Report No. 70
Chapter 27
Vested Interest
Section 19 and 20
27.1. Vested interest.-
The provisions so far contained in the Act dealt with certain fundamental matters concerning the question and commencement of interests in property. Assuming that a valid interest is created, it becomes necessary to consider the nature of the interest that is, by the terms of the transfer, created. The most important question to be considered is whether the interest is a present one, or whether it is future one. In this connection, it may be recalled that in the scheme of the Act, a transfer of property can be made in present or in future.
Since two alternatives as to the time of taking effect of the transfer are expressly permitted, suitable terminology had to be devised for dealing with the two situations and it was also necessary that appropriate rules be available for determining whether in a particular case the interest exacted is to be regarded as a present interest or as a future interest.
As regards the terminology, the Act employs the expressions "vested" and "contingent". Vested interests themselves are divided into two classes, which will be dealt with later.
First, as to vested interests, section 19 provides as follows:
"19. Where, on a transfer of property, an interest therein is created in favour of a person without specifying the time when it is to take effect, or in terms specifying that is to take effect forthwith or on the happening of an event which must happen, such interest is vested, unless a contrary,intention appears from the terms of the transfer.
A vested interest is not defeated by the death of the transferee before he obtains possession.
Explanation.-An intention that an interest shall not be vested is not to be inferred merely from a provision whereby the enjoyment thereof is postponed, or whereby a prior interest in the same property is given or reserved to some other person, or whereby income arising from the property is directed to be accumulated until the time of enjoyment arrives, or from a provision that if a particular event shall happen the interest shall pass to another person."
27.2. Other provisions.-
This is a definition of "vested interest". Section 21 defines the correlative "contingent interest". The term is used in the same sense in the Indian Succession Act, where a legacy is said to be vested in the interest when its payment or possession is postponed;1 but when its vesting depends upon a specified uncertain event, the interest of the legatee is, until the condition has been fulfilled, "contingent".2 It would equally serve as a definition of the term as used in the Indian Registration Act.3
1. Section 119, Succession Act.
2. Section 120, Succession Act.
3. Section 17, Registration Act; Abdool v. Goolam, ILR 30 Born 304 (315, 316).
27.3. Principle.-
The difference between the two interests is that while a vested interest takes effect from the date of transfer and does not depend on a period or event that is uncertain, a contingent interest is contingent upon the happening of a contingency which may or may not take place-Whilst the one is unconditional, the other is solely dependent upon the fulfilment of the condition which may or may not be fulfilled. In the one, the transfer itself is immediate, but, in the other, there is no immediate transfer. The latter may develop into the former, but until it does so, it is uncertain.
The word "vested" is sometimes used as payable, as where the charges of members of a class or directed to be vested at a particular time1, there being a gift over to the other members of a class of the shares of those dying before that time without issue. Thus, where A bequeaths to B 100 rupees, "to be paid" to him at the death of C, on A's death the legacy becomes vested in interest in B, and if he dies before C, his representatives are entitled to the legacy.2
But where an estate is bequeathed to A until he shall marry, and after that event, to B, B's interest in the bequest is contingent until the condition shall be fulfilled by A's marrying.3 The law is said to favour the vesting of estates,4 the effect of which principle seems to.be that property, which is the subject of any disposition, whether testamentary or otherwise, will belong to the object of the gift immediately on the instrument taking effect, or afterwards as such an object comes into being or the terms thereof will permit.5
1. Williams v. Haythrone, LR 6 Ch 782.
2. Section 119, (iii), (i), Succession Act, 1925.
3. Section 120, (iii), (vi), Succession Act, 1925.
4. Charlton v. Thompson, LR ISC Ap 232; Taylor v. Graham, 3 App Cas 1287.
5. Maseyk v. Fergusson, ILR 4 Cal 304.
27.4. Two kinds of vesting.-
Estates and interests may be: (a) vested in possession-as where there is a present right to the immediate possession or enjoyment; (b) vested in interest-where there is a present in defeasible right to the future possession or enjoyment. Therefore, an interest may be vested, although there may not be a right to present possession, and it may be that the transferee may never enjoy possession or the vested right may subsequently be divested. Thus, where there is a gift to an infant with remainder over in the event of his dying under twenty-one, the infant has a vested interest subject to be divested on his death under age.1 A subscriber who relinquishes his right of complete control, has still a vested interest in the money.2
1. O'Mahoney v. Burdett, LR 7 HL 388; Masevk v. Fergusson, ILR 4 Col 304; Branstrom v. Wilkinson, 7 Ves 421.
2. Das v. Secretary of Burma Oil, AIR 1941 Rang 239.
27.5. Explanation to section 19.-
The Explanation to section 19 guards against an inference that may be made against the interest being vested from-(i) a provision whereby the enjoyment is postponed,1 or (ii) whereby a prior interest in the same property is given or preserved to some other person,2 or (iii) whereby income arising from the property is directed to be accumulated,3 or (iv) from a provision that on the happening of a particular event the interest shall pass to the another person.4
It will be seen that in no case mentioned above is the vesting contingent upon the happening of an uncertain future event.5
1. Kaly Nath v. Chunder Nath, ILR 8 Cal 878.
2. Kay Nath v. Chunder Nath, ILR 8 Cal 878.
3. Gossain v. Gossain, ILR 13 Born 463.
4. Barnes v. Allen, 1 Bro CC 18; Basant Kumar v. Ramsankar Ray, ILR 59 Cal 859; Lal Bahadur Singh v. Rajinder, AIR 1934 Oudh 161.
5. Gour.
27.6. Question of death.-
Since death is a certain event though the time is not certain, it follows that an interest created in favour of a person on the death of another is one created "in terms specifying that it is to take effect on the happening of an event which must happen". Accordingly, such interest is to be regarded as vested, unless a contrary intention appears from the terms of the transfer.
In contrast, the words in the section dealing with vested contingent interest-section 21-are "a specified uncertain event." Where interest is given to A for life and after his death to B if B shall be then living, the interest given to B is not vested, but only contingent.1
1. Compare section 120, Indian Succession Act, 1925, illustration (iii).
27.7. Obscurity as to cases of contingency of death.-
This general criterion appears to be simple enough, but it would appear that there is some obscurity as to the precise position where the contingency is the death of the holder of the prior life estate. The ordinary rule would be that a gift to A on the death of B after termination of the life interest of B creates a vested interest in A even during the life time of B, because there is nothing more certain than death.1 It is not always easy to decide whether a particular transfer discloses a contrary intention within the terms of section 19. The judgement of the Supreme Court in the case of Rajes Kanta Roy2 in a case which illustrate no contrary intention.
On the other hand, a Patna case3 illustrates a contrary intention. In the Patna case, a husband, by a taksimnama, provided as follows: "The property shall devolve upon B or his legal heir shall become the absolute owner of my property on the death of my wife." During the widow's lifetime, B sold the widow's property and B died during the lifetime of the widow. The reversioner of the widow brought a suit for possession of the property.
It was held that the case really came within the principle of section 24 (interest conditional on survivorship) and not section 19, and that the interest in favour of B was contingent and not vested, and came to an end on his death during the life-time of the widow. The sale made by him during the widow's life time therefore would not affect the reversioner's right over the property after the death of the widow. In coming to this conclusion the High Court relied primarily on the words "B or his heirs", holding that survivorship of B was a condition precedent for vesting in B.
1. Mulla, (1973), p. 133.
2. Rajesh Kanta Roy v. Shanti Devi, (1957) SCR 77: AIR 1957 SC 255.
3. Ram Chandra v. Jagadeshwara Prasad, AIR 1937 Pat 147 (Dhavle & Varma, JJ.).
27.8. Recommendation to amend section 19.-
The correctness of this judgement of the Patna High Court is, with respect open to doubt. We think that it takes a view which might, in most cases, defeat the real intention of the transferor. When the transferor uses the words "B or his heirs" or words to that effect, the intention of the transferor, at least from the point of view of the layman, would ordinarily be that the interest should immediately vest in B-as a matter of "vesting of interest" as distinct from vesting in possession.
The mention of the heirs does not indicate an intention that the survivorship is a condition precedent to the vesting of the interest in the abstract. It merely states the obvious situation as regards possession if B does not survive. This is precisely what happens at law in the case of vested interest-a gift vested in interest, though not in possession. To reach a contrary conclusion on the basis of an assumed different intention is hardly justifiable, since the assumption does not appear to be correct.
It may be that the layman is not familiar with the distinction between vested and contingent interests, but once the distinction is introduced by the law, and the test of intention is made the crucial one, then it is better to take the view that if the refined scheme of the law had been before the transferor, he would, in cases of the nature under consideration, rather have preferred that the interest should be regarded as vested during the lifetime of the life estate holder. It is only when such a view is taken that the heirs of the beneficiary would be able to take the interest if the beneficiary dies during the continuance of the life interest.
We, therefore, recommend that the law should be laid down in terms contrary to what was held by the Patna High Court. It is, therefore, desirable to add a suitable Explanation to section 10,1 providing that where the transferor uses the word "or his heirs" or words substantially to that effect, a contrary intention shall not be presumed, for the purposes of the section, merely from these words.
1. This is not a draft.
27.9. Section 20.-
The subject of vesting of interests in relation to persons not living at the date of the transfer is dealt with in section 20, in these terms:
"20. Where, on a transfer of property, an interest therein is created for the benefit of a person not then living1 he acquires upon his birth, unless a contrary intention appears from the term of the transfer, a vested interest, although he may not be entitled to enjoyment thereof immediately on his birth."
The section is in harmony with the English law.2 There is no section corresponding to this in the Indian Succession Act. So far as the Transfer of Property Act is concerned, an alternative placing of the section would have been after section 13 and 14, which deal with an interest created in favour of unborn persons. However, the present placing is also appropriate.3
1. Contrast the formula "in existence" employed in some other sections.
2. Lawis v. Walters, 6 Fast 336; Goodright v. Jones, 4 M&Sel 88; Doe v. Dacre, 8 TR 112.
3. See below.
27.10. Principle.-
Generally speaking, property cannot be transferred nor an interest therein created in favour of a person not in existence; but there are certain exceptions which the law allows in favour of unborn persons. These are stated or assumed in sections 13 and 14 and 20. The effect of these sections, then, is that an interest created in favour of an unborn person will take effect upon his birth, in the absence of a contrary intention, provided that it does not offend against the rule as to perpetuities, and-as the law now stands-the interest extends to the whole of the remaining interest of the grantor.1
The only proposition this section is intended to enact, is that an interest created in favour of an unborn person will take effect, as a vested interests, even though the transferee may not have become entitled to an immediate enjoyment.2
1. Cadell v. Palmer, 1 Cl & Fin 372.
2. Gour.
