Introduction

An interest generated in favor of a person when no period is specified or a condition of the occurrence of a certain event is often termed vested interest.

• Section 19 of the Transfer of Property Act, 1882 (TPA) deals with the concept of vested interest.

Section 19, TPA

• Section 19 of TPA states that where, on a transfer of property, an interest therein is created in favor 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.

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

Characteristics of Vested Interest

• It creates a present right that is in effect immediately, although the enjoyment is postponed to the time prescribed in the transfer.
• It does not entirely depend on the condition as the condition involves a certain event.
• It is a transferable and heritable right.
• Death of transferee will not render the transfer invalid as the interest will pass on to his legal heirs.

When Unborn Person Acquires Vested Interest

• As per Section 20 of the TPA, 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.

Case Law

• In the case of Lachman Lal Pathak v. Baldeo Lal Thathwari (1917), a person transferred a deed of gift in favour of another person but directed him that he will not get possession of that property until the transferor himself dies. The transferee will have a vested interest even though his right of enjoyment is postponed.