This Article is written by Kajal Kumari, a Fifth-year law student of Sardar Patel Subharti Institute of Law

What is a Trust?

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

According to the 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 another and owner.

In other words, a trust is an acceptance of an obligation by a person against some property or funds to use it or hold it for the benefit of the person whom the trust is created for.

In England, trustees are appointed invariably by the author of the trust under the instrument. But where necessary they may be appointed by the court.

When a person is appointed as a trustee, he is at liberty either to accept or not to accept the appointment. If he chooses to accept it he becomes bound with the duties annexed to that office.

Generally, the trust deed lays down an elaborated provision for an appointment, as well as discharge of trustees, which is ordinarily followed and there is no difficulty.

It is only when no such provision has been made or the provision is not complete or has become incapable of taking effect, that the question of how to appoint a trustee becomes important.

It also needs to be considered in case of discharge of an old trustee as to what is the effect of that discharge, or even the appointment of new trustees on the trust.

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,

1. The Author of the Trust – The person who creates the Trust.

2. The Trustee – The person who accepts the responsibilities of the Trust.

3. The Beneficiary – The person/persons for whose benefit the Trust is created.

What is the objective of creating a Trust?

A trust is generally created for the benefit of a group of people/persons. For example:[1]

· There exists certain movable and immovable property of an individual. The Individual has children, but the children, for the time being, are unable to maintain such property.

· The father wants to create a mechanism by which the benefits of his property are properly enjoyed by his children as well as the property is maintained. In such a situation, the father may choose to create a Trust for his children. Here, the father would be the Author, a trusted person who the father wants to appoint to deliver the benefits and maintain the property, such person can be the trustee, and the children would be the beneficiaries.

· There is a wealthy senior citizen, who wants to set up an institution for the welfare of the poor and needy. Here, such a person may create a trust for charitable purposes and appoint an appropriate person to be the trustee.

· In such a case, the beneficiaries would be the poor and needy people of the society.

· A Mutual fund is also a Trust, where generally the trustee is an artificial person, i.e. a Company.

· In case of a debenture issue by a Company, under certain conditions provided for under the Companies Act, a debenture trust is required to be formed and a Debenture trustee is required to be appointed.

Ø 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 to him, either expressly or by way of his actions. There can be more than one trustee in a single Trust. A trustee is a firm or a person who holds and administers the assets or properties for the benefit of a third party. A trustee is appointed for several different reasons which may include cases related to bankruptcy, charitable purposes, a trust fund, or retirement or pension plans.

Appointment Of Trustees

Ø Who can be appointed as a Trustee?

As per Section 10 of the Indian Trusts Act, any person who is capable of holding property can be appointed as a trustee. A person is deemed to have the capacity to hold property if such a person is capable of administering the property effectively and efficiently with ordinary prudence. Depending upon the nature of the trust, if the trustee is required to play a passive role without any scope of discretion, a minor may as well be appointed as trustee.[2]

However, where the trust involves the exercise of discretion such as the trustee acquiring the sale of property or its investment, the trustee should be of the age of majority, of sound mind, and should not be disqualified by any law.

A Corporation, a company, or an association of persons, being a ‘person’ may as well be appointed as trustee.

Ø Can an NRI be appointed as a ‘trustee’?

As per Section 10 of the Indian Trusts Act, every person capable of holding property may be a trustee; but, where the trust involves the exercise of discretion, he cannot execute it unless he is competent to contract. In terms of the provisions of Section 6(5) of FEMA 1999[3], a person resident outside India can hold, own, transfer, or invest in Indian currency, security, or any immovable property situated in India, if such currency, security, or property was acquired, held, or owned by such person when he was a resident in India or inherited from a person who was a resident in India.

Although there is no specific bar on the appointment of an NRI as trustee of an Indian trust, certain provisions of the Indian Trusts Act, 1882 create few restrictions on the appointment of an NRI as trustee.

A new trustee may be appointed in case the person is domiciled abroad for more than 6 months continuously. It is considered a personal incapacity to act in trust. Therefore, it did not disable him from office but he would be considered unfit for the office. In such a case the law presumes that a vacancy has occurred and authorizes the appointment of a new trustee in his/her place. The prevailing law is silent on whether he/she is released from his obligations as a trustee by a fact of appointment of the new trustee in his place. Therefore, while it is not a provision that forbids the appointment of an NRI it certainly acts as an impediment to their appointment.

The appointment of a new trustee under the provisions of Section 73 of the Indian Trusts Act, need not be by a registered document. When none of the other retirement provisions is capable of compliance, it is open to the trustee to be absolved from his office by application to the Court.

Section 73 of the Indian Trusts Act, 1882 deals with the appointment of new trustees under certain circumstances, which are as under[4]: -

• if any person appointed as a trustee disclaims;

• if any trustee, either original or substituted: -

  • dies; or

  • is absent from India for a continuous period of six months; or

  • leaves India for residing abroad; of

  • he is declared insolvent; or

  • desires to be discharged from the trust; or

  • refuses to act, or becomes, in the opinion of the Court, unfit or personally incapable of acting in the trust; or

  • accepts an inconsistent trust.

In cases where there is no trustee then the Court provides a trustee for such trusts and executes it. In such cases, the Court acts on the principle “Equity never allows a trust to fail for want of a trustee.” In other words, if a settler or testator has manifested a clear intention to create a trust but has omitted to appoint a trustee, or if the sole trustee nominated by him has declined to act, equity will not allow the trust to fail on that account.

In the case of Mallo vs Welsor, if the settlement is created inter vivos and the trustee appointed disclaims the trust, then the property will revert to the settlor himself, and if he is dead, to his representative, and the settlor, or his personal representatives, must hold the property on the trusts which have been declared with regard to it.

Ø Modes in which trustees appointed

A person is legally appointed trustee who:

• Is originally designated as a trustee by the instrument creating the trust.

• Or he is duly appointed as a trustee under a power for the purpose contained in the instrument.

• Accepts the trust either expressly or by acting in the execution of it.

Ø Who can appoint Trustee

A new trustee may be appointed by-

1. The person who has been nominated for the purpose of appointment and such power is granted by the instrument of trust, if any, or

2. If there be no such person, or no such person is able and willing to act, the author of the trust if he be alive and competent to contract; or

3. The surviving or continuing trustees or legal representative of the last surviving or continuing trustee, or

4. With the consent of the Court, by the retiring trustees, if they all retire simultaneously.

5. With the consent of the court, by the last retiring trusted

Ø Appointment Of Trustees By Court

Section 74 lays down that whenever any such vacancy or disqualification occurs and it is found impracticable to appoint new trustee under Section 73, the beneficiary may without instituting a suit, apply by petition to a principal Civil Court of original jurisdiction for the appointment of a trustee or a new trustee and the court may appoint a trustee or a new trustee accordingly.

Every appointment of a new trustee shall be made by writing under the hand of the person making it on appointment of a new trustee the number of trustees may be increased. If there is any objection from the side of the surviving or continuing trustee, the court should not make it a sole ground of refusal of appointment of a new trustee. It must fully ascertain that the objection is well-founded.

Ø Rule for selecting new trustee

Section 74 of the Indian Trust Act expressly provides that appointing new trustees, the court shall have regard to following:

• The wishes of the author of the trust as expressed in, or to be inferred from the instrument of trust;

• To the wishes of the person (if any) empowered to appoint new trustees;

• The question whether the appointment will promote or impede the execution of the trust;

• To the interest of all the beneficiaries where there is more than one beneficiary.

Application of these rules and principles also has been in vogue as they apply in English cases, as has been made clear by Turner L.J. in the case of Re Tempest.

In Janta Bibi vs Wali Ullah, it was held,[5]

“Section 73 does not entitle a beneficiary to ask for the verdict of the court as to the unfitness of the sitting trustee. It is only when he makes petition under Section 74 that the court gets an opportunity to express its opinion as to the fitness or un fitneses of the trustee.”

Ø Jurisdiction Of the Court

The jurisdiction under this section would be exercised only where other avenues of appointment have failed or have become impracticable. Where it is a matter of doubt whether the statutory power or the express power under the instrument would be applicable, the court would step in to make the appointment.

In the case of Smt. Shanti Devi v. State of Delhi (1982), it was held that Section 73 does not apply to charitable trusts. If the settlor did not appoint a trustee, the court can appoint and enforce it as trust never fails for the want of the trustee.

Ø Effect Of the Appointment of Trustees

According to Section 75, When a trustee is discharged from office and any new trustee is appointed, all the trust property for the time being vested in the surviving or continuing trustee or trustees, or in the legal representative of any trustees, shall become vested in such a new trustee, either solely or jointly with the surviving or continuing trustees, or trustee as the case may require.

Similarly, every new trustee so appointed and every trustee appointed by a court, either before or after passing of this act, shall in all respects have the same powers, authorities and discretions, and shall in all respects act, as if he had originally nominated a trustee by the author of the trust.

However, if the number required by the trust deed is not complete the remaining trustee cannot exercise the right of the execution of the aim of the trust.

RIGHTS OF A TRUSTEE

· Right to title deed [S.31]- The trustee has the right to have possession over the instrument of trust and other documents which are related to the trust property. Although if the beneficiary demands copies of such documents, the trustee needs to provide it to them.[6]

· Right to reimbursement of expenses [S.32]- For the purpose of the execution, preservation, or benefit of the trust property or for the protection and support of the trust beneficiary, the trustee has the right to reimburse or pay himself all the expenses out of the trust property which has incurred to him while carrying out these purposes.

The trustee has the right to first charge upon the trust property for such expenses along with interest, provided that such expenses have incurred with the sanction of a principal Civil Court of original jurisdiction.

Right to recollect over- payment [S.32]- The trustee has the right to reimburse the trust property of the beneficiary’s interest in case if any over-payment is made mistakenly by the trustee to the beneficiary. The trust property on failing to provide for such excess payment, the trustee is entitled to recover the amount personally from the trust beneficiary.

· Right to indemnity from gainer by breach of trust [S.33]- If a person has gained an advantage by committing a breach of trust, then such person must indemnify the trustee with the amount which was received to him by committing the breach. In case if the beneficiary commits the breach, the trustee has the right to charge upon the trust property for such amount.

· Right to opinion from Court for trust property management [S.34]- The trustee has the right to seek opinion, advice, or direction on any matters related to the management or administration of the trust property by filing a petition to a principal Civil Court of original jurisdiction.

· Right to settlement of Accounts [S.35]- The trustee is entitled to have accounts of his administration of the trust property examined and settled and also an acknowledgment in writing that no benefit is due to any beneficiary under the trust after the successful completion of his duties as a trustee.

POWERS OF A TRUSTEE

§ General Authority of Trustee [S.36]- The trustee has the power to perform any acts which may seem reasonable and proper to him of the realization, protection, or benefit of the trust property and to provide protection and support to the trust beneficiary competent to the contract. However, these powers including the powers conferred by the act and the trust deed are subject to: [7]

· any restrictions provided in the trust deed, and

· to the provisions of section 17 of this act.

In addition to these, the trustee cannot lease a trust property exceedingly more than twenty-one years or without reserving the yearly rent that can be obtained provided he has taken proper permission from a principal Civil Court of original jurisdiction.

§ Power to sell [S.37]- Subject to prior charges or not, the provision confers the power to the trustee to sell any trust property together in lots by public auction or by private contracts and either at one time or several times unless otherwise provided by the trust deed.

§ Power to sell under special conditions [S.38]-

1. Power to buy-in and re-sell- The trustee has the power to make any reasonable changes in any conditions of sale or contract for sale. He also has the power to buy-in the property or any part of it at any auction sale and re-sale it by making necessary changes in the contract as he deems fit, provided such changes does not bring any kind of loss on the part of the trust beneficiary.

2. Time allowed to sell trust property- the trustee is conferred with the power to exercise reasonable discretion regarding the time for effecting the sale or purchase

§ Power to Convey [S.39]- The trustee is granted the power to convey or dispose of the property for the purpose of completion of any sale as he may deem fit to be.

§ Power to vary Investments [S.40]- The trustee is entitled to call in for any of the trust property which is invested in any security and invest that property in securities that are mention under Section 20 of the Act. He may also differ in any such investments anytime subject to the condition that no such change of investment shall be made without the consent of the person competent to contract and entitled to receive the income of the trust property for life or for any greater estate at that time.

§ Power to apply for minor’s trust property for their maintenance [S.41]- In case the trustee is holding trust property for a minor, he may pay to the guardians at his own discretion or with the permission of the Principal Civil Court of original jurisdiction apply for or towards the minor’s benefit such as:

• Maintenance, or

• Education or advancement in life, or

• Religious worship, or

• Marriage, or

• Funeral

§ Power to give receipts [S.42]- The provision confers the power to the trustee(s) to give a receipt, without committing any kind of fraud, to the person who is paying, transferring, or delivering any money, securities, or movable properties. After receiving such receipt, the person paying, transferring, or delivering shall be discharged from being accountable for any loss or misapplication.

§ Power to compound [S.43]- The provision confers the power to settle disputes to the trustee. The trustee or the sole trustee (in case of two trustees) is entitled to settle any dispute or matter related to the trust property in the manner they think fit to be unless otherwise provided by the trust deed. The trustee has the power to:

1. Accept any security or composition for any debt or property claimed.

2. Allow payment of debt anytime.

3. Compromise, compound, abandon or even submit to the arbitration or settle any debt, account, claim related to the trust.

4. Execute, give or enter into such agreements, instruments, or arrangements which they deem fit to, subject to the condition that such arrangements being done in good faith shall not bring any kind of loss.

§ Power to several trustees of whom one disclaims or dies [S.44]- In case there are several trustees and any one of them disclaims the trust or dies, the remaining trustees have the power to continue with the authority. However, if the trust deed requires a specific number or more of trustees then the authority cannot be exercised by the remaining trustees.

§ Suspension of trustee’s powers by decree [S.45]- The trustee is not entitled to exercise any of his powers if in case a decree has been passed by the Court for the execution of a trust unless conformity has been provided by such decree, or by the Court’s sanction, or a pending appeal against the decree in the Appellate Court.

Duties/Liabilities of a Trustee

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

· Execution of Trust: 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.

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

· Acquaintance of Trust Property: 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: 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: 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: 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.

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.

· Convert perishable property: 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.

· Be impartial among the beneficiaries: 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 averse 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: 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.

· 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.

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 with which the trust is formed may be fulfilled. The law of appointment of trustees is enshrined under the Indian Trust Act,1882. Appointment of a new trustee plays a vital role in the management of trust deed and trust property. It is the duty of the settlor and the court to appoint eligible trustees capable of performing their duties following the principles laid down within the code. The duties and liabilities of trustees form the foundation of trust law[8]. They ensure that trusts are managed with integrity, with the beneficiaries’ best interests at heart. For a trustee, understanding these responsibilities is crucial for the successful administration of a trust. Given their complex nature, trustees often seek professional advice to navigate the legal landscape, mitigate risks and avoid the potential pitfalls of their role.

REFFERENCES

o Pravin D Kukreja, Duties and Powers of a Trustee (2020) Duties and Powers of a Trustee - iPleaders( visited on 06 September 2024)

o Aishwarya Agrawal, Rights, Duties and Liabilities of Trustees (2024) Rights, Duties and Liabilities of Trustees (lawbhoomi.com) (visited on 07 September 2024)

o Aishwarya sandeep, Appointment and discharge of Trustees (2021) Appointment and discharge of Trustees - Aishwarya Sandeep- Parenting and Law (visited on 09 September 2024)

o The Indian Law, Appointment Of Trustees Under Indian Trust Act (2023) Appointment Of Trustees Under Indian Trust Act - The Indian Law (10 September 2024)

o Deepa Rishi, Rights and Powers of a Trustee – Indian Trusts Act 1882 (2021) Rights and Powers of a Trustee - Indian Trusts Act 1882 | Law column (11 September 2024)

o Vivek kumar Verma, Trustee: Who can be appointed (2014)Trustee: Who can be appointed? – Indian Case Law (13 September 2024)

[1] Pravin D Kukreja, Duties and Powers of a Trustee (2020) Duties and Powers of a Trustee - iPleaders( visited on 06 September 2024)

[2] Vivek Kumar Verma, Trustee: Who can be appointed (2014)Trustee: Who can be appointed? – Indian Case Law (13 September 2024)

[3] The foreign exchange management act, 1999

[4] The Indian Law, Appointment Of Trustees Under Indian Trust Act (2023) Appointment Of Trustees Under Indian Trust Act - The Indian Law (10 September 2024)

[5] The Indian Law, Appointment Of Trustees Under Indian Trust Act (2023) Appointment Of Trustees Under Indian Trust Act - The Indian Law (10 September 2024)

[6] Deepa Rishi, Rights and Powers of a Trustee – Indian Trusts Act 1882 (2021) Rights and Powers of a Trustee - Indian Trusts Act 1882 | Law column (11 September 2024)

[7] Deepa Rishi, Rights and Powers of a Trustee – Indian Trusts Act 1882 (2021) Rights and Powers of a Trustee - Indian Trusts Act 1882 | Law column (11 September 2024)

[8] Aishwarya Agrawal, Rights, Duties and Liabilities of Trustees (2024) Rights, Duties and Liabilities of Trustees (lawbhoomi.com) (visited on 07 September 2024)