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Condition Restraining Alienation

B.A. / B.B.A LL.B (Integrated Law degree course)


Transfer of Property Act 1882 (IV Semester)

“Project Work”

“Condition Restraining Alienation”

Submission To: Submitted By:

Dr. Sugato Mukherjee Ashrut Chaudhary

Faculty of Transfer of Property Act Roll no: 17RU11003

Designation: Assistant Professor Semester-IV

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Condition Restraining Alienation

Introduction

Ownership of the property carries with it certain basic rights, such as a right to have the title to
the property, a right to possess and enjoy it to the exclusion of everyone else, and a right to
alienate it without being dictated to, save in accordance with a provision of law. An absolute
right to dispose of the property indicates that the owner can sell it for consideration or can donate
it for religious or charitable purposes he may gift it to anyone, mortgage it or put it up for lease.
Save with the help of law, no other person can interfere with this power or right of the owner or
dictate to him, what should be the manner of alienation, should he alienate or not, or even what
kind of use it should be put to. In short, this right of alienation, that is one of the basic rights of
the owner, cannot be unreasonably encroached upon by anyone through a private agreement.
This general rule is applicable despite there being an express contract to the contrary, and
prevents the transferor from controlling the power of alienation of the transferee once the interest
in the property is transferred.

The extent to which a person transferring real or personal property may limit its subsequent
disposition by the transferee has for centuries been a problem troubling the courts. Restrictions
upon the grantee’s right to transfer the property, at any time, to whomsoever he may choose, and
in whatever manner he may select, are called “restraints on alienation“.

Recent developments in the field of real property security law have rekindled an interest -in one
of the most ancient and important battlegrounds of the law-the extent to which the law should
protect free alienability of real property and strike down attempts to restrict or penalize an
owner’s ability to transfer his property. The context in which the present-day struggle arises is a
far cry from the feudalistic society existing in England when the restraints on alienation doctrine
was developed, yet the materials which follow evidence quite clearly that the judicial role in
articulating and enforcing the doctrine is beginning anew.

General Principles of Transfer of Property: Subject to a limitation or


condition

Sections 10, 11, and 12 of the Transfer of Property Act deal with the imposition of restrictions or
limitations in transfer of property. They contemplate situations where limitations may be
imposed on the transferee by the transferor in the instrument on the interest so transferred. 1 In
such a case, the question that arises is: are such restrictions valid? If so, under what
circumstances are they valid? Sections 10, 11, and 12 of the Transfer of Property Act hold the
answers to these questions.

1
S.M. Lahiri, The Transfer of Property Act (Act IV of 1882), 11th ed., (India Law House, New Delhi, 2001)

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Rule against alienability

Section 10 of the Transfer of Property Act: Condition Restraining Alienation- Where


property is transferred subject to a condition or limitation absolutely restraining the transferee or
any person claiming under him from parting with or disposing of his interest in the property, the
condition or limitation is void, except in the case of a lease where the condition is for the benefit
of the lesser or those claiming under him:

PROVIDED that property may be transferred to or for the benefit of a women (not being a
Hindu, Muhammadan or Buddhist), so that she shall not have power during her marriage to
transfer or charge the same or her beneficial interest therein.

Conditional transfers

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 is 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.2 These conditions are those conditions which are to be fulfilled after transfer. These
conditions affect the rights of the transferees after transfer.

This provides that if a property is transferred subject to a condition or limitation restraining the
transferee’s right of parting with or disposing his interest in the property absolutely, then such a
condition is void. This general rule is referred to as the rule against inalienability. The rule
against inalienability gives effect to the overarching principle behind the Transfer of Property
Act that, generally, all property should be transferable. Therefore, any condition that restrains
alienation is considered void. The transferee can ignore such a condition and continue his
enjoyment of the transferred property as if such a condition did not exist in the first place.

However, while an absolute restraint is void, a partial restraint may not be. For instance, a partial
restraint that restricts transfers only to a class of persons is not invalid. However, if the transfer is
restricted to being allowed only to specific individuals, then it is an absolute restraint and hence,
void.

Categorization of restraints

Since alienation of property is the sole prerogative of the owner of the property, he is empowered
to sell it at any point of time, for any consideration, to nay person, and for any purpose. There are
certain integral components of the very term “alienation” and include selection purely at the
discretion of the transferor or the transferee and the time or consideration for the transfer. A
restraint on alienation thus would include a condition that dictates to him when to sell it, to sell it

2
G.P. Tripathi, The Transfer of Property Act, 1882, 15th ed., (Central Law Publications, Allahabad: 2005)

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Condition Restraining Alienation

at how much consideration, or how to utilize the consideration; to whom to sell or for what
purpose he should sell. These restraints can appear in the following ways:3

• Restraints on transfer for a particular time


• Restraints directing control over consideration/money;
• Restraints with respect to persons/transferee; and
• Restraints with respect to sale for particular purposes or use of property

Absolute restraint

Absolute restraint refers to a condition that attempts to take away either totally or substantially
the power of alienation.4 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. Restraint on alienation is said to be absolute when it
totally takes away the right of disposal. In the words of Lord Justice Fry5, “from the earliest
times, the courts have always learnt against any devise to render an estate inalienable.”6

Section 10 relieves a transferee of immovable property from an absolute restraint placed on his
right to deal with the property in his capacity as an owner thereof. As per section 10, a condition
restraining alienation would be void. Section applies to a case where property is transferred
subject to a condition or limitation absolutely restraining the transferee from parting with his
interest in the property. For making such a condition invalid the restraint must be an absolute
restraint.

Two persons purchased securities in their own names with the money belonging to a third
person. And on his instructions they deposited the securities in the name of that person and also
the interest accruing on them in that person’s account. The securities carried the stipulation that
they were not to be transferred. In order to wipe out his liability to another person, that third
person tendered the securities to his creditor by way of satisfaction to hold them as a beneficiary.
It was held that from the very beginning a beneficial interest was created in favour of the person
with whose monies the securities were purchased and, therefore, his beneficial interest was
transferable because otherwise the whole transaction would have been hit by section 10.7

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. Amide a gift of a house to Bwith a condition that if B sold the house during the lifetime
of A’s wife, she should have an option to purchase it, for Rs. 10,000. The value of the house was
Rs. 10,000. This was held to be having the effect of absolute restraint and was void. 8 The

3
Dr. PoonamPradhanSaxena, Property Law, 2nd Ed. (Lexis Nexis:Nagpur, 2011)
4
Bhavani Amma Kanakadevi v CSI Dekshina Kerela Maha Idavaka, AIR 2008 Ker 38
5
In re, Parry and Dags (1886) 31 Ch D 130
6
Zoroastrian Co-operative Housing Society v District Registrar Co-opertaive Societies (Urban), AIR 2005 SC 2306
7
Canbank Financial Services Ltd. V Custodian, (2004) 8 SCC 355
8
Rosher v Rosher, (1884) 26 Ch D 801

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provision of law against absolute restriction on alienation is founded on the principle of public
policy, namely that there should be free transferability of property. A transfer of property for
construction of a college contained a condition that if the college was not constructed; the
property would not be alienated. Rather it would be re-conveyed to the person transferring it.
The condition was held to be void and, therefore, not capable of being enforced.9

Where the settler intending to create a life estate in favour of his son-in-law ‘M’, handed over the
title-deeds of the said property to M indicating that he had divested himself of all rights in the
property but imposed absolute perpetual restraint on alienation, it was held that the restraint was
void since the transfer was an absolute transfer in favour of M. Under the provisions of section
10, the sale deed made by the heirs of M in favour of appellants was a valid sale because the
heirs were entitled to ignore the restraint on alienation and deal with the property as absolute
owners.10

The condition restraining lessee from alienating leasehold property is not illegal or void. 11

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 certain
extent, it is a partial restraint. Partial restraint is valid and enforceable. In 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.12

A restriction for a particular time or to a particular or specified person 13 has been held to be
absolute restriction. A compromise by way of settlement of family disputes has been held to be
valid in Mata Prasad v Nageshwar Sahai14, although it involved an agreement an agreement in
restraint of alienation. In this case, dispute was as to succession between a widow and a nephew.
Compromise was done on terms that the widow was to retain possession for life while the title of
the nephew was admitted with a condition that he will not alienate the property during the
widow’s life time. The Privy Council held that the compromise was valid and prudent in the
circumstances of the case.

While an absolute restraint is void, a partial restraint may not be. For instance, a partial restraint
that restricts transfers only to a class of persons is not invalid. However, if the transfer is

9
DhavaniAmmaKankadevi v C.S.I. Dekshina Kerala MahaIdavaka, AIR 2002 Ker 38
10
Kannamal v Rajeshwari, AIR 2004 NOC 8 (Mad)
11
RaghuramRao v Eric P. Mathias, AIR 2002 SC 797
12
K. Muniaswamy v K. Venkataswamy, AIR 2001 Kant 246
13
Mohd. Raza v Abbas BandiBibi, (1932) 59 IA 236
14
(1927) 47 All 484

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restricted to being allowed only to specific individuals, then it is an absolute restraint and hence,
void. How is it determined if a restriction is absolute or partial? In order to determine whether a
restriction is absolute or partial, one must look at the substance of the restraint and not its mere
form. Ordinarily, if alienation is restricted to only family members, the restriction is valid.
However, where in addition to that restriction, a price is also fixed which is far below market
value and no condition is imposed on the family members to purchase, then the restraint is an
absolute one and hence, void, although in form, it is a partial restraint. Even if such a
substantially absolute restriction is limited by a time period that is, it applies for a specific time
period only, it remains void.

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Conclusion

Section 10 lays down that where property is transferred subject to a condition absolutely
restraining the transferee from parting with his interest in the property, the condition is void. The
principle underlying this section is that a right of transfer is incidental to, and inseparable from,
the ownership of the property. The rule that a condition of absolute restraint is void, is founded
also on the principle of public policy allowing free circulation and disposition of property. It is
only a condition which absolutely restrains the transferee from disposing of the interest that is
rendered void. A condition imposing partial restraint may be valid. The test is whether the
condition takes away the whole power of alienation substantially; it is a question of substance
and not of mere form. The section provides two exceptions; one in case of married women and
other in favour of lessor. Moreover, every citizen has a right, under Article 300A of the
Constitution of India, to property and such a right is not to be deprived except in accordance with
law. Even under Article 19 of the Constitution of India the citizen has a fundamental right to
reside and settle down in any part of the Indian Territory. If there is a law made by the
appropriate legislature, the same should be examined from the stand point of whether it is
reasonable restriction or otherwise.