THE ICFAI UNIVERSITY, DEHRADUN

Assignment on Section 7, 8, 9, 10 of Indian Trust

Act, 1882

Trust, Equity and Fiduciary Relationships

LL311

Submitted By
NAME:- DIVYA PANDEY Submitted To

20FLICDDN02O16 MS. PRIYA CHANANA

BA.LL.B. (Hons.) IIIrd Year

SCHOOL OF LAW
FACULTY OF LAW
ICFAI UNIVERSITY, DEHRADUN

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 TABLE OF CONTENTS:

Page No.
1. Acknowledgement 2
2. Introduction 3
3. Section 7 with illustrations and case laws 4-7
4. Section 8 with illustration and case laws 8
5. Section 9 with illustrations and case laws 8-11
6. Section 10 with illustration and case laws 12-13
7. Conclusion 14

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 ACKNOWLEDGEMENT

From the beginning I would like to thank everyone who was the 'leader' behind this project.
At this point, I would first like to take the opportunity to express my sincere thanks and
gratitude to my course teacher, Miss Priya Chanana Maam,Assistant Professor of Trust,
Equity and Fiduciary Relationships at ICFAI University Dehradun, for providing good
guidance during the many consultations. Her constant support, constant inspiration and
invaluable guidance helped us a lot to carry out the project work successfully.
My thanks also to all those who guided me directly and indirectly in the writing of this thesis.
I also want to thank my classmates for providing valuable feedback on my work that inspired
me to improve the quality of homework.
I sincerely thank my family and friends for their moral support and encouragement. I also
take this opportunity to thank all those people who contribute in their own way but who are
not mentioned.

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 INTRODUCTION

According to the Indian Trusts Act, 1882, a trust is referred to as an obligation that is
annexed to the ownership of property, and it arises out of a confidence reposed and accepted
by the owner for the benefit of another person and owner. It is an acceptance of an obligation
by someone, but against either some kind of property or funds to use it or hold it in order to
gain benefit for the person, for whom the trust is created. The rights and liabilities of the
beneficiary are also dependent on the kind of trust, to some extent – as there are many
different kinds of trusts.

In lay-mans language, we can describe a trust as a three-party fiduciary relationship. In this,

the first party (author of the trust) usually transfers a property (often refers to a sum of
money, but not necessarily) upon the second party (the trustee) for the benefit of the third
party (the beneficiary). A trustee refers to the legal owner of the property. Here, the
beneficiary(s) is referred to as the equitable owner(s) of the property. Therefore, trustees have
a duty to manage the trust with full interest for the benefit of the equitable owners. A regular
accounting of trust income and expenditures also must be provided to the equitable owners,
and trustees have the right to get reimbursed or compensated for any expenses that they
make. A court of jurisdiction can easily remove a trustee who breaches his/her duty towards
the trust and sometimes, some breaches may even be treated as criminal offences. Trustees
will be liable to be charged and tried with reference to such breaches.

Any person who is competent to contract can be a trustee and the trust propert must be
property transferable to the beneficiary.Every person who has the capability of holding the
property may be a beneficiary. This means that even a minor, or a child in its mother’s womb
(en ventre sa mere) may be a beneficiary. Of course, in giving the property to such an unborn
person the rule of perpetuities ( section 14 of Transfer of Property Act )should not be broken.

Anyone with financial ability can become a trustee. However, if the trust involves the
exercise of discretion, he cannot exercise it unless he has legal capacity.

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 SECTION 7 OF INDIAN TRUST ACT

Section 7 of Indian Trust Act ,1882 states ―Who may create trusts.—A trust may be
created—

(a) by every person competent to contracts 1 , and

(b) with the permission of a principal Civil Court of original jurisdiction, by or on behalf of a
minor‖;

but subject in each case to the law for the time being in force as to the circumstances and
extent in and to which the author of the trust may dispose of the trust-property.

EXPLANATION

It means that a trust may be created by a person who is competent to contract that is he
should be of sound mind; he must be a major and he must not have be barred by any law to
contract by or secondly on behalf of a minor, with the permission of the principal civil court
of original jurisdiction subject to applicable law.

However, the circumstances and extent to which the trustee may dispose of the trust property,
and the extent thereof, are subject to applicable law.

Also, the following are eligible to create a Trust.

1.Trust by an Hindu Undivided Family;

2.Trust by a Minor;

3.Trust by a Woman;

4.Association of Persons;

5.Company.

Types of Trusts:
1. Private Trust:

A trust is called a Private Trust when it is constituted for the benefit of one or more
individuals who are, or within a given time may be, definitely ascertained. Private Trusts are
governed by the Indian Trusts Act 1882. A Private Trust may be created inter vivos or by
will.[4]

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ILLUSTRATION:
A transfers certain property to B as a trustee for the benefit of C as a individual.

Pre-requisites for creation of a Private Trust [5]:

Following are essential conditions to bring into being a valid Private Trust [6]:

 The person who creates a trust (settlor) should make an unequivocal declaration
binding on him.
 The objects of the trust must be defined and specified.
 The beneficiaries are specified.
 He must transfer an identifiable property under irrevocable arrangement and totally
divest himself of the ownership and the beneficial enjoyment of the income from the
property.

Unless all the above requisites are fulfilled, a trust cannot be said to have come into

existence.

Classification of Private Trust:

1. Express
2. Implied
3. Constructive

1. Express

A trust is created on expressed terms whether written or verbal a person is nominated

to act as a trustee for that instrument of trust.

IIUSTRATION

When X transfers the land to Y, in trust for D.

2. Implied

Implied trust is assumed or created by the act of construction of law.

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 ILLUSTRATION

Karta of the Hindu Undivided Family.

3. Constructive

Constructive trust is created on the basis of operation of law where legal owner of the
property must hold it on trust for another according to the principle of equity.
Under this operation of law the rights and liabilities created by the party.

ILLUSTRATION

C as a trustee after completion of the specified time renew that trust again and acting
as a trustee on the basis of equity.

CLASSIFICATION OF EXPRESS TRUST:

1. For Value
2. Voluntarily

1. For Value

Where a party get a consideration by the beneficiary to the settlor in order to bring
a trust in existence the resultant trust is one for value.

Illustration

A creates a trust in favour of P if she marries A, marriage being a valuable

consideration.

2. Voluntarily

Whenever the trustee is accepting the trust with a free will without any kind of
pressure or force that is voluntarily trust.

Public Trust
A trust is called as Public Trust when it is constituted wholly or mainly for the benefit of
Public at large, in other words beneficiaries in the Public trust constitute a body which is

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incapable of ascertainment. The Public trusts are essentially charitable or religious trusts and
are governed by the general Law. The provisions of Indian Trusts Act do not apply on Public
Trusts. Like the private trusts, public trusts may be created inter vivos or by will. The Indian
Trusts Act does not apply to public trusts which can be created by general law.

ILLUSTATION
A transfers certain property to B as a trustee for the benefit of Vedanta Temple for the benefit
of people at large.

Pre-requisites for creation of a Public Trust:

There are three certainties required to create a charitable trust are as follows:

 a declaration of trust which is binding on settlor,

 setting apart definite property and the settlor depriving himself of the ownership
thereof,
 a statement of the objects for which the property is thereafter to be held, i.e. the
beneficiaries.

It is essential that the transferor of the property viz the settlor or the author of the trust must
be competent to contract. Similarly, the trustees should also be persons who are competent to
contract. It is also very essential that the trustees should signify their assent for acting as
trustees to make the trust a valid one. When once a valid trust is created and the property is
transferred to the trust, it cannot be revoked, If the trust deed contains any provision for
revocation of the trust, provisions of sections 60 to 63 of the Income-tax Act will come into
play and the income of the trust will be taxed in the hands of the settlor as his personal
income.

CASE LAW:
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C.I.T. v. Hamdard Dawakhana, AIR1960 Punj 219

Three partners of the firm executed a wakf deed dedicating three-fouths of their shares in the
profits o the firm, but it was discovered later on that the property of one of the partners had
vested in the custodian of Enemy Property. It was held that the wakf deed was void to the
extent of his part only, since this part was clearly severable.

1
C.I.T. v. Hamdard Dawakhana, AIR 1960 Punj 219

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 SECTION 8 OF INDIAN TRUST ACT

Section 8 of Indian Trust Act states the subject of trust.—The subject-matter of a trust must
be property transferable to the beneficiary.

It must not be a merely beneficial interest under a subsisting trust.

EXPLANATION
It means that the trust item or the trust property must be a transferable property to the
beneficiary. It must not be merely a beneficial interest in an existing trust.

IILUSTRATION
A transfers a land to B as a trustee for the benefit of C as a beneficiary.

SECTION 9 OF INDIAN TRUST ACT

Section 9 of Indian Trust Act states who may be beneficiary.—Every person capable of
holding property may be a beneficiary.

Disclaimer by beneficiary.—A proposed beneficiary may renounce his interest under the trust
by disclaimer addressed to the trustee, or by setting up, with notice of the trust, a claim
inconsistent therewith.

EXPLANATION
It means that every person who has the capability of holding the property may be a
beneficiary. This means that even a minor, or a child in its mother’s womb (en ventre sa
mere) may be a beneficiary. Of course, in giving the property to such an unborn person the
rule of perpetuities ( section 14 of Transfer of Property Act )should not be broken.

Proposed beneficiaries may waive their interest in the Trust by submitting a disclaimer to the
Trustee or making inconsistent claims upon disclosure of the Trust.

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ILLUSTRATION
A transfers a property to B as a trustee for the benefit of C as a beneficiary.

Beneficiaries
A proposed beneficiary under section 9 of the Indian Trust Act of 1886 may voluntarily
exercise its interest under of the trust by filing a disclaimer with the trustee or making a claim
inconsistent with the notice of the trust. can be abandoned. Confirmed at the time of
establishment of the trust or within the period of the Eternal Rule normally measured in the
life of the person living or procreated at the time the trust was formed. This rule varies from
state to state and is intended to keep property from being tied up in trust for years. Any
individual or entity that can legally acquire and retain ownership of property can be a
beneficiary of a trust. Partnerships and unincorporated bodies can also be beneficiaries.
Foreigners may also be given preferential treatment if not restricted by law.

Who can be termed as Beneficiaries

A class of persons can be named the beneficiary of a trust as long as the class is definite or
definitely ascertainable. If property is left in trust for "children," the class is definite and the
trust is valid. When a trust is designated for ―family," the validity of the trust depends on
whether the court construes the term to mean immediate family in which case the class is
definite or all relations. If the latter is meant, the trust will fail because the class is indefinite.
When an ascertainable class exists, a author may grant the trustee the right to select
beneficiaries from that class. However, a trust created for the benefit of any person selected
by the trustee is not enforceable.

If the author's designation of an individual beneficiary or a class of beneficiaries is so vague

or indefinite that the individual or group cannot be determined with reasonable clarity, the
trust will fail. The beneficiaries of a trust hold their equitable interest as tenants in common
unless the trust instrument provides that they shall hold as joint tenants. For example, three
beneficiaries each own an undivided one-third of the equitable title in the trust property. If
they take as tenants in common, upon their deaths their heirs will inherit their proportionate
shares. If, however, the author specified in the trust document that they are to take as joint
tenants, then upon the death of one, the two beneficiaries will divide his share. Upon the
death of one of the remaining two, the lone survivor will enjoy the complete benefits of the
trust.

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Categories of Trust Beneficiaries
1.There are two basic trusts with respect to the exercise of beneficiary interests. and have
rights to income and capital. In this case, the trustee acts in accordance with the intention of
the beneficiary.

2. A beneficiary of an express trust is a trust to which the trustee is given additional duties
and powers assigned in the trust deed. Express trusts can be intra-vivos trusts created during
the life of the grantor, or testamentary trusts (also known as testaments), which are trusts
created after the death of the grantor(as known as the will trust).

As far as trusts are concerned, there are two main types of beneficiaries.
1. Fixed Beneficiaries who simply have a fxed entitlement to the income and the capital
from the Grantor.
2. Discretionary beneficiaries over whom the trustee has discretion and decision-making
powers with respect to claims.

The Crown

According to the law of England the sovereign may be a cestui que trust, and similarly
in India the Government may be a beneficiary.

Unborn Child

A child in his mother’s womb (en ventre sa mere) may be a beneficiary. Of course, in
giving property to such an unborn person, the rule of perpetuity (sec 14 of Transfer of
Property Act) should not be broken.

Corporation

In England a trust of lands cannot be limited to a corporation without a ―license from

the crown‖.But since the Mortmain Acts do not apply to India , a corporation in India
may be a censui que trust.

Alien

An alien also may be a cestui que trust.

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 Settler and His wife

A trust was created for the benefit of the settler and his wife. Subsequent to the trust
the marriage was dissolved and the wife remarried. It was held in that the wife
forfeited the benefits under the trust.

CASE LAWS:

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S. Darshan Lal v. Dr.R.E.S. Dalliwal (AIR 1952ALL 825)

Many people often believe, in India, that a beneficiary has no rights in a Trust other than just
to wait and see what the trustee’s actions are and what, how the trustee will distribute exactly
to them. However, this is not true as trust beneficiary have certain rights to them provided
under The Trusts Act as well. They have certain rights in relation to the trust. The rights of
the beneficiaries, except for those mentioned in the Act, typically depend on the type of trust,
provisions contained under the trust, type of beneficiary that they hold and it was held that
the beneficiaries also hold certain rights in the trust.

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Darshan Lal v. Dr.R.E.S. Dalliwal(AIR1952 All 825)

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 SECTION 10 OF NDIAN TRUST ACT

Section 10 of Indian Trust act states who may be trustee.- 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.

No one is bound to accept a trust- No one is bound to accept a trust.

Acceptance of trust.- A trust is accepted by any words or acts of the trustee indicating with
reasonable certainty such acceptance.

Disclaimer of trust.- Instead of accepting a trust, the intended trustee may, within a
reasonable period, disclaim it, and such disclaimer shall prevent the trust-property from
vesting in him.
A disclaimer by one of two or more co-trustees vests the trust-property in the other or others,
and makes him or them sole trustee or trustees from the date of the creation of the trust.

EXPLANATION

Anyone with financial ability can become a trustee. However, if the trust involves the
exercise of discretion, he cannot exercise it unless he has legal capacity.
And no one is bound to accept a trust.
The trust is presumed by the words or actions of the trustee which may reasonably indicate
such presumption.
Instead of accepting a trust, the intended trustee may reject it within a reasonable time, and
such waiver prevents the trust property from passing to him. Two or more joint trustees when
one of the parties waives its liability, the trust property is transferred to another person and
the co-trustee becomes the sole trustee from the date of establishment of the trust.

ILLUSTATION

(a) A bequeaths certain property to B and C, his executors, as trustees for D. B and C prove
A’s will. This is in itself an acceptance of the trust, and B and C hold the property in trust for
D.
(b) A transfers certain property to B in trust to sell it and to pay out of the proceeds A’s debts.
B accepts the trust and sells the property. So far as regards B, a trust of the proceeds is
created for A’s creditors.
(c) A bequeaths a lakh of rupees to B upon certain trusts and appoints him his executor. B
severs the lakh from the general assets and appropriates it to the specific purpose. This is an
acceptance of the trust.

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CASE LAWS:

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Satya Kinkar Dutt And Anr. vs Kiron Chandra Sinha And Ors. on , 1954, AIR 1954
Cal 432, 58 CWN 853
The explicit mention by learned Masters of the Rolls of the possibility that a trustee may
remain a trustee even in special circumstances is at least the peculiarity of a trustee to remain
a trustee until appointed. indicates a legal weakness or inability to A new trustee in his place.
The plaintiff, Mr. Lahiri, very impartially argued the case and brought my attention to
Section 10 of the Trust Act. His argument is that bankruptcy practitioners are not in a
position to hold property. It is argued that the ability to hold property is an essential
qualification for a trustee, and if one loses that qualification, it is presumed to have been lost
due to bankruptcy and cannot be said to have been a trustee. This argument requires critical
consideration. From this point of view, Section 10 of the Trust Act can be interpreted to mean
that the resolution of the decision ceases to be the trustee the moment the trustee becomes
insolvent. Debi De, who represents the trustee, said that Article 10 has the proper meaning
that the trustee must first have the capacity to retain the property, but need not continue to
have that capacity. I In other words, he argues that possession capacity refers to the moment
of becoming a trustee, and does not imply the continuation of possession capacity after
becoming a trustee. In view of the views have already taken, he simply stood up for the
general interpretation isn’t necessary to judge just by being there. bankruptcy trustee. If
Section 10 of the Trust Act means that the trustee is immediately disqualified to act as trustee
once the order for determination has been made, such construction is governed by Section 70
of the Trust Act. Articles 71 and 73, and it is argued that from there the trustee may be
appointed in his stead, even after he becomes bankrupt, until he is removed by appointment
of a new trustee. It was held that he can act as a person.

3
Satya Kinkar Dutt And Anr. vs Kiron Chandra Sinha And Ors. on , 1954, AIR 1954 Cal 432, 58 CWN 853

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 CONCLUSION

From the above discussions on the doctrine and various case laws, it is evident that the state
is not the owner of the natural resources in the country but a trustee who holds fiduciary
relationship with the people. By accepting this task the government is expected to be loyal to
the interests of its citizens and to discharge its duty with the interest of the citizens at heart
and involve them in decision-making process concerning the management of natural
resources in the country. The Indian Trusts Act 1882 deals with all the matters related to
trusts, trustee and beneficiaries .According to section 10 of Indian Trusts Act 1882 states that
―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.‖Thus trustee
holds a fiduciary position. And according to Section-9 of Indian Trust Act 1886―Every
person capable of holding property may be a beneficiary.‖Thus a beneficiary can be a minor,
or under a mental disability (in fact many trusts are created specifically for persons with those
legal disadvantages). It is also possible to have trusts for unborn children, although the trusts
must vest within the applicable perpetuity period. Therefore, after careful consideration of
this concept, it becomes clear that anyone who physically owns property or can take legal
title to it can become a trustee. Also, there is no limit to the number of trustees who hold their
positions in the trust. And as per section 7 and 8 of Indian Trust Act 1882 anyone with
financial ability can become a trustee. However, if the trust involves the exercise of
discretion, he cannot exercise it unless he has legal capacity.

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