S. 12 & S.

13 OF THE TRANSFER OF
PROPERTY ACT, 1882
Section 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.”

In essence: If the transferor includes a condition in the deed that the interest
created in the transfer will be defeated if the transferee becomes insolvent,
such condition would be void.
The term ‘defeated’ implies that if the transferee becomes insolvent, the
transfer would be treated as cancelled and the property would revert back to
the transferor. Such a condition may deprive not only an owner a right of
alienation, but also defeat, at the same time, the rights of his creditors, who
may want to enforce their claim against this property on his attaining
insolvency.
It must be noted that this section applies only when there is an absolute
transfer; and is in consonance with the general principle that the transferor
should not be allowed to put conditions that unreasonably interfere with the
interest created in favour of the transferee or encroach upon his right to
alienate the property.
For example, A transfers the property absolutely to B, with a condition that if
B becomes insolvent or attempts to transfer it, his interest in the property will
come to an end, B is entitled to ignore this condition without affecting the
validity of the transfer. This property can be attached by the court or he
himself may alienate it according to his wishes. Thus, a condition in the grant
that if such property is sold in auction for the grantee’s debt the grant will
come to an end, is void
Section 13 – Transfer of benefit of the 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.”
UNDERLYING PRINCIPLES

Only between living persons – property cannot be transferred to an unborn

person but it can be transferred for the benefit of an unborn person.
The property cannot be transferred directly to the unborn person.
No direct transfer to a person who is not in existence
So, the transfer IS ‘for the benefit of’ and NOT ‘to’ an unborn person.
 Transfer for the benefit of the “Unborn Person”
(2 methods)

By the creation of a trust Creation of prior interest in favour

of a living person

Prior interest is the life interest in a

living person. The unborn person gets
the interest after the expiration of the
living person. There is no limit to the
living person – living person of any
age can be considered for the creation
of prior interest
Who is an “unborn person”?
A Child ‘en ventre sa mere’ is in existence (Hindu Law)
It includes:
1) Conceived and not yet born; and – here the person has to wait for 9
months which is the gestation period.
2) Not yet conceived.
Even without the existence of the unborn child, the property can be transferred to
the parents. The property stays with the prior interest and if the unborn child does
not come into existence before the expiration of the prior interest, then the property
reverts back to the original transferor.
Pre-requisites for a Valid Transfer of Property to an Unborn Person
1. The person intending to transfer the property for the benefit of an unborn
person should first create a life estate in favour of a living person and after
it, an absolute estate in favour of the unborn person.
2. Till the person, in whose favour a life interest is created is alive, he would
hold the possession of the property, enjoy its usufruct i.e. enjoyment the
property.
3. During his lifetime if the person, (who on the day of creation of the life
estate was unborn) is born, the title of the property would immediately vest
in him, but he will get the possession of the property only on the death of
the life holder.
Example 1: 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
Example 2: A, on 1st January, 2000 executes a deed by which he creates a life interest in his
property in favour of his brother B and further provides, that this property is to vest absolutely in
favour of B’s first child UB. B, on the date of the transfer, was unmarried. He took the possession
of the property, got married and, a child was born to him in 2006. The moment the child was
born, he took a vested interest in the property. The possession continues with B, till his death in
2010, upon which the life estate will come to an end and UB would take the possession of the
property.
In the same example, take a situation, where UB is born in 2006 but dies in 2007, i.e., during the
lifetime of B. Here, since UB takes a vested interest in the property, he becomes the owner at the
time of the birth. Here the possession of the property will continue with B, till 2010 and on his
death upon which the property will go to the heirs of UB.
If UB was never born and B dies in 2010, the property would revert back to A, if he is alive or if
he is dead, it would go to A’s heirs, as if A dies in 2009, leaving behind this property.
Creation of a prior life interest
A B C D E (UB)
A creates a life interest in B who in turns creates a life interest in C who further creates a life
interest in D who then creates an absolute interest in favour of E.
JV Satyanarayna v. Pyboyina Manikyan (AIR 1983 AP 139)
The grandfather transferred the property to the son and he was the prior interest holder. But
the absolute interest was to vest into the unborn child of his son. For this purpose – prior
interest means anyone – any unknown person or even someone in the family. The prior
interest would have to be living at the time of creation of such an interest.
Family settlement and creation of Prior Interest was valid and then the transfer was further
made to the UB
No life interest for an unborn person  S. 13 prohibits the creation of life interest for an
unborn person. No limited interest can be created in favour of an unborn person. Any
subsequent interest created also thereby fails.
Difference between Indian and English Law
Under Indian law, the estate created for the benefit of the unborn child cannot take effect
unless it extends to the whole of the interest in the properties, subject to the creation of a prior
interest in favour of a living being. Only an absolute interest can be granted to an unborn child.
If a limited interest is created, the transfer for the unborn would be void.
Under English law, however, a limited interest can be created in favour of an unborn child, but
not subsequent to that.

Rule under Hindu Law

Prior to TPA, 1882 under Md. & Hindu Law, a gift to a person who was not inexistence, was
void. Md. law is still the same, but Hindu law has changed.
Sec. 113 of Indian Succession Act, 1925 – “Where a bequest is made to a person not in
existence at the time of the testator’s death, subject to a prior bequest contained in the Will, the
later bequest shall be void, unless it comprises the whole of the remaining interest of the
testator in the thing bequeathed.”