Section 12 of TPA: A Judicial Approach

B.A. / B.B.A LL.B (Integrated Law degree course)

Transfer of Property Act 1882 (IV Semester)

“Project Work”

“Section 12 of TPA: A Judicial Approach”

Submission To: Submitted By:

Dr. Sugato Mukherjee Srujana

Faculty of Transfer of Property Act Roll no: 17RU11029

Designation: Assistant Professor Semester-IV

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 Section 12 of TPA: A Judicial Approach

ACKNOWLEDGEMENT

We take this opportunity to express our humble gratitude and personal regards to Mr. Sugato
Mukherjee for inspiring me and guiding me during the course of this project work and also for
his cooperation and guidance from time to time during the course of this project work on the
topic “Section 12 of TPA: A Judicial Approach”

Date of Submission: 05-05-2019

Name of Student: Srujana

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 Section 12 of TPA: A Judicial Approach

Introduction:
The section 12 of TPA deals with the ‘Condition making interest determinable on insolvency or
attempted alienation it clearly talks about “when property is transferred subject to a condition or
limitation making an interest therein, reserved or given to or for the benefit of any person, to
cease on his becoming insolvent or endeavoring to transfer or dispose of the same, such
conditions or limitation is void.

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

This section also relates to the restrictions on transfer of property.

Illustration: A transfers property to B with the condition if B becomes insolvent, then

his interest in the property would cease. B later becomes insolvent and A seeks to
enforce the condition. In such a case, the condition would be void and B will continue
to have interest in the property.

The exception to this rule in the case of a lease, which allows a lessor to impose such a
condition for his benefit in the lease. This means that a lessor may stipulate that if a
lessee should become insolvent, the lease may be forfeited and the lessor may re-enter
the leased property. Hence, a covenant determining a lease in the event of the
insolvency of the lessee is valid1.
Hence, although there are general rules that prohibit any restrictions from being
imposed on the enjoyment of the interest in the property after a transfer is made; there
are certain exceptions to it.
The validity and existence of this section demarcates the question that whether this section
or the Condition making interest determinable on insolvency or attempted alienation is
justifiable or not?

Or in other words, whether the restraint on transfer is justified in the eyes of law or not?

According to the Transfer of Property act it was clear that this is the subject under the topic
of Restraint on Transfer which includes Section 10 to Section 12 of TPA.

1
Vyankatraya v Shivrambhat, (1883) ILR 7 Bom 256

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 Section 12 of TPA: A Judicial Approach

Section 10 of TPA lays down that, “Where property is transferred subject to a conditions or
limitations absolutely restraining the transferee or any person clamming under him from
parting with or disposing of his interest in the property, the condition or the limitation is
void, except in the case of lease where the condition is for the benefit of lessor or those
clamming under him;

Provided that property may be transferred to or to the benefit of woman (not being Hindu,
Mohammadan or Buddhist), so that she shall not have power during her marriage to
transfer or change the same or her beneficial interest therein.

This section lays down that where property is transferred subject to a condition absolutely
restraining the transferee from parting with his interest in property, the condition (and niot
the transfer itself) is void.

The general economic principle is that the wealth should be in free circulation so as to get
the greatest benefit from it. The law favors’ alienation or transfer, rather than accumulation.
A right of transfer is incidental to, and inseperatable from, the ownership of the property. An
absolute restraint is repugnant to the nature of the estate and is an exception to the very
essence of the grant.

It may be noted that section 8 of TPA also lays down that unless a different intention is
expressed (or implied), a transfer of 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.

Condition Subsequent and Condition Precedent

Conditional precedent is that condition which is prior to the transfer of property and whether the
transfer would take place or not, is itself dependent on that condition.

Condition subsequent is a condition which is required to be fulfilled after the transfer of property
has already taken place

That is to say, a condition subsequent affects the interest of the transferred after the transfer.
Section 10, 11, 12 and 17 of the act deals with the condition subsequent.

Absolute and Partial Restraints

Under section 10 absolute restraints are declared void; however, partial restraints may be
allowed. In one English case, Jessel M.R. observed that, “you may restrict alienation in many

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 Section 12 of TPA: A Judicial Approach

ways; you may restrict alienation by prohibiting a particular class of alienation, or you may
restrict alienation by prohibiting it to a class of individuals, or you may restrict alienation by
restricting it to a particular time.”

An absolute restraint is one that takes away the power of alienation completely or substantially

Exceptions to the section:

1. Lease:
When the condition is for the benefit of the lessor, it will be void. The lessor can always
restrict his lessee’s liability of alienation. The logical reason of this exception is that a
landlord should be free to choose the person who shall be in possession of his land. Thus,
a condition in a leases, that the lease should not sublet or assign is valid.
2. Married Woman:
The second exception is foe the benefit of a married woman (not being a Hindu, Muslim
or Buddhist), so that she shall have no power during her marriage, to transfer or charge
the property. Thus a condition restraining alienation may be imposed when the property
is transferred to a married woman.

Condition making interest determinable on insolvency or attempted

alienation:
Section 12 of Transfer of property invalidates two types of conditions:

 Condition which limits or restrict any attempted transfer by the transferee and,
 Condition which provide that the interest of the transferee shall ceases to exist when the
transferee become insolvent.

However, a lessor is entitled to impose a condition terminating a lease in the event of the
insolvency of the lessee or when the lessee attempts to sublet or assign to lease.

The object of these provisions is to protect the interest of the creditors. Although it is unjust to
lay down a condition restricting transferee from disposing of his property, it would be equally
unjust if such transferee is allowed to defeat the interest of his creditor who had advanced money
only on the basis of his property. 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 debtor, Section 12 avoids this
situation.

It may be mentioned that under section 31 and 32 of transfer of property act, provision has been
made that a condition subsequent which lays down that the transferee’s interest shall cease to

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 Section 12 of TPA: A Judicial Approach

exist upon the happening of an certain 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.

Restraint on free enjoyment of property:

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 direction.

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.

One of the essential incidents of ownership of property is the right of free enjoyment of the thing
owned. Section 11 lays down that any condition restraining the enjoyment of the property which
is transferred is absolutely void. The principle that a condition will be void, if it detracts from the
very completeness of the interest created. A full ownership confers upon its owner complete
liability of the action with regards to its enjoyment, disposition and management, so that if a
transfer of such interest were accompanied by a condition that the transferee should always let
the land at the definite rent or cultivate it in a particular manner, the condition would be void on
the ground of its repugnancy with absolute ownership.

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Conclusion
The gist of the topic of condition making interest determinable on insolvency or attempted
alienation as it is taken as an exception of the of alienation as it is a condition that restraint the
alienation of a particular property in the case of insolvency.

As if a person in insolvent then to protect the rights of the creditors he is barred by the lay to
transfer the property for any matter except in the case of lease and transferred to his wife. The
very concept of the restraint of the property from the alienation is specific as it needs the support
of the section 10 and section 11 that used to complete these as a part of Restraint to Transfer.

To some extent the owner has the right to alienate his property according to the law but in the
case of insolvency the person has barred to transfer his property because the property was in
order to pay the debts on him as he has become bankrupt an according to law the person who is
proved insolvent than the creditors of that person was settled by the assets of the insolvent person
but if he uses to alienate his property to his relatives and other then at the end he has all his estate
or property with him and the creditor were in the loss.

So to deal with this section 12 makes these alienation void in the eyes of law and to make lesser
loss to the creditors.