Actionable Claim

An actionable claim is defined in Section 3 of the Transfer of Property Act, 1882 as a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent. In simpler terms, an actionable claim is a right to recover money or property that is enforceable by a court action — a 'chose in action' (French for 'thing in action').

The key characteristics: (1) It is intangible — not physical property but a right to sue; (2) It is transferable under Section 130 TPA by way of assignment; (3) The assignment must be in writing signed by the assignor; notice to the debtor (though technically not mandatory for the assignment to be valid) is practically necessary to perfect the assignee's right against the debtor; and (4) The assignee takes subject to all equities — any defences the debtor could have raised against the assignor, the debtor can also raise against the assignee. This is a critical limitation — unlike negotiable instruments (where a holder in due course takes free of defences), the assignee of an actionable claim inherits the assignor's vulnerabilities.

Actionable claims should be distinguished from negotiable instruments. A negotiable instrument (promissory note, bill of exchange, cheque) is also a claim to money — but it has the special quality of negotiability: a holder in due course acquires rights free from defects in the transferor's title. An actionable claim (e.g., a debt assignment) does not have this quality — the assignee takes subject to equities. In securitisation and debt assignment transactions (common in banking), the assignor's portfolio of loans is treated as actionable claims transferred by the assignor (bank) to a special purpose vehicle (SPV), which then issues securities to investors.

For advocates, actionable claims arise in: (1) assignment of debts in banking — whether a bank's assignment of a loan portfolio to an asset reconstruction company (ARC) under the SARFAESI Act is a valid assignment of actionable claims; (2) insurance — the right to claim under an insurance policy is an actionable claim, assignable under Section 130; (3) commercial disputes — whether a contractual right (e.g., the right to receive royalties) is an actionable claim capable of assignment; and (4) insolvency — whether actionable claims form part of the insolvent's estate available to creditors.