TRANSFER TO AN UNBORN PERSON AND RULE AGAINST PERPETUITY

TRANSFER OF PROPERTY FOR THE BENEFIT OF UNBORN PERSON

Under the Transfer of Property Act, 1882, section 13 stipulates that when a transfer of property involves the creation of an interest for the benefit of an unborn individual at the time of the transfer, a prior interest must be established about the same transfer. Furthermore, the interest created for the benefit of said individual will not be enforceable unless it encompasses the entirety of the remaining interest held by the person transferring the property.

Consequently, to effectuate the transfer of a property for the benefit of an unborn individual at the time of the transfer, the property must be initially transferred through the utilization of trusts in favor of a living individual other than the unborn person at the time of the transfer. Put simply, the immovable property must be vested in a living person between the transfer date and the emergence of the unborn individual, as it is not permissible to directly transfer the property in favor of an unborn person.

It is imperative to bear in mind the salient features of section 13 when engaging in the transfer of property to an unborn individual.

It is not possible to effectuate a direct transfer of property to said unborn person.
A prior life interest must be established, whereby the property in question will remain with the designated individual until the birth of the child.
The transfer of an absolute interest in favor of the unborn person is permissible.

APPLICABILITY

· Hindu Law

In accordance with the principles of pure Hindu law, any gift or bequest made in favor of an unborn individual was considered null and void. However, with the implementation of the Transfer of Property Act, Hindus are now subject to its provisions, which validate transfers made in favor of an unborn person if they adhere to the regulations outlined in Section 13 of the Act.

· Muslim Law

Section 2 of the Transfer of Property Act explicitly states that it does not affect any rule of Mohammedan law. Consequently, Section 13 does not apply to transfers made by Muslims. Nevertheless, it is worth noting that under Muslim law as well, a gift made in favor of a non-existent person has been deemed invalid.

WHAT IS VESTED INTEREST AND CONTINGENT INTEREST

It is imperative to comprehend the notions of vested interest and contingent interest when addressing section 13 and section 14 of the Transfer of the Property Act.

The Transfer of Property Act deals with vested and contingent interests. Vested interest is embedded when a specific event is required to happen. On the other hand, contingent interest is embedded when a condition related to the occurrence of a particular uncertain event is fulfilled.

Vested Interest

It constitutes an interest established in support of an individual, contingent upon the occurrence of a specified event, albeit without a designated timeframe. An individual possessing a vested interest does not immediately acquire ownership of said property but somewhat anticipates obtaining it upon the occurrence of the specified event.[2]

For instance, A transfers his property to B once B reaches the age of 21. B shall maintain a vested interest in the said property until he attains the age of 21, at which point he shall be entitled to its possession.

In the example mentioned earlier, if B were to pass away at the age of 20, the interest that B has in the property would be given to B’s legal heirs. This transfer of interest to B’s legal heirs will prevent A from making any claim to the property.

Contingent Interest

A contingent interest is a legal construct that confers a benefit upon an individual upon the occurrence of a specified uncertain event, provided that certain conditions are satisfied. The holder of a contingent interest does not immediately receive possession of the property but rather receives it only upon the occurrence of the specified event. If the event does not occur, the individual will not receive the property. The existence of a contingent interest is entirely contingent upon the conditions outlined in the transfer.[3]

For example, A has agreed to transfer ownership of a piece of land to B, but only if B’s business becomes profitable within the next two years. If B’s business does become profitable within that time, A will transfer the land to B. However, if B’s business does not become profitable within the specified period, the transfer of ownership will not happen. In this situation, B’s right to the land depends on the future event of their business becoming profitable within two years. Until that happens, B does not have a current or absolute right to the land. Instead, B has a contingent interest, meaning that the transfer of the land depends on the uncertain event of the business becoming profitable. If the condition is satisfied, B will gain ownership of the property. If not, B will not be entitled to ownership of the land.

ESSENTIAL COMPONENTS OF SECTION 13

Restriction Of Direct Transfer
It is not allowed to transfer property directly to an unborn person.
Trusts must be used to establish such transfers.
It is a paramount principle of property law that every property must have an owner.
If property is transferred to an unborn person, it will remain ownerless until that person is born.

No Provision for Granting a Life Interest to an Unborn Person
An interest in property for the benefit of an unborn child must always be preceded by a prior interest granted to a living person.
The unborn child is the ultimate beneficiary of the property, but since they are not yet born at the time of the property transfer, direct transfer is not permissible.
A prior life interest is necessary in favor of a living person to hold the property during their lifetime until the unborn child comes into existence.
After the termination of the life interest, i.e., upon the death of the living person, the property interest passes to the unborn child through an intermediary living person who holds the property in trust for the benefit of the unborn child.
Successive life interests may be created in a chain, preceding the interest in favor of the unborn person, ensuring the orderly transfer of property to the intended beneficiary.

Illustration

A conveys his property to B for life, then to C for life, and then to the unborn child of C. Here, A, B, and C are all alive at the time of the transfer of property. The above arrangement of the property is valid. There is no direct transfer and life interest to an unborn child. Furthermore, it is permissible for the estate to be bestowed upon multiple living individuals successively ‘for life’ before it ultimately vests in the unborn child of C.

RULE AGAINST PERPETUITY

Meaning of Perpetuity

Before delving into the intricacies of the rule against perpetuity, it is imperative to comprehend its essence, the principle of perpetuity, and the rationale behind its inclusion in the Transfer of Property Act (TPA).

The condition or characteristic of lasting forever
Time without boundaries
Forever or something perpetual and everlasting.

Principle of Perpetuity

The Rule of Perpetuity refers to the concept that a property shall remain in the possession of a specific individual or their descendants indefinitely. For instance, if A is the proprietor of a property and establishes a regulation stipulating that the property shall be passed down to his son, then to his grandson, and so forth, the subsequent generations will have the privilege to enjoy the property but will not possess the authority to transfer it. Consequently, this specific property will remain within the confines of a particular family for an indeterminate duration. This principle led to the establishment of the rule against perpetuity.

Section 14, Transfer of Property Act, Stipulates as under:

“No transfer of property can operate to create an interest which is to take effect after the life time 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.”

It states that a property transfer cannot legally create a right or interest in someone if that right is supposed to begin after the lifetimes of one or more individuals who are alive when the property transfer is made. Additionally, it cannot be based on the condition that a certain person, who doesn’t exist yet or is currently a minor (underage), will grow up and become an adult during that period. Then the property interest will belong to them if they do become an adult.

Object of Rule Against Perpetuity

This provision prevents property from remaining within a single family indefinitely, promoting circulation within society and preventing harm. It also enables individuals to use their property for personal gain through transfer, sale, or gifting. Additionally, it facilitates industrialization by preventing capital from being tied up in unproductive property. Finally, it generates revenue for the government through property registration procedures.

ESSENTIAL COMPONENTS OF SECTION 14

There is a transfer of estate or property.
The transfer is for the ultimate benefit of an unborn person who is given absolute interest.
The vesting of interest in favour of the ultimate beneficiary is preceded by the life interests of a living person(s).
The ultimate beneficiary must be born before the demise of the last preceding living individual.

If all of the elements are present, the transfer of the interest to the ultimate beneficiary may only be delayed until the lifetime or lifetimes of living individuals, in addition to the minority of the ultimate beneficiary, but not beyond that duration.

MAXIMUM TIMEFRAME IN RULES AGAINST PERPETUITY

In context to the maximum timeline, it is pertinent to reference the renowned case of Cadell V Palmer, wherein a property was conveyed to a group of 26 individuals. This particular case led to the establishment of certain rules, which are as follows:

The transfer may be made to any number of living persons.
The transfer may be made to a single unborn person exclusively. This unborn individual shall acquire an absolute interest, thereby concluding the transfer.
The timeline encompasses both the period of pregnancy (known as the Period of Gestation) and the attainment of the majority.

Any transfer that alienates an interest after the time frame specified in Section 14 is invalid.

ANALYSIS OF THE PERIOD UNDER THE RULE AGAINST PERPETUITY

According to Section 14 of the Transfer of Property Act, the duration for transferring property is determined from the date of transfer till the previous interest holder’s lifetime, as well as the gestation and minority period of the beneficiary. It can be said that the maximum possible remoteness of vesting is = Life of the last prior interest holder + Period of gestation + Minority of the ultimate beneficiary.

For example, the property is transferred to A until their death and then to B. After that, it will be transferred to the unborn child once they turn eighteen. It is important to note that the property is not permanently tied up but somewhat transferred in succession and remains tied up until each individual’s death.

However, despite the immediate need to transfer the interest in the property to the unborn child, the transfer is only carried out once the child reaches the age of majority, as stated in this section.

The maximum period for which the transfer of interest can be delayed is determined by the gestation period plus the age of the minority. When the child or beneficiary is conceived, interest is established by Section 20 of the Transfer of Property Act until they reach the age of majority. Upon reaching adulthood, the individual obtains absolute ownership of the property and is entitled to enjoy, possess, and dispose of it.

Period of Minority

Under section 3 of the Majority Act, 1875, it is established that any individual domiciled in India/Bangladesh attains majority upon reaching the age of 18 years, and not before that. In cases where a minor is under the guardianship of the Court of Wards, their minority ceases at 21 years and not before.

However, in the case of Saundara Rajan V. Natarajan [6], the Privy Council determined that “minority” in Section 14 should be interpreted as 18 years and not any other age. The Privy Council clarified that by “other age,” they were referring to the legal age of 21 years. Therefore, it can be concluded that the period of minority under Section 14 is a maximum of 18 years.

Period of Gestation

As mentioned earlier, the maximum 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. If 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 period. In the case where the child is born, the gestation period shall not be included.

EXCEPTIONS TO THE RULE AGAINST PERPETUITY

Public Benefit

In instances where property is transferred for the welfare of the public at large, it shall not be deemed null and void by this regulation. These transfers may include those made for the advancement of knowledge, religion, health, commerce, or any other endeavor that is beneficial to mankind.

Personal Agreements

This rule solely pertains to the transfer of interests. Agreements that do not generate any interest in the property remain unaffected by this rule.

Mortgage

Similar to personal agreements, mortgages will not be impacted by Section 14, as mortgages do not involve the creation of future interests.

Perpetual Lease

The perpetual renewal of lease contracts does not fall within the scope of applicability of this rule.

Pre-emption

In pre-emption, if there is no question of any interest in the property. So, this rule does not apply.

Gift Made for Charity

A gift made for charitable purposes allows property to be held in trust without any time restrictions.

Properties Settles for Memorable Public Service

The section also provides an exception for properties settled for memorable public service.

CASE LAW

Mohamed Shah vs Official Trustee of Bengal [4]

In this case, it was held that the prior interest is not rendered void when the subsequent interest is void. It is neither extinguished nor enlarged.

Transfer of Absolute Interest in a Property to an Unborn Person
Property transfers to unborn persons for absolute interests, not restricted or life interests.
Attempting to provide property for life to an unborn person is illegal.
Section 13 of the statute mandates that the transferor’s remaining interest in the property must be the entire property interest given to the unborn child.
If a life interest is granted to an existing person before transferring the property to an unborn person, the remaining interest must be transferred to the unborn person to ensure they receive an absolute interest.
The entire interest of the transferor in the property, excluding any carved-out interests, must be utilized in the transfer.
Any restriction that diminishes or shortens the grant to the unborn individual is considered invalid.

Illustration

A transfer his properties to B for life, who is unmarried, and then to the eldest offspring of B absolutely. The transfer in favor of the eldest offspring of B is valid.

X conveys his property to Y for the duration of Y’s life, and subsequently to an individual who is not yet born for the duration of their life. Y is a living individual at the time of the property transfer, whereas the unborn person does not yet exist. The transfer of the life interest to Y is considered valid in this case. However, the transfer of the life interest to the unborn person is deemed void because although it follows a life interest granted to Y, the unborn person has not been granted an absolute interest. Consequently, Y will possess the property during their lifetime, but upon their death, it will not be passed on to the unborn person. Instead, it will revert to X or, if X has already passed away, to X’s legal heirs.

CASE LAW

Girjesh Dutt v/s. Data Din[5]

A transferred her property to B for the duration of her lifetime, with the stipulation that upon B’s demise, the property would be conveyed to her male offspring, or in the absence of such, to her daughter, with no authority to sell or transfer the property. If B had no children, the property would be bequeathed to A’s nephew. Regrettably, B passed away without any offspring. The Court determined that the gift bestowed upon B during her lifetime was valid, as B was alive at the time of the transfer. However, the transfer made to B’s daughter was deemed invalid and nullified by Section 13 of the Transfer of Property Act, as the gift was restricted in nature (with no power of alienation), and did not confer absolute interest. Consequently, the prior transfer was invalid, and the subsequent transfer to A’s nephew was also void.

RELEVANT JUDICIAL DECISIONS FOR FURTHER CLARIFYING THE CONCEPT OF TRANSFER TO AN UNBORN INDIVIDUAL AND RULE AGAINST PERPETUITY

R. KEMPRAJ V. BARTON SON AND COMPANY[7]

In this case, the issue of whether the lessee’s option to renew the initial ten-year lease after each successive ten-year period would be subject to the rule of perpetuity. The Court determined that the renewal clauses constituted a personal covenant and did not confer any rights on the land. Consequently, the clause in question would not be affected by the rule against perpetuity.

RAJA BAJRANG BAHADUR SINGH V. THAKURAIN BHAKHTRAJ KUER[8]

The Apex Court has observed that it is not allowed to create an interest in favor of an individual yet to be born. However, if the gift is made to a group or category of individuals, some of whom are alive and some are not, it does not become entirely void. Instead, it remains valid for the living individuals at the time of the testator’s death while being considered invalid for the remaining individuals. In conclusion, the Apex Court has clarified the legal status of gifts made to unborn persons and emphasized the distinction between gifts made to individuals and those made to a group or class of individuals.

CONCLUSION

In conclusion, this article imparts knowledge of the intricate legal concepts surrounding transfers to unborn individuals and the Rule Against Perpetuity under property law. The transfer of property to unborn beneficiaries is a common practice in estate planning and wealth preservation, and it is accomplished through instruments such as trusts and wills. These transfers create contingent interests, which are subject to specific conditions or events, such as birth or the attainment of a certain age by the beneficiary.

On the other hand, the Rule Against Perpetuity serves as a crucial legal principle designed to prevent property from being indefinitely tied up in future interests. It establishes a time limit within which these interests must vest, typically measured as a specific number of years after the death of the last living person at the time of the transfer. This rule ensures the efficient use and transfer of property, preventing society from experiencing the stagnation of property and its eventual detrimental effects on trade and commerce. These provisions, therefore, guarantee the free and active circulation of property for the betterment of society.

The article also explores the essential components and applicability of both Section 13 and Section 14 of the Transfer of Property Act. It further emphasizes that property transfers to unborn beneficiaries must involve prior life interests in living individuals and result in absolute interests for the unborn beneficiaries. Additionally, it clarifies the maximum timeframes allowed under the Rule Against Perpetuity, considering the gestation period and the minority of the ultimate beneficiary.

Furthermore, the article highlights significant judicial decisions that have shaped the interpretation and application of these legal principles, providing clarity on matters related to transfers to unborn individuals and perpetuities.Top of Form

REFERENCES

The Transfer of Property Act, 1882.
Sourabh Bhagoriya, “Transfer of the Property’s Benefits to An Unborn Child” – www.lawcolumn.in.
Medha Tiwari, “Transfer to Unborn Person: All you need to know” – blog.ipleaders.in.
Vritti Jain, “A Study on the Rule Against Perpetuity under Section 14 of the Transfer of Property Act” – lawbhoomi.com.
Tarun Sethi, “Rule Against Perpetuity” – www.legalservicesindia.com.
Simran Kaur Bhatia, “Transfer of Property to a Child in a Mother’s Womb” – www.scconline.com.