Definition of Trust (Section 3)

A Trust is a legal relationship whereby property is held by one party for the benefit of another. It arises when a person places confidence in another person to manage property for the benefit of a third party. The law relating to private trusts in India is primarily codified in the Indian Trusts Act, 1882.

Section 3. Interpretation-clause:

Explanation of the Definition:

Based on Section 3, the essential elements of a Trust are:

1. Obligation Annexed to Ownership: A trust is not merely a moral duty but a legal obligation that is attached to the ownership of the trust property. The trustee holds legal ownership, but it is subject to the obligation to manage it for the beneficiary's benefit.
2. Confidence Reposed and Accepted: The trust arises out of the confidence (fiduciary relationship) placed by the author of the trust in the trustee, which the trustee accepts.
3. For the Benefit of Another: The trust must be for the benefit of a specific person or class of persons (beneficiary) or even the author of the trust along with another.
4. Relates to Property: There must be identifiable trust property.

Settlor, Trustee, Beneficiary

Section 3 defines the key parties involved in a trust relationship:

• Author of the trust / Settlor: The person who creates the trust and reposes confidence in the trustee. This is the person who owns the property initially and decides to create a trust for its management and benefit.
• Trustee: The person who accepts the confidence and holds the trust property subject to the obligation to manage it for the beneficiary. The trustee is the legal owner of the trust property. Any person capable of holding property can be a trustee.
• Beneficiary: The person or persons for whose benefit the trust is created. The beneficiary has a 'beneficial interest' in the trust property, which is a right against the trustee and relating to the trust property. The beneficiary is the equitable or beneficial owner. Any person capable of holding property can be a beneficiary. The author of the trust can also be one of the beneficiaries.

There can be multiple settlors, trustees, and beneficiaries. The same person can be a settlor, a trustee, and a beneficiary simultaneously, provided other persons are also beneficiaries (as one cannot be the sole trustee for their own sole benefit).

Objects of a Trust

The 'object' of a trust refers to the purpose for which the trust is created. Section 4 of the Indian Trusts Act, 1882, specifies what constitutes a lawful object of a trust.

Section 4. Lawful purpose:

Explanation:

The object of a trust must be lawful, mirroring the conditions for a lawful object or consideration in contracts (Section 23, Indian Contract Act, 1872) and transfers of property (Section 6(h), TPA). A trust created for an unlawful purpose is void from the beginning.

Examples of lawful objects of a trust:

• Providing for the maintenance and education of minor children.
• Managing property for the benefit of a person with a disability.
• Establishing an educational institution or a hospital (Public Trust).
• Managing family property for the benefit of family members.

Examples of unlawful objects of a trust (making the trust void):

• A trust created to hide property from creditors (fraudulent).
• A trust created to evade taxes (defeats provisions of law).
• A trust whose purpose is to facilitate illegal activities.

The objects of a private trust must be certain and identifiable (specific beneficiaries). Public trusts, created for the benefit of the public or a section of the public for religious or charitable purposes, are governed by separate principles and statutes (like the Religious Endowments Act, 1863, Charitable and Religious Trusts Act, 1920, Societies Registration Act, 1860, or specific State Public Trusts Acts), although the Indian Trusts Act, 1882, contains some general provisions applicable to all trusts.

Types of Trusts

Trusts can be classified in various ways based on their purpose, creation, and nature. Two fundamental classifications are Public vs. Private Trusts and Express vs. Implied Trusts.

Public vs. Private Trusts

• Private Trust: A private trust is one created for the benefit of a specific person or a definite group of identifiable individuals (e.g., family members, named persons). The beneficiaries are ascertained or ascertainable. The Indian Trusts Act, 1882, primarily governs private trusts.
  Example: A trust created by a father for the maintenance and education of his minor children.
• Public Trust: A public trust is one created for the benefit of the public at large or a section of the public, the beneficiaries of which are uncertain and fluctuating. These trusts are usually created for religious or charitable purposes (e.g., establishing a temple, a hospital, an educational institution, providing relief to the poor). Public trusts are not directly governed by the Indian Trusts Act, 1882, although some general principles may apply. They are governed by principles of equity, specific statutes, and the general law relating to public charities.
  Example: A trust created for running a public charitable hospital open to all citizens.

The distinction is crucial because different laws govern their creation, administration, and regulation. Public trusts are often subject to state-specific public trusts acts and greater regulatory oversight.

Express vs. Implied Trusts

• Express Trust: An express trust is created when the author of the trust clearly and unequivocally expresses their intention to create a trust. This intention is typically declared in a written document (like a trust deed or a Will). The author explicitly identifies the trust property, the trustee, the beneficiaries, and the purpose of the trust.
  Example: A executes a registered trust deed declaring that he holds his agricultural land in Pune in trust for the benefit of his grandchildren, appointing his friend B as the trustee and specifying how the income should be used for their education.
• Implied Trust: An implied trust is not created by the explicit declaration of the author but is inferred by law from the conduct of the parties, the words used in a document, or the circumstances of the transaction. Implied trusts can be of several types, including:
  • Resulting Trusts: These arise where property is transferred to someone, but the beneficial interest is presumed to 'result' back to the transferor or their estate (e.g., property transferred to a trustee but the trust fails, or where purchase money is provided by one person but property is transferred in the name of another, historically led to presumption of resulting trust, although Benami Law has impacted this).
  • Constructive Trusts: These are imposed by courts to prevent unjust enrichment or to enforce fiduciary duties, regardless of the parties' intentions. For example, if a trustee misuses trust property for their own benefit, the law may construct a trust over the ill-gotten gains for the benefit of the beneficiaries. Or if a stranger receives trust property with knowledge of the breach of trust.

  The Indian Trusts Act, 1882, mainly deals with express trusts. Implied trusts are often governed by principles of equity and judicial decisions.

Other classifications of trusts might include testamentary trusts (created by a Will, taking effect upon the testator's death) and inter vivos trusts (created by a trust deed during the settlor's lifetime), or simple trusts (where the trustee has minimal duties) and special trusts (where the trustee has active duties in managing the property).

Creation of Trusts

Section 5 of the Indian Trusts Act, 1882, lays down the formalities required for the creation of a private trust. These formalities depend on whether the trust relates to immovable property or movable property.

Section 5. Creation of trust:

Explanation of Formalities for Creation:

Trusts relating to immovable property

For a private trust relating to immovable property to be validly created under the Indian Trusts Act, 1882, the following formalities are mandatory:

1. Declared by a Written Instrument: The trust must be declared in a written instrument. This instrument can be:
   • A non-testamentary instrument (a document other than a Will, like a trust deed) signed by the author of the trust or the trustee, AND REGISTERED.
   • A Will of the author of the trust or of the trustee.
2. Signed: The written instrument must be signed by the author of the trust or the trustee.
3. Registered (for non-testamentary instruments): If the trust is created by a document other than a Will (like a trust deed), and it relates to immovable property, it must be registered under the Indian Registration Act, 1908. Failure to register such a trust deed makes the trust invalid.
4. By Will: If the trust is created by a Will, the formalities for executing a Will apply (Section 63, Indian Succession Act, 1925), including attestation by two witnesses. Registration of a Will is optional, but necessary for compulsory probate areas/properties (as discussed earlier).

Therefore, a private trust of immovable property cannot be created orally. It requires either a registered trust deed or a valid Will.

Trusts relating to movable property

For a private trust relating to movable property to be validly created, the formalities are less strict:

1. Declared by a Written Instrument (Registered or Unregistered) or By Will: The trust may be declared in a written instrument (signed by the author or trustee), which may or may not be registered. It can also be created by a Will.
2. OR By Delivery of Possession: Alternatively, a trust of movable property can be created simply by the author transferring the ownership of the property to the trustee by delivery, accompanied by the intention to create a trust. This is similar to the mode of making a gift of movable property by delivery under Section 123 of TPA.

So, a private trust of movable property can be created orally if accompanied by the delivery of possession of the trust property to the trustee with the intention to create a trust. A written document is not mandatory, though advisable.

Essential Requirements for Valid Creation (beyond formalities):

Irrespective of the type of property, a valid trust requires the 'three certainties':

1. Certainty of Intention: The author must clearly intend to create a trust. Precatory words (expressions of hope or wish) are generally not sufficient unless they demonstrate a clear imperative intention.
2. Certainty of Subject Matter: The trust property must be clearly identified and ascertainable.
3. Certainty of Objects: The beneficiaries must be clearly identified or ascertainable. (For public trusts, the objects are usually charitable or religious purposes).

If any of these certainties is missing, an express trust is likely to fail.

Proviso to Section 5 (Fraud): The last paragraph of Section 5 states that the rules regarding written form and registration do not apply where they would operate so as to effectuate a fraud. This is an equitable principle preventing the statute from being used as an instrument of fraud.

In essence, creating a trust involves segregating legal ownership (held by the trustee) from beneficial ownership (held by the beneficiary) with specific obligations attached to the legal owner for the benefit of the beneficial owner, and requires specific formalities depending on the nature of the property.

Duties of Trustees

Trustees hold a position of significant responsibility and are subject to various duties imposed by the Indian Trusts Act, 1882, and general principles of equity. These duties are designed to ensure that the trust property is managed prudently and solely for the benefit of the beneficiaries, in accordance with the terms of the trust instrument.

The Indian Trusts Act, 1882, outlines numerous duties of a trustee. Some of the key duties are:

Duty to execute trust (Section 11)

Section 11. Trustee to execute trust:

Explanation:

This is the fundamental duty of a trustee. They must carry out the objectives for which the trust was created and strictly follow the instructions provided by the author of the trust in the trust instrument. These instructions dictate how the trust property is to be managed, invested, and distributed to the beneficiaries. The trustee must act within the bounds of the law and the trust instrument. They cannot deviate from the author's directions unless permitted by the trust instrument itself, the consent of all adult and competent beneficiaries, or an order of the court.

Duty to inform beneficiaries (Section 19)

Section 19. Right to information:

Explanation:

While the title of Section 19 refers to the beneficiary's right, it implicitly imposes a duty on the trustee to be transparent and accountable to the beneficiaries. The trustee is bound to provide beneficiaries, upon reasonable request and at the beneficiary's cost, with access to the trust deed, trust accounts, supporting vouchers, and other relevant documents. This enables beneficiaries to monitor the trustee's actions and ensure the trust is being administered correctly.

Section 12 also states that a trustee is bound to acquaint himself with the nature and circumstances of the trust-property; to get in, on the creation of the trust, and, if need be, subsequently, call in, the trust-property (this implies a duty to investigate and secure assets). While not explicitly a duty *to inform* beneficiaries in Section 12, it supports the overall duty of transparency.

Duty to protect property (Section 13)

Section 13. Trustee to execute trust:

Explanation:

This section imposes a duty on the trustee to preserve and protect the trust property. They must manage the property with the same level of care and diligence that a prudent person would exercise in managing their own affairs. This includes:

• Taking possession and control of the trust property.
• Investing the trust funds prudently (Section 20 lists authorised investments).
• Insuring the trust property against risks (if reasonable and prudent).
• Taking steps to prevent damage, loss, or deterioration of the property.
• Defending legal actions against the trust property and taking legal action to recover property or protect trust interests if necessary.

Other important duties of trustees include:

• Section 14. Duty not to set up adverse title: A trustee cannot use their position to claim title to the trust property adversely to the beneficiary.
• Section 15. Duty to be impartial: If there are multiple beneficiaries, the trustee must act impartially and not favour one beneficiary over another.
• Section 17. Duty not to delegate: A trustee cannot ordinarily delegate their duties to others, unless permitted by the trust instrument, statute, or necessity.
• Section 18. Duty to keep clear accounts: A trustee must maintain accurate and proper accounts of the trust property, income, and expenditure.
• Section 22. Duty not to make profit by trust: A trustee cannot use the trust property or their position as trustee to make a profit for themselves. Any profit made belongs to the trust.
• Section 23. Duty not to buy trust-property: A trustee cannot, without the permission of the court, buy the trust property from themselves or their co-trustee, either directly or indirectly.

These duties are cumulative and designed to ensure the trustee acts faithfully and competently in managing the trust for the beneficiaries.

Powers of Trustees

In order to fulfil their duties and effectively manage the trust property, trustees are granted certain powers by the trust instrument, the Indian Trusts Act, 1882, or by the court. These powers enable them to deal with the trust property and carry out the trust's purpose.

The Indian Trusts Act, 1882, confers various powers on trustees (Sections 31 to 45). Some key powers include:

• Section 31. General authority of trustee: A trustee may do all such acts, reasonable and proper for the realization, protection, or benefit of the trust-property, and for the protection or support of a beneficiary who is not competent to contract, as he might do the owner of such property might do with reasonable prudence, regard being had to the nature of the trust and the subject-matter thereof. This is a general power allowing prudent management.
• Section 32. Power to sell trust-property: A trustee has the power to sell trust property if authorized by the trust instrument or if the sale is necessary for the execution of the trust (e.g., to pay trust debts, or if the property is wasting/hazardous).
• Section 33. Power to mortgage trust-property: A trustee may mortgage trust property if authorized by the trust instrument or if necessary for the preservation of the property or payment of charges thereon.
• Section 36. Power to lease trust-property: A trustee has the power to lease trust property, but typically for a reasonable duration and on reasonable terms.
• Section 37. Power to sell property of persons absolutely entitled: If the trust property includes property of a person who is absolutely entitled (e.g., a minor beneficiary after attaining majority), the trustee may sell such property under certain circumstances.
• Section 38. Power to give receipts: Any trustee, or any one of several trustees, may give a valid receipt for money or other movable property payable or deliverable to them by reason or in the exercise of any trust or power.
• Section 40. Power to compound liabilities: A trustee may compound, adjust, or compromise any debt, account, claim, or thing relating to the trust.
• Section 41. Power to give time in respect of debt: A trustee may grant time for the payment of any debt.
• Section 43. Power to several trustees of whom one dies or disclaims: If one of several trustees dies or disclaims, the remaining trustees can continue to act.
• Section 45. Suspension of trustee's powers by suit: Once a suit for the administration of the trust is filed in court, the trustee's powers are suspended and can only be exercised with the permission of the court.

Sources of Trustee's Powers:

• Trust Instrument: The primary source of power. The trust deed or Will usually specifies the powers granted to the trustee.
• Indian Trusts Act, 1882: The Act provides a general framework of powers that trustees have, often described as "statutory powers". These apply unless the trust instrument restricts them.
• Court Orders: Courts can grant specific powers to trustees or authorize actions not explicitly allowed by the trust instrument or the Act, if deemed necessary or beneficial for the trust administration (e.g., power to carry on a business).

Trustees must exercise their powers diligently, honestly, and solely for the benefit of the beneficiaries and the trust, not for personal gain. Improper exercise of powers can amount to a breach of trust.

Liabilities of Trustees

Trustees are in a fiduciary relationship with the beneficiaries, which imposes a high standard of conduct. If a trustee fails to perform their duties or improperly exercises their powers, they can incur personal liability to the beneficiaries for any loss caused to the trust estate. This failure or improper action is termed a 'breach of trust'.

Breach of Trust

A breach of trust occurs when a trustee violates their duties or exceeds their powers, resulting in loss or damage to the trust property or detriment to the beneficiaries. Section 23 of the Indian Trusts Act, 1882, deals with the liability for breach of trust.

Section 23. Liability for breach of trust:

Explanation of Liability for Breach of Trust:

The fundamental consequence of a breach of trust is that the trustee is personally liable to compensate the trust estate or the beneficiary for the loss suffered as a result of the breach. The aim is to restore the trust property to the position it would have been in had the breach not occurred.

Examples of Breach of Trust:

• Improper investment of trust funds (e.g., investing in speculative ventures not authorised by the trust instrument or Section 20 of the Act).
• Misappropriation or wrongful conversion of trust property for the trustee's personal use.
• Failure to collect debts due to the trust, resulting in the debt becoming irrecoverable.
• Selling trust property below market value negligently or improperly.
• Failure to insure trust property, leading to loss by fire etc.
• Delegating duties improperly.
• Acting partially between beneficiaries.

Extent of Liability:

• The trustee is liable for the actual loss sustained by the trust property or the beneficiary.
• In certain cases, they may also be liable to pay interest on the amount lost or misappropriated (Section 23).
• If a trustee commits a breach that results in a gain for themself, even if there is no loss to the trust, they may be compelled to account for that profit to the trust (Section 22 - Duty not to make profit).

Defences Available to Trustee:

Section 23 provides certain exceptions where the trustee may not be liable for a breach of trust:

• If the breach was induced by the beneficiary's fraud.
• If the beneficiary, being competent to contract and having full knowledge of the facts and their rights, assented to the breach or subsequently acquiesced in it.
• Section 30 provides general protection where a trustee is not liable for the default of a co-trustee unless they joined in the breach or were negligent in supervising.
• Section 66 allows the court to relieve a trustee from liability if they acted honestly and reasonably and ought fairly to be excused.

Remedies for Breach of Trust (Sections 58-65):

Beneficiaries have several remedies against a trustee for breach of trust, including:

• Filing a suit for the administration of the trust.
• Filing a suit to compel the trustee to perform their duties.
• Filing a suit to restrain the trustee from committing a breach.
• Filing a suit for compensation for the loss caused by the breach (Section 59).
• Filing a suit for the recovery of trust property improperly alienated.
• Applying for the appointment of a new trustee (Section 74).

Liability for breach of trust underscores the high standard of conduct expected from trustees and provides crucial protection for the beneficiaries' interests in the trust property.

Rights of Beneficiaries

Beneficiaries are the ultimate recipients of the benefit of a trust. As the persons for whose advantage the trust property is held and managed, they are granted various rights under the Indian Trusts Act, 1882, and general principles of equity. These rights ensure that trustees act in accordance with the trust's purpose and for the beneficiaries' welfare, and provide mechanisms for beneficiaries to protect their interests.

Chapter VI (Sections 55 to 69) of the Indian Trusts Act, 1882, specifically deals with the rights and liabilities of the beneficiary.

Right to enforce trust (Section 58)

Section 58. Right to enforce trust:

Explanation:

This is a fundamental right of every beneficiary. If the trustee is not properly performing their duties or is failing to execute the trust according to the terms of the trust instrument and the law, the beneficiary has the right to approach a court of competent jurisdiction and file a suit to compel the trustee to properly execute the trust. This means the court can supervise the trustee's actions and issue directions to ensure the trust's purpose is fulfilled and the beneficiaries receive their entitlements. This right arises when the trustee refuses or neglects their duties, or acts contrary to the trust's mandate.

This right is closely linked to the trustee's duty to execute the trust (Section 11) and serves as a mechanism for the beneficiary to hold the trustee accountable and ensure compliance.

Right to obtain accounts (Section 19)

While previously discussed as an implied duty of the trustee under Section 19, this section is fundamentally a right of the beneficiary.

Section 19. Right to information:

Explanation:

A beneficiary has the right to be kept informed about the management of the trust property. This includes the right to inspect and obtain copies of:

• The trust deed itself.
• The detailed accounts of the trust's income and expenditure.
• Supporting vouchers for the accounts.
• Any other document related to the trust property held by the trustee.

This right is essential for transparency and allows the beneficiary to verify that the trustee is managing the funds properly and accounting for all income and expenses. The beneficiary can exercise this right at all reasonable times, but typically at their own cost.

Other Significant Rights of Beneficiaries:

• Section 55. Right to rents and profits: The beneficiary is entitled to the rents and profits of the trust property, unless the trust instrument directs otherwise.
• Section 56. Right to enjoyment of property: The beneficiary is entitled to the enjoyment of the trust property to the extent of their interest. If the trust is for immediate possession, the beneficiary can demand possession.
• Section 57. Right to transfer beneficial interest: The beneficiary generally has the power to transfer their beneficial interest in the trust property.
• Section 63. Right to follow trust property: If the trust property is improperly converted or alienated by the trustee, the beneficiary has the right to follow that property into the hands of anyone who has acquired it (unless it is a bona fide purchaser for consideration without notice of the breach of trust). The beneficiary can recover the property or the proceeds from such persons.
• Section 64. Right to compel trustee to do any act of duty: The beneficiary can compel the trustee to perform any particular act of their duty.
• Section 65. Right to restrain from contemplated breach: The beneficiary can seek an injunction from the court to prevent a trustee from committing a threatened or contemplated breach of trust.
• Section 66. Right to proper trustees: A beneficiary can seek the removal of a trustee and the appointment of a new one by the court if the trustee is acting improperly, becomes unfit, or is no longer suitable for the position.

These rights collectively empower the beneficiaries to oversee the trust administration and ensure that their interests, as intended by the author of the trust, are protected and fulfilled.

Civil Remedies for Breach of Trust

When a trustee commits a breach of trust, the beneficiaries are not without recourse. The Indian Trusts Act, 1882, and the general principles of equity provide beneficiaries with several civil remedies to address the breach, recover losses, and ensure the proper administration of the trust. These remedies are primarily exercised by filing a suit in a court of competent jurisdiction.

As discussed under the liabilities of trustees, Section 23 of the Indian Trusts Act establishes the trustee's liability for breach of trust, obliging them to make good the loss. Chapter VI, particularly Section 59, details the remedies available to the beneficiary.

Section 59. Remedies in case of breach of trust:

Explanation of Civil Remedies:

Based on Section 59 and other relevant sections of the Act, the key civil remedies available to a beneficiary for a breach of trust include:

1. Suit to Compel Performance of Duty: The beneficiary can file a suit seeking a court order directing the trustee to perform a specific duty that they have neglected or refused to perform (Section 59, first part).
2. Suit to Restrain Contemplated Breach (Injunction): If the beneficiary apprehends that the trustee is about to commit an act that would constitute a breach of trust, they can seek an injunction from the court to prevent the trustee from carrying out that act (Section 59, first part, and Section 65).
3. Suit for Administration of Trust: This is a comprehensive remedy where the court takes over the supervision of the trust administration. The court will ensure that the trust property is collected, debts and expenses are paid, accounts are settled, and the property is distributed according to the trust instrument (Section 59, second part). This suit is usually filed when there are serious issues in the management of the trust or multiple breaches.
4. Suit for Removal of Trustee and Appointment of New Trustee: If the trustee has committed a breach of trust, or is otherwise unfit or incapable of acting, the beneficiary can file a suit asking the court to remove the existing trustee and appoint a new, suitable person or entity as trustee (Section 59, second part, and Section 74).
5. Suit for Recovery of Trust Property:
   • Against the Trustee: If the trustee has misappropriated or wrongly converted trust property, the beneficiary can sue the trustee to recover the property or its value.
   • Against Third Parties: The beneficiary has the right to follow the trust property into the hands of third parties who acquired it improperly or with notice of the breach of trust. Section 63 allows the beneficiary to recover the property or its value from such third parties, except from a bona fide purchaser for consideration without notice.
6. Suit for Compensation for Loss (Damages): The beneficiary can sue the trustee to recover compensation for the loss caused to the trust property or the beneficiary by the breach of trust (Section 59, second part, and Section 23). The trustee is personally liable to make good this loss.
7. Suit for Accounts: Although the beneficiary has a right to demand accounts from the trustee (Section 19), if the trustee fails to provide proper accounts, the beneficiary can file a suit compelling the trustee to render accounts and potentially surcharge the trustee (hold them liable) for any amounts improperly spent or not accounted for.

These remedies can often be combined in a single suit (e.g., a suit for administration may also include a claim for removal of the trustee and compensation for breaches). The choice of remedy depends on the nature and severity of the breach and the specific relief sought by the beneficiary.

The court, in exercising its equitable jurisdiction, aims to protect the trust estate and give effect to the intentions of the author of the trust, primarily by ensuring that the beneficiaries receive what they are entitled to.