Vested Interest

Project Assignment
3
rd
Semester, 5 year B.A., LL.B.
Submitted
By
k.karthik











Hall Ticket No.11/LLB/23
DAMODARAM SANJEEVAYYA NATIONAL LAW
UNIVERSITY
NOVEMBER 2012
ACKNOWLEDGEMENT

I, K.karthik would like to take this opportunity to thank
Mr.Dayanandha Murthy (lecturer in Property law) for helping
and guiding me in completing my project.



I would also like to thank our Vice-Chancellor, Prof .R.G.B.
Bhagvath Kumar and Registrar, Prof. P. Sudhakar for giving me
this opportunity to do a detailed study on the vested interest.
I would like to thank my parents in a very special way for
supporting me financially to complete this project.




Index
1. Introduction
2. Definition of Vested Interest
3. Analogous law
4. Scope of the section
5. Distinction between vested and contingent interest
6. Vested in different forms
7. On the happening of an event
Postponement of enjoyment
Conditional limitation
Accumulation of income
prior interest
8.Cases
9.Conclusion
10.Endnotes
11. Bibliography






Introduction
Vested interest
Vested interest is defined under section19 of transfer of property act and this
section should be distinguished from contingent interest as defined in sec.21. when
an interest is vested the transferees title is already prefect. when the interest is
contingent his title is yet imperfect, but is capable of becoming prefect on the
fulfilment of some condition implied. If it is an uncertain event, it is take effect .
Thus , a gift to A on death of B creates a vested interest in A 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 because B may never marry, but that contingent
interest become vested if and when B gets marries.
It must 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 fact may be such it never become vested
in possession and so never give a right to the actual enjoyment of the land. Thus,
on a transfer of A for life with remainder to B life with interest never vest
possession for there is still nothing but A's estate between B and the enjoyment of
land.
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 it 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.
Vesting means granting a person an immediate right to present or future enjoyment
of property. In plain English, one has a right to a vested asset that cannot be taken
away by any third party, even though one may not yet possess the asset. When the
right, to the present or future possession of a legal estate can be transferred to any
other party, it is termed a vested interest.
A vested interest is not defeated by the death of the transferee before he obtains
possession.
Definition of 'Vested Interest'
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 it is to take effect forthwith or on happening of an event which must happen ,
such interest is called vested interest.
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. This interest becoming vested
interest in transfer of property
Analogous law
Section 119 of Indian Succession Act,1925,corresponds with section 19 of Indian
transfer of property act and it run's as follows:
"119,where by the term of a bequest the legatee is not entitled to immediate
possession of the thing bequeathed , a right receive it at the proper time
shall,unless a contrary intention appear by the will, become vested in the legatee on
the testator's death ,and in such case the legacy is from testator's said to be vested
interest.
Explanation:-
An intention that a legacy to any person shall pass not become vested interest in
him not to be inferred merely from the provision whereby the payment or
possession of the bequeathed is postponed ,or whereby a prior interest therein is
bequeathed to some other person, or to some other person, or whereby the income
arising from the fund bequeathed is directed to accumulated until the time of
payment arrives, or from a provision that ,if a particular event shall happen, the
legacy shall go over to other.
illustration:-
A bequeathed to B 100rupees, t be paid to him at the death of C. On A's death the
legacy become vested in interest in b, and if he dies before C, his representative are
entitled to the legacy.
Scope of the section
This section is corresponding to s.119of The Succession Act,1925,give expression
to the English notion of the vested interest and make it the law of the land except in
the case of muhammadans law. A vested interest is a immediate right, as
distinguished from the a right which may come into existence in future. The
immediate right may be right of present enjoyment of right of future enjoyment. In
Sashi kantha v. promod chandara
1
their lordship of the Calcutta High court pointed
out the distinction between a vested interest and contingent interest as following:
An estate or interest is vested , as distinguished from contingent, either when
enjoyment of it is presently conferred or when its enjoyment is postponed the time
of the enjoyment of the will certainly come to pass ,in other words ,an estate is
vested when the immediate right of present enjoyment or future enjoyment .An
interest is said to be contingent interest if enjoyment depend upon some event this
the difference between vested interest and contingent interest.
a person get vested interest when it is created in his favor
(1) without specifying the time when it take effect, or
(2)in terms specifying that it is to take effect forthwith, or
(3) in terms specifying that it is to effect on the happening of an event which is
must happen.
Such interest becomes a vested interest under these two circumstances:
In case where on a transfer of property, an interest is created in favor of a person to
take effect only on the happening of a specified uncertain event, then on the
happening of the event.
In case where on a transfer of property an interest is created in favor of a person to
take effect only on the not happening of a specified uncertain event, then when the
happening of the event becomes impossible. The not happening of the event should
become absolutely certain, beyond doubt. Such an interest becomes a vested
interest in the transferee.
For example
Suppose O is the owner of Blackacre. Consider what happens when O transfers
the property "to A for life, then to B." Person A acquires possession of Blackacre.
Person B does not receive any right to possess Blackacre immediately; however,
once person A dies, possession will fall to person B (or his estate, if he died before
person A). Person B has a future interest in the property. In this example, the event
triggering the transfer is person A's death.
Because they convey ownership rights, future interests can usually be sold, gifted,
willed, or otherwise disposed of by the beneficiary (but see Vesting below).
Because the rights vest in the future, any such disposition will occur before the
beneficiary actually takes possession of the property. this type of interest is known
as vested interest

These points of distinction between vested and contingent interest
need to be noted
A contingent interest is inalienable. On the other hand, vested interest is heritable
and transferable.
A contingent interest depends solely upon the fulfilment of a condition, so that in
case of non-fulfilment of the condition, the interest may fall thorough. On the other
hand, a vested interest does not depend upon the fulfilment of any conditions and
takes effect from the date of the transfer of property.
2
In case of a contingent interest there is no present right. However, there is a
promise for giving one and is altogether dependent upon the fulfillment of the
condition. As against this, in case of a vested interest, there is a present and
immediate right. Only its use is postponed. In case of a contingent interest, the
transferee takes an interest of a contingent nature, which may be defeated by
reason of non-fulfillment of the precedent conditions. This is not the case in case of
a vested interest.
It is to be noted that where, under a transfer of property, a person becomes entitled
to an interest in the property upon attaining a particular age and the transferor also
gives to him absolutely the income to arise from such interest before he reaches
that age, or directs the income to be applied for his benefit, then such interest is
vested interest.
In property law and real estate, a future interest is a legal right to property
ownership that does not include the right to present possession or enjoyment of the
property. Future interests are created on the formation of a defensible estate; that
is, an estate with a condition or event triggering transfer of possessory ownership.
A common example is the landlord-tenant relationship. The landlord may own a
house, but has no general right to enter it while it is being rented. The conditions
triggering the transfer of possession, first to the tenant then back to the landlord,
are usually detailed in a lease.
Vested interest should be without any condition

Vested in different forms
(i)Vested in possession- when it is a right to present possession for ex- our
residential house. Vested in possession is a term used to indicate an interest which
gives a right to immediate enjoyment of an interest in property as opposed to an
interest vested in remainder. For example, an estate is vested in possession when
there exists a right of present enjoyment; and an estate is vested in interest, when
there is a present fixed right of future, enjoyment. The phrase "vested in
possession" is well understood as meaning a right of present enjoyment. Contrasted
with these terms is the phrase "vested in interest," which means a present fixed
right of future enjoyment. Thus any given interest may first be vested in interest,
then vested in possession, and finally reduced to possession.
(ii) Vested in interest when it is not a right to present possession but a right to
future possession. Example- a land & building is given to Ramesh for his life with
a remainder to B , in that case s right invested in possession ,Bs right is vested in
interest .i.e. after s death property will come to B without anycondition.A vested
interest is transferrable and heritable.A vested interest is a right that so completely
and definitely belongs to a person that it cannot be impaired or taken away without
the person's consent. The event or time frame that triggers vesting is typically
defined by contract, such as employee pension benefits vesting after a certain
number of years.
3
(iii) vested gift-A vested gift refers to an absolute gift. Generally, a vested gift is
free from contingencies. Although a vested gift is unconditional, its use or
enjoyment might not occur until sometime in the future. Hence, a vested gift can
be made for the purpose of present or future usage.
(iv)vested estate-Vested estate is an absolute, unconditional, and indefeasible
interest. It is an estate which is not contingent or expectant. Vested estate carry a
fixed right of present or future enjoyment. It gives a certain and fixed right of
present or future enjoyment; that is, an interest clothed with a present legal and
existing right of alienation. An estate is vested in possession when there exists a
right of present enjoyment, and vested in interest when there is a present right of
future enjoyment.
(v)vested future estate-Vested future estate is an estate which exists when there is
a person in being who would have an immediate right to the possession of the
lands upon the ceasing of the intermediate or precedent estate.
(vi)vested liabilities -"vested liabilities" means the present value of the
immediate or deferred benefits available at normal retirement age for participants
and their beneficiaries which are no forfeitable.
(vii)vested right-A vested right is commonly defined as a right that so completely
and definitely belongs to a person that it cannot be impaired or taken away without
the person's consent.
(viii) vested interest by will-property given to window in lieu of her maintenance
during her life time and after her death surviving right ,if any ,was to vest in
daughter , enactment of Hindu succession act, 1956 deprived daughter of their
legal right as widows interest enlarged into an absolute estate ,no right vested in
daughters will.
4


"Or in terms specifying that it is to take effect forthwith"
where a transfer is made to A when" or "if" he shall attain a particular age the
word "when "or" if" will ,unaided by context show that A was given only
contingent interest but the word may be controlled by other expressions as to show
that the grantor's intention is merely postpone the enjoyment and not vesting itself
5
.In such cases the interest will be vested not contingent . thus , where X, by will
directed the trustee to divide the estate 21 year's after the testators death into
certain share and give one such share to his wife , and stated that such share should
vest in her at the date of his death, it was held by their Lordship of the privy
council that she took a vested estate though postponed for 21 yrs .


On the happening of an event
The interest is a vested interest where the operation of the transfer is made to
depend upon some specified certain event .the event must be clearly specified ,
explained and it must be certain to happen. For example death of a person.

Postponement of enjoyment :
It has been that an interest may be vested though the enjoyment thereof, is
postponed. And the explanation make it that from the mere provision for
postponement of the enjoyment , it should not be inferred that the interest is not
vested. In other words, the mere fact that the transfer is not entitled to the
immediate enjoyment does not necessarily make the interest contingent one. Thus,
where a gift was made 'A' with a direction postponing the enjoyment of it , it was
held that the direction did not postpone the vesting. Where a Hindu widow made a
gift of property to the deity with the consent of the reversion under an agreement
under which the revision enjoyed the benefit of rent and income of the property
during the lifetime of the widow, the property so donated became vested in deity.
But though the provision for the postponement does not by itself prevent the
vesting of property, such a provision cannot be said to be valid under all
circumstances. Such a provision will be valid where
1. The right of enjoyment is given in the meanwhile to some other person, or
2. The transferee is under the majority and enjoyment is postponed until he attains
majority.
The leading case on the point is Gosling vs Gosling
6
where vice chancellor, Sir
W.Page Wood made the following observation:
The principle of this court has always been recognized the rights of all person who
attain the age of 21 to enter upon the absolute use and enjoyment of the property
given to them by a will, not withstanding any direction by the testator to the effect
that they are not to enjoy until a later age unless, during the interval the property is
given for benefit of the another. If the property is once theirs, its useless for the
testator to attempt to impose any fetter upon their enjoyment of its full as the attain
21. And upon the principal unless there is in the will or in some codicil to it, a clear
indication of an intention on the part of the testator, not only that has devisee are
not too have the enjoyment of the property he devised to them until the attain
25,but some person is to have that ,or unless the property is so clearly taken away
from devisee up to time of attaining 25,as to induce the court to the previous rents
and profit ,there has been an intestacy the court does not hesitate to strike out of the
will any direction that the devisee shall not enjoy it in full until they attain the age
of 25 years.





Conditional limitation
The interest shall not be vested is not to be inferred from a provision that if a
particular event shall happen the interest shall pass to another person. Such type of
a provision is called a conditional limitation.a conditional limitation divests an
estate which has become vested and vests it in another person. Section 28 of
transfer of property deals with conditional limitation.
Sunder Bibi v. Rajendra Narain
7
-
The terms of a compromise provided that L should have an estate for life and that
after his death to R was to be the full owner of the estate, if he survived L. If R
did not survive L ,the estate would pass to Rs lineal male descendent according
to the rule of primogeniture . before the death of L.the question arose whether R
had only a contingent interest or a vested interest which could be attached .if the
provision had been merely this that the estate would pass to R, if he survived L
and estate contingent on his surviving L. The further provision of a gift over to
another person was conditional limitation which had the effect of vesting the estate
R. The court gave the reasoning that the condition affected the retention of the
interest and not in its acquisition .Therefore ,R took a vested interest liable to be
divested if he did not survive L. This above case is deal in conditional limitation.
Accumulation of income
It is not to be in freed that the interest shall not be vested whereby income arising
from the property is directed to accumulated until the time of enjoyment arrives.
However ,the direction for accumulation of income must be within the limits
sanctioned by section17. If the direction is for a period in excess of the period
specified , it will be invalid for the period in the excess of the period specified , it
will be invalid for the period in excess. Only the right of enjoyment is postponed
only but not the vesting.



prior interest
Similarly, it is not to be inferred that an interest shall not be vested merely by the
provision whereby prior interest is created there is only postponement of the
enjoyment and not the vesting of subsequent interest .
Interest vests in his legal representatives whether obtained
possession
Rajes Kanta Roy v. smt. Shanti Debi.
8

This case deal with the principle to decide the question whether interest
taken by beneficiaries under trust is contingent or vested.
Facts
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 power and obligations. After the
execution of said deed ,Ramani Kanta died. clause 12 of the deed was the main
provision under which Rajes kanta and his brother Ramendra Kanta Roy got any
interest in the properties .This clause showed that Lots I to IV of the properties
ultitimately went to Rajes and Lot V alone went to Ramendra .But the interest with
either of them was to get the properties allotted to each was expressed to be one
which each would get after termination of the trust . it was only after happening of
two events
(i) The discharge of all the debts specified in the schedules
(ii) The death of the settler himself ,that the trust was to come to an end and
it was on the trust coming to an end that the sons were to get the
properties allotted to them.

Judgement
It was observed that 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 there form by the way of monthly
payment of the two sons and presumably such application was notionally pro
rata
3) Any surpluses which remain from out of the income of each of the lots were
to go to the very person whom the corpus of the lot itself was belong 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 payment out of the income was to devolve on his
heirs. This arrangement clearly show that what is postponed was not were
vesting of the property in the lot themselves but that the enjoyment of the
income of the income thereof was burden with certain monthly payments of
which taken together constituted application of the income for the benefit of
the two sons .
Therefore the interest taken by the Rajes and Ramendra under the trust deed
was vested not contingent. It nothing but short of spes succession ,and the
interest of the life estate holder in the property during his life time was vested
interest.










Conclusion

When a property is transferred it involves transfer of interest, if the interest
transferred are is transferred immediately it is vested interest. From the point of
view of time of accruing(when transferee get the interest the interest may be either
vested or contingent).In a vested interest as soon as transfer is complete the interest
accurse to transferee with immediate effect and the transferee title is complete.
Vested interest should be without any condition. 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 it 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.














ENDNOTES

1.Sashi kantha v. promod chandara AIR1932 Cal 600 (609):59 Cal 859(DB)
2.Usha subba rao v. B.N.vishveshwaraiah and other,1996(3)C.L.J.482

3.V,Nagarathinam v. Padmadavi , AIR 2001 Mad53

4.Palchuri Hanumyamma v. Tadikamalla kotlingam,AIR2001 SC 3062
5.Branstorm vs Wilikson, AIR 1957 SC 255 (263)
6.Gosling v. Gosling (1859)70 E R 423 (426):1859 john 265
7) Sunder Bibi v. Rajendra Narain (1925)47 All 496:86IC 684:AIR1925All 389

8) Rajes Kanta Roy v. smt. Shanti Debi.A.I.R.1957 S.C.255.




















Bibliography

1. Transfer of property by S.N.shukla
2. The transfer of property by Dr.Avtar Singh
3. Vested interest - Wikipedia, the free encyclopaedia
en.wikipedia.org/wiki/Vested interest
4. www.investopedia.com/terms/v/vestedinterest.asp
5. www.vakilno1.com
6. indiankanoon.org/search/?form
Input=%22vested%20interest%22
7. A.I.R Commentaries vol.1 by Manohar & Chitaley
8. Transfer of property by Dr.R.K. Sinha