Restraints on the Alienation of Property

This article delineates the various provisions pertaining to the alienation of property under the Transfer of Properties Act, 1882. It also analyses the stipulations through various case laws.

I. Introduction

Alienation of property means the transfer of property, the complete transfer of the title of a property by its valid owner to another, be it by way of sale, gift, mortgage, lease or any other. The owner or the transferee of a property, as the case may be, has the absolute right to dispose of his property legally in any way he likes. However, this right may be restrained to certain limitations and conditions.

For instance, a flat may be given on lease in exchange for rent with the condition that the tenant cannot sublet it further. This condition is necessary for the transfer to be valid, and it restricts the right of alienation of the transferee (tenant) such that he cannot alienate the property to another for consideration. This conditional transfer was held valid in the case of Raja Jagat Ranvir v. Bagriden [1]. These conditions and restraints on the transferee’s right to alienate the property are covered under Sections 10 to 18 of the Transfer of Properties Act, 1882 (‘the Act’).

II. Joint Hindu Family

Under Hindu personal law, the Karta or any other member of the joint family is not empowered to alienate the interest in the shared joint family property by himself without the consent of the coparceners. Earlier, Karta had this power to alienate without consent, but now this power is not available to him except under certain situations. This restriction is only with respect to the shared coparcenary property, though, and the coparceners are free to alienate their separate property as they desire without restrictions.

Here, the power of alienation under Hindu law is not discussed, but the discussion is with regard to the Transfer of Property Act only.

III. Absolute Restraint

An absolute restraint on alienation means that the transferee, i.e., the person who currently acquires the property, is completely forbidden to transfer the interest in the property to any other person. He has no freedom to dispose of or alienate the property in any way. This kind of restraint is not allowed by law.

Section 10 states that any condition that was imposed during the transfer of the property which prohibited the transferee from alienating his interest in the property completely will be deemed to be void, and the transfer shall remain valid in ignorance of the condition. Hence, this section recognizes that alienation and disposition of property is an inextinguishable rights of the owner of the property, and it cannot be taken away from him completely. This is termed as a rule against alienability. However, partial conditions on the right are valid in law and will be dealt with in detail later.

In Md. Raza & Ors. v. Abbas Bandi Bibi[2], a condition which restricted the transfer of a property to one particular person for a given period of time was held to be void.

In the landmark case of Rosher v. Rosher [3], a person ‘A’ gave in a gift of a house to another person ‘B’, which was worth fifteen thousand pounds. A condition was so made that if ‘B’ were to sell the house in the lifetime of ‘A’s’ wife, she would then have the option to buy the same for an amount of Three Thousand pounds only. This condition was considered to be a complete restraint on the right of alienation and, therefore, null and void.

In the renowned case of Renand v. Tourangeaon [4], a condition which sought to restrain alienation for twenty years was deemed an absolute restraint and thus void.

In the case of Kannamal v. Rajeshwari [5], a life estate was to be created in favour of ‘K’, but the transferor set an absolute restriction on alienation during the property transfer to K, while divesting himself of all his interest in the property. This restraint was declared to be void as it included an absolute restriction.

IV. Partial Restraint

A partial restraint is a condition limiting the right to alienate one’s property to some extent, such as specifying a minimum or maximum amount of consideration that can be asked for the transfer. This is valid in law as Section 10 does not include it in its ambit. Certain landmark cases clearly illustrate the line between Absolute and Partial conditions in several situations.

In a condition restricting alienation based on the time period in which it cannot be alienated, the time period must be a short one coupled with a benefit for the transferor or it will be deemed to be an absolute condition and avoided. Where the time period was 5 years and the further benefit was attached saying that the transferee should re-purchase the property for a higher price in that time, and if he doesn’t, the purchaser may alienate the property. This was held valid as a partial condition. This is the case of Loknath Khound v. Gunaram Kalita[6].

A restriction specifying that alienation must only be made on obtaining the consent of some person is usually held void, but it may be validated as a partial condition in some cases. In Mahamudali Majumdar v. Brikondar Nath [7], it was held that the transferor himself while selling the property to one outsider, cannot place a condition that binds him to sell the property to the members of the transferor’s family only.

Building further on the restriction on whom to transfer the property to, the general rule is that a condition restricting transfer to only a class of people is partial, and hence valid. However, restrictions limiting transfer to only specific people is not valid. This was reiterated in Zoroastrian Co-operative Housing Society Ltd v. District Registrar Co-operative Societies[8], a society where the object is constructing houses for residential purposes contained a bye-law that stated that only Parsis could be members of the society. There was another condition that no member can alienate the house to a non-Parsi.

The Apex Court held that when a person accepts the membership of a co-operative society, he submits himself to its bye-laws and thus places upon himself a qualified restriction on his right to transfer his property by stipulating that the same would only be transferred with the prior consent of the society to a person deemed qualified to be a member of the society. Thus, it could not be held to be an absolute restraint on alienation offending Section 10 of the Transfer of Property Act.

V. Certain Exceptions

Section 10 contains two exceptions to the rule against alienability – Lease and Married woman belonging to a faith other than Hindu, Muslim or Buddhism.

• Lease

Conditions in a lease which are beneficial for the lessor or anyone claiming under him are allowed to be validly made in the transfer of property. That is, the lease may have a condition which prohibits alienation of the leased property and permits the re-entry of the lessor on the breach of any condition of transfer. This is valid under Section 10. In Akram Ali v. Durga, it has been emphasized that the condition must benefit the lessor. That is, it must include a provision for his re-entry to be held valid because otherwise, it does not benefit him.

• Married Woman

This exception entails that a property may be transferred to a woman who is – Married and a non-Hindu, non-Muslim, non-Buddhist, with the condition preventing her from alienating it in any way during her marriage. This transfer should be to her or made in her benefit. This condition will not be rendered invalid by Section 10.

VI. Repugnant Conditions (Section 11)

Section 11 of the Act seeks to draw a line between restrictions on transfer and restrictions on the enjoyment of property post-transfer. It holds that any condition placed at the time of an absolute transfer of property to another restricting that person’s use or enjoyment of the property will be void. In other words, a transfer of the property once made vests all legal rights and interests with the transferee, and hence no further restriction on his enjoyment of that property be put.

In Manjusha Devi v. Sunil Chandra, the agreement was for a piece of land. It was stipulated in the deed of sale that the property may only be used for the construction of jute textile manufacturing factory by the transferee. This condition was held to be invalid under Section 11.

Hence, Section 10 renders the condition void as it results in absolute restriction of alienation, while Section 11 renders it void only when the transfer is of absolute nature but the conditions restrict its enjoyment.

VII. Insolvency of Transferee

Section 12 of the Act states that if a transferee who has some interest in a property is adjudicated insolvent, his interest in the property is not lost on that account. In fact, any condition that states that upon insolvency of a transferee, his interest would end and the interest would revert back to the transferor is void.

VIII. Conclusion

Hence, the right to hold and transfer property holds in it a sacred right to alienate the property to another. This right cannot be absolutely restrained but partial limitations may be imposed. It is pertinent to understand that, to determine whether a condition is total or partial, the substance or the practical result of the condition is to be taken into consideration and not just its form. Partial conditions may be validly imposed on time, amount or classes of people. There are two exceptions to the rule against alienability contained in Section 10 which are lease, and a married woman of a particular faith. Further, an absolute transfer of property must include the transfer of all legal rights.

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References

[1] AIR 1973 All 1.

[2] (1932) 59 IA 236.

[3] (1884) 26 Ch D 801.

[4] (1867) LR 2 PC 4

[5] AIR 2004 NOC 8 (Mad)

[6] AIR 1986 Gau. 52

[7] AIR 1960 Assam 178

[8] (2005) 5 SCC 632

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1. Property Law; Notes, Case Laws And Study Material
2. Conditional Transfer of Property