NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

ANALYSIS OF PARTIAL RESTRAINT ON TRANSFER OF PROPERTY.

Submitted To: Dr. Sanjay Yadav Subject: Property Law- I

Submitted by: Payoja A. Gandhi Roll No: 2009B.A, L.L.B 04 Enrolment No: A-0866 Sixth Trimester 2010-11.

TABLE OF CASES

Bosangowda v. Irgowdatti. Pg 7 Bhola Ram Chaudhary v. State of Bihar... Pg 9 Deo D Gill v. Pearson.Pg 5 Diwali v. Apaji... Pg 7 Gurdit Singh And Ors. v. Babu And Ors... Pg 9 K. Muniswamy v. K. Venkataswamy.. Pg 11 Laxmamma v. State of Karnataka and Ors ..Pg 12 Loknath Khound v. Gunaram Kalita .Pg 5 Mahamud Ali Majumdar v. Brikodar Nath ...Pg 6 Manohar Shivram Swami v. Mahadeo Guruling Swami ...Pg 8 Mata Prasad v. Nageshar Sahai ...Pg 10 Mohammad Raza Khan v. Abbas Bandi Bibi Pg 6 Muthuraman Chettiar v. Ponnusami Pg 11 Ratanlal v. Ramanuj Das ...Pg 6 re Macky 44 L.J. Ch. 44. Pg 5 Rosher v. Rosher Pg 7 Shiba Prasad v. Lekhraj and Co .Pg 9 Shri Ramachandra Bhakta v. Shri Krushna Chandra Bhakta and Anr Pg 10 Zoroastrian Co-operative Housing Society Ltd v. District Registrar Co-operative Societies ...Pg 9

TABLE OF CONTENTS PAGE NO:

Introduction ......4 Statement of Problem.............5 Origin of concept of Partial restraint.............5 Test of Partial restraint ..5 Types of Partial Restraint..5
 Restraints for a particular time...............5  Restraints with respect to persons (family arrangements)....6-10  Partition and subsequent restraint on alienation..............11  Grants by the Government to persons belonging to the Scheduled Caste and Scheduled Tribe and partial restriction on alienation.............12

Conclusion..13 Bibliography.......14

INTRODUCTION
Every owner of property who is competent to transfer has the freedom of transferring his properties either unconditionally or subject to certain conditions. In a transfer of property where a condition is laid down by the transferor, the transfer is a conditional transfer. Conditions are limitations which limit or otherwise affect the transfer. They may be condition precedent or condition subsequent. Condition precedent is prior to the transfer of property and the transfer of property is dependent on it. The condition which is to be fulfilled after the transfer of property is a condition subsequent. Section 10, 11, 12 and17 of the Transfer of Property Act deals with conditions subsequent. In this study I shall focus on Section 10 of the Act. Section 10 provides for 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 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 or her beneficial interest therein.

Thus Section 10 provides that a condition restricting alienation is void and not binding upon him. The principle underlying this section is that of equity, justice and good conscience, that prevent the transferors from incorporating conditions in the transfer deeds that are repugnant to the nature of interest created. Power of alienation is one of the basic rights of the owner and an attempt to encroach upon this right after the transfer of property takes place and transferee acquires interest in it, then such an encroachment is statutorily prohibited. Restraint means preventing or stopping or disabling a person from doing something. Absolute restraint refers to a condition that attempts to take away either wholly or substantially this power of alienation. When a condition does not take way the power of alienation absolutely but only restricts it to some extent is a partial restraint. It is valid and enforceable.

2. STATEMENT OF PROBLEM: The proposed study shall analyze the various cases were restrictions are made with regard to alienation of property. 3. ORIGIN OF CONCEPT OF PARTIAL RESTRAINT: The leading authority in English law on the question of validity of a condition as a partial restraint is re Macky1. In this case the transferee of an estate was given the property on the condition that he should never sell the property outside the family. Sir George Jessel, M.R. observed that it is only a partial restraint and hence valid on three grounds. Firstly, it is limited as to the mode of alienation because the only prohibition is against selling. He may lease or mortgage the property. Secondly, it is a limited restraint as regards to a class he may sell it to any member of the family. Thirdly, it is not limited as to time. These English law principles were followed by the courts in India. 4. TEST OF PARTIAL RESTRAINT: Whether the condition takes away the whole power of alienation substantially is the actual test of partial restraint. Whether a restriction would or would not amount to partial restraint would depend on the substance and the effect of the condition and not merely on the terminology used in the contract. In Deo D Gill v. Pearson2, a property was given to two sisters as tenants in common subject to the condition that if they had no issue, they should have no power of alienation except to their sisters or their children. Lord Ellenborough held this condition good. Section 10 of the Transfer of Property Act, 18823 is silent about the situation where the restraint is partial. However the judiciary has evolved this concept through various decisions. The concept can be explained by describing the four types of partial restraints. 5. TYPES OF PARTIAL RESTRAINT: i) Restraints for a particular time: Restrictions with respect to time, i.e condition that the transferee would not sell it for five years or ten tears or for any period whatsoever would be void, unless it is for a short time period and is coupled with a benefit to the transferor, such an option of re- purchase, at a consideration stipulated in the contract. This option of repurchase is personal to the transferor and cannot extend to anybody else. In Loknath Khound v. Gunaram Kalita4, A sold his house to B for five lakh rupees, with a condition that B should not sell it for five
1 2

44 L.J. Ch. 44 [1805] 6 East 173. 3 Herein after referred to as the Act. 4 AIR 1986 Gau 52

years. Within this period of five years, A would arrange the money and would have an option to repurchase it for six lakh rupees. If he is unable to exercise this option of repurchase within five years, B would be at liberty to sell it to anyone. The condition is with respect to both the time as well as a person, but would be valid as it is in the nature of partial restraint and is for the personal benefit of the transferor. ii) Restrictions with respect to Persons (Family Arrangements): Restrictions directing the owner that the property or an interest should be transferred to specific persons can be either partial or absolute, depending upon the facts and circumstances of the case. If the condition is that he should not sell it outside the family or even community then it is a partial restraint, provided both transferor and transferee are members of the same family or community. This condition is laid to conserve the property within a specific family or community, of which both the parties are members. In Mahamud Ali Majumdar v. Brikodar Nath5, it was held that when the transferor himself transfers the property outside the family then he cannot put a condition that binds the transferee( outsider) to sell the property only to the members of his family( transferors). With respect to family settlement, section 10 of the Act does not apply. Since family arrangements are not transfer of property, new interest is not created. In Ratanlal v. Ramanuj Das6, where the property was given by father to the son under a family arrangement with a condition that with respect a portion of it the son was prohibited from alienating that piece during the lifetime of the father. The Court held that it was not an absolute restraint and hence binding and valid on the son. In Mohammad Raza Khan v. Abbas Bandi Bibi7, where a compromise was made and a widow was given the property with a condition that she would not alienate the property outside the family it was held that the restraint was only partial and was not repugnant to justice, equity and good conscience.

5 6

AIR 1960 Assam 178 AIR 1944 Nag 187 7 AIR 1932 PC 158

In Bosangowda v. Irgowdatti, 8 there was a dispute regarding husband's property and a Hindu widow arrived at a compromise with the reversioners. She agreed to keep the property for life and undertook not to sell or mortgage the same and it was held that the compromise was a family arrangement and did not amount to transfer of property within the meaning of Section 10, T. P. Act. In the case of Diwali v. Apaji9, a compromise was reached between the widow and her adopted son whereby she was allotted certain properties for her maintenance but without power of alienation, it was held to be a valid condition. In Rosher v. Rosher10, aperson A died and left his entire property to his son S by a will. The Will laid a condition that if S or any of his heirs wanted to sell the property then they must first offer it to W( the widow of the deceased) if she wanted to purchase it at a fixed price, i.e -one- fifth of the value of the manor ( 3000 pounds). The price of the manor at the time of operation of the will was 15000 pounds. A so if the son or any of his heirs wanted to rent the manor then they could do so only for a period of three years. If the tenancy exceeded for more than three years, W would have the option to occupy the premises at a fixed rent of 25 pounds per year. Also if the tenancy exceeded for a period of seven years, again W was entitled to occupy the same for an annual rent of 35 pounds. S sold the property without offering it to W. The court held that the character of the restraint was i) Respect to persons, i.e, the testators wife whose name was specifically mentioned in the will. ii) Respect to money or price: W could purchase the property at a specific price of 3000 pounds, irrespective of whatever maybe the market value. iii) iv) Respect to alienation: The beneficiaries were not supposed to lease the manor beyond the period of three years and if they leased it then she would take the property at a very small rent.

8 9

AIR 1923 Bom 276 (E). 1886 ILR 10 Bom 342. 10 (1889) 26 ChD 801.

Hence the court held that these restrictions amounted to an absolute restraint on S and his heirs power of alienation and therefore void. The Son was entitled to ignore these conditions and could sell; the manor to anyone for any time period, without any cause of action arising in favour of W. To compel the son (if he wished to sell), at one- fifth of the value of the estate, is a prohibition of alienation during the widows lifetime. Manohar Shivram Swami v. Mahadeo Guruling Swami11, A and B were first cousins, (sons of two brothers). A made a will of his property in favour of B. On As death, B acquired the title 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 only to the sellers Jangam family and not to anybody else. C sold the property to D, ignoring the condition incorporated in the sale deed. B took back the possession of the property on the ground that as C had committed a breach of the condition, the transfer became void. He also filed a suit against C, D and others seeking perpetual injunction restraining them from interfering with his possession of the property. C took the defence that this condition violated Section 10 of the Act and therefore was not binding on him. The trial court rejected this defence and held that the sale deed was executed by B was void and not binding on C and hence property should be restored to C. In the district court, the validity of the sale was upheld. The restriction imposed on C in the sale deed was not

repugnant to Section 10 of the Act. The matter went in appeal to the Bombay High Court. The High Court had to decide whether the condition restricting sale to any person other than a person belonging to the Jangam family was hit by section 10. The High Court held that the condition absolutely restrained C from parting with his interest in the property and therefore it was void. This decision comes as a surprise as the condition here in fact aimed to not sell the property outside the family/ community, which in a number of cases discussed above, has been held to be a partial restraint, and binding on the parties. The Court ignored to consider the precedents.

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AIR 1988 Bom 116

In Zoroastrian Co-operative Housing Society Ltd v. District Registrar Co-operative Societies12, a society was registered under the Bombay Co-operative Societies Act with the object of constructing houses for residential purposes, and according to the bye- laws, the membership was restricted only to Parsis. The Bombay High Court stated that a restriction based on religion, race or caste contained in a bye- law on the members right in a co-operative housing society to transfer his membership coupled with his interest in the immovable property would be bad in the eyes of law. Restriction on the members right to transfer membership and or his interest in the property to a non- Parsi was held violative of Section 10 and therefore void. The matter went to the Supreme Court in appeal. The Apex court allowed the appeal and held that when a person accepts the membership of a co-operative society by submitting himself to its bye- 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 only could not be an absolute restraint on alienation offending Section 10 of the Act. This clause in the bye-laws that a person could sell it only to Parsis and not to a non- Parsi was a partial restraint and not an absolute one. In Shiba Prasad v. Lekhraj and Co13, it was held that a condition in the kharposh grant made by a zamindar in favour of a junior member that the subject matter of the grant was not liable to be attached and sold in execution, is only a partial restraint, and hence valid. In Bhola Ram Chaudhary v. State of Bihar14, it was held that a clause in the lease deed which provides that the interest of the leaseholder cannot be transferred without the written permission of the deputy commissioner is not an absolute restraint on transfer and hence valid. In Gurdit Singh And Ors. v. Babu And Ors15, the plaintiffs were the collaterals of one Amrika who in 1879 made a gift of the property in dispute in favour of his 'pichhlag son Fauja. This gift was objected to by the collaterals of Amrika but in the revenue department a compromise was arrived at between Amrika, Fauja and the then existing collaterals that the donee or his descendants will have no right to effect a sale or mortgage of the land and that they will be

12 13

AIR 2005 SC 2305 AIR 1945 PC 162 14 AIR 1990 Pat 20 15 AIR 1953 P & H 282

entitled only use and derive profit or benefit from property. In 1944 the descendants of Fauja mortgaged a portion of the land and the collaterals challenged this alienation and sued for possession of the whole of the land gifted on the ground that there was a breach of the terms of the compromise. Both the trial and the district courts dismissed this suit holding that such a condition which was imposed in the gift was contrary to Section 10, T. P. Act and was void. The matter went in appeal to the Punjab and Haryana High Court. The court held that the agreement was not contrary to any principle of equity, nor is it contrary to any provision of law. It was a reasonable compromise made in common prudence by reversioners and Amrika and Fauja. Section 10 of the Act does not apply in this case. The Court held that the plaintiffs were entitled to the portion of the land which had been alienated by the descendants of Fauja. Shri Ramachandra Bhakta v. Shri Krushna Chandra Bhakta and Anr16, a clause in the agreement between the plaintiff (seller) and the defendant to sell the Gharabari land stipulated that if at any future point of time, the defendant wished to sell it then the land has to be first offered to the plaintiff and if he agrees to purchase the land at the market value, then nobody else can purchase the same. But if the plaintiff is not able to pay the market rate and is not interested to purchase, the land can be sold to a third party. The lower appellate Court however, held that in view of Section 10 of the Transfer of Property Act, the stipulations restricting alienation by the transferee is void and, therefore, has to be ignored. The Orissa High Court held restriction is a partial restriction with regard to alienation of property and cannot be construed as a total prohibition for alienation and, therefore, the said clause does not attract the prohibition contained Under Section 10 of the Transfer of Property Act and as such, is not void. In Mata Prasad v. Nageshar Sahai17, there was a dispute between the nephew and the widow of the deceased. It was compromised between them that the widow shall hold the possession of the property for her life while admitting the title of the nephew but the nephew was restrained from transferring the property during the life of the widow. The Privy Council held that that the compromise was valid and cannot be regarded as a condition restraining alienation.

16 17

1999 II OLR 105 AIR 1925 PC 272

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iii) Partition and Subsequent Restraint on Alienation: Partition of a joint family property or family settlement do not amount to transfer of property18, Section 10 of the Act would not be applicable. However any total restraint on the right of alienation is void. This rule is based on the sound public policy of free circulation of property. In Muthuraman Chettiar v. Ponnusami19, there was a partition in the joint hindu family and it was stipulated in the agreement that if any of the parties to the agreement remain childless, he should not sell or transfer his share by a gift but the share would be inherited by rest of shareholders. The Madras High Court held that this stipulation was added to frustrate indefinitely the right of alienation which was the legal incident of an absolute estate. Thus it created life estate in favour of a shareholder who died without any issue. Hence this stipulation was struck down as void. In K. Muniswamy v. K. Venkataswamy20, a family consisted of father F, mother M and two sons S1 and S2. The partition took place and properties were divided with one half was taken by M and F and one- fourth by the two sons. The partition deed incorporated a condition that each of these persons were to enjoy the property according to their wishes in any manner they liked and could effect mutation of name, so that taxes could be paid by the respective parties. The properties were ancestral as well as self- acquired. However there was one condition in the partition deed which 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 between S1 and S2. This creation of life- interest meant the parents had no power to alienate the property during their lifetime. The parents sold the property to S1. S2 challenged the validity of sale on ground that since parents had no power of alienation, the sale affected by them was invalid. The court explored the nature of estate that vested in the parents. The court held that the character of the estate whether limited or absolute, did not depend upon purely on the terms or expressions used to describe it, but has to be taken in totality, looking at the substance and the intention of the parties. The use of the expressions like each of them should get their khatka of the property in their names and the fact that they could use the properties in any manner they like meant that an absolute estate was granted to the parties after partition. A restriction, prohibiting them absolutely from transferring the property, amounted to an absolute restraint on alienation and was therefore bad in eyes of
18 19

V,N,Sarin v. Ajit Kumar Poplai, AIR 1965 AIR 1915 Mad 1191 20 AIR 2001 Kant 246.

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law. This shows that had it been a creation of limited estate in the first place, only then this condition would have been operative. iv) Grants by the Government to persons belonging to the Scheduled Caste and Scheduled Tribe and partial restriction on alienation: A full bench of the Karnataka High Court in Laxmamma v. State of Karnataka and Ors
21

considered whether condition in nature of partial

or permanent restraint on alienation of land granted to S.C/S.T people is void under Section 10 or 14 of the Act? In this case following restrictions were put on the S.C/S.TS when they were granted land for a nominal consideration by the government under Karnataka Scheduled Castes and Scheduled Tribes (Prohibition of Transfer of Certain Lands) Act, 1978. 1. That a grantee( S.C/S.T) shall not alienate the land forever or a permanent restraint on alienation; 2. That the alienation, if any, shall only be to the members of SC/ST; 3. That an application shall not be made without obtaining prior permission of Government or the authorised officer; and 4. That a grantee shall not alienate for a limited period except in favour of Government or a Co-operative Society. Even though the land has been alienated the land would be restored to the original grantees. The court discussed the objective behind the above mentioned legislation. The Act was enacted to help the Scheduled Castes and Scheduled Tribes grantees whose ignorance and poverty have been exploited by persons belonging to the affluent and powerful sections to obtain sales or mortgages either for a nominal consideration or for no consideration at all and they have become the victims of circumstances. Hence the above mentioned restrictions have been imposed on them. Also, the court held that the Government grant can in no case be equated to a disposal by a private person in favour of another private person. It cannot be treated as a transfer within the meaning of Section 5 of the Transfer of Property Act, 1882. The said Act does not apply to any transfer that takes place by operation of law. Hence the above restrictions were not violative of the provisions of the Act.

21

AIR 1983 Karn. 237.

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CONCLUSION
The doctrine of Partial restraint is a judicial creation. Section 10 of the Transfer of Property Act does not mention this concept. Only those conditions that restraint alienation absolutely are void under Section 10. Restraint short of an absolute curtailment of the power of the interest holder to transfer his interest, will be binding on him. Whether a condition totally or partially prohibits alienation depends on the substance or the effect of the condition and not the form. Different instances of partial restraint have been discussed before. To summarize, conditions restricted alienation outside the family would be perfectly valid. Such restrictions are prevalent in India. The objective behind such restrictions is to ensure that the property remains in the family. With regards to offering the property to the transferor or at any other person whom the transferor prescribes at a fixed price is an absolute restriction hence void as per the Act. However a condition to offer the transferor the option to repurchase at the prevailing market price at the time of the sale is only a partial restraint. The courts have expressed different opinions on the question whether a restriction on the right of alienation created by a family settlement, a compromise or consent decree is valid. Usually the transfer of Property Act does not apply in cases of family settlement or compromise but a clause in the compromise agreement imposing absolute restriction on alienation is invalid as per Section 10 of the Act.22 Hence Gurdit Singh v. Babu & Ors23 case is against this principle as the transferee as well as his heirs were prohibited from selling, mortgaging the land and were allowed only to possess and enjoy the benefits arising out of the land. It can be concluded that absolute restriction on alienation of property after transfer takes place except in case of lease and in case of land transferred to a married woman who is not a Hindu, Muslim or a Buddhist is void and the concerned property can be transferred freely.

22 23

Fatima v. K.S.Amma, AIR 1986 Ker. 56 Referred on Pg 9 and 10.

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BIBLIOGRAPHY

 

DF Mulla (2006) The Transfer of Property Act, New Delhi: LexisNexis Butterworths.

Singh Avtar(2009) Textbook on The Transfer of Property Act, New Delhi: Universal Law Publishing Co. Pvt. Ltd.

   

Tripathi G.P (2005) The Transfer of Property Act, Allahabad: Central Law Publications.

Saxena Poonam (2006) Property Law Student Series, Nagpur: LexisNexis Butterworths. Sinha R.K. (2007) The Transfer of Property Act, Allahabad: Central Law Agency. Shukla S.N. (2006) The Transfer of Property Act, Faridabad: Allahabad Law Agency.

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