Rule Against Perpetuity
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.
How Perpetuity May Arise?
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 arule against remoteness of vesting(interest). Remoteness here means “The state of being unlikely to occur”.
Object of the Section
It is important to ensure free and active circulation of property both for trade and commerce as well as for the betterment of the property. There are people who want to retain their property in their own families from generations to generations. This will be a loss to the society because it will be deprived of any benefit arising out of that property. Free and frequent circulation is important and the policy of the law is to prevent the creation of such perpetuity.
Thus, the object of section 14 is to see that the property is not tied- up and to prevent creation of perpetuity.
What Does The Law Says?
The rule against perpetuity as dealt under section 14 makes such a transfer (of property) inoperable where condition is laid down for vesting of interest after the life of the last preceding interest holder/s and beyond the minority of the ultimate beneficiary.
Breakdown of the Section
The language of this section can simply be broken down into the following manner –
“No transfer of Property can operate to create an interest which is to take effectAFTER–
· The lifetime of one or more persons living at the date of such transfer( i.e. lifetime of the last prior interest holder/s) 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.”( i.e. minority of the ultimate beneficiary who must have been in existence at the death of the last prior interest holder/s)
So clearly S.14 provides that in a transfer of property, vesting of interest cannot be postponed beyond the life of the last prior interest holder and the minority of the ultimate beneficiary.
Essential Ingredients of the Section
The following ingredients must be present to attract the provisions of Section. 14 –
·There must be a transfer of property.
·The transfer should be to create an interest in favour of an unborn person (i.e. ultimate beneficiary).
·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).
·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 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 inSaundara Rajan v. Natarajan,A.I.R 1925 P.C. 244, 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
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, Section1 4 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.
The provisions of Section 14 shall not apply in the following cases –
· Transfer for public benefit - Where property is transferred for the benefit of the people in general, then it is not void under this rule. E.g. 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 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 a 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.
· Mortgages - because there is no creation of future interest.
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.