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RIGHTS AND DISABILITIES OF TRUSTEE SUBMITTED TO - Dr. B. Ravi Narayan Sharma Submitted ByMayuresh Srivastav Roll No. 556 3rd Semester
ACKNOWLEDGEMENT
Writing a project is one of the most significant academic challenges I have ever faced. Though this project has been presented by me but there are many people who remained in veil, who gave their all support and helped me to complete this project. First of all I am very grateful to my subject teacher Dr. B. Ravi Narayan Sharma without the kind support of whom and help the completion of the project was a herculean task for me. He donated his valuable time from his busy time to help me to complete this project and suggested me where and how to collect data. I am very thankful to the librarian who provided me several books on this topic which proved beneficial in completing this project. I acknowledge my friends who gave their valuable and meticulous advice which was very useful and could not be ignored in writing the project. I also ove special thanks to Shaleen for her selfless help which was very useful in preparing the project. MAYURESH SRIVASTAV ROLL NO 556 3RD SEMESTER from
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TABLE OF CONTENT
CHAPTER 1- INTRODUCTION.04 CHAPTER 2- MEANING AND CONCEPT OF TRUST06 WHO CAN CREATE TRUST.07 CHAPTER 3- TRUSTEE..07 WHO CAN BE TRUSTEE08 WHO CAN NOT BE TRUSTEE09 CHAPTER 4- RIGHTS OF THE TRUSTEE..10 CHAPTER 5- DISABILITIES OF THE TRUSTEE..14 CHAPTER 6 CONCLUSION18 BIBLIOGRAPHY20
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CHAPTER 1- INTRODUCTION
As Maitland observes: Of all the exploits of equity the largest and the most important is thw invention and development of the trust. According to him, the trust is an institute of great elasticity and generality; as elastic, as general as contract. The maxim of equity has a strong root not only in the English legal system but also has well laid in the Indian Legal System of ancient time, but the basic fact is that most of the equitable principle followed by the English court of equity have been incorporated in the various enactment of the India. In this row the modern INDIAN TRUST ACT, 1882 is one of the same. Trusts, in general, under Indian law have a statutory basis, namely the Indian Trusts Act, 1882. The modern trust Act of 1882 embodies in a concise form the whole structure of trust built up by the equity court of England. This act is the successor of what were called uses in the English law. With a very few exception, the rule of law in the Indian Trust Act, 1882 are substantially those that were administerd at the time of its enactment by the English court of equity. A trust can be and has been applied as a device for accomplishing many different purposes. 1 The uses of trust go far beyond affecting family settlements. It is frequently employed in business transactions. As pointed out by Professor Issacs, Trusteeship has become a readily available tool for everyday purposes of organisation, financing, risk-shifting, credit operations, settling of disputes, and liquidation of business affairs. By the employment of
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Prafulla Pant, N Suryanarayana Iyers The Indian Trust Act, 5th edition, [New Delhi: Butterworths India, 2001] at p. 4 RIGHTS AND DISABILITIES OF TRUSTEE Page 4
trust it has been possible to devote large sum of money to charitable purposes without the necessity of applying to the Legislature for a charter of incorporation. Through the trust, it is also possible to devote property to the purposes of other unincorporated associations of a social rather than a charitable character.
OBJECTIVES The aims and objective of the project work is to To throw light on the meaning and concept of trust. To create an understanding about the trustee and what are the essentials of creating a trustee.. To study the various right by which the trusty is vested and what are the disabilities faced by the trustees.
RESEARCH METHODOLOGY The research methodology for the project-work is doctrinal i.e., library based research. The researcher has chosen such type of methodology as through it the evaluation of relevant provisions as well as case laws can be done easily and efficiently.
SOURCES OF DATA The sources of data for the project work are secondary sources. Secondary sources include textbooks, articles, case laws, etc.
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Act, 1860, and the Bombay Public Trust Act, 1950 are the relevant legislations for the recognition and enforceability of public trusts. The person who reposes the confidence is called 'author of trust' (testator), the person who accepts the confidence is called 'trustee' and the person for whose benefit the confidence is accepted is 'beneficiary'. The subject matter of trust is called 'trust property' or trustmoney. The beneficial interest or interest of the beneficiary is his right against the trustee as the owner of trust-property. The instrument by which trust is declared is called as instrument of trust.4
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Section 3 Para 2 of the Indian Trust Act, 1882. Supra 1 at p. 193. Page 7
CHAPTER 3- TRUSTEE
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another. Although the strictest sense of the term is the holder of property on behalf of a beneficiary, the more expansive sense encompasses persons who serve, for example, on the Board of Trustees for an institution that operates for the benefit of the general public. A trust can be set up either to benefit particular persons, or for any charitable purposes (but not generally for non-charitable purposes): typical examples are a will trust for the testator's children and family, a pension trust (to confer benefits on employees and their families), and a charitable trust. In all cases, the trustee may be a person or company, whether or not they are a prospective beneficiary. The trustee while having the legal ownership or possession of, or dominion, the subject of the trust is bound to allow the beneficial enjoyment or usufruct of the property to another, who is cestui que trust or the beneficiary. The trustee is destitute of any rights of the beneficial enjoyment of the trust property. There may be a trustee de facto, which refers to the criterion of actual possession and management as the distinguishing feature; a trustee de son tort6, which refers to illegal trusteeship, and a constructive trustee. The Indian Trust Act 1882 uses the term trustee in a restricted and technical sense. Re Lalchand Deomal
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case it was held that where a person sets apart a sum for charity and
invests it with a merchant and the interest paid by the merchant is spend on charity, the merchant is not a trustee in respect of the amount. In English law an infant can be a trustee, but as observed in Lamplugh vs Lamplugh8 From the great inconvenience attending the appointment of an infant as a trustee, there arises a strong presumption wherever property is given to an infant, that he is intended to take not as trustee but beneficiary.
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[290.028], [290.062], Halsbury Law of India. AIR 1925 Sind 259 8 (1709) 1 P. Wms. 111 RIGHTS AND DISABILITIES OF TRUSTEE Page 8
But in recent legislation infants have lost in England law the capacity of being owners at law and so they cannot be invested with legal ownership as trustee. In Indian law an infant may be a trustee provided that there are no active duties to perform involving the exercise of discretion. An alien, not domiciled abroad, may be a trustee, but an alien enemy is incapable to act as trustee because he cannot sue9, for when the equitable and legal estate are equal and co-extensive the former merges in latter. One of several beneficiary may be appointed as trustee10 but it is undesirable since his interest as cestui que trust may conflict with his duties as trustees. WHO MAY BE TRUSTEE
In the case of Kalandar Batcha Saib v Jailani Sahib11 in stating that who may be appointed trustee it was ruled by the Madras High Court that to some extent depends upon the nature of the trust, that is whether it is regarded as hereditary trust or whether the trusteeship of each holder ends with him and fresh appointment by the court or some other competent authority has to be made. A trustee may be competent to hold the legal estate and posses some natural and legal capacity and ability to execute a trust. In India the competency of the trustee is based on the same lines of the principle. A state is a competent trustee in a charitable trust but it has the same obligation as a private citizen when soliciting and obtaining donation for public purpose. Section 10 of the Indian Trust Act 1882 talks about that who may be trustee it lays that every person capable holding property; but, where trust involves the exercise of discretion, he cannot execute it unless he is competent to contract A person may hold a legal estate in a trustee of the estate for himself and other beneficiaries. He may not however, at the same time be sole trustee and sole beneficiary of commensurate legal ad equitable estate in the property. Indian trust Act 1882 does not as such incapacitates a cestui que trust from being a trustee for himself and other but as general rule he is not considered altogether a fit person for the office in order to avoid the conflict between his rights and duties.
Re Sichel Settlement, Sichel vs Sichel (1916) 1 Ch. 358 Head vs Gould (1898) 2 Ch. 250. 11 AIR 1930 Mad 554
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In the case of Mohomed Bibi vs N P Sulaiman Ahmed12 it was ruled out that under muslim law, a donor can be either a trustee and though remaining in actual possession can transfer the legal possession by decaling his possession as done. WHO MAY NOT BE TRUSTEE An infant or a minor who requires a guardianto look after his property is incapable of acing as a trustee as it involves the exercise of discretion, beside this a minor cannot be held liable for the breach of the trust but if he receives any unjust benefit under the trust then h can be asked to restore the benefit. The person who is insolvent is also not competent to be appointed as trustee. A beneficiary or the husband of the beneficiary under the trust will not be appointed as trustee though this appointed may be made by the Court. In exception to this , where a suitable independent perso cannot be found to undertake the office or there are otherspecial circumstances. In that case an under taking has been required from the person appointed that, if he become sole trustee, he will use every Under Indian Trust Act 1882, an insolvent can not appointed as a trustee and must be replaced by a new trustee. Similarly the Act laid down that an insolvent firm cannot be a trustee and must be replaced by a new trustee13
After understanding the concept of the trust tht what is the trust and why it is created who are trustees and what are the various qualifications required to be the trustees. In this chapter all those rights by which the trustee is vested is discussed. Chapter IV of the Indian Trust Act deals with all those rights which are vested with the trustees.
Right to Possession of the Title DeedSection 31 of the Indian Trust Act 1882 talks about the Right to title deed, it lays down that
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A trustee is entitled to have in his possession the instrument of trust and all the documents of title (if any) relating solely to the trust-property. In this section the word title deed refers to the title of the author of the trust, they are the accessories to the estate itself and ought to pass with the estate.
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consequence of the trustees duty to institute and defend all actions for the protection of the trust property.
Right to Reimbursement of ExpensesSection 32 of the Indian Trust Act 1882 lays down the provision about reimbursement of the expenses incurred by the trustee. It runs as 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. If he pays such expenses out of his own pocket he has a first charge upon the trust-property for such expenses and interest thereon; but such charge (unless the expenses have been incurred with the sanction of a principal Civil Court of original Jurisdiction) shall be enforced only by prohibiting any disposition of the trust-property without previous payment of such expenses and interest. If the trust-property fail, the trustee is entitled to recover from the beneficiary personally on whose behalf he acted, and at whose request, expressed or implied, he made the payment, the amount of such expenses.
A trustee is entitled to be reimbursed the money spend by him on a bona fide litigation believed to be in the interest of the cestui que trust, but a person not really entitled to the office cannot so claim. As the trustee has a charge over the both on the capital and on the income of the trust property in priority to the claim of beneficiary and the person claiming under him. If in case he has made the breach then in that case he cannot recover unless good s made to that breach A de facto trustee is allowed to recover the expenses incurred in making the improvements in the trust property, as in a constructive property.
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A trustee has a right to recover his expenses incurred from the trust property for money expended by him in its preservation and a person who on his request advances certain money for its preservation obtains a similar right by subrogation. Thus if a trustee has no trust fund for paying the premium, he has a charge on the policy and applies his own money for keeping up the policy, he has charged on the policy for the amount advanced by him for the purpose of keeping it on foot. Right to be recouped for erroneous over-payment. -Where a trustee has by mistake made an over-payment to the beneficiary, he may reimburse the trust-property out of the beneficiarys interest. If such interest fails, the trustee is entitled to recover from the beneficiary personally the amount of such over-payment. Over-payment made by the trustee to the beneficiary is also treated like expenses incurred in execution of the trust and the trustee is entitled to recover it. The term overpayment means in excess of and does not include wrongful payment or any payment made due to the improper exercise of the discretion. Section 33 of the Act further ratifies that if any person, other than the trustee, has received any advantages from a breach of trust must indemnify the trustee to the extent of the actually received by such person due to the breach. If the trustee is guilty of the fraud then he loses his right to be indemnified. In the case of 15 it war pinted out that the right of trustee to recouped out of the interest of the beneficiaries is entitled to rank in priority to the claims of the general body of the creditors.
Right To Apply To Courts For AdviceSection 34 of the Indian Trust Act, runs as follows 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.
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The trustee stating in good faith the facts in such petition 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 duty 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 particularly focus upon the trustee right to apply to the court for advice. A trustee can apply to the court to give its opinion in the management of the trust. Any trustee may, without instituting the suit , apply by petition to a principal civil court for its opinion or advice. Trustee can also seek advice on any present question respecting the management or administration of the trust property other than question of detail, difficulty which is not for summary disposal in the courts opinion. In the case of Official Trustee, west Bengal vs Sachindra Nath Chatterjee16 it was held that Under this provision the court could have only given "opinion, advice or direction on any presented question respecting the management or administration of the trust property" and not on any other matters. The relief prayed for by the settlor did not relate to the management or administration of the trust property but on the other hand it asked for authority to alter the quantum of interest given to each of the beneficiaries B by a deed inter vivos. The jurisdiction conferred on the court under Section 34 is a limited jurisdiction. Under that provision, the court has not been conferred with overall jurisdiction in matters arising under a Trust deed. The statute has prescribed what the court can do and inferentially what it cannot do. From the fact that the court has been conferred power to grant only certain reliefs it follows as a matter of law that the court has been prohibited from granting any other relief. The jurisdiction of the court is circumscribed by the provisions of Section 34 of the Trusts Act. The court had no jurisdiction to pronounce on the pleas put forward by the settlor. From the facts stated in the petition and from the relief asked for, it was obvious that the case did not come within the scope of Section 34 of the Trust Act. Therefore when the learned judge granted the relief asked for, he did something which he was not competent to do under s. 34 of the Trusts Act. The jurisdiction given by the court id of delicate nature and must be exercised with the great care and diligence. The court cannot direct a co-trustee to pay certain sum of money to
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another co-trustee to defend a suit relating to the trust property. Although it can direct the trustee to advance money to himself to raise loan for the security of the trust property. The court is competent to answer question and pass sanction with respects to the question of details and difficulties concerning the administration in a regular suit.
Right to Settlement of AccountsSection 35 of the Indian Trust Act 1882 runs as follows 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. This section provides that where the duties of a trustee are complete, 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, acknowledgement to that effect should be given to the trustee. Where the beneficiary has settled his shares of the trust property, the trustee is entitled to have a release from him. A trustee is bound to handover the trust property to the beneficiary, but he cannot insist on his giving him a release of all the claims under the trust. In a suit by the cestui que trust for account, the court can pass decree in favour of the trustee if the balance is in his favour.
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.
a mere subsequent renunciation. In the case of Sheikh Abdul Kayum vs Mulla Alibai17 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.
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b) trustee may delegate his office with the consent of all the beneficiaries. c) the delegation is necessitatedby the nature of the business , or d) the beneficiary, being competent to contract, consents to the delegation.
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 not20 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 Tankha and Anr. It was held that
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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
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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 21it was held that It has in fact been well recognised as an inflexible rule that a person in a 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.
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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 f the trust property and become insolvent, the beneficiary is entitled to charge upon the trust property which vest in the official assignee.
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Section 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.
CHAPTER 6- CONCUSION
In India, trusts are being increasingly used for succession planning and asset distribution, since they are considered to be one of the preferred modes of managing and passing on the family assets in the most efficient manner. Creating a legal framework for the family assets, bypassing probate process, safe-guarding interests of family members including
maintenance of members with special needs/disabilities, attaching conditions to gifts (be it on attaining a particular age or fulfilment of the settlors wishes) and avoiding family disputes over the property being some of the prime considerations while designing a trust.A trust essentially refers to the confidence which one person reposes in another person to whom he transfers the property with an obligation that the funds so generated there from shall be utilised for the benefit of another. There are many rights which are vested wuth the tustee and also trustee have certain obligations and disabilities which bound him in the ambit so that he cannot mis use his position. A post of trustee is since created by the faith and it involves the fiduciary relation he must take all reasonable care and due diligence to exercise his powers and position. He vested with the certain rights which are 1- right to title deed 2- Right to reimbursement of expenses 3- Right to indemnity from gainer by breach of trust 4- Right to apply to Court for opinion in management of trust-property 5- Right to settlement of accounts With tis right certain disabilities is also imposed upon the trustee which are as1- Not to renounce the trust after acceptance 2- Not to dekegate the authority 3- No charge for the services
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4- No trabsaction of the beneficiary property 5- Not tomuse the trust property for personal benefit
BIBLIOGRAPHY
1. Halsburys Laws of India, Volume 29(2) 2000, New Delhi, Butterworths. 2. Garner, Bryan A., Blacks Law Dictionary, 8th edition, 2004, USA, Thomson. 3. P. Ramanatha Aiyars Advanced Law Lexicon, Book 4, 3rd edition, 2005, Nagpur: Wadhwa Nagpur. 4. Pant, Prafulla C, N Suryanarayana Iyer's The Indian Trust Act, 5th edition, New Delhi, Butterworths. 5. Subbarao, Transfer to Property Act, (1994), C. Subbiah Chetty, Madras 6. Mulla, Transfer of Property Act, (1999), Universal, Delhi. 7. Universals Legal Manual, Society and Trust Laws, 4th edition, Universal Publishing Co., New Delhi (2012).
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8. Setalvad, M Atul, Law Of Trusts and Charities, 1st edition, Wadhwa Book Co., Nagpur (2008). 9. V.P Sarthi, G.C.V. SUBBARAOS Law Of Transfer Of Property, Vol I, ALT Publication, Hyderabad, 2008
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