Conditional transfer under TPA

THE TERM ‘CONDITIONAL TRANSFER UNDER TPA’

Author: Yukti Gupta

INTRODUCTION

Section 5 of Transfer of Property Act, 1882 (hereinafter referred as the Act) defines the transfer of property as an act by which a living person conveys/transfers property to one or more living persons in the form of sale, exchange, gift, mortgage, lease, actionable claim or charge and for a transfer to take place in present or in future, the property must be in existence. Such transfer can be either absolutely or conditionally. In absolute transfer, the transferee becomes an immediate owner of the property transferred to him without any encumbrances and limitations whereas, in conditional transfer, an interest is created in the favour of the transferee subject to the fulfillment of a condition by him attached with the transfer of such property. In this article, we shall deal with the conditional transfer in detail which has been explained under Sections 25 to 34 of the Act.

CONCEPT OF CONDITIONAL TRANSFER [1]

Any transfer of property that vests an interest, created by a transferor, that happens to be contingent upon the fulfilment or non-fulfilment of a condition, results in a conditional transfer.

Illustration- A transfers his property to B on a condition that B shall get a job in a reputed company. The condition of A for B to get a job is known as conditional Transfer.

It can be of two types namely-

1.       Condition Precedent- Section 26 of the Act provides that firstly the condition which is imposed on the transfer of property has to be complied with or fulfilled before a person can take an interest in the property. This condition precedes the transfer of property. The court in Gian Chand v. York Exports Ltd. [2] reiterated that the transfer cannot take place if the prospective transferee fails to fulfill this condition upon which the transfer depends.

Illustration- A makes a gift of his property to B on a condition that B shall marry with the consent of C, D, and E. B marries with the consent of only C and D because E died early. In this case, the property stands transferred in favour of B as he fulfilled the condition imposed by A.

2.       Condition Subsequent– Section 29 of the Act provides that firstly the transfer of property takes place and the conditions imposed on such transfer have to be complied by the transferee at a later stage, if he does not comply with the conditions, then the transfer becomes void. Therefore, the interest of transferee which has already been vested in him shall be affected immediately by fulfillment or non-fulfillment of the condition when a condition has been imposed in a transfer. It is to be noted that condition subsequent should be performed strictly as it operates to divest an interest. A person, who had actual notice of a document that incorporates a condition that he is supposed to fulfill, cannot make an excuse that he failed to read the condition though the document would not be admissible in any court.

Illustration- A transfers a farm to B with a subsequent condition that if B goes to England within 3 years from the date of such transfer, his interest in firm shall cease to exist. B went to England within 2 years of such transfer. In such a situation, his interest in the farm shall cease to exist as he did not comply with the condition subsequent to the transfer of property.

VOID CONDITIONS[3]

Section 25 lays down the following six categories of conditions which should not be imposed while creating an interest in the transfer of property as it renders the transfer void, namely-

(i)      Conditions which are impossible to perform;

Case law- In Rajendra Lal v. Mrinalini Dassi [4], the condition in the bequest was that the legatee had to excavate a tank, which in fact was already excavated by the testator himself. Therefore, the condition imposed made the bequest void as the possibility to perform it was impossible.

(ii)    Conditions forbidden by law;

Illustration- A transfers a portion of his property to B on a condition that B shall transfer his excise license to C. This transfer shall be void as the transfer of license is forbidden by law.

(iii)  Conditions, if permitted, would defeat the provisions of any law;

Illustration- A, who is in default on the payment of Welfare Fund was ineligible to participate in the auction and to take any contract in his name. To circumvent this law, he transferred Rs 1 Crore to B on a condition that he shall buy some shops at the auction and transfer them to A. An action suit filed by A to realize the money transferred to B as B did not fulfill the condition was held to be void because the condition imposed defeats the provision of law. 

(iv)  Conditions involving or implying injury to person and property of another;

Illustration– In Ramalinga Padayachi v. Natesa Padayachi[5], A, the buyer of some property was aware that the C, the seller, does not have a good title, and he persuades the C to transfer the property to A, the buyer with the object of giving trouble to the true owner. A later filed an action suit to claim indemnity from C for loss to the buyer in the litigation of that property. The court held the suit cannot be maintained A bought the property to imply injury to the true owner.

(v)    Fraudulent Conditions;

Illustration- A knew that the railway company would not grant him a contract. He advanced money to B so that he could put forward an application for the contract on behalf of A and after the contract was granted, A shall serve as the real contractor. In this situation, the agreement is void as the condition imposed while transferring the money was fraudulent with an aim to commit fraud upon the Railway Company.

(vi)  Conditions that are regarded as immoral or opposed to public policy by the court.

Case-   In Wilkinson v. Wilkinson [6], it was held that the agreement was against the public policy and void where the person advanced money to enable a woman to divorce her husband and marry him later, he sued her afterward for return of money as she failed to do so.

It should be kept in mind that, if these conditions are conditions precedent, they will make the transfer void for the conditions being void themselves. However, if the condition is a condition subsequent, the transfer may continue to be valid even if the condition is void. In Ram Sarup v. Bela[7], it was noted that a gift to which immoral condition is attached is a good gift but the condition is void. While in Ghumna v. Ramchandra [8], the court opined that the transfer in consideration of future immoral relations is void.

CONDITIONAL TRANSFER TO ONE PERSON COUPLED WITH TRANSFER TO ANOTHER [9]

A.      SECOND TRANSFER ON FAILURE OF FIRST

Section 27 of the Act is based on the doctrine of acceleration. It contemplates a situation wherein if two interests are created in the same transaction and the prior interest/transfer fails for a reason not contemplated or reasonably foreseen by the transferor, then the subsequent interest/transfer shall take effect.

Exception-

a)       if the prior transfer is void then the subsequent transfer fails to take effect

b)      Where the transferor signifies his intention clear that the prior transfer should fail in a particular manner for the subsequent transfer to take place then the subsequent would not be accelerated unless the prior transfer fails in that particular manner. 

In Debi Shankar v. Nand Kishore[10], An interest was created in favour of A, B, C, D for a successive period of 21 years and B & C died in the meantime. The court held that the interest would accelerate in favour of D and take effect as the prior interest of B and C failed due to an unforeseen situation.

In Gopaldas v. Hemandas[11], A makes a gift to his wife W and then to the children. The gift to W was invalid as it was unregistered and the law required it to be registered by an instrument only. Therefore, the court held that the gift in favour of the children would accelerate and would take effect immediately and opined that the failure of the prior gift does not accelerate a subsequent gift unless the two gifts are dependent on each other.

Illustration- A transferred the property to B on a condition that if B fails to commit the murder of C then the property would transfer to D. In such situation the prior transfer as well as the subsequent transfer will fail since the condition imposed on prior transfer is void.

B.      INVALID SUBSEQUENT DISPOSITION

Section 30 of the Act is an adversary of Section 27. It provides that if the subsequent interest is invalid and the prior interest is valid, then the subsequent interest can never cast its shadow on the prior interest.  Therefore, valid prior interest should be made effective while subsequent interest to be ignored if invalid.

Illustration- A made a gift to B with a condition that if B does not set C’s house on fire within one year of the gift made then it will be given to D. In this situation, B’s interest over the gift is absolute as if no subsequent condition was attached.

CONDITIONAL TRANSFER ON HAPPENING OR NOT HAPPENING OF SPECIFIED EVENT [12]

A.      CONDITIONAL LIMITATION

Section 29 of the Act incorporates the principle of defeasance wherein, upon a transfer, an interest of one person terminates thereby vesting the same in another person.  According to it, when interest is created in a particular person by transfer of property, he can be divested of the estate subsequently on the happening of an uncertain event and vests the same in another person.

Illustration- A transfer’s property to B with a condition that B shall go to England withing 3 years from such transfer and if he doesn’t do so the property shall vest in C. In this situation, the transfer of property from A to C is a subsequent transfer and it will take effect only the prior transfer from A to B fails. Therefore, if A goes to England within 3 years from the date of transfer, the property shall not vest in C but if B does not go to England within the stipulated time, it shall devolve on to C.

The general rule provided in this section is, however, subject to the rules contained in Sections 10, 12, 21, 22, 23, 24, 25, and 27 of the Act. Let us first understand these rules by way of illustration.

Section 10 – A transfers his house X for consideration to B and put 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 the situation and pays consideration. After the property vets in B, he sells it to C. A filed a suit claiming the possession of the property on the ground that B has committed a breach of a condition of the contract. here, the suit of A would fail as the condition of retraining B absolutely from transferring the property even though when the interest vests in B is void. B is entitled to ignore it as if did not exist on paper.

Section 12- In Achammal v. Rajamanickam Karthikeyan[13], A was the owner of a house, which was occupied by two tenants, T1 and T2. He sold it to B under the condition that B would not collect rent from tenants, or evict them or partition the property or that out of the rent, he would pay a specific sum to A. The court held that the conditions imposed will not be binding on B, as they would be repugnant to the interest that is created in his favour by this absolute transfer and a condition repugnant to the interest created is void when the property is transferred absolutely.

Section 21- A makes a gift to B and in case B dies without any child, the gift shall devolve on C. In this situation, C has a contingent interest in the gift and it will become vested only when B dies childless.

Section 22- A transfer property to B and after B’s death such property shall vest in C’s children having 18 years of age. When B died, all the children shall have an interest in the property which will vest in them only after attaining 18 years of age.

Section 23- A transfers his house to B for life and thereafter to C if he goes to London. C did not go to London until a year of B’s death. In such a situation, the interest of C in the house will fail.

Section 24- A transfers his farm to B for life and if B dies the property will be divided between C and D or to the survivor of them. C died during the life of B. In this situation, D survived B therefore at B’s death the property will transfer to D.

B.      CONDITION SUBSEQUENT

Section 31 and Section 32 of the Act postulates a condition which terminates an existing interest in the property transferred upon the happening or non-happening of a specified uncertain event. The condition imposed must be valid because if the condition is void then it would not divest a person of the estate and also subject to section 12 of the Act. For such a condition to be valid it is necessary that the event to which it relates be one which could legally constitute the condition of the creation of an interest. The event mentioned must be definite and specific. Also, it should be noted that in S. 28, the interest passes on third-person after termination while in S. 31, the interest reverts back to the transferor after the termination.

In Venkatarama V. Aiyasami Ayar[14], A prisoner was sentenced for life and before serving his sentence he transferred his property to B with a condition that the interest created in the transferee shall cease to exist if the transferor return from the prison. It was held that the condition imposed was valid therefore when he returned from prison, the transfer in favour of the transferee ceases to exist.

TRANSFER CONDITIONAL ON PERFORMANCE OF ACT[15]

A.     WHEN NO TIME SPECIFIED FOR PERFORMANCE

Section 33 of the Act states that if a person’s interest is created in a property but subject to his fulfilling a condition for the performance of which no time is specified then the person is not permitted to create conditions by his conduct which renders impossible the fulfillment of the condition either permanently or indefinitely.  He cannot evade the fulfillment of conditions, yet plan to take benefit under the transfer, thereby breaking the condition.

In Shyama Charan v. Naba Chandra[16], a person bequeathed certain properties to his daughter’s son in the event of his widow dying without adopting a son and such interest vested in him was conditional on him living in the family house, but the son himself joins the wife in selling the house. It was held that the son will be deprived of the interest given to him by bequest as he breached the condition.

B.      WHEN TIME SPECIFIED

Section 34 of the Act incorporates a rule that prevents a person from taking advantage of his own fraud. It is applicable to both condition precedent as well as condition subsequent. It states that when upon a transfer, time is specified for the happening or non-happening of an act, then the act should be performed in that time specified time only otherwise the interest on the property shall transfer to any other person. It is pertinent to note that if any delay is caused in the performance of an act by the person who is interested in its non-fulfillment, then the delay shall be condoned and the condition shall stand discharged.

In Tin Cowri Dassee v. Krishna[17], A transferred property to B with a condition that if A does not live at a holy place for three months from the date of the transfer then he shall be divested of his interest in the property. Relatives of B with an intent of non-fulfillment of this condition confined A in a secluded place. It was held the condition deemed to be discharged as relatives of A caused the non- performance of the condition with anticipation that property would devolve on them.

        CONCLUSION

Condition transfer plays a crucial role while engaging in a transaction of transfer of property. It helps to analyze conditions that can or cannot be imposed on the interest created in favour of the transferee. Section 25 acts as a sentinel of conditional transfer as it laid down condition which if imposed would render the transfer void. The provisions related to conditional transfer should be interpreted with utmost precision due to its complex nature with the object of keeping the interests of both the transferor and transferee in mind.

References

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[1] Dr Poonam Pradhan Saxena, Property Law (2017, 3^rd Edn.) 159- 174

[2] (2015) 5 SCC 609

[3] Supra at 1

[4] AIR 1922 Cal 116

[5] AIR 1967 Mad. 461,463

[6] (1871) 12 Eq 604

[7] (1884) ILR 6 All 313

[8] AIR 1925 All 437

[9] Supra at 1

[10] AIR 1932 Oudh 161

[11] AIR 1942 Singh 145

[12] Supra at 1

[13] AIR 2010 Mad 34

[14] AIR 1923 Mad 67

[15] Supra at 1

[16] (1912) 17 Cal WN 39

[17] (1893) 20 CAL. 15