Apportionment (Sections 36 and 37)

When a transferor parts with property that yields income, two questions follow at once. Who collects the rent that has half-accrued at the date of transfer — the seller or the buyer? And when the transferor parts with only a fraction of the property, leaving the rest with himself, how is the tenant's obligation to pay rent split between the original transferor and the new co-owner? The Transfer of Property Act, 1882 answers both questions through its twin sections on apportionment. Section 36 apportions periodical income by time. Section 37 apportions the benefit of an obligation by estate. The two operate in different fields and carry different ingredients, and confusing them is a standard exam trap.

Two kinds of apportionment — by time and by estate

Apportionment by time addresses the chronological problem. Property changes hands during a rent cycle. The rent for the cycle has begun to accrue but has not yet become payable. To whom does the accrued rent belong? Section 8 of the Act says that a transferee is entitled to the income accruing after the transfer takes effect. But rent does not accrue from day to day — it accrues at stated periods. Without a special rule, the transferee on the day before the rent-day would take the entire rent for the period; the transferor would take nothing. Section 36 prevents that anomaly by deeming all periodical payments in the nature of income to accrue from day to day, with the day's accrual apportioned between the transferor and the transferee.

Apportionment by estate addresses the geographic problem. The transferor sells half his estate to a new co-owner; the existing tenant now has two landlords. The single obligation to pay rent, designed for one landlord, has to be split between two. Section 37 supplies the rule of severance. Rent is divided between the co-owners in proportion to the share each has acquired. The tenant, on receiving notice of the severance, must pay each co-owner his proportionate share. Where the obligation is one that cannot be cleanly severed — the delivery of one fat sheep, in the section's classic illustration — the section provides a different solution.

Statutory anchor — Section 36 (apportionment by time)

The illustration is a clean one. A has let his house at a rent of Rs 100 payable on the last day of each month. A sells the house to B on 15 June. On 30 June, A is entitled to Rs 50 rent from the 1st to the 15th, and B is entitled to Rs 50 from the 15th to the 30th. The tenant pays the rent to each on the rent-day; the apportionment is between the transferor and the transferee, not between the tenant and the new landlord. The accrual is fictional — it is a deeming provision designed to remove the anomaly that would otherwise arise from the tension between Section 8 and the periodic nature of rent.

Ingredients of Section 36

The section operates only when the following are present.

1. A periodical payment in the nature of income. The Act expressly mentions rents, annuities, pensions and dividends; the residual phrase "other periodical payments" is defined narrowly. The payment must be of a kind that recurs at fixed times, from an antecedent obligation, and must be in the nature of income — coming in from some kind of investment.
2. A transfer of the interest of the person entitled to receive the payment. The Indian rule is restricted to transfers inter vivos and does not apply to liabilities — that is, to the transfer of the interest of the person bound to pay. The Calcutta High Court so held in Satyendra Nath v Nilkantha, (1894) ILR 21 Cal 383.
3. The transfer is not by operation of law. Section 2(d) excludes transfers by operation of law from the Act. A purchaser at an execution sale acquires title by operation of law, and the rule of apportionment does not apply. U Kyaw Zan v Ah Doe, AIR 1924 Rang 365, and Subbaraju v Seetharamaraju, (1916) ILR 39 Mad 283, are the standard authorities.
4. The transfer is not a partition or a succession. A partition is not a transfer in the strict sense, since the co-sharer always had a right in the portion allotted to him; the rule of apportionment by time has no application. The same exclusion applies to devolution by succession.
5. There is no contract or local usage to the contrary. The default rule of Section 36 yields to express agreement and to local custom.

What is — and is not — "other periodical payment"

The phrase "other periodical payment" is a narrow term of art. The English Apportionment Act, 1870, uses the same phrase, and Lord Selborne in the standard exposition limited it to payments that are made periodically, recurring at fixed times — not at variable periods, and not in the discretion of one or more individuals — and that flow from an antecedent obligation. They must, further, be in the nature of income, coming in from some kind of investment.

The phrase therefore excludes the profits of a partnership, which accrue only after the adjustment of accounts and are not a periodical payment in the relevant sense. It excludes the variable profits of a share in a village. It excludes prepaid rent — which the courts have held to be not rent at all, but a loan, following De Nicholls v Saunders, (1870) LR 5 CP 589. The same applies to security deposits and other sums paid in advance against periodic accrual.

By contrast, the section catches all standard rent-equivalents — ordinary monthly rent under a lease, half-yearly dividends on shares (where the dividends represent a transferable interest in the company), monthly pension payments, annuities payable at fixed intervals. A Hindu widow's right to maintenance has been treated as a periodical payment that accrues from day to day, so that on her death her heirs are entitled to recover the allowance up to the day of her death even if the payment was, for convenience, made on a fixed date.

Sums due before the event are not apportioned

Sums in advance and sums that have already become due before the event that calls for apportionment are not apportioned. Where rent was payable quarterly in advance and the landlord re-entered for non-payment of rent during the quarter, he was held entitled to recover the whole rent for the quarter — there was nothing to apportion, since the rent had already accrued in full. Ellis v Rowbotham, [1900] 1 QB 740, is the standard English authority.

The rule on payability also matters. Section 36 expressly preserves the date on which the payment is to be made by the person liable. If, under a lease, rent is payable at the end of the year, an assignment by the lessor of his interest in the middle of the year results in transferor and transferee being each entitled to half the rent — but the lessee still remains liable to pay only at the end of the year. The Allahabad High Court applied this in Lala Ganga Ram v Mewa Ram, AIR 1922 All 275, to the apportionment of rent on the redemption of a mortgage.

Contract or local usage

Section 36 begins with the words "In the absence of a contract or local usage to the contrary". The default rule yields to express stipulation. In E D Sassoon & Co v CIT, AIR 1954 SC 470, where a managing agent assigned his entire interest in the agency, the Supreme Court inferred a contract to the contrary — the transferor had no right to commission for the period prior to the date of transfer. The pattern is common in commercial assignments where the assignor and the assignee fix their own terms on the closing of accounts.

For agricultural rents, the Allahabad High Court in Mohammad Abdul Jalil Khan v Mohammed Abdul Salem Khan, AIR 1932 All 178, applied the principle of Section 36 to agricultural profits — the co-sharer's right accrues from day to day, even where statute fixes a particular date for division. The contrary view that agricultural rents accrue only when the crops are reaped, and are therefore not apportionable, has been firmly rejected. Apportionment of agricultural rents proceeds, however, by reference to the rent of the season in which the crop was reaped, not the rent of the whole year.

Statutory anchor — Section 37 (apportionment by estate)

Two illustrations make the operation concrete. A sells to B, C and D a house in a village leased to E at an annual rent of Rs 30 and the delivery of one fat sheep — B providing half the purchase money, C and D one-quarter each. E, having notice of the severance, must pay Rs 15 to B, Rs 7.50 to C, and Rs 7.50 to D — the rent obligation is severable and is split in proportion to share. The sheep, however, is one and indivisible — it must be delivered according to the joint direction of B, C and D. Where the duty cannot be severed, the section requires the co-owners to designate a single recipient.

The second illustration concerns severability that would substantially increase the burden. Each house in the village is bound to provide ten days' labour each year on a dyke to prevent inundation, and E has agreed in his lease to perform this work. B, C and D severally require E to perform ten days' work due on account of the house of each. E is not bound to do more than ten days' work in all — he must do the ten days according to the joint direction of B, C and D. Severance would substantially increase the burden, and so the section refuses to permit it.

Severance — notice converts joint to several

Before the Transfer of Property Act, when a tenure was severed by the sale of shares in the reversion, the tenant was still obliged to pay the rent to all sharers jointly — unless an apportionment had been agreed by all parties or ordered in a suit to which all were parties. Ishwar Chunder v Ram Krishna Dass, (1890) ILR 5 Cal 902, captured the pre-Act position. Section 37 changed that. Notice to the tenant is now sufficient to convert the single obligation to pay rent to all into a several obligation to pay each co-sharer his proportionate part. The Madras High Court applied this in Sri Raja Simbadri v Pratsipasti Ramayya, (1908) ILR 29 Mad 29 — on receipt of the notice, the tenant is under an obligation to pay each sharer his proportionate part of the rent.

The notice may be given by the assignor or the assignee — the section is indifferent. The notice has no bearing on the title of the assignee; it is purely a mechanism for the conversion of the obligation. The section also makes notice a condition for the tenant's liability — no person on whom the burden of the obligation lies is answerable for failure to discharge it in the manner the section prescribes until he has had reasonable notice of the severance. The proviso protects the tenant from being caught between two landlords without warning.

The benefit-of-obligation rule beyond rent

Section 37 is not confined to rent. It catches the benefit of any obligation attached to property, so far as that obligation is capable of severance. When the lessor sells portions of the property leased, the covenants which run with the land run with the severed portions. The lessee is bound to perform his various obligations in favour of each sharer in the reversion to the extent that those obligations are capable of severance, and such performance will not be to his prejudice. The Easements Act, 1882, contains a similar provision in Section 30 — severance into shares of the dominant heritage should not increase the burden on the servient heritage.

Where the obligation is one of payment of money, severance is straightforward — the rent is split in the proportion of shares. Where the obligation is one of services, supplies, or covenants in kind, the question of severability requires close attention. Some covenants are by their nature divisible — periodic supplies of grain, season-by-season cultivation. Others are not — a single annual delivery of one specific item, a single act of performance such as a sacrifice or repair, or any duty whose performance once renders the burden discharged.

What Section 37 does not catch

The section is subject to Section 2(d) of the Act and is therefore not applicable to involuntary transfers or to cases of succession. The heirs of a deceased creditor are only jointly entitled to enforce the right which the deceased, if alive, could singly enforce — Section 37 does not split the joint obligation among them. There is no automatic severance in the case of partition either; partition is not a transfer in the strict sense, and Section 37 has no purchase on it.

The section corresponds, in the lease context, to Section 109 of the Act — both provide for the consequences of a transfer of the lessor's interest. The two operate in tandem. Section 109 deals with the transfer of the lessor's reversion and the rights of the new lessor; Section 37 deals with the apportionment of the tenant's obligations among the new co-owners of the reversion. The reading of the lease cases requires both sections in mind.

Payment of rent by a tenant in good faith and without notice of a transfer is protected by Section 50 of the Act. The tenant who has paid the original lessor in ignorance of an assignment is not in default — the new lessor must look to the old, not to the tenant. The proviso to Section 37 reinforces this protection from a different angle.

Agricultural tenancies — the carve-out

The last paragraph of Section 37 takes agricultural leases out of the section's scope unless and until the State Government, by notification in the Official Gazette, directs otherwise. The reasoning is policy-driven — the severance of the obligation to pay rent on small agricultural holdings would cause much harassment to agriculturists, who would be required to track multiple landlords and apportion their grain rents accordingly. The carve-out preserves the position under local revenue and tenancy laws.

Note, however, that Section 36 does not have the same carve-out. Agricultural rents, as the Allahabad High Court held in Mohammad Abdul Jalil Khan, are subject to apportionment by time under Section 36 even though apportionment by estate under Section 37 is excluded. The two sections operate independently and the exclusion in Section 37 does not bleed across into Section 36.

Section 36 vs Section 37 — the line distilled

The two sections are easy to confuse and worth distinguishing carefully.

Field of operation. Section 36 is concerned with the time at which a periodical payment accrues. Section 37 is concerned with the share of an obligation that follows the severance of property into multiple owners.

Trigger. Section 36 is triggered by a transfer of the interest of the person entitled to receive a periodical payment. Section 37 is triggered by a transfer that divides property into several shares held by multiple owners, with the consequence that the benefit of an obligation passes from one to several owners.

Rule. Section 36 deems all periodical payments in the nature of income to accrue from day to day, with apportionment between transferor and transferee on that basis. Section 37 splits the duty proportionally to the value of each share, provided the duty is severable and severance does not substantially increase the burden — failing which a single recipient must be designated by the co-owners jointly.

Notice. Section 36 does not require notice — the apportionment operates between transferor and transferee, and the tenant continues to pay on the rent-day. Section 37 requires notice to the tenant — without it, the tenant cannot be compelled to pay each co-owner separately, and is protected if he pays the original landlord in good faith.

Agricultural carve-out. Section 37 expressly excludes agricultural leases pending notification by the State Government. Section 36 contains no such exclusion and applies to agricultural rents subject only to local custom.

Pitfalls and exam angles

The first pitfall is to apply Section 36 to a transfer of the obligor's interest. The Indian rule, unlike the English, is restricted to transfers of the interest of the person entitled to receive the periodical payment. Satyendra Nath v Nilkantha is the leading authority. If the question presents a transfer of the lessee's interest — that is, of the person bound to pay — Section 36 has no application.

The second pitfall is to apply Section 36 to involuntary transfers and partitions. U Kyaw Zan v Ah Doe and Subbaraju v Seetharamaraju exclude execution sales; the courts have held the same for partitions and devolutions on succession. Section 2(d) of the Act is the gatekeeper.

The third pitfall is to think that Section 37 splits any obligation, however indivisible. The section is express — where the duty cannot be severed, or where severance would substantially increase the burden, the co-owners must jointly designate a single recipient. The illustration of the fat sheep is not a curiosity; it is the point of the rule.

The fourth pitfall is the interaction of Sections 36 and 37 with the rules of operation of transfer in Sections 8 to 11. Section 8 is the default — the transferee takes the income that accrues after the transfer. Section 36 supplies the deeming fiction that lets that default work fairly between transferor and transferee. The two sections must be read together; neither stands on its own.

The fifth pitfall concerns the interaction of Section 37 with the equitable doctrine in Section 35. The two operate in different planes — Section 35 governs the choice between confirming and dissenting from a transfer; Section 37 governs the consequences of a valid transfer that severs the property. Where the transferor purports to convey property he does not own, Section 35 controls. Where the transferor validly conveys part of his property, leaving the rest with himself, Section 37 controls. Confusing the two is a common error in problem-style questions.

A final practical point — both Sections 36 and 37 sit in the group of sections (33 to 37) that apply to both movable and immovable property. The next group, beginning with Section 38, is confined to immovable property. Apportionment is therefore one of the few doctrinal rules that operates equally on a sale of shares with a half-accrued dividend and on a sale of land with a half-accrued rent. The same logic governs both fields.