In this article, Sushant Singh Chauhan pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses how is a trust managed under Indian law.
INDIAN TRUSTS ACTS, 1882 is an act related to private trusts & trustees.
Definition – According to Indian Trust Act, trust means an obligation annexed to the ownership of property, & arising out of a confidence reposed in & accepted by the owner for the benefit of another or for another and owner.
- The person who declares the confidence is called the author of the trust.
- The person who accepts the confidence is called trustee.
- The subject matter of the trust is called trust property or trust monetary.
- The written document through which trust is created is called instrument of trust.
- The person whose benefit the confidence is accepted is called beneficiary.
Thus, a trust is an acceptance of an obligation by a person in against of some property or funds to use it or hold it for the benefit for the person whom the trust is created.
CREATION OF TRUST
The elements of valid trust are presented in section-6.
The act defines how the author could create the trust, assign trustees and give them his monetary assets to be controlled by the trust. It may be express or implied. It includes-
- Intention of the author to create the trust.
- Purpose of the trust.
- The monetary asset is assigned for the benefit of the trustee.
- Gives control or transfer the trust property to the trustee which includes intention of the author.
- Trustee can claim expenses & salary from the benefits from the trust of his work.
The requirement of the trust law is that the author should indicate by words or conduct with the reasonable intention to create a trust.
The effect of the provision is a valid trust requires four certainties-
- Certainty of author’s intention,
- Certainty of object,
- Certainty of beneficiary &
- Certainty of trust property.
For example: A property transfer within the same family no valid trust will arise because the beneficiary of the trust is not indicated with certainty similarly if the transferee distributed the property amongst the member of same family, as he should think most deserving, here there is also no valid trust because there should be no certainty about beneficiaries but where a person transfer is property and his assets to another person for payment of his creditor. This is not trust but a transfer on a condition mentioned under a trust law in India.
SECTION 8 – About the subject matter
Under this provision, the trust law requires that the subject matter must be property & are capable of being transferred to beneficiary.
SECTION 5 – Nature of the property
Under this provision, properties which are transferred to the trustee may be moveable or immoveable.
In case of immovable property, it may be valid if the author of the trust & the trustee being signed on the instrument & by the will of the author of the trust
The provision of trust law in India cannot be used for the purpose of committing fraud. (R/W Sec-4)
SECTION 4 – Purpose should be lawful
Under the provision, sec4 states that a trust must be created for lawful purpose.
Where the purpose of law of trust is unlawful, the trust becomes void.
But as if the trust property is located in foreign country, the law of that country shall apply.
Trust Law in India requires that the purpose should be lawful.
Unless it is not being-
- It is forbidden by the law,
- It is fraudulent,
- It is of such nature that, if permitted it would defeat the provision,
- The court regards it as immoral or opposed to public policy.
Suppose for example- trust for fraudulent of creditors,
SECTION 7– Competent to contract
According to sec-7 of the trust law in India says that a trust may be created by every person competent to contract. But where the trust is created on behalf of minor, permission from civil court jurisdiction should be obtained first.
SECTION 9 – Who may be beneficiary
Under the provision, every person capable of holding property may be a beneficiary. As if the proposed beneficiary may renounce his interest under the trust he can by disclaimer addressed to the trustee, by giving notice.
WHO MAY BE TRUSTEE UNDER THE TRUST LAWS
Section 10 says that every person who is competent to contract are capable of holding property as trustee.
However no person is bound to accept a trust. When a person is appointed as a trustee, he has the option to accept or reject the trust. He has to intend his acceptance by words, written, spoke or by conduct. The assigned trustee may disclaim it also, but he must do with in the reasonable time. His disclaimer will prevent the property to transfer to the trustee. But in case of more than one proposed trustee & one of the trustees disclaim, the property will vest to the other trustee & he will become the sole trustee vice versa. A proposed trustee who accepts becomes the trustee from the date of the creation of trust. Where a person by his will leaves certain property in trust for another & the proposed trustees prove his will that amounts to acceptance of the trust on their part.
Under English law, the property becomes to the subject of two kinds of ownership. The trustee becomes the legal owner & beneficiary regarded as beneficial owner.
Under Hindu law, provision clearly says that the trustee having possession of the property. The beneficiary has certain rights under the trust under Indian trust law. Beneficial ownership is also known as equitable ownership but it is not known in the trust law in India.
KINDS OF TRUST UNDER THE TRUST LAW
There are different kinds of trust which are discussed below-
Express trust– If the trust was created verbally, in written or in expressed term and a person is being nominated to be the trustee of the trust it would amount to express trust. If the property is moveable then firstly it should be registered & have to physically transferred to the trustee.
Implied trust– An implied trust is also created by an act of the parties. It appears from the conduct of the parties.
The conduct of the party creates presumption & also shows the intention of the parties.
Public & private trust– A public trust under the trust law in India is one which is created for the benefit of the public. In general Public doesn’t mean public as whole. The trust may be created for a part of public & it will be valid trust so long as every member of particular class is permitted to enjoy the benefit of the trust. Examples of general public purpose are- medical, health, social service, education, training etc.
Private trust is basically is made for a specified person so that no one left the one can draw the benefit. Such a trust is enforceable at the private action of intended beneficiary.
Secret Trust– Where neither the existence of trust nor its terms are disclosed, it is called secret trust. In case the existence of trust is disclosed but its terms are not disclosed it is a half secret. This is a misuse of concept trust.
REQUIREMENTS FOR STARTING PUBLIC TRUST UNDER THE TRUST LAW
The general rules emerge from judicial authorities is that the charitable trust must satisfy 3 requirements-
- The trust must be for the promotion of public benefit.
- The trust must be wholly & exclusively charitable
- The trust must be charitable of nature
LIABILITIES OF TRUSTEE UNDER TRUST LAW
Liabilities of trustee defined in Section 23 to Section 30 of the trust law. They are as follow-
- Liability for breach of trust
Where the trustee commit breach of trust, then he is liable to compensate the beneficiary or the trust property which loss sustained unless the beneficiary has by fraud induced the trustee to commit the breach.
A trustee committing a breach is not liable to pay in some following cases-
- When he has actually received interest,
- Where he may be fairly presumed to have received interest.
- Where the trustee ought to have received interest.
- No set off against liability
Where a breach of trust in two distinct forms, one causing loss & the other brings profit, the trustee cannot say that his liability for the loss should be reduced by set off against it the gain in simple words if breach of trust cause loss the trustee has to bear. If it brings gains it will go the benefit of trust property.
- The position of co-trustees
The general rule is that a trustee is not liable for the breach of trust committed by any one of his co-trustees
EXCEPTIONS-
- Section 26 declares where the trustee is liable for the breach of his co-trustees.
- Where he has delivered the trust property of his co-trustee without seeing to its proper application
- Where he comes to know of a breach of trust committed by his co-trustee or intended to commit & trustee doesn’t take proper steps to protect the interest of the beneficiary.
RIGHTS & POWERS OF TRUSTEE UNDER TRUST LAW
- Right to title
A trustee is entitled to have in his possession the instrument of trust & all the documents of title relating to the trust property.
- Indemnity from Gainer of breach of trust
Where a breach of trust has occurred and a person other than a trustee has received benefit from the breach, he will be bound to indemnify the trustee. Such indemnity is not available to a trustee who has been guilty of fraud in breach of trust.
- Settlement of accounts
When the duties of a trustee have been completed, he is entitled to have the accounts of his administration of the trust property examined and settled.
- General Authority of trustees
A trustee has the right to do all such acts that are reasonable & proper for the realization, protection or benefit of the trust property & also for the protection of a beneficiary who is not competent to contract. This is known as general authority of trustee.
- Power to convey
The completion of sale may require certain formalities (formality of conveyance). Section 39 gives the power of conveyance to trustee. The section says that after the completion of sale the trustee shall have the power to convey to the person as may be necessary.
- Authority to deal with trust property under trust law
Where the authority to deal with trust property is given to several trustees and any of the trustees disclaim or dies the authority may be exercised by the continuing trustee. This will not be applied in those situations where the instrument of trust is specific on the point that the trust executed only some specific number of trustees.
- Power to sell
Where a trustee has the authority to sell the trust property he may sell the property subject to the charges or free of them. He may sell the whole property in one lot or in installments either by public auction or by the private at one time or at different times. But the trustee can perform such activity when it is mentioned in the trust deed.
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