Condition Restraining Alienation

Section 10 and Section 11 of the Transfer of Property Act delineate the boundaries of condition restraining alienation, safeguarding the rights of both transferors and transferees.

The significance of condition restraining alienation lies in striking a balance between individual property rights and societal interests, preventing unfair restrictions while allowing reasonable conditions.

This legal framework fosters transparency and stability in property dealings, facilitating equitable transfers and protecting the rights of diverse stakeholders involved in real estate transactions.

What is Alienation under Transfer of Property Act, 1882?

Alienation is when property is transferred from one person to another. This transfer can happen through gifts, sales or mortgages. According to Hindu Law, no one in a Joint Hindu family, not even the head (Karta), can fully transfer the joint family property or their own share in it without the agreement of all family members.

When it comes to separate property, a Hindu can transfer it, whether it falls under Dayabhaga or Mitakshara school. This power is absolute.

In the past, under classical law, the father or the Karta could transfer the entire joint family property without needing approval from other family members. However, certain conditions have been added to regulate when a Karta or father can do this.

Can the Alienation of Property be Restrained?

The Transfer of Property Act, 1882, from Sections 10 to 18, outlines the Condition restraining alienation the transfer of property.

Section 10 states that if the person receiving the property is entirely prohibited from transferring it to someone else due to a condition set at the time of the transfer, that condition becomes void. However, the original transfer from the giver to the receiver remains valid.

For instance, if A gifts property to B with the condition that B cannot transfer it to anyone else while A is alive, this condition is considered void. It is commonly referred to as the ‘rule against alienability.’ The Transfer of Property Act is designed to facilitate the free transfer of property and conditions restricting such transfer go against its purpose.

Condition Restraining Alienation under Section 10 of the Transfer of Property Act, 1882

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 woman (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.

It’s important to note that only conditions imposing ‘absolute restriction’ are void. Some conditions allow for partial restraint on property transfer. To determine whether a condition is absolute or partial, one must consider the substance of the condition, not just the words. Therefore, restraints can be categorised into two types.

Types of Condition Restraining Alienation

Absolute Condition Restraining Alienation

Section 10 of the Transfer of Property Act declares a condition void if it completely restricts alienation. An absolute restraint on alienation occurs when it entirely removes or limits the right to dispose of property. This section protects the transferee of immovable property from absolute restraints on dealing with the property as its owner.

This provision applies when property is transferred with a condition that absolutely restricts the transferee from parting with their interest in the property. To render such a condition invalid, the restraint must be absolute. The restraint can take various forms, such as limiting the power of alienation in terms of time, specifying a particular person or adopting any other form. The determination of whether the restraint is absolute or partial depends on the content of the deed.

Illustrations:

• A sells his house to B with a condition that B cannot transfer the house to anyone except C. This condition is void because C may never choose to purchase the property.
• A husband settles his properties on his wives with a condition that they cannot transfer the property without his consent. This condition is void as it completely takes away the wives’ power to alienate the property.
• In the case of a will where an absolute right is vested in an adopted son concerning properties bequeathed to him, no further restrictions can be imposed under Section 10 and 11. This includes restraints on alienation or creating restrictions conflicting with the interest created in the property. The legatee receives the property as if the will contained no such condition, in accordance with Section 138 of the Succession Act.

Partial Condition Restraining Alienation

Section 10 specifically addresses absolute restraints and does not explicitly cover partial restraints. In cases where the restraint doesn’t substantially take away the power of alienation but only limits it to some extent, it is considered a partial restraint and such restraints are generally valid and enforceable.

As per George Jessel, the key test is whether the condition substantially takes away the entire power of alienation—it’s a matter of substance rather than mere form. Alienation can be restricted in various ways, such as limiting it to a particular class of individuals or restricting it to a specific time.

In the case of Renand v. Tourangeaon, it was determined that a condition Condition restraining alienation of property to transferee from transferring the property for twenty years is an absolute restriction and thus void. However, if the condition limited the transfer for three years, it would be a partial restraint and therefore valid.

Conditions like prohibiting the transferee from transferring the property by gift or restricting the transfer to family members or a particular person are considered partial restraints and are generally valid. However, if the condition specifies that the property must be sold to a particular person only, it might be deemed an absolute and void restriction.

In the soroastrian Society’s Case, the Supreme Court ruled that restrictions on transferring property within a cooperative society, subject to certain qualifications, did not amount to an absolute restraint under Section 10. Similarly, a fixed price for purchase under a pre-emption clause was considered a reasonable price, constituting only a partial restraint on alienation, not an absolute restraint.

In Muhammad Rasa v. Abhas Bandi Bibi, a Condition restraining alienation of property to the transferee from transferring the property to strangers outside the family was deemed a partial restraint and was held valid. Likewise, when a condition in a sale deed prohibited selling the property outside the vendor’s family, but the transferee sold it to the first cousin of the vendor, the Bombay High Court considered it a partial restraint and validated the condition, noting that the first cousin belonged to the vendor’s family.

Exceptions to Condition Restraining Alienation

Section 10 of the Transfer of Property Act makes two exceptions to the general rule that conditions restraining alienation absolutely are void. The first exception pertains to leases and the second relates to property transferred to a married woman.

Lease

A lease involves the transfer of a limited interest where the lessor (transferor) retains ownership and conveys only the right of enjoyment to the lessee (transferee). The lessor can impose a condition prohibiting the lessee from assigning their interest or subleasing the property to another person. Despite being a restraint on the lessee against alienation, such a condition is considered valid and the lessee cannot transfer their interest without the lessor’s consent.

In the case of perpetual leases, as seen in Raghuram Rao v. Eric P. Mathias, the Supreme Court held that any Condition restraining alienation via lessee from alienating leasehold property is not illegal or void. Therefore, a condition in a perpetual lease stating that the lessee’s right is not transferrable is considered valid.

Conditions in a lease that prevent subletting or assigning the interest during the lease’s tenure are valid. Additionally, a condition in the lease deed requiring the lessee to surrender the lease if the lessor needs to sell the property is also valid. If the lessor does not explicitly state that the breach of this condition would terminate the lease, the remedy available to the lessor is not a suit for ejectment. Instead, the lessor can file a suit against the lessee for injunction and damages due to the breach of the condition.

Married Women

When property is transferred to a married woman who is not a Hindu, Muslim or Buddhist, the transferor can impose a condition restraining alienation and such a condition will not be void under Section 10. Similar provisions exist in the Married Women’s Right to Property Act, 1874, which applies to married women who are not Hindu, Muslim or Buddhist. The personal laws of Hindus, Muslims and Buddhists already address the validity of restraints on the alienation of married women in these communities.

Therefore, a property may be transferred to a married non-Hindu woman for her life with a condition that she cannot transfer it. This restriction aims to protect the interests of married women who could be vulnerable to exploitation by unscrupulous husbands.

Repugnant Conditions Restraining Alienation

Section 11 of the Transfer of Property Act addresses conditions that are inconsistent with the nature of the interest transferred and are termed as repugnant conditions. These conditions accompany the transfer when the transferee is granted absolute interests in the property. Any condition attached to the transfer of absolute interests in the property is considered void.

When a property is transferred absolutely, it must come with all its legal incidents. In the case of Manjusha Devi v. Sunil Chandra, it was determined that a sale deed restricting the use of the land for specific purposes, such as setting up a factory for jute textile manufacturing, was invalid. The reason being that absolute interests in the land had been transferred to the buyer, allowing them to use it as they pleased.

Exception to Section 11:

If the transferor possesses another piece of immovable property, they can impose conditions or restrictions on the transferee’s right of enjoyment for the benefit of that property. For example, if A sells two properties, X and Y, to B with the condition that a portion of X adjoining Y must be kept open for the benefit of Y, this condition would be considered valid.

Condition Restraining Alienation Not Applicable to Transfer of Membership of a Cooperative Society

Section 10 does not apply to the transfer of membership of a cooperative society. When a person becomes a member of a cooperative society, abiding by its bylaws and securing an allotment of land or a building in accordance with those bylaws, any self-imposed restriction on the right to transfer the property back to the society or with the prior consent of the society is not considered an absolute restraint on alienation and it does not violate Section 10 of the Transfer of Property Act.

If the society’s bylaws restrict the transfer only to the society itself or other members of the society, it is viewed as a partial restraint and does not fall under the purview of Section 10 of the Transfer of Property Act. This restriction is seen as being in the interest of the collective body, the society.

Conclusion

Conditions restraining alienation are subject to specific legal considerations. Section 10 of the Transfer of Property Act declares absolute restraints void, except in cases of lease or property transfer to a married woman. Repugnant conditions, inconsistent with the nature of the interest transferred, are also deemed void under Section 11.

Notably, if a transferor possesses additional immovable property, restrictions on the transferee for the benefit of that property may be valid. Importantly, Section 10 does not apply to the transfer of membership in a cooperative society, where restrictions within the society’s bylaws are seen as partial and, therefore, not violating Section 10.