ACTIONABLE CLAIM

Actionable Claim in general terms signifies a claim or a debt for which you can take an action,
which means there’s a claim and you can approach the court for the enforcement of the same.
Here it signifies a debt and the actionable claim holder can move to the court for the recovery of
that debt.

As defined under section 3 of Transfer of Property Act, 1882, “actionable claim” is a claim on
which action can be initiated in a court of law for relief. It can be interpreted in this way also that
it is a right of a person to initiate action in a court of law to secure his claim over a property both
movable and immovable. However under the same section certain categories of claims have been
excluded such as claims which have already been adjudicated and /or decreed, claims secured by
any charge such as mortgage, pledge or hypothecation of property. In an actionable claim, there
will be only an unsecured debt, as secured debts are excluded from the definition of actionable
claim given under Section 3.

Strictly speaking this claim relates to only such debts or any beneficial interest in movable
property which is not in actual or constructive possession of the claimant and /or is not secured
by charge (pledge, mortgage, hypothecation) of movable or immovable property. It can be
inherited and transferred by sale, mortgage and gift, just like other property. Transfer of this
claim either by sale, mortgage or gift can be completed by simply execution of an instrument in
writing to this effect. Such instrument does not need to be registered.

For example, X owes 500 rupees to Y. The claim of Y for the debt of X is an actionable claim.

This debt shall not be:

1. A debt secured by mortgage of immovable property or

2. A debt by hypothecation or
3. pledge of movable property or to any beneficial interest in movable property
An actionable claim is transferrable. Transfer of Actionable claim is dealt with under Chapter
VIII of Transfer of Property Act, 1882. Chapter VIII is the last chapter of TPA and it covers
from Section 130 to Section 137. (read Section 130-137 from Bare Act)

Section 130 describes the mode of transfer of Actionable Claim. According to it:

1. The transfer can be done only by:

2. An instrument in writing,
3. Signed by the transferor or his duly assigned agent.
4. The transfer can be with or without consideration.
5. The transfer will be complete and effective when executed.
6. The transfer vests all the rights and remedies of the transferor in the transferee.

Hypothecation v. Pledge

1) Pledge is used when the lender (pledgee) takes actual possession of assets (i.e.
certificates, goods like gold ornaments).  Such securities or goods are movable securities. 
In this case the pledgee retains the possession of the goods until the pledgor (i.e.
borrower) repays the entire debt amount.   In case there is default by the borrower, the
pledgee has a right to sell the goods in his possession and adjust its proceeds towards the
amount due (i.e. principal and interest amount). 
Some examples of pledge are Gold /Jewellery Loans, Advance against goods/stock, 
Advances against National Saving Certificates etc.
2) Hypothecation is used for creating charge against the security of movable assets, but here
the possession of the security remains with the borrower itself.  
Thus, in case of default by the borrower, the lender (i.e. to whom the goods /security has
been hypothecated) will have to first take possession of the security and then sell the
same.  
The best example of this type of arrangement are Car Loans. In this case Car/Vehicle
remains with the borrower but the same is hypothecated to the bank/financer.   In case the
of borrower’s defaults, banks take possession of the vehicle after giving notice and then
sell the same and credit the proceeds to the loan account.