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Actionable claim – Concept of.

June 29, 2021

Actionable Claim

An actionable claim is of course as its nomenclature suggests, only a claim. A claim might connote a demand, but in the context of the definition it is a right, albeit an incorporeal one. Every claim is not an actionable claim. It must be a claim either to a debt or to a beneficial interest in movable property. The beneficial interest is not the movable property itself, and may be existent, accruing, conditional or contingent. The movable property in which such beneficial interest is claimed, must not be in the possession of the claimant. An actionable claim is therefore an incorporeal right. That goods for the purposes of Sales Tax may be intangible and incorporeal has been held in Tata Consultancy Services Vs. State of Andhra Pradesh (2005) 1 SCC 308. — See also. Sunrise Associates v. Govt. of NCT of Delhi, (2006) 5 SCC 603.

Actionable claims 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, Section 3, Transfer of Property Act, 1882 and [Section 2(1), Central Goods and Services Tax Act, 2017 (India)]. 2. Comprises two types of claims: (a) a claim to unsecured debts and (b) a claim to beneficial interest in movable property, H. Anraj v. Govt. of T.N.(1986) 1 SCC 414.

What is the distinction between actionable claims and other goods on the sale of which sales tax may be levied? 

The Court in Vikas Sales’s case said “when these licenses/scrips are being bought and sold freely in the market as goods and when they have a value of their own unrelated to the goods which can be imported thereunder, it is idle to contend that they are in the nature of actionable claims”. It was assumed that actionable claims are not transferable for value and that that was the difference between ‘actionable claims’ and those other goods which are covered by the definition of ‘goods’ in the  Sale of Goods Act, 1930 and the Sales Tax Laws. The assumption was fallacious and the conclusion in so far as it was based on this erroneous perception, equally wrong. The Transfer of Property Act1882, deals with transfer of actionable claims in Chapter VIII of that Act. Section 130 of the Transfer of Property Act provides that an actionable claim may be assigned for value. A right on the fulfillment of certain conditions to call for delivery of goods mentioned in a contract is an actionable claim and assignable under Section 130. (See Jaffer Meher Ali Vs. Budge-Budge Jute Mills Co.(1906) 33 Cal.702). 

There may also be assignments of an actionable claim dehors Section 130 (See Bharat Nidhi Ltd. Vs. Takhatmat (1969) 1 SCR 595). Negotiable Instruments, another species of actionable claim, are transferable under the Negotiable Instruments Act 1881. Transferability is therefore not the point of distinction between actionable claims and other goods which can be sold. The distinction lies in the definition of actionable claim. Therefore if a claim to the beneficial interest in movable property not in the vendee’s possession is transferred, it is not a sale of goods for the purposes of the sales tax laws.

An actionable claim would include a right to recover insurance money or a partner’s right to sue for an account of a dissolved partnership or the right to claim the benefit of a contract not coupled with any liability (see Union of India V. Sarada Mills (1972) 2 SCC 877, 880). A claim for arrears of rent has also been held to be an actionable claim (State of Bihar V. Maharajadhiraja Sir Kameshwar Singh 1952 SCR 889, 910). A right to the credit in a provident fund account has also been held to an actionable claim ( Official Trustee, Bengal v. L. Chippendale, AIR 1944 (Cal.) 335; Bhupati Mohan Das v. Phanindra Chandra Chakravarty & Anr. AIR 1935 (Cal.) 756). In our opinion a sale of a lottery ticket also amounts to the transfer of an actionable claim.

Whether lottery ticket comes under the purview of actionable claim:

A lottery ticket has no value in itself. It is a mere piece of paper. Its value lies in the fact that it represents a chance or a right to a conditional benefit of winning a prize of a greater value than the consideration paid for the transfer of that chance. It is nothing more than a token or evidence of this right. The Court in H.Anraj, as we have seen, held that a lottery ticket is a slip of paper or memoranda evidencing the transfer of certain rights. We agree.

Webster’s Words and Phrases Permanent Edition, Vol. 25-A Supplement defines a ‘ticket’ as ” a printed card or a piece of paper that gives a person a specific right, as to attend a theatre, ride on a train, claim or purchase, etc.” The Madras High Court in  Sesha Ayyar vs. Krishna Ayyar AIR 1936 Mad. 225 also held “tickets of course are only the tokens of the chance purchased, and it is the purchase of this chance which is the essence of a lottery”.

The sale of a ticket does not necessarily involve the sale of goods. For example the purchase of a railway ticket gives the right to a person to travel by railway. It is nothing other than a contract of carriage. The actual ticket is merely evidence of the right to travel. A contract is not property, but only a promise supported by consideration, upon breach of which either a claim for specific performance or damages would lie (Said v. Butt 1920 3 KB 497). Like railway tickets, a ticket to see a cinema or a pawn brokers ticket are memoranda or contracts between the vendors of the ticket and the purchasers. Cases on whether the terms specified on such tickets bind the purchaser are legion. It is sufficient for our purposes to note that tickets are themselves, normally evidence of and in some cases the contract between the buyer of the ticket and its seller. Therefore a lottery ticket can be held to be goods if at all only because it evidences the transfer of a right.

The question is, what is this right which the ticket represents? There can be no doubt that on purchasing a lottery ticket, the purchaser would have a claim to a conditional interest in the prize money which is not in the purchaser’s possession. The right would fall squarely within the definition of an actionable claim and would therefore be excluded from the definition of ‘goods’ under the Sale of Goods Act and the Sales Tax statutes. This was also accepted in H.Anraj when the Court said that to the extent that the sale of a lottery ticket involved a transfer of the right to claim a prize depending on chance, it was an assignment of an actionable claim. Significantly in B.R. Enterprises V. State of U.P.and Ors. (1999) 2 SCC 700 construing H.Anraj the Court said “52. So, we find three ingredients in the sale of lottery tickets, namely, (i) prize, (ii) chance, and (iii) consideration. So, when one purchases a lottery ticket, he purchases for a prize, which is by chance and the consideration is the price of the ticket”.

The further distinction sought to be drawn in H.Anraj between the chance to win and the right to participate in the draw was in our opinion unwarranted. A lottery having been held to be in essence a chance for a prize, the sale of a lottery ticket can only be a sale of that chance. There is no other element. Every right can be sub-divided into lesser rights. When these lesser rights culminate in a legally recognizable right, it is the latter which defines the right. The right to participate in the draw is a part of the composite right of the chance to win and it does not feature separately in the definition of the word “lottery”. It is an implicit part of the chance to win. It is not a different right. The separation is specious since neither of the rights can stand without the other. A draw without a chance to win is meaningless and one cannot claim a prize without participating in the draw. In fact the transfer of the chance to win assumes participation in the draw. The Supreme Court of Appeals of West Virginia, in West Virginia in State of West Virginia vs. John Wassick 156 W.Va.128, 191 S.E.2d 283, held that “free plays” which could be won predominantly by chance for consideration by operating multiple coin pinball machines for cash payoffs was a prize and the pinball machine constituted the lottery. This indicates that a draw is merely a method of holding the lottery just as a pinball machine may be a method of holding the lottery and does not constitute a separate right. There is no value in the mere right to participate in the draw and the purchaser does not pay for the right to participate. The consideration is paid for the chance to win. There is therefore no distinction between the two rights. The right to participate being an inseparable part of the chance to win is therefore part of an actionable claim. The authorities considered by the Court in H.Anraj do not support the sub division of the chance to win into a further distinct right to participate . The Court sought to draw the distinction between the chance to win and the right to participate by describing the former as a right ‘in futuro’ and the latter as “in praesenti”. Both the rights are in fact ‘in futuro’. In any event the distinction is immaterial to the question as to whether the subject matter of the transfer is an actionable claim, since an actionable claim may be existent, accruing, conditional or contingent.

Even if the right to participate is assumed to be a separate right, there is no sale of goods within the meaning of sales tax statutes when that right is transferred. When H. Anraj said that the right to participate was a beneficial interest in moveable property, it did not define what that moveable property was. The draw could not and was not suggested to be the moveable property. The only object of the right to participate would be to win the prize. The transfer of the right would thus be of a beneficial interest in movable property not in possession. By this reasoning also a right to participate in a lottery is an actionable claim. See. Sunrise Associates vs Govt. Of Nct Of Delhi & Ors (Supra).

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