The law relating to private trusts and trustees is codified under the Indian Trusts Act, 1882. The term ‘trust’ can be traced back to the ancient times when human motivation to do charity and dedicate property for charitable and religious purposes found its manifestation in the form of dharmashalas, annachatras, sadavarts, educational and medical institutions, construction of water tanks and wells, etc. moreover with the emergence of idol worship, temples and idols this came into existence. In addition to public endowments/wakfs, private trusts can also be formed for looking after the welfare, age, illness, disability or any other reason.
The trust laws came to India via English Trust law which stipulates dual ownership of trust property i.e. legal titles vests with the trustee while equitable title vests with the beneficiary. On this basis, Indian trusts act 1882 was enacted. It governs private or family trusts and excludes wakfs and public or private charitable or religious endowments.
Under Indian laws, it is defined and dealt in accordance with the Indian Trusts Act. Section 2 of the Act states the definition of ‘trust’. 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.”
Key terms under Trust are:
- Author of the trust is the person who repossesses or declares the confidence.
- Trustee is the person who accepts the confidence.
- Beneficiary is the person for whose benefit confidence is accepted. The beneficial interest is the interest of the beneficiary.
- The trust’s subject matter is called trust property or trust money.
- Instrument of trust is the document or writing by which trust is created.
Therefore trust is an acceptance of an obligation by a person in relation to some property or funds to use or hold it for the benefit of those for whom the trust is created.
Trustee under the trust laws
Section 10 of the trust laws deal with the question of who is eligible for becoming a trustee. The section says that “every person capable of holding property may be a trustee”.
- A Corporation is capable of being a Trustee, it is a corporation is capable of accepting the ownership of property with an obligation annexed to the ownership for the benefit of another it can be a class of persons, however, there can be no objection to a corporation acting as a trustee. However, a person is not bound to accept a trust.
- An Alien can be a trustee under the English law, however, it is not applicable under the Indian law.
- A married woman can be a trustee.
- An infant can act as a trustee. However a minor is incapable of holding a public trust.
- A convict can act as a trustee.
- An illegitimate child can act as a trustee.
- An insolvent has the capacity to act as a trustee.
When a person is designated as a trustee, he has the option and it is up to him, to accept or disclaim the trust. He may signify his acceptance by words, impliedly or by consent in oral and written form. What is required, however, is that his intention to accept should be reasonably certain under the trust laws.
The intended trustee can also disclaim the trust instead of accepting it. He must, however, 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. however, if there are more than one proposed trustees and if any of them disclaims, the property will vest in the other or others and he will become the sole trustee or them co-trustees. A proposed trustee is the one who accepts to become a trustee from the date of the creation of the trust under the trust laws. Where a person by his will leaves the certain property in trust for another and the proposed trustees prove his will, which 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 realizes the value of the goods, or where money is transferred in trust and the proposed trustee separates the money from the rest of the assets, this conduct amount to an acceptance of the trust under the trust laws in India.
Duties & liabilities 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. It is necessary that while carrying out the purpose of the trust the trustee has to follow the directions of the authority given at the time of the creation of the trust. Such instruction 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. Like for example, where A is a minor son the beneficiary, C being the guardian of A is the trustee of A’s property.
Acquaintance with trust property:
This Act 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 the 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.
Protection of Title to Trust Property under the trust laws:
Preservation of trust property is one of the essential functions of trustees under the trust laws in India. The trustee has to assert his right to the property and to protect the title to the property. For this purposes, the trustee has the power to maintain and defend suits and all other authorities under the trust laws in India. Subject to the provisions of the instrument of trust and keeping in mind the nature and kind of trust property, the trustee may do anything which is necessary for the preservation of the trust property. The only illustration to the section is like this: The trust property is immovable property which has come to the hands of the author of the trust under an unregistered deed. Subject to the provisions of the Indian Registration Act, 1877, the trustee’s duty is to cause the instrument of trust to be registered.
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 a beneficial interest therein. Sale by private negotiations which is not open to all lead often gives rise to public suspicion; therefore it should not be permitted unless there are special reasons to justify the same. Care must be taken to fix the price after ascertaining the market value for safeguarding the interest of endowment.
Duty not to set up an adverse title
Every fiduciary is under a duty not to set up jus tertii against his beneficiary. An agent, for example, cannot attempt to retain the property of his principal claiming that it is his property. No bailee has any right against his bailor to claim that the property under bailment belongs to him, neither does he has the right to 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 favor of the third person.
The 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. According to this sec. a trustee is bound to deal with the trust property as carefully as a man of ordinary prudence would deal with such property as if it were his own; and, in the absence of a contract to the contrary, a trustee so dealing is not responsible for any 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 any loss, destruction or deterioration of the trust property. However, it can 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 vary 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, to keep clear and accurate accounts of the trust property, and at all reasonable times, at the request of beneficiaries, to furnish them with full and accurate information as to the amount and state of trust property under the trust laws in India.
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 for 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.
The 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 him 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.
Edited by Ankita Jha