Transfer in Perpetuity for Benefit of the Public
Written by Aakash Thiagarajamurthy
Third Year, BBA LLB. Jindal Global Law School, O.P Jindal Global University
Disclaimer: Please note that the views expressed below represent the opinions of the article's author. The following does not necessarily represent the views of Law & Order.
Introduction
Section 18 of the Transfer of Property Act, 1882 (hereinafter referred to as TPA), talks about the transfer of a property in perpetuity for the benefit of the public. In most scenarios, it is understood that the Transfer of Property Act stipulates that a transfer of property cannot be made in perpetuity for reasons which were detrimental and unfair for the society.
When we say the words “transfer perpetually”, it means to transfer property X from one person to another and that person does not have a right to alienate that property and that property X remains with him forever.
Section 18 of the TPA is intertwined with other sections of the TPA such as sections 13, 14, 16 and 17. In order to understand section 18 which talks about the transfer of property in perpetuity for the public, we need to know the significance of sections 13, 14, 16, and 17 of the act.
The rule Against Transfer in perpetuity in the UK
Since the end of the 17th century, there has existed a rule against perpetuities in England. It restricts the future transfers of property by setting a time limit.[1] This is called the perpetuity period and the transfer of the property must happen within this set time period. It also invalidates any transfer that takes place outside the perpetuity period. This rule against perpetuity is not about what it prevents but what it allows [2]. The rule against perpetuity allows a transfer of a property in perpetuity within certain limits. The rule was changed and codified in the Perpetuities and Accumulations Act of 1964. Before the 1964 Act, the rule was that, (i) A future interest in a property which wants to be transferred will be void from the date that the person tries to create this future interest, if there is any chance that this interest will vest or commence outside the perpetuity period. And (ii) the perpetuity period is for one or more lives in being plus a period of 21 years and if required, a period of gestation[3].
After the introduction of the Perpetuities and Accumulations Act of 1964, the rule is, (i) that interest will only be void where it must vest or take effect “if at all” outside the perpetuity period, (ii) it is therefore necessary to “wait and see”, if need be for the whole perpetuity period, to determine whether the interest is valid, and (iii) an alternative perpetuity period of up to 80 years may be employed instead of a life in being plus 21 years (The Law Commission, perpetuities accumulation)[4]. The freedom to make changes and rearrangements of the asset is necessary not only to be free of the previous owner’s conditions but also to adapt to the later laws and changes in nature of the property and the unforeseeable circumstances in general.
Understanding transfer in perpetuity in India (Transfer of Property Act, 1882)
Section 13 of TPA states that “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”. In this section the final beneficiary of the transfer of the property is an unborn child. This child can be in the womb of the mother and the child is considered as a person (Vivos) from the conception itself. So a transfer can be made to the child from the day of conception. A prior interest of the said property is created in favour of someone who is living on the date of the transfer to satisfy section 5 of the TPA which states that the transfer must be inter vivos or between living persons only and this is a lifetime interest. This interest is a partial interest wherein he gets to enjoy all the benefits of the said property and he gets the rights of the property except the right to alienate it. And finally if the transfer of this property to the ultimate beneficiary, who is an unborn child must be valid then all the rights of the property including the right to alienate the property must reach the beneficiary.
Section 14 of the TPA is the rule against perpetuity. It states that “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”. This means that section 14 allows the interest of the property to be vested in favour of the ultimate beneficiary only for the time period of the life of the prior partial interest holder plus the time until the child becomes a major ,i.e, 18 years [5]. After the child becomes a major, the property and all the interests attached with the property must be transferred to the child. Perpetuity means for an unlimited and unrestricted period, so this type of transfer for an unrestricted unlimited period will be illegal as per this law. it prevents one from tying up their wealth thus creating a dynasty [6]. There are scenarios where people retain the property and circulate it among their own families for generations. This will be detrimental to the society as no one would receive benefits from that property, and it is also essential that the property is transferred through many hands in order for it to develop. So when a transfer is being made in favour of an unborn child, it is invalid if the prior partial interest created in favour of an adult living at that time is to take effect after the life time of this prior interest holder, and after the minority of the ultimate beneficiary who must be alive during the death of the prior interest holder [7].
In contrast to the rule against perpetuity in England in the Perpetuities and Accumulations Act 1964, the law as per the TPA in India in Section 14 lays down that, you cannot create perpetual life interests, the ultimate beneficiary must be an unborn child.
The interest vested in favour of the ultimate beneficiary can be postponed only up to the life or lives of living persons plus the minority of the ultimate beneficiary but not beyond that [8].
In England as per the Act of 1964, an alternative perpetuity period of up to 80 years may be employed instead of a life in being plus 21 years. This is not present in Section 14 of TPA and also the Age of majority in India is 18, so the period of perpetuity will be life of partial interest holders plus 18 years of age of minority of the child.
But the property with absolute interest must be transferred to the child upon majority. In England the period of perpetuity is life of prior partial interest holders plus 21 years and also there is an option for alternative perpetuity period of upto 80 years instead of a life in being plus 21 years. this option does not exist in India [9].
Section 16 of the TPA states that, “Where by any of the reasons contained in sections 13 and 14, an interest created for the benefit of a person or of a class of persons fails with regards 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”. This tells us that if a transferor creates a prior interest in favour of a person or a class of persons, and if this prior interest created fails with respect to the conditions laid down in section 13 or 14, then any interest which is created in the same transaction which should take effect after or upon failure of that prior interest will also fail.
Section 17 of the TPA explains the accumulation of income arising from the property. In this section it stipulates that, “Where the period, for which the transferee cannot enjoy the income but must accumulate it, exceeds the life of the transferor or a period of 18 years, such direction for accumulation would be void and can be validly ignored by the transferee for the period”. The accumulation of income from the property is allowed for the purposes of (i) to repay debts of the transferor, (ii) to maintain the property or to (iii) give the money to the children to maintain them or to maintain a remoter issue of the transferor.
Finally, Section 18 of the TPA is the transfer in perpetuity for the benefit of the public. It stipulates that “ The Restrictions in sections 14, 16 and 17 shall not apply in case of a transfer of property for the benefit of the public in the advancement of religion, knowledge, commerce, health, safety or any other object beneficial to mankind”.
This means, this section allows a transfer of property to be made in perpetuity as long as it’s for the benefit of the public for example to build hospitals, schools, colleges etc. and the restrictions in the previous sections will not apply if the property is transferred in perpetuity if it is for public benefit.
Section 18 is meant to differentiate between purely commercial or private personal transfers and those that are meant to be for the public benefit. When a transfer is made for the public benefit, usually strict regulations and rules are not imposed on it because it is necessary that the property must be kept intact so that the public can be taken care of. Therefore restrictions that would be present on general transfers such as perpetuity rule under section 14, and direction for accumulation as per section 17 are not applicable under section 18. [10]
Section 18 mentions that the transfer of property which is for the benefit of the public, advancement of religion, knowledge, commerce, health and safety, or any other object beneficial to mankind. These objectives are religious and charitable in nature and the ambit of this section is vastly increased and widely applicable due to the usage of the words ‘any other object beneficial to mankind’. This shows that the beneficiaries from the transfer must be a class of persons specified or unspecified and not individuals related or unrelated to the transferor. It must be for a community as a whole. A condition in a transfer which states that a part of the income must be accumulated in order to build a hospital, a school for the poor, or to help refugees and pilgrims, to raise money for the benefit of the lower class/caste, even in perpetuity would be valid. But if money is accumulated for a specific person and if it violates section 17, then it will be void.
With respect to advancement of religion, if a property is transferred as a gift or settlement to establish an idol for worship, to celebrate religious festivals or to conduct religious ceremonies, such transfers are valid even if they are against the rule of perpetuity. But a gift to spread the Hindu religion or a gift for dharma which is violative of a rule in either section 14 or 17 will be void because the reason is not certain and vague in nature.
In section 18 health and safety has been included. This would include any gift of property, for the benefit of the public health. So if a gift or a bequest is made to build a charitable organization, health care centres, hospitals, old-age care centres, trauma centres, yoga and mental health cells then it would not be affected by the perpetuity clause.
In the case of M Kesava Gounder v DC Rajan [11], person created a trust and appointed himself one of the trustees. There were a total of 4 trustees in the trust and some properties were settled. There were two main objectives in the trust deed, one was to erect a statue of the father of the initial trustee who started the trust, and another provision was that school fees of 4 students in the community would be fully taken care of. There was another scheme which stated that the trustees would have to maintain the statue and celebrate the birth anniversary of the first trustee’s father. It was also stated that the remaining income arising from the properties had to be equally divided between the 4 trustees. Once the 4 trustees die, the shares of the trust would go to each one of the trustee’s male heirs, and if they did not have male children then it would go to the female children.
The issue arose as to whether this trust was a violation of the rule against perpetuity, the Madras High Court held that it was violative of the rule against perpetuity because the property was not solely for the benefit of the public and that the dedication of the property was not true and for the purpose of public benefit but instead it was a “devise to settle the property in perpetuity on the descendants of the donor” and the income had to be divided among the trustees every time. The court also held that when the trust decided to fund the schooling of 4 children from the community, it was a very noble gesture and it would also get protection from the rule against perpetuity under section 18. But the court held that erecting a statue for the father, celebrating his birth anniversary and also circulating the income among the trustees was not a function for the benefit of the public and hence this would be violative of the rule against perpetuity as the trust was not solely for the benefit of the public required by section 18 of the Act.
Hence we see that Section 18 makes it very clear that a transfer made in perpetuity will be void, unless it is made for public benefit. But the transfer must solely be for the benefit of the public and must keep the interest of the public in mind. Even if there is a small element which caters for the gain of an individual in it then it can attract the rule against perpetuity stated in section 14 of the TPA.
[1] Perpetuities and Accumulations | Law Commission, Lawcom.gov.uk (2020), https://www.lawcom.gov.uk/project/perpetuities-and-accumulations/ (last visited Sep 10, 2020).
[2] "Item 7 Of The Sixth Programme Of Law Reform: The Law Of Trusts".,Lawcom.gov.uk (2020), http://www.lawcom.gov.uk/app/uploads/2015/03/lc251_The_Rules_Against_Perpetuities_and_Accumulations.pdf. (last visited Sep 10, 2020). [3] Ibid [4] Perpetuities and Accumulations | Law Commission, Lawcom.gov.uk (2020), https://www.lawcom.gov.uk/project/perpetuities-and-accumulations/ (last visited Sep 10, 2020). [5] Uzair Khan, iPleaders Blog - Rule against Perpetuity and Perpetual Transfers iPleaders (2020), https://blog.ipleaders.in/rule-aganist-perpetuity-perpetual-transfers/ . (last visited Sep 10, 2020). [6] Appel, Peter A. “The Embarrassing Rule Against Perpetuities.” Journal of Legal Education, vol. 54, no. 2, 2004, pp. 264–282. JSTOR, www.jstor.org/stable/42893853. (last visited Sep 10, 2020) [7] Tarun Sethi, Rule Against Perpetuity Legalservicesindia.com (2020), http://www.legalservicesindia.com/article/2477/Rule-Against-Perpetuity.html. (last visited Sep 10, 2020). [8] Ibid. [9] The Law Commission. Consultation paper No. 133, The Rules Against Perpetuities And Excessive Accumulation. The Law Commission, London, 1993. (Last Visited Sep 10, 2020). [10] Poonam Pradhan Saxena, Property Law, 3rd edition [11] (1976) 1 MLJ 56
BIBLIOGRAPHY
Perpetuities and Accumulations | Law Commission, Lawcom.gov.uk (2020), https://www.lawcom.gov.uk/project/perpetuities-and-accumulations/ (last visited Sep 10, 2020).
Item 7 Of The Sixth Programme Of Law Reform: The Law Of Trusts".,Lawcom.gov.uk (2020), <http://www.lawcom.gov.uk/app/uploads/2015/03/lc251_The_Rules_Against_Perpetuities_and_Accumulations.pdf> (last visited Sep 10, 2020).
Perpetuities and Accumulations | Law Commission, Lawcom.gov.uk (2020), https://www.lawcom.gov.uk/project/perpetuities-and-accumulations/ (last visited Sep 10, 2020).
Uzair Khan, iPleaders Blog - Rule against Perpetuity and Perpetual Transfers iPleaders (2020), https://blog.ipleaders.in/rule-aganist-perpetuity-perpetual-transfers/ . (last visited Sep 10, 2020).
Appel, Peter A. “The Embarrassing Rule Against Perpetuities.” Journal of Legal Education, vol. 54, no. 2, 2004, pp.264–282. JSTOR, www.jstor.org/stable/42893853. (last visited Sep 10, 2020)
Tarun Sethi, Rule Against Perpetuity Legalservicesindia.com (2020), http://www.legalservicesindia.com/article/2477/Rule-Against-Perpetuity.html. (last visited Sep 10, 2020).
The Law Commission. Consultation paper No. 133, The Rules Against Perpetuities And Excessive Accumulation. The Law Commission, London, 1993. (Last Visited Sep 10, 2020)
Poonam Pradhan Saxena, Property law, 3rd edition
M Kesava Gounder v DC Rajan (1976) 1 MLJ 56