Rule against Perpetuity under Transfer of Property Act

What is rule against perpetuity?

Meaning of Rule Against Perpetuity: – Rule against perpetuity under Transfer of Property Act limits the maximum time period beyond which the property cannot be transferred. Here ‘Perpetuity’ means forever or time without any limit. So this rule is against a transfer which makes a property inalienable for an indefinite period. This period is known as the perpetuity period and the transfer of property cannot be postponed beyond this limit. Section 14 of the transfer of property act deals with the rule against perpetuity.

After the Lifetime: – Here again in order to safeguard the violation of section 5 of Transfer of Property Act, that the transfer of property must take place during the lifetime or before the death of the person with the prior-interest and conception of beneficiary otherwise the transfer shall fail.

Attains Full Age: – The transfer of property to the unborn person or the transfer of an interest in favour of beneficiary can be done in the three stages: –
- Interest is created on conception.
- It will become Vested interest on the birth, as per Section 20, of the Transfer of Property Act.
- And on attaining the age of majority.

Here, absolute interest includes the enjoyment of property, possession, alienation, etc.

Section 14 in The Transfer of Property Act, 1882 (Rule against Perpetuity): – No transfer of property can operate to create an interest which is to take effect after the life-time of one or more persons living at the date of such transfer, and the minority of some person who shall be in existence at the expiration of that period, and to whom, if he attains full age, the interest created is to belong.

What is the object of rule against perpetuity?

Object of Rule Against Perpetuity: – As discussed earlier, ensuring the free and active circulation of property is important for both trade and commerce as well as for the betterment of property which ultimately is good for society. Thus, the purpose of this section, Rule against Perpetuity, is to make sure that the property is not tied-up and to prevent this creation of perpetuity. However, a condition restraining alienation is void under section 10 of The Transfer of Property Act, and remote interest is governed by section 14.

Perpetuity may arise under two circumstances: –

Transferor of property is deprived of the power of alienation.
Remote interest is created in the property but without the right of alienation to the transferee.

What are the essentials of rule against perpetuity under Transfer of Property Act?

The essentials of rule against perpetuity under transfer of property act are given as follows: –

There should be a transfer of property.
The transfer must be to generate in favour of an unborn person (i.e. ultimate beneficiary).
The Interest created must take into effect during the lifetime of the person living and during the minority of the unborn person.
Birth of unborn person is a condition before the death of the person, who is holding its property existence at the expiry of the interest of the living person.
The vested interest in favour of the ultimate beneficiary may be postponed only to the life of the living person.

What is the difference in rule against perpetuity between Indian law and English law?

The difference in rule against perpetuity between Indian law and English law: –

The minority period in India is 18 years whereas it is 21 years under English law.
The period of gestation should be an actual period under Indian Law but it is a gross period under English law.
Under Indian law, the property should be given absolutely to the unborn person whereas in English law, need not be absolutely given.
The unborn person must come into existence before the death of the last life estate holder as per Indian law whereas he must come into existence within 21 years of the death of the last life estate holder in case of English law.

What are the exceptions to rule against perpetuity?

The exceptions of rule against perpetuity under transfer of property act are given as follows: –

Transfer for Public Benefit: – Where property is transferred for the benefit of the people in general, then it is not void under this rule. For Example: for the advancement of knowledge, religion, health, commerce or anything beneficial to mankind.
Covenants of Redemption: – This rule does not offend the covenants of redemption in the mortgage.
Personal Agreements: – Agreements that do not create any interest in the property are not affected by this rule. This rule applies only to transfers where there is a transfer of interest.
Pre-emption: – In this, there is an option of purchasing land and there’s no question of any kind of interest in the property, so this rule does not apply.
Perpetual Lease: – It is not applicable to the contracts of perpetual renewal of leases.
This rule is not applicable to mortgages because there is no creation of future interest.

When will the vested interest get in favour of the ultimate beneficiary?

After the death of the person who has a life interest in the property, or
The period of 18 years, whichever is longer, any condition beyond this period will be void and not operative. This direction is for the whole or part of the income.
Example: – ‘X’ transfers his property to ‘Z’ with a condition that property shall accumulate during X’s life and shall be given to ‘M’. So the direction here given by ‘X’ is valid only during the life of ‘Z’ and not after his death.

Section 13 Transfer of Property Act

“Transfer for benefit of unborn person: – Where, on a transfer of property, an interest is created for the benefit of a person not in existence at the date of the transfer, subject to prior interest created by the transfer, the interest created for the benefit of such person shall not take effect, unless it extends to the whole of the remaining interest of the transferor in the property.”

Person in Existence: – To begin with, the ultimate beneficiary of the transfer is an unborn person, who is not yet in existence. Child may not be physically born, but from conception itself, he is considered as a person in existence. Transfer of interest in property is valid from the day of conception, though the same shall vest on birth of such child.
Prior Interest: – Section 5 of TPA mandates transfer of property inter vivos or between living persons only. Since, the transferor wishes to pass interest on to a person not in existence, to overcome this predicament a prior interest is created in favor of living person on the date of transfer.
Whole Remaining Interest: – Prior interest transferred to a living person is lifetime interest, which means he can enjoy the benefits of the property without alienation. In other words, transferor transferred limited and not absolute interest. The remainder interest in the transferred property is the right of alienation, which is still held by the transferor. For the transfer to be valid in the hands of final beneficiary this right of alienation plus prior interests together should reach the beneficiary.

Child in womb

If the child is in the womb and not in existence and the person holding his property dies. So, this transfer of property is valid.
The vested interest in the favor of the child in the womb will get during the minority and not beyond that.

Conclusion

Therefore Section 14 provides a rule against perpetuity i.e. a rule against remoteness of vesting, in absence of which the society shall definitely suffer a loss because of the stagnation of the properties. It would cause great hardship in the easy enforcement of law which shall be detrimental to trade, commerce, intercourse and may also result into the destruction of the property itself.
So this rule against perpetuity ensures free and active circulation of property both for the betterment of the property as well as for the betterment of the society at large.

Case laws under Rule against Perpetuity under Transfer of Property Act

Girish Dutt vs. Data Din

Fact of the case: – ‘A’ gifted his property to ‘B’ for her life and then gave it to his son in absolute. The deed further stated that if ‘B’ has only daughters then the property will go to daughters but only for their life. In case, if ‘B’ had no child, then the property will absolutely go to ‘X’ after her death. ‘B’ died without any child and ‘X’ claimed that property under a gift.

Judgment of the case: – In this case court held that where the transfer is in favor of a person or his benefit, is void under section 13 of the act. Any transfer contained in the same deed and intended to be effective or even on failure of such earlier transfer is void.

T.Subramania vs. T. Varadharayas AIR 2003

Fact of the case: – ‘A’ transfers property of which he is the owner to ‘B’ for her life and after the death of ‘B’ to his eldest son and after the death of A’s eldest son to his second son.

Judgment of the case: – In this case court held that the interest so created for the benefit of the eldest son does not take effect, because the interest created in favor of eldest son was limited only to his lifetime.