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Trust laws in India are defined and dealt in the Indian Trusts Act. Definition of Trust occurs in Section 2 of the Act. According to the section, trust means an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner. A detailed discussion on the Trust laws is being given here under to provide a better and effective understanding of the Trust laws.
The person who reposes or declares the confidence is called the ÔÇťauthor of the trustŁ. The person who accepts the confidence is called the trusteeŁ. The person for whose benefit confidence is accepted is called the beneficiaryŁ. The subject-matter of the trust is called trust property or trust moneyŁ. Beneficial interest is the interest of the beneficiary. The document or writing by which trust is created is called the instrument of trustŁ.
A trust is thus an acceptance of an obligation by a person in reference to some property or funds to use or hold it for the benefit of those for whom the trust is created.
Creation of Trust under the Trust laws
The definition of trust under the trust laws shows that it requires certain features for its validity. The elements of a valid trust are enumerated in Section 6.
Creation of trust:áSubject to the provisions of Section 5, under the Trust laws áa trust is created when the author of the trust indicates with reasonable certainty by any words of acts (a) an intention on his part to create thereby a trust, (b) the purpose of the trust, (c) the beneficiary, and (d) the trust property, and (unless the trust is declared by will or the author of the trust is himself to be the trustee) transfers the trust property to the trustee under the trust laws in India.
The first requirement of the trust laws is that the author of the trust should indicate by words or conduct with reasonable certainty his intention to create a trust. Secondly, the purpose for which the trust is sought to be created should also appear with reasonable certainty. Thirdly, the persons for whose benefit the trust it means should be reasonably certain. Lastly, the property, which is to constitute trust property, should be designated with certainty. The effect of the provisions is that a valid trust requires the following four certainties:
- Certainty of author’s intention;
- Certainty of object;
- Certainty of beneficiary, and
- Certainty of trust property.
Where, for example, a property is transferred in the hope that the transferee will continue the same in the family, no valid trust will arise because the beneficiary of the trust is not indicated with certainty. Similarly, if the transferee has been told to distribute the property among such members of a family as he should think most deserving, here also thee would have been no valid trust, because there could be no certainty about beneficiaries. If the transferee had been directed to divide the bulk of the property among the members of a certain family, it would not have been a valid trust because the expression bulk of the property introduces the element of vagueness into trust property. Where a person transfers his shop and stock-in-trade to another for payment of his creditors, this is not trust, but a transfer on a condition under the trust laws in India.
About the subject-matter of a trust there are further provisions. Section 8 of the trust laws requires that the subject-matter of a trust must be property which is capable of being transferred to the beneficiary. It must not be merely beneficial interest under a subsisting trust. Section 5 of the trust laws provides that if the trust is that of immovable property, it would be valid if it is declared by a non-testamentary instrument signed by he author of the trust or the trustee and is also registered or by the will of the author of the trust or the trustee. If the trust is that of movable property it should follow the same pattern as stated above or the goods should be transferred to the trustee. Where an absolute interest in property is transferred, the donee is not constituted as a trustee but as an owner under the trust laws in India.
These provisions of the trust laws in India cannot be used for the purpose of effectuating a fraud.
About the object of the trust, Section 4 of the trust laws in India requires that the purpose should be lawful. It says that a trust may be created for any lawful purpose. The purpose of a trust is lawful unless
- It is forbidden by law; or
- It is of such a nature that, if permitted, it would defeat the provisions of any law; or
- It is fraudulent; or
- It involves or implies injury to the person or property of another; or
- The court regards it as immoral or opposed to public policy.
Where the object of the trust is unlawful, the trust is void. Where a trust is created for two purposes, of which one is lawful and the other unlawful, and the two purposes cannot be separated, the whole trust becomes void. Where the trust property is situate in a foreign country, the law of that country would apply. A trust for training female fondlings into prostitution, a trust for smuggling activities and for supporting a family out of its income and a trust for fraudulent preference of creditors are all void because the objects are unlawful under the trust laws in India.
About the author of the trust, Section 7 of the trust laws in India says that a trust may be created by every person competent to contract. Where the trust is to be created on behalf of a minor, permission of the principal Civil Court of original jurisdiction should be obtained.
About the beneficiary, Section 9 of the trust laws in India says that every person capable of holding property may be a beneficiary. A proposed beneficiary may renounce his interest under the trust by disclaimer addressed to the trustee, or by setting up, with notice of the trust, a claim inconsistent with it under the trust laws in India.
Who may be Trustee under the trust laws
About the trustee Section 10 of the trust laws says that every person capable of holding property may be a trustee. But where a trust involves the exercise of discretion, a person who is competent to contract can be a trustee. No person is, however, bound to accept a trust. When a person is designated as a trustee, he has the option to accept or disclaim the trust. He may signify his acceptance by words, written or spoken, or by conduct. What is necessary, however, is that his intention to accept should be reasonably certain under the trust laws .
Instead of accepting the trust, the intended trustee may disclaim it. He must do so within a reasonable period of time. His disclaimer will prevent the trust property from vesting in him under the trust laws in India.
Where there are more than one proposed trustees and one of them disclaims, the property will vest in the other or others and he will become the sole trustee or they co-trustees. A proposed trustee who accepts becomes a trustee from the date of the creation of the trust under the trust laws.
Where a person by his will leaves certain property in trust for another and the proposed trustees prove his will, that amounts to an acceptance of the trust on their part. Similarly, where goods are transferred to a person in trust for realization and payment of his debts, and the transferee realises the value of the goods, or where money is transferred in trust and the proposed trustee separates the money from the res of the assets, this conduct amount to an acceptance of the trust under the trust laws in India.
Legal and Beneficial Owner under the Trust laws
Under English law, the trust property becomes the subject of two kinds of ownership. The trustee becomes the legal owner and the beneficiary is regarded as the beneficial owner. The scheme of the provisions of the Indian Trusts Act shows that this kind of dual ownership has been dispensed with. The provisions clearly say that the property will be vested in the trustee. The beneficiary has only certain rights under the trust under the trust laws in India. Beneficial ownership which is also known as equitable ownership is not known in the trust laws in India. However, some symptoms of beneficial ownership are reflected by the rights which are conferred upon the beneficiary under Chapter VI of the Act. For example, he can transfer his beneficial interest when he is competent otherwise to do so, mortgage his interest or assign it.
Trust and Agency under the Trust laws
Every agent is in the position of a trustee in reference to his principal. It is a relationship of trust and confidence. The agent has to exercise his authority, in the manner of a trustee, in absolute good faith. Apart from this, he is a trustee of the principals properties in his hand. The disabilities of an agent are the same as those of a trustee under the trust laws in India. For example, neither of them can have personal interest in the subject-matter of their office. But the points of difference between them are also obvious:
- An agent is not a legal owner of the property of the principal of which he has possession. A trustee is a legal owner of the trust property under the trust laws .
- An agency comes into being under a contract. But there is no contract between the author of a trust and the trustee under the trust laws .
- An agent is a representative for certain of the purposes of his principal. He contracts on behalf of the principal and binds him while acting within the scope of his authority. A trustee does not have any such power. He is personally bound by his dealings. He is under self-responsibility under the trust laws .
- An agent is in all respects under the control of his principal. There is nobody to control a trustee. His duties and disabilities are the only levers of control under the trust laws .
Trust and Contract under the trust laws
A trust may arise out of a contract. A contract between two persons for the benefit of a third person creates a trust in favour of the third person if the contract is just not personal only, but involves some specific property or money. However, a trust may arise, by contract, will, bequest, legacy, etc. A contract and trust are two different concepts. There are certain points on which they go apart under the trust laws in India:
- A contract can arise only out of an agreement. An agreement is not necessary for the creation of a trust under the trust laws in India. A trust may form part of a contractual arrangement. For example in a running business was transferred under an arrangement which provided for regular payments out of profits for the transferors wife. This was held to constitute a trust arrangement for the wife.
- A contract is an arrangement between the parties only. One can sue the other and vice versa but not third person can sue them for the breach of the contract, even if the contract was apparently made for the benefit of that third person. Where a valid trust arises, the person for whose benefit it is created has a full right to enforce the same even if he was not a party to the transaction which brought about the creation of the trust.
Trust and Power under the trust laws
The state of power arises by virtue of a position which a person occupies. The position of a person confers upon him an authority to act in a certain way. The position of a partner enables him to contract for the firm, that of an agent to act for his principal, that of a director to manage the affairs of the company and that of a trustee to manage the trust property for the benefit of the beneficiary. Thus a trust is also a position of power in favour of the trustee. Every position of power, on the other hand, carries with it a corresponding obligation, a duty to exercise the power in utmost good faith in the interest of the object for which the power is conferred. Thus every position of power, in ultimate analysis, reduces itself to apposition of trust. A glaring example is powers of directors. Directors have to exercise all tier powers in utmost good faith in the interest of the company. Thus all their power and that of a person holding the office of a trustee differ in certain respects: Firstly, an office of power may not make the official the owner of the property over which he is exercising his power. The directors of a company enjoy immense power, yet they are not the owners of the companys property. A trustee, on the other hand, is a legal owner of the trust-estate. Secondly, the element of discretion in an ordinary power is much greater as compared with the powers of a trustee. A trustee is compellable to invest trust money in the way in which he is directed though in his discretion he might have gone in for some other kind of investment under the trust laws in India.
KINDS OF TRUST UNDER THE TRUST LAWS
There are certain known categories of trust under the trust laws in India, though they may be over-lapping and it may not be possible to tell the boundaries of one from the other. Some classifications are according to the way in which a trust is created and others according to the functioning of the trustee.
Express Trust under the trust laws
The following words of Lord Esher M.R. enshrine the concept of an express trust:
If it is created in expressed terms, whether written or verbal, a trust, and a person is in terms nominated to be the trustee of that trust, such a trust is in equity called an express trust declared trust of this kind may be embodied in an instrument to be known as the instrument of trust. It may even be oral. But if it involves immovable property ti would have to be registered and if it involves movables they would have to be physically transferred to the trustee.
Implied Trust under the trust laws
Like an express trust, an implied trust is also created by an act of the parties. The difference is only this that the intention of the parties to create a trust, instead of being expressed in words, appears from their conduct. The conduct of the parties creates a presumption about their intention. An inference of trust is drawn only when the conduct of the parties is not explainable in any other terms than an intention to create a trust. The circumstances must give rise to a presumption of a compelling nature. As observed by Lord NOTTINGHAM L.C.:The law never implies, the court never presumes a trust, but in case of absolute necessity. The decision of the Supreme Court in M.C. Chacko v. State Bank of Travancore seems to be based upon this principle. The court emphasised that a trust may be actual or constructive but in general the courts are very slow to infer a constructive trust. The facts of the case were as follows:
The Highland Bank was indebted to the State Bank of Travancore under an overdraft. One M was the manager of the Highland Bank and his father K had guaranteed the repayment of the overdraft. K gifted his properties to the members of his family. The gift deed provided that the liability, if any, under the guarantee should be met by M either from the bank or from the share of property gifted to him. The State Bank attempted to hold M liable under this provision of the deed.
But he was held not liable. The State Bank not being a party to the deed was not bound by the covenants in the deed, nor could it enforce the covenants. It is settled law that a person not a party to a contract cannot enforce the terms of the contract.
Constructive trust is created in favour of an addressee of insured articles and he can claim compensation from the Central Government on non-delivery of such articles.
Constructive Trust under the trust laws
The word constructive is used in equity in reference to anything so as to distinguish it from the actual. Examples are constructive fraudŁ and constructive noticeŁ. When a person commits a breach of duty and there by gains and advantage over the other party to the bargain, that is a constructive fraudŁ in equity. Constructive noticeŁ refers to something which a person is taken to know though in fact he does not know. A person contracting with a company is taken to know the company’s memorandum and articles though in fact he does not know. Similarly, when a person ought in equity to hold something in trust for another, a constructive trust arises to take care of the situation. Not to do so would amount to abuse of confidence. LEWIN ON TRUST states: Constructive trust which the court elicits by a construction put upon certain acts of parties, as when a tenant for life of lease-holds renews the lease on his account, in which the law gives the benefit of the renewed lease to those who were interested in the old lease.Ł All kinds of fiduciary relationship fall in the category of constructive trust. This device has been used in many cases to prevent unjust enrichment of one at the cost of another. For example, an agent is directed to sell his principal’s property at a stated price. He, in fact, obtains a higher price and hands over the stated price to the principal. A constructive trust will arise in favour of the principal for the balance of the sale price. A finder of an article holds it in trust for the real owner. A bailee recovering the value of the bailor’s goods which have been destroyed by a third person (a carrier in this case) holds the amount in trust for the bailor. The directors of a company transferring their shares along with the power of control would hold the money received by them for transfer of controlling power in trust for the company.
Public and Private Trusts under the trust laws
A public trust under the trust laws in India is one which is created for the benefit of public in general. Public in general does not mean public as a whole. The trust may be created for a part or a section of the public and it will be a valid trust so long s every member of the particular class is permitted to enjoy the benefits of the trust. The general public purpose may be of any kind medical, health relief and rehabilitation, social service of any kind, education, training, etc.
A private trust is confined in its beneficial bounty to some private persons so that nobody beyond them can draw the benefit. Such a trust is enforceable at the private action of intended beneficiaries. A public trust is enforceable at the instance of the Attorney-General under the trust laws in India.
Resulting Trust under the trust laws
Whenever a trust fails in its object or its purpose is accomplished without the trust property being exhausted what remains reverts back to the author of the trust under the concept of resulting trust. The principle is incorporated in Section 83 and the illustrations appended to it bring the concept to a clear relief.
It is true that the provisions of the Act are not applicable to private or public religious and charitable trusts, but nevertheless the general principles underlying Section 83 are attracted in analogous circumstances.
Precatory Trust under the trust laws
Precatory trust lacks one of the certainties of a valid trust; namely, the intention of the author. Where the author fails to express his intention in clear terms, the trust which arises is in a precarious (precatory) state because it may fail to materialize. Since the language is ambiguous and uncertain, if a precatory trust is inferred it may as well happen that the settler never intended a trust and yet a trust comes into being. That is why warnings have always been expressed against such a precarious practice. JAMES LJ observed in Lamb v. Evans: I could not help feeling that it was the officious kindness of the court of chancery in interpreting terms where in many cases the father of the family never meant to create trusts, must have been a very cruel kindness indeed.
Secret Trust undet the trust laws
Where neither the existence of a trust nor its terms are disclosed, it is called a secret trust. Where the existence of the trust is disclosed, but its terms are not, it is a half secret trust. This is a misuse of the concept of trust. It is used as a device for retaining property under one’s own control under the guise of a trust. The consequences will depend upon the intentions of the parties and the circumstances surrounding the transaction.
Illusory Trust under the trust laws
Where a trust is created with uncertain beneficiaries so that nobody seems to be entitled to hold the trustee to his task, or where the object is so uncertain that it leaves the trustees in a state of dilemma or give them a discretion as to the objects, what comes into existence is the illusion of a trust and not its reality.
Certainties of a Trust under the trust laws
Section 6 of the trust laws in India which deals with creation of trusts emphasises the need for things to be sure and certain about a trust. They are popularly known as the three certainties of an effective trust. They are: certainty of words, certainty of subject-matter and certainty of object under the trust laws in India.
The intention of the author of the trust to create a trust is the first thing. Where his words are not clear, the matter becomes precarious. The Court may have to resort to the concept of precarious trust to save the situation. Where there is certainty of subject-matter and of object, the Court may hold that a precatory trust has arisen if it considers that the precatory expressions used studied in relation to the will as a whole, impose an obligation’s.
As for the certainty of the subject-matter, Section 8 requires that the subject-matter must be properly transferable to the beneficiary. The same section adds that the subject-matter must not be merely a beneficial interest under a subsisting trust. This marks a departure from the English law for the simple reason that the Indian Legal system does not separately recognize any such things as equitable interest. All equitable interests have become a part of the framework of legal interests. Thus a person cannot create a trust of something which he is expecting to get or of which he is mere heirapparent or which are confined to strict personal enjoyment, like pension, pay, reversionary interest, official benefits, etc.
Certainty as to trust property also includes the certainty as to the benefits which have to be drawn by different beneficiaries. Any uncertainty as to either would render the trust void. A trust of the bulk of my said residuary estate would fail to create a trust. Where the trust property is certain and is meant for two beneficiaries whose respective shares are not indicated, the trust would be valid; the court would apply the principle of equity that equality is equity and divide the property equally between them. There is no uncertainty where the author, instead of quantifying the respective shares of beneficiaries, gives a discretion to the trustees of to allocate the shares at their own judgment. Where the directions of the settler are partly certain and partly uncertain, the latter part fails and the whole estate goes to the person in whose favour there is a certain direction. Involved facts of this kind.
The testator appointed this wife as the guardian of his children. He gave the whole of his property to her with this trust that she would in fear of God and love to children made such use of it as should be for her own and their spiritual and temporal good. It was held that the wife was absolutely entitled to the property because the declaration failed to indicate any ascertained part for the children.
Where certain property is left in the hands of a trustee for the benefit of a certain person with a rider that so much of it as he would not require would go to a third person, the latter would take nothing.
In reference to the certainty of object, the principle is that if the objects are uncertain, the trust will fail. A trust for my old friendsŁ is uncertain because the words old and friendsŁ make the choice as to beneficiary difficult. If the trust had been for any person answering a particular description the result would be different. The courts, however, do not want a trust to fail a trust in favour of the testator’s wife and whatever may remain at her death to be distributed among his daughters, failed in respect of the daughters because it was uncertain, whether anything would be left for them. Where a bank founded a trust fund for payment of pension to staff but retained a total control with it as to the persons and amount to be paid by the trustees, the trust failed, because there was no obligation to pay at all. There can be no trust over the exercise of which this court will not assume a control: for an unanswerable power of disposition would be ownership and not trust.
Public or Charitable Trust under the trust laws
The concept of a public or charitable trust is thus explained in Snell:
Equity has also long enforced trusts for the benefit of large and changing groups of people, or to carry out certain purposes which are beneficial to the community at large. These trusts are known as public or charitable trusts, or more shortly charitiesŁ.
Public and Private Trusts compared under the trust laws
All kinds of trusts whether pubic or private are subject to more or less the same governing principles. Duties and disabilities of trustees are the same. There are, however, certain pints of difference between public and private trusts. Rules against perpetuity, which are applicable to all private trusts, are considerably modified in reference to public trusts. Secondly, where the object of a public trusts becomes obsolete because people are no longer in need of that kind of charity, the objects of the trust may be varied so as so include things which are currently of public utility. Thirdly, the enforcement of public trusts is in the hands of public bodies, like the Attorney-General. Fourthly, for the encouragement of public welfare and charitable services by private organisations, benefits of tax concessions have been extended to such organizations. Lastly, a private trust may fail for uncertainty of object, but a public trust need not be the victim of such uncertainty. In such cases the author of the trust is only interested in public service. The type of service does not matter much to him. He can leave that even at the discretion of trustees. So long as charity of one kind or the other can be carried on, the trust can go on. The court or other relevant authority can order a scheme of dedication.
Requirements of Public Trust under the trust laws
The general rule which emerges from judicial authorities is that an effective charitable trust must satisfy three requirements:
- The trust must be of charitable nature. Under English law it has to be of charitable character within the spirit and intendment of the preamble to be Statute 43 Eliz 1, C. 4, 1601 as interpreted by the courts and extended by statuteŁ.
- The trust must be for the promotion of public benefit.
- The trust must be wholly and exclusively charitable.
Object of Charitable Nature
In the oft-quoted judgment of the House of Lords in Pammela’s case their Lordships said:
Charity in its legal sense comprises four principal divisions:
Trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to community, not falling under any one of the preceding heads. The trusts last referred are not the less charitable in the eye of the law, because incidentally they benefit the rich as well as the poor, as indeed, every charity that deserves the name must do either directly or indirectly.
Snell presents the following list of charitable objects:
the relief of aged, impotent and poor people,
the maintenance of sick and maimed soldiers and mariners,
schools of learning, free schools and scholars in universities,
the repair of bridges, ports, havens, causeways, churches, sea banks and highways,
the education and preferment of orphans, the relief, stock or maintenance for house of correction,
the marriage of the poor maids,
the supportation, aid and help of young tradesman, handicraftsmen and persons decayed,
the relief or redemption of prisoners or captives,
the aid or ease of any poor inhabitants fifteens, setting out of soldiers and other taxes.
The Cy-pres Doctrine
For the purpose of assuring that a public charitable trust should not fail the courts have evolved the doctrine of cy-pres under which the trust would be permitted to remain alive for allied objects even if the main objects have failed to materialize. Snell explains the doctrine in these words: If a private trust is initially effective or subsequently fails, there is a resulting trust for the settler. But if a charitable trust is initially impossible or impracticable, or subsequently becomes so, in many cases the trust will not fail and the court will apply the property cy-pres, i.e. apply it to some other charitable purpose’s as nearly as possibly resembling the original trust; and this will be achieved by means of a scheme.
The position in India under the trust laws in India is the same both as to the main principle and the cy-pres doctrine. Section 18 of the Transfer of Property Act, 1882, while recognizing exceptions to the rule against perpetuity recognises charity as comprising of advancement of religion, knowledge, commerce, health, public safety and any other object beneficial to mankind. Section 118 of the Indian Succession Act carries illustrations of charitable objects and purposes. Section 9 of the Bombay Public Trusts Act, 1950, also gives a list of charitable purposes but excludes activities exclusively for sports or religious teaching or worship. Section 10 of the Bombay Public Trusts Act, 1950 lends statutory support to the doctrine of cy-pres. It provides:
Notwithstanding any law, custom or usage, a public trust shall not be void only on the ground that the persons or objects for the benefit of whom or which it is created are unascertained or unascertainable.
Section 11 of the same Act provides:
A public trust created under the trust laws in India for purposes some of which are charitable or religious and some of which are not, shall not be deemed to be void in respect to the charitable or religious purposes only on the ground that it is void with respect to the non-charitable or non-religious purpose.
DUTIES AND LIABILITIES OF TRUSTEES UNDER THE TRUST LAWS
Duties of Trustees under the trust laws
Duty to Execute Trust
Section 11 of the trust laws in India requires the trustee to fulfill the purpose of the trust. In carrying out the purpose of the trust the trustee has to follow the directions of the author given at the time of the creation of the trust. Such directions may be modified from time to time by the consent of all the beneficiaries who are competent to contract. Where a beneficiary is incompetent, consent of the civil court of original jurisdiction will be necessary under the trust laws in India. The section exempts the trustee from having to obey any directions which would be impracticable, illegal or manifestly injurious to the beneficiaries. The explanation to the section says that a trust for payment of debts would include payment only of the debts of the author of the trust existing and recoverable at the date of the instrument of trust, or where such instrument is a will, at the date of his death, and in case of interest-free debt, to pay only the principal. The illustrations to the section make it clear that a trustee appointed to sell the trust land by public auction cannot do so by private contract; a trustee appointed to sell the trust land to a specified person for a specified sum , may sell it to another and for less rice, if all the trustees, being competent to contract, so authorize; a trustee for a woman and her children, who is directed by the author to lend money to the woman’s husband may refuse to do so if the husband has become insolvent. Lending money to an insolvent would be manifestly injurious to the beneficiaries of the trust.
Acquaintance with trust property
This section requires the trustee to inform himself of the state of trust property. As soon as possible, after accepting his office, the trustee is bound to acquaint himself with the nature and circumstances of trust property. Where necessary, he should obtain transfer of the trust property to himself. If he finds that the trust money has been invested in insufficient or hazardous security, he should recover the investment.
The section of the trust laws in India carries two illustrations also. According to one of them: The trust property is a debt outstanding on personal security. The instrument of trust gives the trustee no discretionary power to leave the debt so outstanding. The trustee’s duty is to recover the debt without unnecessary delay. The second illustration is something like this: The trust property is money in the hands of one of two co-trustees. No discretionary power is given by the instrument of trust. The other co-trustee must not allow the former to retain the money for a longer period than the circumstances of the case required.
Protection of Title to Trust Property under the trust laws
Preservation of trust property is one of the essential functions of trustees under the trust laws in India. The trustee has to assert his right to the property and to protect the title to the property. For this purposes the trustee has the power to maintain and defend suits and all other authorities under the trust laws in India. Subject to the provisions of the instrument of trust and keeping in mind the nature and kind of trust property, the trustee may do anything which is necessary for the preservation of the trust property. The only illustration to the section is like this: The trust property is immovable property which has come to the hands of the author of the trust under an unregistered deed. Subject to the provisions of the Indian Registration Act, 1877, the trustee’s duty is to cause the instrument of trust to be registered.
Under the provisions of the Bombay Trusts Act, 1950, a right has been conferred for preservation of trust property among others upon persons having interestsŁ in the trust. The Supreme Court held on the basis of this provision that two or more trustees of a registered public trust were entitled to file a suit for a decree for recovery of the possession of trust property against a person holding it adversely to the trust. That expression, the court said, was wide enough to include not merely the beneficiaries of a temple, math, wakf etc., but also the trustees. Therefore, plaintiffs 2 and 3, who were members of the founder’s family i.e., beneficiaries, were entitled to attend at performance of worship or service in the temple and also entitled to partake in the distribution of offerings to the deity and thus answer the description person having interestŁ as defined in the Act.
The trustees have to take proper care in realizing the value of the property. The Supreme Court observed on the facts of a case:
The property of charitable and religious endowments or institutions must be jealously protected because a large segment of the community has beneficial interest therein. Sale by private negotiations which is not visible to the public eye and may even give rise to public suspicion should not, therefore, be permitted unless there are special reasons to justify the same. Care must be taken to fix the reserve price after ascertaining the market value for safeguarding the interest of the endowment.
Duty not to set up adverse title
Every fiduciary is under a duty not to set up jus tertii against his own beneficiary. An agent, for example, cannot attempt to retain the property of his principal claiming that it is his property. No bailee can claim as against his bailor that the property under bailment belongs to him. Such persons also cannot claim that the property belongs to a third person. So Section 14 makes it a duty of the trustee not to set up any claim to the property either for himself or in favour of third person.
Duty of care as imposed under the trust laws
The standard of care in reference to trust property expected of a trustee is stated in Section 15.
Care required from trustee:áA trustee is bound to deal with the trust property as carefully as a man of ordinary prudence would deal with such property if it were his own; and, in the absence of a contract to the contrary, a trustee so dealing is not responsible for the loss, destruction or deterioration of the trust property.
Under the rule stated in the section a trustee has to take as much care of the trust property as a person of ordinary prudence would have taken of his own property. If his dealing of the trust property shows the standard of care of a reasonable man, he would not be liable for nay loss, destruction or deterioration of the trust property. It can, however, be provided in a contract with him that he would be liable at all events. In such a case he would be liable for loss etc. whether any negligence on his part is involved or not.
Conversion of Perishable Property under the trust laws
Where a trust has been created for the benefit or several persons in succession and the trust property is of wasting nature of a future or reversionary interest it is the duty of the trustee to convert the property into a property of permanent and immediately profitable character under the trust laws in India. He may not have to do so if there is a provision in the instrument of trust against any such conversion. The duty stated in the section is illustrated by two examples given in the section of the trust laws in India. According to one of them the trust property consists of three leasehold houses. The trust is for the benefit of one and, after his death, for another. There is nothing in the trust-deed to show that the houses are meant to be enjoyed by the beneficiaries in specie. The trustee should sell the houses and invest the proceeds in the securities listed in Section 20 and known as trust securities. According to the second illustration the trust-deed, in addition to trusting the houses also says that all the furniture in the houses shall also be for the enjoyment of beneficiaries in succession. This fact shows that the houses and furniture are meant to be enjoyed in specie. The trustee is under no obligation to sell them under the trust laws in India.
Trustee to be Impartial under the trust laws
Where there are more beneficiaries than one, the trustee is bound to be impartial under the trust laws in India. He has to see that the trust power is exercised for the benefit of all alike and not in favor of one at the cost of the other. Where, however, the trustee has the discretion to apportion benefits among the beneficiaries, he may in a fair and bona fide exercise of his discretion proceed as he likes. The court will not be able to interfere in his discretion unless there is proof of mala fide discrimination under the trust laws in India. According to the illustration appended to the section a person is a trustee for the benefit of three persons. He has been given the discretion to make a choice between several specified modes of investing the trust property. The trustee in good faith chooses one of those modes. The court will not interfere, although the result of the choice may be to very the relative rights of the three beneficiaries.
Trustees to prevent waste of the trust property under the trust laws
Where a trust has been created for the benefit of several persons in succession and one of them being in possession of the trust property, is doing or threatening to do any act which is destructive or permanently injurious to trust property, it becomes the duty of the trustee to take steps to prevent the property from being wasted.
Accounts and Information under the trust laws
A trustee is under a duty, (a) to keep clear and accurate accounts of the trust property, and, (b) at all reasonable times, at the request of beneficiaries, to furnish them with full and accurate information as to the amount and sate of trust property under the trust laws in India.
10. Investment of Trust Property under the trust laws in India
Section 20 of the trust laws in India introduces the concept of trust securities. The securities listed in the section are known as trust securities. Trustees are required to invest only in those securities and in no others. The section restricts the freedom of trustees in this respect. The restriction is necessary in the interest of trust property. The restriction can, however, be ruled out be a direction contained in the instrument of trust. But in the absence of any such direction the requirements of the section are mandatory.
Liabilities of Trustees under the trust laws
Liabilities of trustees are stated in Sections 23 to 30 of the trust laws in India. They are as follows:–
Liability for breach of trust:–Where the trustee commits a breach of trust, he is liable to made good the loss which the trust-property or the beneficiary has thereby sustained unless the beneficiary has by fraud induced the trustee to commit the breach, or the beneficiary, being competent to contract, has himself, without coercion or undue influence having been brought to bear on him, concurred in the breach, or subsequently acquiesced therein, with full knowledge of facts of the case and of his rights as against the trustee.
A trustee committing a breach of trust is not liable to pay interest except in the following cases:
- Where he has actually received interest;
- Where the breach consists in unreasonable delay in paying trust-money to the beneficiary;
- Where the trustee ought to have received interest, but has not done so;
- Where he may be fairly presumed to have received interest.
Where the breach consists in failure to invest trust-money and to accumulate the interest or dividends thereon, he is liable to account for compound interest (with half-yearly rests) at the same rate;
Where the breach consists in the employment of trust-property or the proceeds there of in trade or business, he is liable to account, at the option of the beneficiary, either for compound interest (with half-yearly rests) at the same rate, or for the net profits made by such employment.
2. No set-off against Liability under the trust laws in India
Where breach of trust is in two distinct respects, one causing loss and the other bringing a gain, the trustee cannot say that his liability for the loss should be reduced by set-off against it the gain caused by the other breach. It follows that if breach of trust causes loss, the trustee has to bear it. If it brings about a gain it will go to the benefit of trust property. The trustee cannot claim any reduction in his liability for the loss as against the gain.
3. The Position of co-trustees under the trust laws
Where there are more than one trustees the principles as to their respective liability are to be founding Section 26-27 of the trust laws in India.
The general principle is that a trustee is not liable for the breach of trust committed by any one of his co-trustees under the trust laws in India. Co-trustees can trust each other under the trust laws in India. Life in society is based upon trust, not distrust. People have a right to trust those who are put in a position of trust. But then there cannot be blind trust. One has to trust with care and caution. That is why the declaration of non-liability in Section 26 is subject to the provisions of Section 13 and 15. Section 13 requires trustees to protect the title to trust property under the trust laws in India. A trustee cannot leave this essential function to the exclusive care of one of his co-trustee cannot leave this essential function to the exclusive care of one of his co-trustees and then shelter himself behind the defence that he did not know what the co-trustee was doing. Section 15 of the trust laws in India requires trustees to execute the trust with due care and caution. A trustee may become liable for the breach of trust committed by another trustee if his inability to know about it amounts in circumstances to an evidence of negligence.
Section 26 of the trust laws in India also gives three specific situations in which a trustee becomes liable for the fault of his co-trustees, though this kind of liability is permitted by the section to be excluded by a contract to the contrary.
- Where he has delivered the trust property to his co-trustee without seeing to its proper application;
- Where he has allowed his co-trustee to receive the trust property and does not make due enquiries about his co-trustee’s dealings with it, or allows him to remain in exclusive possession for a period longer than is reasonably necessary under the circumstances;
- Where he comes to know of a breach of trust committed by his co-trustee or intended to be committed, and either actively conceals it or does not take proper steps to protect the interest of the beneficiary.
Where a trustee joins in signing papers for receiving trust property and he has a proof that he did not actually receive it, he will not be liable by virtue of such signature only for any misapplication of the trust property by the co-trustee who actually received the property.
4. Several Liability and Contribution under the trust laws
Where the co-trustees jointly commit a breach of trust, or where one of them by his negligence enables the other to commit a breach, each will be severally or personally liable to the beneficiary for the whole of the loss occasioned by the breach. Thus so far as the beneficiary is concerned he has aright to proceed against each and every trustee who is liable in the circumstances. But as between co-trustees justice demand that they must suffer according to their respective faults. If one of them is only as fault and the other has been held liable for his fault, the defaulting trustee must give indemnity to his fellow trustee for the amount which as been recovered form him. Where all of them are equally guilty and one of them has paid the loss, he may recover equal contribution form his co-trustees. The only exception is that the trustee who has been guilty of fraud, is to entitled to sue for contribution.
Liability for breach of trust or for contribution devolves upon the legal representatives of the trustee to the extent to which he has received the assets.
Where a beneficiary’s interest becomes vested in another person, and the trustee, being not aware of it, transfers the trust-property to the beneficiary, he will not be liable for the property so delivered.
Where the beneficiary’s interest is forfeited or awarded to the Government by legal adjudication, the trustee is bound to hold the trust property to the extent for such interest for the benefit of any person and in the manner in which the State Government may direct.
5. Indemnity of Trustee under the trust laws
In the ordinary circumstances trustees are respectively chargeable only for such money, stocks, funds and securities as they respectively actually receive and shall not be answerable for others, nor for any banker, broker or other person in whose hands any trust property may be placed, nor for the insufficiency or deficiency of any stocks, funds or securities, nor otherwise for involuntary losses. This is, however, subject to the provisions of Sections 23 and 26.
RIGHT AND POWERS OF TRUSTEES UNDER THE TRUST LAWS
Rights of Trustees under the trust laws in India
The Act confers the following rights upon trustees under the trust laws in India:
1. Right to Title-deed
A trustee is entitled to have in his possession the instrument of trust and all the documents of title relating solely to the trust property.
2. Reimbursement of Expenses
A trustee may have to spend money for the execution of the trust, or for the realisation, preservation or benefit of trust property. He can meet such expenses out of the trust account. If he has defrayed such expenses out of his own pocket, he will have first charge upon the trust property for his expenses and interest on it. Such charge can only be enforced by prohibiting the sale of trust property without payment of such expenses and interest. The charge can also be enforced otherwise if the expenses were incurred with the sanction of a principal civil court of original jurisdiction.
If the trust property fails, the trustee can recover from such beneficiary personally on whose behalf he acted and at whose express or implied request he made the payment.
If the trustee has by some mistake made an over-payment to a beneficiary, he can recover the excess amount from the trust property and, if the trust property fails, from the beneficiary personally.
3. Indemnity from Gainer of Breach under the trust laws
Where a breach of trust has occurred and a person, other than a trustee, has drawn some benefit from such breach, he will be bound to indemnify the trustee will have a charge on his interest for his indemnity. Such indemnity is not available to a trustee who has been guilty of fraud in the breach of trust.
4. Opinion of Court in management of Trust Property under the trust laws
A trustee may have to face many problems in the course of the execution of the trust. If there is any problem regarding the management of administration of the trust property, he may seek the opinion of the court on that matter. He has not to file a civil suit for this purpose. Ye can proceed just by a petition. The appropriate court is the principal civil court of original Jurisdiction. The court may express its opinion over the matter or give advice or directions to the trustee in the matter. The question should not be advice or directions to the trustee in the matter. The question should not be of such detail, difficulty or importance as is not capable of summary disposal.
A copy of such petition would have to be served upon persons whom the court thinks may be interested so as to afford them an opportunity of participating in the proceedings.
If the facts alleged in the petition are stated by the trustee in good faith and he has followed the opinion, advice or directions of the court, he shall be deemed to have discharged his duty in reference to the subject-matter of the petition.
The question of costs of application under the section have been left in the discretion of the court.
5. Settlement of Accounts under the trust laws
When the duties of a trustee have been completed, he is entitled to have the accounts of his administration of the trust property examined and settled. If nothing remains due to the beneficiary under the trust the trustee is entitled to have an acknowledgment in writing to that effect.
6. General Authority of Trustee under the trust laws
A trustee has the right to do all such acts as are reasonable and proper for the realization, protection or benefit of the trust property and also for the protection and support of a beneficiary who is not competent to contract. This is known as the general authority of a trustee. This authority is in addition to the powers expressly conferred by the Act and by the instrument of trust. The authority is subject to the statutory restrictions particularly those in Section 17, and restrictions in the trust-deed. Further Section 36 itself says that a trustee shall not have the power to lease the trust property for a term exceeding 21 years, nor without reserving the best yearly rent that can be reasonably obtained.
Powers of Trustees under the trust laws
Following powers are conferred by the Act upon trustees:
1. Power to sell
Where a trustee has the authority to sell the trust property, the section gives him a lot of discretion in the matter. He may sell the property subject to the charges or free of them. He may sell the whole property in one lot or in instalments, either by public auction or by private negotiation and either at one time or at different times. This authority is, however, subject to any contrary directions in the trust-deed.
Section 38 of the trust laws in India gives the trustee the power to sell under special circumstances and also the power to buy-in or resell. The section gives a lot of latitude to the trustee in the transaction of sale. The trustee may insert into the contract of sale any reasonable stipulations, for example, about title or evidence of title. He may also buy-in the property either wholly or partly at any sale by auction. He may vary or rescind the contract of sale. He may resell the property after buying it back or after rescinding the contract and taking back the property. All this will not by itself involve him into any liability toward the beneficiary.
Where a trustee is directed to sell the trust property or to invest trust money in the purchase or property, he may exercise a reasonable discretion as to the time of effecting the sale or purchase. In one of the illustrations to the section certain property is bequeathed to a person to sell it with all convenient speed and to pay the proceeds to the beneficiary. This does not render an immediate sale imperative. In the second illustration a property is bequeathed to a trustee to sell it at such times and in such manner as he shall think fit and to invest the proceeds for the benefit of the beneficiary. This does not permit as between the trustee and the beneficiary that the sale can be postponed to an indefinite period.
2. Power to convey
The completion of a sale may require certain formalities, for example, the formality of conveyance. That is why Section 39 gives the trustee the power of conveyance. The section says that for the purpose of completing any such sale, the trustee shall have power to convey or otherwise dispose of the property sold in such manner as may be necessary.
3. Power to vary investments under the trust laws
A trustee has the power, at his discretion, to recover investments and to invest the proceeds in trust securities as listed in Section 20. He also has the power to vary such investment from time to time for the benefit of the trust. Where, however, the beneficiary is competent to contract and is entitled at the time to receive the income of the trust property for his life, any change in investment would require his consent in writing.
4. Maintenance of minors under the trust laws
Where the beneficiary is a minor, the trustee may, at his discretion, apply or pay to the guardian the whole or any portion of the income of the trust property for the maintenance of the minor, or his education, or advancement in life, or the reasonable expenses of his religious worship, marriage or funeral. The rest of the income should be accumulated into interest earning securities as listed in Section 20 to the benefit of which the beneficiary shall become ultimately entitled. In cases it becomes necessary to do so the accumulations can also be applied for the benefit of the beneficiaries. Where the income of the trust property is not sufficient for the purposes stated above, the trustee may, with the permission of the principal civil court of original jurisdiction, apply the trust property itself for those purposes. The section saves the provisions of local law applicable to minors or their property.
5. Power to give receipts under the trust laws
A trustee may have to receive from time to time in the execution of the trust money, securities or other property and may have to sign papers in acknowledgment of the receipt. This section gives him the power to sign such receipts. In the absence of any fraud, such receipt will discharge the person delivering the property from any liability in that connection.
6. Power to compound under the trust laws
The section gives discretionary power to two or more trustees acting together in the following respects:
- Acceptance of any composition or any security for any debt or for any property claimed;
- Allowance of any time for payment of any debt;
- Compromise, compound, abandon, submit to arbitration or otherwise settle any debt, account or thing whatever relating to the trust;
- For any of those purposes, enter into, give execute and do such agreements instruments of composition or arrangement, releases or other things as to them seem expedient, without being responsible for any loss occasioned by any act or thing as done by them in good faith.
The powers conferred by this section upon two or more trustees may be exercised by a sole acting trustee if the instrument of trust so authorises. The provisions of the section are also subject to any contrary provisions in the trust-deed.
7. Authority to deal with Trust Property under the trust laws
Where the authority to deal with trust property is given to several trustees and one of them disclaim or dies, the authority may be exercised by the continuing trustees. This will not apply where the instrument of trust is specific on the point that the trust will be executed only by the specified number of trustees.
8. Suspension of Trustees powers
Where a court has passed a decree in the matter of the trust, the powers of the trustee become suspended. The result is that the trustee can exercise his power only in conformity with the decree or with the sanction of the court which passed the decree or with the sanction of the appellate court if the matter is under appeal.
Disabilities of Trustees under the trust laws
Chapter 5 of the Act gives a list of the disabilities of trustees. Having accepted the office of a trust, the trustee has to sacrifice his normal rights or liberty in many respects. He cannot, for example, purchase the trust property. This is his disability.
1. Trustee cannot renounce after acceptance under the trust laws in India
A trustee, who has accepted his office, suffers from this disability that he cannot thereafter of his own accord renounce his office. The law permits him to get rid of his office in the three ways stated in the section:
(a) with the permission of a principal civil court of original jurisdiction;
(b) with the consent of the beneficiary where he is competent to contract;
(c) by virtue of special power in the instrument of trust.
2. Trustee cannot Delegate
The selection of a trustee is an expression of the author’s trust and confidence in his competence and integrity. Every trustee is, therefore, expected to perform his functions personally, and not to leave them to others. He suffers from this disability that he cannot delegate his essential functions to others. Hence, the maxim of law that a trustee cannot delegate. The rule is, however, subject to the following exceptions:
(a) where it is permitted by the instrument of trust;
(b) where the delegation is in the regular course of business;
(c) where the delegation is necessary;
(d) where the beneficiary, being competent to contract, permits it.
An explanation to the section clarifies that the appointment of an attorney or proxy to do an act of merely ministerial nature and involving no independent discretion is not a delegation of functions. Where, for example, a trustee has to sell the trust property, he may employ an auctioneer for the purpose. Where a trustee has to collect rents of several houses, he may employ a person for the job.
3. Co-trustees cannot act singly
Where there are more than one trustees, all have to join in the execution of the trust. A single trustee out of the several cannot build the trust by his acts, unless there is a provision to that effect in the instrument of trust.
4. Control of discretionary power under the trust laws in India
Where a discretionary power conferred on a trustee is not exercised reasonably and in good faith, the exercise of the power may be controlled by the principal civil court of original jurisdiction.
5. Trustee not to charge for services
Ordinarily a trustee has no right to remuneration for his trouble, skill and loss of time in executing the trust. Thus a trustee suffers from this important disability that he cannot charge for his services. He may, however, charge for his services in the following cases:
(a) where there is a direction to that effect in the instrument of trust;
(b) where there is a contract to that effect between the trustee and beneficiary;
(c) where at the time of accepting the trust, the trustee secures an order of the court to that effect.
This disability does not apply in the case of official trustee, administrator-general, public curator or a person holding a certificate of administration.
7. Trustee cannot buy trust property under the trust laws in India
A trustee who has been appointed to sell the trust property cannot buy it himself. Whether he buys the property directly or indirectly or in the name of another person, it will be no sale and he will hold the property in trust for the beneficiary. This disability also extends to any agent appointed by the trustee for the sale of the property. For, otherwise the trustee could have manipulated the purchase through such agent.
The effect of the provision in Section 53 is to extend the disability further still. A trustee, including a trustee who has recently ceased to be so, cannot buy, or become mortgagee or lessee of the trust property or of any portion of it. He can do any one of these things only with the permission of the principal civil court of original jurisdiction. The court will give such permission only if the proposed transaction is for the advantage of the beneficiary.
Similarly, where the office of the trustee is to buy or to obtain mortgage or lease of particular property for the beneficiary, he cannot obtain the same for himself.
8. Co-trustees cannot mutually lend
Where the duty of a trustee or co-trustee is to invest trust money on mortgage or personal security, he cannot invest the money on the mortgage or personal security of himself or of one of his co-trustees.
RIGHTS AND LIABILITIES OF BENEFICIARY UNDER THE TRUST LAWS IN INDIA
The Act confers following rights upon the beneficiary:
1. Right to Rents and Profit
A beneficiary is entitled to receive the rents and profits of the trust property. This right is subject to the provisions of the instrument of trust.
2. Right to specific execution
The beneficiary has the right to have the intention of the author of the trust specifically executed to the extent of his interest. Thus he can compel the trustee by means of a court order to carry out the purpose of the trust.
This right also includes the right to have the trust property transferred to the beneficiary. If the beneficiary is competent to contract he can direct the trustee to transfer the property to him or to any other person at his choice. If there are more than one beneficiaries, all of them can jointly demand the property to be transferred to them.
Where the trust is for the benefit of a married woman, so that she shall not have the power to deprive herself of her beneficial interest, the right of the beneficiary to have the property transferred will not be available to her during marriage.
Where, for example, securities are transferred to a trustee to accumulate the interest until the beneficiary attains the age of 24, the beneficiary on attaining that age can have the securities transferred to him. Where Rs. 10,000 have been put in trust to enable the trustee to purchase an annuity for the benefit of the beneficiary. The beneficiary has attained the age of majority and is also otherwise competent to contract. He may claim the money from the trustee. Where a property is transferred to a trustee to sell or invest for the benefit of the beneficiary, the latter, if he is competent to contract, may elect to have the property in its original character.
3. Right to inspect Accounts
The beneficiary has the right to inspect and to take copies of the instrument of trust, the documents of title relating solely to the trust property, the accounts of the trust property and the vouchers etc., by which they are supported, and the cases submitted and opinions taken by the trustee for his guidance in the discharge of his duty.
4. Right to transfer beneficial interest
A beneficiary who is competent to contract has a right to transfer his beneficial interest. This right is, however, subject to the law for the time being in force relating to the circumstances in and extent to which such rights may be transferred. Where the trust is for the benefit of a married woman without giving her the right of transfer, she cannot do so during the period of her married life.
5. Right to sue for Execution of Trust
The section states the circumstances n which the execution f the trust can be demanded from the court. A situation may arise in which no trustees have been appointed, or all the trustees disclaim or have died or have been discharged, or the execution of the trust, for any other reason, has become impracticable. The beneficiary may apply to the court. The court is bound to carry further the trust under its own supervision at least up to the time that trustees are appointed.
6. Right to proper Trustees
Subject to the provisions of the instrument of trust, the beneficiary has a right to say that the trust property shall be properly protected and that it should be held and administered by proper person and proper number of trustees. The first explanation to the section gives the list of persons who are not proper for this purpose:
A person domiciled abroad; an alien enemy; a person having an interest inconsistent with that of the beneficiary; a person in insolvent circumstances; and, unless the personal law or the beneficiary allows otherwise, a married woman and a minor.
7. Right to compel act of duty
The beneficiary has a right to assure that the trustee shall perform a particular act of duty and also to restrain him from committing any contemplated or probable breach of trust. Of the two illustrations appended to the section one is like this: A contracts to pay Rs. 100 to B every month so that B would hold the amount in trust for C. B agrees to it. But A does not pay. The beneficiary, C, has a right to compel the trustee B, on a proper indemnity to allow the beneficiary to sue A in the trustee’s name. according to the other illustration a land is in the hands of a trustee for sale and distribution of the proceeds equally between the two beneficiaries. The trustee is about to make an improvident sale of the land. Any beneficiary may sue on behalf of himself and the other to restrain the trustee from proceeding with the sale.
8. Wrongful purchase by Trustee
The beneficiary has the right to restrain the trustee from committing breach of trust. One aspect of this right is that if the trustee has wrongfully purchased the trust property for himself, the beneficiary can recover it back from him and also compel him to hold the property in trust for the beneficiary. Where the property has been sold to a third person, the beneficiary can recover from that third person if he has bought the property with notice that it was trust property. This is known as the beneficiary’s right to follow trust property. The beneficiary recovering back the property has, of course, to refund the purchase-money with interest and also other expenses properly incurred in the preservation of the property. The trustee or the purchaser from him are also under the obligation:
(a) to account for the net profits of the property during the period;
(b) to pay the occupation rent if he was in actual possession of the property;
(c) to allow the beneficiary to deduct a proportionate art of the purchase-money if the property has been deteriorated by the acts or omissions of the trustee or the purchaser.
These right of the beneficiary cannot prejudice the following transactions:
(1) The right of lessees and others who contracted in good faith with the trustee or the purchaser before the beneficiary instituted his suit to have the property transferred or declared subject to the trust.
(2) The beneficiary will lose the right to have the property retransferred where he has ratified the purchase by the trustee. It is necessary for this
principle to apply that ratification should have been the expression of a free choice on the part of the beneficiary. There should have been no coercion or undue influence. He should have been competent to contract. He should have ratified the transaction with full knowledge of the facts and of his rights.
9. Right to follow trust property
Where a trust property comes into the hands of a third person either under breach of trust or otherwise inconsistently with the trust, the beneficiary may require him to admit formally that it is a trust property. He may institute a suit for the declaration that the property is comprised in the trust.
Where the trustee has disposed of the trust property and has received for it some money or property and the same is traceable in his hands or in the hands of his legal representatives or legatee, the beneficiary has the right that the same should be regarded as in trust for him to the extent to which the nature of the property and other circumstances permit it. Where, for example, the trust money is wrongfully invested by the trustee n purchasing some and, the beneficiary is entitled to the land. Where the land is purchased by the trustee partly with his own money and partly with trust-money, the beneficiary will be entitled to a charge on the land to the extent of the trust-money.
Section 64 restricts the right of the beneficiary to trace trust property as against those who have acquired interest n the property in good faith. Thus the beneficiary is not entitled to challenge the title of:
(a) a transferee in good faith for consideration without having notice of the trust either when the purchase-money was paid, or when the conveyance was executed ; or
(b) a transferee for consideration from such transferee.
The essence of the provision is that a bona fide transferee for value gets a good title and also any transferee from him for consideration, as against the beneficiary.
For the purposes of this principle a personal creditor of the trustee attaching trust property is not a transferee for consideration.
Where the trust property comprises of money, currency notes and negotiable instruments, and they have passed to the hands of a bona fide holder, his rights will depend upon law applicable to currency notes and negotiable instruments and not according to the beneficiary’s right to trace the trust property.
Section 65 extends the right of the beneficiary to a certain extent. It says that where a trustee has wrongfully purchased the trust property and subsequently himself becomes the owner of the property, the property shall again become subject to the trust. This will be so notwithstanding that the intervening transferees acted in good faith and had no notice of the wrongful transfer.
10. Right against Blended Property
Where the trustee wrongfully mingles his own property with the trust property, the beneficiary is entitled to a charge on the blended property for the amount due to him.
11. Wrongful employment by partner
Where the trust property is in the hands of a partner and he has employed the property in the business or on account of the firm, the other partners will not be liable for such breach of trust unless anyone of them had knowledge of the breach of trust.
Such of the partners as have notice of the breach of trust would be jointly and severally liable for the breach. The section carries two illustrations: A partner dies and leaves him share in the partnership in the hands of the other partner in trust for his wife and children. The other partner continues the business with all the assets. The beneficiary may compel him to account for the profits as are derived from the late partner’s share in the capital. The other illustration is that a trader transfers his property in the trade and also takes in two partners whom he gives an indemnity against any possible claims by beneficiaries. All the three are liable to the beneficiaries for the breach of trust.
Liability of beneficiary for Breach of Trust
The section imposes liability upon a beneficiary in the following cases:
(1) Where he joins in committing the breach of trust;
(2) Where he knowingly obtains an advantage from the breach without the consent of the other beneficiaries;
(3) Where he becomes aware of a breach of trust committed or intended to be committed, and either actually conceals it, or does not within a reasonable time take proper steps to protect the interests of the other beneficiaries;
(4) Where he deceives the trustee and induces him to commit breach of trust.
In such cases the other beneficiaries are entitled to have his beneficial interest impounded until the loss caused be the breach has been compensated. Such right is available even against one who claims under the guilty trustee, but not against bona fid purchasers of him interest.
A person who purchases a beneficiary’s interest gets the same rights which the beneficiary had at the date of transfer. His interest will also remain subject to the same liabilities s it was n the hands of the beneficiary.
Vacating the Office of Trustee
The office of a trustee may be vacated either by his death or by his discharge from his office.
Discharge of Trustee
A trustee may be discharged from his office in the following ways:
(1) by the extinction of the trust;
(2) by the completion of his duties under the trust;
(3) by such means as may be prescribed by the instrument of trust;
(4) by appointment of a new trustee in his place under the provisions of the Act;
(5) with his own consent and that of the beneficiary or all the beneficiaries who are competent;
(6) by the order of a court where a petition for his discharge is submitted.
A trustee may submit a petition for his discharge in a principal civil court of original jurisdiction. If the court finds that there is sufficient reason for such discharge, the court may discharge him accordingly. The court may direct that the costs may be paid out of the trust property. Bu where there is no such reason, the court will not discharge him, unless a proper person can be found to take his place.
Appointment of new Trustee
A new trustee can be appointed in any of the following cases:
Whenever any person appointed a trustee disclaims, or any trustee dies, or is for a continuous period of six months absent from India, or leaves India for the purposes of residing abroad, or is declared an insolvent; or desires to be discharged from the trust, or refuses, or, in the opinion of the court, has become unfit, or personally incapable to act in the trust, or accepts an inconsistent trust.
The new trustee can be appointed by a person nominated for that purpose in the instrument of trust. If there is no such person or no such person able and willing to act, then the appointment can be made by the author of the trust if he is still alive and competent to contract, or by the continuing or surviving trustees of trustee, or by the legal representative of the last surviving and continuing trustee, or, with the consent of the court, by the retiring trustee or the last retiring trustee.
The appointment has to be by writing and under the signature of the person making it. On the appointment of a new trustee the number of trustees may be increased.
The court can appoint the official trustee in any case in which only one trustee may be appointed and such trustee is to be the sole trustee.
Appointment by Court
When any of the types of vacancy mentioned in Section 73 occurs, but it is impracticable to appoint a trustee under that section, the court may, at the application of the beneficiary, appoint a trustee or new trustee. The beneficiary has only to make an application to the court. He has not to file a suit. The court is the principal Civil Court of original jurisdiction.
In making its choice of a new trustee, the court should have regard to (a) the wishes of the author of the trust as they appear from the instrument of trust; (b) the wishes of the person who was empowered to appoint a new trustee; (c) the question whether the appointment will promote or impede the execution of thee trust; and (d) the interest of all beneficiaries if there are more than one beneficiaries.
Vesting of property in new Trustees
On the appointment of a new trustee, the trust property for the time being vested in the surviving or continuing trustee, shall become vested in the new trustee either solely or jointly with the continuing or surviving trustee. The powers of the such trustees will be the same as if they were the original trustees.
Survival of Trust
The maxim of law is that a trust shall never fail for want of a trustee. In recognition of this principle Section 76 provides that on the death or discharge of one of several co-trustees, the trust survives and the trust property passes to the others. This will however, be subject to any contrary provisions in the trust-deed.
Extinction of Trusts under the trust laws in India
According to Section 77 a trust is extinguished
(a) when its purpose is completely fulfilled; or
(b) when its purpose becomes unlawful ; or
(c) when the fulfillment of its purpose becomes impossible by destruction of the trust property or otherwise; or
(d) when the trust, being revocable, is expressly revoked.
Section 78 explains the circumstances in which a trust can be revoked. It says that a trust created by will may be revoked at the pleasure of the testator.
A trust created otherwise can be revoked only
(a) Where all the beneficiaries are competent to contract, by their consent;
(b) Where the trust has been declared by a non-testamentary instrument or orally, the author may revoke if the has expressly reserved a power for himself to that effect;
(c) Where the trust is for the payment of the debts of the author and it has not been communicated to the creditors, it can be revoked at the pleasure of author of the trust. The only illustration to the section supposes the case of a debtor who has transferred his property to a trustee to enable him to pay his creditors. He reserves for himself the power of revoking the trust. If the matter has not been communicated to the creditors, the debtor may revoke the trust. But where the creditors have also become a party to the arrangement, revocation will be possible only with the consent of the creditors.
Effect of revocation
A trust cannot be revoked by the author of the trust so as to defeat or prejudice what the trustee may have done in the due execution of the trust.
Obligations in the Nature of Trust under the trust laws in India
There are certain relations in which there is no formal trust, but the law has to subject those relations to the same sanctity as if they were relations of trust. Persons in those relations will be considered as occupying the position of a trustee. Obligations in the nature of trust are imposed upon them. Section 80 contains a general declaration that such obligations are supposed to exist in the cases mentioned in Section 81-94. They are as follows:
1. No intention to dispose of Beneficial Interest
Where the owner of a property transfers it to another but it does not appear form the attending circumstances that he intended also to dispose of the beneficial interest, the transferee in such cases will hold the property in trust for the transferor or his legal representative. Where, for example, a person transfers his land to another without consideration and it does not appear from the circumstances that he intended to make the transferee the full owner of the property, the transferee will hold the property for the benefit of the transferor. A person transfers his two fields to another and declares in reference to one that it would be in trust, but says nothing about the other. That other property will be held by the transferee in trust for the transferor. A person is the owner of certain stock. He transfers it into the joint names of himself and one more. There is nothing to show that he intended to transfer it for the benefit of the other. They will jointly hold it for the benefit of the owner. A person makes the gift of certain land to his wife. The fact of gift indicates that he intended to confer a benefit upon his wife. So she takes the beneficial interest also.
2. Transfer for consideration by another
Where transfer of a property is made to one person and consideration for it has been paid by another and it appears from the circumstances that the party paying the consideration did not intend to confer a benefit on the transferee, the transferee has to hold the property for the benefit of the party providing the consideration.
3. Trust incapable of execution or which do not exhaust Trust property
The section incorporates the rule of what is known as resulting trust in favour of the author of the trust. Where the trust becomes impracticable or where the object of the trust has been fulfilled without the trust property being exhausted, a resulting trust arises in favour of the author of the trust. The trustee will hold the property for the benefit of the author.
4. Transfer for illegal purpose
Where the owner of the property transfers it to another for an illegal purpose and such purpose is not carried into execution, or the transferor is not as guilty as the transferee, or the effect of permitting the transferee to retain the property might be to defeat the provisions of any law, the transferee has to hold the property for the benefit of the transferor. Similarly, where a person bequeaths his property upon trust and the purpose of the trust appears on the face of the will to be unlawful, or during the testatorÔÇÖs lifetime the legatee agrees with him to apply the property for an unlawful purpose, the legatee must hold the property for the benefit of the testator’s legal representatives.
Where the revocation of a bequest has been prevented by coercion, the legatee must hold the property for the benefit of the testator’s legal representatives.
5. Transfer pursuant to voidable contract
Where a property has been transferred under a contract which is liable to be avoided by reason of fraud or mistake the transferee, on receiving notice to that effect, must hold the property for the benefit of the transferor. The latter would have to refund the consideration that he might have received.
6. Debtor becoming creditor’s representative
Where the debtor becomes the executor or other legal representative of the creditor, he must hold the debt for the benefit of the persons interested in it.
7. Advantage gained by Fiduciary
The section deals with the person occupying a fiduciary position. It enumerates trustee, executor, partner, agent, director or a company, legal adviser, or other persons who are bound in a fiduciary character to protect the interest of another person. If any of them by availing himself of his character, gains for himself any pecuniary advantage or enters into a dealing in which his own interest is adverse to that of the other person and thereby gains a monetary advantage, he has to hold such advantages for the benefit of the other.
8. Advantage under undue influence
Where a person practices undue influence over another and thereby gains an advantage without consideration, or gains an advantage with notice that undue influence has been practiced, he must hold the advantage for the benefit of the person who was the victim of undue influence.
9. Advantage gained by qualified owner
Where a person has a limited interest in a property and gains an advantage out of such property, he has to hold such advantage for the benefit of all others, who have interests in that property. Section 90 accordingly provides that a person who is a tenant for life, co-owner, mortgagee or other qualified owner of any property and he gains an advantage out of the property in derogation of the interests of others interested in the property, he has to hold such advantage for the benefit of all. The others will, however, be bound to made proportionate contribution towards the expenses properly incurred in securing the advantage.
Property acquired with notice of existing interest
Where a person purchases property with notice that another person has already entered into a contract affecting that property and that contract is specifically enforceable, the subsequent purchaser will hold the property for the benefit of the first to the extent to which it is necessary to give effect to the interest acquired by him.
Advantage gained by compounding creditor
Where all the creditors of a debtor enter into an arrangement with the debtor for compromising their claims, and one of them gains a special favour from the debtor by secret parlays, he must hold such advantage for the benefit of all the creditors.
Purchase of property under Trust
Where a person contracts to buy certain property to be held under trust for the benefit of certain beneficiaries and he buys the property accordingly, he must hold the property for their benefit to the extent to which it is necessary to give effect to that contract.
The principle of constructive trust finds statutory expression in Section 94. Where a person does not become a trustee under any of the provisions of the Act, but is in possession of a property in which he does not have the whole beneficial interest, he must hold the property for the benefit of the person who is beneficially interested in the property.
Position of Trustee under the trust laws
Persons who are enumerated in Chapter IX which deals with relations in the nature of trust are declared by Section 95 to be occupying the position of a trustee. Therefore, they will be bound to perform the same duties and will be subject to the same liabilities and disabilities as if they were the trustees of the property in the full sense of the word. If he properly employs the properly in cultivation, or trade or business, he will be entitled to reasonable remuneration for his trouble, skill and loss of time. Where the property is held by hi under a contract with the beneficiary himself, he may, without the permission of the court, become lessee or mortgagee of the property.
Section 96, which is the last section of the Act and of the chapter on relations in the nature of trust, provides that the provisions of the chapter will not affect the rights acquired by a person in good faith and for consideration. The provisions of the chapter cannot also be used to create obligations in evasion of any law for the time being in force.
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