Rule Against Perpetuity

Restrictions on Transfer of Property & ‘Rule Against Perpetuity’

Saji Koduvath, Advocate, Kottayam.

Prologue

‘Perpetuity’ or constancy is not the rule, in all spheres of life.
In law of transfer of property, the rule is ‘rule against perpetuity or permanency’.
The Acts on Transfer of Property and Succession expressly disfavor ‘perpetuity’; and, stand against stagnancy in transference.

Our Apex Court has said in R. Kempraj v. Barton Son & Co, AIR 1970 SC 1872 as under:

“It is well known that the rule against perpetuity is rounded on the principle that the liberty of alienation “shall not be exercised to its own destruction and that all contrivances shall be void which tend to create a perpetuity or place property for ever out of the reach of the exercise of the power of alienation”.

Part – I

Section 10 and 11, TP Act

Sec. 10. Condition absolutely restraining alienation – Analysed

Sec. 10 of the Transfer of Property Act (Condition absolutely restraining alienation) directs that if there is a condition in a transfer of property ‘absolutely restraining the transferee from disposing of his interest’, that condition is void.

Section 11 of the Transfer of Property Act reads as under:

“11. Restriction repugnant to interest created.— Where, on a transfer of property, an interest therein is created absolutely in favour of any person, but the terms of the transfer direct that such interest shall be applied or enjoyed by him in a particular manner, he shall be entitled to receive and dispose of such interest as if there were no such direction.
Where any such direction has been made in respect of one piece of immoveable property for the purpose of securing the beneficial enjoyment of another piece of such property, nothing in this section shall be deemed to affect any right which the transferor may have to enforce such direction or any remedy which he may have in respect of a breach thereof.”

Instances of “Absolute Restraint” and “Reasonable Restraint”

Sale or gift (transfer) with direction – transferee should not sell (absolute restraint). The direction is void.
Sale or gift (transfer) with direction – transferee should sell to a particular person alone (in-effect absolute restraint). The direction is void.
Sale or gift (transfer) with direction – transferee should not sell outside family (in-effect absolute restraint). The direction is void.
Sale or gift (transfer) with direction – transferee should not sell for 3 years (reasonable restraint). The direction is valid.
Direction to members of Zoroastrian Housing Society – not to sell property other than Zoroastrians (reasonable restraint). The direction is valid.

In Gayasi Ram v. Shahabuddin, AIR 1935 All 493, the sale deed contained a clause that the vendee shall not transfer the house by mortgage, gift or sell to any one except the vendor or his heirs and if in contravention of the clause, the property is sold the vendor or his heir would have a right to get back the house by paying Rs. 175/- and if the property was to be sold in court auction sale, the sale would be invalid. The sale consideration for the house was Rs. 150/-. It was held (relying on Dal Singh v. Khub Chand, AIR 1921 All 97, Asghari Begam v. Maula Bakhsh, AIR 1929 All 381, and Gomti Singh v. Anari Kuar, AIR 1929 All 492) that this impugned clause in a sale between strangers was an absolute restraint on alienation; and therefore the same was void, in view of Section 10 of Transfer of Property Act; and that in such cases question of pre-emption did not arise. (See also: Manohar Shivram Swami v. Mahadeo Guruling Swami, AIR 1988 Bom 116)

In Trichinopoly Varthaga Sangam Ltd. v. T. N. Shanmughasundaram, AIR 1939 Mad. 769, the Clause in the Partition deed – the property should not be sold to any stranger; and lease only to brothers or their heirs for a sum not exceeding Rs. 1000/-. The court found that there was “no obligation” for a member to buy “even at Rs. 1000/-“. Hence it was held – Restriction is ‘absolute’, and hence, void. (See also: Rosher v. Rosher, (1884) 26 Ch D 801).

Similarly, it was held in Manohar Shivram Swami v. Mahadeo Guruling Swami, AIR 2008 Bom 116, that the condition in the Sale Deed prohibiting sale ‘outside family’ was void – as it was absolute restraint.

Assignment Can be Limited to Establishing a Nursery School

In Jayasree Jayaprakash v. State Of Kerala, ILR 2021-2 Ker 1096; 2021-3 KHC 70; 2021-3 KLT 26 the Kerala High Court considered an assignment deed clause 2 of which provided that the purchaser was precluded from using it for any use except the construction of a nursery school building. It is argued to have been hit by Section 11 of the Transfer of Property Act.

The High Court accepted the contention and held as under:

“True, in the light of the said provision, once an interest is created absolutely in favour of a person on a transfer of property, there cannot be any fetters on the enjoyment of the interest so created. As indicated, what is transferred in terms of Ext.P1 assignment deed is only limited interest for the purpose of establishing and running a nursery school in the plot and since no fetters whatsoever is created in terms of the document in the matter of the transferee enjoying the said limited interest, Section 11 of the Transfer of Property Act, according to me, has no application.”

No Rule Against Perpetuity in Public Law;

The Government cannot assign land on their whims and fancies

Section 11 of the TP Act says – where, on a transfer of property, an interest therein is created absolutely in favour of any person, but the terms of the transfer direct that such interest shall be applied or enjoyed by him in a particular manner, he shall be entitled to receive and dispose of such interest as if there were no such direction.

But, in Mahindra Holidays & Resorts India Limited v. State of Kerala, 2019-2 ILR(Ker) 828; 2019 3 KHC 233; 2019-2 KLT 978 (A. Muhamed Mustaque, J.), it is held as under:

“6. In private law, any restriction repugnant to the interest created is void except to the extent of securing the beneficial enjoyment of another piece of property belonged to the transferor. (See Section 11 of Transfer of Property Act, 1882). The transferee, therefore, in such cases is free to enjoy property absolutely as if there were no stipulations.
7. In public law, the transfer of an interest or assignment of Government land stands on a different footing. The Government is only a public trustee of the land belonging to the State. The Government cannot assign land on their whims and fancies. The land is a natural resource of utmost importance. Therefore, the Government can distribute the natural resources only adhering to the principles of public trust. No land can be assigned ignoring the public interest and detrimental to the public interest.
8. The subsequent incorporation of Rule 8(3) of the Rules for cancellation of patta cannot be relied upon in this matter as the assignment was prior to the amendment. In the absence of any specific condition for cancellation of assignment in the patta or in the statutory provisions at the relevant time, this Court needs to examine the decision taken to cancel the assignment in the light of the public trust doctrine.
9. In Illinois Cent Co. v. State of Illinois City of Chicago [146 US 387 (1892)], principles relating to public trust doctrine were expounded. It is appropriate to refer the opinion in that judgment which reads as follows:
- ‘The trust devolving upon the state for the public, and which can only be discharged by the management and control of property in which the public has an interest, cannot be relinquished by a transfer of the property. The control of the state for the purposes of the trust can never be lost, except as to such parcels as are used in promoting the interests of the public therein’.
10. In M.C.Mehta v. Kamal Nath and others [(1997) 1 SCC 388], the Apex Court observed that the State is the natural trustees of all resources, which are by nature meant for public use and enjoyment, and the State is a trustee under a legal duty to protect the natural resources.
11. In Fomento Resorts & Hotels Ltd. v. Minguel Martins, (2009) 3 SCC 571], the Apex Court held as follows:
- “53. The public trust doctrine enjoins upon the Government to protect the resources for the enjoyment of the general public rather than to permit their use for private ownership or commercial purposes. This doctrine puts an implicit embargo on the right of the State to transfer public properties to private party if such transfer affects public interest, mandates affirmative State action for effective management of natural resources and empowers the citizens to question ineffective management thereof.
- 54. The heart of the public trust doctrine is that it imposes limits and obligations upon government agencies and their administrators on behalf of all the people and especially future generations….”
12. Reliance Natural Resources Ltd. v. Reliance Industries Ltd., (2010) 7 SCC 1] at para.114 it was observed as follows:
- “114. It must be noted that the constitutional mandate is that the natural resources belong to the people of this country. The nature of the word “vest” must be seen in the context of the public trust doctrine (PTD). Even though this doctrine has been applied in cases dealing with environmental jurisprudence, it has its broader application.”
13. In the Centre for Public Interest Litigation v. Union of India, (2012) 3 SCC 1] at para.75, it was held as follows:
- “75. The State is empowered to distribute natural resources. However, as they constitute public property/national asset, while distributing natural resources the State is bound to act in consonance with the principles of equality and public trust and ensure that no action is taken which may be detrimental to public interest. Like any other State action, constitutionalism must be reflected at every stage of the distribution of natural resources. In Article 39(b) of the Constitution it has been provided that the ownership and control of the material resources of the community should be so distributed so as to best subserve the common good, but no comprehensive legislation has been enacted to generally define natural resources and a framework for their protection. Of course, environment laws enacted by Parliament and State Legislatures deal with specific natural resources i.e. forest, air, water, coastal zones, etc.””
Note: Appeal to Division Bench (from Mahindra Holidays & Resorts India Limited v. State of Kerala) is dismissed in Raphy John v. Land Revenue Commissioner, Thiruvananthapuram (DB), 2022-3 KLT 679.

Original Patta for Personal Cultivation; Assignee cannot have a Better Title

In Mahindra Holidays & Resorts India Limited v. State of Kerala, 2019-2 ILR(Ker) 828; 2019 3 KHC 233; 2019-2 KLT 978, it is held further as under:

“17. Admittedly, the present use of land is for commercial purposes. It is for personal gain and to subserve the private interest. Commercial purpose is not one on which the land can be assigned. The Government being a trustee is answerable to the public. The public can question if the Government had failed in its duties when it is found that the land is used for other purposes other than for it was assigned. The beneficiary of cultivation is public. That interest of the public is superadded in such assignment. Thus, even in the absence of statutory provisions or conditions in the patta, anyone can question such use of land for commercial purposes.
18. This Court, in fact, had considered use of land for commercial purposes by the assignee of a patta holder, who was assigned land for personal cultivation in Haridas v. State of Kerala [2016 (4) KLT 707] and held that the assignee of original pattadhar cannot have any better claim conferred on him other than the one conveyed to the pattadhar by the assignment. The use of land for commercial purposes is a fraud on the State. The pattadhar or his assignee has a legal obligation to use the land for cultivation.
19. The learned Senior Counsel argued that the Government authorities have issued certificates to run the resort and, therefore, they are estopped from urging that the petitioner had violated the patta conditions. It was also argued that the Government have waived their right to proceed against the petitioner by acknowledging the acceptance of basic tax and conferring certificates relating to tourism.
20. The equitable principles relating to estoppel and waiver cannot have a bearing when the Government is acting as a trustee. This action to protect the interest of the State. No wrong can give rise to a right. The land belongs to the State. If the Government had failed in its duty to check illegal use of land that will not give rise to an equitable right to a wrongdoer. The principles of estoppel cannot be advanced to promote one’s own wrong. This is not a case between the Government and the holder of the land. It is a matter between public interest and breach of trust by a person, who was in relation with the Government to promote the public interest. The principles of estoppel and waiver cannot be pressed against an action of the Government based on public policy. No action of the Government would bind them if it was against the public policy of the State.”

If Land Assigned for Specific Purposes, it Cannot be used for Other Purposes

Kerala High Court, in Haridas v. State of Kerala, 2016 (5) KHC 615 (K. Vinodchandran, J.), had taken a view that when land is assigned for specific purposes, it cannot be said that if there is no prohibition in using it for any other purpose then, an assignee or a subsequent owner could use it for any purpose to which a land is normally put to. Among others, it was further observed therein that the essence is in the assignment made, for a specific purpose, which survives time and tide. (Referred to in: Raphy John v. Land Revenue Commissioner, Thiruvananthapuram (DB), 2022-3 KLT 679).

Subsequent Assignees of Pattadar Cannot Claim More Rights

In R. Haridas v. State of Kerala, 2016-5 KHC 615; 2016-4 KLT 707, held further as under:

“8. … The title acquired of the property, which, admittedly, were Government lands assigned under a statute. The petitioners are assignees of the original pattaadar and cannot have any rights over and above that possessed by the original assignee.
9. The Assignment Rules, by Rule 4, as has been pointed out by the learned Additional Advocate General, has three specific purposes; for which alone land may be assigned. These are – personal cultivation, house-sites and beneficial enjoyment of adjoining registered holdings. …. The original assignment made, as evidenced by Exhibit P2 in both the writ petitions, admittedly, is not for house-site or for beneficial enjoyment. Such an extent could have been assigned only under Rule 5 for the purpose of personal cultivation. The assignment having been specifically made under a statute and the Rules framed thereunder, none can have a legitimate expectation of enjoyment of the property over and above the purpose for which the same has been assigned.
10. The subsequent assignees of the original pattaadar cannot claim any right other than that conferred on the original assignee, which Assignment on Registry was specifically for the purpose of personal cultivation. …. The prohibition has to be read into the terms of assessment when by virtue of a statutory provision the assignment is made for a specific purpose. The passage of time would not change the character of the assignment ….. . These conditions are also incorporated as ‘Conditions’ in the Patta and the respective Pattas produced are incomplete copies as will be presently noticed.
13. … It is a matter of concern and quiet a surprise that the revenue authorities in the district have been issuing recommendations like Exhibit P6; for carrying out construction activities without noticing the embargo created insofar as the constructions intended at promoting commercial activity.
14. … The prescription for a permit to be obtained from the local authority is only so far as complying with any master plan for development applicable to the area and compliance of the building rules applicable to the panchayats and municipalities, as brought out under the respective statutes. This cannot create a carte blanche in favour of a permit holder to make a construction in an assigned land which would go specifically against the prescriptions laid down in the statute for such assignment. ….
16. …. Hence any time it is found that the purpose for assignment is diverted from, the State could definitely take proceedings for cancellation of the assignment and either vest the lands back with the Government or assign it to others for the purpose of cultivation.
17. … The assignee would have a right to hold the land and enjoy it under the terms of assignment and any violation thereat would be a reason for cancellation of the assignment made. …
20. … The Revenue authorities, a law unto themselves, have been violating the provisions and colluding with the assignees causing gross damage to the ecology and environment. Be that as it may; the petitioners herein were quite aware of the conditions of assignment; though their ignorance, if at all, would have been of little consequence in the teeth of the statutory prescriptions. ….
21. In any event the loss caused to the petitioners would be of no consequence when weighed with the larger public interest of averting ecological imbalance and preserving pristine lands from haphazard development; which otherwise as studies reveal; would even affect the climate of the Indian peninsula. …”

Reasonable Restraint is Allowed in Law

The words ‘absolute restraint‘ in Sec. 10 of the TP Act makes it clear that ‘reasonable restraint’ is allowed in law. Hence, it is clear that the cases in this subject has to be dealt with on the facts of each case.

Therefore, it is not possible to place a hard and fast rule on the validity of the restrictions of enjoyment for a particular period, enjoyment in a particular manner, restrictions on transfer etc. In Renand v. Tourangeaon, (1867) LR 2 PC 4, it was held that a condition prohibiting transfer the property for twenty years was held to be an absolute restraint and hence void. But it was opined that if it were for a period of 3 years, it would have been a partial restraint and valid. This decision is referred to in Athmaram Rao v. Shanthan Phawar (2018 Madras High Court).

Our Apex Court held in Zoroastrian Co-operative Housing Society Ltd. v. District Registrar, Co-operative Societies (Urban ), AIR 2005 SC 2306, that in the matter of a Housing Society, the restriction imposed in the light of the byelaws of the Society that the property should not be sod to others, other than Zoroastrians, was a valid condition.

Sec. 11. Restriction repugnant to Absolute interest created – Analysed

Sec. 11 of the TP Act (Restriction repugnant to Absolute interest created) cautions that the terms, in an absolute transfer, that direct enjoyment of interest in a particular manner, is invalid.
But the direction for securing the beneficial enjoyment of another piece of such property is valid.

Instances of ‘Absolute Sale & Enjoyment in a Particular Manner’ in S. 11, TP Act

Absolute sale or gift with direction – transferee should reside there. The direction is invalid.
Absolute sale or gift with direction – transferee should not cut trees. The direction is invalid.

Instances of ‘No Absolute Transfer‘ in S. 11, TP Act

On a ‘Harmonious Construction’ of the deed, sale or gift subject to a condition – transferee should reside there, or look after transferor (that is, no absolute transfer). The direction is valid.
In a transfer, life interest alone is created (that is, no absolute transfer) and a direction – assignee should not cut trees. The direction is valid.

In Bhavani Amma Kanakadevi v. CSI, Dakshina Kerala Maha Idavaka, AIR 2008 Kerala 38, the question came for consideration was whether a provision in a sale deed that in the event of failure to construct a private college in the property sold thereunder, the property shall be re-conveyed by the vendee to the vendor for the same sale consideration is barred under the provisions of Sections 10 or 11 of Transfer of Property Act. Observing that (though) Ext.A2 did not contain a specific clause prohibiting respondent from alienating the property to third parties, the implied clause – that in the event of failure to construct a college, the property shall be reconveyed to the assignor at the same price – shut out any other option. The High Court held that it was an absolute restraint on the right of respondent to deal with the property including alienation, which was void as provided under Section 10.

The court referred to the following decisions:

Jatru Pahan v. Mahatma Ambikajit Prasad ( AIR 1957 Patna 570),
Gayasi Ram v. Shahabuddin (AIR 1935 All. 493)
Manohar Shivram Swami v. Mahadeo Guruling Swami (AIR 1988 Bombay 116)
Fatima v. Saraswathi Amma (AIR 1986 Kearla 56).
Thomas v. AA Henry, 2008(2) KLT 63, ILR 2008(2) Ker. 12
Trichinopoly Varthaga Sangam Ltd. v. T. N. Shanmughasundaram, AIR 1939 Mad. 769.

LIFE INTEREST created in a Settl. Deed is Not Hit by S. 11 TP Act

Santha Bai v. Anusuya Bai, ILR 2024-4 Ker 686; 2024 KLT(Online) 2537

Facts

(Deceased) Padmavathy executed Ext.A1 Settlement deed.
(Deceased) Krishna Prabhu and (deceased) Saraswathy Bhai are the children of Padmavathy.
Plaintiffs are the wife and son of Krishna Prabhu.
The defendants are the children of Saraswathy Bhai.
Ext. A1 Settlement deed contained a clause that Saraswathy Bhai, her husband, and children will have the right to live therein during the lifetime of the said persons.
The Trial Court and the First Appellate Court dismissed the suit holding that the defendants have a life interest in the plaint B schedule building as per Ext.A1.
The questions of Law came in the High Court was whether ‘interest’ created in Ext.A1 settlement deed in favour of Saraswathy Bhai husband and children.

Plaintiffs/Appellants argued as under:

If ‘interest’ is conferred in favour of Saraswathy Bhai and children, it is repugnant to the interest created in favour of Krishna Prabhu. It is hit by S. 11 of the Transfer of Property Act.
Ext. A1 gives absolute interest over the plaint A schedule property in favour of Krishna Prabhu. Therefore, the status of the defendants is that of licensees.
Supreme Court in Kedar Lal Seal v. Hari Lal C, AIR 1952 SC 47, held that technicality shall not stand in the matter of pleading, and the substance of the thing is important if no prejudice is caused to the other side.

The defendants contended –

The ownership over immovable property carries a bundle of rights. It is not necessary that the entire bundle of rights should be transferred to make it a vested interest.
Creation of an interest in the immovable property amounts to a vested interest, under Section 19 of the Transfer of Property Act.
A life interest was created in favour of the defendants. Supreme Court in Smt. Rukhamanibai v. Shivaram, AIR 1981 SC 1881, held that a life interest is a vested interest; and that the interest created in favour of the transferee is only a contingent interest (Section 21 of the Transfer of Properties Act).
Life interest could not be termed as a license since the latter does not create any interest in the land, as revealed by Section 52 of the Easement Act. [Associated Hotels of India Ltd. v. R.N. Kapoor, AIR 1959 SC 1262, and ICICI v. State of Maharashtra, (1999) 5 SCC 708, relied on].
The provision applicable is Section 24 of the Transfer of Property Act (Transfer to such of certain persons as survive at some period not specified.) Such right in favour of Saraswathy Bhai, her husband, and her children is not a license. On a bare reading of Ext.A1, it is clear that the right given is a life interest.
The learned Counsel cited the decision of this Court in Joseph T.T. v. Valsamma Varghese, 2022 (3) KHC 443, and contended that even recital in the Settlement Deed to the effect that the settlor had retained the right of alienation with respect to a part of the property would not create a restriction repugnant to the interest created in favour of the settlee as provided under Section 11 with respect to the larger extent of property covered by the Deed.

Findings

The ownership over immovable property carries a bundle of rights. It is not necessary that the entire bundle of rights should be transferred to make it a vested interest.
Creation of an interest in the immovable property amounts to a vested interest, under Section 19 of the Transfer of Property Act.
A life interest was created in favour of the defendants. Supreme Court in Smt. Rukhamanibai v. Shivaram, AIR 1981 SC 1881, held that a life interest is a vested interest; and that the interest created in favour of the transferee is only a contingent interest (Section 21 of the Transfer of Properties Act).
Life interest could not be termed as a license since the latter does not create any interest in the land, as revealed by Section 52 of the Easement Act. [Associated Hotels of India Ltd. v. R.N. Kapoor, AIR 1959 SC 1262, and ICICI v. State of Maharashtra, (1999) 5 SCC 708, relied on].

Section 11 of the Transfer of Property Act is not applicable when a life interest is created

The Kerala High Court pointed out as under:

To attract Section 11 of the Transfer of Property Act, restriction repugnant to the absolute interest should be in the matter of enjoyment of the property.
If there is such restriction, the transferee is entitled to absolutely enjoy the property as if there is no such direction.
In the case on hand, there is no such direction with respect to the manner of enjoyment.
The life interest created in favour of another person does not in any way affect the right of the transferee to enjoy the property on the extinction of the life interest.

Contingent Interest and Contingent Remainders

Read Blog: Transfer of Property with Conditions & Contingent Interests

Part – II

Rule against perpetuity, in Indian law, is applicable when property is transferred to an ‘unborn’ person. Sec. 14 of the Transfer of property Act directs that such (unborn) person must have born within the life-time of ‘one or more persons’ named in the transfer deed (who must be one living at the date of such transfer).

Under the English jurisprudence, it is pertaining to and for ‘controlling the duration of private trusts‘. The Rule Against Perpetuities Applied to Trusts, 9 ST. LOUIS L. REV. 286 (1924) speaks as under:

“Under the rule against perpetuities, private trusts may be created for the life of the last survivor of any number of designated persons, in being at the commencement of the trust, and for period of 21 years thereafter.”

Indian law specifies, and limits, the doctrine to the transfer of property to ‘unborn’ persons. Sections 13 and 14 of the TP Act are the relevant provisions.

Sec. 13. Transfer for benefit of Unborn Person

(Similar provision in Section 113 of the Indian Succession Act, 1925)

Sections 13 and 14 of the TP Act are worded in a tiresome manner. It is too difficult to understand the purport of the Section, in its correct perspective, without a thorough exploration. Both these sections says about transfer of property to unborn persons.

Sec. 13 of the TP Act reads as under:

13. Transfer for benefit of unborn person. Where, on a transfer of property, an interest therein is created for the benefit of a person not in existence at the date of the 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.

As articulated in Sec. 5 of the Transfer of Property Act, ‘Transfer of Property’ must be by a living person, to another living person. Sec. 13 is an enabling provision to transfer property to an unborn person. It directs that following conditions must be satisfied for a valid transfer to an unborn person:

(i) Prior interest must have been created in ‘someone’:
- The interest in the property (referred to in this Section as prior interest), for the period between the transfer and the birth of the unborn person, must have been created (in someone), by the same transfer.
  - [The aforesaid proposition can be deduced from the clause in Sec. 13 – “subject to a prior interest created by the same transfer”];
(ii) Whole of the remaining interest of the transferor must be created in the unborn person – purport and principle:
- The ‘prior interest-holder’ must have been directed (by the transferor) to create/transfer the whole remaining interest (directly) to such unborn person.
- The transfer under Sec. 13 cannot be limited to ‘life interest’ alone (as in English law) of the ‘unborn’ (Life-interest is the interest that remains only in his/her life time – thereafter it will go to a named person or another ‘unborn’).
- The transfer under Sec. 13 must be definite in nature; it cannot be unlimited or ‘perpetual’.
- That is, if a life-interest stands created, or continues, on an intermediary, (after the birth of the said ‘unborn’) it will not ‘take effect‘.
  - [These can be deduced from the clause in Sec. 13 – “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”; and from the illustration in Sec. 13.]
- Note: 1. ‘Whole of the remaining interest of the transferor in the property‘ may by be the the whole fractional interest of the transferor (originally he had).
- 2. Though it may appear worded otherwise, it can also be the fractional interest (of the whole interest) that is intended to be transferred to the ‘unborn’.

The Illustration in Sec. 13 of the TP Act reads as under:

Illustration: A transfers property of which he is the owner to B in trust for A and his intended wife successively for their lives, and, after the death of the survivor, for the eldest son of the intended marriage for life, and after his death for A’s second son. The interest so created for the benefit of the eldest son does not take effect, because it does not extend to the whole of A’s remaining interest in the property.

“For the benefit of” – Implies ‘TRUST’

Sec. 13 begins with the words – “Where, on a transfer of property, an interest therein is created for the benefit of a person not in existence”. The words ‘for the benefit of‘ definitely brings-in the concept of ‘trust’.

Note: Trust is ‘an obligation’ upon the trustee to administer the trust property, as if he is its owner and as required by the author, for the benefit of the beneficiaries.

Read Blogs: What is Trust in Law

Trustees and Administration of Public Trusts

Transfer to Unborn can only be made by a Machinery of Trust

Mulla, on The Transfer of Property Act, in commentary to Sec, 122, Gifts, it is stated:

“A gift may be made by the equitable machinery of a trust; and the interposition of the trustees enables a gift to be made to a person not yet in existence and, therefore, incapable of being the donee of a direct gift.” (See: Controller of Estate Duty, Bombay v. Bhagwandas Velji Joshi, 1983-139 ITR 316 (Bom); 1981-6 TAXMAN 202; Saraswathi v. Devaki Amma, ILR 1986-1 Ker 550; 1985 KLT 217.)

In Mathen Mathew v. Kunjika Bharathi: AIR 1968 Ker 12, it is held as under:

“18. The gift can be to the named donees as representing the group of persons composed of the wife and children including children to be born. Such a gift can be made only through the machinery of a trust, the named donees holding as trustees for themselves and the other beneficiaries.”

In The Commissioner of Income Tax v. Brig. Kapil Mohan, [2001] 252 ITR 830: 118 Taxman 430 (Delhi ) observed as under:

“5. A transfer cannot be made directly to an unborn person, for the definition of transfer in Section 5 is limited to living persons. Such transfer can only be made by the machinery of trusts. Possibly, to express this distinction, the expression “for the benefit of” has been used, since trustees being the transferees hold the property for the benefit of the unborn person.”

The Madras High Court in T Subramania Nadar v. T Varadharajan, AIR 2003 Mad 364, pointed out as under:

“12. Under Section 13 of Transfer of Property Act transfer cannot be made directly to an unborn person as the definition of transfer in Section 5 of Transfer of Property Act is limited to living persons. The transfer in favour of an unborn person can be made by a machinery. It is intended to express this distinction by the words “for the benefit of“, the trustees being the transferees who hold the property for the benefit of the unborn persons. The estate must vest in some person between the date of the transfer and the coming into existence of the unborn person. The interest of the unborn person must therefore be in every case preceded by a prior interest. Section 13 says that the interest of the unborn person must be the whole remainder.”

“TRANSFER OF PROPERTY” and ‘CREATION OF INTEREST’ in Sec. 13

It is clear that the words, ‘transfer of property‘ and ‘an interest created therein’ are used in Sec. 13 to denote two different notions. Transfer of property to the ‘unborn’ should take place on his/her birth. Creation of interest can be done only on attaining his/her majority.

Can a limited ‘beneficial enjoyment’ be allowed to ‘prior-interest-holder’

It appears that there is no impediment in giving a limited ‘beneficial enjoyment’ (like appropriating income derived; right to reside in the building) to the ‘prior-interest-holder’- up to the birth of the ‘unborn’ person. If it is not so specifically provided, the prior-interest-holder will be a mere ‘trustee’ for the unborn person (the beneficiary). These propositions are made from the following:

Sec. 13 only directs -‘the whole of the remaining interest‘ must have been directed to be vested in the (unborn) person (when he/she born). The word ‘remaining’ persuades only one reasoning.
The prohibition in Sec. 13 is that ‘life interest’ (interest that remains only in his/her life time) alone can be conferred upon the ‘unborn’; that is, creation of life-interest alone is bad in law.
Sec. 13 speaks about ‘Transfer of Property’ to the ‘unborn’ on his/her birth, and, therefore, it can also be a ‘conditional transfer’.
Generally speaking, the question of ‘trust’ comes only on birth of the ‘unborn’. Though property can be given to ‘unborn’, it is only because of specific enacted provisions (Section 9 of the Indian Trusts Act; Section 14 of the TP Act). Since those provisions do not expressly prohibit, the aforesaid ‘conditional transfer’ can be made validly (provided it does not be bad under Sec. 11 of the TP Act – as shown above.
The owner of a property is free to deal with his property in any manner he wishes, unless expressly or impliedly restricted by law. ‘Conditional transfer’ is permitted by the TP Act itself.
If a ‘conditional transfer is made, it can only be upto the birth of the ‘unborn’. [It is clear from the words in Sec. 13 – “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”; and from the illustration in Sec. 13.]

In either case, the ‘the whole of the remaining interest‘ must have been directed to be vested in the (unborn) person (when he/she born).

Even if no trustee is appointed, and it does not come out from the deed of transfer as to who should be the trustee, the court will appoint a trustee, on the principle – ‘no trust will fail for want of trustees’.

Sec. 13 does not specifically refer to Prior Interest “HOLDERS”. Why?

The (main) object of this section is to provide – ‘whole remainder interest … in the unborn person‘.
The creation of interest, in a prior interest HOLDER, for the period between the transfer and the birth of such unborn person, is an inevitable coincident.
As stated earlier, a limited ‘beneficial enjoyment’ could be given, to the prior interest HOLDER, up to the birth of the ‘unborn’ .
For the above, only an indication as to creation of prior interest was apposite.

Sec. 14. Rule against Perpetuity – Analysed.

(Similar provision in Section 114 of the Indian Succession Act, 1925)

Sec. 14 of the TP Act reads as under:

14. Rule against perpetuity. 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.

Sec. 14 of the TP Act lays down the following:

Property can be transferred to an unborn person.
Sec. 14 basically declares the maximum period (perpetuity period) for creating an interest in an unborn person as regards an immovable property.
For transferring property to an unborn person, such (unborn) person must have born within the life-time of ‘one or more persons’ named in the transfer deed (who must be one living at the date of such transfer).
The interest in the property can be created in favour of such (unborn) person only on attaining majority by such (unborn) person (i.e., 18 years).
- Therefore, the maximum period (perpetuity period) for creating the interest in the property in favour of such (unborn) person will be the remaining (after transfer) ‘life-time‘ of such ‘one or more persons‘ (who were living at the date of such transfer) plus (+) the ‘minority’ of such (unborn) person (i.e., 18 years).
- It is clear – such (unborn) person must have born at least on the day of death of such ‘one or more persons‘.
Sec. 14 allows the transferor to name any ‘one or more persons‘ whose ‘life-time’ is to be taken into consideration for Sec. 14.
Who are such ‘one or more persons‘ has to be inferred from the transfer deed.
As stated in Sec. 13, the interest in the property, for the period between the transfer and the birth of such unborn person (referred to as prior interest), must have been created in ‘some’ (prior interest) holder.
- Note: The prior interest holder in Sec. 13 need not necessarily be the ‘one or more persons‘ stated in Sec. 14.

G. Ramakrishniah v. Dasaratharama Reddiar, AIR 1970 Mad 484 ( Natesan, J.), vividly explains these matters, as under:

“The perpetuity period under Section 14 of the Act consists of the lifetime of one or more persons living at the time the transfer takes effect, and the further period of the minority of a person in existence at the close of the person living at the time of the transfer. ….. Section 14 of the Act however does not place any restriction as to who can be the living person whose existence can postpone the vesting. It allows the settlor to use any life for the purpose…… It may be any person or any number of persons, but the person or persons must be living at the date of such transfer. True, one must infer from the document itself the person or persons whose life has to be considered.”

Status of the ‘one or more persons‘ whose ‘life-time’ is to be taken into consideration

As stated earlier, the prior interest holder in Sec. 13 need not necessarily be the ‘one or more persons‘ stated in Sec. 14.
They are not ‘trustees’ inasmuch as no property is entrusted for their administration, and no obligation is casted upon them.

Therefore, they are persons merely chosen by the transferor of property (to an unborn), for the purpose of Sec. 14.

The exceptions to the rule against perpetuity

Transfer for Public Benefit (Not for private trusts): Read Blog: Dedication of Property in Public Trusts
Covenants of Redemption of mortgage.
Personal Contracts
Pre-emption: Read Blog: Preemption is a Very Weak Right; For, Property Right is a Constitutional & Human Right
Perpetual Lease

Part – III

‘Absolute‘ Transfer of Property in a Will, with Stipulation: ‘If property Remains’ on Death of Transferee, it will Go to Another – If Valid

The following important points require consideration in this regard:

In Indian practice, though the words used in the deeds might be ‘absolute transfer’, on a true construction, on a reading of the entire document, it might only be a salable/transferable right during lifetime; and the left-over property might be given to another.
The common law in India requires reading the whole document altogether, and give effect to the document on a harmonious interpretation, rather than giving effect to the legal terms used in a deed.
Illustrations in Sections 24 and 27 make it clear that Indian law recognises ‘vested remainder’ and ‘contingent remainder‘ (as detailed in the notes above).
It is also beyond doubt that such a transfer is not hit by Sec. 10 and 11 of the TP Act; inasmuch as Sec. 10 and 11 cumber only when ‘conditions’ impose ‘Absolute Restraint’ or ‘Enjoyment in a Particular Manner’.
First illustration in Sec. 88 of the Indian Succession Act reads as under:
- “The testator by the first clause of his Will leaves his estate of Ramnagar “to A”, and by the last clause of his Will leaves to “to B and not to A”. B will have it.”

Various court decisions make it clear that one can validly transfer or bequeath a property to another, with absolute (in the sense, saleable) rights, with the stipulation that after that (first) transferee’s lifetime, if whole or any part remains, it (contingent remainder) may go to another.

In K. S. Palanisami v. Hindu Community Citizens of Gobichettipalayam, AIR 2017 SC 1473 (Ashok Bushan, J.), Palaniappa Chettiar and his wife by registered Will created a Trust. The Will indicated that after the death of one of the testators, the survivor had Absolute right to deal with the property and there was no embargo on the right of survivor to dispose of the same. Certain alienations were made by Rangammal after death of Palaniappa Chettiar. It is held as under:

“49. The intention in testamentary disposition has to be primarily found out from the actual words used in the Will. The court is not entitled to ignore clear words or add something of its own or dilute the meaning of any clear word used in the Will. The solemn duty of the court is to find out the intention of testator and thereafter to give effect to such intention. On the reading of the Will, the intendment of testator/testatrix is clear that survivor shall have absolute right of enjoyment of properties. There is no reason not to give effect to said intendment on the ground that the testator and testatrix have mutually intended to set apart the property for charity and holding that survivor shall have right of disposition be not in the interest of the trust.”

Other Erudite Decisions on the Topic

In Sanford v. Sanford, (1901) 1 Ch. 939, the gift to the wife conferred a power of disposal limited explicitly to her lifetime. But, the gift-over to son was of a quite absolute estate. The gift did not include a power of disposition by will, but allowed power of disposition inter vivos. It was provided in the gift deed that if any property remained at her death it was to pass ‘from father to son, from generation to generation’. Therefore, it was held that the widow was conferred with only a limited right; and the gift-over, which was ‘the will of the testator’ was to ‘settle its destination’. (This decision is referred to in Nataraja Mudaliar v. Panduranga Mudaliar, 1976-2 MLJ 381.)

In Nataraja Mudaliar v. Panduranga Mudaliar, (1976) 2 MLJ 381, the Madras High Court rendered a well-read decision in this topic. The facts of this case, in a nutshell, are as under:

(i) The settlement deed considered in the case provided:
(a) the wife of the settlor should enjoy the properties with absolute (in the sense, saleable) rights.
(b) the respondent should take the properties remained at the time of her death, with absolute rights.
(ii) the appellant contended that the clause providing for the respondent taking absolutely such of the properties as at the time of the death of the settler’s wife was repugnant to the earlier clause conferring an absolute estate on her, and has, therefore, to be ignored as void.
(iii) the respondent contended that if the settlement deed had to be read as a whole and the effect would be:
- there was no absolute transfer to the wife of the settler as stated in Sec. 11 of the TP Act.

It is seen that the High Court accepted the contentions of the respondent that the settlement deed was to be read as a whole and that the respondent had taken absolutely such of the properties covered by the settlement deed as remained undisposed of by the settlee, the wife of the settlor; as she had only a right to enjoy the properties with absolute (in the sense, saleable) powers of disposal during her lifetime. The clause as to acquiring property by respondent was not repugnant and void.

The High Court relied on the following cases. The facts of these were ‘very near’ to the facts of that case.

Thayalai Achi v. Kannammal, AIR 1935 Mad 704,
S.M. Hara Kumari v. Mohim Chandra Sarkar, (1908) 12 CWN 412,
Anantnasayana v. Kondappe AIR 1940 Mad 479,
Lakshmi Ammal v. Allauddin Sahib, AIR 1962 Mad 247,
Ramasreenivasa Iyengar v. Padmasani Ammal, (1973) 1 MLJ 34.

In Lakshmi Ammal v. Allauddin Sahib, AIR 1962 Mad 247, it was held, as regards a Will, as under:

“After giving an absolute estate to his wife over the two items of scheduled properties, he provided that these scheduled properties, after the wife’s lifetime should devolve – item 1 on the first daughter and item 2 on the second daughter – who would have absolute rights. When the testator took care to indicate that the properties without any distinction even after his wife’s lifetime should go to each of the daughters, it should be presumed that it was clearly in his mind that the wife’s estate was only to be a limited estate or life estate, and not an absolute one.” (Quoted in: Nataraja Mudaliar v. Panduranga Mudaliar, (1976) 2 MLJ 381).

Reconcile all clauses in the Will, Even if an apparent Absolute Estate Given

In Sadhu Singh v. Gurdwara Sahib Narike, AIR 2006 SC 3282, 2006-8 SCC 75 (B.P. Singh & P.K. Balasubramanyan, JJ.), it is held as under:

“20. Thus the first attempt must be to reconcile all the clauses in the will and give effect to all of them. When we make that attempt in the context of what this Court had indicated in the decision quoted above, we find that the apparent absolute estate given to his wife by the testator is sought to be cut down by the stipulations that the property must go to his nephews after the death of the wife, that the wife cannot testamentarily dispose of the property in favour of any one else and the further interdict in the note that the wife during her life time would not be entitled to mortgage or sell the properties. Thus on reconciling the various clauses in the will and the destination for the properties that the testator had in mind, we have no hesitation in coming to the conclusion that the apparent absolute estate in favour of Isher Kaur has to be cut down to a life estate so as to accommodate the estate conferred on the nephews.
21. Thus understood, it has necessarily to be held, as was held by the first appellate court, that Isher Kaur was not competent to gift away the properties in favour of the Gurdwara as she had done. Even if the gift were to be treated as valid, the donee thereunder cannot resist the claim for eviction by the legatees under the will, the nephews of Ralla Singh, on the cessation of the life estate of Isher Kaur. Admittedly, that life estate has ceased and once it is found that the plaintiff has acquired a title to the property as a legatee under the will, he would be entitled for and on behalf of himself and his brother to recover possession of the property from the Gurdwara in view of the death of Isher Kaur.”
Note: In Tej Bhan v. Ram Kishan,2024 INSC 945, the Apex Court referred this decision and various other decisions to a ‘larger bench for reconciling the principles laid down in various judgments of this Court and for restating the law on the interplay between sub-section (1) and (2) of Section 14 of the Hindu Succession Act, 1956.

End Notes

Sec. 10 to 15 of the TP Act

Sec. 10. Condition restraining alienation.

Where property is transferred subject to a condition or limitation absolutely restraining the transferee or any person claiming under him from parting with or disposing of his interest in the property, the condition or limitation is void, except in the case of a lease where the condition is for the benefit of the lessor or those claiming under him: provided that property may be transferred to or for the benefit of a women (not being a Hindu, Muhammadan or Buddhist), so that she shall not have power during her marriage to transfer or charge the same or her beneficial interest therein.

Sec. 11. Restriction repugnant to interest created.

Where, on a transfer of property, an interest therein is created absolutely in favour of any person, but the terms of the transfer direct that such interest shall be applied or enjoyed by him in a particular manner, he shall be entitled to receive and dispose of such interest as if there were no such direction.
Where any such direction has been made in respect of one piece of immoveable property for the purpose of securing the beneficial enjoyment of another piece of such property, nothing in this section shall be deemed to affect any right which the transferor may have to enforce such direction or any remedy which he may have in respect of a breach thereof.

Sec. 12. Condition making interest determinable on insolvency or attempted alienation.

Where property is transferred subject to a condition or limitation making any interest therein, reserved or given to or for the benefit of any person, to cease on his becoming insolvent or endeavouring to transfer or dispose of the same, such condition or limitation is void. Nothing in this section applies to a condition in a lease for the benefit of the lessor or those claiming under him.

Sec. 13. Transfer for benefit of unborn person.

Where, on a transfer of property, an interest therein is created for the benefit of a person not in existence at the date of the 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.
Illustration: A transfers property of which he is the owner to B in trust for A and his intended wife successively for their lives, and, after the death of the survivor, for the eldest son of the intended marriage for life, and after his death for A’s second son. The interest so created for the benefit of the eldest son does not take effect, because it does not extend to the whole of A’s remaining interest in the property.

Sec. 14. Rule against perpetuity.

Rule against perpetuity.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.

Sec. 15. Transfer to class some of whom come under sections 13 and 14.

If, on a transfer of property, an interest therein is created for the benefit of a class of persons with regard to some of whom such interest fails by reason of any of the rules contained in sections 13 and 14, such interest fails 1[in regard to those persons only and not in regard to the whole class].

Sec. 16. Transfer to take effect on failure of prior interest.

Where, by reason of any of the rules contained in sections 13 and 14, an interest created for the benefit of a person or of a class of persons fails in regard to such person or the whole of such class, any interest created in the same transaction and intended to take effect after or upon failure of such prior interest also fails.

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Rule Against Perpetuity – Simplified

Restrictions on Transfer of Property & ‘Rule Against Perpetuity’

Prologue

RULE AGAINST PERPETUITY

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Restrictions on Transfer of Property & ‘Rule Against Perpetuity’

Prologue

RULE AGAINST PERPETUITY

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