Chose in Action

What is a Chose in Action?

A **chose in action** (from the French "chose" meaning "thing") is a **right to recover something** — typically money, property, or damages — through **legal action** (a lawsuit) rather than through physical taking or possession. It is an **intangible right** that exists only in the legal realm and can be enforced only through the courts. Common examples include debts owed to you, rights under an insurance policy, claims for damages, intellectual property rights, and rights under a contract.

In everyday terms, a chose in action is something valuable that you "own" but cannot touch or hold physically. If someone owes you money, your right to collect that money is a chose in action — it is a valuable right, but you cannot physically grab it. You can only enforce it by going to court and obtaining a decree for payment. This contrasts with a **chose in possession** — a tangible physical thing (like a car, a piece of land, or jewellery) that you can actually hold and possess.

Legal Definition and Framework

The concept of chose in action originates in English common law and has been incorporated into Indian law primarily through the **Transfer of Property Act, 1882 (TPA)** under the concept of **"actionable claim."**

Actionable Claim — Section 3 of the TPA

**Section 3** of the TPA defines an **"actionable claim"** 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."

This definition essentially codifies the common law concept of chose in action in Indian law. The key elements are:

- **A claim to a debt** — unsecured debts (debts not secured by mortgage, hypothecation, or pledge).

- **A beneficial interest in movable property** not in the claimant's possession.

- **Recognised by civil courts** as affording grounds for relief.

- May be **existent** (currently payable), **accruing** (will become payable in the future), **conditional** (payable upon a condition being fulfilled), or **contingent** (dependent on an uncertain event).

Types of Choses in Action

**Debts:**

The most common form. If A lends money to B, A's right to recover the money is a chose in action. A cannot physically take the money from B — they must sue and obtain a court decree for recovery.

**Insurance Claims:**

The right to claim money under an insurance policy (before a loss occurs or after a claim is filed but before payment) is a chose in action. The policyholder cannot physically seize the insurance money — they must make a claim and, if disputed, enforce it through legal action.

**Rights Under a Contract:**

If a contractor has performed work and is entitled to payment under a contract, the right to receive that payment is a chose in action until actually paid.

**Intellectual Property Rights:**

Copyright, patents, and trademarks are choses in action — they are intangible rights that can be enforced only through legal proceedings (infringement suits, injunctions, damages claims).

**Shares in a Company:**

Shares in a company represent the shareholder's interest in the company — a bundle of rights (right to dividends, right to vote, right to share in assets on winding up). These are choses in action.

**Right to Claim Damages:**

A right to sue for compensation — whether in tort (negligence, defamation) or breach of contract — is a chose in action until the claim is quantified and paid.

**Negotiable Instruments:**

Promissory notes, bills of exchange, and cheques represent choses in action — the right to receive money from the maker, drawee, or acceptor.

Transfer of Choses in Action

Under Indian law, choses in action (actionable claims) can be transferred:

**Section 130 TPA — Transfer of Actionable Claims:**

The transfer of an actionable claim must be effected by the execution of an instrument **in writing** signed by the transferor or their duly authorised agent. Upon such transfer, all the rights and remedies of the transferor vest in the transferee, whether notice of the transfer is given to the debtor or not.

**Section 131 TPA — Notice:**

While notice to the debtor is not required for the validity of the transfer, it is essential for practical protection — a debtor who pays the transferor without notice of the transfer is discharged.

**Section 132 TPA — Liability of Transferee:**

The transferee of an actionable claim takes it subject to all the **equities** (defences, set-offs, counterclaims) that the debtor had against the transferor. The transferee cannot be in a better position than the transferor.

**Section 6(e) TPA — Restriction on Transfer:**

A mere right to sue for **damages** cannot be transferred. This means a person cannot assign their tort claim (e.g., right to sue for defamation) to another person. However, a right to sue for a **specific debt or sum of money** can be transferred.

When Does This Term Matter?

Securitisation and Banking

In modern banking and finance, the transfer of choses in action is the foundation of **securitisation** — the process by which banks bundle loans (choses in action — rights to receive repayment) and sell them to investors or asset reconstruction companies (ARCs). The SARFAESI Act, 2002 provides a specific framework for this. When a bank assigns a non-performing loan to an ARC, it is transferring its chose in action (the right to recover the debt) to the ARC.

Inheritance and Succession

Choses in action are **heritable** — they can be inherited by legal heirs. If a person dies with debts owed to them, the right to recover those debts passes to their legal representatives. Under the **Indian Succession Act, 1925** and **Hindu Succession Act, 1956**, actionable claims form part of the deceased's estate and are distributed among heirs according to the applicable law of succession.

Insolvency and Bankruptcy

Under the **Insolvency and Bankruptcy Code, 2016**, the assets of an insolvent person include their choses in action — debts owed to them, insurance claims, contractual rights, and intellectual property. The resolution professional must identify, protect, and, where appropriate, realise these intangible assets for the benefit of creditors.

Attachment and Execution

A chose in action can be **attached** by a court in execution of a decree. Under **Order 21 CPC**, the court can attach debts owed to the judgment debtor, directing the garnishee (the person who owes the debt) to pay the amount to the decree holder instead. This is the basis of the **garnishee order**.

Practical Significance

- **Choses in action have real economic value** — a debt owed to you is an asset on your balance sheet, even though you cannot physically possess it.

- **Transfer must be in writing** — oral assignment of an actionable claim is not valid under Section 130 TPA.

- **Always give notice to the debtor** — protect yourself by informing the debtor of the assignment to prevent them from paying the wrong person.

- **Equities follow the claim** — when acquiring an actionable claim, investigate what defences the debtor may have against the original creditor, as those defences are available against you.

- **Restriction on transferring litigation claims** — a mere right to sue for unliquidated damages (tort claims) cannot be transferred under Section 6(e) TPA.

Frequently Asked Questions

What is the difference between a chose in action and a chose in possession?

A **chose in possession** is a tangible, physical thing that can be actually held and possessed — land, a car, furniture, jewellery, cash. A **chose in action** is an intangible right that cannot be physically possessed and can only be realised through legal action — debts, insurance claims, contractual rights, intellectual property. The distinction matters for transfer — choses in possession are transferred by delivery (and, for immovable property, by registered instrument), while choses in action are transferred by written assignment under Section 130 TPA. The distinction also matters for attachment — different procedures apply for attaching tangible property versus intangible rights.

Can a right to sue for compensation in a motor accident case be transferred?

This depends on the nature of the claim. A **right to sue for unliquidated damages** (where the amount has not been determined) in tort is generally **not transferable** under Section 6(e) TPA, which prohibits transfer of a "mere right to sue." However, once a decree has been passed quantifying the compensation, the right to execute the decree (which is a specific debt — a liquidated amount) becomes an actionable claim that can be transferred. Additionally, if the victim dies, the right to claim compensation transfers to their **legal representatives** by operation of law under the Motor Vehicles Act, 1988, and CPC provisions on substitution.

Are digital assets and cryptocurrency choses in action?

This is an evolving area of law in India. **Digital assets** (domain names, digital content, online accounts) and **cryptocurrency** share characteristics of choses in action — they are intangible rights that exist only in the digital realm and may need legal action for enforcement or recovery. The Supreme Court in **Internet and Mobile Association of India v. RBI (2020)** recognised that cryptocurrency, while not legal tender, constitutes property that can be traded. As India develops its regulatory framework for digital assets (including the proposed Digital India Act), the classification of various digital assets as choses in action or a new category of property will become clearer.

How is a chose in action different from goodwill?

**Goodwill** is the intangible value of a business arising from its reputation, customer relationships, location, and brand recognition. While goodwill shares the intangible characteristic of choses in action, it is not typically classified as a chose in action because it is not a right to recover something through legal action. Goodwill is an intangible **asset** that can be valued and transferred (as part of a business sale), but it does not represent a specific right to sue. However, certain aspects of goodwill — such as the right to prevent passing off (misuse of the business name) — can be enforced through legal action and have some characteristics of choses in action.