RESTRICTIONS ON TRANSFER TO PROPERTY (10-12) Flashcards
Condition restraining alienation.
—Section 10
Every owner of a property, who is competent to transfer, may transfer his property
either unconditionally or with certain conditions.
Conditions are limitations or restrictions on the rights of the transferees. Transfers which are subject to restrictions are known as “conditional transfers”.
These conditions may be either conditions precedent or conditions subsequent. Conditions precedent are put prior to the transfer and the actual transfer depends upon compliance of those conditions.
Subsequent conditions are those conditions which are to be fulfilled after the transfer. These
conditions affect the rights of the transferees after the transfer. Any restriction on alienation of property cannot be imposed by the Government with retrospective effect without enabling provision in the statute.
Absolute Transfers
Section 10 says that where property is transferred subject to a condition or limitation which absolutely restraints the transferee from parting with or disposing of his interest in the property is a void condition.
Condition imposing absolute restraint on the right of disposal is a void condition and has no effect. For example, a person makes a gift of a property to another person (transferee) with a condition that he will not sell it. This condition imposes an absolute restraint.
If the transferee sells that property, the sale will be valid because conditions imposing absolute restraint are void. A made a gift of a house to B with a condition that if B sold the house during the life.
Partial Restraint
Section 10 has only provided for absolute restraints. It is silent about the partial
restraints.
Where the restraint does not take away the power of alienation absolutely but only restricts it to some extent, it is a partial restraint. Partial restraint is valid and enforceable.
In the words of Sir George Jesel, “the test is whether the condition takes away the whole power of alienation substantially; it is question of substance and not of mere form. You may restrict alienation in many ways, you may restrict it by prohibiting it to a particular class of individuals or you may restrict alienation by restricting it to a particular time.
A total restraint on right of alienation is void but a partial restraint would be valid and binding. This rule is based on sound public policy of free circulation.
Restraints for a Particular Time
Restrictions with respect to time, i.e., the condition that the transferee would not sell it for five years or ten years or for any time period whatsoever would be void, unless it is for a short time period and is coupled with a benefit to the transferor, such as an option of re-purchase, at a consideration stipulated in the contract. This option of repurchase is personal to the transferor and cannot extend to anybody else.
For example, A sells his house to B for five lakh rupees, with a condition that B should not sell it for five years. Within this period of five years, A would arrange the money and would have an option to repurchase it for 6 lakh rupees. If he is unable to exercise this option of repurchase within five years, B would be at liberty to sell it to anyone.
This condition is with respect to both the time as well as a person, but would be valid as it is in the nature of a partial restraint and is for the personal benefit of the transferor, but if in accordance with the condition the direction is simply that B should not sell the property for five years without any right of pre-emption or during the lifetime of A, or that of his wife, such conditions would be void.
Restraints with Respect to Money
Where the transferor stipulates that the property can be sold by the transferee only at a fixed price specified by him beforehand, or where he directs that the property should be transferred for no consideration, or at market price only, or at any consideration deemed appropriate by the owner, but out of sale proceeds, either something has to be paid to a specific person or persons, or for a specific purpose, all these conditions would be restraints on alienation through control over money and would be void.
The previous owner/holder of the interest cannot dictate such conditions. These conditions would amount to an absolute restraint on the transferee’s power of alienation and would be void.
For example:
(i) A sells a house to B for Rs 10,000 with a condition, that if in future B wants to sell it, he would sell it only for Rs 10,000. This condition would be void, and B may
sell it for any consideration.
(ii) A sells a house to B for Rs 10,000 with a condition, that if in future B wants to sell it, he would sell it at only the market price. This condition would be void and B can sell it either below or higher than the market price.
(iii) A sells a house to B for Rs 10,000 with a condition, that if in future B wants to sell it, 50% of the consideration, should be given to charity, or should be given to the transferor’s sister or any other relative. This condition is void. B may sell it to anyone and keep the entire consideration.
Restrictions with Respect to Persons
Restrictions directing the owner that the property or an interest in the property should be transferred only after obtaining the prior permission or consent of specific persons would be totally void but a condition that it can be transferred to specific persons can be either partial or absolute, depending upon the facts and circumstances of the case.
Where the transferor puts a condition directing the transferee that should he want to sell the property, he must sell only to a specific person named by the transferor in the deed or to a group of persons, such a condition would be void. But if the condition is that he should not sell it outside his family or even community, then it will be valid as partial restraint, provided both transferor and transferee are members of the same family or community. Such a condition may stem from a desire to conserve the property within a specific family or community, of which both the parties are members.
Therefore, the transferor himself selling the property to an outsider, cannot put a condition that binds the later to sell the property only to members of the transferor’s family.
Thus a restriction on alienation of property to strangers aimed at ensuring that property bequeathed did not go into hands of third party is valid and does not violate the rule of perpetuity.
For example:
(i) A sells a house to B for Rs 20 lakh with a condition, that if in future B wants to sell it, he would sell it only to A’s wife, W This condition would be void, and B may
sell it to anyone.
(ii) A sells a house to B for Rs 20 lakh with a condition, that if in future B wants to sell it, he would sell it only to A’s sons or his brothers. A has four sons and two
brothers. This condition would be void and B can sell it to anyone.
(iii) A sells a house to B for Rs 20 lakhs with a condition, that if in future B wants to sell it, he must obtain his written permission /consent for effecting such sale.
This condition is void. B may sell it without seeking anyone’s permission.
Restraints with Respect to Purposes or Use of Property
Where the transferor does not apparently say anything with respect to the power of the sale of property of the transferee, but provides clearly that the property can be transferred only for a specific purpose, this would also be an absolute restraint on the power of the transferee to transfer his interest according to his option and his convenience.
To whom and for what purpose he should sell, is for him to decide and he is entitled to ignore the condition if at all it is put in the contract at the behest of the transferor. Therefore, conditions that the property should be sold for a religious purpose, or for any other specific purpose such as construction of educational institution only would be void as being repugnant to the right of alienation.
A provision in the sale deed that in the event of failure to construct a private college in the property sold thereunder, the property should be reconveyed by the transferee to the transferor for the same sale consideration would amount to an absolute restraint on alienation.
In terms of section 10 any condition in respect of use of the land is void. Mere change of purpose does not entitle the land owners to dispute the sale deeds. Thus, where land was sold to the state government subject to the condition that it would be used only for the purpose of establishing a university, but the alienee transferred the land to PUDA for development of a residential complex, the erstwhile landowner who had parted with their land and accepted compensation more than a decade earlier could not be permitted to dispute the transfer of land.
Statutory Prohibitions
Transfer of property is not always impermissible but subject to conditions prescribed by Government, and the statutory bar on alienation will override the provisions of the Transfer of Property Act, 1882.
Thus, there may be a statutory restriction on transfer of land by a member of Scheduled Caste to a person other than Scheduled Caste. Such notification would not be hit by section 10.
However, when a right of transfer has been provided by provisions of a statute and bar contemplated does not apply to the case at hand, no clause or a condition in original patta granted by zamindar can restrict such a right of transfer.
Family Arrangements and Restraint on Alienation
Even though no transfer of right is contemplated in case of partition or family settlement, and section 10 of the TP Act, 1882 does not apply, yet any total restraint on right of alienation is void.
A condition imposing a partial restraint is not void.
Whether the restraint is absolute or partial has to be gathered from the intention of the transferor and from the contents of the document.
Thus, where the property was given by father to the son under a family arrangement with a condition that with respect of a portion of it, the son was prohibited from making any alienation during the life time of the father, it was held to be not an absolute restraint and therefore was valid and binding on the son.
Partial restraints
According to section 10, it is only an absolute restraint on alienation that is void, and restraints short of an absolute curtailment of the power of the interest holder to transfer his interest will be valid and binding on him.
Whether a condition totally or partially prohibits alienation depends on the substance or the effect of the condition and not the form.
A condition to sell only to specific persons is void, but a condition not to sell outside the family would be a partial restraint.
Similarly, a condition that if any coparcener
wanted to sell his share the other coparceners would have a right to buy it is valid.
Agreement in Restraint of Alienations
A separate unregistered agreement by way of a personal covenant not to sell, or to sell subject to the conditions imposed is valid, but a registered agreement in restraint of alienation would be considered part of the sale agreement and would be void.
Where the donor makes a gift to the donee with a condition that the donor would be at liberty
to revoke the gift if the donee transferred the property without his consent, it was held that the condition is valid.
Exceptions to the Rule of Restraint on Alienation
There are two exceptions to the general rule that absolute restraint on power of the holder to dispose of or transfer his interest in the property is void.
The first exception is in the case of a lease where the condition is for the benefit of the lessor or those claiming under him, and the second is where property is transferred for the benefit of a married woman (not being Hindu, Mohammedan or Buddhist) so that she shall not have power during her marriage to transfer or charge the same or her beneficial interest therein.
(1) Lease and Restraint on Alienation
A condition in the lease that the lessee shall not sublet or assign his interest to anyone during the tenure of the lease is valid.
Similarly, a stipulation in the contract of lease that the lessee would not sublet the premises and if he does, he would have to pay a fourth of the consideration as nazar to the lessor, is valid and enforceable.
A condition in the lease deed that the lessee would compulsorily have to surrender the lease in the event the lessor needs to sell the property is again valid. A condition in the perpetual lease that the lease, though heritable, is not assignable is also valid.
(2) Married Women and Restraint on Alienation
The second exception provided under section 10 relates to a non-Hindu, Mohammedan or Buddhist married women. The section provides that property may be either transferred to or for the benefit of such a woman, with a condition that she would not have power during her marriage to transfer or even charge the same or her beneficial
interest therein.
Thus, two conditions must be satisfied:
(i) First, that the woman should be married. If she is a widow or unmarried, no restraint can be imposed on her power of alienation, and
(ii) Secondly, she should not be a Hindu, Mohammedan or Buddhist. The restriction can therefore be applied to a woman who is a Christian, Parsi or a Jew.
Under English common law, a woman’s property, on marriage, automatically became the property of her husband. This rule was expressly abolished in India under section 4 of the Indian Succession Act, 1865, but only where the marriage was solemnised after 1 January 1866.
At the same time, a married woman (irrespective of her religion) could be prevented from alienating the property settled on her, under two distinct rules—
section 10 of the TP Act, 1882, and sections 56 and 58 of The Indian Trusts Act, 1882.
Such interests in property that the woman is prevented from alienating herself cannot be the subject of involuntary sales as well. This means that if a creditor obtains a decree against a married woman, it can be executed against her general separate property, but not against her property that she herself is prevented from alienating.
Limitation Until Attempted Alienation
Provisions that restrain alienation or exclude creditor rights are invalid for absolute interests. However, property can be settled for life estates that terminate upon alienation, bankruptcy, or insolvency, with a subsequent transfer upon such events. This can be achieved by directing the income to be held in protective trusts for a beneficiary’s lifetime. Nevertheless, an owner cannot impose a condition that terminates their interest upon bankruptcy, as such conditions undermine the completeness of the interest created and are deemed void under the law.
Panna Lal Hazra v Fulmoni Hazra,
A Hindu father made a gift of his property to his son, which the latter accepted. Under the gift deed, the son was expressly enjoined to maintain his stepmother. Upon his refusal to do so, after the properties were
transferred in his name, the stepmother brought a suit claiming maintenance from him both under Hindu Adoption and Maintenance Act, 1956, and also under the terms of the gift deed.
The stepson denied his liability to maintain her, on the ground that he had obtained the property through a transfer that created an absolute interest in his favour.
This condition that he is under an obligation to maintain his stepmother was in the nature of a limitation or condition which was repugnant to the interest created in the gift and therefore void. He contended that since this condition was hit by sections 10 and 11, he was entitled to ignore it without effecting the validity of the transfer by way
of gift.
The concurrent findings of all the courts, the trial court, the district court and the High Court of Calcutta were that under the express terms of the deed of gift whereby properties were conveyed to the son by the deceased father, the son was obliged to maintain the stepmother. According to the court, this condition in the instrument to provide maintenance to the donor himself and/or to any of his dependents was not in any way repugnant to the interest created by the instrument.
This was a valid and enforceable condition and therefore, the son was bound to maintain his stepmother. This condition was, thus, not hit by either section 10 or section 11.
Rosher v Rosher
A person A died leaving behind his wife W and a son S. He left his entire property to S, under his Will. The Will also provided, that if S wanted to sell the property, or if any of his heirs wanted to do so, they must offer it to W first and she would have an option to purchase it at one-fifth of the value of the same, as it was assessed at the time of the testator’s death.
The price was specified as £ 3000 while the value of the house (Manor) at the time of the operation of the Will was £ 15000.
The Will further provided that if the son or any of his heirs wanted to let this manor on rent, they could do so freely only for a period of three years. If the tenancy exceeded the three years time period, W would have the option to occupy the premises, for the period
in excess of three years, at a fixed rent. The rent was fixed as £ 25 for the whole year.
If the tenancy exceeded a period of seven years, again W was entitled to occupy the same for an annual rent of £ 35. The son or his heirs were under an obligation therefore to offer the premises to W first, and only when she declined to take it, could they let it
out to other persons.
Upon W bringing an action against S, the question before the court was; what was the nature of the conditions incorporated under the Will; and
whether it constituted an absolute or partial restraint on the power of alienation of this property by the son or his heirs.
The character of restraint was, first, with respect to persons, i.e., the testator’s wife. If S wanted to sell the property, he had to first offer it to W, a person specifically named under the Will. The second type of restraint was with respect to money or price, as it was provided in the Will, that W could purchase the property at a specific price, i.e., £ 3000, irrespective of whatever might have been its market value. The beneficiaries, under the Will, were not free to even give it on lease, as a lease for above the time period of three years, could again entitle W to take the property at a very small rent, at her option.
The court held that these restrictions amounted to an absolute restraint on S’s and his heir’s power of alienation and were therefore void. They were entitled to ignore them, as if these conditions did not exist on paper, and could sell it or let it out to anyone for any time period, without any cause of action arising in favour of W.
The court said, ‘to compel the son, if he chose to sell, at one fifth of the value of the estate, is really a prohibition of alienation during the widow’s life time’
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