Home  /  Transfer of Property Act  /  Section 12

Section 12: Condition making interest determinable on insolvency or attempted alienation

Transfer of Property Act • Official Statutory Text & Practice Guide

Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 1882
Section 11 All 137 Sections of Transfer of Property Act Section 13

Legal Commentary & Landmark Judgments: Section 12

Section 12 voids any condition in a transfer that makes the interest of the transferee determinable upon insolvency or an attempted alienation, preserving creditors' rights and property alienability.

  • Prohibited Insolvency Conditions: 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.
  • Preservation of Primary Transfer: The primary transfer remains valid and absolute; only the restrictive forfeiture condition is rendered void.
  • Lease Exception: Nothing in this section applies to a condition in a lease for the benefit of the lessor or those claiming under him (landlords can forfeit leases upon tenant insolvency).
Key Landmark Precedents:
  • Bhavani Amma Kanakadevi v. C.S.I. Dakshina Kerala Maha Idavaka, (2008) 3 SCC 73: The Supreme Court affirmed that conditions restraining alienation or terminating ownership upon bankruptcy violate public policy and are void under Section 10 and Section 12.
  • State of Rajasthan v. Basant Nahata, (2005) 12 SCC 77: Reiterated that property ownership carries an inherent right of disposal which cannot be clogged by insolvency termination clauses.
Courtroom Practice & Strategic Litigation Guidance:

Do not insert clauses in commercial conveyances or sales stating that the property will revert if the buyer enters insolvency or IBC liquidation; such covenants are void ab initio under Section 12.

Section 11 All 137 Sections of Transfer of Property Act Section 13