TPA Section 7 - 12 Persons competent to transfer-Condition making interest determinable on insolvency or attempted alien

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SECTION 7-12 TPA NOTES

7. Persons competent to transfer.-

Every person competent to contract and entitled to transferable property, or authorized to dispose of transferable property not his own, is competent to transfer such property either wholly or in part, and either absolutely or conditionally, in the circumstances, to the extent and in the manner, allowed and prescribed by any law for the time being in force.

COMPETENCY OF THE TRANSFEROR

Section 7 of the Act provides for the competency of transferor.

Under this section a person is competent to transfer a property if he is

(1) competent to contract and

(2) entitled to transfer or is authorised to transfer if not his own.

(1) Competent to Contract.— According to Section 11 of the Indian Contract Act, 1872, a person is competent to contract if he is (i) of the age of majority (ii) of sound mind and (iii) is not otherwise disqualified from contracting by any law. A person who is competent to contract is competent transfer a property.

i. Age of majority.— When the transfer is being made, the transferor must be an adult person i.e. must have attained the age of majority.

Under Section 3 of the Indian Majority Act 1875, a person attains majority at the age of eighteen years.

But, if a guardian has been appointed under the Guardian & Wards Act, 1890, the minor attains majority at the age of twenty-one years.

A person who is below the age of eighteen years (or twenty-one years, as the case may be), is a minor.

Transfer of property by a minor is void and cannot be validated by his subsequent ratification on attaining his age of majority.​

ii. Soundness of mind.— Transferor must possess a sound mind at the time of the transfer i.e. he must not be of unsound mind.

Unsoundness of mind is of two kinds, idiocy and lunacy.

Idiocy is incurable and permanent. Transfer of property by idiot or insane person is void.

Lunacy is not permanent and a lunatic may sometimes possesses a sound mind. Such period is called lucid interval’.

Transfer of property by a lunatic during ‘lucid interval’ is valid. However, if a person has been adjudged lunatic by a Court, he is incompetent to make transfer even during lucid interval.

iii. Not otherwise disqualified. — The transferor must be free from any legal disqualification. Disqualification means legal inability.

Minority and insanity are legal inabilities. But, besides these, there might be other legal inabilities or disqualifications.

Here, ‘not otherwise legally disqualified’ means that the transferor should not be legally prohibited to transfer the property by any other law to which he is subject.

For example, a judgment debtor whose property is being sold in execution of decree, is legally disqualified to transfer his own properties.

Similarly, where a person’s properties are under the management of Court of Wards, he is legally disqualified to transfer any interest in his property or create a charge over it.

(2) Entitled to Transfer: Authority for Transfer.—

The transferor must be entitled to transfer the property concerned. He is entitled to transfer the property if he has title of the property or if he has no such title, has got the authority to transfer it.

No person is entitled to transfer any interest which he himself does not have at the time of the transfer.

If a person is transferring absolute interest he must have ownership in the property.

If he is transferring partial interest the transferor should have partial interest in the property. For example, where a person makes a sale or gift of a property he must have ownership (absolute interest) in the property. If a person makes a sub-lease of certain property he must be lessee of that property.

Without having title or interest in the property, the transferor has no right to transfer it. But a person who is not owner of a property may have right to transfer that property under an authority given to him by the owner of such property.

Thus, an agent who is authorized by the principal to transfer certain property, has right to transfer that property.

However, an agent who has not been given any express authority also to transfer the property has no authority to transfer any property in his management.

The authority to transfer is given under the power of Attorney.

Thus, under authority of the power of Attorney, any person may be authorized to transfer a property which is not his own.

Other instances where a person is authorised to transfer property not his own are the manager of a joint Hindu Family in the case of legal necessity, a guardian of any minor appointed under the Guardian & Wards Act, an executor or administrator having authority to transfer the property of a deceased under the Indian Succession Act.

It may be noted that in these cases, the transferor’s right of disposal has been defined and limited by the personal laws or the statutory Laws.

8. Operation of transfer.-

Unless a different intention is expressed or necessarily implied, a transfer of property passes forthwith to the transferee all the interest which the transferor is then capable of passing in the property, and in the legal incidents thereof.

Such incidents include, where the property is land, the easements annexed thereto, the rents and profits thereof accruing after the transfer, and all things attached to the earth; and, where the property is machinery attached to the earth, the moveable parts thereof; and, where the property is a house, the easements annexed thereto, the rent thereof accruing after the transfer, and the locks, keys, bars, doors, windows, and all other things provided for permanent use therewith; and, where the property is a debt or other actionable claim, the securities therefore (except where they are also for other debts or claims not transferred to the transferee), but not arrears of interest accrued before the transfer; and, where the property is money or other property yielding income, the interest or income thereof accruing after the transfer takes effect.

Property consists of interests. Interests of the property have several incident or things appertaining to it. When a property is transferred, there is transfer of the interests and together with them their incidents also pass on to the transferee.

There transferor need not specify each and every incident which shall pass on to the transferee.

But, if transferor so desires, he may express that a particular interest shall remain with him or otherwise shall not go to the transferee.

However, such intention must be clearly expressed or be necessarily implied in the absence of which it is presumed that transfer of the property passes forthwith to the transferee all the interests which the transferor is then capable of passing in the property, and in the legal incidents thereof.

Section 8 incorporates following provisions of law respecting operation of a transfer

1. An unqualified or, unconditional transfer conveys all the interests of the property possessed by the transferor.

2. Legal incidents appertaining to the property transferred also pass on to the transferee.

3. For any different intention of the transferor, the rule of interpretation is that it is to be inferred from the surrounding circumstances and by construing the whole instrument.

Legal Incidents of Transfer

Legal incidents of a property are everything which belong to that property by way of its necessary consequence or which necessarily depend on such property.

Certain properties and the legal incidents which pass on to the transferee upon the transfer of that property, is given below:

Land.— The legal incidents of a piece of land include

i. everything annexed to it for permanent enjoyment,

ii. the beneficial interests arising out of the land and

iii. the things attached to the earth.

Where a land is let out to a tenant, the right to the fruit-trees standing on that land passes in the absence of express reservation.

In Vishwa Nath v. Ram Raj the Allahabad High Court held that when land is transferred, there may be a presumption that all things attached to earth, such as, trees and shrubs are also transferred along with, the land.

But there cannot be such presumption vice versa. Thus, the Court held, transfer of trees will not by itself justify the inference that the land was also transferred.

Debts.— Legal incident of debts is the security for the debt. Thus, in an unqualified transfer of debt or actoinable claim, the security also passes on to the transferee along with the debt. However, the ‘debt’ as contemplated here must be perfected and absolute, not of uncertain nature.

The word debt as used in this section refers to only those debts which come within the general definition of actionable claims.

Since mortgage-debts are not actionable claims and are excluded in the definition, therefore, the provisions of this section do not apply to mortgage-debts.

A debt secured by charge is not like mortgage-debt; it may be assigned as an actionable claim by an unregistered instrument.

Thus, in the assignment of debt, the charge annexed to it also passes on to the transfree.

However, it may be noted that the list of ‘incidents’ of properties mentioned in Section 8 is not exhaustive. There may be other incidents which pass on to the transferee.

Unless different intention is expressed or necessarily implied.—

In Provosh Chandra Dalui v. Bishwanath Banerjee the Supreme Court observed that in the construction of a written instrument it is legitimate in order to ascertain the true meaning of the words used and if that be doubtful, it is legitimate to have regard to the circumstances surrounding their creation and the subject matter to which it was designed and intended.

In N.B. Subrahmanyam v. A. Hymavati,¹ the deed created rights and interests in ‘praesenti’ in favour of settlee regarding properties mentioned therein with life-estate for enjoyment of settlor’s life. The settlee was to acquire right to enjoyment, alienation etc. after the death of settlor. The Supreme Court observed that the deed was a settlement-deed and not a will. Therefore, the Court held that the settlor cannot subsequently bequeath the same property in favour of other person.

Similarly, the nature of transaction too is to be construed in the light of intention and the surrounding circumstance instead of specific words being used for that transfer.

In Sanat Kumari v. Lakshmi Amma Janki Amma.

9. Oral transfer.-

A transfer of property may be made without writing in every case in which a writing is not expressly required by law.

This section refers to modes of transfer. There are two modes of transfer of property: (a) delivery of possession and (b) registration.

(a) Delivery of possession.—

Where writing is not necessary under this Act, the property may be transferred orally i.e. only by delivery of possession.

Normally the movable properties may be transferred by delivery of possession. But, other kinds of properties in which writing is not necessary under this Act, may also be transferred orally. For example, sale of immovable property valuing less than one-hundred rupees (except in Uttar Pradesh), month to month tenancy, mortgage by deposit of title-deeds, exchange of immovable property valuing less than rupees one-hundred. Where writing is not necessary registration is also not necessary.

(b) Registration.— Where registration is necessary, the transfer must be in writing. The Transfer of Property Act, at appropriate places, has provided that following transfers must be made only through a written deed duly registered:

1. Gift of an immovable property (S. 123).

2. Sale of an immovable property exceeding rupees one-hundred (S. 54).

3. Sale of reversion or other intangible property irrespective of its value (S. 54).

4. Leases from year to year or for a term exceeding one year or reserving a yearly rent. (S. 107).

5. Simple mortgage irrespective of the amount secured (S. 59).

6. Other kinds of mortgage (except mortgage by deposit of title-deeds) where the sum secured exceeds rupees one-hundred (S. 59).

7. Exchange of immovable property exceeding rupees one-hundred (S. 118).

8. Transfer of actionable claims (registration is not necessary, writing is sufficient (S. 130)

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 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.

Right of disposal is one of the essential features of ownership.

Section 10 incorporates the rule that any restriction on the right of disposal would be against this essential feature of ownership rights.

Accordingly, Section 10 provides that if a transfer is made subject to a condition by which the transferee (who now becomes owner) is absolutely restrained from disposing of or parting with his interest in the property, the condition is void.

In such cases since the transferee becomes owner of that property, any restriction limiting his right of disposing the property would not be binding on him and he would be free to transfer it to anybody by any means.

ABSOLUTE RESTRAINT

Under Section 10 only that condition has been declared void which absolutely restrains the alienation. Restraint on alienation is absolute if it totally takes away or curtails the right of disposal.

The restraint may be absolute as a restriction on the power of alienation in point of time or as to a particular or specified person only or of any other form.

PARTIAL RESTRAINT

Section 10 is silent about the situation where the restraint is partial. Where the restraint does not take away the power of alienation of the transferee substantially but only limits it to some extent, the restraint is partial.

A partial restraint is valid and enforceable, (Muhammad Raza v. Abbas Bandi Bibi)

Restraint on alienation in compromises.—

Compromise is not a transfer of property within the meaning of Section 5 of this Act.

Therefore, Section 10 is not applicable to compromises made in family settlements and such a compromise is valid even if it involves any restraint on alienation.

Case -Mata Prasad v. Nageshar Sahai,

Applicability of Section 10.— It may be noted that the provisions laid down in Section 10 are based on the rule of equity, that property should not be made inalienable permanently.

Therefore, the provisions of this section may be applied also to those transfers which are not governed by this Act.

For example, Section 10 has been applied to transfers in Punjab where the Transfer of Property Act is not applicable or it has been made applicable to a transfer to a Hindu idol which is outside the scope of this Act.

However, the law laid down under Section 10 does not apply where the transfer is by operation of law.

In Laxmamma v. State of Karnataka, it was held that a grant made by Government in accordance with law is not a transfer within the meaning of this Act; therefore, a permanent restraint on alienation of the grant, if authorized by law applicable to such grants, would be a valid restraint.

EXCEPTIONS

Section 10 makes two exceptions to the general rule that conditions absolutely restraining alienation are void. The first exception is in respect of leases and the second is regarding a property which is transferred to a married woman.

Lease.—

Leases is a transfer of limited interest where the transferor (lessor) reserves the ownership and transfers only the right of enjoyment to the transferee (lessee).

Therefore, a lessor can impose a condition on the lessee that he shall have no right to sub- lease or assign his interest to another person.

Such condition, although it is a restraint on the lessee (transferee) against alienation, is valid and he cannot transfer his interest without the consent of the lessor.

Thus, a condition in a perpetual lease that lessee’s right is not transferable, is a valid condition.

Married Women.—

Where a property is transferred to a married woman who is not a Hindu, Muslim or Budhist, the transferor can validly impose a condition restraining alienation. Such condition shall not be void under Section 10.

Similar provisions are laid down in the Married Women’s Right to Property Act, 1874 which is applicable to married women who are not Hindu, Muslim or Budhist.

Thus, a property may be transferred to a married Hindu woman for her life with a condition that she cannot transfer it. Reason behind such a restraint is to safeguard the interest of the married women who could be easily exploited by their unscruplous husbands.

11. Restriction repugnant to interest created.-

Where, on a transfer of property, an interest therein is created absolutely in favour of any person, but the terms of the transfer direct that such interest shall be applied or enjoyed by him in a particular manner, he shall be entitled to receive and dispose of such interest as if there were no such directions.

Where any such direction has been made in respect of one piece of immoveable property for the purpose of securing the beneficial enjoyment of another piece of such property, nothing in this section shall be deemed to affect any right which the transferor may have to enforce such direction or any remedy which he may have in respect of a breach thereof.

RESTRAINT ON MODE OF ENJOYMENT

Section 11, provides that in the transfer of absolute interest of property, if the transferor imposes any condition restraining the mode of its enjoyment, the condition is void and the transferee is not bound by that condition.

Absolute interest in a property means ownership. Where a property is transferred absolutely, there is transfer of ownership and the transferee gets all the incidents of ownership including the right to use or enjoy the property as he likes.

A condition attached to the transfer of an absolute interest would affect the full ownership and would make it something less than a full ownership.

It is against the very nature of the transfer that ownership is given to the transferee and at the same time his right of enjoyment of the property is either postponed or curtailed from the property.

Transfer of absolute interest.— Section 11 is applicable only where an absolute interest or ownership has been transferred. This section is not a applicable where the transfer is merely of partial interest in the property.

In the transfer of partial or limited interest, there is no transfer of ownership.

For example, lease is a transfer of merely partial interest in which the lessee gets only the right of enjoyment of the property not its ownership. Condition imposed by a lessor restraining the mode of enjoyment of the property is valid and the lessee is bound by it.

Where a land is transferred for life’, there is no transfer of absolute interest because in such cases the transferee gets only the right of enjoyment of the property during his life. After his death, the property reverts back to the transferor or his heirs or passes on to any other person as directed by the transferor.

Therefore, in a transfer of property for life, the condition or direction limiting the mode of enjoyment is not hit by Section 11 and the condition or direction is valid.

EXCEPTION

The second paragraph of this section is an exception to the rule.

It provides that a condition or direction restraining the mode of enjoyment may be made by the transferor provided it is for the beneficial enjoyment of transferor’s own adjoining property.

This exception is based on the rule laid down in Tulk v. Moxhay where such conditions have been called restrictive covenants and are regarded as part of the property for the beneficial enjoyment of which they are imposed on the transferee.

Under Section the conditions restraining the mode of enjoyment are valid only in the following cases:

i. Where the condition has been imposed by the transferor himself; a condition imposed by any other person is not valid.

ii. Where the condition restraining mode of enjoyment has been imposed for the beneficial enjoyment of transferor’s own property; transferor cannot impose and enforce such restrictive conditions for the benefit of another’s property.

Since such restrictive covenants exist for the beneficial enjoyment only of transferor’s property, they can be enforced only by the transferor or a subsequent assignee from the transferor of the property for the benefit of which the covenant was made.

The conditions or directions restraining the mode of enjoyment may be affirmative as well as negative.

In Indu Kakkar v. Haryana State, I.D.C. Ltd., there was an agreement between Industrial Corporation and the Industrial Units with a condition that the Industrial Units should be established ‘within specified time’, failing which their interest shall cease.

The Supreme Court held that the condition is valid and not any restraint on mode of enjoyment.

Accordingly, the agreement between the parties was held valid and binding on them.

Where the condition is negative, the transferee is restrained from doing certain things i.e. he is required ‘not to do certain things.\

Difference between Sec. 10 and Sec. 11.— Under Sections 10 and 11 both, the condition subsequent curtailing the rights of a transferee are declared void. But the provisions of these two sections may be distinguished as under—

1. Section 10 is applicable to the transfers of absolute interest as well as limited (partial) interest whereas, Section 11 is applied to transfers of only absolute interest (ownership).

2. Section 10 refers to a restraint on alienation i.e. under Section 10 the condition is that transferee cannot transfer the property.

In Section 11 the restraint is on the mode of enjoyment i.e. under Section 11, the condition is that transferee cannot have the free enjoyment of the property.

12. Condition making interest determinable on insolvency or attempted alienation.-

Where property is transferred subject to a condition or limitation making any interest therein, reserved or given to or for the benefit of any person, to cease on his becoming insolvent or endeavouring 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.

Section 12 provides that where a property is transferred subject to a condition or limitation that the interest created thereby shall cease to exist on transferee becoming insolvent or on his attempting to transfer it, the condition is void.

This section invalidates two types of conditions (i) Conditions which limit or restrict any attempted transfer by the transferee and (ii) Conditions which provide that the interest of the transferee shall cease to exist when the transferee become insolvent.

The object of this provision is to protect the interest of the creditors.

In the absence of this provision, the transferee may incur debts and is then adjudged insolvent.

The result would be that creditor can never recover his money because the property would already cease to be the property of the debtor.

Section 12 avoids this situation.

It may be mentioned that under Sections 31 and 32 of this Act, provision has been made that a condition subsequent which lays down that the transferee’s interest shall cease to exist upon the happening of an uncertain future event, may validly be imposed by the transferor. Section 12 is an exception to this general rule.

Section 12 is applicable whether the interest transferred is absolute interest or a partial interest.

Thus in the transfer or settlement of an interest ‘for life the condition that it shall cease to exist upon transferee becoming an insolvent would be a void condition under this section.

Applicability to leases.— Section 12 is not applicable where the transfer is by way of lease. When a property is’ leased, there is transfer of only partial interest; there is no transfer of absolute interest. The lessor, being owner of the property retains his jus disponendi or the right to dispose of the property. Therefore a lessor while granting the lease may impose any condition on the lessee upon the non-fulfilment of which the lease would be forfeited.

Thus if a lessor imposes a condition in the lease that the lease shall be determined (or terminated) upon lessee becoming insolvent, the condition is valid.

However, the condition that lease is to be determined when lessee becomes insolvent may be binding only on the lessee; the assignee of the lessee is not bound by it. Where the lessee assigns the term and thereafter becomes insolvent, the condition shall not apply.

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