Critical Analysis of who can be a trustee and beneficiary of a trust under

Indian Trust Act 1882

Indian Trusts Act 1882 deals with all the matters related to trusts, trustee and
beneficiaries .According to section 10 of Indian Trusts Act 1882 states that
Every Person capable of holding property may be a trustee; but, where the trust
involves the exercise of discretion, he cannot execute it unless he is competent
to contract.

The position of trustee is an extremely important one, as trustees are in a

"fiduciary" relationship with the trusts beneficiaries. This means that they are
in a special position of trust and accordingly have a number of significant
duties. If you are a trustee, it is vital that you familiarise yourself with those
duties, as you can be liable for "breach of trust" if you do not full fill them. Any
person who can own property may be a trustee. A minor (someone under 20)
can be a trustee, but a court would have to appoint someone to act as trustee
until the minor turns 20.

In general, the main duties of trustees are:

# to act in the best interests of the beneficiaries of the trust
# to act in an even-handed manner between beneficiaries and between groups of
beneficiaries
# not to use knowledge or influence gained as a result of being a trustee to
advance the trustees own position (except when the trustee discloses his or her
personal interest to the settler of the trust and obtains # the settlers informed
consent)
# to act personally rather than delegating decisions to others (except if the trust
document explicitly permits delegation)
# to act honestly and with the level of skill and care that would be expected of
the reasonable businessperson in administering the affairs of others
# to be thoroughly familiar with the terms of the trust in the trust deed (the main
trust document), and with who the possible beneficiaries may be and what the
assets and liabilities of the trust.

Beneficiaries-
In trust law according to Section-9 of Indian Trust Act 1886 Every person
capable of holding property may be a beneficiary. A proposed beneficiary may
renounce his interest underthetrust by disclaimer addressed to the trustee, or by
setting up, with notice of the trust, a claim inconsistent therewith.A beneficiary
is the person or persons who are entitled to the benefit of any trust arrangement.
A beneficiary will normally be a natural person, but it is perfectly possible to
have a company as the beneficiary of a trust, and this often happens in
sophisticated commercial transaction structures.[1] With the exception of
charitable trusts, and some specific anomalous non-charitable purpose trusts, all
trusts are required to have ascertainable beneficiaries.

Generally speaking, there are no strictures as to who may be a beneficiary of a

trust; a beneficiary can be a minor, or under a mental disability (in fact many
trusts are created specifically for persons with those legal disadvantages). It is
also possible to have trusts for unborn children, although the trusts must vest
within the applicable perpetuity period

Trustee
The question who should be appointed trustee to some extent depends upon the
nature of the trusts ,whether it was regarded as a hereditary trust or whether the
trusteeship of each holder ends with him or it is the case of fresh appointment
by court or some other competent authority In Kinloch v. Secretary of the State
for India James L.J. observed that The Government of India is not ,as it
appears to me , capable of being a trustee ; nor is the Secretary of State in
Council (the name by which the government can be sued) a person is capable of
being trustee any more than the attorney-general in this country would be ,or
any other person ,who sued in cases for ,or on behalf of the Crown. But the
present view is that the Secretary of State for India is capable of being ,a
trustee.

Anyone capable of taking physical possession of or legal title of the property

can be a trustee. And there is no limit to the number of trustees to hold the
position in one trust. Generally there are more than one trustee , the trustees,
with respect to each other, are referred to as co-trustees, and when acting jointly
as a collective body are referred to as the Board of Trustees .The trustee should
be at least someone capable and fit for executing the powers and duties
honorably.

The trustee should be stationed within the jurisdiction of the court where the
trust is located. But where the trust property is portable land, the trustee need
not be stationed within any single jurisdiction. Non residency will not disqualify
or preclude the trustee from carrying out his position; non residents of the state
in which the trust is to be administered can be trustees. State law determines
whether an alien can act as a trustee..

Appointment of the trustee

Appointment of the trustee should be done formally, expressly in writing, even
though it will always be implied the individual will use the trust property, or
performs any act to carry out the trust for the interest of beneficiaries. Once the
acceptance has been tendered then no court of law can prevent the trustee from
holding the office, except for the breach of trust or good cause dependent upon
clear and lawful necessity.

The failure of author to appoint a trustee

The failure of author to name a trustee does not void a trust. The court appoints
a trustee to administer the trust and orders the person having legal title to the
property to convey it to the appointed trustee. If two or more trustees are
appointed, they always hold the title to trust property in Joint Tenancy with the
Right of Survivorship. If one of the trustee dies, the surviving trustee inherits
the entire interest, not just her proportionate share

Resignation by a trustee
A trustee cannot resign without the permission of the court unless the trust
instrument so provides or unless all of the beneficiaries who are legally capable
to do so consent to the resignation. The court usually permits the trustee to
resign if continuing to serve will be an unreasonable burden for the trustee and
the resignation will not be greatly detrimental to the trust.

Who can be a trustee

A corporation can act as a trustee
A corporation is capable of accepting the ownership of property with an
obligation annexed to the ownership for the benefit of another which may be a
class of persons, there can be no objection to a corporation acting as a trustee.
This is a well-established proposition from the time of the decision of the
Judicial Committee of the House of Lords in Salomon v. Salomon and
Company Ltd which has been followed in India by the Supreme Court and it has
held that a juristic person can carry on all human activities subject to such
limitation as arise from its not being a natural person and the limitations
imposed upon it activities by its own charter contained in the objects clause in
the memorandum of association. A juristic person cannot marry and procreate,
but it is certainly capable of owning property. It is also capable of owning
property in its capacity as a trustee. Corporations carrying on the activity of
becoming trustees and executors are not unknown. There can, therefore, be no
objection to a corporation acting as a trustee provided its objects clause in the
memorandum of association so permits. For example, a trust company is a bank
that has been named by author of trust to act as trustee in managing a trust. A
partnership can serve as a trustee if state law permits. An unincorporated
association, such as a Labor Union or Social club, usually cannot serve as a
trustee.

Alien can act as a trustee

An alien may be a trustee under English law. But in India the English law as to
aliens is not applicable. Alien enemies residing in (British) India with the
permission of the Governor General in Council and alien friends may sue in
courts of British India, as if they were subjects of Her Majesty. But it is not
competent to an alien enemy residing in British India , without such permission
or residing in a foreign country to sue in any of such courts.

Married Women can act as a trustee

A married women may be a trustee.

Infant can act as a trustee

As a life convict is capable of holding property ,it follows that does not require
the exercise of discretion and prudence. Thus an infant cannot exercise a
discretionary trust for sale for he is not competent to contract. It has also been
held that a minor is incompetent to be a trustee of a public trust.

Convict can act as a trustee

As a life convict is capable of holding property ,it follows that he may either be
a trustee or a beneficiary.

Illegitimate can act as a trustee

In a decision of the Oudh Chief Court ,it was held that mere fact of the
illegitimacy of a person is not necessarily a disqualification for his being
appointed as a trustee ,when he is otherwise found to be fit.

Insolvent can act as a trustee

An insolvent is incapable of acting as a trustee.Firms who have been
adjudicated insolvents are no longer under the Act fit to be trustee. They are
liable to be removed from the office of trustee and fresh trustee should be
appointed.

2.2 Beneficiary as trustee

There is no provision in the Trust Act that a cestui que trust shall not be
appointed a trustee. He is not as such incapacitated from being, trustee for
himself and other ; but as a general rule he is not altogether a fit person for the
office in consequence of the probability of the conflict between his interest and
his duty.

Executor
An executor is not a trustee of the property bequeathed by a testator which does
not belong to him.

Donor
Every donor contributing at the time of creation of a trust does not necessarily
become the founder of the trust and this will depend upon connected
circumstances and subsequent conduct of the parties.

Beneficiaries-
According to Sec 9 of Indian Trust Act 1886 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 therewith. Every private trust must have a designated
beneficiary or one so described that his identity can be learned when the trust is
created or within the time limit of the Rule of Perpetuity, which is usually
measured by the life of a person alive or conceived at the time the trust is
created. This rule varies from state to state, is designed to prevent a person from
tying up property in a trust for an unlimited number of years. A person or
corporation legally capable of taking and holding legal title to property can be a
beneficiary of a trust. Partnerships and unincorporated associations can also be
beneficiaries. Unless restricted by law, aliens can also be beneficiaries.

Who can be termed as Beneficiaries

A class of persons can be named the beneficiary of a trust as long as the class is
definite or definitely ascertainable. If property is left in trust for "children," the
class is definite and the trust is valid. When a trust is designated for family,"
the validity of the trust depends on whether the court construes the term to mean
immediate family in which case the class is definite or all relations. If the latter
is meant, the trust will fail because the class is indefinite. When an ascertainable
class exists, a author may grant the trustee the right to select beneficiaries from
that class. However, a trust created for the benefit of any person selected by the
trustee is not enforceable.

If the author's designation of an individual beneficiary or a class of beneficiaries

is so vague or indefinite that the individual or group cannot be determined with
reasonable clarity, the trust will fail. The beneficiaries of a trust hold their
equitable interest as tenants in common unless the trust instrument provides that
they shall hold as joint tenants. For example, three beneficiaries each own an
undivided one-third of the equitable title in the trust property. If they take as
tenants in common, upon their deaths their heirs will inherit their proportionate
shares. If, however, the author specified in the trust document that they are to
take as joint tenants, then upon the death of one, the two beneficiaries will
divide his share. Upon the death of one of the remaining two, the lone survivor
will enjoy the complete benefits of the trust.

Categories of the Beneficiary of a Trust

There are two basic Trusts with regards to the exercises of the Beneficiaries'
rights:

1. Beneficiaries of a Bare Trust (as known as a Simple Trust) is where the

Beneficiary is entitled to take actual ownership and control of the Trust and has
the right to the income and capital. The Trustees, in this case, act in accordance
with the Beneficiaries' wishes.
2. Beneficiaries of an Express Trust are Trusts where by the Trustee is given
additional duties and powers assigned in the Trust Deed. The Express Trust can
be either an Inter Vivos Trust, which is a Trust created during the life of the
Grantor, or the Express Trust can be a Testamentary Trust, which is a Trust
enacted after the death of the Grantor (as known as the Will Trust).

As far as Trust is concerned, there are two main types of Beneficiaries:

1. Fixed Beneficiaries who simply have a fixed entitlement to the income and
capital from the Grantor.
2. Discretionary Beneficiaries to whom the Trustees have discretionary and
decision-making powers to the entitlements.

The Crown
According to the law of England the sovereign may be a cestui que trust, and
similarly in India the Government may be a beneficiary.

Unborn Child
An unborn child cannot be said to be a a person capable of holding property
within the meaning of this section and is therefore incapable of being a
beneficiary.

Corporation
In England a trust of lands cannot be limited to a corporation without a license
from the crown.But since the Mortmain Acts do not apply to India , a
corporation in India may be a censui que trust.

Alien
An alien also may be a cestui que trust.

Settler ad His wife

A trust was created for the benefit of the settler and his wife. Subsequent to the
trust the marriage was dissolved and the wife remarried. It was held in that the
wife forfeited the benefits under the trust.

CONCLUSION
From the above discussions on the doctrine and various case laws, it is evident
that the state is not the owner of the natural resources in the country but a
trustee who holds fiduciary relationship with the people. By accepting this task
the government is expected to be loyal to the interests of its citizens and to
discharge its duty with the interest of the citizens at heart and involve them in
decision-making process concerning the management of natural resources in the
country. The Indian Trusts Act 1882 deals with all the matters related to trusts,
trustee and beneficiaries .According to section 10 of Indian Trusts Act 1882
states that Every Person capable of holding property may be a trustee; but,
where the trust involves the exercise of discretion, he cannot execute it unless
he is competent to contract.Thus trustee holds a fiduciary position.

And according to Section-9 of Indian Trust Act 1886Every person capable of

holding property may be a beneficiary.Thus a beneficiary can be a minor, or
under a mental disability (in fact many trusts are created specifically for persons
with those legal disadvantages). It is also possible to have trusts for unborn
children, although the trusts must vest within the applicable perpetuity period.
Thus after studying the concept in depth it has been clear the anyone capable of
taking physical possession of or legal title of the property can be a trustee. And
there is no limit to the number of trustees to hold the position in one trust

The Rights of Trust Beneficiaries

In order to protect the rights of trust beneficiaries to whatever benefit they are
due according to the trust, the law provides beneficiaries with ways to monitor
the trust and the trustee. Trust beneficiaries are usually entitled to income from
the trust, which can be interest from investments or rents, among other things,
and the trustee who is in charge of the trust is responsible to make sure that
assets from the trust are invested well and productive. The rights of trust
beneficiaries to monitor the trust and the actions of the trustee allow trust
beneficiaries to protect their interests with regard to the trust.

Trust Beneficiaries are Entitled to Yearly Trust Reports

Whether it is good or bad news, the trust beneficiaries have the right to know.
Trust reports contain information for the beneficiaries such as how much
income was produced by the trust and expenses and commissions paid out.
Traditionally, trust reports should be mailed out annually to the beneficiaries. If
the trustee fails to send out at least one annual report and refuses to do so, the
beneficiaries have the right to request a reporting of the trust from the court.

Trust Beneficiaries Have the Right to an Accounting

Trustees have the important job of deciding how the principal of the trust will
be used. Typically, trusts contain both real property (real estate) and money,
giving the trustee great discretion in how each asset is invested. As a result of
this, the law requires that trustees act prudently with investments, diversifying
so that all the assets of the trust are not in one place, which would put them at
risk and could limit returns. If a beneficiary has questions or concerns about the
trustees decisions for investments, they have the right to request an accounting
of investments. This accounting report will detail every investment and its gains
and losses.

Trust Beneficiaries Can Request a New Trustee

If the trustee is being difficult, uncooperative, or refusing to do their job, you
can request a new trustee. This requires a legal filing and a ruling by the court.
If the reason for the request is because of large losses of principal, the trustee
will also be required to repay the trust. Before filing this request, keep in mind
that courts always do their best to maintain the intentions of the creator of the
trust (the settler), so only extremely egregious actions will justify a change.

Trust Beneficiaries Can Sue the Trustee

If the trustee has acted in other than the best interest of the trust beneficiaries,
the beneficiaries may sue the trustee. The trustee can be held liable for loss of
trust assets and for income that would have been earned but for the wrongful
conduct by the trustee. The trustee has a duty to manage the trust with due care
and caution and must be loyal and impartial to the beneficiaries. Poor
investments, making a personal profit at the expense of the trust, and fraud are
among the things that a trustee may be held liable for. The wrongful actions of
the trustee are called breaches of the fiduciary duties.

Terminate the Trust

If all the beneficiaries on a trust are adults of sound mind, the trust can be
terminated if the court determines that the intent of the creator of the trust has
either already been accomplished or cannot be accomplished, for reasons such
as impossibility. All the trust beneficiaries must agree, including those
beneficiaries of the trust that are entitled to the remainder of the trust assets after
the trust would have naturally ended. Some trusts are difficult or to terminate,
such as spendthrift trusts where the settlor clearly intended that the trust assets
be withheld and protected from the beneficiaries and their creditors.

If you are a trust beneficiary and you believe that the trustee is acting
improperly in any way, or you wish to terminate a trust that is not productive, it
is advisable that you contact an attorney as soon as possible for help making
sure you are treated fairly and honestly and receive the benefits you are entitled
to under the trust.
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 author
of the trust. The person who accepts the confidence is called the trustee.
The person for whose benefit confidence is accepted is called the
beneficiary. The subject-matter of the trust is called trust property or trust
money. Beneficial interest is the interest of the beneficiary. The document or
writing by which trust is created is called the instrument of trust.

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: Subject to the provisions of Section 5, under the Trust laws
a 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 authors 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

1. It is forbidden by law; or
2. It is of such a nature that, if permitted, it would defeat the provisions of
any law; or

3. It is fraudulent; or

4. It involves or implies injury to the person or property of another; or

5. 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:

1. 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 .
2. 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 .

3. 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 .

4. 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:

1. 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.

2. 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 fraud and
constructive notice. 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
fraud in equity. Constructive notice 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 companys 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. 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 principals 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 bailors 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 ones 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 obligations.

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 friends is uncertain because
the words old and friends 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 testators 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 charities.

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:

1. 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
statute.

2. The trust must be for the promotion of public benefit.

3. The trust must be wholly and exclusively charitable.

Object of Charitable Nature

IN THE OFT-QUOTED JUDGMENT OF THE HOUSE OF LORDS IN
PAMMELAS 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 purposes 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 womans 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 trustees 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 trustees 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
interests 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
founders 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
interest 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: A 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:

1. Where he has actually received interest;

2. Where the breach consists in unreasonable delay in paying trust-money to

the beneficiary;

3. Where the trustee ought to have received interest, but has not done so;

4. 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.

1. Where he has delivered the trust property to his co-trustee without seeing
to its proper application;

2. Where he has allowed his co-trustee to receive the trust property and does
not make due enquiries about his co-trustees dealings with it, or allows him
to remain in exclusive possession for a period longer than is reasonably
necessary under the circumstances;

3. 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 beneficiarys 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 beneficiarys 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 authors 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 trustees 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 beneficiarys 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 beneficiarys 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 partners 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.

Beneficiarys Transferee

A person who purchases a beneficiarys 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 testators 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 testators legal representatives.

Where the revocation of a bequest has been prevented by coercion, the legatee
must hold the property for the benefit of the testators 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 creditors 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.

Constructive Trust

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.