Para 2.16 - Ownership Transfer | KartavyaDesk
Original Rule Text
3.2 Concept of Transfer of Property (Passing of Title) 1. Proprietary (ownership) rights and obligations in “goods” are called legally “title to goods” or “property in goods.” The meaning of property here is different from the common connotation of the word. At what point of time or stage in a contract does this passing of title of (property in) goods happen is laid down by this Act. The ownership of goods is different from 'possession of goods' which means the physical custody or control of the goods. Delivery of goods is only a transfer of ‘possession of goods;” and may or may not coincide with the passing of title in goods. This distinction is especially important in procurement. 2. The transfer of property in the goods from the seller to the buyer is the essence of a procurement of goods. Therefore, the moment when the property in goods passes from the seller to the buyer is significant for the following reasons: a) Ownership: The moment the property in goods passes, the seller ceases to be their owner and the buyer acquires the ownership. The buyer can exercise proprietary rights over the goods. For example, the buyer may sue the seller for non-delivery of the goods or when the seller has resold the goods, and so on. b) Concept of “Res Prit Domine” -- Risk Follows Ownership: This concept simply means that, as a general rule, risk follows the ownership, irrespective of whether the delivery (or transfer of possession of goods) has been made or not. If the goods are damaged or destroyed, the loss shall be borne by the person who was the owner of the goods at that time – irrespective of whosoever is in the “possession of the goods.” c) Action against Third parties: When the goods are, in any way, damaged or destroyed by the action of third parties, only the owner of the goods can act (claim, litigation) against them. d) Time at which Property in Goods is Transferred: The property in goods is transferred to the buyer at such time as the parties to the contract intend this to happen, as recorded in the terms of the contract. This needs neither to coincide with the point when payment is made nor with the delivery of Goods and not even with the point of time when the seller dispatches the goods.
What This Means
Para 2.16 of the Manual for Procurement of Goods, 2017, focuses on when ownership of purchased goods officially transfers from the seller to the buyer (the government). It's crucial to understand that 'ownership' isn't just about having the item physically; it's about having the legal rights and responsibilities associated with it. This transfer of ownership, also known as 'passing of title,' determines who is responsible if something happens to the goods, like damage or loss, and who has the right to take legal action if needed.
The rule emphasizes that the transfer of ownership doesn't automatically happen when the goods are delivered, when payment is made, or even when the seller ships the goods. Instead, it happens at the time agreed upon in the contract between the buyer and seller. This agreed-upon time is what matters most. This means government employees involved in procurement need to carefully review and understand the contract terms to know exactly when the government assumes ownership and responsibility for the purchased goods.
Essentially, this rule clarifies that ownership and possession are two different things. The government might have the goods in its possession, but the seller might still legally own them until the contractually agreed-upon transfer date. This distinction is vital for determining liability and rights related to the goods.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- •Ownership (title) of goods is distinct from possession.
- •Transfer of ownership happens as per the terms of the procurement contract.
- •Risk follows ownership: the owner bears the loss if goods are damaged or destroyed.
- •Only the owner can take legal action against third parties for damage to the goods.
- •Payment or delivery doesn't automatically mean ownership has transferred.
Practical Example
The Ministry of Textiles orders 100 high-speed sewing machines from 'StitchWell Industries' for a total of ₹50,00,000. The contract states that ownership of the machines transfers to the Ministry upon successful installation and acceptance testing at the designated training center. StitchWell delivers the machines, but during installation, a fire breaks out due to faulty wiring, damaging 20 machines. Since the contract specified ownership transfer only after successful installation and acceptance, StitchWell Industries bears the loss for the damaged machines, as they were still the legal owners at the time of the fire. The Ministry is only responsible for the remaining 80 machines that pass the acceptance test.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
What is 'passing of title' or 'transfer of property'?▼
If we've paid for the goods, does that mean we own them?▼
What happens if the goods are damaged during transit?▼
Where in the procurement process should I pay attention to this rule?▼
What is the meaning of 'Res Prit Domine'?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Test Your Knowledge
Question 1 of 3
According to the Manual for Procurement of Goods, 2017, at what point does the transfer of property in goods from the seller to the buyer typically occur?
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