What Is An Actionable Claim?

Actionable claim means a debt or a claim on which action can be started in a court of law for comfort or relief. The civil courts recognized as giving the grounds for relief whether such claims are conditional, accruing and other. The actionable claim is defined under Section 3 of the Transfer of Property Act, 1882 (TPA). In general terms, an actionable claim is a debt or claim for which the person can take an action and also approach the Court for recovery his debt or claim. Actionable claims are recognised by the court of law in order to provide with relief in reference to unsecured debt or beneficial interest in movable property.

Definition Of Actionable Claim

An actionable claim is defined under Section 3 of the TPA, as:

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, conditional or contingent.

In simpler terms, an actionable claim is:

• A right to recover a debt or a beneficial interest in movable property.
• An interest that is not secured by any mortgage, hypothecation, or pledge.
• A claim recognized by civil courts, giving the claimant the right to sue.

Unsecured Debts

When a debt is not secured by way of security through pledge, mortgage or hypothecation, it is referred to as an unsecured debt. It includes all kinds of monetary obligations of a certain amount of money. It goes beyond the conventional concept of a loan granted by a lender or creditor to a borrower or debtor. It includes monetary obligations like rent and payment of price on the sale of a property. A transaction is referred to as an unsecured debt when it satisfies the following three conditions, i.e.:

• existence of a monetary obligation;
• no security to cover such monetary obligation; and
• certainty as to the amount of money obligation.

However, not every kind of debt qualifies to become an actionable claim. In the case of Sunrise Associates v. Government of NCT of Delhi, Hon'ble Supreme Court observed that an actionable claim could be claimed in debt "existent in present, accruing, conditional or contingent".

1. Existent Debt: It refers to a debt that has become due, payable and is enforceable presently.
2. Accruing Debt: The monetary obligation has already become due in this kind of debt, but it is payable only on a future date.
3. Conditional or Contingent Debt: A debt is termed as a contingent or conditional debt when it becomes payable only on the fulfilment of the condition or contingency contemplated by the transaction.

Nature Of Actionable Claim

The Sale of Goods Act, 1930, governs the transfer of property of movable nature. It only pertains to the "sale of movable property". More precisely, it deals with the transfer of the term "goods" as defined under S. 2(7) of the Act. It states that "'goods' means every kind of movable property other than actionable claim and money". Thus, actionable claims are not covered by the provisions of the Sale of Goods Act. This is because they are defined and dealt with under the Transfer of Property Act.

An interpretation of this definition aptly conveys that an actionable claim is of the nature of the movable property. The definition expressly excludes actionable claims from the ambit of movable property being referred to as goods. Such an exception is provided to exclude a particular item from a class. Had the actionable claims been immovable in nature, the need to except them from the definition of goods being movable property wouldn't have arisen.

Furthermore, there are two types of movable properties, i.e.:

1. Tangible Movable Property: It refers to that kind of movable property that can be touched, felt, etc. It can be possessed in its physical form for its physical existence. For example car, house, furniture, jewellery, etc. All these properties can be felt and possessed in their physical form.
2. Intangible Movable Property: It refers to that kind of movable property which is devoid of any physical existence. It exists in the form of rights and obligations capable of enjoyment. Their existence comes into knowledge when an individual possessing such right approaches the Court of law to claim it. For example: Actionable claim is an apt illustration as it is available in the form of a right possessed by the claimant that can be enforced through action in a Court of law.

Thus, an actionable claim is in the nature of the intangible movable property.

Key Characteristics Of Actionable Claims

Some defining characteristics of actionable claims include:

• Non-Tangible Nature: Actionable claims are intangible; they don’t represent physical property but are a right to receive a certain benefit or sum.
• Unsecured Debts: The claim must relate to a debt or a beneficial interest in movable property without any form of security.
• Legal Recognizability: The claim must be such that a civil court would recognize it as legitimate and capable of being enforced through legal action.
• Rights to Sue: The owner of an actionable claim possesses the right to sue for the claim. The basis of the claim can be either existing or contingent.

Examples Of Actionable Claims And Non-Actionable Claims

Transfer Of Actionable Claims

Under Indian law, the transfer of actionable claims is governed by Sections 130 to 137 of the Transfer of Property Act, 1882.

Section 130: Transfer Of Actionable Claim

This section states that an actionable claim can be transferred:

• with or without consideration
• by way of an instrument in writing duly signed by the transferor or his agent duly authorised in this respect.

Thus, oral transfer of actionable claims is not permitted.

Exceptions of the Section 130 - S. 130 does not apply on the transfer of marine and insurance of fire policy. In the case of Simon Thomas vs. State Bank of Travancore, it was established that there should be an intention to transfer the debt represented by the written receipts.

Section 132: Liability Of Transferee Of Actionable Claim

The principle behind this section is that the transferee gets no better title than the transferor. Thus, the transferee takes all the equities and also the liabilities of the transferor to which the latter was subject at the time of such assignment.

Section 133: Warranty Of Solvency Of Debtor

In the case of assignment of a debt, the transferee runs the risk of losing the claim when the debtor becomes insolvent. Therefore, as a precaution, the transferor of the actionable claim warrants the solvency of the debtor at the date of assignment. But this is subject to contract to the contrary. Further, it is limited only to the amount or value of the consideration for which it is transferred.

Section 134: Mortgaged Debt

Since an actionable claim is a property, its transfer by way of a mortgage is possible. When one debt is transferred to cover another debt, whether existent debt or future debt, it is referred to as a transfer of actionable claim by way of a mortgage. This section provides the below-mentioned preposition under which the amount so realised could be appropriated:

• "the debt received by the transferor or recovered by the transferee is to be applied in payment of the cost of such recovery.
• it is to be applied towards satisfaction of the amount secured by the transfer.
• if any residue remains after the above-mentioned payments, the remainder is to be given to the transferor."

Section 135: Assignment Of Rights Under Policy Of Insurance Against Fire

This provision was inserted by the Amendment Act of 1944. It states that the assignee of fire insurance policy in whom the property of the subject matter of policy is absolutely vested at the date of assignment, it would have the effect of transferring and vesting in him all the rights to sue just as if the insurance policy was entered into by him.

Section 136: Incapacity Of Officers Connected With Courts Of Justice

The persons mentioned under this section are not legally qualified to make transfers of actionable claims. The object behind this disqualification of "Judges, legal practitioners and officers connected with Courts of Justice" is to ensure that the judiciary remains impartial. The observation of the Privy Council is relevant in this regard: "It is of great importance that no officer of a Court of Justice should be even exposed to the suspicion that in the discharge of his official duties, his conduct may be influenced by any personal consideration."

Judicial Interpretations

Sunrise Associates v. Government Of NCT Of Delhi

According to the Honorable Supreme Court, this privilege grants a beneficial interest in transportable property. This is due to the fact that winning the draw is the main goal of such transactions. A lottery ticket is worthless in and of itself. Its depiction of a conditional benefit of winning the lottery prize is what gives it its worth. Interestingly, the value of the prize money obtained exceeds the amount paid to transfer it. A beneficial interest in movable property is thus transferred when such a right is transferred. As a result, it was determined that the lottery was an actionable claim.

Moti Lal v. Radhey Law

The Hon'ble Apex Court ruled that the right to sue for damages cannot be considered an actionable claim, regardless of whether the claim is based on a contract or unliquidated damages resulting from tortuous culpability. Although this is definitely a financial commitment, it is not the same as unsecured debt. It can be attributed to the unknown amount of money at stake. Additionally, it is not a requirement of an initial transaction, which is necessary for a claim to be actionable. However, because they are a particular type of debt, it also contains the principle amount and the interest that is assessed on it. However, damages are not an actionable claim because they are of an undetermined nature.

Conclusion

Actionable claims serve as an essential instrument in Indian law, allowing individuals and businesses to assert and realize economic rights over intangible interests. This right is legally enshrined under the Transfer of Property Act, 1882, providing a framework for transferring and enforcing claims in civil courts. While actionable claims enable financial and legal fluidity in business transactions, they also come with specific legal limitations to ensure fair practice and prevent misuse. Understanding the nature, scope, and transferability of actionable claims is crucial for professionals and laypersons alike, particularly those engaged in finance, insurance, and debt recovery.