DIGITAL SALE AND MORTGAGE FOR A TOEHOLD OUTSIDE THE INFORMATION TECHNOLOGY ACT, 2000

Allowing digital transfer of interests in immoveable property without consequential changes in the primary laws tackling transfer of interests in immoveable property will be like placing the cart before the horse

The latest amendment in Schedule I of The Information Technology Act, 2000 (herein after ‘IT Act’) as introduced by the notification dated 26 September, 2022 has brought two significant changes amongst others in relation to the banking industry and the land market, namely:

a) Now, under Entry 1 of the First Schedule provisions of IT Act shall apply not only to a cheque but also to a Demand Promissory Note or a Bill of Exchange issued in favour of or endorsed by an entity regulated by RBI, National Housing Bank, SEBI, IRDAI, PFRDA.

b) With the omission of Entry 5 of Schedule I, the Ministry has opened the gateway for application of provisions of IT Act on contract for the sale and conveyance of immoveable property or any interest in such property.

DIGITALISATION

To apply technology to improve a process that was otherwise carried out manually, is what digitalisation aims for. Every business sector has warmly welcomed digitalisation as a tool to transform their conventional processes and their standards of operating across different sectors. One such sector which has witnessed a seismic shift when it comes to business is the banking sector. The way in which all the participants including the regulators, the market players and the customers have accepted digital solutions is too loud and clear to be ignored. There is a sense of agreement among all that digitalisation is no less than a panacea.

DIGITAL BANKING

The concept of digital banking is not of recent vintage and is still an ongoing process. Vide its 2001 notification1, the RBI had informed that it had set up a Working Group on ‘Internet Banking’ to examine different aspects of Internet Banking (I-banking). The Group had focussed on three major areas of I-banking, i.e., (i) technology and security issues, (ii) legal issues and (iii) regulatory and supervisory issues. The integration of digitalisation is happening at different degrees which are veering all paperwork towards digital platform.

Since all Banks and financial institutions have security based lending as their major business activity, security interest creation is a day to day to transaction which facilitates lending and growth of the business worldwide.

Until now, the banking industry under the strict supervision of the central regulator, RBI, had in a phased manner absorbed digitalis ation in almost all its processes, the only leg dangling out was the process of mortgage creation. This was so because the provisions of the IT Act, 2000 was not applicable on contract for the sale and conveyance of immoveable property or any interest in such property. Thus, the legislative backing for digital transactions pertaining to immoveable property was missing.

Presently with the introduction of the aforementioned latest amendment made to the IT Act vide notification issued by MEITY dated 26.09.2022, a bundle of opportunities have come up for completely obliterating paperwork and getting every part of lending over the digital platform.

DIGITAL SALE AND MORTGAGE

With the subject amendments in the IT Act, the challenges have softened to further aid the progress of the idea of digitalisation. However, that alone does not solve the problem. These provisions will meet its epitaph only when cascading changes are being made to the primary law relating to sale and conveyance of interest in immoveable property i.e. Transfer of Property Act, 1882.

`The objective of the amendments introduced by MEITY is not to add on to voluminous statutes but to fulfil a particular purpose. The entire exercise would turn out to be futile if complimentary changes are not brought into the rudimentary principles of the Transfer of Property Act, 1882.

Allowing the applicability of IT laws on the sale of immoveable property has opened a floodgate of opportunities for deploying digital resources by the sellers and buyers in materialising transaction between them. An end-to-end digital transaction would be the ultimate objective of both ends, in order to eliminate paperwork and physical presence of parties at all stages of the transaction.

However, the existing statute being a law drafted back in 1882 is antiquated and as such, cannot welcome the digital regime with open arms. The provisions as they exist today will push the entire object of digital transfer of interests in immoveable property to the wall.

For instance we have S.58(f) of the Transfer of Property Act, 1882 which requires that the Mortgage creation by deposit of title deeds is to be carried out at centres notified by the respective State for the purpose or the territories specifically brought in the provisions of S.58(f) of the T.P Act, 1882 by the State governments. It is to be noted that the towns mentioned in the original provision were those which were the hubs of business and commercial activities. Later, the State governments have by gazette notifications widened the applicability to different territories in order to free commercial ventures from territorial fetters. Thus, presently, the process of mortgage creation requires physical presence of parties at notified centres.

Now with the process of on boarding digital transfer of interests in immoveable properties, the whole idea of notification of territorial limits becomes obsolete. Also creation of digital mortgage cannot be bound by territorial limitations as imposed by the existing law. Considering that digital transactions are boundary less, it becomes essential that proper amendments in The Transfer of Property Act, 1882 are in place to create avenues for end to end completion of digital sale, mortgage, lease or such other transfers on the virtual platform without requiring physical presence at any stage.

Not just this, it is quintessential for the legislators to clear the air around the laws pertaining to stamping of digital sale/mortgage/lease etc. Beefing up the Indian Stamp Act and Registration Act, 1908 in order to facilitate digital transactions is a must in order to avoid further complications. Allowing digital transfer of interests in immoveable property without consequential changes in the primary laws tackling transfer of interests in immoveable property will be like placing the cart before the horse; we shall see no movement towards the path of digitalisation.

The law as it exists today demands physical presence of executants/assign of person executing sale, mortgage or such other transfer of interests in immoveable property before the Sub Registrar’s office. One can make reference to provisions like that of S. 28 of the Registration Act, 1908 which reads as follows: “28. Place for registering documents relating to land.—Save as in this Part otherwise provided, every document mentioned in section 17, sub-section (1), clauses (a), (b), (c) 3 [, (d) and (e), section 17, sub-section (2), insofar as such document affects immoveable property,] and section 18, clauses (a), (b) [(c) and (cc),] shall be presented for registration in the office of a Sub-Registrar within whose sub-district the whole or some portion of the property to which such document relates is situate.” and S.32 of the Act which further states- “Persons to present documents for registration.—Except in the cases mentioned in 5 [sections 31, 88 and 89], every document to be registered under this Act, whether such registration be compulsory or optional, shall be presented at the proper registration-office,— (a) by some person executing or claiming under the same, or, in the case of a copy of a decree or order, claiming under the decree or order, or (b) by the representative or assign of such a person, or (c) by the agent of such a person, representative or assign, duly authorised by power-of attorney executed and authenticated in manner hereinafter mentioned.” Continuing applicability of these provisions without any amendments will make the whole idea of digital sale and mortgage of immoveable property go for a toss. This is so because, the integral fragments of the transaction would still be parasitic to physical execution and wet signatures. Thus, it is indispensable to bring amendment in the Registration Act, 1908 in order to effectuate the subject amendment in IT Act, 2000.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.