SYMBIOSIS INTERNATIONAL DEEMED UNIVERSITY

Rights, Liabilities and Disabilities of a Trustee

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Submitted by

Bhavana.M

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Division...C PRN…17010324014 Class…of 2017-22

SYMBIOSIS LAW SCHOOL, HYDERABAD

In

March, 2019

Under the guidance of

Ms.Shristi Khare,

Asst.Professor, Property law

CERTIFICATE

The project entitled “Rights, Liabilities and Disabilities of a Trustee”

submitted to the Symbiosis Law School, Hyderabad for Media Law as part of Internal
Assessment is based on my original work carried out under the guidance of Ms.Shrishti Khare in
March, 2019. The Research work has not been submitted elsewhere for award of any degree.

The material borrowed from other sources and incorporated in the research paper has been duly
acknowledged.

I understand that I myself would be held responsible and accountable for plagiarism, if any,
detected later on.

Signature of the Candidate Signature of Faculty-in-Charge

Date: Date:
ACKNOWLEDGEMENT

I would like to express my sincere gratitude and indebtedness to Ms.Shrishti Khare for her
enlightening lectures on the subject of Property law. I would also like to express my sincere
gratitude to our teaching staff for guiding me the path towards gaining knowledge.

I would like to thank the Library Staff of Symbiosis Law School, Hyderabad as well for their co-
operation.

I would also like to thank my batch mates and seniors who inspired, helped and guided me in
making this project. I am grateful to some of my seniors/friends namely, Ms.T.Sreenitya for their
incredible guidance and support.

Signature of the Candidate

Date:
LIST OF CASES

 Devakinandan v. Muralidhar 1956 SCR 756

 Travis v Illingworth 1868 WN 206

 Dalim Kumar v Nadarani AIR 1970 Cal 292, 73 Cal WN 877.

 Chadwick v Heatley 2 Coll 137, 63 ER 671

 Sheikh Abdul Kayum vs Mulla Alibai 1963 (3) SCR 623

 Parasuram vs Thirumal ILR 44 MAD 636

 R.B. Seth Jessaram Fatehchand Vs. Om Narain Tankha AIR 1962 All 370

 M. V. Ramasubbier And Others vs Manicka Narasimhachari AIR 1979 SC 671

INTRODUCTION

Black’s law dictionary defines trust as “An equitable or beneficial right or title to land or other
property, held for the beneficiary by another person, in whom resides the legal title or
ownership, recognized and enforced by courts of chancery.”

And it describes a trustee as

“An individual or corporation named by an individual, who sets aside property to be used for the
benefit of another person, to manage the property as provided by the terms of the document that
created the arrangement.”

The law governing trusts in India is the Indian Trusts Act, 1882.The Trusts Act in Sn.3 defines
"Trust" as an “obligation annexed to the ownership of property, and, arising out of 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.”

The main purpose of having a trust is to protect the proprietal interests of the ‘beneficiary’. And
a beneficiary is any person who is the legal owner of the property but who is unable to look after
his own interests by themselves due to not being of legal age, or being of unsound mind, or not
in a position to look after his property.

Features of a trust

There are three features of a trust:

i) The obligation arises out of the ownership of property which becomes vested in a person called
the "trustee"

ii) The obligation arises out of confidence reposed in & accepted by the owner.

iii) The obligation is to use the property also called as ‘trust property’ for the benefit of the
“beneficiary”
Hence, the trustee, the trust property and the beneficiary are the three essentials that constitute a
trust.

Essentials of a trust

The essentials of a valid trust are:

i) The purpose must be lawful (Section 4)

ii) Formalities to transfer the property must be followed (Section 5)

iii) The trust must be created with reasonable certainty(Section 6)

iv) The author of the trust must be competent to contract (Section 7)

v) The beneficiary must have the capacity to hold the property

vi) Trust property must be transferable.

vii) The trustee must accept the trust.

Talking about the first essential:

i) Having a lawful purpose:

A trust may be created for any lawful purpose otherwise the trust is void. Where the objects are
mixed up and one is legal and the other unlawful and the objects are inseparable, the entire trust
is void.

And when can we say the trust is unlawful? When :

i)it is forbidden by law.

ii) it is of such a nature that, if permitted, it would defeat the provision of any law

iii) it is fraudulent.

iv) it involves or implies injury to the person or property of another or

v) if the court considers it as immoral or opposed to public policy

Types of trust

The Supreme Court differentiated between private and public trusts in the case of Devakinandan
v. Muralidhar1.

1. Public trust
 The beneficial interest is vested in an uncertain & changing body of persons either the
public or some portion thereof answering a description.
For example, trusts for deaf & dumb; for sports, Cancer Hospital, establishment of
institutions for general public utility etc. All trusts for charitable trusts are public.
 It is of permanent character once opened, it cannot be terminated; funds cannot be
deviated for any other purpose than the defined objective of it. Period is indefinite.
 In public trust, there is no question of condoning the trustee, they become liable as
per Section 23 of the Trust Act.

2. Private trust
 The beneficiaries are definite and ascertained individuals & can be ascertained
definitely. For example, family trusts for education of children; there is no such
thing as private charitable trust. All such trusts are public.
 Private trust may be for limited period for a limited purpose. It may be modified,
or determined as per the trust deed.
 In private trust, the beneficiary may condone the breach or maladministration by
the Trustees

1
1956 SCR 756
CHAPTER I

RIGHTS OF A TRUSTEE

A trustee not only has duties to protect the interests of the beneficiary, he also has some rights in
this situation. Some of them are detailed below:

1) Right to reimbursement of expenses-

Section 32 of the Indian Trust Act states that ‘ Every trustee may reimburse himself, or pay or
discharge out of the trust property all expenses properly incurred in or about the execution of the
trust, or the realization, preservation or benefit of the trust property or the protection or support
of the beneficiary.’

When a trustee has, by mistake, made an overpayment to the beneficiary, he may reimburse the
trust property out of the beneficiary’s interest. If such interest fails, the trustee is entitled to
recover from the beneficiary personally the amount of such over payment.

Under the provisions of this section, every trustee is entitled to reimburse himself out of the trust
property, or if it fails, to recover from the beneficiary, personally on whose behalf he acted all
expenses properly incurred in the execution of the trust and interest thereon, even where the
appointment has not been regular but the trustees have acted bonafide they are entitled to
reimbursement.2 Under section 32 of the trusts Act which provides that a trustee is entitled to be
reimbursed of the expenses incurred properly by him about the realization, preservation or
benefit of the trust property ot the protection or support of the beneficiary.3

2) Right to indemnify from gainer by breach of trust.

Section 33 of the Indian Trust Act states that ‘A person other than a trustee who has gained an
advantage from the breach of trust must indemnify the trustee to the extent of the amount

2
Travis v Illingworth 1868 WN 206.
3
N. Suryanarayan Iyer, Indian Trusts Act, Prafulla C. Panth(Ed.), 5 th Edn, Newdelhi, Butterworths India, 2001. p.
377
actually received by such person under the breach; and where he is a beneficiary, the trustee has
a charge on his interest for such amount.

Nothing in this section shall be deemed to entitle a trustee to be indemnified who has, in
committing the breach of trust, been guilty of fraud.’

A trustee is undoubtedly liable to the beneficiary for any loss caused to the trust estate by the
breach of trust. But as between the trustees and a third person, who has reaped the benefit of
breach of trust, the loss will be cast upon the person who has gained an advantage by the breach
of trust.

3) Right to apply to Court for opinion in management of the trust property-

Section 34 of The Indian Trusts Act states ‘Any trustee may, without instituting a suit, apply by
petition to a principal Civil Court of original jurisdiction for its opinion advice or direction on
any present questions respecting the management or administration of the trust property other
than questions of detail, difficulty or importance, not proper in the opinion of the court for
summary disposal.

A copy of such petition shall be served upon, and the hearing thereof may be attended by, such
of the persons interested in the application as the Court thinks fit.

The trustee stating in good faith the facts in such petitions and acting upon the opinion, advice or
direction given by the Court shall be deemed, so far as regards his own responsibility, to have
discharged his duties as such trustee in the subject-matter of the application.

The costs of every application under this section shall be in the discretion of the Court to which it
is made.’

This section deals with the summary jurisdiction of the court on an application by a trustee for
the opinion, advice or direction of the court on any question respecting the management or
administration of the trust property. Questions of detail, difficulty or importance which by reason
of their complicated nature would not be fit for summary consideration, have been expressly
excluded. This section contains only enabling provisions and it is not binding in each case to do
so.4

4) Right of settlement of accounts

Section 35 of The Indian Trusts Act states ‘When the duties of a trustee, as such, are completed,
he is entitled to have the accounts of his administration of the trust property examined and
settled; and where nothing is due to the beneficiary under the trust, to an acknowledgement in
writing to that effect.’

As provided under Section 19, a duty is cast upon a trustee to keep clear and accurate accounts of
the trust property and to furnish the beneficiary with full and accurate accounts on being
requested to do so. This section confers upon the trustee a corresponding right, the right to an
acquittance from the beneficiary that his claims have been settled is an essential protection to the
trustee against being called upon to answer questions as regards the administration of the trust by
him at a later time. In order to the trustees from being faced with claims after long lapse of time,
the law gives him on the completion of trusteeship a right to have his accounts settled and to a
receipt from the beneficiary that all claims and demands have been settled.5 A receipt as
acknowledgement of settlement is sufficient acquittance of the trustee.

4
Dalim Kumar v Nadarani AIR 1970 Cal 292, 73 Cal WN 877.
5
Chadwick v Heatley 2 Coll 137, 63 ER 671
CHAPTER II

LIABILITIES OF A TRUSTEE

A trustee is in a special fiduciary position where he is obliged to manage the trust fund bona fide
in the best interests of the beneficiaries. Before accepting such an onerous responsibility the
trustee is under a personal duty to acquaint himself with the powers and liabilities which will be
assumed by accepting the office. He should be certain he wishes and is able to undertake such
responsibilities and he should take legal advice periodically whenever prudent.

Liability for breach of trust

Breach of trust means a breach of any duty imposed on a trustee, by any law for the time being in
force. It includes the violation of any direction given in the trust-deed. The trustee is liable to
make good the loss sustained by the beneficiary or the trust property, due to breach committed
by the trustee.

This is subject to certain exceptions:

 Fraud by beneficiary or notification by him of a breach with full knowledge thereof.

 Trustee is liable to pay interest, in the following:
a. When he has actually received interest, but has not accounted for.

b. where he ought to have received, but has failed to collect,

c. where he causes unreasonable delay in paying to the beneficiary.

d. the rates of interest must be as per the trusts Act. But, he must pay compound interest
if a breach committed by him in not investing in the moneys as per the Trust Act or in not
using in trade or business as required under the trust deed.

No set off

A trustee is not allowed to make a set-off of a loss against a gain he may have made with the use
of trust property.
Not liable to predecessor's default

A trustee is not liable for the defaults committed by his predecessor. He is liable only for his
default or breach of trust.

Not liable for Co-trustee's defaults:

The general rule is that a co-trustee is not liable for the acts of the other trustees. This is subject
to exceptions:

 failing to observe the proper application of trust property, by other trustees, failure to
make enquires duly or
 concealing the breach of failure to take steps to protect the beneficiary's interest.

Hence, the trustee is liable, in these cases for the acts of the co-trustees.

Several Liabilities & Contribution

The trustees are jointly and severally liable for the breaches committed by them. They must
make good the loss. Each trustee has a right contribution from others. However, a trustee who
commits a fraud is barred from instituting a suit for contribution

Trustee not to set up title adverse to beneficiary

As always, the beneficiaries’ interests must be addressed and upheld and the trustee must not in
any way threaten the title of the trust property in a way that negatively affects the beneficiary’s
interests.

Care required from trustee

The standard of care required of trustees in making investments is something that must be fully
understood and adhered to by all trustees. Trustees may be subject to substantial claims from
beneficiaries for loss or damage suffered as a result of acts or omissions on their part. If you
accept appointment as a trustee, the appointment and your duty of care should be treated
seriously. As it is stated in section 15 of the Indian Trusts Act,

“A trustee is bound to deal with the trust-property as carefully as a man of ordinary prudence
would deal with such property if it were his own; and, in the absence of a contract to the
contrary, a trustee so dealing is not responsible for the loss, destruction or deterioration of the
trust-property”

For example, A, trustee of leasehold property, directs the tenant to pay the rents on account of
the trust to a banker, B, then in credit. The rents are accordingly paid to B, and A leaves the
money with B only till wanted. Before the money is drawn out, B becomes insolvent. A, having
had no reason to believe that B was in insolvent circumstances, is not bound to make good the
loss.

Conversion of perishable property

Perishable property means personal property that is in your care, custody or control, that is: e.
Maintained under controlled conditions for its preservation and susceptible to loss or damage if
the controlled conditions change.

In the case of property law, the trust is created for the benefit of several persons in succession,
and in case the trust property is of a wasting nature or is of a future or reversionary interest, the
trustee is bound, unless otherwise mentioned from the instrument of trust, to convert the property
of the beneficiary into a property of a permanent nature and which is of a an immediately
profitable character.

Trustee to prevent waste

The acts of the trustee, because they are generally open to examination by interested parties, are
specifically subject to scrutiny by beneficiaries and others involved with the estate. Allegations
that the trustee is not performing their duties are made by the filing of an objection in court.

Specific grounds must be more substantial than merely making mistakes. A trustee who is not
meeting legal requirements, who is not acting impartially or using reasonable judgment, or who
is willfully ignoring the law, such as by self-dealing (stealing, modifying terms, wasting money,
or otherwise acting inappropriately) may be sued for breach of fiduciary duty.

Since the trust is created in the first place for the purpose of benefitting several persons in
succession of which one of them is in possession of the trust-property, if anyone commits, or
threatens to commit, any act which is destructive or permanently injurious to the trust property
then the trustee is bound by law to take measures to prevent such act.
CHAPTER III

DISABILITIES OF A TRUSTEE

Apart from the various rights that is vested with the trustee, they also have some disabilities
which are associated with them. Chapter V of the Indian Trust Act 1882 deals with the
disabilities of the trustee. These disabilities have been incorporated in various chapters these are
dealt in this chapter.

Trustee cannot Renounce after Delegation

Section 46 of the Indian Trust Act 1882 lays down the provision that a trustee which has
accepted the trust cannot afterwards renounce the trust. A person who has once under taken the
office of the trustee, either by actual or constructive acceptance cannot escape liability by a mere
subsequent renunciation. In the case of Sheikh Abdul Kayum vs Mulla Alibai6 it was held by the
court that the trustee cannot renounce nor delegate their powers in spite of there being a clause in
the deed thet they can appoint new trustee from time to time.

Power to appoint new trustee will not empower the existing trustee to substitute new trustee in
their own place, that is, in the place of old trustee. A trustee acting under the trust which he
knows or subsequently knows that is void or illegal is not bound to surrender the possession of
the property before he can allowed to repudiate by giving evidence to explain away his
admission arising out of his conduct as a so called trustee. There are certain exceptions have
been mentioned in this section when a trustee can renounce the trust, these are

• He can renounce the trust with the permission of the principal civil court of original
jurisdiction

• if the beneficiary is competent to contract, with his consent, or

• by virtue of a special power in the instrument of trust.

6
1963 (3) SCR 623
Bar Against Delegation

Fiduciary duties cannot be made subject to the delegation. A trustee cannot delegate the
performance of acts that he ought personally to perform. An agreement to do so is illegal and
void. He cannot delegate his office or any of his duties either to a co-trustee or to a stranger.

Section 47 of the Act lays down the provision that

“A trustee cannot delegate his office or any of his dudes either to a co-trustee or to a stranger”

Since the trustee is appointed by reason of special confidence reposed upon him, he cannot
delegate his office or any part of his duties to another. In the case of Parasuram vs Thirumal7 it
was helps that power of appointment and dismissal of the hereditary temple servant involved the
exercise of independent discretion and could not be delegated to an agent. There are few
exception to this rule under which this authority can be delegated these are

a) the instrument of trust authorizes the trustee for delegate of trust or

b) Trustee may delegate his office with the consent of all the beneficiaries.
c) the delegation is necessitated by the nature of the business , or
d) The beneficiary, being competent to contract, consents to the delegation.

Disability To Receive Personal Remuneration

A has no right to remuneration of his trouble, skill and loss of time in executing the trust. He is
not entitled to a salary or compensation for the personal trouble. Section 50 of the act lays down
that “In the absence of express directions to the contrary contained in the instrument of trust or
of a contract to the contrary entered into with the beneficiary or the Court at the time of
accepting the trust, a trustee has no right to remuneration for his trouble, skill and loss of time in
executing the trust” Where by position as trustee a person has drew remuneration, he is not
entitled to retain the remuneration received by virtue of the independent bargain with the firm
employing him.

7
ILR 44 MAD 636
There are certain situations when a trustee can receive remuneration these situation are8

 an express provision in the instrument

 a provision in the contract with the beneficiary
 a direction of the court to that effect

Bar Against Use of the Trust Property

Section 51 of the Act lays down the provision that “A trustee may not use or deal with the trust-
property for his own profit or for any other purpose unconnected with the trust.”

Though this section of the Act uses the word “may not” but it should be interpreted as ‘must not’
or ‘shall not’9 voluntary service is the foundation of the underlying all trusteeship and law
preclude all trustee from making an profit from the office of trustee. In the case of R.B. Seth
Jessaram Fatehchand Vs. Om Narain Tankha10. It was held that

The mere fact that money was deposited as a security in not sufficient to come to the conclusion
that it must be treated as trust money. The court will have to look to all the terms of the
agreement if in writing and to the facts and circumstances of the case and to the conduct of the
parties before coming to the conclusion whether a security deposit was impressed with a trust. If
a trust can clearly be spelled out from the terms of the agreement that ends the matter. But if the
trust cannot be spelled out clearly the fact that there was no segregation provided for and the fact
that interest was to be paid would go a long way to show that the deposit was not impressed with
the character of a trust particularly where the person with whom the deposit was made could mix
it with his own money and could use it for himself. In such a case the inference would be that the
relationship between the parties was that of a debtor and creditor.

Thus a person in a fiduciary relation is not entitled to make the profit for himself ar any member
of his family. In another case of M. V. Ramasubbier And Others vs Manicka Narasimhachari 11
it was held that it has in fact been well recognized as an inflexible rule that a person in a

8
[290.122] Halsbury Law of India.
9
[290.123] Halsbury Law of India.
10
AIR 1962 All 370
11
AIR 1979 SC 671
fiduciary position like a trustee is not entitled to make a profit for himself or a member of his
family. It can also not be gainsaid that he is not allowed to put himself in any such position in
which a conflict may arise between his duty and personal interest, and so the control of the
trustee's discretionary power prescribed by section 49 of the Act and the prohibition contained in
section 51 that the trustee may not use or deal with the trust property for his own profit or for any
other purpose unconnected with the trust, and the equally important prohibition in section 52 that
the trustee may not, directly or indirectly, buy the trust property on his own account or as an
agent for a third person, cast a heavy responsibility upon him in the matter of discharge of his
duties as the trustee. It does not require much argument to proceed to the inevitable further
conclusion that the rule prescribed by the aforesaid sections of the Act cannot be evaded by
making a sale in the name of the trustee's partner or son, for that would. In fact and substance,
indirectly benefit the trustee.

Disqualification for Acquiring the Trust Property

Section 52 of the Act lays down that “No trust whose duty it is to sell trust-property, and no
agent employed by such trustee for the purpose of the sale, may, directly or indirectly, buy the
same or any interest therein, on his own account or as agent for a third person”

Any such purchase is automatically voidable at the option of any beneficiary no matter how
honest and fair this purchase may be. A trustee cannot sell his property to the trust I order to
avoid the conflict between the interest and duties of the trustee.

if a trustee desire to purchase the trust property then he first have to discharge himself from th e
trusteeship and even then the transaction may be unimpeachable, it must be clear that I
transaction he is not taking any advantage, which he has acquired during his trusteeship.
Moreover a trustee cannot sell the property to himself jointly with others, or a trustee for himself.
If any trustee mixes his money with the fund of the trust then whole money will be treated as
trust money unless he is able to distinguish that what is his own. Where a trustee wrongfully
mingles his property with that of the trust property and become insolvent, the beneficiary is
entitled to charge upon the trust property which vest in the official assignee.

Bar Against Buying Beneficiary Interest Without Permission

It has been laid down in the section 53 of the Act that no trustee, and no person who has recently
ceased to be a trustee, may, without the permission of a principal Civil Court of original
jurisdiction, buy or become mortgage or lessee of the trust-property or any party thereof; any
such permission shall not be given unless the proposed purchase, mortgage or lease is manifestly
for the advantage of the beneficiary. It further lays down that And no trustee whose duty it is to
buy or to obtain a mortgage of lease of particular property for the beneficiary may buy it, or any
part thereof, or obtain a mortgage or lease of it, or any part thereof, for himself.
No trustee whose duty is to obtain or by a lease of a particular property from the beneficiary may
buy it. Once the trust is accepted, the bar applies. A successor of the trusty who was not the party
to the misappropriation of his predecessor trustee will acquire good title. In case the property is
transferred to the wife of the trustee, the court will seek to be certain, vigilant scrutiny, of the
true nature of such a transaction.
Some exceptions has been laid down that a trustee may acquire from beneficiary who are ‘sui
juris’ an estate in which they are interested provided he makes full disclosure to them of all the
relevant and material information within his knowledge affecting or which might affect the value
and condition of the estate.

Co-Trustee Not To Lend To One of Themselves

Section 54 of the Act says that “A trustee or co-trustee whose duty it is to invest trust-money on
mortgage or personal security must not invest it on a mortgage by, or on the personal security
of, himself or one of his co-trustees”

However it is open to the author of the trust to make provision to the contrary and remove the
disabilities which prevent the trustee from using the property from his own benefit.
CONCLUSION

In the concept of a trust, the trustee becomes the legal owner but the element of legal ownership
is absent in the phenomenon of a security. The trustee although becomes the legal owner of the
trust property, yet he does not become the full owner thereof and cannot sell or otherwise dispose
of the same contrary to the provisions of the trust deed. The trustee no doubt holds the trust
property for the benefit of the beneficiaries, but he does not hold it on their behalf. The
expression ‘on behalf of’ is not synonymous but conveys different meanings. In a trust of land,
the legal estate is in the trustee and the interest of the beneficiary or the cestui que trust is an
interest in the land called equitable interest. Therefore, what vests, in the trustee is only the legal
estate or the legal ownership. The trustee is not the full owner of the property in the real sense of
the term because there is a beneficial interest and the ownership therein carved out in the
property. The legal ownership vesting in the trustee is for the purpose of the trust and the
administration of the provisions of the trust. Because the beneficiary, until the trusts are carried
out, is entitled to deal with the property, the trustee is the person who is empowered to deal with
the same, but can only deal with it in accordance with the provisions of the deed of trust.

It is only for the provident administration of a particular charity that the trustees have the power
to sell the trust properties. Much will depend upon the provisions governing in a particular trust.