Report No. 70
Direction for Accumulation
25.1. Gist of section 17.-
Restrictions on the alienation or a vesting of the corpus have so far been dealt with. In order to encourage the free circulation of property, the law also considers it necessary to provide restrictions on the accumulation of income. Income cannot unreasonably be accumulated for a long period. Though opinions may vary as to what is and what is not an unreasonably long period, yet the principle, broadly stated, has been accepted in the common law and also in our statutory provisions.
That the opinion may vary from tune to time and place to place is obvious from the fact that the law on the subject has undergone a lengthy process of evolution in England. It may be noted that in Hindu law, the rule was more general than as stated in section 17. In Hindu law, a direction for accumulation is not void unless it is found to be so unreasonable as to be against public policy, or if it is given for the purpose of carrying out an illegal object or is, in its effect, inconsistent with Hindu law.1
We shall revert to this aspect later. The section is in these terms:
"17.(1) Where the terms of a transfer of property direct that the income arising from the property shall be accumulated either wholly or in part during a period longer than-
(a) the life of the transfer, or
(b) a period of eighteen years from the date of the transfer, such direction shall, save as hereinafter provided, be void to the extent to which the period during which the accumulation is directed exceeds the longer of the aforesaid periods, and at the end of such last-mentioned period, the property and the income thereof shall be disposed of as if the period during which the accumulation has been directed to be made had elapsed."
There are exceptions to this general provision contained in sub-section (2). It provides that this section shall not affect any direction for accumulation for the purpose of-
(i) the payment of the debts of the transferor or any other person taking any interest under the transfer, or
(ii) the provision of portions for children or remoter issue of the transferor or of any other person taking any interest under the transfer, or
(iii) the preservation or maintenance of the property transferred; and such direction may be made accordingly.
1. Rajendra v. Raj Kumari, 1907 ILR 34 Cal 5.
25.2. The right to terminate accumulation.-
A beneficiary of full age who has an absolute vested and indefeasible right to the capital and income may terminate the accumulation by directing the trustees to pay the fund to him.1
In the case of Saunders,2 the testator bequeathed his stock to trustees on trust to accumulate the dividends until Vautier should attain the age of twenty-five, and then to transfer the capital and the accumulated dividends to Vautier. Vautier, having attained the age of twenty-one, contended that he was entitled to stop the accumulations and to have the hind transferred to him immediately. Counsel for Vautier argued that he now had a vested interest in the stock, and that since accumulation was for his sole benefit, he was entitled to waive, it and demand an immediate transfer.
Lord Langdale M.R. held:
"I think that principle has been repeatedly acted upon; and where a legacy is directed to accumulate for a certain period, or where the payment is postponed, the legatee, if he has an absolute indefeasible interest in the legacy, is not bound to wait until the expiration of that period but may require payment the moment he is competent to give a valid discharge."
1. Rajendra v. Raj Kumari, 1907 ILR 34 Cal 5.
2. Saunders v. Vautier, (1841) 4 Beav 115.
Before 1929, the section was numbered as section 18, and present section 18 was numbered as section 17. Also, the provision was differently worded.1
1. Para. 25.5, infra.
25.4. History of English law.-
The English rule as to accumulations has undergone a process of evolution for about two centuries. It was the outcome of the decision in the case of Thellusou.1 That case arose out of the will of Peter Thelluson, who, in 1796 A.D., disposed of his vast property by will and excluded his issue from enjoyment, directing accumulation of income for the period of nine lives-all in being-at the date of his death. At that time, there was no statute, prohibiting accumulation and the bequest had to be upheld, but the will led to the passing of the Accumulation Act, 1800 (39-40 Geo. 3, s. 98), which was replaced by the Conveyancing Act, 1881, and which, in its turn, was replaced by sections 164-166 of the Law of Property Act, 1925, slightly amended in 1964.
1. Thelluson v. Woodford, 4 RR 205, affirmed (1805) 8 RR 104.
25.5. Pre-1929 Law in India.-
Before its amendment in 1929, the law in India allowed accumulation for a period of one year only. But, in cases decided independently of the statutory provision, it was held that if there was nothing per se illegal in a direction to accumulate, and if such a direction was not unreasonable or for carrying out an illegal object, it should be upheld. However, the cases did not lay down any definite rule which the lower courts could easily follow. In 1929, the law was amended as it now stands.
25.6. English law.-
The English rule prescribes several periods during which accumulation can validity be directed,1 viz.,-
(a) the life of the grantor or settlor; or
(b) a term of 21 years from the death of the grantor, settlor or testator; or
(c) the duration of the minority or respective minorities only of any person or persons living or en ventre sa mere at the death of the grantor, settlor or testator; or
(d) the duration of the minority or respective minorities only of any person or persons, who under the limitations of the instrument directing the accumulations would, for the time being, if of full age, be entitled to the income directed to be accumulated; or
(e) a term of twenty-one years from the date of making of the disposition; or
(f) duration of the minority or respective minorities of any person or persons in being or en ventre sa mere at that date.
Section 165 of the Law of Property Act, 1925 provides-
"165. Where accumulations of surplus income are made during a minority under any statutory power or under the general law, the period for which such accumulations are made is not to be taken into account in determining the periods for which accumulations are permitted to be made by the last preceding sections, and accordingly an express trust for accumulation for any other permitted period shall not be deemed to have been invalidated or become invalid, by reason of accumulations also having been made as aforesaid during such minority."
Section 166 of the Law of Property Act, 1925 provides-
"166.(1) No person may settle or dispose of any property in such manner that the income thereof shall be wholly or partially accumulated for the purchase of land only, for any longer period than the duration of the minority or respective minorities of any person or persons who, under the limitations of the instrument directing the accumulation, would for the time being, if of full age, be entitled to the income so directed to be accumulated.
"(2) This section does not, nor do the enactments which it replaces, apply to accumulations to be held as capital money for the purpose of the Settled Land Act, 1925, or the enactments replaced by that Act, whether or not the accumulations are primarily liable to be laid out in the purchase of land."
Section 12(2) of the Perpetuities and Accumulations Act, 1964, provides-
"12.(2) It is hereby declared that the restrictions imposed by section 164 (of the Law of Property Act, 1925) apply in relation to a power to accumulate income whether or not there is a duty to exercise that power, and that they apply whether or not the power to accumulate extends to income produced by the investment of income previously accumulated."
Sub-section (2) deals with two previously uncertain points: (i) whether a power, as opposed to a trust, to accumulate was caught by section 164. It was held in Re Robb, 1953 Ch 459 that the section applied to mere powers, and that decision is now confirmed; (ii) whether section 164 applied to an accumulation at simple interest, as opposed to compound interest. There were decisions either way, but the Act now provides that section 164 shall apply to such a case. Section 12(2), however, is not retrospective.
1. Section 164, Law of Property Act, 1925, as amended in 1964.