Zoroastrian Co-operative Housing Society Ltd v District Registrar, Co-operative Societies (Urban)

Facts

A co-operative housing society had a bye-law restricting membership and transfer of property within the society to persons of the Parsi community. A member sought to sell his plot to a non-Parsi builder/developer, and the question arose whether the bye-law restricting alienation outside the community was an absolute restraint void under section 10.

Issues

• Whether a bye-law of a co-operative society restraining a member from transferring property to a person outside the community is an absolute restraint on alienation void under section 10.
• Whether a member who voluntarily joined the society bound by such restrictions can resile from them.

Arguments

The member argued the restriction effectively prevented sale on the open market and was an absolute restraint void under section 10. The society argued the restriction was only partial, confined to keeping property within the community, and was a valid term voluntarily accepted on joining.

Held

The Supreme Court held that a restriction confining alienation to members of a particular community is a partial restraint, not an absolute one, and therefore does not offend section 10. A person who voluntarily becomes a member of a co-operative society and accepts its bye-laws is bound by them and cannot ignore the restriction. The bye-law furthered a legitimate object of preserving the communal character of the society and was upheld as valid and enforceable.

Ratio decidendi

A restriction on alienation that merely confines transfer to a defined class or community is a partial restraint which is valid; only an absolute restraint repugnant to the incidents of ownership is void under section 10.

Significance

Leading modern Supreme Court authority on the partial-versus-absolute restraint distinction under section 10, applying it to co-operative society bye-laws and freedom of association.

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