Introduction
Transfer of property can be defined with reference to Section 5[1] of the Transfer of Property Act, 1882, as the act by which a living person (living person includes a person, a group or persons, a company or association) conveys (transfers title of property) property in the present or in the future, to one or more living person or to himself. Transfer can also occur via inter vivos which means a property is entrusted to another person as a gift under a fiduciary relationship.
Section 7[2] of the Act puts forth persons competent to transfer which is the person should be a major and should not be of unsound mind. The above sections indicate that transfer between two living persons is possible and is valid. The complexity arises when the transfer of property to a child in the mother’s womb comes into the picture. Many questions arise as to whether an unborn person can be treated as a living for the purpose of transfer? Or what happens in situations if the child is not born? Or what would be the circumstance if a property is transferred for an unborn person but is misused by the person the property is entrusted in?
Whether transfer of property can be made to an unborn person
According to the theories of personality under jurisprudence, the purpose theory[3] by Ernst Immanuel Bekker and Alois von Brinz states that a non-living entity such as a corporate is to be attributed with a personality for the purpose of being capable of having rights and duties. Similarly, the fiction theory[4] by Von Savigny, Salmond, Coke, Blackstone, and Holland put forth that a corporation is different from its members and that any change in members does not affect the existence of a corporation. They were of the opinion that only human beings are capable of thinking, hence it is by way of fiction that “will” is attributed to non-human beings through human beings who are capable of thinking and assigning them with a legal personality. The purpose theory and the fiction theory form the basis for the drafters of the Transfer of Property Act to consider the transfer of property to an unborn person. On application of the purpose theory, the transfer to an unborn person who is either conceived or not conceived can be carried out as the transfer is made for a particular purpose of being entrusted with certain rights and duties. The fiction theory can also be applied similarly as an unborn is by means of fiction considered to be living for a specific purpose. Hence, for the purpose of the Transfer of Property Act, 1882, the theories of personality under jurisprudence play an essential role in transactions to an unborn or a corporate.
Analysis of transfer to an unborn person
After a thorough analysis of the Transfer of Property Act, 1882, there are two very critical sections that relate to the transfer of property to an unborn person which are Section 13[5] and Section 14[6]. Section 13 of the Act is as follows:
- 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.[7]
On analysis, it is clear that the section provides for the transfer of property to an unborn person and that such transfer is made for the benefit of a person who is not in existence at the date of the transfer shall take place provided it extends to the whole of the remaining interest of the transferor in the property. It can be understood from the section that transfer to an unborn is to occur by first transferring the life interest of the property to a person living on the date of such transfer, followed by which absolute interest is to be conferred to the unborn. The person in whose favour life interest is created will hold possession of property till his death. During his lifetime if the person (who on the date of creation of life interest is unborn) is born, the title of the property will immediately be vested in him but he will gain possession of the property only on the death of the person who contains life interest.[8] The same is illustrated below.
A, transfers the life interest of his property in the favour of B. On unborn (UB) being born, title, as well as absolute interest, is transferred to UB.
The difference between life interest and absolute interest is such that life interest includes the right to enjoy the property but does not provide the right to alienate the property whereas, absolute interest is the transfer of all the rights of the property except the right to possession till the death of the life interest holder. In the present situation on UB being born, absolute interest is transferred to UB but he will only gain possession on the death of B. Short explanations for the same are as follows:
Life interest: Transferred to a person living on the date of transfer. Confers right to enjoy the property till person’s death. Also, permits the legal heirs of the person to enjoy the property till the person’s death.
Absolute interest: Confers all rights on the ultimate beneficiary including the right of alienation.
In Rukhamanbai v. Shivram[9] it was held that a person who is entrusted with life interest of an agricultural land can lease out the land unless any contrary intention arises.
The conditions for transfer to unborn under Section 13 are as follows:
Taking into consideration the illustration A transfers the life interest of his property in the favour of B. On unborn (UB) being born, title, as well as absolute interest, is transferred to UB the conditions are—
- If UB is never born. The property will go back to B. If B dies the property will go back to A and if A is dead, the property will go to the legal heirs of A. It must be kept in mind that once a property is reverted back it cannot be transferred again in the same transaction. A new transaction is to take place.
- When UB is born after the death of B. On the death of the B the property will revert back to A. Hence, a new transaction is to take place.
- If UB dies before the death of B. The property will go to the legal heirs of UB on the death of B. If UB transfers the property to someone, the person will gain possession only on the death of B.
In F.M. Devaru Ganapathi Bhat v. Prabhakar Ganapathi Bhat [10] the transferor had gifted the property to the appellant with the condition that if any male children are born to her brother that they shall be joint holders of the property along with the appellant. It was held that there is no ban on the transfer of interest in favour of an unborn person the present situation will remain unaffected by Section 13. Section 20[11] of the Act permits an interest being created for the benefit of an unborn person who will acquire absolute interest upon his birth. The Court also held that there is no provision which states that absolute interest cannot be created in favour of an unborn person. Creation of such a right is permissible was held to be permissible.
“A perpetuity”, as defined by Lewis in his well-known book on “perpetuities” (p. 164), is “a future limitation, whether executory or by way of remainder, and of either real or personal property which is not to vest until after the expiration of, or will not necessarily vest within, the period fixed and prescribed by law for the creation of future estates and interests”. The rule as formulated falls within the branch of the law of property and its true object is to restrain the creation of future conditional interest in the property.[12]
Section 13 also provides for the transfer to an unborn person by the creation of a trust. The condition is such that the unborn must come into existence before the death of the life interest holder. Here, existence means that the child should be conceived and should be in the mother’s womb and does not mandate birth. In Trustees of Sahebzadi Oalia Kulsum Trust v. CED[13] it was held that the creation of a trust does not amount to the creation of life interest for the benefit of transfer to an unborn person.
Section 14 of the Act is as follows:
- Rule against perpetuity. — No transfer of property can operate to create an interest which is to take effect after the lifetime 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.[14]
The above section is similar to Section 13, it contains the transfer of property to an unborn. The only difference in Section 14 is that the absolute interest (except the right of possession) which is normally conferred to the unborn on being born can be delayed up to the age of 18 years. Vested interest is an interest that can be created on the happening of an event such as the infant will gain absolute interest on turning 18 years of age. The same can be explained with the help of an illustration.
A, transfers the life interest of his property in the favour of B. The condition put out by A is that UB will gain vested interest only on attaining the age of 18 years. On unborn (UB) turning 18 years vested interest is transferred to UB. On the death of B, UB gains absolute interest.
Section 14 also contains that a property cannot be inalienable for an indefinite period such as transfer to different unborn generations hence the restriction of 18 years for the transfer of vested interest. The rule against perpetuity has been laid down to prevent the depreciation of a property. An illustration for the same is as follows.
A, transfers the life interest of his property in the favour of B with the condition that UB 1 should gain absolute interest on being born, followed by transfer to his children UB 2 and UB 3 on their respective births, followed by transfer to UB 4 child of UB 2 on his birth.
In the above illustration, it can be noted that transfer to unborn persons for three generations has been made which makes the property inalienable for an indefinite period, hence the rule against perpetuity strictly restricts such transfers as it also depreciates the value of the property.
It is critical to emphasise that life interest cannot be transferred to an unborn person. Also, that no direct transfer is to be made to an unborn. In R. Kempraj v. Barton Son and Co.[15] the question before the Court was whether the option given to the lessee to get initial ten years lease renewed after every ten years is hit by the rule of perpetuity. The Court held that the renewal clauses were part of a personal covenant creating no right in the land. Hence, the clause would not be hit by rule against perpetuity.
The ratio decidendi in K. Naina Mohamed v. A.M. Vasudevan Chettiar[16] held that “rule against perpetuity concerns rights of the property only and did not affect the making of contracts”.
Section 20 contains that an unborn is entitled to vested interest on his birth and under Section 21[17] the exception contains that a person being entitled to an interest upon attaining the age of 18 years is not a contingent interest.[18]
The transfer to an unborn person includes both the transfer to a child not in the mother’s womb who has not been conceived and who is non-existent and also includes the transfer to a child in a mother’s womb who has been conceived. Both the transfers come under transfer to an unborn person as the unborn person has not been born. Section 13 refers to a transfer of property and creation of an interest therein and brings out the distinction between the phrase “transfer of property” and “creation of interest in the property”[19]. The above analysis has clearly put forth the procedure of transfer to an unborn person.
Conclusion
The difference between life interest, vested interest, and absolute interest is as follows; life interest is transferred to a person who is living on the date of such transfer. He will enjoy possession of the property and will be entitled to the benefits from the property. The same can be enjoyed by his legal heirs till his death. Vested interest is transferred to an unborn on being born. It includes title to the property and the right to alienate property but does not include the right to possession. Under normal circumstances, the unborn will be immediately entitled to vested interest on birth. But Section 14 makes provision for delay of granting vested interest to unborn, up to the age of 18 years. This means the transferor can specifically emphasise that the unborn will get the property only after attaining a certain age such as 16 years. The rule mandates that vested interest can be delayed only up to 18 years of age to avoid the property being inalienable for unspecified periods of time as the life interest holder does not have the right to alienate the property. Absolute interest is transferred to an unborn, now an infant, on the death of the life interest holder. Absolute interest includes the right of alienation. But under Section 13 once the unborn is born and the absolute interest is transferred, the unborn will not be entitled to possession of the property. The same applies to Section 14 once the unborn is born and after the vested interest is transferred the unborn cannot have possession of property till the life interest holder dies and will also gain absolute interest only on the death of the life interest holder. Hence, transfer to an unborn person is permissible by creating life interest in the favour of another living person. The life interest includes the right to enjoy the property and does not confer the right to alienate the property. On the unborn being born, absolute interest is conferred to the infant but does not confer possession of property. Possession of property is conferred to the infant only on the death of the person who had a life interest in the property. The conferring of absolute interest can be delayed up to 18 years of age of the unborn. Transfer of property to unborn persons of different generations violates the rule against perpetuity under Section 14 as it depreciates the value of the property leaving it inalienable for indefinite periods of time. The same does not prevent the transfer to unborn persons of the same generation such as to unborn siblings.
† 5th Year, BA LLB student at Symbiosis Law School, Hyderabad, authored on 10-7-2021.
[1] Transfer of Property Act, 1882.
[2] Transfer of Property Act, 1882.
[3] Mayank Shekhar, “Theories of Juristic Personality”, retrieved 10-7-2021, from legal bites, available at <https://www.legalbites.in/theories-juristic-personality/>.
[4] Mayank Shekhar, “Theories of Juristic Personality”, retrieved 10-7-2021, from legal bites, available at <https://www.legalbites.in/theories-juristic-personality/>.
[5] <http://www.scconline.com/DocumentLink/86Lq3D1K>.
[6] <ttp://www.scconline.com/DocumentLink/q57fNh04>.
[7] Transfer of Property Act, 1882.
[8] Dr Poonam Pradhan Saxena, Property Law.
[11] <http://www.scconline.com/DocumentLink/M1CKsvas>.
[12] Ram Baran Prosad v. Ram Mohit Hazra, 1959 SCC OnLine Cal 122.
[14] Transfer of Property Act, 1882.
[17] <http://www.scconline.com/DocumentLink/W4x445Hs>.
[18] Transfer of Property Act, 1882.
[19] Dattatreya Shanker Mote v. Anand Chintaman Datar, (1974) 2 SCC 799.