Mr. Sajid Rahman B.Com, LL.M.

(Corporate & Commercial Law)

*** The notes are a brief overview. Add more case studies, examples etc. subject to
availability

What is a Trust?

The word ‘Trust’ is used in common parlance as a word by which a confidence

is denoted in one person by another person.

When it is said that A ‘Trusts’ B with something, it generally means that A has
confidence in B that B would honestly and diligently perform the responsibility
entrusted upon him.

In India, the law relating to Private Trusts is provided under the Indian Trusts
Act, 1882.

From a legal point of view, a trust can be said to be a kind of arrangement

including three parties, namely,

• The Author of the Trust – The person who creates the Trust.
• The Trustee – The person who accepts the responsibilities of the Trust.
• The Beneficiary – The person/persons for whose benefit the Trust is created.

Who is a Trustee?

A Trustee is a person appointed under a Trust to administer the Trust

property. A trustee should be a person who is capable of holding property and who is
competent to contract. A company, being an artificial person created by law, can be
a trustee as well. A Trustee is specifically required to accept or disclaim the trust
entrusted upon him, either expressly or by way of his actions. There can be more than
one trustees in a single Trust.

Extinguishment of Trust

Sec. 77 of the Indian Trusts Act reads:

Section 77 lays down 4 situations when a trust is extinguished: –

• When its purpose is completely fulfilled.

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 Mr. Sajid Rahman B.Com, LL.M. (Corporate & Commercial Law)

• When it becomes unlawful.

• When the fulfilment of its purpose becomes impossible by destruction of the
trust property or otherwise.
• When the trust being revokable, is expressly revoked.

To be legal, a trust must have a lawful object or purpose. A law purpose can be
lawful at initial stage but may become unlawful afterwards due to some new legislation
coming into force.

Such purpose therefore can’t be accomplished being unlawful. So, the trust is
extinguished. This is as per section 77(b).

Similarly, under Section 77 when the fulfilment of purpose becomes impossible

by destruction of the trust property or otherwise, a trust property or otherwise, a trust
is extinguished.

Revocation

Section 78 enumerates the circumstances when a trust may be revoked. A trust

created by a will may be revoked at any time at the pleasure of the testator, for a will
inherently ambulatory (alterable). Revoking means to make generally void a document
by taking it back or by recalling.

A trust which is created otherwise than by will may be revoked: –

• By consent of all the beneficiaries where all of them are competent to contract.
• By expressly providing in the instrument of trust for a power of revocation: by
exercising such a power a trust may be revoked.
• When its purpose is the payment of authors debt it can be revoked at any time
prior to communication of the arrangement to the creditor.

A settlor cannot revoke a completely constituted trust unless a power to do so

is reserved in the instrument.

Other grounds for revocation may be: –

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 Mr. Sajid Rahman B.Com, LL.M. (Corporate & Commercial Law)

• Execution of the settlement under a fundamental mistake or misapprehension

as to its effect.
• Illusory trust may also be revoked by the settlor.
• Fraud or undue influence.

One who seeks to set it aside on the above ground must discharge the onus of
proving it. If the settlor is proved to be a free agent, it cannot be set aside.

A trust created by will can be revoked at any time by the author, during his life
time but thereafter it cannot.

A trust for the payment of its authors debt can be revoked at any time before it
is communicated to the creditor.

A trust created otherwise than a will may be revoked by means of power of

revocation expressly reserved by the author in that instrument or it may be revoked
when all the beneficiaries are competent to contract and they so consent.

When a trust is revoked, the revocation will not affect the acts of the trustee
duly done in execution of the trust so as to defeat or prejudice those acts.

It means that the author of the trust cannot revoke the trust to defeat what
trustee may have done duly in execution of trust. Such revocation will have
retrospective effect.

Duties of a Trustee

The Indian Trusts Act, 1882 provides for certain duties of a Trustee, we shall
see each one of them in brief detail.

• Execution of Trust (Section 11)

The trustee is required to actually carry out the purpose of the trust as laid out
in the Trust deed. The trustee is also required to follow the directions of the Author of
the Trust at the time of creation of the trust.

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 Mr. Sajid Rahman B.Com, LL.M. (Corporate & Commercial Law)

However, the trustee is not required to follow such directions if they are
impractical or illegal.

• Acquaintance of Trust Property(Section 12)

The trustee is required to know about the details, whereabouts and current
condition of the trust property and also to take appropriate measures to secure the
trust property.

• Protection of Title of Trust Property (Section 13)

The trustee is required to defend all the claims against the title of the Trust property
and to take adequate measures to assert and protect the title of the property.

• Not to set up Title adverse to the beneficiary(Section 14)

As the trustee is entrusted with the trust property to maintain it for the benefit of
the beneficiaries, it is expected and required of the trustee to not set up any title
adverse to the beneficiary.

A good example explaining this point would be, suppose the trustee is entrusted
with an immovable property and is required to apply the rents and profits of such
property for the benefit of the beneficiaries. The trustee is also given the rights to sell
such property.

It is expected of the trustee that the trustee would not sell such property to
himself or anyone of his relatives or friends or a person of like nature, as such an
action on the Trustee’s part would be adverse to the beneficiaries, and the trust factor
upon which the foundation of the trust is built, would cease to exist.

• Take care of the Trust Property(Section 15)

The trustee is required to provide adequate safeguard and required to apply

such prudence to the trust property, as that of an ordinary man would apply to his own
property.

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copyright statute.
 Mr. Sajid Rahman B.Com, LL.M. (Corporate & Commercial Law)

However, the Act provides that the Trustee would not be responsible for any
loss caused to the trust property or the benefits arising thereof, if he had applied such
prudence as would an ordinary man would apply to his own property.

In Speight v. Gaunt, a trustee sufficiently discharges his duty if he takes, in

managing trust affairs, all those precautions which an ordinarily prudent man of
business would take in managing similar affair of his own and if he does not choose
investments other than those which the term of his trust permit.

• Convert perishable property(Section 16)

If the trust property is of such nature, that with time, it would keep on
deteriorating and keep losing value, the trustee is required to convert, i.e. sell and
convert such property into cash proceeds and apply such proceeds for the benefits of
the beneficiaries. This duty is especially required of a trustee when the trust is created
for the benefit of several persons in succession.

This principle is expressed in Hinves v. Hinves

• Be impartial among the beneficiaries(Section 17)

When the trust is created for the benefit of several beneficiaries, the trustee is
required to apply the benefits received from the trust property equally among the
beneficiaries, without being partial to anyone or any group among the beneficiaries.

• Protect the trust property from adverse beneficiary

When there are several beneficiaries of a trust, and one or more of such
beneficiaries commit, or threaten to commit an act, which would be adverse to the
interest of other beneficiaries and the trust in general, the trustee is required to take
measures to stop such act of such beneficiary/beneficiaries.

• To maintain and keep books and accounts(Section 19)

The trustee is required to keep a clear and accurate account of the trust
property and at all times, provide the same to the beneficiary upon the request of the
beneficiary.

The notes provided here is for educational purpose only and fair use is permitted by
copyright statute.
 Mr. Sajid Rahman B.Com, LL.M. (Corporate & Commercial Law)

• Investment of Trust money

The Act specifically provides that when the trust property consists of money,
and such money is not required to be immediately applied for the benefit of the
beneficiaries, the trustee is required to invest such money in such instruments as
provided for in the Act. The Act provides for instruments such as promissory notes and
other securities of the Central Government; in stock or debentures of the Railways or
other government companies; in Units issued by the Unit Trust of India, etc

In R. Mathalone & ors. V, Bombay Life Assurance Co. Ltd., it was held that
a trustee cannot be asked to invest his own money for the benefit of ‘cestui que trust’.

Liabilities of a Trust
• Liability for breach of trust(Section 23)

The beneficiary is held liable, if by any chance, in any case, he/she breaches
the trust agreement in any way. He is held fully liable for all losses/damages if he
commits a breach of trust.

• Liability not to harm others’ interests

Beneficiary cannot harm another party’s interests in any way in the trust, as he
will be liable for any harm caused to another party within the trust that is due to him or
his behaviour/etc.

• Liability not to obtain any advantage without the consent of other

beneficiaries

It is mandatory for the beneficiary to take consent of all other beneficiaries

involved in the trust in case, he/she needs to obtain any kind of advantage. If not done,
it will be considered as a breach of trust.

• Liability to receive his interest(s)

The beneficiary is entitled to get his/her interest from the trust, but the
beneficiary should not claim more than his interest in the trust property.

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copyright statute.
 Mr. Sajid Rahman B.Com, LL.M. (Corporate & Commercial Law)

• Liability to become aware of breach of trust

It is the beneficiary’s liability to become aware of all types of breach of trust,

whether by the author or by the trustee, and it is his liability and responsibility to
become fully aware and proceed against any party, if a breach of trust is found by the
beneficiary.

• Liability in case to deceive the trustee

The beneficiary will be held liable if in case, it is found that he has deceived the
trustee in any way or induced him to commit a breach of trust. Court will proceed
against the beneficiary in this matter.

• Liability to take reasonable steps

The beneficiary will be held liable in case he fails to take reasonable steps and
actions, as mentioned in the trust deed, within the rights and duties of other
beneficiaries. It is mandatory for the beneficiary to only take steps within the limitations
and boundaries set of all other beneficiaries.

Non Liabilities of a Trust

Non-liability of a trustee for a breach of trust.-A trustee is not liable for a breach
of trust committed in the following cases:
(i) Where the beneficiary has by fraud induced the trustee to commit the
breach. (Section 23).
(ii) Where the beneficiary, being competent to contract, has himself, without
coercion or undue influence having been brought to bear on him, concurred
in the breach or subsequently acquiesced therein, with full knowledge of the
facts of the case and of his rights as against the trustee. (Section 23).
(iii) Where a trustee succeeds another, he is not, as such, liable for the acts or
defaults of his predecessor. (Section 25).
(iv) Subject to the duty of the trustee to protect title to trust property and to his
duty of dealing with the trust-property as carefully as a man of ordinary
prudence would deal with such property if it were his own, one trustee is

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copyright statute.
 Mr. Sajid Rahman B.Com, LL.M. (Corporate & Commercial Law)

not, as such, liable for a breach of trust committed by his co-trustee.

(Section 26).

Powers and Rights of a Trustee

Certain rights and powers are conferred upon the Trustee under the Indian
Trusts Act, 1882. They are discussed in detail in the following paragraphs.

• Right to Title deed(Section 31)

The trustee is entitled to possess the trust deed or any other instrument by
which the trust is created, and the title documents of the trust property.

• Right to reimburse expenses incurred for trust purposes(Section 32)

The trustee has the right to be reimbursed for the expenses incurred by him for
the purpose of the trust, like expenses incurred for the execution of the trust, for the
preservation of the trust property, for the protection or support of the beneficiary, etc.

• Right to re-collect overpayment

If a trustee has mistakenly made a payment over and above the required
amount to a beneficiary, the trustee has the right to collect such excess amount from
the beneficiary. Such collection might be made from the interest of the beneficiary in
the trust property, and if not possible, then even from the beneficiary personally.

• Right to indemnity from breach of trust, by a gainer(Section 33)

If a person has committed a breach of trust and has gained from such breach,
the trustee has the right to indemnify himself against such gain by the person who has
committed such a breach.

However, if the trustee himself is also guilty of fraud in committing such a

breach, then he loses the right to indemnify himself in such a situation.

The notes provided here is for educational purpose only and fair use is permitted by
copyright statute.
 Mr. Sajid Rahman B.Com, LL.M. (Corporate & Commercial Law)

• Right to seek Court’s opinion in managing trust property(Section 34)

The trustee has the right to apply to the Court, by way of a petition, to seek the
Court’s opinion, advice, opinion or direction with regards to the management of the
trust property.

Refer Official Trustee, West Bengal & ors. V. Sanchindra Nath Chatterjee

• Right to Settle accounts(Section 35)

When the duties of a trustee are complete, the trustee is entitled to have the
accounts of the administration of the trust property examined and settled, and when
no benefit is due to any beneficiary under the trust after the completion of the trustee’s
duties, the trustee is also entitled to receive an acknowledgement to that effect.

• Right to sell trust property, along with power to convey

The trustee has the power to sell the trust property as per the instructions laid
out in the trust deed, and if no such instructions are laid out, then by way of public
auction or private contract, in any way the trustee deems fit.

• Right to vary or rescind the sale of trust property, and re-sell the same

The trustee has the power to vary the conditions of the sale of trust property or
even rescind such sale. He also has the power to re-sell the same property. If in such
recession and re-sale, if any loss occurs, the trustee is not liable for the same.

• Power to manage investments(Section 37)

The Trustee has the power to sell any existing investment of the Trust property
and invest the same into any other instrument, as he deems fit.

However, if there is a beneficiary who is competent to contract, then such power

cannot be exercised by the trustee without such beneficiary’s consent in writing.

• Power to apply property of Trust for maintenance of minor

beneficiaries(Section 20,41)

In case the beneficiary is a minor, the Trustee has the power to apply, i.e. use
the income for the Trust property for the maintenance of the minor. Maintenance of
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 Mr. Sajid Rahman B.Com, LL.M. (Corporate & Commercial Law)

the minor may include functions such as food and clothing, Education, Religious
worship, marriage, funeral, etc.

• Power to give receipts(Section 42)

Any trustees or trustee may give a receipt in writing for any money, securities
or other moveable property payable, transferable or deliverable to them or him by
reason, or in the exercise, of any trust or power; and, in the absence of fraud, such
receipt shall discharge the person paying, transferring or delivering the same
therefrom, and from seeing to the application thereof, or being accountable for any
loss or misapplication thereof.

• Power to compound(Section 43)

This power may also be called as power to settle disputes. When there is any
dispute related to any of the trust property, the trustees, when there are two or more
trustees appointed, or the sole trustee, may settle the dispute in the manner they think
fit. For example, they may compromise, compound, abandon the dispute or may even
submit the dispute to arbitration. In the doing of such settlement, the sole trustee or
the trustees may enter into any agreement, or instruments, as they deem fit.

• Trustees to continue with trust if one of several trustees dies or disclaims

When there are two or more than two trustees appointed, and one of them
disclaims the trust or dies, the remaining trustees shall have the power to deal with the
trust property, as provided in the Trust deed.

However, such power would not be exercisable, if the Trust deed specifically
requires a specific number or more of trustees to execute the authority provided for in
the trust, and after the death or disclaimer, such specific number is not satisfied.

Conclusion

It is said that the relation of Trust is like a glass. Once broken, it is never the
same as before. By a prima facie observation of the Indian Trust Act, it can be seen
that apart from the legal aspects, the duties and powers provided in the Act intend to
preserve the delicate relation of trust, so that the trust may be kept, and the intention

The notes provided here is for educational purpose only and fair use is permitted by
copyright statute.
 Mr. Sajid Rahman B.Com, LL.M. (Corporate & Commercial Law)

with which the trust is formed may be fulfilled. Therefore, here we may conclude with
the duties and powers of a Trustee as provided for in the Indian Trust Act, 1882.

The notes provided here is for educational purpose only and fair use is permitted by
copyright statute.