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Keeping pace with time

It is time for India to push aside archaic laws under the colonial property regime and bring necessary amendments to match the modern society

Keeping pace with time

A frequent criticism of the Indian legal system is the retention of laws that were passed during the British colonial regime. It makes little sense to retain colonial laws more than a century after they were introduced. The recent decriminalisation of homosexuality by the Supreme Court of India illustrates how colonial laws are inappropriate for regulating modern societies.

Little attention is paid to the problem of retaining colonial laws that regulate trade and commerce. In particular, the Indian legislature has retained colonial legislation governing various property transactions. These include, for instance, the Transfer of Property Act, 1882; the Indian Trusts Act, 1882; the Indian Succession Act, 1925; the Sale of Goods Act, 1930.

These laws reflect the consensus of the colonial legislature at a time when common law and equity in England was itself relatively premature. Since then, the counterparts of these legislations in the United Kingdom (in frequent consultation with its Law Commission, as well as practitioners and experts) have undergone significant amendments. Modern property law in the United Kingdom

bears little to no resemblance to the colonial property rules retained in India.

The amendments that have been introduced to Indian property legislations are found wanting. Amongst these legislations, the most recent amendment was introduced by the Indian legislature in 2016 to the Indian Trusts Act, 1882, expanding the list of securities in which a trustee may invest trust money. In introducing this amendment, the former Minister of State Finance, Jayant Singh acknowledged the urgent need to amend an obsolete law governing trusts in India. Ironically, in the United Kingdom, a law that incorporated a list of approved investments similar to the Indian amendment was repealed because it was considered archaic.

Can one accumulate funds for their children even after they turn 18?

The above observations are not intended to suggest that India should amend its property laws merely because other countries are doing it. However, a lack of amendments is not a testament that Indian property legislations have stood the test of time. Legal experts may readily identify various instances where Indian property rules do not efficiently balance the interests of property owners, transferees or users (such as tenants or passers-by).

Take, for example, estate planning for one's children. Wealth owners prefer a system that allows them to accumulate their property or funds for a long time even after their death (for example, by freezing the funds in an account to which additional interest/investments may be added at regular intervals). Owners would then wish that this entire accumulated wealth be transferred to their loved ones. Simultaneously, property law ought to ensure that the children or other family members who receive this accumulated wealth use it wisely — ideally, in accordance with the wishes of the original owner.

A mature government acknowledges that wealth-accumulation is a valid concern of property or wealth owners. A steady accumulation of wealth for a pre-determined number of years is perhaps the most reasonable way to ensure the well-being of future generations and surviving family members. Hence, modern legal systems incorporate certain necessary rules in order to protect the goal of wealth accumulation to a reasonable degree.

One such rule is that a property owner cannot instruct the accumulation of her property forever. She may instruct (for example, in a will or a gift deed) that her children should continue to invest in the property after her death, or that they should not sell the property/spend the accumulated funds. But her instructions would be unhelpful if the property loses value several years after her death, and if her adult children would find it financially prudent to sell the property at that point of time. Moreover, accumulated wealth is an important source of government revenue. The property owner's instructions to accumulate wealth for her descendants of several generations cannot keep the accumulated fund perpetually immune from taxation or bankruptcy claims.

Most countries stipulate a period of time (nearly 100 to 125 years) for which property owner can instruct that her fund be accumulated as per her instructions even after her death. Some jurisdictions, such as Delaware and Wyoming (in the United States of America), take this principle to absurd extremes — a property owner may accumulate wealth for thousands of years or even forever (hence the term 'dynasty trusts').

In India, this time period is determined by an outdated formula (dependent upon the lifetime of the transferor and the relevant people alive during the transfer of the property). It is difficult to tell in advance whether a will, gift deed or any other transfer of property to descendants/family members violate this rule. A property owner's children or grandchildren may receive the property or funds without the application of her instructions, or they may not receive the property at all. This depends upon how the relevant rule under the Transfer of Property Act, 1882 would apply in each individual case. Under this rule, it is difficult for Indian property owners to truly determine the time period for which they can continue to invest in their property. By implication, it is difficult for a property owner to ensure a certain level of wealth

and welfare for their children, because the funds cannot continue accumulating for a definite and fixed period of time.

Property laws of the past - Abstruse and Pedantic in modern times

If A wishes that her son B becomes the full owner of her property, and makes a gift deed/will to this effect, she cannot prevent B from enjoying the property without any instructions or limitations once B attains 18 years of age. Lawyers may readily recognise this as the rule in Saunders v. Vautier, which remains largely uncontested in English property law. But property owners are often not familiar with this rule.

Contrast this with the rule restricting the interest of the property of married women. X may declare a trust on his property for the benefit of his daughter-in-law Y, so long as she continues to remain married to his son Z. The Indian Trusts Act, 1882 expressly states that in this circumstance, Y cannot transfer her interest under the trust because her interest is conditional on her remaining married to Y.

It is likely that the colonial legislature found it necessary to articulate this rule in light of the political and social developments of the time. In the United Kingdom, the Married Women's Property Act 1882 (now significantly repealed) mandated that women could own, buy and sell property in their own capacity (i.e., it did not belong to their husbands upon marriage). Hence, it was necessary to legislate at that time that a woman could enjoy her own property rights — but in transactions where she receives a property on the condition of her marriage, she could not deal with the latter property freely. In modern times, there is no requirement to articulate this principle. Property interests may be enjoyed 'fully' or in a limited sense. Laypersons can comprehend the idea that the right to own, use and enjoy property may be dependent on a condition such as marriage (so long as that condition is valid, legal and not impossible to fulfil).

Property legislations of the colonial era must not be retained because property owners no longer engage in traditional transactions. As seen in the above examples, property owners must be permitted to conduct their estate planning with sufficient flexibility. Estate planning and property markets in India have modernised, and so should the laws that govern them.

Roopashi Khatri is Assistant Professor of Tax Law at National Law School of India University, Bangalore and Special Counsel at CounsePro Law Firm, Bangalore. Views expressed are strictly personal

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