RULE AGAINST PERPETUITY, The Transfer of Property Act, 1882

INTRODUCTION

Meaning of the term ‘perpetuity’ can be understood as an indefinitely long term. Here it means, the interest is created in present, but it is perpetuity signifies that a transfer when is to take effect perpetuity is void.

The rule against perpetuity is based on the principle-

‘that the right to the owner to the transferor to the alienation of his property according to his own will, should not be exercised in a manner which would , prove to be detrimental to the property itself’.

MEANING

Section 14 embodies the “Rule against perpetuity”. According to which when transfer of property creates an interest-

• Such created interest is to take effect:
  • After the lifetime of one or more persons living 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 of a person who is not born or not in existence at the time of the transfer.

SPEICIFIC TIME LIMIT

Generally, there is no specific time limit or even specified number of years to decide, ‘what would amount to perpetuity’? But section 14 provides with it, be vesting interest, creating in a favor of a person in the following way-

I. A lifetime of one or more living persons (inalienability of property), plus

II. A minority of an unborn person, who will take absolute interest in the property.

I. INALIENABILITY OF THE PROPERTY

• Object behind the rule is to ensure the active circulation of the property for the purpose:
  • Of betterment of the property and
  • To save it from detriment due to inalienability.
• The maximum period allowed under the conferment of the life estate till attainment of majority of the ultimately beneficiary.
• The transferor cannot situate a period over and above this. If he does so, the transfer would be declared void.

II. MINORITY

Under Indian law, the minority is understood as till the attainment of 18 years of age or below 18 years of age and in certain other circumstances, where the guardians are appointed by the court, it may extend till the attainment of 21 years of age.

Under section 14,TPA- 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. And obviously, the minority of that person would terminate at 18 years or 21years cannot be foreseen. This way even creates a validity of the interest for the benefit of a person who is not in existence at the time of creation of such interest (vested) is judged by the transfer deed.

Section 20,TPA- provides that unless a contrary intention appears, the benefit created in favor of an unborn person is acquired by him as his vested interest, the moment he is born. “Unless a contrary intention appears” means that the transferor has control over the vesting of the property and he can provide for a specific time of vesting of property in favor of the beneficiary.

However, as mentioned under section 14, he (transferor) cannot provide or 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.

PERIOD OF GESTATION RELEVANCE

• Maximum limit fixed for postponing the vesting of interest is:
  • The life or lives of the prior interest holder +
  • The minority of the ultimate beneficiary.
• But when a child is in his mother’s womb at the time of expiration of the interest of the prior interest holder and since for the purpose 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+
  • Period of gestation (9 months or 280 days normally) +
  • 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 period.)

Maximum possibility of remoteness in vesting interest –

In India:

• Life of the preceding interest +
• period of gestation of ultimate beneficiary (only when child is not born) +
• Minority of the ultimate beneficiary.

In England:

• Vesting of interest may be postponed up to life or lives of last person +
• Period of 21 years, irrespective of the age of minority of ultimate beneficiary. 

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 specification in the instrument, which may be any fixed period longer than 21 years.

TRANSFER OF PROPERTY

The property here can be movable or immovable. Hence, the rule against perpetuity applies to both movable as well as immovable property. The rule is applicable only where there is a transfer of property and the vesting of it is postponed beyond the period of perpetuity.

LANGUAGE RELEVANCE

Language of the transfer deed is given regards and not the actual events.

While determining whether the transfer is violating the rule against perpetuity or not, the language of the transfer would be the determining factor and not what actually happened in real life.

Case: Ram Newaz V Nankoo

A, executed a sale deed of his land except for the 2 Bighas of land, in favor of B. with respect to remaining 2 Bighas of his land, he mentioned in that document that-

‘Remaining 2 Bighas of his land should remain in his own possession for life and after his death in the possession of his descendants. Neither he nor his lineal descendants should have any right to alienate the property if none of his lineal descendants is alive then the B would become the owner of the property.

A, died a little later of the execution of the deed and B took possession of property. A’s heir filed a suit to recover possession on the ground that the deed was void. Here A had created a life estate in his favor as well as his unborn descendants.

According to section 13,TPA  only absolute interest can be created in favor of an unborn person. Also, the terms of document show that property was made inalienable foe an unlimited number of generations.

Court held-

The condition of document was repugnant to law. A’s heirs had the title over the property.

(In this case, the question as to whether there is a violation of the rule  against perpetuity was decided on the basis of terms of transfer and not on the basis of what happened in real life.)

EXCEPTIONS TO RULE AGAINST PERPETUITY

I. SECTION 18, Transfer of Property, 1882- Transfer in  perpetuity for benefit of public :

It provides for the transfer for benefit of public, according to this section the rule against perpetuity is not to apply in the case of-

• Transfer of property
• For the benefit of public
• An advancement of:
  • Religion,
  • Knowledge,
  • Commerce,
  • Health,
  • Safety or
  • Any other object benefiting mankind.

Mankind here means public in general and not specified individuals. It depicts community as a whole with reasonable classification.

Example- Settlement where funds are to be accumulated in perpetuity for the advancement of physically and mentally challenged people would be valid.

II. PERSONAL AGREEMENT:

The rule does not apply to personal agreements which do not create rights of property. Example: lease is created for perpetuity as it transfers right to enjoy and possess it.

III. COVENANTS RUNNING WITH LAND:

The rule does not apply to-

• Charge,
• Contract to sale,
• The exercise of equity of redemption by mortgagor, etc.

IV. RIGHT OF PREEMPTION (first option to buy):

The right of preemption is a contractual right. It provides a person with right to be asked for or offered the property for transfer before anyone else.

Case: Ram Baran Prasad V Ram Mohit Hazra

Court held, the covenant of preemption is not hit by rule against perpetuity.

CONCLUSION

The right against perpetuity limits the duration by imposing certain restrictions on the use, enjoyment and transfer of property. Nevertheless, the rule against perpetuity along with relevant sections of TPA are complex and abstract in its application, especially when seen through the eyes of the transferor. Despite the best of intentions, the ultimate beneficiary or grantee may be deprived of their interests through an inadvertent choice of words while drafting the pertinent covenant. It shall not be an understatement that the majority of the so called learned advocates drafting such instruments are themselves incompetent to understand the subtilty of the law.