Transfer in Perpetuity. – Perpetuity Here it means, the interest is created in present, but it is to take effect in future. The Rule against perpetuity signifies that a transfer that is to take effect after perpetuity is void. Perpetuity may arise in two ways:
- By taking away from the transferee his power of alienation and,
- By creating future remote interest.
Section 10, makes provision that a condition restraining the transferee’s power of alienation is void.
This rule is based on the principle that the right of the owner to transfer or alienate his property according to his own will, should not be exercised in a manner that would prove to be detrimental to the property itself. If the property is restricted to be alienated, it would be detrimental to the property.
Object of Rule Against Perpetuity.
The object of the rule against perpetuity is as follows:
- To ensure free and active circulation of property both for purposes of trade and commerce as well as for the betterment of the property itself.
- Frequent disposition of property is in the interest of the society and also necessary for its more beneficial enjoyment.
- A transfer which renders property inalienable for an indefinite period is detrimental to the interests of its owners who are unable to dispose it of even in urgent needs or for any higher value. It is also a loss to society because when property is tied up from one generation to another in one family, the society as such would be deprived of any benefit out of it.
- Free and frequent disposal ensures wholesome circulation of properties in society.
- Rule against perpetuity is, therefore, based also on broad principles of public policy. Stating the object of rule against perpetuity,
- JEKYLL M.R. in Stanley v. Leigh has observed that if the rule were otherwise then
“a great mischief would arise to the public from estates remaining for ever or for a long time inalienable or in transferable from one hand to another, being a damp to industry and a prejudice to trade, to which may be added the inconvenience and distress that would be brought on families whose estates are so fettered.”
In the absence of any rule prohibiting creation of perpetuities, there might come a time when almost all the properties of a country would have become static properties. This would cause great hardship in the easy enforcement of law, detrimental to trade, commerce and intercourse and may also result into the destruction of property itself. The social consequences of creating perpetuity would, therefore, be devastating.
Rule Against Perpetuity Under Section 14
- The transfer is for the ultimate benefit of an unborn person who is given absolute interest
- The vesting of interest in favour of ultimate beneficiary is preceded by life or limited interests of living person (s)
- The ultimate beneficiary must come into existence before the death of the last preceding living person
- Vesting of interest in favour of ultimate beneficiary may be postponed only up to the life or lives of living persons plus minority of ultimate beneficiary; but not beyond that
In other words Section 14 of the Transfer of Property Act, 1882 embodies the Rule against perpetuity. According to Section 14 when:
- Transfer of property creates an interest
- The interest created is to take effect :
- After the lifetime of one or more persons living at the time of such transfer, and
- At the expiration of the minority of some person who will be in existence and the interest created would belong to him if he attains full age i.e. after the attainment of 18 years of age
- Generally, there is no specific time limit or specified no. of years to decide what would amount to perpetuity.
But Section 14 provides with it. Under Section 14 it is:
• A lifetime of one or more living persons.
• A minority of an unborn person, who will take the absolute interest in the property.
- Under Indian Law, the minority is understood as- till the attainment of 18 years of age or below 18 years of age.
- Under Section 14, the term minority is to be understood as only till the attainment of 18 years. Because here the transfer deed is executed before the birth of the person in whom the property is to vest absolutely. Also, the validity of the creation of interest for the benefit of a person who is not in existence at the time of the creation of the interest is judged by the transfer deed.
- Hence the maximum period of perpetuity is = Life of preceding interest + Period of gestation of ultimate beneficiary + Minority of the ultimate beneficiary +Minority of the ultimate beneficiary
Vesting Time Should not be more than Perpetuity Period: However, as mentioned under Section 14, he (the transferor) cannot provide/decide for a time of vesting which goes beyond the period of perpetuity i.e. the lifetime of one or more persons living at the time of such transfer, and the attainment of 18 years of age of a person who is not born or not in existence at the time of the transfer and when the life estate comes to an end, the interest created would belong to him.
Example : A transfers property to X for life and then to X’s unborn daughter when she attains the age of 25 years. The transfer is void as the vesting time period is extended beyond perpetuity, i.e. beyond the minority of X’s unborn daughter.
• A transfers property to X for life and then to X’s unborn daughter when she attains the age of 18 years absolutely. This transfer is valid. Here the vesting would take place if the daughter is born and attains the age of 18 years. If she dies before attaining the age of 18 years, the property would revert back to the transferor.
In the case of Ram Newaz v. Nankoo A sold his entire property to B except two Bighas of land. In the sale, there was a condition that the two Bighas of land would remain in A’s possession for life and after A’s death in possession of A’s lineal descendants. The condition further provided that A or A’s lineal descendants had no right to transfer the land and that if none of A’s lineal descendant be alive then the property should be the own property of B (the purchaser). A had only one son who was alive on the date of transfer but he died childless.
The rule against perpetuity is not applicable in the following cases :
(a) Transfer for the benefit of public. -Where a property is transferred for the benefit of public in the advancement of religion, knowledge, commerce, health, safety or any other object beneficial to mankind, the transfer is not void under the rule against perpetuity.’
This exemption is necessary because transfers of property for the benefit of public generally are made through the medium of religious or charitable trusts. In the trusts, the property settled is tied up for an indefinite or perpetuity period so that its income may be utilised for ever for the object for which the trust is created. Application of the rule against perpetuity on trusts would render every trust void and it would be impossible to create any trust for the benefit of public.
(b) Personal agreement. Personal agreements which do not create any interest in property are exempted from the rule against perpetuity. Rule against perpetuity is applicable only to a transfer of property. If there is no transfer of property i.e. no transfer of interest, the rule cannot be applied. Contracts are personal agreements even though the contracts relate to rights and obligations in some property.
In Ram Baran v. Ram Mohit’ the Supreme Court held that a mere contract for sale of an immovable property does not create any interest in immovable property and, therefore, the rule cannot apply to such contracts e.g. it cannot apply to a covenant of pre-emption.
Similarly, where the Shebaits of a temple, under an agreement, appointed pujaris out of a particular family to perform religious services in the temple, the agreement was valid because the Court held that being a personal agreement, it was not hit by rule against perpetuity.
Rule against perpetuity is not applicable to mortgages because in mortgage there is no creation of any future interest.
The right of redemption is a present interest in property and a stipulation that it may be redeemed any time by the mortgagor, does not create any interest in future on which the rule may be applied.
Similarly, an option by a lessee to the lessor to return the lease-hold land in the Kabuliat (agreement) is merely a personal covenant and does not create any interest in land. As such, the rule against perpetuity is not applicable to such Kabuliat as held in the case of Ganesh vs Narayan Singh 1962.
In P Venkata Subanna vs D Chinna Pannaya 1989
The husband executed a settlement deed under which he created a life estate in favour of his wife so that she may enjoy the property during her life together with husband and after his death up to her remaining life and after her death the property was set vest in their children who would be born by that time.
The High court held that settlement deed did not violate the provision of section 14.