What is Actionable Claim?
Meaning of Actionable Claim: – Actionable claim in general term signifies a claim or a debt for which you can take an action. It means there’s a claim and you can approach court for enforcement of the same. The debt here is unsecured. According to section 3 of the transfer of property Act, “actionable claim 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 to any beneficial interest in movable 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 confidential or contingent”.

In general terms, an actionable claim refers to a claim or a debt for which you can take an action, which means there is a claim and you can approach the court for enforcement of the same. Here it denotes a debt and the actionable claim holder can go to court to recover that debt. An actionable claim is transferable. Transfer of actionable claim is defined under Chapter VIII of the Transfer of Property Act, 1882. Chapter VIII is the last chapter of Transfer of Property Act and covers sections 130 to section 137.
For example: –
- ‘X’ owes 500 rupees to ‘Y’. This is an actionable claim.
- ‘A’ agrees to sell to ‘B’ a product ‘P’ in future. Here ‘B’ acquires a beneficial interest and is therefore an actionable claim.
- Rent is an actionable claim due to the tenants’ share.
- ‘A’ gives Rs. 10,000 to ‘B’ as an earnest money for B’s house. Later, ‘B’ refuses to sell the house to ‘A’. 10,000 rupees given as earnest money is an action claim.
Examples of Actionable Claim are as follows: –
- Claim for arrears of rent.
- Claim for money due under insurance policy.
- Claim for return of earnest money.
- Right to get back the purchase money when the sale is set aside.
- Right of a partner to sue for an account of the dissolved partnership firm.
- Right to claim benefit under a contract for the purchase of goods.
- Right to get the proceeds of a business.
Exceptions to Actionable Claim are as follows: –
- Debts secured by mortgage of immovable property;
- Damages for breach of contract;
- Damages in tort;
- A claim to mesne profits;
- Share in company;
- Claim to copyright.
Actionable Claim under Transfer of Property Act
In brief, it can be said that an actionable claim means a claim to an unsecured debt or any interest in movable property that is not in the possession of the claimant. The term actionable claim only covers the below mentioned two types of claims.
According to Section 3 of Transfer of Property Act 1882, an actionable claim means: –
- Claim to an unsecured debt or any debt that is not secured by: –
- Mortgage of immovable property, or
- Pledge of movable property, or hypothecation
OR
- Any beneficial interest in movable property that is not in the possession of the claimant. The possession can be constructive or actual.
Unsecured Debt: – Unsecured debt refers to all monetary obligations of a certain amount, and that is not covered by any security in the form of mortgage, pledge or hypothecation. This is not just limited to the concept of loans forwarded by a creditor to a principal debtor. It extends to all kinds of monetary obligations, such as rent or payment on sale of property etc. So, the three types of unsecured debt are:: –
- Existing: – It is the kind of debt that has already become due, and is currently payable and enforceable. For example, if Mr. A currently sells a house to Mr. B, and the monetary consideration has to be paid at the same time, the consideration becomes payable at the same time, and is an existing loan.
- Accruing: – If a monetary obligation is currently due but becomes payable at a future date, it is accruing debt. For example, if Mr. A is an employee of Mr. B and he receives his salary on the last day of every month, his salary is in debt during that month, as it is due for the whole month, but it becomes payable only on the last day of the month. Therefore, if Mr. B fails to pay the salary, Mr. A can approach the Court to claim it only after the last date of the month, when it becomes due.
- Conditional or Contingent: – A loan is conditional or contingent if it becomes payable on the fulfillment of a condition or contingency. It is called a conditional loan when the condition is under the control of the parties. For example, an agreement between ‘A’ and ‘B’ that ‘A’ will pay Rs. 1000 if ‘B’ buys C’s house, it is a conditional loan. Here, Rs. 1000 becomes payable and ‘B’ can claim it only after fulfilling the condition. On the other hand, when the condition is beyond human control, it is called a contingency loan. For example, if ‘A’ promises to pay ‘B’ a specific amount if C’s ship sinks, then since the sinking of the ship is beyond the control of the parties, it is a contingent debt.
Beneficial Interest in Movable Property: – If a person has the right to possess a movable property, then it is said that he has beneficial interest in that movable property. But if that property is not in his possession, then he has an actionable claim. So, the requirements to constitute this type of actionable claim are: –
- Movable property;
- The movable property is not in the possession of the claimant;
- The claimant has the right to possess that movable property.
- For example, if ‘A’ sells his car to ‘B’ and ‘B’ has completed his obligation, that is, ‘B’ has forwarded the consideration from his side, then ‘B’ has the right to possess the car; but if ‘B’ is unable to acquire possession, then ‘B’ can approach the Court to claim this possession.
- But if the movable property is already in the possession of the claimant, either actual or constructive, then he cannot claim possession. So, if in the previous example, ‘A’ had given the car keys to ‘B’, then it can be said that ‘B’ has constructive possession, and hence, B cannot approach the Court to claim possession.
What are the modes of transfer of Actionable Claim?
Section 130 of the Transfer of Property Act lays down how such actionable claims can be transferred as: –
“Transfer of actionable claim: – The transfer of an actionable claim shall be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent, shall be complete and effectual upon the execution of such instrument, 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.”
The modes of transfer of Actionable Claim is described under section 130 of the transfer of property act, such as: –
- The instrument of transfer must be in writing;
- The transferor or a duly appointed agent must have signed such an instrument;
- Transfer can be done with or without consideration;
- Consideration may or may not be extended;
- Such a transfer will be complete and deemed effective only when it has been executed;
- Transferor will get all the rights and remedies in the property at the time of transfer.
Exceptions to Section 130 of the Transfer of Property Act: –
- Negotiable Instruments, Stocks, Shares, Debentures
- Marine policy of insurance
- Fire insurance policy
- Cases falling under section 38 of the Insurance Act, 1938.
Which claims are not covered under Actionable Claim?
Claims are not covered under Actionable Claim are as follows: –
- Right to Claim Damages: – Such right to claim damages whether arising from tortuous liability or contractual liability are not considered actionable claims. This is so mainly because of the uncertainty of the amount of money which may be deemed to be payable. Furthermore, given that this right is based out of a personal infringement or injury, the redressal of such injury cannot be transferred.
- Mesne Profits: – These money for possession of immovable property which is received by a tenant, who themselves do not have the permission to allow for possession of such property. In the case of Jai Narayan v. Kishun Dutta, it was held that a claim for mesne profits is not an actionable claim as they are essentially unliquidated damages; they are not considered as any claim to beneficial interest in property or in possession of such a claimant. It is simply a right to sue.
- Decree or Judgement of Debt: – Any decree or judgement of debt cannot be transferred under actionable claim. This is so because once such a judgement has been pronounced, no action subsists which can be transferred.
- Intellectual Property: – Intellectual properties such as patents, copyrights etc. do not operate as claims but are special rights which already vest in a person. They have exclusive governing legislations and cannot be transferred as actionable claims.
Notice of transfer to debtors
Notice of transfer to debtors is not required. This means that the transfer of an actionable claim will be valid irrespective of the fact whether the debtor had knowledge of it or not. But if the debtor is not given notice, he is not bound by the transfer. Therefore, the payment made by him to the principle creditor will be valid.
Therefore, to bind the debtor with the transfer, notice must be provided to him. Section 131 of the Transfer of Property Act provides that it is not sufficient to provide the debtor with a notice; the notice must be expressed one.
The notice should be: –
- In writing,
- Signed by
- The transferor or an agent duly authorized on his behalf,
OR
- Where the transfer refuses to sign, the transferor or its agent
- Specify the name and address of the transfer.
Case laws under Actionable Claim
- H. Anraj vs. Govt. Of Tamil Nadu, A.I.R. 1986 S.C. 63
In this case Supreme Court held that the right to participate in a draw is a beneficial interest in movable property. The objective of participation will be to win the award. Transfer of rights is thus a beneficial interest in movable property and not possession. Therefore, the lottery is an actionable claim.