October 27, 2018

TRANSFER OF PROPERTY TO AN UNBORN CHILD

UNBORN CHILD

He is one who is not in existence as of now or who will come into existence in future at any time or who is in the womb of the mother. He is basically, a person not yet born.

STATUS OF UNBORN CHILD

There is nothing in the law to prevent a man from owning property before he is born. His ownership is necessarily contingent, indeed, for he may never be born at all; but it is none the less a real and present ownership. A child in its mother’s womb is for many purposes regarded by a legal fiction as already born.

TRANSFER OF PROPERTY TO AN – UNBORN CHILD

Section 13 of Transfer of property Act read as:

“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. Section 13 gives effect to the general rule that a transfer can be effected only between living persons. There cannot be a direct transfer to a person who is not in existence or is unborn. This is the reason why section 13 uses the expression transfer ‘for the benefit of’ and not transfer ‘to’ unborn person. A child in the mother’s womb is considered to be competent transferee. Therefore, the property can be transferred to a child in mother’s womb because the child exists at that time but not to an unborn person who does not even exist in mother’s womb. Every transfer of property involves transfer of interest. As soon as the property is transferred, the transferor is divested of that interest and the interest is vested in the transferee. For vesting of interest, therefore, it is necessary that the transferee must be in existence. Otherwise the interest will remain in abeyance till the transferee comes into existence. This is against the very concept of an interest. Section 13 provides that the property cannot transfer directly to an unborn person but it can be transferred for the benefit of an unborn person. For transfer of property for the benefit of unborn person two conditions are required to be fulfilled:

1) Prior life interest must be created in favour of a person in existence at the date of transfer, and

2) Absolute interest must be transferred in favour of unborn person.

PRE- REQUISITES FOR A VALID TRANSFER OF PROPERTY TO AN UNBORN PERSON

Section 13 provides a mechanism for a specific mechanism for transferring property validly for the benefit of unborn persons. The procedure as follows:

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.

Creation of a Prior Life Interest

To the extent the making of an earlier intrigue is concerned, first, the property is given for life to a living individual. It isn’t essential that life intrigue ought to be made for just a single living individual. The exchange is able to make progressive life interests for a few living people in the meantime.

For instance, A transfer property to B for life, and after him, to C, and then to D again for their lives and then absolutely to B’s unborn child UB.

A ———————————B (life interest)

———————————-C (life interest)

———————————-D (life interest)

———————————-UB (Absolute interest)

On B’s death, the possession would be taken by C and on C’s death, by D. On D’s death, the possession would go to B’s child, who should have come in existence by this time. If he not there, the property would revert back to A, if he is alive, else to his hiers.

No Life Interest for an Unborn Person

To the extent the unborn is concerned, no life intrigue can be made to serve an unborn individual. Area 13, particularly forbids that, by the utilization of the articulation, ‘the intrigue made to assist such individual’ will not produce results, except if it reaches out to the entire of the rest of the enthusiasm of the transferor in the property. It implies that the exchange must pass on to the unborn individual, whatever intrigue he had in the property, without holding anything with him. Along these lines, no restricted domain can be presented to serve the unborn individual. Whenever constrained enthusiasm for the property is made due with him, the equivalent would be void.

For instance, A creates a life estate in favour of his friends B, and a life estate for the benefit of B’s unborn first child UB1 and then absolutely to B’s second child UB2.

A ———————– B (Life interest)

———————– UB1 (Life interest)

———————– UB2 (Absolute interest)

This figure is of limited interest in the property for the benefit of an unborn person and would therefore be void and incapable of taking effect in law. After the death of B, here, the property would revert back to A or his hiers as the case may be, as even though the transfer for the benefit of UB2 appears to be proper, as it is dependent on a void transfer that cannot take effect in law; a transfer subsequent to, or dependent on a void transfer can also not take effect.

Thus, where a father gave a life interest in his properties to his son and then to his unborn child absolutely, it was held that the settlement was valid. But where the interest in favour of the unborn child was a life interest the settlement would be void, and a subsequent interest would also fail. Similarly, where there is possibility of the interest in favour of the unborn child being defeated either by a contingency or by a clause of defeasance, it would not be a bequest of the whole interest, and would be therefore be void.

In the example cited above, suppose UB1 dies before B and UB2 is alive when the life estate in favour of B comes to an end. Even then, the transfer of the benefit of UB2 will not take effect as the validity of the transfer has to be assessed from the language of the document and not with respect to probable or actual events that may take place in future. It is the substance of the transfer that will determine whether it is permissible under the law or not and not how the situation may emerge in future.

In Girish Dutt V Data Din, A made a gift of her property to B for her life and then to her sons absolute. B had no child on the date of execution of the gift. The deed further provided that in case B had only daughters, then the property would go to such daughters but only for their life. In case B had no child then after the death of B, the property was to go absolutely to X.

The deed on paper provided a life estate in favour of B’s unborn daughters: which is contrary to the rule of sec.13. However, B died without any child, and X claimed the property under the gift deed. The court held that where a transfer in favour of a person or his benefit is void under sec.13, any transfer contained in the same deed and intended to take effect or upon failure of such prior transfer is also void. In determining whether the transfer is in violation of sec.13, regard has to be made with respect to the contents of the deed and not what happened actually. Here as the transfer stipulated in the contract that was void, the transfer in favor of X also became void. Hence, X’s claim was defeated.

Case Laws

Sopher’s case

In the case of Sopher v Administrator General of Bengal a testator directed that his property was to be divided after the death of his wife into as many parts as there shall be children of his, living at his death or who shall have pre-deceased leaving issue living at his death. The income of each share was to be paid to each child for life and thereafter to the grand-children until they attained the age of 18, when alone the grand-children were to be absolutely entitled to the property. The bequest to the grand-children was held to be void by Privy Council as it was hit by section 113 of the Indian Succession Act which corresponds to section13 of Transfer of property Act. Their Lordships of the Privy Council observed that: “ If under a bequest in the circumstances mentioned in section 113, there was a possibility of the interest given to the beneficiary being defeated either by a contingency or by a clause of a defeasance, the beneficiary under the later bequest did not receive the interest bequeathed in the same unfettered form as that in which the testator held it and that the bequest to him did not therefore, comprise the whole of the remaining interest of testator in the thing bequeathed.

Ardeshir’s Case

In Ardeshir V Duda Bhoy’s case D was a settler who made a settlement. According to the terms of settlement, D was to get during life, one-third each was to go to his sons A and R. After D’s death, the trust property was to be divided into two equal parts. The net income of each property was to be given to A and R for life and after their death to the son’s of each absolutely. If A and R were each to pre-deceased D without male issue, the trust were to determine and the trust property were to the settler absolutely. The settler then took power to revoke or vary the settlement in whole or in part of his own benefit. It was held that R’s son who was not born either at the date of settlement or his death did not take any vested interest and the gift to him was invalid. A’s son who was alive at these dates did not also take a vested interest.

Applicability of Sopher and Ardeshir rulings in India

The decision in Sopher’s case and Ardeshir’s case were applied by Bombay High Court in Framroz Dadabhoy v Tahmina, in this case, bai Tahmina settled a certain sum upon trust in favor of herself for life and after her death and subject to the power of appointment by codicil or Will among her issues born during her lifetime in trust for all her children who being sons shall attain the age of 18 or being daughters shall attain that age or marry under that age being daughter’s, in equal sums. It was held by their Lordships that the decision in the Sopher’s case could not be applied to the trusts of a settlement which were transfer inter-vivos. It was held that the words ‘extend to the whole of remaining interest of the transferor in the property’ in section 13 of the Transfer of Property Act were directed to the extent of the subject-matter and to the absolute nature of the estate conferred and not to the certainty of vesting.

RULE AGAINST PERPETUITY

Perpetuity means an uncertain period or time or indefinite period. There are people who want to retain their property in their own families from generations to generations. This will be a loss to the society because it will be deprived of any benefit arising out of that property. Free and frequent circulation is important and the policy of the law is to prevent the creation of such perpetuity.

Origin: 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 Section 1O of the Act. And a disposition to create a future remote interest is prohibited under Section 14 of the Act.

Object: As discussed earlier, it is important to ensure free and active circulation of property both for trade and commerce as well as for the betterment of the property that ultimately is good for the society. Thus, the object of this section is to see that the property is not tied- up and to prevent creation of perpetuity.

Following conditions must be satisfied to attract Section 14:

There must be a transfer of property.
The transfer should be to create an interest in favour of an 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 must be in existence at the expiration of the interest of the living persons.
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.

EXTENT OF PERPETUITY PERIOD

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.

EXCEPTIONS

Transfer for public benefit. Where property is transferred for the benefit of the people in general, then it is not void under this rule. e.g. for the advancement of knowledge, religion, health, commerce or anything beneficial to mankind.
Covenants of Redemption. This rule does not offend the covenants of redemption in 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 i transfer of interest.
Pre-emption. 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. It is not applicable to the contracts of perpetual renewal of leases.
This rule is not applicable to mortgages because there is no creation of future interest.

RULE UNDER HINDU LAW AND MUSLIM LAW

Prior to the enactment of the TP Act, the rule under Hindu and Muslim law was that a gift to a person who was not in existence, was void. The position under Muslim law continues to be the same. However, for Hindus, the rule was modifies by series of enactments to bring it conformity with sec.13 of the TP Act. Same provisions have also been provided under Indian Succession Act 1925, which permits bequest for the benefit of unborn person. Section 113 of India Succession Act 1925(IS Act), applies to legacies created for the person not in existence and contain a provision almost identical to section13 of the TP Act.

RULE AGAINST ACCUMULATION

Section 17 of the Act speaks about the “Accumulation of Income of property or Direction for Accumulation”. A direction for the accumulation of income of property amounts to limiting the beneficial enjoyment of property. Such direction is void as per Section 11 of the Act but Section 17 is an exception.Section 11 is applicable where there are absolute transfers whereas Section 17 applies to all kinds of transfer. e.g., A settler by deed directs accumulation for 25 years and himself lives for 40 years, from the date of transfer. The accumulation for 25 years is good.

This Section is akin to Section 117 of Indian Succession Act, 1925.

Permissible period for Accumulation is as per law:

i) Life of the transferor; or
ii) Period of 18 years, whichever is longer. Any condition beyond this period is void and not operative. The direction can be for the whole or part of the income.

Illustration: X transfers his property to Z with a direction that the income of the said properties shall accumulate during X’s life and shall be given to M. The direction here is valid only up to the life of Z and not after his death.

EXCEPTIONS

Payment of Debts. This rule is not applicable where the purpose for accumulation is the payment of debts incurred by the transferor or any other person having an interest in the transfer.
Accumulation for raising portions. It means providing a share of the income for maintenance. It does not apply to cases where accumulation of income is for providing portions to children or for some remote issue of the transferor or any other person interested in the transfer.
Maintenance of property. Accumulation for the proper maintenance and preservation of the property shall not be void even if it exceeds the life of the transferor or 18 years from the date of transfer.

CONCLUSION

A child in womb is literally not a person in existence, but has been so treated under both Hindu Law and English Law child in its mother’s womb is for many purposes regarded by a legal fiction as already born, in accordance with the maxim nasciturus pro jam nato habetur.

Section 13 provides that the property cannot transfer directly to an unborn person but it can be transferred for the benefit of an unborn person. For transfer of property for the benefit of unborn person two conditions are required to be fulfilled: Prior life interest must be created but not for an indefinite period in favor of a person in existence at the date of transfer, and Absolute interest must be transferred in favor of unborn person.