Section 25 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 25 lets a seller keep control of goods, even after they have been delivered to the buyer or sent to a carrier, by reserving the "right of disposal" until certain conditions are fulfilled. While the right is reserved, the property does not pass. Sub-sections (2) and (3) apply the idea to goods shipped or sent by railway under a bill of lading or railway receipt to the seller's order, and to the common practice of sending a bill of exchange together with those documents.
A seller of specific goods, or of goods later appropriated to the contract, may, by the terms of the contract or appropriation, reserve the right of disposal until certain conditions are fulfilled; the property does not pass until the seller's conditions are met, even after delivery to a buyer or carrier (25(1)). Goods deliverable to the order of the seller or his agent under a bill of lading or railway receipt: the seller is prima facie deemed to reserve the right of disposal (25(2)). If the buyer does not honour the bill of exchange, he must return the bill of lading or railway receipt, and if he wrongfully retains it, property does not pass (25(3)).
Reading note
This article follows the consolidated text of the Act consulted (latest amendment shown: Act 28 of 1993); later amendments should be checked in the official text. Section 25 stands in Chapter III under the heading "Transfer of property as between seller and buyer", and it is the companion of section 23(2), where delivery to a carrier without reserving the right of disposal is deemed unconditional appropriation; see the article on section 23. In the print, sub-sections (2) and (3) and the Explanation appear in square brackets with a footnote: substituted by Act 33 of 1963, s. 4, for sub-sections (2) and (3) (w.e.f. 22-9-1963). A contract that depends on documents of title is worth a contract review before goods ship.
Section 25(1): the general power to reserve
"Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In such case, notwithstanding the delivery of the goods to a buyer or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled."
The sub-section works in two steps.
- The power. Where the contract is for specific goods, or goods are subsequently appropriated to the contract, the seller "may, by the terms of the contract or appropriation, reserve the right of disposal". The reservation is made in the contract or in the act of appropriation.
- The effect. Even after delivery to a buyer, or to a carrier or other bailee for transmission to the buyer, the property "does not pass to the buyer until the conditions imposed by the seller are fulfilled".
Example (the writer's own, not printed in the Act): Sharma Seeds sells a specific lot of seed to Verma Agro and dispatches it by road, with the term: "Right of disposal is reserved until the price is paid in full." The seed reaches Verma Agro's godown. Property has not passed, because the condition imposed by the seller (payment of the full price) has not been fulfilled.
Section 25(2): shipped or railway goods deliverable to the seller's order
"Where goods are shipped or delivered to a railway administration for carriage by railway and by the bill of lading or railway receipt, as the case may be, the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal."
The elements:
- goods are shipped, or delivered to a railway administration for carriage by railway;
- by the bill of lading or railway receipt, as the case may be, the goods are deliverable to the order of the seller or his agent;
- the seller is prima facie deemed to reserve the right of disposal.
"Prima facie" means at first sight; the sub-section does not say how the deeming may be displaced. A bill of lading and a railway receipt are among the documents of title listed in section 2(4); see our article on the section 2 definitions and, for the document itself, bill of lading as a receipt, contract and document of title.
Section 25(3): bill of exchange sent with the documents
"Where the seller of goods draws on the buyer for the price and transmits to the buyer the bill of exchange together with the bill of lading or, as the case may be, the railway receipt, to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading or the railway receipt if he does not honour the bill of exchange; and, if he wrongfully retains the bill of lading or the railway receipt, the property in the goods does not pass to him."
Break it into two limbs.
- The set-up: the seller draws on the buyer for the price and sends the buyer the bill of exchange together with the bill of lading or railway receipt, to secure acceptance or payment of the bill.
- The consequence: if the buyer does not honour the bill, he is bound to return the document; if he wrongfully retains it, the property does not pass to him.
For the bill of exchange as an instrument, see Section 5 of the Negotiable Instruments Act, 1881. That is a separate law and this article takes no rule from it; the Sale of Goods Act text says only what is quoted above.
The Explanation: railway terms, as printed
"In this section, the expressions 'railway' and 'railway administration' shall have the meanings respectively assigned to them under the Indian Railways Act, 1890 (9 of 1890)."
This is quoted as printed. The copy consulted still names the Indian Railways Act, 1890. The reader should check the current law for the corresponding provision; this article names no replacement Act or section.
Table: the three sub-sections
| Sub-section | Trigger | Effect |
|---|---|---|
| 25(1) | specific goods, or goods later appropriated; seller reserves the right of disposal in the contract or appropriation | property does not pass until the seller's conditions are fulfilled, even after delivery to buyer or carrier |
| 25(2) | goods shipped or sent by railway; bill of lading or railway receipt deliverable to the order of the seller or his agent | seller prima facie deemed to reserve the right of disposal |
| 25(3) | seller draws on buyer, sends bill of exchange with bill of lading or railway receipt | buyer bound to return the document if he does not honour the bill; wrongful retention means property does not pass |
Practical points
- Write the reservation down and name the conditions (payment, acceptance of a bill, or something else) that release the goods.
- Match the documents to the clause. Sub-section (2) turns on the words of the bill of lading or receipt.
- Think about risk. Section 26 deals with risk "unless otherwise agreed".
Need help with shipping documents and payment terms?
If your sales depend on bills of lading, railway receipts or bills of exchange, we can review and vet the contract so that the reservation of disposal, the documents and the payment steps all say the same thing.
Key takeaways
- A seller can reserve the right of disposal by the terms of the contract or appropriation; property then waits for the seller's conditions.
- A bill of lading or railway receipt to the order of the seller or his agent is prima facie a reservation.
- A buyer who does not honour a bill of exchange must return the bill of lading or railway receipt; wrongful retention means property does not pass.
- The Explanation refers to the Indian Railways Act, 1890 as printed; check the current law.
- Sub-sections (2) and (3) were substituted by Act 33 of 1963, s. 4 (w.e.f. 22-9-1963).
Read next
- Section 23 of the Sale of Goods Act, 1930: unascertained goods, appropriation and delivery to carrier
- Section 24 of the Sale of Goods Act, 1930: goods sent on approval or on sale or return
- Section 26 of the Sale of Goods Act, 1930: risk passes with property
- Bill of lading as a receipt, contract and document of title
Disclaimer: Based on the consolidated text of the Sale of Goods Act, 1930 consulted on 2 October 2026, whose latest amendment shown is Act 28 of 1993. It explains the words of the statute only; later amendments and the way courts apply these sections should be checked. This article is general information, not legal advice; check the official text before acting.