Report No. 70
Conditions Restraining Alienation
The Act has so far dealt with transferable property, capacity to transfer, operation of the transfer and mode of transfer. What terms can be lawfully inserted in a transfer is dealt with in a group of sections. In general, parties ought to be allowed to transfer property on such terms as may be agreed upon between the parties, or, in the case of a unilateral transaction, as may be decided by the transferor and accepted by the transferee.
In this sense, freedom to dispose of property-section 7-may be said to include freedom to choose the conditions upon which the transfer is to be operative (conditions precedent), the conditions upon which it should cease to be operative (conditions subsequent), the terms upon which the interest transferred should be enjoyed and the terms upon which that interest should pass from the immediate transferee to his successors.
The terms upon which the interest transferred may itself be transferred by the transferee may even be regulated. The imposition of these terms is a part of the power to transfer property under section 7. But that section itself lays down that the power shall be subject to the provisions of any law for the time being in force-this is the gist though not the precise text. Thus, that section itself contemplates that the law may impose restrictions upon the freedom of disposition. The scope and content of those restrictions form the subject-matter of the next few sections.
On the ground of public policy, and primarily on the ground of the policy of the law favouring the vesting of interests in property, and also on the ground of the policy of favouring the circulation of property rather than its being tied up within a particular group or to a particular person, the law has imposed certain limits as to the terms of a transfer. Whether the breach of a particular term renders the transfer void or whether it keeps the transfer intact and the term becomes invalid is a matter which we need not go into for the present purpose. We are now primarily concerned with what are the permissible and what are the impermissible terms of a transfer.
17.2. Sections 10-18-Common thread.-
The most important sections of immediate interest in this context are sections 10 to 18, which principally, though not exclusively, deal with the invalidity of restraints on alienation, accumulation of income and the rule against perpetuities. Notwithstanding the complexity of these sections, a close analysis will reveal that the golden thread connecting them is one salutary principle that the law favours the freedom of transfer of property-the corpus as well as the income-and property should not be transferred upon terms which destroy or substantially impair this freedom.
This is often pithily expressed by saving that the freedom of disposition should not be allowed to be so exercised as to lead to its own destruction. One could more elaborately state the considerations of policy by saving that if a person is free to dispose of his own property, he must so exercise the freedom that those to whom he transfers an interest in property are not deprived of that very freedom.
The connection of the rule against perpetuities with this principle may appear to be tenuous, since that rule is often attributed to another principle-the law favours the vesting of estates within a reasonable time. But even this rule has, as its foundation, the broader principle that-the tying of property for an unreasonably long period and the postponement of its vesting defeats the enjoyment thereof by those who derive their rights under a transfer burdened with such conditions.
To put the matter in different words, the law requires that a person transferring property should not merely look to his own immediate interests, but should also have regard to the interests of future generations. In this sense, a balance is sought to be achieved between the immediate present and the distant future-which is indeed a function of law as social engineering.
17.3. Difficulty of formulation.-
These principles, sound as they are, do not yield easily to legislative formulation. By reason of the very fact that the immediate past and the distant future have both to be borne in mind and reconciled, the issues that arise present difficult problems of legal policy. So many alternatives present themselves. The choice is not always easy. Opinions could veer from one extreme to another. Personal feelings and sentiments, not lightly to be brushed aside, have to be reconciled with social and economic considerations.
For example, a person may very much wish that the property disposed of by him should remain within the family. He may desire that the property should be so enjoyed as to have regard to the welfare of certain other members of the family also, particularly by providing for allocation of a certain part of the income to them. These are personal sentiments. But those who are to live in future generations may not necessarily share the same sentiments, or not to the same degree.
Even if they do so, they may have their own social or economic reasons of a compelling nature raising countervailing considerations. It is then the business of law to evolve a set of rules that will reconcile sentiment with reason, the immediate and visible past with the remote and invisible future. The exact content of the set of rules to be so evolved must, in the very nature of things, be a matter of opinion. Orthodoxy and modernism each have their say.
17.4. Section 10.-
With these aspects of policy in the background, let us examine the first section concerned with the permissible terms of a transfer of property. This is the text of section 10, which deals with a condition restraining alienation-
"10. 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."
The section thus consists of three parts-the general prohibition, the exception and the proviso. The general prohibition is against an absolute restraint on "parting with or disposing of" the interest. The exception is in regard to a particular mode of transfer-lease-and is confined to a condition for the benefit of the lessor or those claiming under him. The proviso is in regard to a particular class of persons-married women of certain communities.
Although worded as a provision permitting restraint on the rights of women, it originated in a desire to protect the women. The restraint is thus for the benefit of the transferee. We shall advert later to the question how far such a restraint is consistent with modern notions.
17.6. Absolute restraint-Rationale.-
So far as the general prohibition in section 10 is concerned, the most important element, is that indicated by the requirement of absolute restraint. The term in a deed of transfer is void if it absolutely restrains the transferee from transferring his interest. If the transferor in categorical and unqualified terms provides that the transferee shall not transfer his interest at all, there can hardly be any difficulty in the application of the rule. The policy of the law is clear enough.
If there is freedom of disposition for the immediate transferor, there ought to be a similar freedom for the transferee as well. If he is absolutely restrained from transferring his interest, his freedom of disposition is totally taken away, so that-if the condition were to be recognised by law-in regard to that particular property, the freedom of disposition would cease to exist at all. The freedom of disposition of the transferor would then be exercised to its own destruction.
As observed by us in the introductory discussion in this Chapter1 this is against the policy of the law. Such an absolute restraint on alienation would hardly be favoured by any legislator, even if he is not a person introduced to the learning of the law. It may be of interest to note that Article 19 of the Constitution is based on a similar principle, although, of course, its operation is against the State.
If the section were to be taken as confined to absolute restraints pure and simple, hardly any problems would have arisen and the section would not require any elaborate discussion. But, in practice, limitations on alienation are not so simple in their language or unqualified in their scope. And the question naturally arises whether restraints not absolute in that sense are within the mischief of the section.
Restraints limited to transfers to particular persons, or transfers except to a particular person or limited to transfers with a certain period, have often been held to be void, as will appear from a few cases discussed below. It would thus appear that the word "absolute" is not to be taken in a literal sense. The section has been construed to apply to all transfers repugnant to the nature of the interest
1. Para. 17.1, supra.
17.7. Restraints with reference to duration.-
First, as to restraints limiting transfers in point of time. The section has been construed to apply to restraints limited to last for only a limited time.1 For example, the seller cannot stipulate with the purchaser that the purchaser shall not build a slaughter-house upon his land or that he shall not lease his land, or sell it for the next twenty years, or that he shall put it only to such use as the seller sanctions; the condition is repugnant to the nature of the interest created and is void under sections 10 or 11. As Jessel, M.R., observed2:
"The test is whether the condition takes away the whole power of alienation substantially; it is a question of substance and not mere form. You may restrict alienation in many ways. You may restrict it by prohibiting it to a particular class of individuals or you may restrict alienation by restricting it to a particular time."
So Lard Eldon said:
"It is clear, generally speaking, that if property is given to a man for his life, the donor cannot take away the incidents to a life-estate.3"
1. (a) Chamaru v. Sona Koer, 14 CLJ 303: 11 IC 301; (b) Negeshar v. Mina Prasad, AIR 1922 Oudh 236 (244).
2. Mackay (in re:), LR 20 Eq 186.
3. Bradon v. Robinson, 18 Ves J 429: 34 ER 370.
There is, therefore, nothing in the bare fact that the estate carved out is a life-estate, to bar the application of the rule of repugnancy. Nor is the restraint any less obnoxious to the rule because it provides for alienation to a specified class of persons1. The question whether a condition or a limitation has the effect of absolutely restraining a transfer so as to attract the prohibition in the section is to be answered on a consideration of several factors. In judging of the validity of the restraint, the court not only sees whether it is absolute, but also whether the right to cancel the transfer is based upon some reason or upon a purely capricious exercise of the transferor's will, in the effectuation of which he has no conceivable interest.
1. (a) Teja Singh v. Moti Singh, 80 IC 918;
(b) Asghari Begam v. Mania Baksh, AIR 1929 All 381.
17.9. Restraints as to persons.-
Restraints concerned with the persons to whom the interest created may be transferred, may assume one of two alternative forms. There may be a restraint on transfer to a particular person-for example, that the property shall not be transferred to A or B or other specified person. In general such restraints would not be regarded as absolute.
In practice however many cases present a situation of a different kind. The transferor seeks to prohibit alienation except to a specified person or group of persons. The transfer is then allowed to the specified persons or group only and every person is excluded from the range of the permitted transferees, if the terms are to be recognised. It is in this situation that problems arise. In general, the matter is decided after taking into account whether the restraint though not absolute, yet practically operates so as to exclude a very large class of persons and if so, whether in the circumstances of the case there is any justification.
17.9A. Restrictions as to price.-
Besides limitations as to persons and time, there are sometimes to be found restrictions as to the price at which property should be sold by the transferee. Such restrictions are often coupled with restrictions as to the person to whom it can be transferred. Usually, this situation is illustrated by restrictions to the effect that if the property is transferred, it shall be first offered to a particular person who shall have the option to purchase it at a particular price.
A right of pre-emption is thus created, but, in addition, considerable advantage is also secured to the beneficiary of the right of preemption, since usually the amount of price specified or the method for determining it is advantageous as contracted with the market price that is likely to prevail at the date of the intended sale by the transferee. If, in regard to such clauses contained in instruments of transfer-we shall also deal later with instruments of partition-the section is construed literally and the expression "absolutely" taken in its dictionary meaning and given a narrow scope, serious inconvenience would arise in practice.
17.10. Appreciating this reality of life, courts have, in many cases, given a wide meaning to the word "absolutely". They have weighed the advantage conferred on the prospective pre-emptor- which is the obverse of the restriction placed on the immediate transferee-as against the effect thereof upon the freedom of the immediate transferee. They have, in other words, considered the needs of the pre-emptor and the sentiments of the transferor in balance against the interests of the transferee. Any such balancing is bound to involve an assessment of social and economic realities, consciously or unconsciously undertaken by the Court.