What is the rule against accumulation? What exceptions of the rule against accumulation?

Question: What is the rule against accumulation? What exceptions of the rule against accumulation? [UPJS 2003]

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Answer

Section 17 of the Transfer of Property Act, provides that where the terms of a transfer of property direct that the income arising from the property shall be accumulated either wholly or in part during a period longer than:

1. The life of the transferor;

2. A period of 18 years from the date of the transfer, such direction shall be void to the extent to which the period during which the accumulation is directed exceeds the longer of the aforesaid periods, and at the end of such last-mentioned period, the period and the income thereof shall be disposed of as if the period during which the accumulation has been directed to be made has elapsed.

In accordance with Section 17 of the Transfer of Property Act, the law aims to prevent the hoarding of wealth for an excessive amount of time using tactics that obstruct the normal flow of property through transfers and inheritances. This objective has led to the development of the rule against perpetuities, which sets limits on how long property rights can be delayed or suspended.

Similarly, this rule also dictates that the accumulation of income cannot go beyond the same time frame within which property rights are deferred. Any instruction to accumulate income that goes beyond the limits set by the rule against perpetuities is considered invalid and cannot be enforced. The rule against accumulation is meant to restrict how long income can be gathered and curtail the period of perpetuity.

Exceptions to Direction for Accumulation

Following are the major exceptions to the Rule against Accumulation:-

(a) Payment of debts

If the purpose of the accumulation is payment of debt incurred by the transferor or anyone having an interest in property, then section 17 shall not be applicable in that case.

(b) Accumulation for Raising Portions

Raising a portion entails paying maintenance expenses with a portion of the income. If the accumulation of revenue from the transferred property is being used to support the transferor's children, a distant relative, or any other party with an interest in the transfer.

(c) Preservation and Maintenance of property

In the event the income from property was directed to be accumulated for the purpose of preservation and maintenance of the property so transferred, then also Section 17 will not be attracted.