Indian Trusts Act, 1882

indian trust act

indian trust act The concept of ‘trust’ relates to the ancient times. When the properties were dedicated for charitable, pious, religious, social welfare, educational, medical purposes.

Now a days, it has gained a greater significance for various tax exemptions made available to a trust which is treated as a separate legal entity.

A ‘trust’ is 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.

indian trust act

The following are the essential elements of a trust :-

  1. the author or the settler of the trust;
  2. the trustee;
  3. the beneficiary;
  4. the trust property or the subject-matter of
    trust
  5. the object of the trust;
  6. the instrument of trust.

indian trust act

Indian Trust Act

In view of a plethora of Trust laws,
Indian Trust Act 1882 has been considered desirable to be discussed hereunder and for brevity it is referred hereinafter as
“The Trust Act”.

The Act is divided into the following parts:

(i) preliminary;
(ii) the creation of trusts;
(iii) the duties and liabilities of trustees;
(iv) their rights and powers;
(v) their disabilities;
(vi) the rights and liabilities of the beneficiary;
(vii) vacating the office of trustee;
(viii) the extinction of trusts; and
(ix) certain obligations in the nature of trusts.

indian trust act

Scope___

As is clear from the preamble, the Act has no application to public or private, religious or charitable endowment.

The Indian Trusts Act is exhaustive in respect of any matter specifically provided for in it, but it is not exhaustive of all matters relating to private trusts.
Therefore, in cases covered by the Act, its provisions must be applied but if a case is not covered by it, the Court is entitled to apply rules of English law, as laid down by
judicial decisions in that country and which are not inconsistent with the Act, as the rules of justice, equity and good conscience.

Definition of Trust_______

The Act defines the term ‘trust’ in Section 3 as
(i) an obligation annexed to the ownership of property and

(ii) arising out of confidence reposed in and

(iii) accepted by the owner or declared and accepted by him,

(iv) for the benefit of another or of another and the owner.

The person who reposes or declares the confidence is called the ‘author of the trusts’,

the person who
accepts the confidence is called the ‘trustee’,

the person for whose benefit the confidence is accepted is called the ‘beneficiary’;

the subject matter of the trust is called ‘trust property’ or ‘trusts money’;

the ‘beneficial interest’ is beneficiary’s right against the trustee as owner of the trust property; and

the instrument declaring the trust is called the ‘instrument of trust’.

The word ‘trust’ in its legal sense has a technical and definite meaning which is very much different from the sense in which this word is used in daily parlance.

Trust connotes a legal concept or relationship similarly as other relationships created by law, e.g., Contract, Agency.

Trust and Contract

Trust in its origin was a form of contract distinctively enforced in equity. A contract creates a trust where it has brought into existence an obligation annexed to the ownership of property for the benefit of a person other than the owner.

No technical words are required to create a trust.

There is always a fiduciary relationship between trustee and beneficiary, but not between the parties to a contract.

Difference Between Trust and Bailment, Trust and Agency

The definition of Bailment is given in Section 148 of the Indian Contract Act, 1872. The following is the difference between a trust and a bailment.

(i) A trustee becomes the full owner of trust property. A bailee acquires special property only.

(ii) The obligation of the bailee is legal, whereas that of a trustee is equitable.

(iii) A bailment may be created for movable property only. A trust may be created for both movable and immovable properties.

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Difference between Trust and Agency_______________

(i) An agent has no title to the property. A trustee is the full owner of the trust property.

(ii) An agent acts on behalf of his principal and is subject to his control. A trustee acts in his own right.

(iii) An agent is generally not personally liable, a trustee is.

indian trust act

CLASSIFICATION OF TRUSTS_________

Trusts are divisible into several classes according to the mode of their creation. Some of the important classes are as follows:

(1). Simple and Special Trusts.
(2). Oral and Written Trusts.
(3). Charitable or Religious Trust.
(4). Express and Implied Trusts.
(5). Public and Private Trusts.
(6). Revocable and Irrevocable Trusts.
(7). Public-cum-Private Trust.
(8). Constructive Trust.
(9). Resulting Trust.
(10). Executed and Executory Trust.

*Simple and Special Trusts______

Where the trustee is merely to hold the estate without having any active duties to perform it is called a simple trust.

Where, however, the trust has been created for a particular object or purpose there is a special trust.

Thus, in a simple trust, the trustee is merely to hold the property for the benefit of the beneficiary and in a special trust, the trustee has duties to perform.

*Charitable or Religious Trust_________

In order to determine whether a deed of trust is a valid public or charitable trust, it is necessary to see what is the dominant intention of the testator, namely, who are the real objects of his bequest and secondly whether the class indicated as the object of charity forms at least a section of the public.

Where the main and paramount intention of the settler was to benefit the members of his family and thereafter the members of his
caste who might need assistance from such funds there could be no public or charitable trust created.

It is one of the cardinal rules governing execution of charitable trusts that the intention of the donor must be
observed.

This principle has been evolved as an auxilliary to this rule and is never allowed to defeat it. If the charity can be administered according to the directions of the founder, the law requires that it should be so
administered.

The Courts will not allow any departure from them on the grounds of expediency.

Cy pres means near to it.

The doctrine of Cy pres applies only to charitable trusts. The reason is that a public
charity is perpetual and the rule against perpetuity does not apply to it.

It can never die though its nature may
be changed.

In Halsbury’s Law of England, in 3rd Edn. Vol. 4, P. 317, it is stated:
“Where a clear charitable intention is expressed, it will not be permitted to fail because the mode, if specified, cannot be executed, but the law will substitute another mode Cy pres, that is, as near as possible to the mode specified by the ‘donor’.

However, the above doctrine is subject to the doctrine of severability, i.e., the doctrine of Cy pres, applies if the nature of the charitable object is general and not specific.

indian trust act

*Revocable and Irrevocable Trusts___

A revocable trust is one which is revocable when it is created by a non-testamentary instrument or orally and a power of revocation has been expressly reserved by the settler.

A trust may be revoked by the consent of
all the beneficiaries who are competent to contract (Section 78).

All other trusts are irrevocable. Besides if a trust is created for charitable or religious purposes, such a trust cannot be revoked.

*_ Public-cum-Private Trust_________

A Public-cum-Private Trust is one in which a religious trust is created for the immovable property like a Temple, Durgah etc.

in the nature of a public trust but there is a direction for use of income through offerings or otherwise for public purposes and also a part thereof to person(s) in charge of the Temple, Durgah etc.

A public-cum-private trust may become a fully public trust when the private beneficiary(ies) renounces his/their
rights to which they are entitled.

indian trust act

CREATION OF TRUSTS_______________

(i) Creation of Trusts for lawful purposes only The Act allows creation of a trust for any lawful purposes.

What is lawful can be gathered from the provisions of Section 4 of the Act which provides that purpose of a trust is lawful unless it is

(a) forbidden by law, or
(b) is of such a nature which will defeat the provisions of any law, or
(c) is fraudulent, or
(d) involves or implies injury to the person or property of another, or
(e) the Court regards it as immoral or opposed to public policy.

Thus a trust which does not fall in any of the above prohibitions, is deemed to be for lawful purpose.

A trust for an unlawful purpose is void. Where a trust is created for two purposes one lawful and another unlawful, and the purposes are inseparable from one another, the whole trust is void. On the other hand if one of the objects of a trust is lawful and the expenses on it are fixed, and that object is not dependent upon and is separate from the other objects, the trust to that extent will be valid.

The expression ‘law’ includes the law of a foreign country in which immovable property of a trust is situated.

(ii) Trust of immovable property_________

Section 5 of the Act lays down the formalities which are to be observed for creation of a trust. It provides that
a trust of immovable property can be created by an instrument in writing and registered, signed by the author of the trust or by Will.

Trust of movable property requires no writing or registration. The mere transfer of possession coupled with the intention of the parties that such delivery of possession should vest the property in the trustee is sufficient to create a trust.

(iii) Creation of a trust____________

Section 6 lays down provisions for creating a trust. It provides that subject to the provisions of Section 5 a trust is created when the author of the trust indicates with reasonable certainty by any words or acts:

(a) anintention on his part to create thereby a trust;
(b) the purpose of the trust;
(c) the beneficiary, and
(d) the trust property;

transfer the trust property to the trustee except where a trust is declared by Will or the author of the trust is himself to be the trustee. If a trust is to be valid and enforceable, it is material to ascertain the author of the trust.

Next the intention to create a trust, the purpose of the trust, the trust-property and the beneficiaries must be indicated and in such a way that the trust could be administered by the Court if the occasion arose.

Certainties of a Trust__________

For creating a trust the author of the trust should indicate with reasonable certainty the following:

(1) Certainty in words: The words used to create a trust must be clear and certain so as to explain a clear intention to create a trust.
Recommendatory words like “I hope” “I wish” are not sufficient.

(2) Certainty in the object of the trust : The beneficiary, for whose benefit the trust is created, must be shown clearly.

(3) Certainty in the subject-matter of the trust : The subject matter of the trust must be clear, i.e., the property, in respect of which a trust is created, must be shown clearly. Purpose of the trust should be certain.

If the trust instrument is lacking in first and third certainties, no trust is created but if the second certainty is absent, resulting trust will be created in favour of the author of the trust.

Who can create a Trust___________

A trust may be created___

(i) by every person competent to contract, and

(ii) with the permission of a Principal
Civil Court of original jurisdiction, by or on behalf of a minor (Section 7). Thus, generally any person competent to contract and competent to deal with the property can create a trust.

Who may be a Trustee_____________

Every person capable of holding property may be a trustee. But if the trust involves the exercise of discretion,he cannot execute it unless he is competent to contract
(Section 10).

No one is bound to accept a trust.

Acceptance of the trust by a trustee may be express or implied.

Duties of Trustee___________

Sections 11 to 22 of the Act deal with the duties of trustee. They are as under:

(1) The Trustee should execute the trust and obey the directions given in the instrument of the trust. He can make any alteration in those directions only with the consent of beneficiaries who are competent to contract.

If a beneficiary is incompetent to enter into a contract, the Principal Civil Court of original jurisdiction may give consent on behalf of the minor.

(2) It is a duty of a trustee to acquaint himself with the nature of the trust property.

(3) The trustee must protect and preserve the trust property.

(4) The trustee must not set up a title to the trust property, which is adverse to the interest of the beneficiary. Nor should he allow any person to do so.

(5) He must deal with the trust property in such a manner as a man of ordinary prudence would deal with such property as if it were his own.

(6) If a trust is created in favour of several persons in succession and the trust property is of washing nature or consists of a future or reversionary interest, the trustee is bound to convert it into property of permanent nature. However, this is subject to any contrary intention which could be inferred from the trust instrument.

(7) The trustee must act impartially where there are more than one beneficiary.

(8) Where the trust is created for the benefit of several persons in succession and one of them is in possession of the trust property, if that person commits any act destructive or injurious to the trust property, the trustee must take the steps to prevent it.

(9) The trustee must keep an accurate account of the trust property. At the request of the beneficiary he must furnish him the account and the state of trust property.

(10) The trustee must invest the trust property and funds in the securities mentioned in Section 20 of the Act. This is subject to any contrary directions in the trust instrument.

(11) The trustee must sell the trust property within the specified or extended time without prejudice to the beneficiary or as authorized by the Court.

Liabilities of Trustees___________

  1. Liability for a breach of Trust: If a trustee commits a breach of the trust, he is liable to make good the loss which the trust property of the beneficiary has suffered. However, in two cases he is not liable for such a loss.

(i) Where the breach of the trust has resulted due to any fraud committed by the beneficiary; and

(ii) Where the beneficiary, being competent to contract, has given his consent for that breach without any coercion or undue influence or subsequently acquiesced therein, with full knowledge of the facts (Section 23).

indian trust act

NOTE :-

(a) A trustee improperly leaves trust property outstanding, and if it is consequently lost he is liable to make good the property lost, but he is not liable to pay interest thereon.

(b) A trustee is guilty of unreasonable delay in investing trust money in accordance with Section 20, or in paying it to the beneficiary.

The trustee is liable to pay interest thereon for the period of the delay.

(c) The instrument of trust directs the trustee to invest trust money either in any of such securities or on mortgage of immovable property.

The trustee does neither. He is liable for the principal money and interest.

(d) The trust property consists of land. The trustee sells the land to a purchaser for a consideration without notice of the trust.

The trustee is liable at the option of the beneficiary, to purchase other
land of equal value to be settled upon the like trust, or to be charged with the proceeds of the sale
with interest.

  1. No right of set-off: A trustee who is liable for a loss because of a breach of trust committed by him in respect of one portion of the trust property is not allowed to set-off against his liability, a gain which he has accrued to another portion of the trust property through another and distinct breach of the trust property (Section 24).
  2. A trustee is not liable for the acts and defaults of his predecessor.
  3. Generally a trustee is not liable for a breach of the trust committed by his co-trustee. However, such a trustee will be liable in the following cases:

(i) Where he delivers his trust property to his co-trustee without seeing to its proper application;

(ii) Where he allows his co-trustee to receive the trust property and fails to make due inquiries about his co-trustee’s dealing therewith; and

(iii) Where after he comes to know of the breach of the trust committed by his co-trustee, he either actively conceals it or does not take proper steps to protect the interest of the beneficiary.

However, a co-trustee who joins in signing a receipt for the trust property for sake of conformity without actually receiving it shall not be liable merely by reason of his signature only.

A trustee is liable for money and property actually received by him.

  1. Nature of liability of a co-trustee : When co-trustees jointly commit a breach of trust, and when one of them, by his negligence, enables another trustee to commit a breach of trust, each trustee is liable to the beneficiary for the whole loss sustained by the beneficiary.
  2. Under Section 23 of the Act, in certain circumstances, a trustee is liable to pay simple or compound interest to the beneficiary.

Powers of Trustee_______

  1. He can sell the trust property where instrument of the trust so empowers him.
  2. A trustee has a power to vary investments.
  3. A trustee has a power to apply the trust property for the maintenance of property as provided in the instrument of trust.
  4. A trustee can compromise claims unless a contrary intention appears from the instrument of the trust.
  5. A trustee can give receipt for the money received on account of the trust.
  6. In case of death of one of the trustees, the other trustees have a right to act, unless contrary intention appears from the instrument of the trust.

Doctrine of Cypres_______

Where the object of the charitable trust, specified by the settler, is or subsequently becomes impossible or impracticable or unlawful, the trust will not necessarily fail, but the Court has power to apply the trust to some other charitable object as nearly as possible resembling the intention of the author. This power of the Court is known as “doctrine of cypres”.

When a particular mode of charity indicated by the author is not capable of being carried out, yet a general intention of charity, is indicated by the author of the trust, the Court would execute it ‘cypres’ i.e. in a way as nearly as possible to that which testator specified.

indian trust act

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