This article is written by Abu Zar Ali, student pursuing B.A.LLB (Hons.) from WBNUJS, Kolkata, West Bengal.
Table of Contents
A brief Introduction to the Transfer of Property Act, 1882
Hegel correctly states that the property is an embodiment of the owner’s personality. The person is closely attached with his property and the property owned depicts the owner’s personality. The Transfer of Property Act, 1882 (hereinafter referred to as the Act) was introduced in order to regulate the mechanism of transferring the property. As much as this statute confers numerous rights on a person while dealing with his property in any manner he/she chooses, it restrains him/her from unconscionably dealing with it to his/her benefit or to the prejudice of the rightful claimant.
While dealing with property, situations arise that necessitate the intervention of legislature. Where on the one hand law provides mechanisms for alienating the property, on the other hand people start finding loopholes in the legislations and deal with the property unconscionably. It is not unheard of that people adopt method to circumvent the legal provisions. This article intends to analyse the exact things by discussing the rules relating to transfer of property for the benefit of an unborn person and the rule against perpetuity. The two rules have been the one of the most complicated provisions in the Act. While discussing the former issue, the ruling under the Muslim Law would be discussed parallelly.
Rule with respect to Transfer of Property for the benefit of an unborn person
The Act and Muslim Law
We usually see that property is transferred to another person inter vivos, Wills being an exception to it, which operate only after the death of the testator. A common man might ask the next obvious question: Can a person transfer property to an unborn person? (see here). The law improvises the question (since transfer of property takes place only between two living persons) to: Can a person transfer property for the benefit of an unborn person? The Act answers this question in the affirmative. The relevant provision i.e., S. 13 of the Act, reads thus:
“Where, on a transfer of property, an interest therein is created for the benefit of a person not in existence at the date of transfer, subject to a prior interest created by the same transfer, the interest created for the benefit of such person shall not take effect, unless it extends to the whole of the remaining interest of the transferor in the property.”
Who is an unborn person under the Act? An unborn person is one who may be born in future but not in current existence. For that matter, even a child in womb would not literally be said to be a person in existence. However, the Hindu Law and the English Law treat this situation otherwise. In the case of F.M. Devaru Ganapati Bhat vs. Prabhakar Ganapathi Bhat (see here), the Supreme Court held that as per S. 20 of the Act, there is no ban on the transfer of interest in favour of an unborn person. This sets the ground clear that an unborn person refers not only those who are conceived but not born but also those who have not been conceived yet. Whether the conceived child would actually be born is a possibility but under the law, any transfer of property for the benefit of such unborn person is valid.
The procedure under the Act for such transfer of property for the benefit of the unborn person is as follows:
- The transferor must first create a life interest in favour of a living person and then an absolute interest in favour of the unborn person. This means that additional members prior to the intended beneficiary would also be treated as beneficiary (see here).
- The person in whose favour the life interest was created would enjoy the property and its usufruct (if any) until his death.
- If at the time of creation of life interest in favour of the living person.
In comparison and prior to the enactment of the Act, Hindu Law and Muslim Law stood on the same footing by disallowing making a gift in favour of a person who was not yet born or not even in existence. Such a gift was considered void. However, with subsequent enactments, the Hindu Law was modified to confirm with the provisions of the Act. The said changes could be found in S. 113 of the Indian Succession Act, 1925. On the contrary, Muslim Law did not change its position. The Muslim Law provides that a gift to an unborn person is void. An exception to this rule is when a gift is made to the unborn person in case of a Waqf. A different solution is obtained if the child is in the womb of the mother. In that case, a gift made to a child in the womb of mother is valid provided that it is born within six months from the date of making of such gift. In cases like this, the child is treated like a separate entity.
Rule against Perpetuity
The Act and Muslim Law
The owner of a property reserves the right to alienate his/her property in any manner which pleases him/her. However, the law intervenes in situations where a rightful claimant is prejudiced. For more clarity, let us take a hypothetical situation. Suppose there is a family comprising a father and his three sons. After the death of the father, the three sons have a right to their father’s property as legal heirs. However if the father does not want one of his son’s to inherit, he can exclude him from inheriting by transferring the property for the benefit of the unborn person in the fourth or fifth generation. This requires the law to adjudicate upon the question: Can a person indefinitely transfer the property long after he’s gone? The law answers this in the negative. The law seeks to protect the rights of the rightful claimants. Thus, S. 14 of the Act was enacted. The provision reads thus:
“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.”
According to Jarman “A perpetuity, in the primary sense of the word, is a disposition which makes property inalienable for an indefinite period”. Some people do not want to lose their ancestral property and thus create perpetual transfers. It is submitted that a free circulation of property is essential since such practice will deprive the society from deriving any benefit from the property.
The instance of perpetuity arises in two cases viz. “by taking away the power of alienation from the transferor and by creating a remote interest in the future property” (see here). In furtherance of this rule against perpetuity, S. 10 of the Act mandates that creating a remote interest in the future property thereby restraining the transferee’s power of alienation would be void. S. 14 prohibits creation of any future remote interest in the property.
To attract the provisions of S. 14 of the Act, the following conditions must be satisfied:
- There is a transfer of property.
- Such transfer should be made in order to create an interest in favour of an unborn person.
- The interest thus created must operate after the lifetime of at least one or more persons living at the date of the transfer.
- At the expiration of the interest of the living persons, the unborn person must be in existence.
- The vesting of such interest in favour of the final beneficiary could be postponed only up to the lives of the living persons in addition to the minority of the intended beneficiary. Such vesting beyond this would not be valid.
This takes us to the next point as to the extent of period of perpetuity. The current status in India is seen in the case of N. Chordiya Family Beneficial Trust Vs. Income Tax Officer, wherein the Court held that the limitation prescribed is “the lifetime of one or more persons living at the date of transfer of the property and the life of any unborn person who shall come into existence before the expiration of the lifetime of transferee persons and to whom interest created should belong when he attained the age of majority. In other words, the vesting of the property in an unborn child subject to prior charge in existing persons should not exceed the majority of unborn person to whom the residue of interest is created. If interest created is vested after the minor attains majority, the transfer becomes void and not when he attains majority.” 14 of the Act comes with the following set of exceptions:
- Transferring the property for the benefit of the public – A transfer made for the benefit of the general public is not void (see here).
- Pre-emption – It refers to the buying of goods or shares before they are offered to anyone else. In this case, there exists an option of buying. It is well-established that this rule does not affect the usual making of contracts which in turn do not create any property rights (see here). Thus no question arises of having any kind of interest in the property.
- Personal Agreements – Agreements not creating an interest in the property do not fall under the purview of the rule.
- Perpetual Lease – The rule is inapplicable in case where there are contracts for perpetual renewal of lease(s).
- Covenant of Redemption – As there is no creation of future interest in case of mortgages, therefore, covenants of redemption of mortgage would also not be affected by the said rule.
With regards to the Muslim Personal Law, the rule pertaining to perpetuity is different. The difference between the Muslim Law and the Common Law has created conflicts between the common law mandated ‘rule against perpetuity’ and the mandatory perpetuities in family Waqfs. Among other kinds of Waqf property, a family Waqf is one wherein the Waqf property is reserved for charitable purposes with the settlor’s family/descendants in perpetuity. After their extinction, the Waqf benefit will be dedicated solely for charitable purposes. Out of the four schools of thought in Sunni Jurisprudence of Islam, three (Hanafi, Shafi’i and Hanbali schools) of them consider that a family Waqf must be perpetual in nature. It is thus seen that while the Act permits transfer of property for the benefit of an unborn person, Muslim Personal Law makes such transfer void except in case of Waqf. Similarly, in case of rule against perpetuity, the Act prohibits transferring of property in perpetuity to which the Muslim Law is contrary by holding that transfer of property by way of Waqf has to be mandatorily in perpetuity.
- Kusum & Poonam Pradhan Saxena, Family Law Volume II, Introduction Laws of Intestate and Testamentary Succession In India, Lexis Nexis Butterworths.
- Jarman on Wills, Raymond Jennings, John C. Harper, 8th edition.
- Muhammad Al-Kubaisi, Ahkam Al-Waqf fi Al-Sharia Al-Islamiyya
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