Property Carries With it Certain Basic Rights

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. Section 10 to 18 of the Transfer of Property Act, 1882 contain the first set of rules that have to be observed while alienating property [1] . Since it is a principle of economics that wealth should be in free circulation to get the greatest benefit from it, these Sections provide that ordinarily there should be no restraints on alienation.

This paper seeks to analyse the rules regarding transfer of property which talk about conditions restraining alienation of property once it is transferred. The researcher will first look into the general provision that all such conditions would be void and then will talk about partial restraints and other conditions which are valid. Finally conditions restraining enjoyment of property which can be enforced will be discussed. The researcher will analyse the law in light of decided Supreme Court and major High Court cases.

Section 10 [2] provides:

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 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, Muhammadan or Buddhist), so that she shall not have power during her marriage to transfer or charge the same or her beneficial interest therein.

The rule in all systems of jurisprudence is alienation rei praefertur juri accrescendi, that is, alienation is favoured by the law rather than accumulation. [3] It was this attitude that made sub-infeudation make place for substitution.

Restraints on alienation can appear in the following ways: [4]

Restraints on transfer for a particular time

Restraints directing control over consideration/money

Restraints with respect to persons/transferee

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

The section is based on the principle that the power of alienation is one of the most important incidents of property. [5] If total restraints were not prohibited, this important principle would be abrogated by private agreement. On the same principle, a provision in an agreement among the members of a joint Hindu family that they would not enjoy the income of the joint family properties and that they would no claim partition, would be void, though partition is not alienation [6] .

The section has to be read with Section 12 as they both deal with restraints on powers of alienation. While a total restraint on the power of alienation is void, partial restraints [7] may be good. For example, a condition that the transferee shall not transfer his interest for a period of 3 years, or a condition that the transferee shall not transfer the property to any member of a particular person’s family. But, the determination where a condition amounts to a total or partial restraint depends upon the substance and not the form. For example, an agreement preventing the transferee from transferring his property to anyone except to the transferor or his heirs, and that too if they are willing to buy it at a fixed price, is in substance an absolute restraint [8] .

Exceptions to the General Rule

The section makes two exceptions; one in favour of lessors and the other in case of married women. [9]

In the case of lessors, the condition will be good only “if it is for the benefit of the lessors”, as for example a specific statement in the conveyance that the lessor may re-enter [10] . The effect of contravening a mere condition against assignment in a lease will not make an assignment in contravention of such a condition automatically void. Without an express provision for re-entry, the lessor will only be entitled to damages for breach of covenant.

A valid condition against alienation of the leasehold interest can be imposed in respect of voluntary and involuntary alienations, such as, sale in execution [11] . But in the case of voluntary alienations, there should also be a condition for re-entry to make the condition against alienation valid. 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. [12]

Restraints on the power of alienation in dispositions in favour of married woman, who are not Hindu, Mohammedans or Buddhists, will be valid. This proviso was introduced to serve a similar purpose as English law in this regard. The English Courts recognized the rule that it was open to the settler or transferor to insert a clause in the deed of settlement or transfer, by way of a restraint on anticipation, that is, to restrain her from anticipating the future income of the property and from encumbering it or alienating it while she is under husband’s protection and shelter. [13]

The section is enacted to check that the transferor shall not impose an absolute restraint on the power to alienate that interest or right which was transferred to the transferee. Therefore, a limited interest in property can be created in favour of a transferee, but a restraint on the power to alienate that limited interest will be invalid. [14]

Section 12 [15] provides:

Condition making interest determinable on insolvency or attempted alienation.-Where property is transferred subject to a condition or limitation leaking any interest therein, reserved or given to or for the benefit of any person, to cease on his becoming insolvent or endeavoring to transfer or dispose of the same, such condition or limitation is void.

Nothing in this section applies to a condition in a lease for the benefit of the lessor or those claiming under him.

In Rosher v. Rosher [16] , 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 provided that S had to first offer the property for sale and also had to sell her at L 3000 while the market price was L 15000. 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.

In Gayashi Ram v. Shahabuddin [17] , the sale deed contained a clause that the transferee would not transfer the property to any person either by way of sale, gift or even mortgage except the transferor or his heirs. The court held that this condition is void and therefore invalid.

In Manohar Shivram Swami v. Mahadeo Guruling Swami [18] , A and B were first cousins. A made a Will of his property in favour of B. On A’s death, B acquired the title of the property and sold it to C, who was also the brother of A. The sale deed contained a condition that if C wanted to sell the property, he would sell it to the seller’s Jangam (caste) family and not to anybody else. The court held that the condition incorporated in the sale deed absolutely restrained C from parting with his interest in the property and therefore was void. The court upheld the validity of sale affected by C. This decision of Bombay High Court comes as a surprise as the condition here in fact was not to sell out of the family, which in a number of cases has been held to be a partial restraint, and binding on the parties.

In Zoroastrian Co-operative Housing Society Ltd v. District Registrar Co-operative Societies [19] , 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 byelaws 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

In K Muniswamy v. K Venkataswamy [20] , a family partition was effected although one condition in the partition deed provided that the mother and the father were to enjoy the properties only during their lifetime and after their deaths, this property was to be partitioned equally amongst the two sons. This creation of life interest meant that the parents had no power to alienate the property during their lifetime. The parents sold their property to one son. Other son challenged the validity of sale. The court held that a restriction prohibiting them absolutely from transferring the property amounted to an absolute restraint on alienation and was therefore bad in eyes of law.

In Dugdale v. Dugdale [21] , it was observed:

The liability of the estate to be attached by creditors on a bankruptcy or judgment is an incident of the estate, and no attempt to deprive it of that incident by direct prohibition would be valid… An incident of the estate given, which cannot be directly taken away or prevented by the donor, cannot be taken away indirectly by a condition which would cause the estate to revert to the donor, or by a conditional limitation or executor device which would cause it to shift to another person.

These observations show that creditors may have made advances on the strength of property the transferee has. They should not be deprived of their security because of a clause in the transfer of which they know nothing. Hence, this rule has been enacted as an exception to the general rule embodied in Section 31 and 32, that an interest may be created with the condition superadded that the interest shall cease on the happening of an uncertain event. [22]

Restraint on enjoyment of Property

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. [23] 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 favour 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. [24]

The principle is that a condition will be void, if it detracts from the completeness of the very interest created; it will be good if it is consistent with such interest. Thus, where; an absolute estate is granted, but a condition is imposed on the alienee requiring him to reside in a particular place, the condition is not valid and cannot be enforced. [25]

The second paragraph of Section 11 relates to the rights of a transferor as against the transferee. These are

To enforce the performance of a positive covenant

To restrain the breach of a negative covenant.

After the 1929 amendment, although affirmative and negative covenants are valid as between a transferor and a transferee, only negative covenants can be enforced against a transferee from the first transferee by reason of Section 40. [26]

The first and third paragraphs of section 40 may be compared with second paragraph of section 11. While the latter deals with the transferor’s rights against the transferee, this section deals with the right against the transferee from the first transferee. The 1929 amendment confined the section to negative or restrictive covenants.

The law in England was that in the case of a covenant between the vendor and the vendee of a land, its benefit ran with the land of the covenantee but its burden did not run with the land of covenantor; but if the covenant was negative on the user of the land by the covenantor, it will be enforced against the covenantor’s transferee if he had notice of the covenant or the transfer was gratuitous. And in determining whether a covenant was positive or negative it is the substance of the covenant and not its form that matters. [27] This is the law in India also after 1929 amendment. The reason for the rule is this: If a person sells land with a covenant he would not get full value. Why should a purchaser from him be then allowed to ignore the covenant and sell it free of the covenant and get a better value? Incidentally, a purchaser with notice from a transferee without notice is not bound by the covenant.

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.