llb-property-law

Q.6 : Describe vested interest and explain its nature.

Ans. Section 19 of T.P. Act has defined vested interest in the following terms:

Where, on a transfer of property, an interest therein is created in favours of a person without specifying the time when it is to take effect, or in terms specifying that it is to take effect forth with 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 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.

A vested interest is one which is not subject to a condition precedent- or subject only to a condition referring to an event certain in its very nature. It is transmissible or heritable interest and is not defeated by the death of the person before his interest becomes effective in possession. If the vested interest is accompanied by the right to possession, then it is an interest in-praesenti. Otherwise it is future estate vested in interest but not in possession.

A future interest is vested if two conditions are satisfied:

(i) That the persons or persons entitled to the interest are ascertained; and

(ii) that the interest is ready to take effect forth with upon the determination of all the preceding estates and interests. If either condition is not satisfied, the interest is contingent.

Vested interests as defined in this Section are to be distinguished from contingent interest as defined in sec. 21. When an interest is vested the transferee's title is already perfect. When the interest is contingent his title is as yet imperfect but is capable of becoming perfect on the fulfillment of some condition. If the condition refers to a certain event, the interest upon it is not contingent but is vested. If it is an uncertain event it is contingent, for the condition may never be fulfilled and the transfer may never take effect.

Thus a gift to A on the death of B creates a vested interest in even during B's life time for the condition is bound to happen. But a gift to A on the marriage of B creates only a contingent interest becomes vested if and when B marries.

It may be noted that an interest may be vested even though it does not give a right to immediate possession. Thus on a transfer to A for title with remainder to B, B's interest is vested because there is nothing but A's prior interest to stand between him and the actual enjoyment of the property transferred.

An estate may be vested although the facts may be such that it never becomes vested in possession and so never gives a right to the actual enjoyment of the land. Thus on a transfer to A for life with remainder to B for life with remainder to C; B's estate is vested notwithstanding that if B dies before A, his interest will never vest in possession for there is still nothing but A's estate between B and the enjoyment of the land.

An interest created on a transfer of property in favour of a person is said to be vested where-

(i) No time is specified for it to take effect, or

(ii) it is expressed to take effect forthwith, or

(iii) it is to take effect on the happening of an event which must happen.

A vested interest is nonetheless a vested interest even where the transfer deed contains a provision whereby-

(a) the enjoyment thereof is postponed, or

(b) a prior interest in the same property is given to some other person; or

(c) the income arising from the property is directed to be accumulated until the time of enjoyment arrives; or

(d) On the happening of a particular event, the interest passes to another person.

It will be seen that there are three stages which nay be marked in regard to interests. An interest may be vested in possession; it may be vested and yet not in possession; or may be contingent.

It may be vested in possession as where a transfer is made in general terms without specifying the time when it is to take effect or is expressed to take effect forthwith or if it may be an interest vested even though it does not give a right to immediate possession in anyone the situations mentioned in the explanation to the section.

Indeed there is a strong presumption that on a transfer of properly the transferor intends to confer a vested interest in the transferee unless a contrary intention appears from the terms of the transfer.

The question whether a transfer is vested or contingent is best explained by the illustrations given below.

Illustrations

(i) A makes a gift to B of Rs. 100/- to be paid to him on the death of C, B gets a vested interest in the sum transferred and if he dies before 'C' his representatives are entitled to the sum of money so transferred.

In this case interest of B takes effect on the happening of an event which is certain and therefore the interest is vested interest. The event, namely C's death is certain and is bound to take place and therefore B's interest is vested.

(ii) A transfers to B Rs. 100/- to be paid to him upon his attaining the age of 18: B has a vested interest in 100 rupees. Here the interest is one the enjoyment of which is postponed. The words "to be paid" or "payable" at a certain age do not make the interest contingent. On the other hand, a gift "at" a certain age or "if" or "when" a certain age is attained is contingent

In this case when the will comes into operation i.c. on A's death B acquires a vested interest. Here only enjoyment is postponed

Effect of vested Interest

When an interest is vested it becomes the property of the transferee and is under section 6, transferable by him even before he has obtained possession. If the transferee dies his Interest vests in his legal representatives whether or not he has obtained possession.

A question arose whether the interest taken by beneficiaries under trust is contingent or vested and it was decided by the Hon'ble

Supreme Court in the case of Rajes Kanta Vs. Smt. Shanti Devi AIR 1957 S.C. 255.

The facts of the case have been that one Ramani Kanta Roy executed a registered trust deed in respect of his properties. The eldest son Rajes Kanta Roy was appointed the sole trustee to hold the properties under trust subject to certain powers and obligations. After the execution of the said deed Ramani Kanta died.

Clause 12 of the deed was the main under which Rajesh Kanta and his brother Ramandra Kanta Roy got any interest in the properties. This clause showed that Lots, I to IV of the properties ultimately went to Rajes and Lot V alone went to Ramendra. But the interest which either of them was to get in the properties allotted to each was expressed to be one which cach would get after the termination of the trust. It was only after the happening of two events viz.

(i) the discharge of all the debts specified in the schedule including the debts if any which might be incurred by the trustee for the payment of settlor's debts, and

(ii) the death of the settler himself, that the trust was to come to an end, it was on coming to an end of the trust that the sons were to get the properties allotted to them.

The question was whether the interest created by the trust deed was vested or contingent. It was recognised that the death of the settler was not an uncertain event and that, therefore, did not involve any element of contingency. But it was urged that the discharge of the debts was an uncertain event in the sense that neither factum nor the time of such discharge was one which could be predicted with any certainty; since the interest which two brothers were to take was to be only after such discharge, their subjective interest therein were contingent.

The Supreme Court held that the interest taken by the two brothers under trust deed were as vested and not as contingent.

It was held that while the settler attached considerable importance to the liquidation of debts there was nothing to show that he was apprehensive that the debts would remain undischarged out of his properties and its income and that he contemplated the ultimate discharge of his debts to be such an uncertain event as not to derive him to make the accrual of the interest to his sons under the deed to depend upon the event of the actual discharge of his debts.

The balance of the income which was meant to be applied for the discharge of the debts was, also an application of the income for the benefit of the donees.

The entire scheme of the trust deed was;

(1) Specified lots were earmarked for each of the two sons;

(2) The present income out of those lots were to be applied for the discharge of the debts after payment of specified sums therefrom by way of monthly payments to the two sons and presumably such application was to be notionally pro-rata;

(3) Any surplus remaining out of the Income of each of the lots were to go to the very person to whom the corpus of the lot itself was to being on the termination of the trust.

(4) In the event of any of the two sons dying before the termination of the trust his interest in the monthly payments out of the on income was to devolve on his heirs.

These arrangements taken together clearly indicated that what was postponed was not the very vesting of the property in the lots themselves but that the enjoyment of the income thereof was burdened with certain monthly payments and with the obligation of discharge debts there from notionally pro-rata, all of which taken together constituted application of the income for the benefit of the two sons.

Therefore the interest taken by two sons under the trust deed was vested and not contingent.

Where under a decd of settlement a person was given life estate in the property with remainder in children of life estate holder, not in existence at the time of settlement and the interest of the children was to take effect on the happening of specified uncertain event, uncertain as to time, namely, the death of the life estate holder, therefore, till the death of the life estate holder the interest of the children in the property was contingent. It was nothing sort of spes-successionis and the interest of the life estate holder in the property during his life time was vested interest.

It was observed by the Supreme Court, in another case, that the deed of settlement could not be construed as a transfer in favour of unborn person, yet it settled property on trust and the unborn children under trust may be beneficiaries but they could claim interest only after the death of the life estate holder and no interest in her life time.

Section 20 of the T.P. Act lays down that where on a transfer of property an interest therein is created for the benefit of a person not then living, he acquires upon his birth unless a contrary intention appears from the terms of the transfer, a vested interest, although he may not be entitled to the enjoyment thereof immediately on his birth.

Creation of an interest in favour of an unborn person

This section lays down that an interest created for the benefit of an unborn person vests as that person is born. Such interest remains a vested interest even though he may not be entitled to the enjoyment thereof immediately on his birth. For example A transfers an estate to trustees for the benefit of A's unborn son with a direction to accumulate the income of such estate for a period of ten years from the date of the birth of A's son and then hand-over the fund to him. A's unborn son acquires a vested interest upon his birth although he is not entitled to take and enjoy the income of the property for a period of 10 years as mentioned above. A contrary interest that an estate shall vest at birth may appear as when the interest is contingent c.g. transfer to A for life and then to A's unborn son when attains the age of 12 years.


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