top of page

Vested Interest under Transfer of Property Act


Vested Interest
Vested Interest


Content:-



Vested Interest (Sec. 19), TPA


Where on a transfer of property, an interest therein is created in favour of a person-


  1. without specifying the time when it is to take effect, or

  2. specifying that it is to take effect forthwith, or

  3. on the happening of an event which must happen

such interest is vested, unless a contrary intention appears from the terms of the transfer. 


Explanation — An intention that an interest shall not be vested is not to be inferred merely from a provision whereby (i.e. a vested interest is nonetheless a vested interest even where the transfer deed contains a provision whereby) —


  1. the enjoyment thereof is postponed, or 

  2. a prior interest in the same property is given or reserved to some other person, or

  3. the income arising from the property is directed to be accumulated until the time of enjoyment arrives, or

  4. on the happening of a particular event, the interest passes to another person. 


A vested interest is not defeated by the death of the transferee before he obtains possession”.



Analysis of Sec. 19, TPA

An interest is considered vested when it is not subject to any condition precedent, meaning it takes effect immediately or upon the occurrence of a certain and inevitable event.


When a person acquires a proprietary right in property, with the enjoyment deferred until a future event occurs, the interest is deemed vested.


When an interest is vested, it becomes the property of the transferee and is transferable under Section 6 of relevant laws, even before possession is obtained.


In the event of the transferee's demise, their interest passes to their legal representatives, regardless of possession. There exists a strong presumption that, upon transferring property, the transferor intends to confer a vested interest upon the transferee.


For instance, in the case of a Hindu widow adopting a son, if there's an agreement delaying the son's estate until the widow's demise, the interest vested in the adopted son isn't contingent upon a condition precedent but rather upon the certain event of the widow's passing.


The adopted son possesses a present proprietary right in the estate, though the right to possession and enjoyment is postponed. Consequently, the adopted son retains the ability to transfer the property even during the widow's lifetime.



Similarly, when a property is transferred to an individual, it confers a vested interest along with an immediate entitlement to possession and enjoyment.


This vested interest remains intact even if the transferee passes away before taking possession of the property. The law views a vested interest as divisible, transferable, and inheritable property, as established in the case of Elokasee v Darponaratn (5 Cal 59).



Illustrations

  • A makes a gift to B of Rs. 100 to be paid to him on the death of C. B gets a vested interest, as the event, namely, C’s death is certain.


  • A property transferred to A, B and C in equal shares to be paid to them on their attaining the age of 18 with a proviso that, if all of them die under the age of 18, the property shall go to D. A, B and C acquire a vested interest even though it is liable to be divested on the happening of the event specified. Here, D acquires a contingent interest.


  • A transfers the whole of his property to B upon trust to pay certain debts out of the income, and then to make over the property to C. C has a vested interest, the payment of debts postpones enjoyment but the interest vests immediately.


  • A property is transferred to A for life and after his death to B. Here, although a prior interest in favour of A intervenes, but B’s interest is vested as the determination of A’s interest is a certain event. 


  • A transfers property to B in trust for C, and directs B to give possession of the property to C when C attains the age of 25. C has a vested interest in the property, and is entitled to the possession at the age of 18. 


When unborn person acquires vested interest (Sec. 20)

Where, on a transfer of property, an interest therein is created for the benefit of an unborn person, he acquires, upon his birth, a vested interest, although he may not be entitled to the enjoyment thereof immediately on his birth. 




Leading Case Law


In the case of RAJES KANTA ROY v SMT. SHANTI DEBI (AIR 1957 SC 225), the court deliberated on the principle governing the determination of whether interests acquired by beneficiaries under a trust are contingent or vested.


The case involved a property owner appointing his eldest son as the trustee of his entire estate, with provisions for division among his two sons. However, the interests of the sons were made subject to two conditions:


1. The discharge of all debts of the settlor.


2. The death of the settlor himself and the termination of the trust.


The crucial question arose regarding the nature of the interest created by the trust deed—whether it was vested or contingent.


While the settlor's death was a certain event, the discharge of debts was uncertain.


The court elucidated that established precedent dictates that such a provision (regarding debt payment) confers an immediately vested interest, with apparent postponement deemed to create a charge.


The determination hinges on the intention discerned from a holistic analysis of the document's terms.


Examining the trust deed's scheme, the court noted:


1. Specific lots were designated for each son.


2. Current income from these lots was allocated for debt discharge.


3. Any surplus income was to accrue to the respective son.


4. In the event of a son's demise, his interest would pass to his heirs.


The Supreme Court interpreted these arrangements collectively, concluding that the postponement pertained not to the vesting of property in the lots but to the income enjoyment. The income was encumbered by monthly payments to sons and the obligation to discharge debts, constituting income application for their benefit.


Despite the settlor's emphasis on debt liquidation, there was no indication that he doubted the debt discharge from his assets' income.


The settlor did not view debt discharge as an uncertain event significant enough to predicate his sons' interest accrual on its occurrence. Moreover, the income earmarked for debt discharge was also for the sons' benefit.


Consequently, the interest obtained by the sons under the trust deed was deemed vested, not contingent, and thus attachable under a court decree.



0 views0 comments

Comments


bottom of page