Indian Trusts Act, 1882- Economic Commercial Laws CS Executive Module 1

 INDIAN TRUSTS ACT, 1882

In India, apart from Indian Trusts Act, 1882 The Bombay Public Trust Act, 1950. Rajasthan Public Trust Act, 1959 etc. were formed under Hindu Law. Similarly The Wakf Act, 1995 was formed to regulate Muslim Wakf and The Charitable and Religious Trust Act 1920 was formed to cover all religious and charitable trusts.

       Trust is an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner for the benefit of another or of another and the owner (Sec 3). 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”, and the person for the whole benefit the confidence is accepted is called “beneficiary.

Some Special World/Terms used in this Chapter

Trust: Distinguished from Other Contracts

There is a fiduciary relationship between trustee and beneficiary, which is absent between parties to a contract.

Trust and Bailment: (Asked on Jun 2007) Trustee is the full owner of the property, and bailee has only possession of the property. Bailment is usually of movable property only; trust can be of movable and immovable, both.

Trust and Agency: Agency is not the owner of the property, but the trustee is. Agent act in the name of his principal, but trustee acts in his name. The agent does not create his personal liability, trustee creates.

 
Types of Trusts

1. Simple and Special: Where trustee does not have any special duty to perform, it is simple trust. Where trust is created for some particular purpose, it is special trust.
2. Written: If trust is created through a written instrument, it is written otherwise it may be oral. Trust of immovable property must be written.
3. Charitable or Religious: Where the main purpose of the trust is for the benefit of a particular person/family/caste etc., it is private trust and not charitable.
4. Public and Private: Where beneficiaries are definite and specified, it is private trust. Otherwise, it is public.
5. Express and Implied: Express trust is created by words (i.e. either orally or in writing), but implied trust is deemed from the conduct of parties.
6. Revocable and Irrevocable: Where the author has the power to cancel the trust, it is revocable trust. Sometimes all the beneficiaries also have to revoke the trust. All other trusts (like charitable or religious trusts) are irrevocable.
7. Constrictive Trust: It is neither expressed nor implied; rather it is rather it is deemed by operation of law.
8. Executed and Executory: Trust, which has been duly signed by the settler (author), is executed trust. Where the deed is yet to be signed, it is executory trust.

Creation of Trust

Sec 6 provides that trust is created by showing intention, purpose, property and beneficiaries. However, Sec 4 says that creation of the trust is not allowed if the purpose of the trust is:

    Forbidden by any law
    Of such nature which can defeat the provisions of any law
    Fraudulent
    Injurious to person or property
    Immoral or opposed to public policy

 

       Every person who is competent to contract can create a trust. Minor can also create a trust with the permission of Court. The trustee can be any person capable of holding property. However, where the trustee is required to use his discretion, the trustee must be competent to contract. To create the trust of immovable property, trust deed must be in writing and registered.
 

Certainties of Trust

Following three certainties are required to create a trust:

1. Certainty in Word: Word must be concrete. “I hope…” “I wish…” such word will not create trust.
2. Certainty in Object: Purpose and beneficiaries must be shown clearly.
3. Certainty in Property: Trust property must be set-forth property.

Duties of Trustees

1.     The trustee should follow the directions given in the trust deed.
2.     They shall verify the nature of trust property and protect the property.
3.     They must not-set-up adverse title to the trust property.
4.     They must deal with trust property with reasonable care and skill
5.     If trust property is of wasting nature, trustees can convert it into the property of permanent nature.
6.     In case of more than one beneficiary, the trustee must act impartially.
7.     Trustees must keep an accurate account at an appropriate time.
8.     They must invest the funds in the manner prescribed under Sec 20.

Liabilities of Trustee

On failure to perform duty, the trustee may incur following liabilities:

1. The trustee is liable to make good the loss if he commits a breach of trust. However, where the loss is due to fraud by beneficiaries, he is not liable.
2. He cannot set-off his rights against liabilities
3. He could be held liable for breach of trust committed by co-trustee if he himself was negligent.

Rights and Powers of Trustees

1.     The trustee has right to have possession of an instrument of trust and title deeds of trust properties.
2.     They have right to get reimbursement for all cost and expenses incurred in the administration of the trust.
3.     They have right to take advice or direction from Court for the proper administration of trust property.
4.     They can do all necessary acts to preserve and protect the trust property.
5.     They can sell the trust property if empowered by the trust deed
6.     In case of death of one trustee, other trustees can continue to act (Asked on Jun 2008).

Disability of Trustee

1. The trustee cannot renounce the trust except with the permission of Court or consent of beneficiaries.
2. They cannot delegate his power unless empowered by the trust deed. Such delegation shall be in the regular course of business.
3. They cannot exercise their discretionary powers in an arbitrary way.
4. In the absence of any contract to the contrary, the trustee has no right to remuneration.

Discharge of Trustee

A trustee is discharged:

1.     If trust is extinguished
2.     If his duties have been completed as per trust deed
3.     By any method provided in the trust deed
4.     If any other person is appointed in his place
5.     By court

Beneficiary

The person for whose benefit trust is created is called beneficiary. Any person, including minor (even unborn), can be beneficiary. The beneficiary can give-up his rights under the trust by a written disclaimer to the trustee.

 
Rights of Beneficiary

1.     Right to receive rents and profits of trust property
2.     Right to inspect trust deed
3.     Right to transfer his beneficial interest
4.     Right to have proper trustees, right to sue for execution of the trust.

The doctrine of Cy Pres

(Asked in Dec 2007 and Jun 2008) Cy pres means “near to it”. This doctrine says that where the objects of a public charitable trust, which has been original states by the author, becomes impossible or unlawful, the trust will not be allowed to fail, rather, the court can apply the trust property to any other objects near to the original objects.

For example, Mr A created a trust for treatment of cancer patients in a particular city. In the course of time, if there is no cancer patient in that city, the trust will not extinguish rather it can be used for the treatment of any other ailment.

 
Extinction of Trust

(Asked on Jun 2008) A trust is extinguished if:

1.     Its purpose is fulfilled or has become impossible
2.     Its purpose becomes unlawful
3.     Being revocable trust, it is revoked.

Revocation of Trust

(Asked in Jun 2008) The trust created by will can be revoked by will; otherwise, it can be revoked:

1. With the consent of all beneficiaries
2. By the exercise of the power of revocation given in trust deed
3. If trust is created for payment of debts, it can be revoked by the author if is purpose is not communicated to creditor.

Certain Obligations Resembling Trust

1. Where a person transfers property to another person without consideration and without declaring it as a gift or will, then another person will hold this property in trust for the first-mentioned person.
2. Where a person makes the purchase of property in the name of another person without an intention of making it gift, then the person by whose name property is bought shall be deemed to be the trustee.
3. Where the property was meant to be distributed between two or more person, but could not distribute for any reason, holder of the property is deemed to be the trustee.
4. Any person obtaining property by taking advantage of undue influence shall hold it as trustee.
5. Qualified owner (like tenant for life) is deemed to be the trustee of property.

List of Some Important Section of Indian Trusts Act