinks

14.      That while explaining the scope of this section the Hon’ble Supreme Court in Jagad Bandhu v/s Nilima Rani (1969) 3SCC  455 has held that under this section it is open to the promisee to dispense with or remit wholly or in part performance of the promise made to him  or he can accept instead satisfaction which he thinks fit.The section again does allow the promisee to consent and accept in satisfaction anything that the promisor does or omits to do in satisfaction for performance of the contract by the Promisor. The section though rests and requires acceptance by the promisee

15.      It may be noted that the section doesnot deal with the acts performed by the assignee of the promisor nor does it discuss anything associated with the devolution of rights and liabilities arising from assignment and execution    

Sec 62. Effect of novation, rescission, and alteration of contract.—If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.

16.      Now “Novation” has been defined in Blacks Law Dictionary (6th edition)(pg1064)

“A type of substituted contract that has the effect of adding a party, obliger or oblige, who was not a party to the original duty….”

17.      Further the Supreme court in  City Bank N.A. v/s Standard Charter Bank (AIR 2003 SC 250) has clarified that novation, recession and alteration of the  contract can only be done with the agreement of both the parties to the contract. It cannot be done unilaterally.

“Citi Bank has pleaded and contended that as SCB had of its own, asked for and taken unconditionally the SGL of CMF and returned the two BRs of Citi Bank duly discharged. It was under no obligation to either pay any sum or any security much less the refund the money. The obligation was substituted by the SCB for delivery of SGL of CMF. The SCB substituted the obligation to deliver the bonds under two BRs by delivery of SGL thereby accepted the satisfaction in terms of Section 63 of the Indian Contract Act.

In the light of these facts, let us now consider the effect of Section 41, 62 and 63 of the Indian Contract Act, 1872. The same are reproduced hereunder for ready reference: ………………………………………………………………………………………………………………………………………………………..…………..In para 63 of the judgment, the Special Court has recorded a finding to the effect: “In this case the third party i.e. Canbank Mutual Fund had not consented to the SGL transfer form being transferred. Therefore, there is no discharge under alleged contract and there is no Novation.” ……………………………………………Novation, rescission or alteration of a contract under Section 62 of the Indian Contract Act can only be done with the agreement of both the parties of a contract. Both the parties have to agree to substitute the original contract with a new contract or rescind or alter. It cannot be done unilaterally. Special Court was right in observing that Section 62 would not be applicable as there was no novation of the contract. Further it is neither Citi Bank’s nor CMF’s case nor even SCB’s case that there was a tripartite arrangement between the parties by which CMF was to accept the liability. Such a case of novation does not arise for consideration.”

18.      In Kadah & Co v/s Raymon & Co(AIR 1962 SC 1810) the Supreme Court held asunder:

“Itis between named buyers and sellers the goods are specified, as also the period during which they have to be actually delivered and their price is fixed. What is in controversy is whether it is transferable or non- transferable. There was considerable argument before us on the question as to assignability of a contract. The law of the subject is well settled and might be stated in simple terms. An assignment of a contract might result by transfer either of the rights or of the obligations thereunder. But there is a well-recognised distinction between these two classes of assignments. As a rule obligations under a contract cannot be assigned except with the consent of the promisee, and when such consent is given, it is really a novation resulting in substitution of liabilities. On the other hand rights under a contract are assignable unless the contract is personal in its nature the rights are incapable of assignment either under the law or under an agreement between the parties.” 

19.      Similarly in the case of Turner Morrison & Co v/s Hungerford Investment Trust Ltd.(AIR
1969 Cal 238)
The court while relying on the judgement of Kadah & Co v/s Raymon & Co(AIR 1962 SC 1810) agreed in principle that a party to a contract cannot transfer his liability under a contract without the consent of the other party and that as such  liabilities can be transferred only after entering into a tripartite agreement. The court held:

 “It is the defendant’s submission, how could these obligations of Mr. Varma under this agreement of the 16th January, 1968, be transferred to a third party, the applicant Brahmaputra Tea Co. Ltd., without Mr. Hoon’s consent. Mr. Mukherjee in support of this point relied on the statement of law in 8 Halsbury, 3rd Edition page 258, Article 451 that a party to a contract cannot transfer his liability thereunder without the consent of the other party and such liabilities can only be transferred by a tripartite agreement which in such cases will amount to novation. That principle is well settled by numerous. decisions such as Khardah Co. Ltd. v. Raymon & Co., (India) Private Ltd., AIR 1962 SC 1810. It is unnecessary for me to pursue this point of assignment of alleged liabilities having regard to the view that I have already expressed on the points of merits in this application.”

20.      Further in Ibrahim v/s Union of India (AIR 1966 Guj 6) the court while discussing the issue pertaining to assignment of liablity via bailment of goods to the railways held

“It is well known that, ordinarily, only a privy to a contract has a right to sue for breach of a contract. It is true that the benefits of a contract are assignable. But, it is well known that the person to whom the benefits are assigned does not get a right to sue the other contracting party for breach of the contract itself unless the case comes within one of the recognized exceptions. Mr. Justice J.C. Shah (as he then was) in Taherali’s case, 58 Bom LR 650 has mentioned four such exceptions. Mr. Majmundar put his case under the first of these exceptions. The first exception is stated to be that of a person who is claiming through a party to the contract. The refer-once obviously is to 

Section 37
of the Indian Contract Act. That section refers to a person claiming through a party to a contract by operation of law. In view of this legal position, we are unable to agree with the final conclusion recorded in AIR 1957 Nag 31 by TambeJ., at page 46, wherein the learned Judge has stated as follows:

“For reasons stated above, in my judgment, an unqualified endorsement on a railway receipt has the effect of not only transferring to the endorsee the property in the goods covered by the railway receipt but also of transferring to him the right and benefit of the contract of carriage evidenced by the railway receipt.
He has, therefore, a right to maintain an action to enforce its performance in his own name, or to sue to recover damages occasioned by failure to perform the contract.” In our judgment, the learned Judge is right in stating that the benefit under a contract of bailment can he transferred, but the proposition that the transferee of such a benefit will have a right to sue the railway administration cannot be accepted absolutely. Having regard to the facts that a railway receipt is not a negotiable instrument and that the right under that document is not an actionable claim, the assignee will have no right to sue and the matter, being still in the region of contract, the assignee of the benefit of contract can have a right to sue only if he is able to bring his ease within any of the exceptions to the general rule which general rule debars any person who is not a privy to a contract from instituting a suit for breach thereof. “

21.      In the above case the Hon’ble High Court of Gujarat attempted to explain the principle of privity of contract suggesting that assignment of benefits of a contract will not automatically result in the liabilities or right to sue also getting transferred with it, since, the assignee is not part of the original contract under which the liability arose. The fall out of this being, that the assignee can be assigned the liability arising from the contract, only after he enters into a tripartite agreement with the original assignor and the promisee.

This principle has been carried into the English Common Law doctrine as well described in the following instances:

Tolhurst v Associated Cement Manufacturers Ltd [1902] 2 KB 660, 668 “Neither at law or in equity could the burden of a contract be shifted off the shoulders of a contractor on to those of another without the consent of the contractee.”

22.      The leading authority on this issue is the House of Lords case  Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1993] UKHL 4 (22 July 1993), in which Lord Browne-Wilkinson stated definitively that the burden of a contract may never be assigned. He said:
“It is trite law that it is, in any event, impossible to assign “the contract” as a whole, i.e. including both burden and benefit. The burden of a contract can never be assigned without the consent of the
other party to the contract in which event such consent will give rise to a novation.”

IN Chitty on Contracts (Sweet and Maxwell, 30th edition, 2008)

“Everybody has a right to choose with whom he will contract and no-one is obliged without his
consent to accept the liability of a person other than him with whom he made his contract. Consequently the burden of a contract cannot in principle be transferred without the consent of the other party, so as to discharge the original contractor.”

23.      Once again in the case of J.H.Tod v/s Laxmidas (1892) ILR 16 Bomb 441(449) It has been clarified by the Courts that liability in a contract cannot be transferred so as to discharge the person or estate of the Original Contractor unless the creditor agrees to accept the liability of another person instead of the first.

24.      As can be seen from the discussion above the principle that liability under a contract cannot be assigned without the consent of the original promisee thereby resulting in a novation of a contract, in fact, has been adopted from the English Common law doctrine  and was made part of the Indian Jurisprudence from the earliest case of J.H.Tod v/s Laxmidas (1892) ILR 16 Bomb 441(449) only to find its resonance in the case of  Khardah Co. Ltd. v. Raymon & Co., (India) Private Ltd.AIR 1962 SC 1810  and later to be re-iterated by the Hon’ble Hight court of Gujrat Ibrahim v/s Union of India (AIR 1966 Guj 6) as well by the Calcutta High court in Turner Morrison & Co v/s
Hungerford Investment Trust Ltd.(AIR 1969 Cal 238)
. It is therefore settled legal principle of Indian Contract Law and  jurisprudence that liability under a contract cannot be assigned by the promisor unless consented to by the promisee in question.

25.      It may be recollected that the aforesaid discussion were initiated in order ascertain the instances under the contract Act wherein Departure from the standard rule Privity of Contract and the obligation of performance of a contract were covered  and in that regards Sec 40, 41, 63 and 62 were discussed in detail.  As can be seen from the discussion above that under the India Contract Act in matters of assignability of Obligations, gains and liability a promisor can vide an assignment transfer his obligation and gains in a contract to an assignee without  notice to the promisee however on principle of equity as well as contractual jurisprudence no such assignment of liability under the contract can be initiated without the consent of the promisee. The consent if taken would therefore need to be expressed in a form of an agreement. Further since the resulting contract will include the assignee, promisor and the promisee — the parties and the corresponding terms  being different from the original contract it would amount to “Novation” and thus covered under Sec 62 of the Contract Act 1872.

26.      It would thus be safe here to say that any agreement or clause in the agreement that states assignment of liability without the consent of the promisee(or the recipient of the performance of the contract) would by implication stand in violation of Sec 62 of the Contract Act. However as no penalty has been prescribed for such violation of Sec 62 nor such forms of assignment being specifically identified as being illegal under the contract Act itself. It can be best said that the violation of Sec 62 would therefore render the said clause to be “Void” and not “illegal”

27.      We began this discussion on the note that Sec 37 of the Contract Act makes it is obligatory on the parties to the contract to perform their respective promises/obligations and departure from this rule could be had only when either the contract Act specifically provided for the same or the same was provided under any “other law”. This discussion therefore cannot be put to rest unless implication of assignment of liability under a contract is not tested under other laws.

It may be noted here that the entire concept of assignment finds its mention under the The Transfer of Property Act that deals with assignment of rights in property.


Sale and Agreement of Sale: Elements of a Contract Sale

copyright credits


29.      The Transfer of property Act was enacted for the purposes “to amend the law on transfer of property by acts of parties’. The Act therefore was only aimed to amend the existing statues and was not aiming to create any new law on the subject [Tajjo Biwi vs Bhagwan (1899) ILR 16] . It may be noted that the Statement and Object of the Contract Act is identical to  that of the Transfer of property Act. Further earlier the aspects related to sale and purchase of property formed a part of
the contract Law. As the Transfer of Property Act 1892 was enacted after the passing of the The Indian Contract Act 1872 it can be stated that the act was passed to complete the Contract Act on the aspects associated with transmission of property matters (Mulla, Transfer of property 13th edition pg
1-2). The provisions of the Transfer of Property Act therefore have to be understood as supplementing and not supplanting the provisions of the Contract Act 1872.

30.      The word property has not been defined under the Act. However the legislation has used the term in the widest possible sense conceivable and includes both corporal as well as incorporal property if one were to see the definition of Sec 6 suggesting that all kinds of property can be transferred[Mata Din v/s Kazim Hussain (1891)ILR 13 All 432], Bansigopal v/s V.K. Banerjee (AIR 1949 All 433) and [Narasingji v/s Panangananti (AIR 1924 PC 226) ]

31.      The whole idea of ownership in property refers to an aggregate of rights and interest that one or more person may be having in a property whether corporal or incorporal. The aggregate of rights have been mentioned in the Act as right to lease, mortgage, charge etc…[Inder Sen v/s Naubat Sen (1885) ILR 7 All 533] however there exists no explanation regarding what constitutes as “interests in property”. So the Supreme Court went out to explains what this interests in property would mean in the case of Zelia M Xavier Fernandez E Gonsalves v/s Joana Rodrigues (AIR 2012 SCC 988) to suggest that it will include “participation in benefits, profits and advantage” arising in any property
whether corporal or incorporal.

32.      It is with this understanding of  “interests in property”  as an advantage, profit or benefit that one can relate the meaning of “actionable claims” in terms of contracts. In fact for the said reasons  in Rudra Perkash v/s Krishna (1887) ILR 14 Cal 241 p 473 as well in Muchiram v/s Ishan Chandra (1894) ILR 21 Cal 568 the respective benches of the Clacutta High Court had no hesitation in holding that the terms “ Property” included “actionable Claims” under the Transfer of Property Act 1882.


33.       “Actionable Claims” has been defined under Sec 3 of the Transfer of Property Act 1892

“actionable claim” means a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent;

34.      The character of benefits in contracts or “Chose in Action” as it is called in English Law are what has been referred to as “beneficial interest” in the definition of “actionable claims”. Again in Jaffer Meher Ali v/s Budge Budge Jute Mills Co. (1906) ILR 33 Cal 72  held that interests of a buyer in a forward delivery of goods can be assigned as an actionable claim. Similarly in Nagapa v/s Badridas (1930) 32 Bom LR 894 a contractual debt arising because of the difference in claims of cross contract was considered as a form of “actionable claim” being a beneficial debt. Therefore as can be seen any “beneficial interest” in the form of debt in a contract can be considered in the category of “actionable claim” however the statue as well as the corresponding case law donot recognize liability that exists under a contract upon either of parties as a form of “actionable claim”
for the simple reason that it doesnot constitute as “beneficial interest”

35.      This basic rule pertaining to the assignability of a contract has been explained by
justice J Sales in Jaffer Meher Ali v/s Budge Budge Jute Mills Co. (1906) ILR 33 Cal 72 ,

“The rule as regards the assignability of contracts in this country is that the benefit of a contract for the purchaser of goods as distinguished from the liability thereunder may be assigned, understanding by the term benefit the beneficial right or interest of a party under the contract and the right to sue to recover the benefits created thereby. This rule is however subject to two qualifications: first, that the benefit sought to be assigned is not coupled with any liability or obligation that the assignor is bound to fulfil, and next that the contract is not one which has been induced by personal qualifications or considerations as regards the parties to it.”

36.      The above said judgement was delivered by the court interpreting Sec 130 of the Transfer of Property Act 1872 that deals with transfer of Actionable Claims. As one can see the principle explained above is the same as has been held while interpreting the provisions of Sec 37 read along with Sec 62 (Novation) of the Contract Act and discussed in the paras above namely that  of “benefit or advantage” in a contract which can be transferred through an instrument in writing while as any liability under a contract cannot be without the consent of the promisee.

Sec 130. Transfer of actionable claim.—

(1) The transfer of an actionable claim 1[whether with or without consideration] shall be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent,
2[***] shall be complete and effectual upon the execution of such instruments, and thereupon all the rights and remedies of the transferor, whether by way of damages or otherwise, shall vest in the transferee, whether such notice of the transfer as is hereinafter provided be given or not: Provided that every dealing with the debt or other actionable claim by the debtor or other person from or against whom the transferor would, but for such instrument of transfer as aforesaid, have been entitled to recover or enforce such debt or other actionable claim, shall (save where the debtor or other person is a party to the transfer or has received express notice thereof as hereinafter provided) be valid as against such transfer.

(2) The transferee of an actionable claim may, upon the execution of such instrument of transfer as aforesaid, sue or institute proceedings for the same in his own name without obtaining the transferor’s consent to such suit or proceeding and without making him a party thereto.

(Exception) —Nothing in this section applies to the transfer of a marine or fire policy of insurance
3[or affects the provisions of section 38 of the Insurance Act, 1938 (4 of 1938)].

Sec 6

What may be transferred.—Property of any kind may be transferred, except as otherwise provided by this Act or by any other law for the time being in force,—

(a) The chance of an heir-apparent succeeding to an estate, the chance of a relation obtaining a legacy on the death of a kinsman, or any other mere possibility of a like nature, cannot be transferred;

(b) A mere right of re-entry for breach of a condition subsequent cannot be transferred to
any one except the owner of the property affected thereby;

(c) An easement cannot be transferred apart from the dominant heritage;

(d) All interest in property restricted in its enjoyment to the owner personally cannot be transferred by him;

[(dd) A right to future maintenance, in whatsoever manner arising, secured or determined, cannot be transferred;]

(e) A mere right to sue 2[***] cannot be transferred;

(f) A public office cannot be transferred, nor can the salary of a public officer, whether
before or after it has become payable;

(g) Stipends allowed to military 3[naval], 4[air-force] and civil pensioners of the
5[Government] and political pensions cannot be transferred;

(h) No transfer can be made (1) in so far as it is opposed to the nature of the interest affected thereby, or (2) 6[for an unlawful object or consideration within the meaning of section 23 of the Indian Contract Act, 1872 (9 of 1872)], or (3) to a person legally disqualified to be transferee;

[(i)Nothing in this section shall be deemed to authorise a tenant having an untransferable right of occupancy, the farmer of an estate in respect of which default has been made in paying revenue, or the lessee of an estate, under the management of a Court of Wards, to assign his interest as such tenant, farmer or lessee.]

37.      A perusal of the Section 130 will reveal that “actionable claims” or benefits in a contract can be transferred through a written instrument in the manner prescribed. However as the Section doesnot identify any specific  types or the nature of  property in actionable claims that can be transferred. To put it specifically, the statute doesnot state expressly, that liability under a contract cannot be transferred under the Act.

Sec 6 on the other hand explains the different types of property that cannot be transferred under law. Here again as one will notice there is no mention about assignment contracts that transfer liability under the contract.

38.      As has been discussed earlier since there exists no specific provision that restricts or penalizes assignment of liability under Transfer of Property Act it will not be appropriate to suggest that such assignment would be illegal. At this stage it will be important here to recall what had been suggested earlier -that provision of the Transfer of Property Act are meant to supplement and not to supplant the provision of the Contract Act. Further as the Act was made in order to simply to complete the code pertaining to contracts associated with transfer of property and not vice- versa the principle and provision of the contract act therefore superseded the provisions of the TP Act and the interpretation of both written and as well as the principles of contractual  law  could be directly  read into to interpret the provisions of the Transfer of Property Act.

copyright (c) Adv. Elgin Matt John, Founder, Managing Partner, Elgin Matt John & Associates