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Explain the law in respect of transfer for benefit of an unborn person [ M.P.J.S. 2014 ]
Explain the law in
respect of transfer for benefit of an unborn person [ M.P.J.S. 2014 ]
Introduction
The rules with respect
to the transfer of property for the benefit of unborn person and rule against
perpetuity are mainly governed and operated under section 13 and section 14
of The
Transfer of Property Act, 1882 has given a headache to the lawyers of
every age across the country. This is often described as one of the most
complicated legal rules ever. Here unborn child refers to the person
who is non-existence as of now but will come into existence in future. A child
in a mother’s womb is not a person in existence. Although it has been treated
under both the Hindu and Muslim law.
Status of unborn child
Unborn child refers to
an individual who is not born yet or is not in existence and there is nothing
in the law to prevent the unborn child owning property before he is born.
Transfer of
property Act – Unborn child
Section 13 of the transfer of
property act 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 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 transfer in the
property.”
The transfer of
property takes places between two persons living which means that there cannot
be a transfer to a person who is not born yet or not in existence. This is the
reason why section 13 of TOPA uses the term ‘for the benefit of’ and not
transfer ‘to’ unborn person.
A child in a mother’s
womb is considered to be a person competent of the transfer. Therefore a
property can be transferred to a child in her mother’s womb because the child
exists but not to an unborn person who does not even exists in the womb of her
mother.
With every transfer of
property, there is a transfer of interest which states that as soon as the
property gets transferred in the name of transferee the interest is vested in
the transferee. Therefore it is necessary that the transferee should be in
existence when the transfer is made. This is against the very concept of an
interest.
For a transfer of
property for the benefit of the unborn person two conditions are necessary to
be fulfilled:
Absolute interest
should be transferred in the favour of the unborn person, and
Prior life interest
must be created in favour of a person in existence at the date of transfer.
Pre-requisite for a
valid transfer of property to an unborn person
Section 13 is enacted
for the valid transfer of property to an unborn person. The procedure for the
same are as follows:
Any person who intends
or wishes to transfer the property for the benefit of an unborn person should
first make a life estate in favour of a living person and after this, an
absolute estate in favour of the unborn person.
Till the time, in whose
favour the life estate created is alive, would hold the possession of the
property, and enjoyment of the property.
If the person who was
unborn during the time of creation of life estate, is born, the title of the
property gets immediately transferred to the person born but he’ll get the
possession only on the death of the life estate holder.
Rule against perpetuity
The term perpetuity
means an indefinite or uncertain period. Perpetuity occurs because of the
people who want to retain the property in their own family from generation to
generation. So this will create a loss to the society because the society would
be deprived of any of the benefit arising out of that property that is why the
frequent circulation of a property is required and that is the policy of the
law to prevent the creation of such perpetuity.
Perpetuity may arise in
two ways:
By taking away the
power of alienation from the transferor.
By creating a remote
interest in the future property.
A condition restraining
the transferee’s power of alienation is void as per S.1O of the Act. and a
disposition to create a future remote interest is prohibited under S.14 of the
Act.
Object
The main objective of
this policy is the proper and free regulation of property both for trade and
commerce as well as for the advancement of property which is useful for
society. The object is to see that the property isn’t tied-up and the issue of
ceaselessness can be anticipated.
Essential Elements of
Section 13
The essential elements
of section 13 have been discussed below. They are as follows:
1. No Direct
Transfer
A transfer cannot be
directly made to an unborn person. Such a transfer can only be brought into
existence by the mechanism of trusts. It is a cardinal principle of property
law that every property will have an owner. Accordingly, if a transfer of
property is made to an unborn person, it will lead to a scenario wherein the
property will remain without an owner from the date of transfer of property
till the date the unborn person comes into existence.
2. Prior Interest
If the circumstances
are such that there is no creation of trust, then in that case the estate must
in some other person between the date of transfer and the date when the unborn
person comes into existence.In simpler words we can say that the interest in
favour of an unborn person must always be preceded by a prior interest created
in favour of a living person.
3. Absolute
Interest
The entire property
must be transferred to the unborn person. The transfer to an unborn person must
be absolute and there should be no further transfer from him to any other
person.An interest which remains only for the lifetime cannot be conferred on
an unborn person. Under the English law, an unborn person can be conferred an
estate only for his lifetime. This concept of English law, however, is subject
to a restriction known as the rule of double possibilities. This rule was
recognised in the case of Whitby Mitchell. The rule states that life interest
to an unborn person should not be transferred as doing so will give rise to
existence of two possibilities. The first possibility will be the birth of the
unborn person to whom the life estate was to be transferred and the second
possibility will be the coming into existence of issues of that unborn persons.
Thus, the transfer of property to an unborn person can be permitted only if the
absolute interest is transferred and not just the life estate.
Illustration
“A” owns a property. He
transfers it to “B” in trust for him and his intended wife successively for
their lives. After the death of the survivor, it is to be transferred to the
eldest son of the intended marriage for his life, and after his death, it is to
be transferred to 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.
When an Unborn Person
Acquires Vested Interest
The provisions of
section 20 of the Transfer of Property Act, 1882 mention the concept that in
what circumstances unborn person acquires vested interest. Unborn person may
not be able to enjoy the possession of property as soon as he is born but he
may, however, acquire a vested interest in the property since his birth. Where,
on a transfer of immovable property interest is created for the benefit of an
unborn person, he acquires upon his birth, a vested interest, although he may
not be entitled to the enjoyment thereof immediately on his birth.The mentioned
provision however may be waived off if the terms of the agreement mention a
contrary clause.
The section lays down
that an interest created for the benefit of an unborn person vests in that
unborn person as soon as he is born. Such interest remains vested interest even
though he may not be entitled to the enjoyment thereof immediately on his
birth.
For example, if “A” transfers
an estate to trustees for the benefit of A’s unborn son with a direction to
accumulate the income of such estate for a period of ten years from the date of
the birth of A’s son and then to hand over the funds to him. A’s unborn son
acquires a vested interest upon his birth, although he is not entitled to take
and enjoy the income of the property for a period of ten years.
Views of the Apex Court
in Reference to the Transfer to Unborn Person
The Supreme Court of
India in various cases from time to time has interpreted the provisions of the
Transfer of Property Act,1882 in respect of the transfer of property done for
the benefit of unborn persons. In the famous case of Girjesh Dutt vs. Datadin,
the Apex Court made important observations. Facts of the case enumerate that
“A” made a gift of her properties to “B”, who was her nephew’s daughter. The
gift made by A was made for the life of B and then to B’s daughter without
power of alienation and if there was no heir of B, whether male or female, then
to A’s nephew. B died without having any children. Thus considering the facts
of the case, the court held that the gift in favour of unborn daughters was
invalid under Section 13 as the gift was a limited interest and also
subject to the prior interest in favour of B.
Another case related to
this concept is of Raja Bajrang Bahadur Singh v. Thakurdin Bhakhtrey Kuer. In
the instant case the Apex Court had observed that no interest can be created in
favour of an unborn person but when the gift is made to a class or series of
persons, some of whom are in existence and some are non existent, it does not
fail completely, it is valid with respect to the persons who exist at the time
of testator’s death and is invalid with respect to the rest.
Conditions necessary
for section 14
Transfer of property
should be there
Transfer of property be
such that it should create interest in favour of the unborn person.
Interest created must
take effect after the lifetime of one or more persons living at the date of
such a transfer and during the minority of the unborn person.
The unborn person
should be in existence during the expiration of interest of living person.
The vesting of the
interest in favour of the ultimate beneficiary may be postponed only up to the
life or lives of living persons plus the minority of the ultimate beneficiary
but not beyond that.
Perpetuity period –
Extent
Position in India –
Life or any number of lives in being + period of gestation + minority period of
the unborn beneficiary.
English Law – Life or
lives in being +period of gestation +minority period.
Indian and English law
– Difference
The minority period in
both the countries is different. The minority period in India is 18 whereas the
minority period under the English law is 21 years.
The English law states
that the property need not be absolutely given to the unborn person whereas
under the Indian law the property should be absolutely transferred to the
unborn.
Under English law, the
period of gestation is a gross period whereas under the Indian Law the period
of gestation should be an actual period.
Under the Indian law,
the unborn person must come into existence before the death of the last life
estate holder but under the English law, the unborn person must come into
existence within 21 years of the death of the last life estate holder.
Exceptions
Transfer for public
benefit – A property transferred is not void if it is made for the benefit
of people in general. E.g. religion, health, care or anything helpful to the
society.
Covenants of
Redemption – This rule does not offend the covenants of redemption in a
mortgage.
Personal
agreements – Agreements that do not create any interest in the property
are not affected by this rule. This rule applies only to transfers where there
is a transfer of interest.
Pre-emption –
Pre-emption refers to the buying of goods and shares before it is offered to
any other person. In this, there is an option of purchasing a land and there’s
no question of any kind of interest in the property, so this rule does not
apply.
Perpetual Lease –
The contracts of perpetual renewal of leases is not applicable here.
The rule is also not
applicable to mortgages as there is no creation of a future interest.
Origin
The origin of rule
against perpetuity stems from the days of feudal England as far back as in 1682
from the case of Duke of Norfolk's, wherein, Henry (the 22nd Earl of Arundel),
tried to create a shifting executory limitation in a way that one of his titles
would pass to his eldest son (who was mentally deficient) and thereafter to his
second son, and another title would pass to his second son and thereafter, to
his fourth son. The estate plan also included provisions for shifting the
titles many generations later, if certain conditions were to occur. It was held
by the House of Lords that such a shifting condition could not exist
indefinitely and that the tying up of property too long beyond the lives of
people living at the time was wrong. The concept of trying to control the use
and disposition of property beyond the grave was often referred to as control
by the "dead hand". The rule against perpetuity, in England, was
later codified in the form of the Perpetuities and Accumulations Act, 1964.
Illustrations
With a view to
understand the Rules, let us first consider the following five illustrations:
i. A transfers
his property to B (his unborn child).
ii. A transfers
his property to B (his child) for life, thereafter to C (his
unborn grandchild) for life and finally, to D (his unborn great
grandchild) absolutely.
iii. A transfers
his property to B (his child) for life and thereafter to C (his
unborn grandchild) absolutely which property is to vest in C when he
attains the age of twenty one years.
iv. A transfers
his property to B (his child) for life, thereafter to C (his
unborn grandchild) absolutely which property is to vest in C upon
birth. However, C is unborn till the time of death of B.
v. A transfers
his property to B (his child) for life, thereafter to C (his
unborn grandchild) absolutely which property is to vest in C upon
birth. C is born before the death of B.
From the aforesaid five
(5) illustrations, only the transfer sought to be made in favour of the unborn
person in illustration "v" will take effect. The transfers sought to
be made in favour of the unborn person in the remaining illustrations will fail
and not take effect. In order to understand the rationale behind the failure of
such proposed transfer in favour of an unborn person, it is necessary to
understand the relevant provisions with respect to the Rules.
Rule For Transfer Of
Property For The Benefit Of Unborn Person
Section 13 of TOPA
provides 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."
Rule Against Perpetuity
Section 14 of TOPA
provides 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."
Analysis Of Provisions
Section 13 and 14 of
the TOPA go hand in hand, in as much as, section 13 and 14 are to be read
together in order to understand the provisions governing the Rules.
The TOPA does not
permit transfer of property directly in favour of an unborn person.
Thus, in order to transfer a property for the benefit of a person unborn on
the date of the transfer, it is imperative that the property must first be
transferred in favour of some other person living on the date of transfer.
In other words, the property must vest in some person between the date of the
transfer and the coming into existence of the unborn person since property
cannot be transferred directly in favour of an unborn person. In other words,
the interest of the unborn person must, in every case, be preceded by a prior
interest.
Further, where an
interest is created in favour of an unborn person on a transfer of property,
such interest in favour of the unborn person shall take effect only if it
extends to the whole of the remaining interest of the transferor in the
property, thereby making it impossible to confer an estate for life on an
unborn person. In other words, the interest in favour of the unborn person
shall constitute the entire remaining interest. The underlying principle in
section 13 is that a person disposing of property to another shall not fetter
the free disposition of that property in the hands of more than one generation.
Section 13 does not prohibit
successive interests (limited by time or otherwise) being created in favour of
several persons living at the time of the transfer. What is
prohibited under section 13 is the grant of interest, limited by time or
otherwise, to an unborn person.
Further, Section 14 of
TOPA provides that where an interest is created for the benefit of an unborn
person (in accordance with the provisions of section 13), such interest shall
not take effect if the interest is to vest in such unborn person after the
life time of one or more persons living on the date of the transfer (i.e. the person
in whose favour the prior interest is created as required under section
13) and the minority of such unborn person. In other words, the
interest created for the benefit of an unborn person shall take effect only if
the interest is to vest in such unborn person before he attains the
age of eighteen years.
Section 14 further
provides that the unborn person, in whose favour the interest is created, must
have come into existence on or before the expiry of the life or lives
of the person(s) in whose favour the prior interest is created as required
under section 13.
Other Relevant
Provisions
Sections 113 and 114 of
Indian Succession Act, 1925 ("ISA"): Sections 113 and 114 of the
ISA are almost identical to sections 13 and 14, respectively, of TOPA. The main
difference between the provisions under the ISA and the provisions under TOPA
is that the former deals with bequests which take effect only on the death of
the testator while the latter relate to transfer of property inter vivos.
Section 13 of TOPA controls Section 113 of ISA and both of them are to be read
together, as opined by the Apex Court in Raj Bajrang Bahadur Singh vs.
Thakurain Bakhtraj Kuer (AIR 1953 Supreme Court 7). It was further
observed by the Court that:
"It is quite true that no interest could be created in favour of an unborn
person but when the gift is made to a class or series of persons, some of whom
are in existence and some are not, it does not fail in its entirety; it is
valid with regard to the persons who are in existence at the time of the
testator's death and is invalid as to the rest."
Rules Simplified
The effect of these
Rules is that a transfer/ gift can be made to an unborn person subject to the
following conditions: (i) that the transfer/ gift shall be of the whole of the
remaining interest of the transferor/ testator in the thing transferred/
bequeathed and not of a limited interest; and (ii) that the vesting is not
postponed beyond the life in being and the minority of the unborn person.
In simple terms, while
section 13 of TOPA lays down the mechanism for transfer of property for the
benefit of unborn person and "what property" is required to
be ultimately transferred in favour of an unborn person in order to validate
such transfer, section 14 of TOPA provides the "maximum period as to
when" such property can be vested upon such unborn person.
Section 14 of TOPA
supplements section 13 of TOPA and thus, it is pertinent to note that when an
interest in any property is intended to be transferred in favour of an unborn person,
sections 13 and 14 of TOPA are required to be read together and the provisions
contained thereunder are required to be duly complied with, in order to give
effect to the intended transfer in favour of such unborn person.
Rule under Hindu law
and Muslim law
The transfer of
property act has made possible the transfer of property for the benefit of an
unborn person. Before the transfer of
property act, the rule under the Hindu and Muslim law was that the gift
given to a person who is not born or not in existence was void. The position
under the Muslim law keeps being the same. However, for Hindus, the rule was
modified by various of enactments to bring it conformity with the section of
transfer of property act. There have been parallel provisions made under
the Indian succession act, 1925, which allows bequest for the
person who is not born or unborn. Section 113 of Indian Succession Act 1925(IS
Act), applies to legacies created for the person unborn and contain a provision
almost identical to section 13 of the transfer
of property act.
Conclusion
Transfer of property to
an unborn child has always raised questions. So to overcome the questions the
section 13 of transfer of property act was given as an answer of the questions
which states that the transfer of property for benefit of an unborn child or
the person who is not born. A child in mother’s womb is regarded by a legal
fiction as already born, in accordance with the maxim nasciturus
pro iam nato habetur. For the unborn person, there must be a transfer of
absolute interest.
Thus from the above
discussion it is clear that the transfer of property can be executed in respect
of unborn persons. Though, the transfer cannot be operated directly but it can
be executed indirectly by the machinery of trusts. In other words, the interest
in favour of the unborn person shall constitute the entire interest in that
particular immovable property. The underlying fundamental principle enshrined
under section 13 of the Transfer of Property Act is that a person disposing off
property to another person shall not create hurdles for the free disposition of
that property in the hands of one or more generations.
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