RULE AGAINST PERPETUITY

Introduction

Rule against perpetuity has been dealt under section 14 of Transfer of Property Act, 1882. Perpetuity simply means “indefinite Period”, so this rule is against a transfer which makes a property inalienable for an indefinite period. 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 which is to take effect after perpetuity 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 which would prove to be detrimental to the property itself. If the property is restricted to be alienated, it would be detrimental to the property.

Sec. 14 of Transfer of Property Act, 1882

14.Rule against perpetuity- No transfer of property can operate to create an interest which is to take effect after the lifetime 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.

Perpetuity may arise in two ways –

I) by taking away from transferee his power of alienation (such a condition has been made void under S.10 of the Act)

II) by creating future remote interest (which has been prohibited under S.14 of the TP Act)

Rule against perpetuity is the rule against such creation of future remote interest or we can say is a rule against remoteness of vesting (interest). Remoteness here means “The state of being unlikely to occur”.

Object of the section

The object of the rule against property is 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 the property is in the interest of the society and is necessary for its more beneficial enjoyment. A transfer which renders property inalienable for an indefinite period is detrimental to the interests of its owner 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 property is, therefore, based also on broad principles of public policy. Stating f the object rule against perpetuity, JEKYLL M.R. in Stanley v. Leigh[1] 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 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.

 Essential Ingredients of the Section

The following ingredients must be present to attract the provisions of Section. 14 –

  1. There must be a transfer of property.
  2. The transfer should be to create an interest in favour of an unborn person (i.e. ultimate beneficiary).
  3. The vesting of interest in favour of the unborn must be preceded by life or limited interest of living person/s (i.e. prior interest holder).
  4. The unborn person must be in existence (either in the mother’s womb or born) at the expiration of the interest of the living person/s

If all the above ingredients are present then the vesting of the interest in favour of the ultimate beneficiary may be postponed only up to the life or lives of living persons plus the minority of the ultimate beneficiary but not beyond that.

Minority

Minority in India terminates at the age of 18 years or when the minor is under supervision of Court at the age of 21 years. But in Saundara Rajan v. Natarajan[2],the Privy Council held that since at the date of the transfer it is not known whether or not a guardian would be appointed by Court for the minor in future, for purposes of S.14 the normal period of minority would be 18 years. So, the vesting can be postponed only up to the life of the prior interest holder and the minority i.e. 18 years of the ultimate beneficiary.

Period of Gestation

The maximum limit fixed for postponing the vesting of interest is the life or lives of the prior interest holder/s plus the minority of the ultimate beneficiary. But when a child is in his mother’s womb at the time of the expiration of the interest of the prior interest holder and since for the purposes of being a transferee a child in the mother’s womb is a competent person, the latest period up to which the vesting may be postponed would be the life of the prior interest holder/s plus the period of gestation ( I.e. the period during which a child remains in womb after being conceived which is normally about 9 months or 280 days) plus minority of the ultimate beneficiary. The period of gestation shall not be counted in addition to minority if the ultimate beneficiary is already a born person.

Example. If A (prior interest holder) dies then the ultimate beneficiary i.e. X must already be in existence at that time either in the mother’s womb or as a born child. If X is in mother’s womb, say of 6 months then the maximum period up to which vesting of period may be postponed would be life of A plus six months ( period of gestation) plus 18 years ( minority of X)

Maximum Possible Remoteness of Vesting

In India, the maximum permissible possible remoteness of vesting is –

Life of the preceding interest Period of gestation of ultimate beneficiary (only when the child is not born) minority of the ultimate beneficiary.

Contingent Interest

Under section 14, vesting of interest in favor of the ultimate beneficiary may be postponed up to his minority. In other words, the property does not vest in him until he attains the age of majority. What then is the nature of his interest during his minority? Between the period when last person dies and the majority of the ultimate beneficiary, the ultimate beneficiary has the contingent interest which becomes vested upon his attaining majority. When the ultimate beneficiary is already born at the death of the last person but does not survive to attain majority, the interest does not vest in him and therefore it reverts back to the transferor or his legal heir if the transferor is dead by the time.

Regard of possible events not of actual events

In deciding the questions of remoteness of vesting, regard must be had to the possible events and not to actual events. Where at the time of transfer of property there is possibility or probability that in future it would be transfer in perpetuity, the disposition shall be void even if at the time of actual vesting of interest there is no violation of rule against perpetuity.

 Exceptions to Rule against perpetuity

  1. Transfer for the benefit of public- Where a property is transferred for the benefit of the 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 of perpetuity. This exemption is necessary because transfers of property for the benefit of the 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 utilized for ever for the object for which the trust is created. Application of the rule against perpetuity on trust would render every trust void and it would be impossible to create any trust for the benefit of public.
  1. 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 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 are relate to rights and obligations in some property. In Ram Baran v. Ram Mohit[3], the Supreme Court held that a mere contract of sale of an immovable property doesn’t create any interest in immovable property and therefore the rule cannot be applied to such contracts e.g. it cannot apply to a covenant of pre-emption.
  1. Covenants running with the land- The rule doesn’t apply to charge, contract to sale, the exercise of redemption by the mortgagor etc.

How It Differs From English Law?

Under English Law, vesting of interest may be postponed up to life or lives of last person plus a period of 21 years irrespective of the age of minority of ultimate beneficiary and a transfer shall not be void even if vesting has been postponed beyond 21 years but it shall take effect as if the age of 21 had been substituted for the specified in the instrument, which may be any fixed period longer than 21 years.

In India, Section14 provides that vesting can be postponed up to life or lives of the last person plus the minority of the ultimate beneficiary. Minority in India terminates at the age of 18 years. After the existing life or lives, vesting cannot be postponed in India beyond 18 years in any circumstance.

Rule against perpetuity under Hindu and Muslim law

The Transfer of Property Act was made applicable also to Hindus by the Amending Act of 1929. Now, the provisions of this Act including Sec. 14 are applicable to Hindus. But, even before this amendment, the rue against perpetuity was applicable to transfers made by the Hindus by local enactments. However, apart from these statutory provisions, a transfer of property in perpetuity was held void under Hindu Law except gifts for religious or charitable purposes.

Although Chapter II of Transfer of Property Act is not applicable to Muslims but a gift to remote and unborn generations was held void though exceptions have been made in case of wakfs.

Conclusion

Therefore S.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.


[1] (1732) 24 ER 917

[2] A.I.R 1925 P.C. 244

[3] 1967 AIR 744

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