Section 12 - Condition Making Interest Determinable on Insolvency or Attempted Alienation
Section 12 generally invalidates a condition that causes a transferred property interest to end because its holder becomes insolvent or attempts to transfer it. A specific exception protects certain lease conditions benefiting the lessor.
Full text of Section 12
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.
Meaning and legal effect of Section 12
A determinable interest is an interest intended to terminate when a specified event occurs. Under Section 12, a transferor generally cannot provide that the interest already transferred will automatically cease merely because the recipient becomes insolvent or tries to sell, assign, mortgage or otherwise dispose of it. The offending condition is void; this does not, by itself, make the entire transfer void.
Condition relating to insolvency
If property is transferred to A on terms that A will lose the transferred interest upon becoming insolvent, Section 12 ordinarily makes that forfeiture condition ineffective. This rule concerns the validity of the transfer condition and does not override applicable insolvency legislation or other statutory restrictions.
Condition relating to attempted alienation
If property is transferred to B subject to forfeiture when B attempts to sell or otherwise dispose of the interest, the forfeiture condition is ordinarily void. The word alienation refers to transfer or disposal of an interest in property. The precise rights conveyed still depend on the instrument and applicable law.
Exception: Lease conditions benefiting the lessor
The second paragraph expressly excludes a condition in a lease that benefits the lessor (landlord) or persons claiming under the lessor. Therefore, a lease may validly provide for forfeiture on specified events, subject to the other provisions governing leases, including Sections 111(g), 114 and 114A where applicable, and relevant tenancy legislation. The exception does not automatically authorize eviction without compliance with applicable law.
Illustrations
- Ordinary transfer: X transfers land to Y but states that Y's interest ends if Y becomes insolvent. That condition is generally void under Section 12.
- Attempted sale: X transfers an interest to Y with a condition terminating it if Y tries to sell it. That forfeiture condition is generally void.
- Lease: A lease includes a forfeiture provision for the lessor's benefit on an event of insolvency or prohibited assignment. Section 12 itself does not invalidate the condition, although other legal requirements may govern enforcement.
Difference between Sections 10, 11 and 12
Section 10 deals primarily with conditions absolutely restraining the transferee from disposing of the interest. Section 11 concerns directions inconsistent with the enjoyment of an interest created absolutely, subject to its special rule for the beneficial enjoyment of another immovable property. Section 12 specifically addresses a condition terminating an interest on insolvency or an attempt to alienate it. The provisions address related but distinct restrictions.
Related statutory provisions and official source
Section 5 defines a transfer of property; Section 6 addresses transferable interests; Section 7 identifies who is competent to transfer. For the authoritative Act and amendments, consult India Code - Transfer of Property Act, 1882.
Practical note: The outcome in a particular dispute may depend on the nature of the interest, wording of the deed or lease, statutory tenancy protections, and applicable insolvency law.