Right of pre-emption

Pre-emption: the concept of

The right of pre-emption is not a right to the thing sold but a right to the offer of a thing about to be sold. This right is called the primary or inherent right.

In Suresh Chand and Anr. Vs. Suresh Chander (D) through LRS. and Ors- 19/02/2020 the Supreme Court has explained the following Law:-

10. In assessing the rival submissions, it is necessary to analyse the provisions of the Act. Section 4 is in the following terms:

“4 Cases in which right of pre-emption accrues. Subject to the provisions contained in section 5, the right of preemption shall, upon the transfer of any immovable property, accrue to the persons mentioned in section 6.”

The right of pre-emption accrues on the transfer of any immovable property to the classes of persons mentioned in Section 6. But the opening words of Section 4 indicate that the right of pre-emption which accrues under Section 6 is subject to Section 5.

11. Section 5 provides for cases in which the right of pre-emption does not accrue. For the purposes of the present appeal, clause (c) of sub-section (1) of Section 5, which is relevant, provides as follows:

“5. Case in which right of pre-emption does not accrue

(1) The right of pre-emption shall not accrue – (a) *** (b) *** (c) on a transfer to any of the persons mentioned in section 6, to any person who has an equal or inferior right of pre-emption;”

As a result of Section 5(1)(c), the right of pre-emption does not accrue on a transfer of the property to any of the persons mentioned in Section 6, to any person who has an equal or inferior right of pre-emption.

In a case, where a transfer is to a person mentioned in Section 6, the right of pre-emption does not accrue to any person who has an equal or inferior right of pre-emption. In other words, in a case where the vendee also has a right of pre-emption under Section 6, the right of pre-emption will accrue only to a person with a superior right of pre-emption

12. Section 6(1) specifies the persons to whom the right of pre-emption accrues. Section 6(1)(ii) is in the following terms:

“6. Persons to whom right of pre-emption accrues

(1) Subject to the other provisions of this Act, the right of preemption in respect of any immovable property transferred shall accrue to, and vest in, the following classes of persons, namely:

(ii) owners of other immovable property with a stair-case or an entrance or other right or amenity common to such other property and the property transferred,” 7 Sub-sections (2) and (3) of Section 6 are as follows:

“(2) Among the different classes of persons mentioned in subsection (1), persons of the first class will exclude those of the other classes, persons of the second class will exclude those of the third class.

(3) Among persons of the same class claiming the right of pre-emption, he person nearer in relationship to the person whose property is transferred will exclude the more remote.”

13. Under Section 6(1)(ii), a right of pre-emption accrues in respect of an immovable property to owners of other immovable property with a stair-case, entrance or other right or amenity common to such property and the property that is transferred. Where a right of pre-emption enures to the benefit of a person under the provisions of Section 6.(1)(ii), a consequence emanates in terms of Section 5(1)(c).

The effect of Section 5(1)(c) is that a right of pre-emption does not accrue, on a transfer to any person mentioned in Section 6, to any person who has an equal or inferior right of pre-emption. In other words, where a transfer is to any of the persons mentioned under Section 6, the right of pre-emption to the claimant accrues only if the claimant has a superior right. The right of pre-emption, as Section 4 indicates, is subject to the provisions of Section 5. Consequently, where any of the provisions of Section 5 come into operation, the right of pre-emption would not be available.

14. In a four judge Bench decision of this Court in Bishan Singh v Khazan Singh3, Justice Subba Rao (as the learned Chief Justice then was), while dealing with the provisions of the Punjab Pre-Emption Act 1913, summarised the law on pre-emption as follows:

“11. The plaintiff is bound to show not only that his right is as good as that of the vendee but that it is superior to that of the vendee. Decided cases have recognized that this superior right must subsist at the time the pre-emptor exercises his right and that that right is lost if by that time another person with equal or superior right has been substituted in place of the original vendee. Courts have not looked upon this right with great favour, presumably, for the reason that it operates as a clog on the right of the owner to alienate his property. The vendor and the vendee are, therefore, permitted to avoid accrual of the right of preemption by all lawful means. The vendee may defeat the right by selling the property to a rival pre-emptor with preferential or equal right.

To summarize:

(1) The right of pre-emption is not a right to the thing sold but a right to the offer of a thing about to be sold. This right is called the primary or inherent right.

(2) The pre-emptor has a secondary right or a remedial right to follow the thing sold.

(3) It is a right of substitution but not of re-purchase i.e., the pre-emptor takes the entire bargain and steps into the shoes of the original vendee.

(4) It is a right to acquire the whole of the property sold and not a share of the property sold.

(5) Preference being the essence of the right, the plaintiff must have a superior right to that of the vendee or the person substituted in his place.

(6) The right being a very weak right, it can be defeated by all legitimate methods, such as the vendee allowing the claimant of a superior or equal right being substituted in his place.”

(emphasis supplied)

In a Constitution Bench decision of this Court in Radhakisan Laxminarayan Toshniwal v Shridhar Ramchandra Alshi4, this Court dealt with the question whether a suit for pre-emption could be filed prior to execution of the sale deed. Justice J L Kapur, speaking for this Court held thus:

“13… The right to pre-empt the sale is not exercisable till a pre-emptible transfer has been effected and the right of pre- emption is not one which is looked upon with great favour by the courts presumably for the reason that it is in derogation of the right of the owner to alienate his property. It is neither illegal nor fraudulent for parties to a transfer to avoid and defeat a claim for pre-emption by all legitimate means…”

(emphasis supplied)

15. The right of pre-emption is a preferential right to acquire the property by substituting the original vendee. The transfer or sale of an immovable property is a condition precedent to the enforceability of the right. The right of pre-emption is attached to the property and only on that footing can it be enforced against the vendee. Though the right is recognised by law, yet it can be rendered imperfect by the vendor when he transfers the property to another person who also has a superior right to the plaintiff pre-emptor.