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Sec. 10. 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 of limitation is void, except in the case of lease where this 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, Mohammedan or Buddhist) so that she shall not have power during her marriage to transfer or charge the same for her beneficial interest therein.”
Sec. 10 of the Transfer of Property Act upholds the general rule that overrides any express contract to the contrary, ensuring that once property is transferred, the transferee has full control over its alienation.
This principle, grounded in equity, justice, and good conscience, prevents transferors from imposing conditions on transferees that impede their ability to deal with the property as they see fit.
For instance, if A transfers property to B with a condition that B can never sell it, such a condition is void, and B retains the freedom to sell the property at will. Similarly, if a husband settles property on his wife with a provision that she cannot sell it without his consent, such a condition is also void.
Sec. 10 specifies that when property is transferred with a condition that completely restrains the transferee from disposing of their interest in the property, only the condition itself is void, not the transfer.
This provision addresses conditions subsequent to the transfer taking effect. While conditional transfers may involve conditions both before and after the transfer, Sec. 10 pertains specifically to conditions imposed after the transferee gains ownership.
The underlying economic principle is that wealth should circulate freely to maximize its benefits. The law favors the transfer of property over its accumulation, recognizing the inherent right of ownership to include the right of transfer.
Absolute restraints on transfer go against the essence of property ownership and are deemed exceptions. Additionally, Sec. 8 of the Transfer of Property Act states that unless otherwise specified, a transfer of property immediately passes to the transferee all interests that the transferor is capable of passing at that time.
However, Sec. 10 applies only to transfers executed by the parties involved and does not extend to court-ordered sales.
Absolute and Partial Restrains
An absolute restraint completely or substantially deprives the transferee of the power to alienate property, such as a condition forbidding any alienation except for religious purposes.
On the other hand, a partial restraint imposes some restrictions on alienation but still allows the transferee significant freedom to alienate the property in various ways, like a condition prohibiting transfer for specific religious purposes. If the power of alienation is limited to a particular person, it constitutes an absolute restraint and is void.
However, if the power of alienation can be exercised in favor of a class of persons, it is considered a partial restraint.
Sec. 10 of the Transfer of Property Act invalidates absolute restraints but may permit partial restraints. As stated by Jessel M.R. in an English case, alienation can be restricted in various ways, such as prohibiting specific types of alienation or limiting it to certain individuals or times.
The determination of whether a condition constitutes a total or partial restraint depends on its substance, not just the wording used. If a condition has an absolute effect, it will be deemed void regardless of the language used.
For example, if A transfers land to B with a condition requiring B to pay 90% of the consideration to A's son upon any sale, effectively depriving B of the power to transfer the property freely, the condition would be void.
In Gayashi Ram v Shahabuddin, the court emphasized that to assess whether there is an absolute restraint, one must consider the practical effect of all conditions. Even if there is a remote possibility of alienation under certain conditions, if the overall effect is to prohibit alienation for all practical purposes, it falls within the prohibition of Sec. 10.
Illustrations
A condition prohibiting the transferee from transferring the property by way of gift constitutes a partial restraint and is considered valid. However, conditions that substantially restrict the transferee's power of alienation are deemed absolute restraints and are void. For example, if a transferee can only sell the property at a fixed price specified by the transferor, or if a portion of the sale proceeds must be paid to a specific person or for a particular purpose, such conditions are absolute restraints and are void.
Similarly, a condition prohibiting the transferee from transferring the property for a certain period, such as three years, is considered a partial restraint and is valid. However, if the restriction extends for an excessively long period, such as 20 years, it is deemed an absolute restraint and is void.
In cases where a condition benefits the transferor, such as an option to repurchase within a specified time period, it constitutes a valid partial restraint. Conditions restricting the transferee from transferring the property to specific individuals or families are generally considered partial restraints and are valid, provided they do not excessively limit the transferee's power of alienation.
Further, additional conditions attached to the transfer may render it an absolute restraint. For instance, conditions requiring the property to be sold below market price or restricting transfer only to the transferor or their heirs for a fixed price are absolute restraints and are void.
However, certain agreements among family members, such as settlements of family disputes or agreements for joint enjoyment of property income without partition, may be valid despite imposing restraints on alienation.
Covenants for pre-emption, which give the transferor the right to buy back the property if the transferee wishes to sell, are generally valid as they do not amount to absolute prohibitions. However, such covenants cannot be indefinite in duration and must not unduly restrict the transferee's power of disposal.
Finally, stipulations in sale deeds that limit the transferee's ability to sell the property to only the vendor and no one else are deemed more than partial restraints and are therefore invalid.
Leading Case Laws
In the case of Zoroastrian Cooperative Housing Society Ltd. v. District Registrar, Cooperative Societies (Urban), the Supreme Court addressed the validity of a byelaw restricting membership in the cooperative society to Parsis. The Zoroastrian Cooperative Housing Society, formed to provide housing for Parsis, restricted membership to individuals of the Parsi community. This restriction was challenged on the grounds that it constituted an unfair restraint on alienation and violated Section 10 of the Transfer of Property Act (TP Act).
The Society's byelaws mandated that membership could only be transferred with the prior consent of the Society to a person qualified to be a member. When a member sought to transfer his share to a non-Parsi builder, the Society rejected the application, leading to a legal dispute.
The Tribunal initially ruled that the byelaw restricting membership to Parsis violated the right to property and alienation. The High Court upheld this decision, deeming the byelaw to be in contravention of Section 10 of the TP Act.
However, the Supreme Court disagreed with this interpretation. It held that the byelaw's restriction on membership did not violate public policy and was consistent with the objectives of the Society.
The Court emphasized that cooperative societies could impose restrictions on membership to advance specific communities or interests.
Furthermore, the Court clarified that Section 10 of the TP Act, which addresses restraints on alienation, did not apply to transfers of membership in cooperative societies. The restriction imposed by the byelaw was deemed a qualified restriction, not an absolute restraint on alienation.
The Court concluded that the restriction on membership was valid and did not contravene Section 10 of the TP Act. Therefore, the transfer of membership to a non-Parsi builder without the Society's consent was deemed invalid.
In the case of K. Muniswamy v K. Venkataswamy, the Karnataka High Court addressed whether a life interest created by a partition deed constituted a transfer of property absolutely or partially. The case involved a partition where specific properties were allocated to different family members. The partition deed stipulated that the parents would enjoy certain properties during their lifetime, after which those properties would be divided equally between their sons. However, no similar condition was attached to the shares of the sons, indicating that the parents had no power to alienate the property during their lifetime.
Despite this, the parents sold the property to the defendant during their lifetime. After their demise, the plaintiff filed a suit seeking partition of the property, arguing that the parents had no absolute right of alienation.
The Trial Court referred to previous rulings and held that the creation of absolute ownership in each sharer was a legal incident of partition. Thus, the condition restricting the parents from alienating the property amounted to an absolute restraint.
The Court cited various precedents to support its decision. It noted that while partial restraints on alienation were permissible in family settlements or partitions, absolute restraints were not. The principle of Section 10 of the Transfer of Property Act was invoked, emphasizing that any total restraint on the right of alienation was void.
The Court clarified that the character of the estate, whether limited or absolute, depended on the substance and intention of the parties, not just the terms used in the document. In this case, the partition deed clearly indicated the grant of absolute estates to the respective parties.
Therefore, the Court held that the restriction on the parents from transferring the property amounted to an absolute restraint on alienation and was invalid. Had it been a limited estate, the condition would have been operative.
Additionally, the Court mentioned cases where conditions in family arrangements were deemed valid, such as a restriction on alienation during the father's lifetime. However, it emphasized that such conditions should not constitute absolute restraints.
In conclusion, the Court ruled that the restriction prohibiting the parents from transferring the property was an absolute restraint on alienation and therefore invalid.
Exceptions to Sec. 10
Married woman - The second exception is for the benefit of a married woman (not being a Hindu, Muslim or Buddhist), so that she shall have no power, during her marriage, to transfer or charge the property or even her beneficial interest therein. Thus a condition restraining alienation may be imposed when the property is transferred to a married woman. If she is a widow or unmarried, no restraint can be imposed on her power of alienation.
Lease — When the condition is for the benefit of the lessor, it will be valid. The lessor can always restrict his lessee’s liberty of alienation. The logical reason for this exception is that a landlord should be free to choose the person who shall be in possession of his land. Thus, a condition in a lease, that the lessee shall not sublet or assign (otherwise the lessor may reenter) is valid. Also, 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 valid (Ramoa Rao v Thimappa AIR 1925 Mad 732).