Prachurya Sahu | Symbiosis Law School, Pune | 27h June, 2020
Introduction
The term “perpetuity” in general parlance refers to an “a state or quality of lasting forever.” In property law, a perpetuity may be understood to mean a disposition which makes property inalienable i.e. untransferable for an indefinite period.[1] A rule against perpetuity therefore is to prevent a transfer of property which makes it inalienable for an indefinite period of time.
Such a rule stems from 17th century feudal England, in the Duke of Norfolk case where Henry (the 22nd Earl of Arundel) tried to create a shifting executory limitation which manifested in his titles passing onto various of his sons, with provisions of such shifting to continue for generations. The House of Lords clarified that a provision as such could not exists indefinitely and tying up of the property for too long, beyond the lives of the people alive at the time was wrong.
In Property law, the right of the owner to deal with his property with his own discretion is a protected and sacred right. The right of ownership subsumes within it the right of disposition or alienation. However, to prevent abuse of such protection, the rule against perpetuity was founded on the public policy principle; it is stems from the principle that the liberty of alienation should not be exercised to its own destruction, providing that all transfers are void which tend to create such a perpetuity by placing property beyond the exercise of the power of alienation.[2] The object of such a rule is to allow for the free and active circulation of property[3] for not only trade and commerce but for the benefit of the property itself. It will prevent individuals and families who would want to retain their property in their own families for generations, causing a loss to society as no benefit can arise out of such a property.[4]
The Transfer of Property Act, 1882
The rule of perpetuity is dealt with in Section 14 of the Transfer of Property Act. However, for holistic understanding of the concept, it is important to understand the provision specified under Section 13 of the TPA.
Section 13 of the TPA
“Transfer for benefit of unborn person.— Where, on a transfer of property, an interest therein is created for the benefit of a person not in existence at the date of the transfer, subject to a prior interest created by the same 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.”
Section 5 of the TPA while defining what constitutes as a transfer has limited it to be a transaction only between living people. Therefore, a transfer cannot directly be made to a person who is unborn; such a transfer can only manifest in terms of trusts. However, this unborn person must be in existence at the time for vesting of interest via trusts. A child in the mother’s womb is therefore competent for such creation of interest. The words “for the benefit of” imply such a machinery. A trust allows for such unborn person to be able to receive property even though their coming into existence might be uncertain.[5] The trustees are the transferees who simply protect the property for the future benefit of the unborn person.
The essential conditions to transfer property to an unborn person:
- Prior life interest must be created in favour of a person/s who exists at the date of transfer
- The unborn person must exist at the time of such transfer.
- Absolute interest must be transferred in favour of such unborn person
The interest of the unborn person must always be preceded by prior interest in order for a valid transfer to be effected.[6] For such a transfer to happen successfully, the transferor must create life interest in favour of a person and absolute interest must be handed over to such unborn person. Life interest refers to claim or interest in a property which does not amount to ownership and absolute interest, on the other hand refers to an interest which refers to complete rights to a property including possession and ownership. Section 13, specifically prohibits life interest being created for an unborn person. Any limited interest so created for him would be void.[7] The words “extends to the whole of the remaining interest of the transferor in the property” imply that only the interest of the transferor i.e. absolute interest can be vested with such an unborn person.
Therefore, such property is held onto by such trustee/s during their lifetime till the birth of such unborn person.
Section 14 of the TPA
“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 essentially arise in two ways, firstly by elimination of the right of alienation from the transferor and secondly, by creating a future remote interest. Remoteness, in this context, refers to the “the state of being unlikely to occur.” Furthermore, this rule applies not just to immovable property but moveable property too.
The essential conditions to attract the Rule against Perpetuity:
- Property must be transferred.
- Absolute interest must be created in the favour of an unborn person (who is deemed the ultimate beneficiary).
- Such interest so created must come into force after the lifetime of one or more person living at the date of such transfer and during the minority of the unborn person.
- The ultimate beneficiary must exist at the time of the expiration of the interest of the living person.
- Postponing such vesting of interest can only be done for a period including the life or lives of the person who ha been provided with the life estate as well as the minority of the ultimate beneficiary.
In simple terms, a transfer which seeks to create absolute interest in the favour of a person can only be transferred for a maximum period covering the live/s of the people who have been granted life estate of the property till the ultimate beneficiary is beyond the age of majority i.e. 18 years of age. Any transfer for a period beyond that will be hit with the rule against perpetuity and will be void ab initio.[8]
Number of lives
For the purposes of this Section, there are no restrictions as to the number of lives to which an estate may be limited as indicated by the statute text “one or more persons.” As long as the persons to which an estate is limited are in being as well as named, their number does not attract the application of Section 14.[9] However, this must not be seen as a loophole to escape the t rule against perpetuity. Various transfers have been held to be void on the grounds of uncertainty as to when such property will be dropped and circulated.[10]
Minority
Minority in India is deemed to lapse at the end of 18 years[11] except in cases where a Court of law assigns a guardian in which case, minority can continue up to 21 years. However, in the case of Saundara Rajan v. Natarajan,[12] the Privy Council held for the purposes of Section 14, the normal period of minority would be 18 years old. If the interest is being created for an unborn person, as long as the principles enumerated in Section 13 of the TPA, the gestation period while the child remains unborn is added to the total extension of time before transfer. Therefore, it can now be postponed for a maximum period including the lifetime of the person/s with life interest and 18 years to attain maturity of such a child.
Exceptions
The provisions of Section 14 shall not apply in the following cases: –
- Transfer to charities or for public benefit- Section 18 of the TPA provides protection against this rule in cases where the transfer is for the benefit of the public for purposes of “advancement of religion, knowledge, commerce, health, safety or any other object beneficial to mankind.”
- Covenants of Redemption- In the case of Padmanbha v. Sitarama,[13] it has been clarified that the rule against perpetuity can only be applied to cases involving new and future interest in property to be operated after the time period prescribed. In cases of mortgage, there is no such future interest contemplated to be created as the exercise of the equity of redemption is categorized as a present interest. It is therefore, beyond the purview of the rule against perpetuity.[14]
- Covenant of Pre-emption- Section 54 of the TPA lays down that an agreement for the sale of the land does not, unilaterally create an interest in land. The Supreme Court has further agreed with this view in the case of Ramharan v. Tarn Mohit,[15] clarifying that simply a contract for sale does not create any interest in the property and such contracts do not offend Section 14.
- Personal Agreements- Personal agreements are also beyond the scope of the rule against perpetuity because such agreements do not create any interest in the property.[16]
- Contracts for perpetual renewal of leases is also not hit by the rule against perpetuity[17]
[1] Jarman on Wills, 8th Edn, vol I, p 284.
[2] William’s Real Property, 24th Edn, p 485.
[3] K Muniswamy v K Venkataswamy, AIR 2001 Kant 246
[4] Ram Newaz v Nankoo, AIR 1926 All 283
[5] Madras Bar Association v UOI, AIR 2015 SC 1571
[6] P Rajamani Rurukul v Rama, (2010) 4 Mad LJ 47
[7] Subramania Nadar v Varadharajan, (2003) 2 Mad LJ 224 (229); FM Devaru Ganapati Bhat v Prabhakar Ganapathi Bhat, AIR 2004 SC 2665 (2669).
[8] Ibid.
[9] Goring v Bickerstaff, (1662) 22 ER 665.
[10] Ram Newaz v Nankoo, AIR 1926 All 283 .
[11] Section 3(1), The Indian Majority Act, 1875
[12] Soundara Rajan v Natarajan, (1925) ILR 48 Mad 906
[13] Padmanabha v Sitarama, (1928) 54 Mad LJ 196
[14] Padmanabha v Sitarama, (1928) 54 Mad LJ 96
[15] Ramharan v Tarn Mohit, [1967] AIR 1967 SC 744
[16] Rambaran v Ram Mohit, [1967] AIR 1967 SC 744; Walsh v Secretary of State, [1863] 10 HLC 367; London and SW Rly v Gomm, [1882] 20 ChD 562 ; Borlands Trustee v Steel Bros, [1901] 1 ChD 279 ; South Eastern Railway v Associated Portland Cement Manufacturers, [1901] I ChD 12, p 33 : [1908–10] All ER Rep 353 ; Nafar Chandra v Kailash, AIR 1921 Cal 328 .
[17] Kempraj v Barton Son and Co, [1970] AIR 1970 SC 1872
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