Rule Against Perpetuity

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Rule against perpetuity

Section 14 of the transfer of property act 1882

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 shall be in existence at the expiration of that period, and to whom, if he attains full age, the interest created is to belong. 

Transfer in Perpetuity

Rule against perpetuity is the rule which is against a transfer making them inalienable for an indefinite period or forever. Where a property is transferred in such a way that it becomes non-transferable in future for an indefinite period, the property is tied up forever. This disposition would be a transfer in perpetuity.

In any disposition perpetuity may arise in 2 ways  

1. by taking away from the transferee his power of alienation

2. by creating future remote interest.

Section 10, makes provision that a condition restraining the transferee’s power of alienation is void. A disposition which tends to create future remote interest has been prohibited under Section 14 which incorporates the rule against perpetuity.

However, a better name of the rule may be the rule against remoteness of vesting. 

Meaning of Perpetuity

A perpetuity, in the primary sense of the word, is a disposition which makes property inalienable (incapable of being transferred) for an indefinite period.

Object of Rule Against Perpetuity

The object of the rule against perpetuity is to ensure free and active circulation of property both for purposes of trade and commerce as well as for the betterment of the property itself.

A transfer which renders property inalienable for an indefinite period is detrimental to the interests of its owners who are unable to dispose it of even in urgent needs or for any higher value. 

Principle 

The rule against perpetuity is founded on the general principle of public policy. In absence of any rule prohibiting creation of perpetuities, there might come a time when almost all the properties in the country would become static.

The present section, strictly speaking, deals only with the modern rule against perpetuities.

Applicability

 Rule Against Perpetuity Under Hindu and Muslim Law

1. The Transfer of Property Act was made applicable to Hindus by the Amending Act of 1929.

2. Now, the provisions of this Act including Section 14 are applicable to Hindus. . But, even before this amendment, the rule against perpetuity was applicable to transfers made by Hindus by local enactments e.g. Hindu Disposition of Property Act, 1916 and Madras Act 1914.

3. However, apart from these statutory provisions, a transfer of property in perpetuity was held void under Hindu law except gifts for religious or charitable purposes.[1]

4. Although Chapter H of the Transfer of Property Act is not applicable to Muslims but a gift to remote and unborn generations was held void though exception has been made in case. [2]

Essential Conditions

The essential conditions of the rule against perpetuity as given in this section are as follows: 

1. There is a transfer of property.

2. The transfer is for the ultimate benefit of an unborn person who it given absolute interest.

3. The vesting of interest in favor of ultimate beneficiary is preceded by life or limited interests of living person (s).

4. The ultimate beneficiary must come into existence before the death of the last preceding living person.

5. Vesting of interest in favor of ultimate beneficiary may be postponed only up to the life or lives of living persons plus minority of ultimate beneficiary; but not beyond that.

Extent of perpetuity

1. Under Section 14, the maximum permissible remoteness of vesting is the life of the last preceding interest plus minority of the ultimate beneficiary.

2. Accordingly, property may be transferred to A for life and then to B for life and then to the unborn when he attains the age of majority.

3. A and B hold property successively for their lives, therefore, the property is tied up for their lives one after the other.

4. After the death of B (the last preceding interest) although it should vest in the ultimate beneficiary unborn immediately but, under this section the property may be allowed to vest in the unborn when he attains the age of majority.

5. Minority in India terminates at the age of eighteen years or, when the minor is under supervision of Court, at the age as twenty-one years.

6. But, in Saundara Rajan v. Natarajan[3] 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 Section 14 the normal period of minority would be eighteen years.

7. So, the vesting may be postponed up to the life of the last person (B) holding property for his life and the minority (18 years) of the ultimate beneficiary. 

Ultimate beneficiary in mother’s womb

1. Where the ultimate beneficiary is in the mother’s womb i.e. it is a child en ventre sa mere, the latest period up to which vesting may be postponed, (after the preceding interest) is the minority plus the period during which the child remains in mother’s womb.

2. It may be noted that minority is counted from the date of worldly birth whereas for purposes of being a transferee, a child in mother’s womb is a competent person.

3. Where the ultimate beneficiary is in mother’s womb when the last person dies, the property vests immediately in him while he is still in mother’s womb. Therefore, the exact period from which the minority begins to run is the date when ultimate beneficiary is conceived.

4. Accordingly, the minority up to which the vesting is permitted to be postponed under this section would include the period during which the ultimate beneficiary remains in womb before he is born alive. The period during which a child remains in womb after being conceived is called gestation.

5. In India, the maximum possible remoteness of vesting would, therefore, be as under: 
Maximum permissible remoteness of vesting = life of the preceding interest + Period of gestation of ultimate beneficiary + Minority of the ultimate beneficiary. 

Exceptions to the Rule against Perpetuities

1. Vested Interests are not affected by the rule, for when an interest has once existed, it cannot be bed for remoteness. 

2. Gift to charities do not fall within the rule; thus, in case of a transfer for the benefit of the public in advancement of religion, knowledge; health, commerce, etc., the rule does not apply (Sec. 18).

3. Property settled upon individuals for memorable public services may be exempted from the operation of this rule.

4. The rule against perpetuity applies when interest in property is created and has no application to personal contracts. A contract for sale of property does not of itself create any interest in such property (Sec. 54).

In Nafar Chandra v Kailash[4], the shebiats of a temple agreed to appoint the family of A as pujaris from generation to generation and make provisions for expenses and remuneration of the office. The court held that such an agreement is valid and is not affected by the rule against perpetuity. 

5. The rule also does not apply to contracts for perpetual renewal of leases. Leading Case: R. Kempraj V M/S Burton Son 7& Co.[5]

a. In this case, a lease for 10 years provided for an option to lessee (tenant) to renew the same for further 10 years as desired on the same terms.

b.  The lessee, before the expiry of 10 years, wanted to renew lease, but the lesser did not comply.

c. The lessee filed a suit for the performance of covenant in lease for renewal.

d. The issue was whether a clause for renewal of lease can be regarded as creating an interest in property, and thus hit by the rule against perpetuity and, thus, void.

e. The court observed that rule against perpetuity is founded on the principle that the liberty of alienation shall not be exercised to its own destruction.

f. In Ganesh Sonar v P.Narayan[6] the option given by the lessee to the lesser to resume the leasehold land was merely a personal covenant and not a covenant which  created an interest in land and so the rule against perpetuity will not apply. The same principle would govern the present case. 

g. The clause relating to ‘renewal’ of lease (even on the footing that it contains covenant running with the land), can by no means be regarded as creating an interest in property of the nature that would fall within the ambit of Sec. 14 of the Transfer of Property Act, 1882. Rule against perpetuity is applicable only in those cases where there is a transfer of property, and the vesting of it is postponed beyond the period of perpetuity. Thus, the lease in the present case is not hit by the rule against perpetuity.

6. The rule also does not apply where only a charge is created, which does not amount to transfer of any interest. However, in the absence of a charge, payment of income to a payee from generation to generation is void as offending the rule against perpetuity.

7. A covenant of redemption in a mortgage does not offend the rule.

8. Covenant for pre-emption in respect of land, unrestricted in point of time do not offend the rule against perpetuities. 

Leading Case: Ram Baran Prasad v. Ram Mohit Hazra[7]

The Supreme Court, observed and held as follows: 

1. The Court referred to the provisions of the Specific Relief Act, 1963 to state that a contract is enforceable by and against the transferees/assignees of the original parties.

2. Prima facie, the rights of the parties to a contract are assignable. Having regard to the contract and circumstances in the present case, it is clear at pre-emption clause must be construed as, binding upon the assignees.

3. The rule against perpetuity does not apply to contracts, which do not create rights of property.

4. The rule as formulated falls within the branch of the law of property and its true object is to restrain the creation of future conditional interests in property.

5. The Supreme Court, thus, held that rule against perpetuity cannot be applied to a covenant of pre-emption even though there is no time-limit within which the option has to be exercised.

Illustrations

1. A’s property is transferred to B for life and after his death, to such son of B as shall first attain the age of 25 years, B having no son on the date of transfer. Here, the life-estate in favor of B is perfectly valid ,but the interest created in favor of B’s son is void, as the vesting of the interest is intended to be postponed beyond the minority of an unborn Person.

2. Property is transferred to A for life, then to B for life, and to such of B’s son as shall first attain the age of 17 years/ or the 18 years. The transfer is valid. 

3. Property is transferred to A for life, then to B for life, and then to such of B’s son as shall first attain the age of 18 years and one day. The transfer is void 

4. Property is transferred to B for life, and then to B’ s first child when be attains the age of 10 years. The transfer is valid, and the property would vest in his favor on his attaining the age of 10 years.

Frequently Asked Questions

Q1. What is the difference between English and Indian law of Perpetuity?

Under English law, vesting of interest may be postponed up to the life or lives of last person plus a period of 21 years irrespective of the age of minority of ultimate beneficiary.

By an amendment, the rule in England has now been modified by Section 163 of the Law of Property Act, 1925 which provides that a transfer shall not be void even if the vesting has been postponed beyond 21 years but it shall take effect as if the age of 21 had been substituted for the age specified in the instrument, (which may be any fixed period longer than 21 years).

In India, Section 14 provides that vesting can be postponed up to the life or lives of the last person plus the minority of the ultimate beneficiary.

Minority in India ends at the age of 18 years. After the existing life or lives, vesting cannot be postponed in India beyond 18 years in any circumstance.

Q2. What are the essential conditions of the rule against perpetuity as given in Section 14 of the transfer of property act 1882?

The essential conditions of the rule against perpetuity as given in Section 14 of the transfer of property act 1882 are as follows: 

1. There is a transfer of property.

2. The transfer is for the ultimate benefit of an unborn person who it given absolute interest.

3. The vesting of interest in favor of ultimate beneficiary is preceded by life or limited interests of living person (s).

4. The ultimate beneficiary must come into existence before the death of the last preceding living person.

5. Vesting of interest in favor of ultimate beneficiary may be postponed only up to the life or lives of living persons plus minority of ultimate beneficiary; but not beyond that.

Q3. What are the Exceptions to the Rule against Perpetuities?

Exceptions to the Rule against Perpetuities are as follows:

1. Vested Interests are not affected by the rule, for when an interest has once existed, it cannot be bed for remoteness. 

2. Gift to charities do not fall within the rule; thus, in case of a transfer for the benefit of the public in advancement of religion, knowledge; health, commerce, etc., the rule does not apply (Sec. 18).

3. Property settled upon individuals for memorable public services may be exempted from the operation of this rule.

4. The rule against perpetuity applies when interest in property is created and has no application to personal contracts. A contract for sale of property does not of itself create any interest in such property (Sec. 54).

5. The rule also does not apply to contracts for perpetual renewal of leases.

6. The rule also does not apply where only a charge is created, which does not amount to transfer of any interest. However, in the absence of a charge, payment of income to a payee from generation to generation is void as offending the rule against perpetuity.

7. A covenant of redemption in a mortgage does not offend the rule.

8. Covenant for pre-emption in respect of land, unrestricted in point of time do not offend the rule against perpetuities.

Edited by Parul Soni

Approved & Published – Sakshi Raje

Reference

[1] Sookhmoy Chunder v Manoharri Dassi , (1885) 11 Cal. 684.

[2] Abdul Fata Mohamed v. Rasamaya , (1894) 22 Cal. 619.

[3] AIR 1925 PC 244.

[4] (1921) 25 CWN 201.

[5](1970) 2 SCR 140.

[6]AIR 962 Pat 201.

[7](1967) 1 SCR 2931.