Restrains on Alienation of Property under Section 10

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restrain on alienation of property

Aim:-  This article aims to throw light on the restrain on alienation of property, i.e. even when the owner has the right over the property he has full authority to deal with the property in any manner, but under certain circumstances this power to alienate property has some restrictions, as mentioned under sec 10 to 18. 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.

Ownership of property, be it private, collective, or common comes with certain rights and duties over the property. Property may be objects, land or real estate, or intellectual property. The complex juristic concept of Ownership, originating in the Ancient Roman Law denominated Ownership as Dominium meaning absolute right to a thing and Possession as Possessio implying only physical control over such thing. Various jurists have defined ownership in different ways and it is accepted that right of ownership is a complete or supreme right that can be exercised over anything. According to Hibbert, ownership involves four rights: Right of using the thing, excluding others from using it, disposal of the thing and destruction of the thing.[1] According to Paton, rights of an owner are power of enjoyment, right of possession, the power to alienate inter vivos etc[2]. Austin focused on three main attributes of ownership, namely, indefinite user, unrestricted disposition and unlimited duration.[3]

It is evident from jurisprudential view that free disposition of property is an important attribute and can be concluded that ownership of 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.[4]

The Transfer of Property Act, 1882 (hereinafter referred as ‘the Act’) enunciates various rules relating to alienation of property under Sections 10 to 18. These sections put restrictions on alienation and insist on free circulation of property.

Going by the verbatim of Section 10 of the Act, it says that

‘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 lessor or those claiming under him:

Provided, that property may be transferred to or for the benefit of a women (not being a 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.

Illustration

Types of transfers

For Conditional transfers, there are generally two types, namely Conditions Precedent and Conditions Subsequent. The first one is where the condition has to be complied with or fulfilled before a transfer could be affected and subsequent condition is where condition is fulfilled after the transfer is complete. Section 10 of the Act talks about Condition Subsequent. In a transfer where fulfillment of condition is after the transfer (i.e. Condition Subsequent), the transfer would remain completely valid till a time there is no condition that prevents the transferee from disposing of or parting with his interest in the property. It is important to note that even if such a transfer was legitimized with mutual consent of both the parties, the fulfillment is not binding on the transferee.  The underlying principles behind this rule are that of justice, equity and good conscience. It creates such a rule so as to prevent transferors from incorporating an arbitrary condition that are repugnant to the nature of interest and thus such a restriction is statutorily prohibited. And therefore, trust cannot be created with a proviso preventing the beneficiary from alienating his interest[5]

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 any 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 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:[6]

Restraints on transfer for a particular time:

Restriction on alienation with respect to time for example, a condition to not sell for five years or ten years or any other time whatsoever would be void, unless it is for a short time period and is coupled with benefit for the transferor (option of repurchase). A condition for restrain on alienation for five years was held valid where the condition was if the transferee would re-purchase it at a higher price within these five years. If he does not, the purchaser is free to alienate at his prerogative.[7]

Restraints directing control over consideration/money:

Where the transferor stipulates that the property can be sold only at a fixed price or puts a condition that property should be transferred for no consideration, or at market price, or at any other consideration deemed appropriate by the buyer. Such conditions are restrains on alienation through control over money and thus void.

Restraints with respect to persons/transferee:

A restriction directing the owner that the property should be transferred only after obtaining prior permission or consent would be totally void, but in some cases it can be partial restrain also, in such cases, depending on facts and circumstances, it may be held valid. In Mahamudali Majumdar v. Brikondar Nath,[8] it was held that transferor himself selling the property to an outsider, cannot put a condition that binds the latter to sell the property only to members of transferor’s family

Restraints with respect to sale for particular purposes or use of property:

Where power of sale of property is not spoken about, but still there is restrain about the specific purpose for which the property can be transferred, this may amount to absolute restrain and thus be held void. To whom or for what purpose to sell should be the prerogative of the current seller and putting a condition will restrain him from freely disposing of the property. In Bhawani Amma Kanakadevi v. CSI Dekshina Kerela MahaIdevaka,[9] condition was held as absolute restrain where in failure to construct a private college at the property would mean re-conveyance of property back to the transferor for the same consideration.

Absolute and partial restrain

The term restraint means preventing or stopping or disabling a person from doing something. But on classifying the term into Absolute restrain and Partial Restrain, it means that when there is no absolute restrain on the transferee, it means that it is partial restrain and it means it may be permitted.

Absolute restrain

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. 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. In Kosher v. Kosher,[10] a condition not to sell during the lifetime of the transferee was held to be void.

Partial restrain

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. 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. This was reiterated in the famous case of Zoroastrian Co-operative Housing Society Ltd v. District Registrar Co-operative Societies[11] a society with the object of constructing houses for residential purposes had a bye law which stated that only Parsis can be members of the society. There was also a condition that no member could alienate the house to non-parsis. The Supreme Court held that when a person accepts the membership of a co-operative society by submitting himself to its by laws and places on himself a qualified restriction on his right to transfer property by stipulating that same would be transferred with prior consent of society to a person qualified to be a member of the society it could not be held to be an absolute restraint on alienation offending Section 10 of the Transfer of Property Act.

It is very important to decipher what amounts to absolute restrain and what amount to partial restrain. 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.

Exceptions

Section 10 provides two exceptions to the rule against inalienability. First, Section 10 does not prohibit conditions or limitations in the case of a lease, which are beneficial to the lessoror those claiming under him. Second, property may be transferred for the benefit of a woman who is not a Hindu, a Muslim, or a Buddhist, such that she shall not have the power to transfer the property or change her interest therein during her marriage.

Exception I:

Lease:

A transferee of leased property for a term of years, under the general rule enacted by Section 10 of the Act should be entitled to transfer his lease-hold interest, though of course he cannot create an estate which will endure beyond his own term. However, this general rule admits an exception. The lease may contain a condition against alienation by a tenant and provide for re-entry, by the lessor on breach of the condition. Such a restraint on the tenantsalienatory power is beneficial to the lessor and may be validly imposed.[12] As per Akram Ali v. Durga[13] the words in the section ‘when the condition is for the benefit of the lessor or those claiming under him’ have been construed to mean that the restriction is invalid unless accompanied with a right of re-entry.

Exception II:

Married Women:

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 women, 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, the two main conditions are that the woman should be married and she should not be Hindu, Mohammedan or Buddhist.[14] 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.

Section 10 and section 11: differences

Section 11 talks about restriction repugnant to interest created. The difference between Section 10 and Section 11 is that the former deals with a case of an absolute prohibition against alienation of an interest created by a transfer and the latter deals with the absolute transfer of an interest followed by a restriction on its free enjoyment. That is, under Section 10, whatever interest was conveyed, large or small, limited or unlimited, such interest cannot be made absolutely inalienable by the transferee. Under Section 11, when once an interest has been created absolutely in favor of a person, no fetters can be imposed on its full and free enjoyment. Where, however, the interest created is itself limited, its enjoyment must also be limited; for example, when a widow’s interest under Hindu Law is granted to a woman, a direction that she should enjoy only the usufruct without either encumbering the corpus or committing acts of waste would be valid. But a condition in a deed depriving a co-owner of his or her claim to partition in respect of the common property would be bad, because, the right to partition is an essential ingredient of co-ownership.

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. Thus, considering the importance of property and assets in ones life today, it is important that there is free disposition and circulation of property with no absolute restriction. In some cases, partial restrain is permissible depending on facts and circumstances of case keeping in mind the principles of Justice, Equity and Good Conscience.

Edited by Sakshi Raje

References

[1] V.D. Mahajan: Jurisprudence & Legal Theory (Fifth Edition) Pg. 288

[2]Supra note 1

[3] Supra note 1 at P. 286

[4] Property Law (2nd Edition)(2012) by Dr. Poonam Pradhan Saxena at P. 89 (Lexis Nexis: Nagpur)

[5] Re Dugdale, Dugdalev.Dugdale (1888) 38 ChD 285; Re Mabbett, Pitman v. Holborrow (1891) 1 Ch 707

[6] Supra note 4 at P. 91

[7]LoknathKhound v. GunaramKalita (AIR 1986 Gau. 52)

[8] AIR 1960 Assam 178

[9]AIR 2008 Ker. 38

[10] (1884) 20 ChD 801

[11] (2005) 5 SCC 632

[12] ‘The Transfer of Property Act’ (Eighteenth Edition 2014) by Dr. G.P. Tripathi (P. 108)

[13] (1912) 14 Cal. L.J. 614

[14]This exception is based on the doctrine of coverture that operated in England in the nineteenth century. There, women could be given property for their enjoyment without the right to alienate the property during her marriage. The rule protected women from being forced to alienate their property in favour of their husbands. However, despite the abolition of the doctrine of coverture in England, this exception continues to remain on the statute books sin India.

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