Rule Against Perpetuity

Imagine an asset that shall forever continue to remain within a family till eternity, and
deprive all others from enjoying its benefits.  This impedes free and active circulation of
property both for purposes of trade and commerce, as well as betterment of the property
itself.   Can you imagine, even the owner himself is denied the right to dispose it for higher
value or to tide away difficult times. Similarly, the state is divested from earning revenue,
which is only possible if property can change hands frequently.  So, if perpetuities are
allowed then even though the transferee has received the property, he has no power to
alienate it. To quote Sir D. Mulla, “It is illogical to imagine a dead person below the grave
controlling properties above his grave.”  For this very reason, the state and the lawmakers
felt the need for drafting the ‘Rule against perpetuity’. 

Perpetuity may arise under two circumstances: –

1. Transferor of property is deprived of the power of alienation. 

2. Remote interest is created in the property but without the right of alienation to the
transferee.  

However, a condition restraining alienation is void under section 10 of ‘The Transfer of 
Property Act,’ (TPA), and remote interest is governed by section 14 of TPA. 

Rule against Perpetuity

Section 14 of the ‘The Transfer of Property Act, 1882’ (TPA) is rightly called ‘Rule against
perpetuity’ as it limits the maximum time period beyond which property cannot be
transferred.  Starting from the date that the transferor transfers the property + lifetime of the
last prior interest holder’s + gestation period of the unborn beneficiary + 18 years, ( ‘Age of
majority of persons domiciled in India’ under section 3 of The Majority Act, 1875).  This
period is called the perpetuity period, and vesting of the property in the transferee cannot be
postponed beyond this limit. 

The above transfer is contingent to many other conditions viz. sections 5, 10, 13, 15, 16, 18
and 20 of TPA.  However, it is to be borne in mind that section 18 of TPA allows transfer in
perpetuity for benefit of public, and so provisions of section 14 & 16 do not apply in such
cases.     

Understanding section 13, 14 & 16 of TPA 

These sections are complex and intertwined, so we will do ourselves a favor by breaking
them threadbare.  

Section 13 TPA

“Transfer for benefit of unborn person – Where, on a transfer of property, an interest is

created for the benefit of a person not in existence at the date of the transfer, subject to prior
interest created by the 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.” 

1. Person in existence: To begin with, the ultimate beneficiary of the transfer is an

unborn person, who is not yet in existence.  Child may not be physically born, but
from conception itself, he is considered as a person in existence.  Transfer of interest
in property is valid from the day of conception, though the same shall vest on birth of
such child.  

2. Prior Interest: Section 5 of TPA mandates transfer of property inter vivos or

between living persons only.  Since, the transferor wishes to pass interest on to a
person not in existence, to overcome this predicament a prior interest is created in
favor of living person on the date of transfer. 

3. Whole remaining interest: Prior interest transferred to a living person is lifetime

interest, which means he can enjoy the benefits of the property without alienation.  In
other words, transferor transferred limited and not absolute interest. The remainder
interest in the transferred property is the right of alienation, which is still held by the
transferor.  For the transfer to be valid in the hands of final beneficiary this right of
alienation plus prior interests together should reach the beneficiary. 

Additional salient features of Section 13 TPA

1. Transferor cannot fetter the free disposition of the property in the hands of more than
one generation. 

2. Section 13 does not prohibit successive interests, limited by time or otherwise, created
in favor of several persons living at the time of transfer. Prohibited is grant of
interest, limited by time or otherwise, to a person not in existence.
 3. After the last life-interest if more than one, property must rest in someone for resting
cannot be perpetually delayed.  

When all the above conditions are met, then only the transfer is held to be valid under section
13. 

Section 14 TPA

“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.”     

1. After the life-time: Here again, to safe-guard against violating section 5

of TPA, transfer of property has to take place latest; during life-time of prior interest
and conception of beneficiary, otherwise the transfer shall fail. 

2. Attains full age: The degree of transfer of interest in favor of beneficiary can be

broken into 3 stages.  On conception interest is created, which becomes vested interest
on birth i.e. as per section 20 of TPA, and on attaining age of majority; absolute
interest that includes enjoyment of property, possession, alienation etc. 

Section 16 TPA

“Section 16: Transfer to take effect on failure of prior interest – Where, by reason of any of
the rules contained in sections 13 & 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.”

1. Prior Interest fails under section 13 & 14:  Before section 16 comes into operation,
the prior interest created should fail. This is because it does not fulfil either of the
conditions mentioned in section 13 & 14 for a person or a class of persons.

2. Fate of second interest:  On failure of prior interest, the second interest which too is
created in the same transaction, and was to be exercised after or on failure of prior
interest, shall fail for all purposes. 
Per contra under 15 of TPA, if interest is created in the same property for more than one
person, then it shall be valid for only those who fulfil the conditions of section 13 & 14 and
fail for the rest.