VESTED AND CONTINGENT INTEREST

This article is written by Narayanareddy Sripriya of BMS College of Law, Bangalore, an intern under Legal Vidhiya

ABSTRACT:

This article includes the vested and contingent interest under the Transfer of Property Act. Vested interest refers to the present and unconditional right to a future interest which is associated with ownership or entitlement whereas Contingent Interest involves a future right dependent on certain conditions fulfillment. It also includes the nature and the differences between the vested and the contingent interest.

KEYWORDS: Vested interest, Contingent Interest, prior interest, Transfer of property

INTRODUCTION:

The Transfer of Property Act came into existence in 1882 where before its existence the immovable properties were governed under the English law and the principle of equity. According to the law ,the property can be transferred to any person by will , gift , sale , exchange etc. the transfer is made under transfer of property act ,and this act applies only to transfer by the act of the parties but not by operation of law. This act is applicable to both movable and immovable property and it deals with transfer of property intervivos (between two living persons). According to section 5 of the Transfer of Property Act, the transfer of property is an act by which property is conveyed from a living person to another person or to himself either in the present or future[1]. The transfer of property also occur under Indian succession act where the it includes testamentary or intestate succession where any individual makes a will before his death for the distribution of property or dies without making a will and if the will is made it will be functioned accordingly after his death. During the Transfer of Property, there are various kinds of interests created on the property in favor of a person, which are given under sections 19 to 34 including contingent interest, vested interest, conditional interest, subsequent interest, and accelerated interest.

VESTED INTEREST: (SECTION 19)

Vested Interest is created on the property in favor of a person with the specifications of the time and condition of when it would take effect and not dependent upon the happening of an event. In this, a prior interest is created upon some other person, and after a certain period, the interest will be transferred to the transferee. The income accumulated can be enjoyed till the interest has been transferred to the transferee. The vested interest cannot be defeated by the death of the transferee before he obtains possession. It has been given under section 6 that after the interest is vested it becomes transferee property and if he dies then legal representatives can acquire that even if he has obtained the possession or not.[2]

Characteristics of Vested Interest:

1. Prior interest: A prior interest is created on a person before the actual transferee and the transferee claims the property after a particular time but when the interest is vested on a person for sometime he can only enjoy the property till the period given and he has no right over the property to sell or exchange. he is considered to be a guardian to the property for a particular period of time.
2. Postponement of enjoyment: The property can be enjoyed by the transferee only after he attains the age of 18 years and he can claim the property from the person on whom the prior interest is created and the transferee has all the rights over the property. The death of the transferee will not make the transfer invalid as the property is transferable and heritable so, the interest will be passed on to the legal heirs.
3. Conditional Limitation : if there is any condition mentioned as only after the fulfillment of that condition the property will be transferred then the transferee has the right to enjoy the property but he can get the ownership rights only after the fulfillment of that condition.

      WHEN THE INTERESTS ARE VESTED:

1. When no time is specified as when the transfer takes place
2. If the transferor specifies the date, then it will be vested on a specific date
3. It takes place upon the happening of a certain event which is a future event.

CONDITIONS THAT ARE NOT VESTED BUT ACTUALLY VESTED:

• Postponement of enjoyment of Rights: A condition is included cannot postpone the vested interest as it will be repudiated after the transferee attains the age of majority.

EX: A transfers property to B in trust for C. A directs B to give possession to C when he attains the age of 25 but C is entitled to get the property at the age of 18 as vested interest is created.

• Prior Interests:  A prior interest is created as for an unborn child in the womb and it means that the prior interest created doesn’t affect the subsequent interest.
• Accumulation of Income : according to section 17 it postpones the beneficial enjoyment of property, such postponement of vesting of interest is discouraged under rule against perpetuities.
• Conditional Limitation: It is dependent upon the happening of certain events and interests shall pass to another person. A condition subsequent under section 31 divests an estate that has vested and reverts it in the grantor.[3]

Section 20: When unborn acquires vested interest on Transfer for his benefit :

In a transfer of property, an interest therein is created upon a person who is not in existence and he acquires upon his birth, but he may not be able to enjoy thereof immediately upon his birth.[4]

CONTINGENT INTEREST : (SECTION 21)

Contingent interest is where transfer of property in favour of a person dependent upon the happening or non-happening of a certain event. Such interest becomes vested on the happening of an event and impossible on the happening of an uncertain event.

Nature of Contingent Interest:

1. Contingent interest is a transferable interest: It is an interest created and passed to the transferee on the happening of contingency which transfers the interest over the property from transferor to transferee and the interest vested here is possession.
2. Nonheritable: It is a non-heritable interest which means upon the death of the transferee the legal heirs cannot acquire the possession and the contingent interest.
3. Spes Succession: The chance of an heir apparent to succeed the property as heir or other possibilities of like nature isn’t a contingent interest within this.
4. Death is not an uncertain event: Death is a certain event and the interest created to be transferred after the death of another person is not contingent but a vested interest whereas the transfer of interest to a person when he survives or alive upon the death of another creates only a contingent interest.
5. Transfer to person at a particular age : A person acquiring property after attaining a particular age gives him only contingent interest till attainment of that particular age.[5]

Characteristics of Contingent Interest :

1. Future uncertain interest: The interest created on a person is dependent upon the happening of an uncertain event, only after that event is fulfilled the interest is transferred to the transferee
2. Not heritable: Contingent interest is a transferable right but it is not a heritable right, if the transferee dies before the happening of an uncertain event and without possession then the property cannot be transferred and the property will remain with the transferor, so in this case, the property is not heritable whereas if the possession has been acquired by the transferee before death, then the legal heirs might have chances to acquire interest over the property

SECTION 22: Transfer to members of a class who attain a particular age

During the transfer of property, an interest is created upon a class of persons on attaining a particular age and is not applicable if they have not attained the particular age. Transfer to the person upon attaining a particular is only creates contingent interest and it will become vested interest upon the attainment of a certain age.

SECTION 23:Transfer contingent on the happening of a specified uncertain event

In a transfer of property, interest is created on a specified person on the happening of a specified uncertain event and the transfer will be complete only on the happening of that event at the same time or else the immediate or precedent interest created ceases to exist.

Section  120 under the Indian Succession Act- Date of vesting when legacy contingent upon specified uncertain event

A legacy be quested in uncertain event does not vest until it happens/does not happen

It will vest, if the happening of the event becomes impossible

Until the condition is fulfilled, interest in the legatee is contingent

Exception –Where a fund is bequeathed to any person upon his attaining a particular age, and the will also gives to him absolutely the income to arise from the fund before he reaches that age, or directs the income, or so much of it as may be necessary, to be applied for his benefit, the bequest of the fund is not contingent.

DIFFERENCE BETWEEN VESTED INTEREST AND CONTINGENT INTEREST:     

VESTED INTEREST	CONTINGENT INTEREST
On the transfer of property, the vested interest therein is created in favor of a person without specifying the time when it takes effect or specifies to take effect forthwith or on the happening of an event that must happen.	On transfer of property if contingent interest is created in favor of a person will take effect only on the happening of a specified uncertain event and such event may or may not happen
It does not depend on any condition and it is an immediate right but the enjoyment may be postponed to a future date	2. It is solely dependent on the fulfillment of the condition and if not fulfilled the interest would fail
The transferee’s death does not defeat it because he obtains possession.	4. It cannot take effect in the event of the transferees’ death and before fulfillment of the condition.
It is both a transferable and heritable right and after his death the property will be transferred to legal heirs.	4. It is transferable but not heritable and legal heirs cannot inherit this property
In vested interest, there is present immediate right even though if enjoyment is postponed.	5.There is no immediate right it is a mere promise and may be nullified by non fulfillment of condition

CASE LAWS:

1. Rajesh Kanta Roy v. Shanti Devi: it is a case on vested and contingent interest, in supreme court where the father settled the property to his two minor sons and the settlement provided that the sons would obtain an absolute interest in the property upon death of the transferor and after discharging all his encumbrances. The Supreme Court held that sons got a vested interest, though enjoyment was temporarily postponed.[6]
2. In Ram Kumar v. Atma Singh[7], the testator devised his estate for his sons and directed that the widow should manage it during her lifetime. Held, that the estate vested immediately in the sons, and as the widow was given no prior interest they were entitled to immediate possession.
3. On the other hand, in Srinivasa v. Dandapani[8], there was a transfer to a daughter with a direction to enjoy the income and pass the corpus intact to her son. The daughter took a vested interest but the direction was ineffective and the son who pre-deceased her took no interest at all. It has also been held that under Hindu law the creation of partial trusts and charges will not postpone the vesting in possession.
4. In Abdul Sakur v. Abubakar Raji Abba[9], X promised to give at the time of his death to A, B, and C, Rs. 1,000 each to be paid to them on the occasion of their marriage. What was the nature of the gift to A, B and C? It was held that the gift was contingent upon their marriage taking place. A and C married before X’s death, and the contingency contemplated did not therefore happen, with the result they did not take. B married after the death ; on such marriage the gift became a vested one.

CONCLUSION :

In transfer of property act 1882 , section 19 and 21 deals with the vested and the contingent interest .as in property transfer the transfer is not easy and involves lot of complications and based on certain conditions. There are certain laws and rights and vested interest and contingent interest are one such important concept in it. Here , the vested interest is created in favor of a person where the time is not mentioned but on the happening of a certain event the transfer takes place and it is an immediate right where as  in contingent interest the transfer of property takes place if an uncertain event happens as per the condition.

REFERENCES:

1. Transfer of property act ,section 5 ,no.4 ,acts of the parliament,1882(India )
2. Transfer of property act ,section 19 ,no.4 ,acts of the parliament,1882(India )
3. DR. G.P. Tripathi ,Transfer of Property Act ,177 & 180,Central Law Publications2020
4. Transfer of property act ,section 20 &21 ,no.4 ,acts of the parliament,1882(India )
5. DR. G.P. Tripathi ,Transfer of Property Act ,181,Central Law Publications2020
6. 1957 S.C.R. 77: (1957) A.S.C. 255 1957 S.C.J. 197: 1957 S.C.A. 440.
7. (1927) 8 Lah 181.
8. (1886) 12 Mad 411
9. 1930 Bom .191

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 [1] Transfer of property act ,section 5 ,no.4 ,acts of the parliament,1882(India )

[2] Transfer of property act ,section 19 ,no.4 ,acts of the parliament,1882(India )

[3] DR.G.P.Tripathi ,Transfer of Property Act ,177 & 180,Central Law Publications2020

[4] Transfer of property act ,section 20 &21 ,no.4 ,acts of the parliament,1882(India )

[5] DR.G.P.Tripathi ,Transfer of Property Act ,181,Central Law Publications2020

[6] 1957 S.C.R. 77: (1957) A.S.C. 255 1957 S.C.J. 197: 1957 S.C.A. 440.

[7] (1927) 8 Lah 181.

[8] (1886) 12 Mad 411

[9] 1930 Bom .191

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