Updated: Thursday January 14, 2010/AlKhamis Muharram 29, 1431/Bruhaspathivara Pausa 24, 1931, at 07:05:27 PM
1. The Trusts’ Act, 1882 (Act II of 1882).
1. Equity, Trust, and Specific Relief by B. M. Gandhi.
2. The Trusts’ Act, (II of 1882) by M. A. Zafar.
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. Trust must be created for lawful purpose.
The person who declares the confidence is called the “Author of the Trust”.
The person who accepts the confidence is called the “Trustee”.
The person who gets the benefits from the confidence is called “beneficiary”.
The subject matter of the trust is called “Trust Property” or “Trust Money”.
The instrument, if any, by which the trust is declared is called the “instrument of trust”.
The trust can be created for limited or unlimited period. Since the property of Trust cannot be sold, so it is called encumbered property until the period of Trust is over.
Classification of trusts: Trust may be classified as follows:
1. Public or charitable trust: Any trust benefits to public at large and not specific persons is known as public or charitable trust.
2. Private trust: Where beneficiaries are specific persons is called private trust.
3. Express trust: One, which is clearly and directly created in express words by the settler.
4. Implied trust: Indirectly gathered from unexpressed but presumable intention of the settler. A person who has shown his intention to provide certain property for the construction of mosque and people have made a mosque there without any objection raised by the owner of the property is called implied trust.
5. Constructive trust: Arising out by an operation of equity in favour of another. It is a trust, which is created by author itself in his own favour due to old age or where person remains issue-less. It is meant to safety of property during its constructive or physical possession. Where husband and wife make trust in their own favour is called constructive trust. After death of one partner another partner succeeds. And in case of death of both, property of the trust shall go to specific institution or person. This type of trust is created to avoid the temptation of the relatives. It is also register-able.
6. For value trust: Property of which is bought from another for the purpose of specific trust.
7. Voluntary trust: Which is created by anyone at any time without any consideration.
8. Executed trust: When it is fully and finally declared by the instrument which creates it.
9. Executery trust: When the settler has given general directions for future conveyance.
Purpose of trust: Trust can be created for any lawful purpose. Every purpose is lawful except the following:
1. Fraudulent: Any trust based on fraudulent purpose is unlawful.
For example, a trust created for the training of prostitution is void.
Trust property to employ in carrying smuggling business and utilization of its profit for the benefit of children is void.
2. Against to law: Any trust, if permitted, defeats the provision of law is unlawful.
Above two examples also fall within this category as neither smuggling nor prostitution is allowed under law thus defeat the provisions of law.
3. Forbidden: Any trust, which is expressly forbidden by law on any ground, is unlawful.
4. Causing injury: Any trust which involves any injury to the person or property of another is void. Any property given for trust which is under bar falls in this category as it injures the interest of beneficiaries or creditors.
5. Immoral: Any trust about which Court regards immoral or against public policy is void.
6. Partially unlawful purpose: Any trust object of which is partially lawful and partially unlawful, if separable, upto the extent of lawful is valid and rest is invalid.
Creation of trust: A trust can be created subject to the following conditions:
1. Intention: Where intention is shown on his part to create trust.
2. Purpose: It must indicate lawful purpose.
3. Beneficiary: Where there is no beneficiary, there is no trust.
4. Trust property: Trust is created with trust property.
5. Transfer of property: Author of trust cannot act as trustee. It must be transferred to trustee.
1. A bequeaths certain property to B with fullest authorization to dispose of for the benefit of C.
2. A bequeaths certain property to B with a hope will continue it in the family. Since beneficiary is not indicated, therefore it is void.
Who may create trust: Following are the competent persons to create trust:
2. Sound mind.
4. Not disqualified by law.
5. Free consent.
Who may be a beneficiary: Any person who is capable to hold property may be a beneficiary.
Who may be trustee: Every person capable of holding property may be a trustee and in certain cases he must be competent to contract. No one is bound to accept a trust.
Duties of trustee: § 11 to 20 are so related with the duties of trustee. His duties are:
1. Execution of trust: It includes fulfillment of the trust and compliance of the directions so given except the modifications made with the consents of beneficiaries who are competent to contract. How the trust is executed:
(1) Registration: Trustee must get trust property registered as it is requirement of law.
(2) Taking of possession: Possession of trust property must be acquired to use for the benefit of its beneficiaries for whom trust is created.
(3) He must inform himself of the state of the trust property: If there is debt on trust property and trust deed does not include any discretion to leave it outstanding, trustee must recover the debt without delay. He is not liable if he could not possibly acquainted (familiar, conversant) with facts from the papers and material at his disposal.
2. Suit for claim: He must bring lawsuit, if any, for the defence of the title or trust property.
(1) Act as party: He has to act as party if lawsuit is brought in Court to defend the title of trust property.
(2) Presentation of written statement: He must present written statement in favour of trust property to prove trust property.
(3) Production of evidence: He has to produce evidence for the title of trust property.
(4) Prevention from adverse effect: He is duty bound not to take step causing adverse title. No person who has accepted the position of trustee and has acquired property in that capacity can be permitted to assert an adverse title on his own behalf until he has obtained a proper discharge from the trust he has clothed himself. He must assume the validity of trust until it is actually impeached. If the trust is invalid, the beneficiaries may set up their claim against the trust, but it does not lie in the mouth of the trustee to do so.
3. To be impartial: It is the duty of trustee to hold scales evenly between the parties having an interest in the trust. Where there are more than one beneficiary, he should not execute the trust for the advantage of one at the expense of other. He should not pay beneficiary before paying another.
(1) Equal distribution of benefits: He should distribute benefits of the trust among all equally or equitably without making any distinction or prejudice.
(2) Remaining away from benefits: He has to provide benefits to its beneficiaries and should remain away to get benefit for himself.
(3) Priority of beneficiaries: He should give priority to others over his own interest. Priority of interest of beneficiaries is main object of trust.
4. Duty to protect trust property: He must bring and defend lawsuit, which is necessary to defend trust property. He must get documents registered where it is necessary. He should take all possible steps to preserve the trust property.
(1) Taking of reasonable care: He must exercise reasonable care for the preservation of trust property. He should deal trust property as his own. In civil Court he has to prove that he has exercised reasonable care.
(2) Protection of property: He must take necessary steps and arrangements for the protection of property.
(3) Improvement of property: He has to improve the trust property by the employment of new techniques and investment in more beneficial institutions.
(4) Safe investment: He has to invest where there is greater potential of profit. Where there is secured investment, he must invest there.
(5) Protection from loss: He should refrain to invest where loss can occur. His investment in scheduled banks or institutions is guarantee of safe financing rather than investment in non-scheduled institutions.
5. He must ready with accounts: He has to keep and maintain clear and accurate accounts of the investment and profits.
(1) Support of vouchers: He has to maintain accounts supporting all vouchers and necessary documents including agreements.
(2) Presentation of accounts: He has to show accounts as and when required and not to conceal accounts.
(3) Inspection of accounts: He, himself inspect the maintenance of accounts and must produce when government require it.
(4) Audit of accounts: Accounts must be got audited at least once in a year.
(5) Maintenance of accounts by qualified accountant: Reasonable person having requisite qualification should maintain Accounts.
6. He must prevent waste: This happens where trust is created for the benefit of persons in succession and one of them is in possession.
(1) Conversion of perishable items: Where there are perishable items, must be converted into non-perishable items either by changing properties or by selling them and buying another item not perishable.
(2) Nature of business: He may purchase valuable securities or change nature of business where more profit is expected.
7. Duty to transfer the beneficial trust: If the trust is private and created for a specific person, benefit of trust property must be transferred to such person. If trust is created on the property of a minor, property must be transferred to such minor when he attains age of majority, which is 21 years.
Trustee is bound to certain conditions such as:
1. Trust deed: Trust deed is one of essential to create trust. It is prepared and executed and then got registered.
2. Competence: Trustee should be a person competent to act as trustee. He should be able to make contract.
3. Consents: Trustee is no more bound to accept position as trustee. Only free consents make him responsible to act as trustee.
4. Court’s opinion: Where it becomes necessary Court’s opinion must be obtained to create and execute trust.
Liabilities of a trustee: Where trustee has some duties he has also some liabilities. They can be categorized such as:
2. Breach of trust: Where trustee commits breach of trust, he is liable to make good the loss, which the trust property has thereby sustained. A trustee is duty bound to invest trust money in any securities u/s 20. If he retains money in hand and refrains to invest, he is liable of breach.
3. Several liabilities of co-trustees: Where all of trustees commit breach of trust, each one is liable to the beneficiary for the whole of loss.
4. Where interest of beneficiary is forfeited: When Court awards interest in favour of beneficiary, then trustee is liable to hold the property to the extent of such interest for the benefit of such person in such manner as the government directs.
Where no liability arises: There are certain provisions under which trustee does not liable:
1. Fault of predecessor: Where a trustee succeeds another, he is not liable of the default or breach of his predecessor.
2. Fault of co-trustee: Where one of co-trustee commits breach or default, other one is no more liable of the default of other one.
3. Joining in receipt of conformity: Where one of co-trustee signs on receipt but later on proves that he has not received actual property, he is not liable mere on the ground of his signature.
4. Where beneficiary fails to give notice: When the interest of one beneficiary vests to another and he fails to give notice to trustee and trustee pays or delivers the trust property to the entitled person, makes no liable to trustee.
Rights and powers of trustees: Right is defined as an interest recognized and protected by the law, respect for which is a duty and disregard of which is a wrong. A capacity residing in one man of controlling, with the assent and assistance of the State, the actions of others. Authority to enforce the right is power. Following are the rights and powers of trustees:
1. Right to get title deed: Not only he has to get in his possession title deed but all relevant documents and get it registered. He has to possess trust-property. If he is deprived from trust property or document, he can recover the possession again. He can sue if requires.
2. Reimbursement of expenses: If he makes such expenses out of his own pocket, may recover from trust property or beneficiary. He can make expenses for the improvement and protection of trust property.
3. Recovery of over payment: Where trustee mistakenly pays over to beneficiary, he may recover from trust property or from beneficiary’s interest or from beneficiary personally.
4. Reimbursement upon breach of trust: Where any person other than trustee gains profit by breach of trust, trustee may recover from him upto the extent of advantage he gained. Where beneficiary commits breach, and gains interest, trustee may charge on his interest for such amount.
5. Apply to Court for management of trust property: Without instituting a suit, a trustee may apply to Court to obtain opinion respecting the management or administration of the trust property.
6. Settlement of accounts: Where trustee retires or his duties are completed, he may examine the accounts and where there is nothing due on the part of beneficiary, he may acknowledge.
7. General authority of trustee: Apart from all the authority given by either this law or trust deed, he may exercise his authority within scope of reasonability for the improvement and protection of trust property.
9. Power to sell under special conditions: Where he thinks fit may sell or buy trust property without being responsible to the beneficiary for any loss occasioned thereby. Where trustee is directed to conduct sale, it shall be proceeded within reasonable time period.
10. Power to vary investment: Where he thinks fit he may for the benefit of the trust may invest from one account to another from where more income or profit is expected. His investment should be in scheduled banking or institutions.
11. Maintenance of minor: Where trust is required the benefit of minor for his reasonable expenses to advance in life, education, marriage, or funeral expenses, he my incur expenses. He is also empowered to accumulate the incomes by way of compound interest.
12. Power to give receipts: Where trustee is empowered he may issue receipts against any sale, purchase, transfer, or delivery of any property.
13. Power to compound: Where it becomes necessary for the benefit of trust property he may accept property, allow time for payment of debt, compromise, compound, abandon, submit to arbitration to settle any debt, account, claim, or thing relating to trust.
14. Power to audit accounts: This is power of trustees to get their accounts audited.
15. Refusal of inspection: One who wants to inspect the accounts must be qualified to do so, otherwise he may be refused.
Disabilities of trustees: There are several provisions of this Act which impose certain restrictions on trustee, particular of those are as under:
1. Trustee cannot renounce his status: When a person accepts to be a trustee, he cannot refuse afterwards. There are some exceptions to this rule:
(1) Permission of principal or Court of original jurisdiction may discharge his duties.
(2) Where beneficiary becomes competent to form contract.
(3) Where special power in instrument of trust is granted.
2. Trustee cannot delegate his powers: A trustee is not allowed to permit any third person to act on his behalf even to co-trustee. There are some exceptions to this rule such as:
(1) He can delegate where instrument of trust provides.
(2) Where regular course of business requires.
(3) Where this delegation becomes necessary.
(4) Where beneficiary consents being competent to contract.
3. Trustee cannot act singly: Where are more trustees then one, all have to join in execution and one cannot act.
4. Control of discretionary power: Principal Court of original jurisdiction can control trustee where he does not act accordingly, reasonably, and in good faith. But Court cannot interfere in his discretion except where suit is instituted.
5. Cannot charge remuneration: Where it is not expressly provided in instrument or Court appoints trustee, trustee cannot charge against the services rendered.
6. Use of trust property for own: Trust property can be used only for connected purposes and he cannot use trust property for personal benefit.
7. He cannot re-purchase trust property: A person, who is appointed in trust property as trustee; and responsible for sale, cannot buy it for own or any third person. Neither directly nor indirectly he can re-purchase.
8. Cannot buy beneficiary’s interest: He cannot buy or become as mortgagee, who is either presently trustee or has ceased his office as trustee, unless it is provided in contract.
Rights of beneficiary: Beneficiary has certain rights detail of which is as under:
1. Right to rents and profits: Subject to provisions of trust, beneficiary has right to have rents and profits. This is not vested right but created by trust deed. This becomes duty of trustee viz-a-viz right of beneficiary.
2. Right to specific execution: Where there is one or several competent beneficiaries of one mind may require the trustee to transfer the trust property to them.
3. Right to inspect accounts: This is a right of beneficiary against trustee to inspect all accounts along-with all related documents and vouchers. This right is exercisable where allegations of breach of trust are imposed.
4. Right to take copies of instrument of trust: Beneficiary can take the copies of instrument of trust as and when he requires.
5. Right to get accounts audited: Beneficiary can demand trustee for the audit of trust property.
6. Right to transfer beneficial interest: If beneficiary is competent to contract may transfer his beneficial interest to third person keeping in view of current law in force. He can dispose of interest to the extent, which he may dispose of. He should be competent as required in Contract Act. He should be major, competent, solvent, authorized, and decision must be with free consents and unanimous.
7. Right to sue for execution of trust: Whenever the position of trustee becomes vacant by any reason, such as, non-appointment, death, disclaim, discharge, impracticable, beneficiary may sue to fill such vacancy for the execution of trust. Court shall execute until trustee is appointed.
8. Right to proper administration: Subject to the provisions of trust deed, beneficiary has right to administer the trust property properly.
9. Right to protect property: Beneficiary may also take steps, subject to trust, for the protection of trust property.
10. Right to compel for duty: Beneficiary has right to compel trustee to act for any specific duty. He may also compel to him to restraint from committing any breach of trust.
Liabilities of beneficiary: As beneficiary has certain rights, has also certain liability is as follows:
1. Wrongful purchase by trustee: Where a trustee buys property for trust wrongfully and beneficiary has taken benefits beneficiary has to repay the money paid by the trustee.
2. Suit on conveyance of property to third person: Where trust property comes to the hands of third person inconsistently with trust, beneficiary requires either to admit or file lawsuit for declaration that the property is comprised in the trust.
3. Breach of trust: Where a beneficiary commit breach of trust, joins, conceals, knows the wrong advantages, and deceives trustees is liable to transfer all consideration he has taken.
Vacation of the office of trustee: Office of trustee is vacated on the following reasons:
1. Death: Where trustee dies, his office is vacated if otherwise is not agreed upon.
2. By discharge of duties: Where a trustee is discharged, office becomes vacated. Following are the mode of discharge and extinction is made by four ways:
(i) Extinction: Where trust is extinguished, office of trustee vacates automatically.
(ii) Purpose completed: As soon as purpose of the trustee is completed, he vacates his office. For example, a trustee is appointed for the marriage of a person. Upon the marriage trustee vacates his office.
(iii) Subsequent illegality: When trustee was appointed, trust was legal, but subsequently operation of law declares it illegal. At appointment, business of wine was legal, but later on it becomes illegal by act of government.
(iv) Subsequent impossibility: When the object of trust subsequently becomes impossible, such as by action of river, cultivation becomes impossible.
(2) By completion of duties: When duties of a trustee are completed, office vacates. For example, a trustee is appointed for the construction of a hospital, as soon as hospital is constructed, his duties are completed, thus his office vacates.
(3) By agreement: Where agreement so provides grounds of any reasons, office vacates.
(4) Expiry of period: Where trust deed fixes time period for trustee to act, his office vacates, as soon as, period of agreement expires.
3. Appointment of new trustee: Where new trustee is appointed, the office of old trustee vacates. New appointment is made by two methods namely:
(1) By Court: Where beneficiaries apply to Court for the prevention from breach of trust being made by trustee and Court admits and issues decree against trustee. Court automatically appoints new trustee.
(2) Without Court: Where trust deed allows and beneficiary, in the best interest of trust, appoints new trustee on any reasonable ground, vacates the office of old trustee.
4. Revocation: Although once a trust is always a trust, but there are some exceptions to this rule such as:
(1) By Will: Where trust deed gives choice to trustee to vacate his office is called revocation by will.
(2) Contingency: Where a certain event is happened trustee may revoke to continue trust.
(3) Any other reason: Any other reasonable ground may cause vacation of trustee’s office.
Appointment of new trustee: Following procedure has to be adopted to appoint new trustee:
1. Substitution by instrument: Where instrument declares the nomination of new trustee in cases of:
1. Death of trustee.
2. Disclaim of trustee.
Six months Continuos absence from
5. Declared as insolvent.
6. Desire to be discharged.
7. Refuses to become trustee.
8. Becomes unfit in the opinion of Court.
9. Becomes personally incapable either physically or breach of trust or disability imposed by law.
10. Where he accepts inconsistent trust new trustee is appointed.
2. By author of trust: If author of trust is alive and no such person is available under instrument, he may appoint new trustee.
3. Written appointment: The person making such appointment makes appointment in writing.
4. Appointment by Court: Where beneficiary institutes a petition to Court in case of vacancy of the office of trustee, Court appoints new trustee.
Rules for selection of new trustee: When new trustee is appointed, Court regards the following:
1. Wishes of author: Court takes into consideration the wishes of the author of trust which are expressed in the instrument of trust or which are come out from instrument.
2. Wishes of appointing authority: Where instrument empowers to any person for the purpose of appointment of new trustee, Court regards his wishes while making such appointment.
3. Execution of trust: Object of trust is to fulfill the wishes of the author. It is promotion of trust. It is always kept in view whether such appointment shall promote the execution of trust or shall impede (obstruct, block, delay, slow, stop) the execution of trust.
4. Interest of beneficiaries: There may be beneficiaries more than one. Interest of all beneficiaries must be protected so Court takes into construction the interest of all beneficiaries rather than one.
Discharge of trustee from his liabilities: In certain cases law provides grounds for the discharge of trustee from his liabilities. Such grounds are:
1. Extinction of trust: Where trust is created for specific object and such object has been achieved then trust becomes extinguished and trustee stands discharge from his liabilities. However once trust is always trust, but specific trust is extinct when object is met.
2. Completion of duties: Instrument of trust may impose certain duties to perform on trustee. He has to perform such duties and upon the completion of certain duties his liability to act as trustee is extinguished. He remains no more trustee.
3. By means of instrument: Where instrument imposes certain duties, where it may prescribe means to discharge trustee. If so, trustee may be discharged from his liabilities.
4. Appointment of new trustee: Where a new trustee is appointed due to any valid reason under law in his place, his liabilities are discharged. New appointment may be made by reason of his physical infirmity or breach of trust where the appointment of new trustee becomes imperative.
5. Mutual constants: Where there are more than one beneficiaries and all are competent to contract, if they consent along-with trustee to discharge him from liabilities of trust, he may be discharged.
6. By petition: Where beneficiary institutes petition in Court for the discharge of trustee from his liabilities, trustee is discharged from his liabilities when new trustee is appointed.
Liabilities of beneficiary: Law imposes certain liabilities to beneficiary detail of which is as under:
1. Protection from loss: Beneficiary is liable to protect trust property. Neither he should damage the property nor he should allow other one to cause damage to property.
2. Compensation of loss: If any loss occurs to trust property due to his negligence or any act certain or uncertain, he must have to compensate trust property. This situation arises when trustee acquires some property and hands it over to beneficiary for his benefit.
3. Co-operation in relation to administers property: Where it becomes necessary, he has to co-operate with trustee in administration of trust property. He has to co-operate to the extent of utmost possibility.
4. Protection of property: Beneficiary is also liable to protect property from any anticipated loss or danger which may occur due to act of God or act of government. If trust property is situated near river, he has to protect it from action of river.
5. Protection from breach of trust: Beneficiary can take benefit from trust property to the extent for which he is allowed. Beneficiary is not allowed to take undue advantage from trust property. He shall be held liable in case of breach of trust.
6. Arrangement: Where trustee becomes unable and new trustee is not appointed, beneficiary is liable to arrange trust property in the manner as it belongs to him till the appointment of new trustee.
7. Act against breach: Beneficiary is not only to refrain to commit breach of trust but in case where apprehension of breach of trust lies, he has to act against the breach of trust committed by trustee.
8. Execute the trust: Where trustee fails or its execution shifts to beneficiary, he is responsible to execute trust until the appointment of new trustee.
9. Protection of the interest of co-beneficiaries: Where more than one beneficiaries get benefit from trust property, he has to respect the share of others. He has not to damage the interest belonging to others.
10. Undue benefit: When he gets undue benefit from the trust property without getting permission from co-beneficiaries, he shall be held liable.
11. Concealment of breach: Where he does not commit breach but he knows the intention of breach of other one and conceals such intention, it makes him liable. Concealment of breach itself is liability.
12. Induce of fraud: When beneficiary commits fraud or induces trustee to commit fraud, he shall be liable of fraud or attempt to commit fraud.
13. Report against loss: When any loss or damage is apprehended, he is responsible to inform this matter to trustee. His failure in report to trustee puts him in liability.
14. Violation of trust object: It is the duty of the beneficiary to act in accordance with the object of trustee. If he commits negligence in achievement of the object of trust, he shall be liable.
15. Assistance to Court and trustee in litigation: When any matter is referred to Court regarding trust, he has to assist trustee and Court in the settlement of the case. During litigation he has to co-operate Court as well as trustee.
16. Assistance to Court in appointment of new trustee: When trustee discharges from his obligation and beneficiary is competent to contract, he has to assist Court in the appointment in new trustee.