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Rule Against Perpetuity

Introduction

The word ‘perpetuity’ means indefinite period. The rule against perpetuity, also known as the rule against remoteness of vesting, means that a property cannot be transferred in such a manner that it becomes 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, Transfer of Property Act, 1882 (hereinafter referred to as the ToPA) and the Indian Succession Act, 1925 (hereinafter referred to as the ISA). The aim of this article is to discuss in detail the rule against perpetuity under both these Acts.

Object of Rule Against Perpetuity

The object of the rule against perpetuity is to ensure that there is a free and active circulation of the property. A free and active circulation of property is essential for two primary reasons-

Firstly, for promotion of trade and commerce in the country and

Secondly, for the betterment of the property itself.[1] A person who has been given absolute rights in the property must also be permitted to alienate the property. Thus, the rule against perpetuity is also based on the principles of public policy and equity.

Transfer of Property Act, 1882

The ToPA came into effect from 01.07.1882. It extends to entire India, except the States of Bombay, Punjab and Delhi. However, the Maharashtra government inserted Section 1-A to make the ToPA applicable to Bombay, subject to any special or local laws relating to Agriculture.[2]It lays down the rule against perpetuity under Section 10 and Section 14 of ToPA. Perpetual transfer can be done in two ways-

  1. by taking away the right of the transferee to further alienate the property.
  2. by creating a remote future interest.

Taking Away Right to Alienate (Section 10)

As a general rule, ToPA permits the owner of the property to transfer his property either conditionally or unconditionally. These conditions may be conditions precedent of conditions subsequent. An absolute restrain[3] on further alienation is a species of a condition subsequent and such a condition subsequent is declared to be void under Section 10 of the ToPA. Thus, if such a condition precedent is a part of the instrument of transfer, the condition will not be binding on him and the transferee is entitled to deal with the property in any manner whatsoever.

In the case of Dinesh Chhapolia v. State of Orissa[4], a lease of land was heritable and transferable; a restriction that its alienation was to be only with the permission of the Collector was treated as void.

Absolute and Partial Restraint

However, it should be noted that a partial restraint on alienation is not restricted. It is only absolute restraint that is declared void under Section 10 of the ToPA. Where the restraint does not take away the power of alienation of the transferee but just limits it, the restraint is said to be partial. The question of whether the restraint is partial or absolute depends upon the contents of the instrument of transfer.[5]

In the case of Muhammad Raza v. Abbas Bandi Bibi[6]the condition restricted the transferee from transferring the property of the strangers, i.e, outside the family of the transferor. The condition was held to be partial and was therefore enforceable.

Scope of Section 10

Section 10 is based upon the rule of equity and thus is applicable in situations where the ToPA is not applicable. In the case of Nand Singh v. Pratap Das[7]Section 10 was made applicable in Punjab even though the ToPA is not applicable in Punjab per se. Similarly, Section 10 was made applicable to a Hindu idol even though it is outside the scope of the ToPA in the case of Ramchandraji Maharaj v. Lalit Singh[8].

Exceptions to Section 10

  1. Transfer by operation of law-

The law under Section 10 is not applicable where the transfer of property is by operation of law. In the case of Mahendra v. Gagan Chandra[9] the restraint of alienation included in a sale by the order of the Court under execution was held not to be void under Section 10 of the ToPA. In the case of Laxmamma v. State of Karnataka[10]it was held that a grant made by the Government in accordance with law is not a transfer within the meaning of ToPA and therefore, a permanent restraint on the alienation of the grant if authorized by law applicable to such grants, would be a valid restraint.

  1. Leases

A lease is a transfer of limited interest by one party (called the lessor) to the other party (called the lessee) for the enjoyment of the lessee while retaining the ownership of the property so leased. Such an exception is also applicable on permanent perpetual leases. In the case of Raghuram Rao v. Eric P. Mathias[11] the Supreme Court held that in the case of perpetual leases any condition restraining the lessee from alienating leasehold property is not illegal or void.

  1. Married Women

Where a property is transferred to a married woman who is not a Hindu, Muslim, or Buddhist, the transferor can validly impose a condition restraining alienation.

Rule Against Perpetuity (Section 14)

The rule against perpetuity under Section 14 of ToPA provides that in a transfer of property, vested interest cannot be postponed beyond the life of the last preceding interest in the living person(s) and the minority of the ultimate beneficiary. Thus, the following formula comes into the picture-

Maximum alienation = life of preceding interest + Period of gestation of the ultimate beneficiary + Minority of ultimate beneficiary

Essential Elements

  1. There is a transfer of property[12]
  2. The transfer is for the ultimate benefit of an unborn person who is given absolute interest.
  3. The vesting of interest in favour of the ultimate beneficiary is preceded by life interests of a living person(s)
  4. The ultimate beneficiary must come into existence before the death of the last preceding living person.[13]

If the interest is alienated beyond the period as mentioned under Section 14, such a transfer would be void.

Minority

Minority in India terminates at the age of eighteen (18) years[14] or if the minor is under the supervision of the court, at the age of twenty-one (21) years.

Ultimate Beneficiary in the Womb of the Mother

Where the ultimate beneficiary is in the mother’s womb (a child en ventre sa mere), the maximum duration for which the interest can be postponed is a minority and the period during which the child remains in the womb of the mother (i.e., the gestation period). Thus, the transfer can be made to a child that had already been conceived. For a variety of purposes, a child in the mother’s womb is recognized as a living person who can be vested with various rights. If the transfer is to be made to a child who has not even been conceived as of the date of the transfer, Section 14 will become applicable.

Failure of Prior Interest

Section 16 of the ToPA provides that if the prior interest under Section 14 fails the subsequent interest also fails. In the case of Girjesh Dutta v. Data Din[15]A made a gift to his nephew’s daughter B for life and subsequently to the descendants of B absolutely. However, B died childlessly. Here the gift was held to be void and the property was transferred to the legal heirs of the donee.

Exceptions to Rule against Perpetuity

  1. Transfer for the benefit of the Public (Section 18, ToPA)-

Section 18 of the ToPA states that where a property is transferred for the benefit of the public in the advancement of religion, knowledge, commerce, health, safety or any other object which is beneficial to the public at large, a perpetual transfer is not void. The purpose of the exemption is to enable the formation of trusts. Generally, a transfer in the public interest is made via a trust. In the trusts, the property is tied up in a trust for an indefinite period to achieve the object for which the trust is created. If Section 14 will be made applicable in such cases, it would defeat the purpose of such trusts.

  1. Personal Agreement

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[16] 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.

  1. Redemption

The Section does not apply where there is a covenant of redemption of the mortgage.

Indian Succession Act 1925

Indian Succession Act 1925 also created provisions regarding the rule against perpetuity. Indian Succession Act deals with the transfer of property by the virtue of a will.

Section 114 of the Indian Succession Act lays down the rule against perpetuity. The provision is similar to that under Section 14 of ToPA. Section 114 prohibits the bequest upon any person with the condition of inalienability beyond the lifetime of one or more living persons (as on the date of the testator’s death) and the minority of some person who shall be in existence at the expiration of that period. This property shall be transferred absolutely to the minor. Thus, the following formula comes into the picture-

Maximum alienation = life of preceding interest + Period of gestation of the ultimate beneficiary + Minority of ultimate beneficiary

Bequest to religious or charitable trusts (Section 118)

Section 118 of the Indian Succession Act lays down an exception to the rule against perpetuity as provided under Section 114 of the Indian Succession Act. It prohibits a man having a nephew or a niece or any other nearer relation to bequest any property to religious or charitable uses except by a will. Such will must have been executed at least 12 months prior to the death of the testator and it must have been deposited within six months from its execution in someplace provided by law for the safe custody of the wills of living persons. However, this section is not applicable to a person who is a Parsi.

Conclusion

Property is understood as a bundle of rights. It includes both the right to enjoy the property and to alienate the same. Thus, the State recognizes that it should protect all such rights of the transferee. The transfer can be by inter vivos or under a will. The inter vivos transfer is governed by the ToPA whereas the transfer by a will is governed by the Indian Succession Act. Both the statutes recognize the rule against perpetuity. The rule against perpetuity is imposed on the ground of equity and public policy. It enables the transferee to enjoy the property as well as ensure that he is able to alienate the same if need be. However, the right to alienate also has certain exceptions, as discussed.

[1]Stanley v. Leigh, (1732) All ER 917.

[2]Transfer of Property (Bombay Provision for Uniformity Amendment) Act, 1959; Kumar Gonsusab v. Mohd Miyan, (2008) 10 SCC 153.

[3]Re Parry and Dags, (1886) 31 Ch. D 130.

[4]AIR 2008 NOC 844 (Ori) (DB).

[5]Thomas v. Dr. AA Henry, AIR 2008 NOC 1414 (Ker) (DB)

[6]AIR 1932 PC 158; Zoroastrain Coop Housing Society Ltd v. District Registrar, Coop Society (Urban), (2005) 5 SCC 632.

[7]AIR 1924 Lah 674

[8]AIR 1959 Pat 49.

[9]AIR 1925 Cal 471.

[10]AIR 1983 Karn. 237.

[11]AIR 2002 SC 797.

[12]Section 5, ToPA

[13]Section 13, ToPA; Sridhar v. N. Revanna, (2020) 11 SCC 221.

[14]Section 3, Majority Act, 1875

[15]AIR 1934 Oudh 35.

[16]AIR 1967 SC 744; Shivji v. Raghunath, AIR 1997 SC 1917

This article has been written by Aakriti Gupta, 5th Year BA LL.B student at Army Institute of Law, Mohali.

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