When Does The Sale Of A Motor Vehicle Take Place ?At The Time Of Delivery Or At The Time Of Registration

This might sound like a very trivial question. However, much turns on the answer to this seemingly innocuous question, as its potential answer can create or extinguish liabilities.

Before delving into the topic, it is apposite to note some provisions of law.

A motor vehicle is after all a movable good, a chattel, and hence its sale, transfer etc., would be governed by the provisions of the Sale of Goods Act 1930. Section 19 and 20 of the Sale of Goods Act states how transfer of property in goods takes place.

19. Property passes when intended to pass.—

(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.

(2)For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.

(3)Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer.

 S.20 - Specific goods in a deliverable state.--  Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed.

So, as per the scheme of the Sale of Goods Act, the property in goods passes to the buyer when the contract is made, in case of specific goods in a deliverable state. Therefore, the transfer of title of a motor vehicle takes place immediately when the contract is made, provided we treat motor vehicle as a ‘specific good in a deliverable state’(whether a motor vehicle is an ascertainable and deliverable good before registration is another moot point, which will be discussed in the later part of this article).

But, when it comes to Motor Vehicles Act, things are slightly different from the general principles of civil law. Section 2(30) of the Motor Vehicles Act defines ‘owner’ as  “a person in whose name the vehicle stands registered.  The definition of owner is different from the general notion of ownership in civil law, where the person who has title is treated as the owner. In Motor Vehicles Act, the person in whose name the vehicle stands registered in the records is deemed as the owner, whether or not he retains title and possession over the vehicle.  Likewise, Section 50 of the Motor Vehicles Act provides for the process for transfer of ownership of vehicle, which involves intimating the jurisdictional RTOs of the transferor and transferee in the statutorily prescribed forms of Form 19 and Form20. Therefore, transfer of ownership as per Motor Vehicles Act gets completed only after following the procedure prescribed under Section 50.

So, the answer the question as to when does the sale of motor vehicle take place is primarily based on how closely interlinked is ownership and registration of the motor vehicle.

VIEW THAT SALE OF MOTOR VEHICLE IS SOLELY GOVERNED BY SALE OF GOODS ACT.

The specific issue as to when the sale of motor vehicle took place fell for consideration in Vasantha Vishwanathan vs. Elayalawar AIR 2001 SC 3367.  It was a civil suit wherein the plaintiff filed suit inter-alia for declaring his title over 5 stage carriages, which were being plied by the 1^st defendant. The plaintiff’s contention was that although the transfer of ownership was effected in the RTO records, there was no intention as such to transfer the vehicles to the 1^st defendant. The on-paper transfer of registration was done to get over the ceiling limit imposed by a Tamil Nadu Legislation, which was later struck down as unconstitutional. The 1^st defendant resisted the suit stating that on transfer of registration, property in goods passed on to the buyer. The Court did not accept the contention of the 1^st defendant, and held that the plaintiff remained the owner of vehicles, notwithstanding the transfer of registration. It was held as follows :-

S.31 of the Motor Vehicles Act, 1939 lays down that where the ownership of any motor vehicles registered under Motor Vehicles Act is transferred, the transferor and transferee both are required to report the fact of transfer to the registering authority so that particulars of transfer of ownership may be entered in the certificate of registration. The transfer is not effected under S.31 of the Motor Vehicles Act, 1939, but the same simply prescribes procedure for entering the factum of transfer in the registration certificate, which is an act posterior to the transfer. The transfer of vehicles in question would be governed by the provisions of S.19 of the Sale of Goods Act according to which property in the vehicle would pass to defendant No. 1 at such time as the parties to the contract intend it to be transferred.

So, the Court held that mere transfer of registration will not result in transfer of ownership, and that the transfer of ownership of a motor vehicle will take place only in accordance with the Sale of Goods Act.

This view was followed in a recent decision of the Kerala High Court in Commissioner of Central Excise vs. M/s Sai Service Station. Therein, the issue was whether used car dealers were liable to pay service tax. The modus of their operation was as follows- the dealer would purchase a used car from the owner. The dealer will refurbish the car and resell it to another buyer. The transfer of registration takes place only when the dealer re-sells the car to subsequent buyer. In other words, there is no transfer of registration in favour of the dealer when the original owner delivers the used car to dealer.

The Department sought to characterise the transaction as a ‘service’, and sought levy of service tax. The dealer contended that a complete sale took place when the used-car owner delivered the vehicle to it. The Department countered the contention by stating that no such sale took place, since there was no transfer of registration in favour of dealer.

Following Vasantha Vishwanathan vs. Elayalawar, the Court held that transfer of registration was not a pre-condition for completion of sale of vehicle. A vehicle is a movable good, and its sale is governed solely by the provisions of the Sale of Goods Act.  As per provisions of Sale of Goods Act, the transfer of property in goods in deliverable state takes place when the contract is made.  So a sale of goods takes place when the dealer takes possession of the used car from the owner, and its tile is transferred to the dealer. Registration of vehicle is an event which happens subsequent to sale.

According to Court, registration is a statutory requirement for using the vehicle in a public place, as per Section 39 of the MV Act. A hypothetical situation of a person purchasing a car only to keep it in his garage was also cited to lend more credence to the reasoning. In such a situation, he need not register the vehicle. But it would be fallacious to state that he had not gained ownership of the vehicle, merely on account of non-registration.

VIEW THAT REGISTRATION IS THE ONLY DETERMINATIVE FACTOR FOR OWNERSHIP

It was stated above that Motor Vehicles Act treats the person in whose name vehicle is registered as the owner, irrespective of the fact that he has transferred the ownership.

Such provisions, though seeming to be in derogation of the principles of civil law and tort law, are incorporated in view of the beneficial intent of the Act so as to avoid long drawn controversies regarding ownership of vehicle in claim petitions filed by victims. In this context, Section 157 of the Act is also relevant, whereby transfer of certificate of insurance issued in favor of original owner is deemed to have been transferred in favour of the transferee with effect from the date of transfer. In Pushpa @ Leela v. Shakuntala AIR 2011 SC 682: (2011) 2 SCC 240, the Apex Court was considering the liability of the original owner, transferee and the insurer of the original owner in answering the claim. ‘A’ sold his truck to ‘B’, which was insured at the relevant time with insurer ‘C’. The transfer was not recorded in the books of RTO and ‘A’ continued to be the registered owner on record. Although the insurance for vehicle was in effect from insurer ‘C’, that got expired, and ‘B’ got the vehicle insured from another  insurer ‘D’, in the name of ‘A’. While so, accident occurred giving rise to claim petitions. The Tribunal held that only ‘B’ was liable to satisfy the claim, as ‘A’ had ceased to be owner. Insurer ‘D’ was also absolved holding that the insurance was in favour of ‘A’, and as there was no privity of contract between ‘B’ and ‘D’, ‘D’ was not liable to indemnify ‘B’. This view was approved by the High Court. Thus, the claimants were put to hardship as the satisfaction of claim by ‘B’ is not easily forthcoming as it would be from insurer, and they approached the Supreme Court. Relying on Sec.2(30) & 50, the Court held that ‘A’ was also liable to answer the claim, since ‘A’ continued to be registered owner. It was also held that since there was valid insurance policy issued by ‘D’ in favour of ‘A’, ‘D’ was liable to indemnify ‘A’ by satisfying the claim.

On close scrutiny, it can be seen that this decision also treats sale and registration as two distinct events. However, the registered owner is treated as the ‘owner’ for the purpose of fixing liability in motor vehicle accident, on account of deeming provision in Sec.2(30). Theoretically, such registered owner can proceed against the transferee owner for seeking contribution of the compensation which he had to pay to the claimants.

VIEW THAT SALE GETS COMPLETE ONLY ON REGISTRATION OF VEHICLE

In Commissioner of Commercial Taxes, Trivandrum vs. KTC Automobiles (2016) 4 SCC 82, the Apex Court echoed the thought that sale of a motor vehicle gets completed only on registration of vehicle.

Therein, a car dealer had branch offices in Calicut(Kerala) and Mahe(Union Territory of Pondicherry).  The Sales Tax Department of Kerala sought to impose sales tax on some transactions on the ground that such sales actually took place at Calicut, though the vehicles were subsequently registered at Mahe. The Department alleged that the vehicles though sold at Calicut were got registered at Mahe to avail the lesser rates of taxes prevalent in UT of Pondicherry. The dealer sought to justify its stand by stating that the sale gets complete only on registration, which happened at Mahe, and hence there was no incidence of sale in Kerala in order to attract levy under Kerala General Sales Tax Act.

The Court accepted the contention of the dealer. It was held that until and unless the vehicle was registered after noting its engine number and chassis number, it remained an unascertainable good.  According to the definition of ‘sale’ as per Kerala General Sales Tax Act,  sale is deemed to take place in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer. It was observed that a motor vehicle remained in the category of unascertained goods till its appropriation to the contract of sale by the seller is occasioned by handing over the possession at or near the office of registering authority in a deliverable state. The Court also referred to Rule 42 of the Central Motor Vehicle Rules which prohibited a dealer from delivering a vehicle to a purchaser without registration, whether temporary or permanent.  By referring to Sections 18 and 21 of the Sale of Goods Act, it was held that sale of unascertained and non-deliverable goods takes place only when the goods are ascertained and are placed in a deliverable state. On the premise that a motor vehicle becomes and ascertainable and deliverable good only on registration, it was held that sale got complete only on registration, which took place at Mahe.

This decision seems to be in variance with the earlier decisions cited as Vasantha Viswanathan and M/s Sai Traders, which held that registration was a mere post-sale event.  This decision however does not disturb that principle. It is stated in this decision as follows :- Technically though the registration of a motor vehicle is a post-sale event, the event of sale is closely linked in time with the event of registration. In practical terms though sale precedes the event of registration, in normal circumstances and as the law stands now, it is co-terminus with the registration of a new vehicle. Practically, no one buys a vehicle to keep it idle in his private space; and for use in public place, registration is mandatory. This aspect weighed with the Court more.  Although the conclusions in Vasantha Viswanathan and Sai Traders might hold good theoretically, they do not seem to be in accordance with the ordinary course of business and conduct. Perhaps, there is no conflict as such between these cases, and the equities and circumstances of each case might have occasioned the respective final results.

Be that as it may, it is hoped that the above discussion has emphasised the fact that an issue which seems trivial and innocuous in common parlance can assume complex hues in law.