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Rule against Perpetuity under Transfer of Property Act, 1882

According to Sir D. Mulla, "It is illogical to imagine a dead person below the grave controlling properties above his grave." For this very reason, the lawmakers felt the need to draft the 'Rule against perpetuity'. The rule against perpetuity has been dealt with under Section 14 of the Transfer of Property Act, of 1882. Perpetuity simply means an "Indefinite Period", so this rule is against a transfer that makes a property inalienable for an indefinite period.

When a property is transferred in such a way that it cannot be transferred any further, it is tied up forever. In India, the rule against perpetuity is laid down primarily in two statutes, namely, the Transfer of Property Act, 1882 (hereinafter referred to as the "ToPA") and the Indian Succession Act, 1925 (hereinafter referred to as the "ISA"). This article aims to discuss in detail the rule against perpetuity under the ToPA.

Perpetuity may arise under two circumstances:
  1. The transferor of property is deprived of the power of alienation. (Section 10 of ToPA)
  2. Remote interest is created in the property but without the right of alienation to the transferee. (Section 14 OF ToPA)
However, a condition restraining alienation is void under section 10 of ToPA, and remote interest is governed by section 14 of ToPA.

Rule against Perpetuity (Section 14)
Section 14 of the ToPA deals with the "Rule Against Perpetuity". According to this:
"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".

Section 14 of ToPA is rightly called 'Rule against perpetuity' as it limits the maximum time period beyond which property cannot be transferred. Starting from the date that the transferor transfers the property + lifetime of the last prior interest holder's + gestation period of the unborn beneficiary + 18 years, ( 'Age of majority of persons domiciled in India' under Section 3 of The Majority Act, 1875).

This period is called the perpetuity period, and the vesting of the property in the transferee cannot be postponed beyond this limit. This Section can be explained as- 'A property that cannot be vested beyond the lifetime of a person or after the expiration of the minority period of an unborn child'. This rule has imposed certain restrictions on the period of transfer of property beyond which the transfer becomes void.

The above transfer is contingent on many other conditions viz. Sections 5, 10, 13, 15, 16, 18, and 20 of ToPA. However, it is to be borne in mind that Section 18 of ToPA allows transfer in perpetuity for the benefit of the public, and so provisions of Sections 14 & 16 do not apply in such cases.

Essential Elements of Section 14 of ToPA:
  1. There must be a transfer of property.
  2. The transfer should create an interest in favor of the ultimate beneficiary i.e., an unborn child.
  3. The transfer in favor of the unborn child must be preceded by the life or life interest of the living person.
  4. The ultimate beneficiary must be in existence (either in the womb of the mother or born) at the expiration of the interest of the living person.
  5. Transfer of property may be postponed only up to the life of the living person and the minority of the ultimate beneficiary; but not beyond that.

  1. After the lifetime: Here again, to safeguard against violating Section 5 of ToPA, the transfer of property has to take place latest; during the lifetime of the prior interest and conception of the beneficiary, otherwise the transfer shall fail.
  2. Attains full age: The degree of transfer of an interest in favor of the beneficiary can be broken into 3 stages:
    • On conception, interest is created, which becomes vested interest on birth i.e. as per Section 20 of ToPA.
    • On attaining the age of majority; absolute interest that includes enjoyment of property, possession, alienation, etc.
  3. Period of Gestation: The maximum time limit for the postponement of the transfer of interest is the lifetime of natural interest holders and the minority of the ultimate beneficiary. A child in the mother's womb is also capable of becoming a transferee. The period of gestation is the period during which a child remains in the womb of the mother, i.e., the period of 9 months or 280 days after conceiving the baby. The period of gestation is not counted in the addition of minority.

Case Law

Soundara Rajan Vs. C.M. Natarajan [(1926) 28 BOMLR 204], in this case, the Privy Council held that if at the time of transfer, it is not known whether the court will appoint a guardian for the minor or not, then Sec. 14 of TPA comes into force according to which the normal period of minority is 18 years; thus, the transfer can be postponed up to the lifetime of the ultimate beneficiary.

Illustration: If A (the natural interest holder) dies then the ultimate beneficiary i.e, B must be in existence at the time of transfer either in the womb of the mother or born. If A is in the mother's womb, say 7 months then the maximum period up to which the transfer of property is postponed would be the life of the natural holder plus 7 months plus a minority of the ultimate beneficiary.

Exception to the Rule of Perpetuity:
  • Transfer for the benefit of the Public (Section 18, ToPA): Section 18 of ToPA protects rule against perpetuity when the transfer is in favor of the public viz. advancement of religion, knowledge, commerce, health, safety, or any other object beneficial to mankind.
  • Personal Agreement/contracts: Personal agreements, not creating any interest in the property, are exempted from the rule against perpetuity. In the case of Ram Baran v. Ram Mohit the Supreme Court held that a mere contract of sale of immovable property does not create any interest in the immovable property and therefore the rule against perpetuity is not applicable in such cases.
  • Those Agreements which do not create any interest in the property are not affected by this rule or in cases where vested interest is NOT affected.
  • Caselaw: Rambaran Vs. Ram Mohit [1967 SCR (1) 293], in this case the Supreme Court held that the rule of Perpetuity does not apply to personal agreements i.e., agreements that do not create any interest in the property.
  • This rule does not apply to mortgages or covenants of redemption because there is no creation of future interest.
  • This rule does not apply to contracts of the Perpetual lease.
  • This rule is not applied in cases when property is purchased or held by a corporations.
  • Gifts to charities (Donations)
  • Only on a charge against mortgage
  • Covenant of pre-emption in respect of land.

In conclusion, the Rule against Perpetuity, enshrined in Section 14 of the ToPA, serves as a vital safeguard against the creation of property interests that extend indefinitely into the future. Its primary aim is to prevent the tying up of properties in ways that could potentially hinder their efficient use and alienation. By prohibiting transfers that seek to create interests beyond the lifetime of individuals living at the time of transfer, and the minority period of unborn beneficiaries, the law ensures that properties remain accessible and available for future generations.

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