Vested Interest

Vested interest -

             The Transfer of Property Act deals with two kinds of interest vested interest and contingent interest. Vested interest is to be distinguished from contingent interest. When an interest is vested, the transfer is complete but when the interest is contingent, the  transfer depends upon a condition precedent. When the condition is fulfilled the transfer takes effect and that the interest becomes vested.

Definition of Vested Interest

Section 19 of Transfer of Property Act  defines vested interest as follows...

 "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."

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.

Illustration 

A Hindu widow adopted son but there is an agreement which postpones the sons estate during the lifetime of widow. Here an interest created in favour of adopted son is vested right, which does not depend upon condition precedent, for example.. performance of any act , it is not to take effect on happening of the event which is certain  i.e. the death of widow.

The adopted son has Present proprietary right in the estate. The right of possession and enjoyment being deferred and therefore he can transfer the property even during the widows lifetime. Similarly, a Transfer of Property in favour of a person simply creates vested interest with an immediate right to the possession and enjoyment of the property. Such vested interest is not defeated by the death of the transferee even before getting possession of the property.

Illustration

A transfers property to B in trust for C  and direct B  to give possession of the property to C when C attains age of 25 years.  In this problem the enjoyment in the property is postponed but this does not prevent the interest vesting immediately, but such transfer is itself void  when C attains majority.

Therefore C has vested interest and entitled to a possession of property at the age of 18.

When unborn person acquires vested interest on transfer for his benefit - Section 20

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.

Characteristics of vested interest

1) Vested interest does not depend upon the fulfillment of a condition.  It creates present and immediate right though the enjoyment may be postponed to future date.

2) A vested interest is not defeated by the death of transferee before obtaining possession, it will pass on To His heirs.

3) Vested interest is Transferable and heritable.

 

Case Law 

 

Sundar Bibi vs Rajendra Narayan AIR1925 All.389.

In this case the Allahabad High Court held that in a vested interest the title passes absolutely from the transferor  to the transferee at the date of the transfer, though the enjoyment may be postponed.

Rajesh Kanta Roy vs Shrimati Sunita Debi AIR1957, S.C.255 -

Fact - 

One Ramani Kanta Roy executed a registered trust deed in respect of his properties. The eldest son Rajesh was appointed the sole Trustee to hold the properties under the trust subject to certain power and obligation. After his death his two son Rajesh And Ramendra got interest in the property. There was a clause in the trust deed that both of them was to get interest in the properties allotted to each other happening of the two events -

1) Discharge of all the debts specified in the schedule and death of the settler himself.

2)  The trust was to come to an end on the death of settler  and the son  were to get properties allotted to them there after.

Issue before the court was whether the interest created by the trust were vested or contingent ?

A Supreme Court held that the interest taken by the two brothers under the trust deed was vested and not contingent because it was certain event

Vested interest does depend upon fulfillment of a condition and takes effect from the date of the transfer. In vested interest there is present, immediate right even if the enjoyment is postponed. A vested interest is heritable and transferable. A contingent interest depend  solely upon the fulfillment of the condition. In contingent interest there is no present right, there is a promise to give right upon the fulfillment of a condition. A contingent Interest is inalienable and not transferable

Check it out...  Difference between vested interest and contingent interest