A Study on the Rule Against Perpetuity under Section 14 of the Transfer of Property Act

Introduction

“Perpetuity as defined by the Merriam Webster Dictionary is “the state of being perpetual” i.e., “to hold something for an unlimited period of time.” Therefore, it can be inferred that perpetuity under property law is holding a property for an unlimited period of time, thereby, making it inalienable or untransferable; that being the case, the Rule Against Perpetuity is the law that prohibits the transfer of property from generation to generation and restrains the property from becoming inalienable. [1]

The Rule against Perpetuities was established in the famous case of the Duke of Norfolk where Henry Howard, 22^nd Earl of Arundel who wanted to establish his inheritance. He intended to institute executory limitation so that his title would be inherited by his firstborn son who was not mentally stable and then to his second son.

He also wanted to pass the other title to his fourth son and intended to pass titles to grandchildren who were not conceived yet. Henry’s second son who inherited one of the titles refused to pass it on to his younger brother who resorted to the House of the Lords to enforce his interest.

The House of the Lords held that it is unjust to hold the property perpetually.  However, the time period for vesting the interest in a property was laid down only in Thelluson v Woodfard case after 150 years. This rule is applied only when the interest in the land is created by deed or by will. [2]

The Rule against Perpetuity was laid down to make certain that property is freely circulated so that trade and commerce in the country is boosted and to uphold the principles of equality and justice in the country.

By doing so, the welfare of the society and the property is taken into consideration. In the absence of such a rule the State will be deprived of earning revenue and the owner himself will not be able to transfer the property when the need arises.[3]

The Rule against Perpetuity is based on the principle that the manoeuvre’s intending to hold the property for an indefinite period of time is void. The transfer of interest beyond the time period fixed by rule shall be bad although the time in which the interest was vested was during the time period prescribed.

Therefore, it is necessary that the beneficiaries are determined and the contingency specified is satisfied within the prescribed time period.[4] The Rule against Perpetuities is administered under the Transfer of Property Act and the Indian Succession Act in India.[5]

Perpetuity can arise when the property is transferred without the power to alienate the same as under Section 10 of the Transfer of Property Act and when a remote interest is created without conferring the transferee with the right to alienate the property as under Section 14 of the Transfer of Property Act.

This research is undertaken to study the Rule against Perpetuity set down in Section 14 of the Transfer of Property Act, wherein the researcher will study the essentials and exceptions of Section 14 and will also study the period of gestation and minority read with relevant Sections of the Transfer of Property Act.

While some of the countries have amended this principle, some chose to repeal it altogether. The trend has shifted from imposing rigid rules to removing factors that will cause the accumulation of property. Considering that the rule is rigid for more than a century in India, the researcher will analyse the provisions with the changes in the social and economic structure of the society and will determine if they need to be repealed or amended and will suggest an appropriate course of action.

Applicability of Section 14

In order for the Rule against Perpetuity to be applicable:

1. The transfer should create an interest in property, moveable or immovable and therefore transfers that do not create an interest in property is excluded from the purview of this section.
2. The Rule against Perpetuity comes into effect only when the interest in the property is transferred and it takes effect after the lifetime of the last interest holder and during the minority of the unborn person.
3. The transfer should create an absolute interest in favour of the unborn child who is deemed to be the ultimate beneficiary.
4. The ultimate beneficiary should exist at the time of expiration of the interest of the living person.
5. Postponing such vesting of interest can only be done for a period including the life or lives of the person who had been provided with the life estate as well as the minority of the ultimate beneficiary.[6]

Period of Perpetuity under Section 14 of TPA

According to Section 14 of the Transfer of Property Act, the maximum permissible remoteness of the maximum time which a property can be transferred, begins from the date from which the property is transferred and is extended to the lifetime of the previous interest holder plus the gestation and minority period of the beneficiary.

That being the case, property is transferred to A until the end of his life and then to B, following which the property shall be transferred to the unborn child after he attains the age of eighteen. The property is not tied up forever but is transferred successively and is tied up until the end of their lives.

Although, the interest in the property has to be transferred immediately to the unborn child, as per this section it is transferred only after the child attains majority.

Under this Section, the transfer of the property has to take place during the lifetime of the last interest holder and the conception of the beneficiary, and the failure to do so within the specified time period will result in the failure of transfer.

The maximum period up to which the transfer of interest can be postponed is the gestation period plus the age of minority. [7] When the child or the beneficiary is conceived, the interest is created following which the interest is vested in the child according to Section 20 of the Transfer of Property Act until the age of majority is attained. On becoming a major, the person receives an absolute interest in the property and is allowed to enjoy, possess and alienate the property.[8]

Period of Minority

A person ceases to be a minor after attaining the age of eighteen years according to the Majority Act, 1875. In the case where the age of minority shall be twenty years when assigned with a guardian by the Court. In Saundara Rajan v Natarajan, the Privy Council adjudged that a person shall be considered to be a minor up to the age of eighteen years under Section 14 of the Transfer of Property Act. According to the provisions of Section 13 of the Act, when an interest in the property is transferred to an unborn child, the gestation period is added to the total time before transfer. For that reason, the period is extended to the lifetime of the persons with life interest and eighteen years until the child attains maturity.[9]

Period of Gestation

As mentioned earlier, the maximum time period during which the interest of the property can be transferred is the lifetime of the last interest holder plus the period of minority of the beneficiary. In the case, a child is conceived while the property is being transferred an interest is created since the child in the mother’s womb is eligible to claim interest in the property.

Therefore, the gestation period of nine months or 280 days from the date of conception is added to the maximum time period. In the case where the child is born, the gestation period shall not be included.^[10]

 Exceptions under Section 14 of TPA

The following are the cases wherein the provisions of Rule against Perpetuity under Section 14 of the Transfer of Property Act, 1882 shall not apply:

Transfer to charities or for public benefit

Section 18 of the Transfer of Property Act, 1882 provides protection against the rule against perpetuity in certain cases wherein the transfer has been made 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

Padmanbha v. Sitarama[11]– in this case, it was established that the rule against perpetuity shall be exercised or applied only in cases where new, future interest in the property is to be exercised after the mentioned time period. Mortgage cases are beyond the scope of the Rule against perpetuity as there is no conditional future interest to be formulated as the exercise of the equity of redemption is considered as current interest.

Covenant of Pre-emption

It is provided in Section 54 of the Transfer of Property Act, 1882 that an agreement for the sale of the land does not, separately create an interest in land. It was further established by the Supreme Court that since any agreement for sale does not imply the creation of interest in the property, any such agreements/contracts do not violate the rule against perpetuity under Section 14 of the TPA,1882.

Personal Agreements

Since personal agreements do not lead to creation of interest in the property, these do not come under the purview of Section 14 of the TPA, 1882.

Contracts for perpetual renewal of leases

Contracts for perpetual renewal of leases is also not hit by the rule against perpetuity.

Case Laws Related with Perpetuity under Section 14 of TPA

In Nafar Chandra v Kailash, it was adjudged that the agreement to appoint a family of pujaris from generation to generation and making provisions for the remuneration and expenses is valid and the rule against perpetuity cannot be applied in such a case. In R Kempraj v M/S Burton Sons & Co., it was adjudged that the Rule against Perpetuity cannot be applied to the renewal of leases.  In the case of Rambaran Prosad v. Ram Mohit Hazra & Ors[12] the Supreme Court held the following:

1. The provisions of Specific Relief Act of 1963 were mentioned and referred to by the court in order to assert that a contract is enforceable by as well as against the assignees or transferees of the original parties.
2. Prima facie, the rights of the parties to a contract are assignable. With respect to the case mentioned above, it must be interpreted that the pre-emption clause is binding upon the assignees.
3. The rule against perpetuity does not apply to contracts that do not create rights of property.
4. Law of property covers the scope of the rule against perpetuity, and the main or primary motive of the rule is to restrain any formation of conditional interests in the property in the future.
5. It was held by the Court that the rule against perpetuity cannot be applied to a covenant of pre-emption despite there being no time limit pertaining to when it may be exercised.[13]

Analysis of the Rule Against Perpetuity

The term “perpetuity” refers to an indefinite duration of time. When a person owns immovable property, he believes that ownership should be passed down to his descendants for an indefinite period of time.

No one wants to lose ownership of a piece of land because it can provide many benefits to its owner, therefore individuals transfer title to the person who would be the next in line of successors after the former’s death through deeds and wills.

If everyone has the freedom to acquire land and transfer ownership within his family, there will be a shortage of land, and society will be unable to use land for free circulation of property for the purposes of trade, commerce, and many other commercial activities. Property must be freely and frequently disposed of in society.

The rule against perpetuity was imposed in the Transfer of Property Act, 1882, to prevent the confined circulation of property within a single family. The Rule against Perpetuity, also known as the Rule against Remoteness of Vesting, is addressed in Section 14 of the Transfer of Property Act of 1882. Perpetuity implies “unlimited period,” hence this law prohibits the transfer of a property that renders it inalienable for an indefinite period.

Section 14 expressly states that in a property transfer, interest vesting cannot be postponed beyond the lifetime of the last previous interest holder, as well as the minority of the eventual recipient. It renders a property transfer unworkable whenever a condition is set for interest vesting after the life of the previous interest holder and beyond the minority of the eventual recipient. Vesting can be deferred up to the life or lives of the last person plus the minority of the final beneficiary in India, according to section 14 of the TPA.

The maximum permissible remoteness of the maximum time a property can be transferred, according to Section 14 of the Transfer of Property Act, begins on the date the property is transferred and extends to the previous interest holder’s lifetime plus the gestation and minority period of the beneficiary. The property is not tethered indefinitely; rather, it is transferred in stages and is tethered until the end of their lives.

Although the property interest in the unborn child must be transferred immediately, under this clause, it is only transferred until the kid reaches the age of majority. Minority status in India expires at the age of eighteen. In India, vesting cannot be delayed beyond 18 years after the existing life or lives have ended.

Under English law, vesting of interest may be deferred for up to the life or lives of the last person plus a period of 21 years, regardless of the age of minority of the final beneficiary, and a transfer shall not be void if vesting has been deferred for more than 21 years; however, it shall have the same effect as if the age of 21 had been substituted for the requirement within the instrument, which may be any fixed period longer than 21 years.

As a result, Section 14 contains a rule against perpetuity, i.e., a rule against remoteness of vesting, without which the society will undoubtedly suffer a loss due to property stagnation. It would make it difficult to execute the law, which would be detrimental to trade, commerce, and intercourse, and could even lead to the destruction of property. As a result, this rule against perpetuity preserves the free and active circulation of property for the benefit of both the property and society as a whole.

Conclusion and Suggestion

The law against perpetuities prohibits property use, enjoyment, and transfer, so reducing its duration. The laws governing property transfer are intended to ensure that a person’s property is enjoyed without interruption throughout his or her lifetime, yet the law does not allow property to be associated permanently.

The rule of perpetuity is a legal principle that states that once the rule of perpetuity has expired, an interest in a property cannot be maintained indefinitely. This rule applies to all types of property, as previously stated; however, the rule is not absolute in nature, and there are some exceptions.

Property estrangement freedom cannot be linked to self-destruction; in other words, the transferor’s power of alienation will not be taken away; yet, property cannot be owned indefinitely and must be surrendered for larger commodities. The rule against perpetuity establishes a time limit for property transfers and interest vesting.

Without such a law, society will be robbed of numerous benefits that could be proved to be advantageous to the general public in the long run. It is quite easy for a civilization to be destroyed if there is no free movement of property. As a result, for easy law enforcement and the free and active circulation of land for the benefit of society and future generations, this regulation is required.

References

[1] Prachura Sahu, The Rule Against Perpetuity, LexForti (Apr.22, 2022, 19:09 PM),

https://lexforti.com/legal-news/the-rule-against-perpetuity/

[2] Chhavi Agarwal, Rule Against Perpetuity- Demystified, Manupatra Article (Apr.24, 2022, 14:45 PM),

https://articles.manupatra.com/article-details/Rule-Against-Perpetuity-Demystified

[3] Sarabjit Singh, Rule against Perpetuity and Perpetual Transfers, iPleaders (Apr.23, 2022, 18:52 PM)

https://blog.ipleaders.in/rule-aganist-perpetuity-perpetual-transfers/

[4] Chhavi Agarwal, Rule Against Perpetuity- Demystified, Manupatra Article (Apr.24, 2022, 14:45 PM),

https://articles.manupatra.com/article-details/Rule-Against-Perpetuity-Demystified

[5] Aakriti Gupta, Rule Against Perpetuity, Law Corner, (Apr.23, 2022, 16:27 PM),

https://lawcorner.in/rule-against-perpetuity/

[6] Tarun Sethi, Rule Against Perpetuity, Legal Services India, (Apr.24, 2022, 19:23 PM),

http://www.legalservicesindia.com/article/2477/Rule-Against-Perpetuity.html

[7] Aakriti Gupta, Rule Against Perpetuity, Law Corner, (Apr.23, 2022, 16:27 PM),

https://lawcorner.in/rule-against-perpetuity/

[8] Sarabjit Singh, Rule against Perpetuity and Perpetual Transfers, iPleaders (Apr.23, 2022, 18:52 PM)

https://blog.ipleaders.in/rule-aganist-perpetuity-perpetual-transfers/

[9] Tarun Sethi, Rule Against Perpetuity, Legal Services India, (Apr.24, 2022, 19:23 PM),

http://www.legalservicesindia.com/article/2477/Rule-Against-Perpetuity.html

[10] Tarun Sethi, Rule Against Perpetuity, Legal Services India, (Apr.24, 2022, 19:23 PM),

http://www.legalservicesindia.com/article/2477/Rule-Against-Perpetuity.html

[11] Padmanbha v. Sitarama, (1928) 54 MLJ 96.

[12] Rambaran Prosad vs Ram Mohit Hazra & Ors, 1967 SCR (1) 293.

[13] Sofia Bhambri, Rule Against Perpetuity, S Bhambri Advocates, (Apr.20, 2022, 20:25 PM),

https://www.sbhambriadvocates.com/post/rule-against-perpetuity

This article has been submitted by Vritti Jain, a student at Symbiosis Law School, Hyderabad.