DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE:
Zoroastrian Co-operative Housing Society Ltd. V. District Registrar Co-operative
Societies

SUBJECT:
Transfer of Property

NAME OF THE FACULTY:

Mr.

NAME OF CANDIDATE:
ADVIKA PHOTUMSETTY
2014070
5th SEMESTER

Acknowledgement
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I am very thankful to everyone who all supported me, for I have completed my project
effectively and moreover on time.
I am equally grateful to my teacher. She gave me moral support and guided me in different
matters regarding the topic. She had been very kind and patient while suggesting me the
outlines of this project and correcting my doubts. I thank her for her overall supports.
Last but not the least, I would like to thank my seniors who helped me a lot in gathering
different information, data and guiding me from time to time in making this project ,despite
of their busy schedules ,they gave me different ideas in making this project unique.

2 | Page

S.No

.Particulars

Page No.

1.

Abstract

2.

Objectives and Scope

3.

General principle of TP

4.

Relevant Case laws

11

5.

Facts

12

6.

Conclusion

26

7.

Bibliography

27

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ABSTRACT
The main principle involved behind the case Zoroastrian Co-operative Housing Society
Ltd. V. District Registrar Co-operative Societies is section 10 of the transfer of the
property act that is conditions restraining alienation. When property is transferred subject to
a condition or limitation absolutely restraining the transferee or any person claiming under
him from parting with or disposing off 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, so that she shall
not have any power during her marriage to transfer or charge the same or her beneficial
interest therein.

OBJECTIVES/AIMS OF THE STUDY:

The main objective of this study is to discuss various aspects and provisions involved in the
case law Zoroastrian Co-operative Housing Society Ltd v. District Registrar Co-operative
Societies

RESEARCH QUESTIONS:
1

What are the main issues involved in this case-law?

How do we relate the issues to the transfer of property?
Can a restriction based on religion, race or caste contained in a byelaw on the
members right in a co-operative housing society to transfer his membership coupled
with his right to alienate his interest in the immovable property as of the present
case-law be allowed?

HYPOTHESIS:
This case mainly relates to the principle of section 10 of the transfer of property act that is
conditions restraining alienation. When property is transferred subject to a condition or
limitation absolutely restraining the transferee or any person claiming under him from
parting with or disposing off 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.

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RESEARCH METHODOLOGY:
The process used to collect information and data for the purpose of making business
decisions. The methodology may include publication research, interviews, surveys and
other research techniques and could include both present and historical information. In this
project the researcher is using doctrinal type of research methodology. This projects nature
is explanatory. The mode of citation is blue book citation.

SIGNIFICANCE OF THE STUDY:

The findings of the study will rebound to the benefit of the researchers. This study may be
one of the bases that a new theory in learning will arise.

SCOPE OF THE STUDY:

Since alienation of property is the sole prerogative of the owner of the property, he is
empowered to sell it at any point of time, for any consideration, to any person, and for any
purpose.

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General Principles of Transfer of Property: Subject to a

limitation or condition
Sections 10, 11, and 12 of the Transfer of Property Act deal with the imposition of
restrictions or limitations in transfer of property. They contemplate situations where
limitations may be imposed on the transferee by the transferor in the instrument on the
interest so transferred.1 In such a case, the question that arises is: are such restrictions valid?
If so, under what circumstances are they valid? Sections 10, 11, and 12 of the Transfer of
Property Act hold the answers to these questions.

Rule against alienability

Section 10 of the Transfer of Property Act: 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 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.

Conditional transfers
Every owner of a property, who is competent to transfer, may transfer his property either
unconditionally or with certain conditions. Conditions are limitations or restrictions on the
rights of the transferees. Transfers which are subject to restrictions are known as
conditional transfers. These conditions may be either conditions precedent or conditions
subsequent. Conditions precedent are put prior to the transfer and the actual transfer
depends upon compliance of those conditions. Subsequent conditions are those conditions
which are to be fulfilled after the transfer.2These conditions are those conditions which are
to be fulfilled after transfer. These conditions affect the rights of the transferees after
transfer.
1 S.M. Lahiri, The Transfer of Property Act (Act IV of 1882), 11th ed., (India Law
House, New Delhi, 2001)
2 G.P. Tripathi, The Transfer of Property Act, 1882, 15th ed., (Central Law
Publications, Allahabad: 2005)
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This provides that if a property is transferred subject to a condition or limitation restraining

the transferees right of parting with or disposing his interest in the property absolutely,
then such a condition is void. This general rule is referred to as the rule against
inalienability. The rule against inalienability gives effect to the overarching principle
behind the Transfer of Property Act that, generally, all property should be transferable.
Therefore, any condition that restrains alienation is considered void. The transferee can
ignore such a condition and continue his enjoyment of the transferred property as if such a
condition did not exist in the first place.
However, while an absolute restraint is void, a partial restraint may not be. For instance, a
partial restraint that restricts transfers only to a class of persons is not invalid. However, if
the transfer is restricted to being allowed only to specific individuals, then it is an absolute
restraint and hence, void.

Categorization of restraints
Since alienation of property is the sole prerogative of the owner of the property, he is
empowered to sell it at any point of time, for any consideration, to nay person, and for any
purpose. There are certain integral components of the very term alienation and include
selection purely at the discretion of the transferor or the transferee and the time or
consideration for the transfer. A restraint on alienation, thus would include a condition that
dictates to him when to sell it, to sell it at how much consideration, or how to utilize the
consideration; to whom to sell or for what purpose he should sell. These restraints can
appear in the following ways3:

Restraints on transfer for a particular time

Restraints directing control over consideration/money;

Restraints with respect to persons/transferee; and

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

Absolute restraint
Absolute restraint refers to a condition that attempts to take away either totally or
substantially the power of alienation.4Section 10 says that where property is transferred
subject to a condition or limitation which absolutely restraints the transferee from parting
3 Dr. PoonamPradhanSaxena, Property Law, 2nd Ed. (Lexis Nexis:Nagpur, 2011)
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with or disposing of his interest in the property is a void condition. Restraint on alienation
is said to be absolute when it totally takes away the right of disposal. In the words of Lord
Justice Fry5, from the earliest times, the courts have always learnt against any devise to
render an estate inalienable.6
Section 10 relieves a transferee of immovable property from an absolute restraint placed on
his right to deal with the property in his capacity as an owner thereof. As per section 10, a
condition restraining alienation would be void. Section applies to a case where property is
transferred subject to a condition or limitation absolutely restraining the transferee from
parting with his interest in the property. For making such a condition invalid the restraint
must be an absolute restraint.
Two persons purchased securities in their own names with the money belonging to a third
person. And on his instructions they deposited the securities in the name of that person and
also the interest accruing on them in that persons account. The securities carried the
stipulation that they were not to be transferred. In order to wipe out his liability to another
person, that third person tendered the securities to his creditor by way of satisfaction to
hold them as a beneficiary. It was held that from the very beginning a beneficial interest
was created in favour of the person with whose monies the securities were purchased and,
therefore, his beneficial interest was transferable because otherwise the whole transaction
would have been hit by section 10.7
Condition imposing absolute restraint on the right of disposal is a void condition and has no
effect. For example, a person makes a gift of a property to another person (transferee) with
a condition that he will not sell it. This condition imposes an absolute restraint. If the
transferee sells that property, the sale will be valid because conditions imposing absolute
restraint are void. Amade a gift of a house to Bwith a condition that if B sold the house
during the lifetime of As wife, she should have an option to purchase it, for Rs. 10,000.
4 Bhavani Amma Kanakadevi v CSI Dekshina Kerela Maha Idavaka, AIR 2008
Ker 38
5 In re, Parry and Dags (1886) 31 Ch D 130
6 Zoroastrian Co-operative Housing Society v District Registrar Co-opertaive
Societies (Urban), AIR 2005 SC 2306
7 Canbank Financial Services Ltd. V Custodian, (2004) 8 SCC 355
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The value of the house was Rs. 10,000. This was held to be having the effect of absolute
restraint and was void.8 The provision of law against absolute restriction on alienation is
founded on the principle of public policy, namely that there should be free transferability of
property. A transfer of property for construction of a college contained a condition that if
the college was not constructed; the property would not be alienated. Rather it would be reconveyed to the person transferring it. The condition was held to be void and, therefore, not
capable of being enforced.9
Where the settler intending to create a life estate in favour of his son-in-law M, handed
over the title-deeds of the said property to M indicating that he had divested himself of all
rights in the property but imposed absolute perpetual restraint on alienation, it was held that
the restraint was void since the transfer was an absolute transfer in favour of M. Under the
provisions of section 10, the sale deed made by the heirs of M in favour of appellants was a
valid sale because the heirs were entitled to ignore the restraint on alienation and deal with
the property as absolute owners.10
The condition restraining lessee from alienating leasehold property is not illegal or void.11

Partial restraint
Section 10 has only provided for absolute restraints. It is silent about the partial restraints.
Where the restraint does not take away the power of alienation absolutely but only restricts
it to certain extent, it is a partial restraint. Partial restraint is valid and enforceable. In words
of Sir George Jesel, the test is whether the condition takes away the whole power of
alienation substantially; it is question of substance and not of 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.
A total restraint on right of alienation is void but a partial restraint would be valid and
binding. This rule is based on sound public policy of free circulation.
8 Rosher v Rosher, (1884) 26 Ch D 801
9 DhavaniAmmaKankadevi v C.S.I. Dekshina Kerala MahaIdavaka, AIR 2002 Ker
38
10 ]Kannamal v Rajeshwari, AIR 2004 NOC 8 (Mad)
11 RaghuramRao v Eric P. Mathias, AIR 2002 SC 797
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A restriction for a particular time or to a particular or specified person has been held to be
absolute restriction. A compromise by way of settlement of family disputes has been held to
be valid in Mata Prasad v Nageshwar Sahai, although it involved an agreement an
agreement in restraint of alienation. In this case, dispute was as to succession between a
widow and a nephew. Compromise was done on terms that the widow was to retain
possession for life while the title of the nephew was admitted with a condition that he will
not alienate the property during the widows life time. The Privy Council held that the
compromise was valid and prudent in the circumstances of the case.
While an absolute restraint is void, a partial restraint may not be. For instance, a partial
restraint that restricts transfers only to a class of persons is not invalid. However, if the
transfer is restricted to being allowed only to specific individuals, then it is an absolute
restraint and hence, void.12 How is it determined if a restriction is absolute or partial? In
order to determine whether a restriction is absolute or partial, one must look at the
substance of the restraint and not its mere form. Ordinarily, if alienation is restricted to only
family members, the restriction is valid. However, where in addition to that restriction, a
price is also fixed which is far below market value and no condition is imposed on the
family members to purchase, then the restraint is an absolute one and hence, void, although
in form, it is a partial restraint. Even if such a substantially absolute restriction is limited by
a time period that is, it applies for a specific time period only, it remains void.

Exceptions to the general rule

Section 10 provides two exceptions to the rule against inalienability. First, Section 10 does
not prohibit conditions or limitations13 in the case of a lease, which are beneficial to the
lessor or those claiming under him. Second, property may be transferred for the benefit of a
woman who is not a Hindu, a Muslim, or a Buddhist, such that she shall not have the power
to transfer the property or change her interest therein during her marriage. This exception is
based on the doctrine of coverture that operated in England in the nineteenth century.
There, women could be given property for their enjoyment without the right to alienate the
property during her marriage. The rule protected women from being forced to alienate their
property in favor of their husbands. However, despite the abolition of the doctrine of
coverture in England, this exception continues to remain on the statute books in India.
12 K. Muniaswamy v K. Venkataswamy, AIR 2001 Kant 246
13 Mohd. Raza v Abbas BandiBibi, (1932) 59 IA 236
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Lease
Conditional transfer is valid in the case of lease where the condition is for the benefit of the
lessor or those claiming under him. Lease is a transfer of a limited interest where the lessor
(transferor) reserves the ownership and transfers only the right of enjoyment to the lessee
(transferee). A lessor can impose a condition that the lessee will not assign his interest or
sub-lease the property to any other person. Such a condition will be valid. This exception is
applicable to permanent leases too. The Supreme Court has held that this section does not
carve out any exception with regard to perpetual or permanent lease. Thus, any condition
restraining the lessee from alienating leasehold property is not invalid.14
A condition in the ease that the lessee shall not sublet or assign his interest to anyone during
the tenure of the lease is valid.15 Similarly, a stipulation in the contract of lease that the
lessee would not sublet the premises and if he does, he would have to pay a fourth of the
consideration as nazaar to the lessor, is valid and enforceable. 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 property16again is valid.
Married women

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
husbands protection and shelter.
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 RaghuramRao v Eric P. Mathias, AIR (2002) SC 797

15 Raja JagatRanvir v Bagriden, AIR 1973 All 1
16 Rama Rao v Thimappa, AIR 1925 Mad 732
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Relevant cases
InRosher v. Rosher, 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 Ss and his heirs
power of alienation and were therefore void.
In Gayashi Ram v. Shahabuddin17, 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 As 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 sellers 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, 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
17 ]AIR 1935 All 49
18 AIR 1988 Bom 116
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FACTS:
The Zoroastrian Co-operative Housing Society is a society registered on 19.5.1926, under
the Bombay co-operative societies act, 1925. The Society applied to the Government of
Bombay for acquisition of certain lands in Ahmedabad District, then in the State of
Bombay, under the Land acquisition act, 1894 for the purpose of erecting houses for
residential use of its members and to further the aims and objects of the Society. On the
Government of Bombay agreeing to the proposal, the Society entered into an agreement on
17.2.1928 with the Government under section 41 of the Land Acquisition Act. Certain lands
were acquired. From the lands thus acquired at its cost and given to it, the Society allotted
plots of land to the various members of the Society in furtherance of the objects of the
Society. On the re- organization of States, the Society became functional in the State of
Gujarat and came within the purview of the Gujarat Co-operative Societies Act, 1961.
section 169 of that Act, repealed the Bombay Co- operative societies act, 1925 and in subsection (2) provided that all societies registered or deemed to be registered under the
Bombay Act, the registration of which was in force immediately before the commencement
of the Gujarat Act, were to be deemed to be registered under the Gujarat Act. The Gujarat
Act came into force on 1.5.1962. Thus, the Society came to be regulated by the Gujarat Cooperative Societies Act, 1961. On the scheme of the bombay co-operative societies act, the
Society had applied for registration in terms section 9 of that Act. The application was
accompanied by the proposed bye-laws of the Society. The Registrar of Co-operative
Societies, on being satisfied that the Society had complied with the provisions of the Act
and the Rules and that the proposed bye- laws were not contrary to the Act and the Rules,
granted registration to the Society and its bye-laws and issued a certificate of registration in
terms of section 11 of that Act. As per the bye-laws, the objects of the Society were to carry
on the trade of building, and of buying, selling, hiring, letting and developing land in
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accordance with Co-operative principles and to establish and carry on social, re-creative
and educational work in connection with its tenets and the Society was to have full power
to do all things it deemed necessary or expedient, for the accomplishment of all objects
specified in its bye-laws, including the power to purchase, hold, sell, exchange, mortgage,
rent, lease, sub-lease, surrender, accept surrenders of and deal with lands of any tenure and
to sell by installments and subject to any terms or conditions and to make and guarantee
advances to members for building or purchasing property and to erect, pull down, repair,
alter or otherwise deal with any building thereon. All persons who had signed the
application for registration, are original members by virtue of bye-law No.7. The said byelaw further provided that other members shall be elected by the Committee of the Society,
provided that all members shall belong to the Parsi Community subject to satisfying other
conditions in that bye-law. Bye-law No. 21 provided for sale of a share held by a member
but with previous sanction of the Committee which had full discretion in granting or
withholding such sanction. It was also provided that until the transfer of a share is
registered, no right was acquired against the Society by the transferee, and no claim against
the transferor by the Society was also to be affected. In short, the qualification for
becoming a member in the Society was that the person should be a Parsi and that the
transfer of a share to him had to have the previous sanction of the Committee of the
Society.
Some of the relevant provisions of the Bombay Act may now be noticed.
Under section 3, the Registrar had the right to classify all societies under
one or other of the heads referred to in that Section. Under section 5 of that
Act, a society which had as its object, the promotion of economic interests
of its members in accordance with economic principles, may be registered
under the Act with or without limited liability.section 6 placed restrictions
on the interests of the members of the society with limited liability. Section
6A enacted that no person shall be admitted as a member of a society unless
he was a person competent to contract under section 11 of the Indian
Contract Act. Section 7 stipulated the conditions for registration and
provided that no society could be registered under the Act which did not
consist of at least 10 persons who were qualified to be members of the
society under section 6A and where the object of the society was the
creation of funds to be lent to its members, unless all persons forming the
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society resided in the same town or village or in the group of villages or

they belonged to the same tribe, class or occupation, unless the Registrar
ordered otherwise and no person could be admitted to membership of any
such society after its registration unless the persons fulfilled the two
requirements as mentioned above. If the Registrar was satisfied that a
society has complied with the provisions of the Act and the Rules and that
its proposed bye-laws are not contrary to the Act or to the Rules, under
section 10 he was to register the society and its bye-laws. According to the
Society, it had submitted its duly filled in application under section 9 of the
Act accompanied by its bye-laws and the said bye-laws have been approved
and registered by the Registrar on being satisfied that the proposed byelaws were not contrary to the Act or to the Rules.
4. After the Society was formed and registered as indicated earlier, the
Society got lands acquired by the State by invoking the Land Acquisition
Act, 1894. The Society entered into an agreement in that behalf with the
Government under Section 41 of the Act on 17.2.1928. The said agreement
recited that the Government of Bombay was satisfied that the land should be
acquired under the Land Acquisition Act "for the purpose of erecting houses
thereon". It was also stated that the Government was satisfied that the
acquisition of the land was needed for the furtherance of the objects of the
Society and was likely to prove useful to the public and it consented to put
in operation the provisions of the Land Acquisition Act. An extent of 6
acres 12 guntas was thus acquired and handed over to the Society, on the
Society bearing the cost of that acquisition. The Society in its turn allotted
portions of the land to its members for the purpose of putting up residential
houses in the concerned plots.
5. One of the members of the Society sold the plot in which he had
constructed a residential building, to the father of Respondent No.2 with the
previous consent of the Committee of the Society. The father of Respondent
No.2 was also admitted to membership of the Society, he being qualified for
such admission in terms of the bye-laws of the Society. After the rights
devolved on Respondent No.2, consequent on the death of his father, he
became a member of the Society of his volition. Thereafter, he applied to
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the Society for permission to demolish the bungalow that had been put up
and to construct a commercial building in its place. The Society refused him
permission stating that the bye-laws of the Society did not permit
commercial use of the land. Thereafter, Respondent No.2 applied to the
Society for permission

to demolish the

bungalow

and to construct

residential flats to be sold to Parsis. The Society acceded to the request of

Respondent No.2, making it clear that the flats constructed could only be
sold to Parsis. It appears that, earlier, the Society had written to the
Registrar that it was apprehending that certain members of the Society were
proposing to sell their bungalows to persons outside the Parsi community
only with commercial motive and in violation of clause 7 of the bye-laws.
The Registrar replied that any transaction of sale should be in accordance
with the bye-laws of the Society and any sale in violation of the bye-laws
would not be permitted, thus, stressing the sanctity of the bye-laws. On
20.7.1982, the Government of Gujarat had also issued a notification
declaring that persons or firms dealing with the sale and purchase of lands
and buildings, contractors, architects and engineers were disqualified from
being members of Co-operative Housing Societies. Though, permission was
given to Respondent No.2 as early as on 17.5.1988 for construction of
residential flats in the land, to be sold only to members of the Parsi
community, he did not act on the permission for a period of seven years.
Apprehending that Respondent No.2 intended to violate the bye-laws of the
Society, the Society passed a resolution reminding its members that in
accordance with bye-law No.7, no person other than a Parsi could become a
new member of the Society and informing the existing members of the
Society that they could not sell their plots or bungalows to any person not
belonging to the Parsi community. Respondent No.2 appears to have started
negotiations with Respondent No.3, a Builder's association, in violation of
the restriction on sale of shares or property to a non-Parsi. The Society, in
that context, filed a case before the Board of Nominees under the Act for an
injunction restraining Respondent No.2 from putting up any construction in
plot no.7 and from transferring the same to outsiders in violation of bye-law
No.7 without valid prior permission from the Society. Though, initially an
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interim order of injunction was granted, the Board informed the Society that
the Society could not restrict its membership only to the Parsi community
and that membership should remain open for every person. A clarification
was also sought for from the Society as to why it had refused permission to
Respondent No.2 to transfer plot no.7 belonging to him. Subsequently, the
Board of Nominees vacated the interim order of injunction granted, inter
alia, on the ground that the construction of a block of residential flats
would not create disturbance and nuisance to the original members of the
Society. Thereafter, Respondent No.2 applied to the Society for permission
to transfer his share to Respondent No.3. The said application was rejected
by the Society, since according to it, the application was contrary to the
Act, Rules and the bye-laws of the Society. While the Society challenged
the order of the Board of Nominees before the Gujarat State Co-operative
Societies Tribunal, Respondents 2 and 3 challenged the rejection of the
request of Respondent No.2 to sell his plot to Respondent No.3, by way of
an appeal before the Registrar of Co-operative Societies under section 24 of
the Act. The Tribunal, in the revision filed by the Society, took the view in
an interim order that the bye-law restricting membership to Parsis was a
restriction on the right to property and the right to alienate property and,
therefore, was invalid in terms of Article 300A of the Constitution of India.
This order was challenged by the Society and its Chairman before the High
Court of Gujarat in Special Civil Application No. 6226 of 1996. By
judgment dated 16.1.1997, a learned Single Judge of the Gujarat High Court
dismissed the writ petition essentially holding that the restriction in a byelaw to the effect that membership would be limited only to persons
belonging to the Parsi community, would be an unfair restriction which can
be validly dealt with by the appropriate authorities under section 24 of the
Act and Rule 12(2) of the Rules. It was also held that such a bye-law would
amount to a restraint on alienation and hence would be hit by Section 10 of
the Transfer of Property Act. The Society and its Chairman, challenged the
said decision before a Division Bench, in Letters Patent Appeal No. 129 of
1997. B y judgment dated 23.7.1999, the said appeal was dismissed, more or
less, concurring with the reasoning and conclusion of the learned Single
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Judge. The decision of the Division Bench of the Gujarat High Court thus
rendered, is challenged in this appeal by Special Leave.
Issues:
1. will a restriction based on religion, race or caste contained in a bye-law on the
members right in a cooperative housing society to transfer his membership coupled
with his right to alienate his interest in the immovable property be considered?
2. 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, can it be held to be an
absolute restraint?
3. Whether there is anything in the Gujarat Co-operative Societies Act and Gujarat Cooperative Societies Rules restricting the rights of the citizens to form a voluntary
association and get in registering under the co-operative societies Act confining its
membership to a particular set of people recognised by their profession, their sex,
their work or the position they hold or with reference to their beliefs, either religious
or otherwise?

Main Relevant Provision and principle involved:

The main important provision which were relevant and judgement was given accordingly is
Section 10: conditions restraining alienation:- where a property is transfereed subject to
condition or limitation absolutely restraining the transferee or any person claiming under
him from parting with or disposing off 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, so that she shall not have power during her marriage to transfer or
charge the same or her beneficial interest therein.

General principle:
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, save in accordance with a provision of law. An
absolute right to dispose of the property indicates that the owner can sell it for
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consideration or can donate it for religious or charitable purposes he may gift it to anyone,
mortgage it or put it up for lease.
For example, a person A, who is the owner of a house X, transfers it for consideration to B.
In the transfer deed, A puts a condition that B would not sell it to anyone, but would keep
the possession of the property to himself. B agrees to abide by this condition and pays
consideration. After the title passes and the property vests in B, B sells it to C. A files a suit
claiming possession of the property on the ground that B has committed a breach of a
condition of the contract, and therefore, the sale in favour of C is void. Here, the suit of A
would fail, as he was attempting to restraint B absolutely fom transferring the property even
when the interest has vested in B. Here, even if the transferee had expressly consented to
abide by the terms of the contract, this condition being void under section 10 of the act, he
is entitled to ignore it as if it did not exist on paper. At same time, a contravention of this
condition would not affect the validly of the original transfer through which the property
was acquired by the transferee.

Referred Case laws:

1. Damyanti naranga v. Union of india and others (AIR 1971 SC 966)
The court, discussing the scope of the right to form an association guaranteed by article
19(1)(c) of the constitution of india, stated that the right to form an association necessarily
implies that the persons forming the assocaition have also the right to continue to be
associated with only those whom they voluntarily admit in the association.
2. State of up and another v. C.O.D. Chheoki Employees Cooperative Society Ltd.
And others
The court that thus it is settled law that no citizen has a fundamental right under Article
19(1)(c) to become a member of cooperative society. His right is goverened by the
provisions of the statute. So, the right to become or to continue being a member of the
society is a statutory right. On fulfillment of the qualifications prescribed to become a
member and for being a member of the society and on admission, he becomes a member.
His being a member of the society is subject to the operation of the act, rules and bye-laws
applicable from time to time. A member of the society has no independent right qua the
society and it is the society that is entitled to represent as the corporate aggregate. No

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individual member is entitled to assail the constitutionality of the provisions of the Act,
rules and the bye-laws as he has his right under the act, rules and the bye-laws and is
subject to its operation. The stream cannot rise higher than the source
3. Printing and Numerical Registering Company v. Sampson:
Entering into an association with others for forming a co-operative society and subscribing
to its bye-laws are matters of contract voluntarily undertaken by a citizen. While
considering an arguement that a provision in the bye-laws thus subscribed to by a member
is opposed to public policy, the court cannot forget another important public policy as
stated by Jessel, M.R in this particular case. it must not be forgotten that you are not to
extend arbitrarily those rules which say that a given contract is void as being against public
policy, because if there is one thing which more than another public policy requires, it is
that men of full age and competant understanding shall have the utmost liberty of
contracting, and that their contracts when entered into freely and voluntarily shall be held
sacred and shall be enforced by courts of justice. Therefore, you have this paramount public
policy to consider that you are not lightly to interfeare with this freedom of contract. Now,
there is no doubt public policy may say that a contract to commit a crime, or a contract to
give a reward to another to commit a crime, is necessarily void. The decisions have gone
further, and contracts to commit an immoral offence, or to give mobey or reward to another
to commit an immoral offence, or to induce another to do something against the general
rules of morality, though far more indefinite than the previous class, have always been held
to be void. I should be sorry to extend the doctrine much further.
Judgment:
I.
It is not contended that there is any provision in the Gujarat Co-operative Societies Act
prohibiting the registration of such a co-operative society. We have already referred to the
history of the legislation and the concept of confinement of membership based on
residence, belief or community. The concept of open membership, as envisaged by Section
24 of the Act is not absolute on the very wording of that Section. The availability of
membership is subject to the qualification prescribed under the provisions of the Act, the
Rules and the bye-laws of such society. In other words, if the relevant bye-law of a society
places any restriction on a person getting admitted to a co-operative society, that bye-law

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would be operative against him and no person, or aspiring member, can be heard to say that
he will not be bound by that law which prescribes a qualification for his membership.
In the courts view, the High Court made a wrong approach to the question of whether a
bye-law like bye-law No.7 could be ignored by a member and whether the Authorities
under the Act and the court could ignore the same on the basis that it is opposed to public
policy being against the constitutional scheme of equality or non-discrimination relating to
employment, vocation and such. So long as the approved bye-law stands and the Act does
not provide for invalidity of such a bye- law or for interdicting the formation of cooperative societies confined to persons of a particular vocation, a particular community, a
particular persuasion or a particular sex, it could not be held that the formation of such a
society under the Act would be opposed to public policy and consequently liable to be
declared void or the society directed to amend its basic bye-law relating to qualification for
membership.
It is true that our Constitution has set goals for ourselves and one such goal is the doing
away with discrimination based on religion or sex. But that goal has to be achieved by
legislative intervention and not by the court coining a theory that whatever is not consistent
with the scheme or a provision of the Constitution, be it under Part III or Part IV thereof,
could be declared to be opposed to public policy by the court. Normally, as stated by this
Court in Gheru Lal Parakh vs. Mahadeodas Maiya and others (1959 Suppl. (2) SCR 406,
the doctrine of public policy is governed by precedents, its principles have been crystalised
under the different heads and though it was permissible to expound and apply them to
different situations it could be applied only to clear and undeniable cases of harm to the
public. Although, theoretically it was permissible to evolve a new head of public policy in
exceptional circumstances, such a course would be inadvisable in the interest of stability of
society.
The appellant Society was formed with the object of providing housing to the members of
the Parsi community, a community admittedly a minority which apparently did not claim
that status when the Constituent Assembly was debating the Constitution. But even then, it
is open to that community to try to preserve its culture and way of life and in that process,
to work for the advancement of members of that community by enabling them to acquire
membership in a society and allotment of lands or buildings in one's capacity as a member
of that society, to preserve its object of advancement of the community. It is also open to

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the members of that community, who came together to form the co-operative society, to
prescribe that members of that community for whose benefit the society was formed, alone
could aspire to be members of that society. There is nothing in the Bombay Act or the
Gujarat Act which precludes the formation of such a society. In fact, the history of
legislation referred to earlier, would indicate that such coming together of groups was
recognized by the Acts enacted in that behalf concerning the co-operative movement. Even
today, we have Women's co-operative societies, we have co-operative societies of
handicapped persons, we have co-operative societies of labourers and agricultural workers.
We have co-operative societies of religious groups who believe in vegetarianism and
abhore non-vegetarian food. It will be impermissible, so long as the law stands as it is, to
thrust upon the society of those believing in say, vegetarianism, persons who are regular
consumers of non-vegetarian food. May be, in view of the developments that have taken
place in our society and in the context of the constitutional scheme, it is time to legislate or
bring about changes in Co-operative Societies Act regarding the formation of societies
based on such a thinking or concept. But that cannot make the formation of a society like
the appellant Society or the qualification fixed for membership therein, opposed to public
policy or enable the authorities under the Act to intervene and dictate to the society to
change its fundamental character.
Another ground relied on by the Authorities under the Act and the High Court to direct the
acceptance of respondent No.3 as a member in the Society is that the bye-law confining
membership to a person belonging to the Parsi community and the insistence on respondent
No.2 selling the building or the flats therein only to members of the Parsi community who
alone are qualified to be members of the Society, would amount to an absolute restraint on
alienation within the meaning of Section 10 of Transfer of Property Act. Section 10 of the
Transfer of Property Act cannot have any application to transfer of membership. Transfer of
membership is regulated by the bye-laws. The bye-laws in that regard are not in challenge
and cannot effectively be challenged in view of what we have held above. Section 30 of the
Act itself places restriction in that regard. There is no plea of invalidity attached to that
provision. Hence, the restriction in that regard cannot be invalidated or ignored by
reference to Section 10 of the Transfer of Property Act.
Section 10 of the Transfer of Property Act relieves a transferee of immoveable property
from an absolute restraint placed on his right to deal with the property in his capacity as an
owner thereof. As per Section 10, a condition restraining alienation would be void. The
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Section applies to a case where property is transferred subject to a condition or limitation

absolutely restraining the transferee from parting with his interest in the property. For
making such a condition invalid, the restraint must be an absolute restraint. It must be a
restraint imposed while the property is being transferred to the transferee. Here, respondent
No.2 became a member of the Society on the death of his father. He subscribed to the byelaws. He accepted Section 30 of the Act and the other restrictions placed on a member.
Respondent No.2 was qualified to be a member in terms of the bye-laws. His father was
also a member of the Society. The allotment of the property was made to appellant in his
capacity as a member. There was really no transfer of property to respondent No.2. He
inherited it with the limitations thereon placed by Section 31 of the Act and the bye-laws.
His right to become a member depended on his possessing the qualification to become one
as per the bye-laws of the Society. He possessed that qualification. The bye-laws provide
that he should have the prior consent of the Society for transferring the property or his
membership to a person qualified to be a member of the Society. These are restrictions in
the interests of the Society and its members and consistent with the object with which the
Society was formed. He cannot question that restriction. It is also not possible to say that
such a restriction amounts to an absolute restraint on alienation within the meaning of
Section 10 of the Transfer of Property Act.
The restriction, if any, is a self-imposed restriction. It is a restriction in a compact to which
the father of respondent No.2 was a party and to which respondent No.2 voluntarily became
a party. It is difficult to postulate that such a qualified freedom to transfer a property
accepted by a person voluntarily, would attract Section 10 of the Act. Moreover, it is not as
if it is an absolute restraint on alienation. Respondent No.2 has the right to transfer the
property to a person who is qualified to be a member of the Society as per its bye-laws. At
best, it is a partial restraint on alienation. Such partial restraints are valid if imposed in a
family settlement, partition or compromise of disputed claims. This is clear from the
decision of the Privy Council in Mohammad Raza V. Mt. Abbas Bandi Bibi, ALR 59 I.A.
236 and also from the decision of the Supreme Court in Gummanna Shetty and others v.
Nagaveniamma, AIR 1967 SC 1595. So, when a person accepts membership in a
cooperative society by submitting himself to its bye-laws and secures an allotment of a plot
of land or a building in terms of the bye-laws and places on himself a qualified restriction
in his right to transfer the property by stipulating that the same would be transferred back to
the society or with the prior consent of the society to a person qualified to be a member of
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the society, it cannot be held to be an absolute restraint on alienation offending Section 10

of the Transfer of Property Act. He has placed that restriction on himself in the interests of
the collective body, the society. He has voluntarily submerged his rights in that of the
society.
37. The fact that the rights of a member or an allottee over a building or plot is attachable
and saleable in enforcement of a decree or an obligation against him cannot make a
provision like the one found in the bye-laws, an absolute restraint on alienation to attract
Section 10 of the Transfer of Property Act. Of course, it is property in the hands of the
member on the strength of the allotment. It may also be attachable and saleable in spite of
the volition of the allottee. But that does not enable the Court to hold that the condition that
an allotment to the member is subject to his possessing the qualification to be a member of
the cooperative society or that a voluntary transfer by him could be made only to the
society itself or to another person qualified to be a member of the society and with the
consent of the society could straight away be declared to be an absolute restraint on
alienation and consequently an interference with his right to property protected by Article
300A of the Constitution of India. We are, therefore, satisfied that the finding that the
restriction placed on rights of a member of the Society to deal with the property allotted to
him must be deemed to be invalid as an absolute restraint on alienation is erroneous. The
said finding is reversed.
In view of what we have stated above, we allow this appeal, set aside the judgments of the
High Court and the orders of the Authorities under the Act and uphold the right of the
Society to insist that the property has to be dealt by respondent No.2 only in terms of the
bye- laws of the Society and assigned either wholly or in parts only to persons qualified to
be members of the Society in terms of its bye-laws. The direction given by the authority to
the appellant to admit respondent No.3 as a member is set aside. Respondent No.3 is
restrained from entering the property or putting up any construction therein on the basis of
any transfer by respondent No.2 in disregard of the bye-laws of the Society and without the
prior consent of the Society.
The Writ Petition filed by the appellant in the High Court is allowed in the above manner.
The appellant will be entitled to its costs here and in the court below.

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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.

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Bibliography:
Cases:
1. RaghuramRao v Eric P. Mathias, AIR (2002) SC 797
2.

Raja JagatRanvir v Bagriden, AIR 1973 All 1

3.

Rama Rao v Thimappa, AIR 1925 Mad 732

4. DhavaniAmmaKankadevi v C.S.I. Dekshina Kerala MahaIdavaka, AIR 2002

Ker 38
5.

]Kannamal v Rajeshwari, AIR 2004 NOC 8 (Mad)

6. In re, Parry and Dags (1886) 31 Ch D 130

7.

Zoroastrian Co-operative Housing Society v District Registrar Co-opertaive

Societies (Urban), AIR 2005 SC 2306

8.

Canbank Financial Services Ltd. V Custodian, (2004) 8 SCC 355

9.

Rosher v Rosher, (1884) 26 Ch D 801

Books:
1

S.M. Lahiri, The Transfer of Property Act (Act IV of 1882), 11th ed., (India Law
House, New Delhi, 2001)

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G.P. Tripathi, The Transfer of Property Act, 1882, 15th ed., (Central Law
Publications, Allahabad: 2005)

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