Transfer of Property Act (TPA)
Rule Against Perpetuity vs Rule Against Accumulation: Vesting of the Corpus and Piling Up of the Income
A settlor may tie up property in two quite different ways. He may postpone the moment at which somebody becomes entitled to it, which section 14 limits; or he may let somebody be entitled to it while directing that the income be saved up rather than enjoyed, which section 17 limits. The two rules use different measuring sticks, and they produce different consequences when broken: a remote interest is void altogether, while an excessive direction to accumulate is void only for the excess.
Figure 1: The two permitted periods measured from the date of the transfer, and what each of them governs
1. The Two Provisions
Section 14 and section 17 Section 14 — no transfer can operate to create an interest to take effect after the lifetime of one or more persons living at the date of the transfer, and the minority of a person in existence at the expiration of that period to whom the interest is to belong. Section 17(1) — where the terms of a transfer direct that the income arising from the property shall be accumulated, wholly or in part, for a period longer than the life of the transferor or eighteen years from the date of the transfer, whichever is longer, the direction is void to the extent of the excess; and at the end of the permitted period the property and its income are disposed of as if the period of accumulation had elapsed. |
2. The Comparison
Point | Rule against perpetuity — s. 14 | Rule against accumulation — s. 17 |
|---|---|---|
Subject matter | The corpus — the property itself | The income arising from the property |
What is limited | How long vesting may be postponed | How long the income may be accumulated instead of being enjoyed |
The permitted period | A life or lives in being at the date of the transfer, plus the minority of a person in existence when that period ends | The life of the transferor, or eighteen years from the date of the transfer, whichever is longer |
How it is measured | By lives in being — which may be any persons living at the date of the transfer | By the transferor's own life, or by a flat term of years; never by other lives in being |
Effect of breach | The interest itself is void | The direction is void only as to the excess; accumulation during the permitted period stands |
Knock-on effect | Section 16 — dependent interests fail with it; section 15 saves unaffected members of a class | None. At the end of the permitted period the property and income are dealt with as if the accumulation period had run out |
Exceptions | Transfers for the benefit of the public — s. 18; personal covenants creating no interest in property | Payment of debts, portions for children or remoter issue, and preservation of the property — s. 17(2); and s. 18 |
3. Why the Periods Are Different
- Section 14 must accommodate people who are not yet born. Its period is built from lives in being plus a minority precisely so that a settlor may provide for the next generation. It has to be generous enough to make section 13 workable.
- Section 17 addresses a different mischief. Here somebody is already entitled to the property; the objection is that he is kept out of the enjoyment of its fruits while the fund grows. A shorter, simpler measure suffices.
- And the measuring persons differ. Section 14 lets the settlor choose any lives in being; section 17 fixes on the transferor's own life or a flat eighteen years, so that the period cannot be stretched by selecting long-lived measuring lives.
The history behind section 17 The English rule has its origin in Thellusson v. Woodford (1799), where a testator directed that the income of a very large estate be accumulated during the lives of his sons, grandsons and great-grandsons living at his death. The direction was upheld, but the prospect of a fortune compounding for a century produced the Accumulations Act, 1800, commonly called the Thellusson Act. Section 17 of this Act is the Indian descendant of that legislation. |
4. Effect of Breach, Illustrated
The direction | Result |
|---|---|
'To B for life, then to B's eldest son on attaining 25' | Section 14 — the son's interest is wholly void for remoteness |
'To B absolutely, the income to be accumulated for 30 years from the transfer, the transferor being alive' | Section 17 — valid for the longer of the transferor's life or 18 years; void as to the excess, after which the income is dealt with as if the accumulation period had ended |
'… the income to be accumulated for 15 years' | Wholly good — within the permitted period |
'… the income to be accumulated until the transferor's death, he dying 25 years later' | Good — the first limb permits accumulation for the transferor's life, which here is longer than eighteen years |
'… the income to be accumulated for 40 years to pay off the transferor's debts' | Outside the section — sub-section (2) excepts accumulation for the payment of debts |
'… the income to be accumulated for 40 years for a public hospital' | Outside the section — section 18 excludes sections 14, 16 and 17 for transfers for the benefit of the public |
5. The Three Statutory Exceptions to Section 17
- Payment of the debts of the transferor or of any other person taking an interest under the transfer.
- The provision of portions for children or remoter issue of the transferor, or of any other person taking an interest under the transfer.
- The preservation or maintenance of the property transferred.
Each is a purpose the law regards as legitimate and self-limiting: the accumulation ends when the debts are paid, the portions provided, or the property preserved. To these must be added section 18, which takes transfers for the benefit of the public outside sections 14, 16 and 17 altogether.
6. Where the Two Rules Can Both Apply
A single settlement may offend both. Suppose property is settled on B for life, then on B's unborn son on attaining twenty-five, with a direction that the income be accumulated throughout. The gift to the son is void under section 14 for remoteness; and the direction to accumulate is void beyond the permitted period under section 17. The two questions are answered separately, and the answers do not depend on each other: an accumulation direction may be perfectly good although the ultimate gift is void, and a valid gift may carry a direction to accumulate that is good only in part.
Retention aid Corpus and income; lives and years; whole and part. Section 14 measures by lives in being plus a minority and kills the whole interest. Section 17 measures by the transferor's life or eighteen years and kills only the excess. |
7. Landmark Cases
📖 Thellusson v. Woodford, (1799) 4 Ves 227 Held: A direction to accumulate the income of an estate during the lives of the testator's descendants living at his death was upheld under the law as it then stood, the rule against perpetuity being concerned with the vesting of the corpus and not with the accumulation of income. Ratio: The two rules are distinct: one limits the postponement of vesting, the other the accumulation of income. |
8. Related Topics and Provisions
- Rule Against Perpetuity, Section 14 — the period, and remote vesting
- Direction for Accumulation of Income, Section 17 — the permitted period and the exceptions
- Section 18, TPA — transfers for the benefit of the public
- Sections 15 and 16, TPA — the consequences that follow a failure under section 14
- Section 117, Indian Succession Act, 1925 — accumulations directed by will
- Rule Against Perpetuity vs Restriction on Alienation — the companion comparison