In this blog post, Shubham Soni, a student of Institute of Law, Nirma University, Ahmedabad, discusses if the beneficiary in a trust can transfer his or her beneficial ownership in the trust?
Trustee, Beneficiary & Ownership
A long time ago, when Knights used to go to war, they used to entrust their property to some ‘trusted’ friends, who would look after it for the benefit of their families. Such trusted people were referred as ‘trustee’ and the family members were the ‘beneficiaries’. This is how the English Trust Act developed from which the Indian Trust Act, 1882 took inspiration.
Under the English trust law, the trust property becomes the subject of dual ownership. The trustee is the legal owner and the beneficiary is the beneficial owner. The picture though, changes in the Indian Trust Act, which departed from the dual ownership concept to the concept of single ownership. The provisions of the Indian Trust Act, 1882 clearly makes the trustee the legal owner as well as the beneficial owner. Beneficial ownership is not recognized in India. However, some rights that are very similar to ownership can be found in Chapter VI of the Act.
Does that mean I cannot transfer my beneficial ownership?
Beneficial Ownership is definitely a big no. But you sure can transfer your beneficial interest under the Indian Trust Act. Beneficial Interest is one of the rights of the beneficiary in the trust and reflects many elements of beneficial ownership. The Right to transfer beneficial interest is laid down in Sections 58 and 69 of the Indian Trust Act. Section 58 of the Trust Act clearly states the conditions as well as the caveat.
“58. Right to transfer beneficial interest.—The beneficiary, if competent to contract may transfer his interest, but subject to the law for the time being in force as to the circumstances and extent in and to which he may dispose of such interest: Provided that when property is transferred or bequeathed for the benefit of a married woman, so that she shall not have power to deprive herself of her beneficial interest, nothing in this section shall authorise her to transfer such interest during her marriage.”[1]
Whoever receives the beneficial interest under this Section also acquires the rights and liabilities of the beneficiary at the date of the transfer. It is clear, that it is the right of the beneficiary. This became even clearer in the case of Canbank Financial Services Ltd. v. Custodian[2], when the Supreme Court held that when a trust is created by reason of express agreement between parties, the beneficial interest can be indisputably transferred.
Who cannot transfer?
The transfer can be made in most of situations without a glitch but there are certain restrictions as well. Such a transfer can be made by the beneficiary only if they are of the:
- age of majority with
- sound mind and
- are not disqualified by any law for the time being in force in India.
In case the beneficiary is a married woman and the trust property has been bequeathed to her via the trust to ensure that she would not deprive herself of her beneficial interest, the trust property cannot be transferred at her instance as aforesaid.
It is clear therefore that though beneficial ownership is not recognized in India, a beneficiary can exercise his or her right under Section 58 of Indian Trust Act to transfer his beneficial interest in the trust.
Footnotes:
[1] Indian Trust Act, 1882
[2] (2004) 8 SCC 355
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