Saji Koduvath.
Abstract of this Note:
- No ‘dual ownership’ (as observed by Salmond) in Indian Law of Trusts.
- Beneficiaries have no ‘beneficial ownership’ in Indian Law; trustees have no ‘beneficial interest’ also.
- Trustees and office-bearers of societies are destined to sue or be sued in their ‘personal capacity’ and ‘personal names’.
TRUST – In Law.
Trust is ‘an obligation’, in law. It arises when a property is endowed by its owner for the benefit of another. Trust is created when a trustee is appointed. The trustee administers the property as required by the author. It has to be done by the trustee as if he is the owner of the property.
Trustee Administers as sole ‘owner’ of Trust
The obligation upon the trustee to administer the endowed property, as if he is its owner and as directed by the author, for the benefit of another, is ‘trust’ in law.
The trustee should have been appointed with clear directions for management. The trustee is bound to obey the directions of the author. The mode and modalities of administration of trusts are primarily determined under the terms of the trust (written or otherwise). Lewin on Trusts[1] reads as under:
- “The person who created the trust may mould it in whatever form he pleases.”
Duty of the trustees may be passive or active according to the nature of the trust. With regard to duties of trustees it is stated in ‘Principles of Equity’ by H. A. Smith[2]as under:
- “A trust is a duty seemed in equity to rest on the conscience of a legal owner. This duty may be either passive, such as to allow the beneficial ownership to be enjoyed the some other person, named the cestui que trust, in which case the legal owner is styled a bare trustee; or it may be some active duty, such as to sell, or to administer for the benefit of some other person or persons; such for example are the duties of a trustee in bankruptcy.”[3]
Underhill has defined a simple trust as a trust in which the trustee is a mere repository of the trust property, with no active duties to perform.[4]Trustees are bound by customs and usages. Apart from the enactments applicable, trusts and trustees are also governed under the directions of competent authorities concerned.
Trust Funds Are Vested In Trustees ‘with the personal capacity to sue’
While discussing the ‘person’ and ‘personality’ in depth in ‘English Private Law’,[5] Edited by Professor Peter Birks Qc FBA, Volume I it was observed that the trust funds were vested in trustees with the personal capacity to sue (and to be sued) in their own names in the course of administering the trust business. It is posited as under:
- “(c) Artificial persons: …. English law does not consider a trust estate to possess the capacity to sue or be sued, and requires trust funds to be vested in trustees with the personal capacity to sue (and to be sued) in their own names in the course of administering the trust business, executors and administrators (collectively termed personal representatives) perform a similar function with respect to a deceased persons estate, as do receivers and liquidators when a company goes into receivership or liquidation.”
No ‘Duel Ownership’ in Indian Law; It Differs from English Law
No duel ownership under Common Law of India and as per the definition (Sec. 3) of trust in the Indian Trusts Act, 1882. According to Indian law, the trustee holds the trust property as its legal owner. The properties ‘vest in the trustee’, or he holds the same, for the limited purpose of administration and management (Thiagesar Dharma Vanikam Vs. Comner. IT, Madras: AIR 1964 Mad 483). He has the obligation to use this ownership for the benefit of the beneficiaries (Kansara Abdulrehman Sadruddin Vs. Trustees of the Maniar Jamat: AIR 1968 Guj 184). It is not the legal (or trust) ownership referred to in English law; inasmuch as, in English law, when ‘legal ownership’ is referred, it denotes: ‘legal estate’; one of the ownerships bifurcated from the ‘duel ownership’.
Common Law of India and the Indian Trusts Act do not refer to ‘beneficial ownership’ with the beneficiary; it refers only to ‘interest’ or ‘beneficial interest’ with the beneficiary (See: Ram Bharose Sharma Vs. Mahant Ram Swaroop: 2001 AIR- SCW 4062: Mitar Sain Vs. Data Ram: AIR 1926 All 7; Urshottam Vs. Kanhaiyalal: AIR 1966 Raj 70). In English law, when ‘beneficial interest’ is referred, it denotes: ‘beneficial ownership’ or ‘beneficial estate’; the other bifurcated ownership in the ‘duel ownership’.
A founder can also be a beneficiary of a trust after its dedication. (But, he cannot claim any special right on that stock, unless he reserved the same, positively.) It is observed by the Kerala High Court in Mohammed Basheer Vs. Ahmed Kutty, 2011 (3) Ker L J 767, following the decision of the Privy Council in Chhatra Kumari Vs. Mohan Bikram, AIR 1931 PC 196, and the definition of trust in the Indian Trusts Act, that, ‘unlike English law, in Indian law the owner of the trust property is the trustee, and beneficial interest of course is to be conveyed to the beneficiary’. Under Indian law, beneficiaries have beneficial interest (pertaining to beneficiaries) alone; and it is not‘proprietary interest’ or ‘beneficial interest pertaining to owner’. ‘Beneficial interest pertaining to the owner’ is also dedicated ‘in the trust’ when a trust is established.
Property Vests in Trustee; But No ‘Proprietary Interest’
As pointed out in WO Holdsworth Vs. State of Uttar Pradesh, AIR 1957 SC 887, by our Apex Court the Indian Trusts Act, 1882 declares legal ownership with trustees while defining trust and beneficial interest in Sec. 3. Trust is defined to be an obligation annexed to the ownership of property for the benefit of another, the ‘beneficial interest’ as the beneficiary’s right against the trustee as owner of the trust property.
Sec. 6 of the Indian Trusts Act lays down that transfer of the dedicated property to the trustee is essential for creation of a trust. Inasmuch as the vesting of ownership of trust property with the trustee is under an obligation to manage it for the benefit of the beneficiaries (Sec 3, definition of trust of in the Indian Trusts Act), it can be concluded that the trust properties vest in the (sole) ‘legal ownership’ of the trustees. (Chhatra Kumari Vs. Mohan Bikram: AIR 1931 PC 196; Kansara Abdulrehman Sadruddin Vs. Trustees, Maniar Jamat: AIR 1968 Guj 184. See also: Ramabai Govind Vs. Raghunath Vasudevo: AIR 1952 Bom 106).
Though the Indian Trusts Act, 1882 is basically meant for private trusts, the principles of English Law of Trusts which have been incorporated in the Indian Trusts Act will apply to public trusts also. Those principles will not become untouchable for it is incorporated in the Trusts Act (Sk. Abdul Kayum Vs. Mulla Alibhai: AIR 1963 SC 309; Uttar Pradesh Vs. Bansi Dhar: AIR 1974 SC 1084;Bai Dosabai Vs. Mathurdas Govinddas: AIR 1980 SC 1334).
The legal or trust ownership (Salmond on Jurisprudence: 12th Edition, page 256) of the trust property is ‘vested’ with the trustee, as in English law, in Indian law also. The trustee has no ‘proprietory interest’, inasmuch as the beneficial interest is ‘carved out’, or impressed upon, in the property itself. In dealings with the world at large, the trustee personates or represents as the owner of the property (Govardhandhari Devsthan Vs. Collector of Ahmednagar: AIR 1982 Bom 332). Kapoorchand Rajendra Kumar Jain Vs. Parasnath Digambar: 2000-1 MPJR 199. The Privy Council explained in M. E. Moolla Sons Vs Official Assignee of The High Court of Judicature at Rangoon (AIR 1936 PC 230) that the beneficiary has no interest(proprietary interest) in immovable property because his right was only to call upon the trustees to carry out their trust, or because the distinction between legal and equitable estates did not as such exist in the law of India.
Sec. 10 and 75 of the Indian Trusts Act denotes ‘vesting of property in trustees’. Sec. 10 of the Indian Trust Act, 1882 reads as under:
10. ….. 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.
Sec. 75 of the Indian Trust Act, 1882 reads:
75.Vesting of trust property in new trustees.—Whenever any new trustee is appointed under section 73 or section 74, all the trust property for the time being vested in the surviving or continuing trustees or trustee, or in the legal representative of any trustee, shall become vested in such new trustee, either solely or jointly with the surviving or continuing trustees or trustee, as the case may require.
Trustee Must Exercise on His Own Judgment
A trustee cannot delegate the exercise of powers which he ought to personally perform. Although a trustee may listen to the opinions and wishes of others, he must exercise his own judgment. Thus a trustee for sale of property, cannot leave the whole conduct of the sale to his co-trustees. The reason for this proposition is that the settler has entrusted the trust property and its management to all the trustees, and the beneficiaries are entitled to the benefit of their collective wisdom and experience (Shanti Vijay And Co Vs. Princess Fatima Fouzia AIR 1980 SC 17; Also see: Sk. Abdul Kayum Vs. Mulla Alibhai: AIR 1963 SC 309; Underhill’s Law relating to Trusts and Trustees, 12th Ed., PP. 434, 442-43; Scot on Trusts, Vol. 2, p. 1033).
Fiduciary Capacity of Trustees of Religious Trusts
Because of the fiduciary position, liability of a Shebait or Mutawalli equates trustee. Archakas (Padmanabha Vs. Ramachandra Rao; AIR 1953 Mad 842) are also deemed to be in possession in a fiduciary capacity and as such they could not claim adverse possession.
In Balram Chunnilal Vs. Durgalal Shivnarain, AIR 1968 MP 81, it was found that an appointed pujari, for the purpose of worship and of maintaining the temple, was a servant and he got possession of temple property in a fiduciary capacity and that he was estopped as long as he continued to be in possession in that capacity from asserting his own title. When a servant occupied or came into possession of property belonging to his employer he was nothing more than a licensee or a bailee. In a general sense it was also a trust.
Trustee has to Act Gratuitously
Trustee, under English Law, has to perform his duties gratuitously. No remuneration can be claimed from the trust property or income unless the terms of the trust do not allow it. But that does not mean that the trustee has to meet the expenses from his pocket. He can charge actual expenses from the trust/property.
Indian Trusts Act , 1882 reads as under:
32.Right to reimbursement of expenses.—Every trustee may re-imburse himself, or pay or discharge out of the trust property, all expenses properly incurred in or about the execution of the trust.
36.General authority of trustee.— A trustee may do all acts which are reasonable and proper for the realisation, protection or benefit of the trust property.
44.Power to several trustees of whom one disclaims or dies.—When an authority to deal with the trust property is given to several trustees and one of them disclaims or dies, the authority may be exercised by the continuing trustees.
West and Buhler in Digest of Hindu Law, at page 248, states as under:
“Even when no emoluments are attached to the office of a Shebait, he enjoys some sort of right or interest in the endowed property which has partially at least the characteristics of a proprietary right….. The Shebait’s power to alienate the debutter property is very much limited and can be exercised only when there is a justifying legal necessity or benefit to the Deity; yet he can create derivative tenures in respect of the endowed property, which, even if not supported by legal necessity, cannot be impeached so long as he is alive and remains in office. The Shebait therefore has to some extent the rights of a limited owner.”
West and Buhler in Digest of Hindu Law, at page 248, reads further as under:
“Like the trustee in English law, a Shebait has to act gratuitously and he cannot charge the debutter estate for any remuneration on account of the time and labour he spends over his affairs. The position would certainly be different if there is a provision in the deed of dedication to that effect; or, in the absence of any deed of endowment, there is a usage sanctioning such remuneration to the Shebait. The law is well established that, in the absence of any provision in the deed of dedication or any usage to that effect, a Shebait has no right to take any portion of the income of the debutter estate nor even the surplus that remains after meeting the expenses of the deity. In this income would be included not merely the rents and profits of the debutter property but the offerings which are made to the deity by its devotees.”
Underhill in his treatise Law relating toTrusts and Trusteesunder the caption, Right to Reimbursement and Indemnity, it has been stated as under:
“Trustee is entitled to be reimbursed out of the trust property all expenses which he has properly incurred having regard to the circumstances of each particular case but without interest unless he has paid an interest bearing claim in which case he stands in the shoes of the creditor by subrogation.”
Section 32 of the Indian Trusts Act, 1882 which provides that the trustee is entitled to get reimbursement out of the trust property all expenses properly incurred in relation to the execution of the trust property and for preservation of the trust property is a principle of the English law of Trusts which has been incorporated in the Indian Trusts Act. Therefore such principles in Sec. 32 of the Indian Trusts Act are applied to public trusts also. (Kishore Joo Vs. Guman Behari Joo Deo: AIR 1978 All 1; Bapalal Godadbhai Kothari Vs. Charity Commissioner Gujarat: 1966 GLR 825 )
Trustee not to Benefit
It is the duty of the trustee to administer the trust solely in the interest of the beneficiaries. He is not permitted to place himself in a position where it would be for his own benefit or to violate his duty to the beneficiaries. (Scott on Trusts Vol. II Sec. 170. The leading case on the subject is Kench Vs. Gandford (1726) ;White and Tudor Leading Cases in Equity page 693;Referred to in: Arjan Singh Vs. Deputy Mal Jain ILR 1982- 1 Del 11.)
Indian Trusts Act , 1882 reads as under:
Sec. 50. Trustee may not charge for services.—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.
Indian Trusts Act , 1882 reads as under:
51. Trustee may not use trust property for his own profit.—A trustee may not use or deal with the trust property for his own profit or for any other purpose unconnected with the trust.
Appointment of Trustees Irrevocable
A dedication of property to a trust is irrevocable, and the rules, if any, laid down by the founder at the time of dedication regulating succession to the office of the trustee should also be deemed to be irrevocable unless the power of revocation is reserved by the grantor. The condition relating to the rule of succession of trusteeship forms an integral part of the dedication and formation of trust itself. (Radhika Mohan Nandy v. Amrita Lal Nandy and another: AIR 1947 Cal 301; Virbala K. Kewalram Vs. Ramchandv Lalchandlaws: AIR 1997 Bom 46).
PRINCIPLES OF TRUST ADUMBRATED IN SOCIETIES
If only properties of Societies are ‘not vested in the trustees’, it will be deemed vested in governing body
Though the administrative affairs of the societies are carried on by its governing body, the properties of the same may be vested with (separate) trustees (like ecclesiastical authorities, in case of religious associations). It is obvious that this system of vesting of property in trustees and administration of affairs by governing body is primarily viewed in the So. Regn. Act of 1860 when it refers, in Sec. 5 of the So. Regn. Act, ‘if not vested in trustees, shall be deemed to be vested, for the time being, in the governing body’. Sec. 5 reads as under:
- 5. Property of society how vested:The property, movable and immovable belonging to a society registered under this Act, if not vested in trustees, shall be deemed to be vested, for the time being, in the governing body of such society, and in all proceedings civil and criminal, may be described as the property of the governing body of such society for their proper title.
In Church of North India Vs. Lavajibhai Ratanjibhai[11] it is held that in terms of Section 5 of the Societies Registration Act, the property would vest in the trustees, and that only in the absence of vesting of such properties in the trustees, the same would be deemed to have been vested for the time being in the governing body of such society.[12]
In Pamulapati Buchi Naidu College Committee, Nidubrolu Vs. Govt. of Andhra Pradesh[13] it is observed:
- “If what is vested in the College Committee or its governing body is a right of management simpliciter, there is no question of the members of the society or the members of the governing body being beneficially interested in its property. It necessarily follows that by the fact of appointment of a treasurer, there can be no deprivation of the society of its rights in property. The consequence, which would flow on the appointment of a treasurer by the Government under the provisions of the Charitable Endowments Act, would be that he will take charge of the management of the properties held by the society. There is no divesting of the rights of the society in its properties. As already stated, what all the society is deprived of would be right of management which cannot be equated to any right in the property.”[14]
‘fiduciary relation’ of Trustees
It is definite that our law accepts the ‘wider’ or ‘general’ expression as to ‘trust’, used by the progressive jurists like Salmond and Halsbury; and the same principle is adopted in the So. Regn. Act. The progressive jurists preferred investing principles of trust in the matters of various fiduciary relationships under which one holds property on behalf of, or for the benefit of, others.[6]
Salmond brings-in principles of trust in the affairs of associations. Salmond on Jurisprudence reads:[7]
- “Thirdly, it is expedient that property in which large numbers of persons are interested in common should be vested in trustees.”
It is held by the Supreme Court in RV Sankara Kurup Vs. Leelavathy Nambiar[8] that the property in the hands of the agent was (actually) for the principal; and the agent stood in the fiduciary capacity, as a trustee, for the beneficial interest he had in the property. The petitioner had acted as an agent as a cestui que trust was a trustee and he held the property in trust for the respondent in his fiduciary capacity as an agent or trustee and he had a duty and responsibility to make over the unauthorised profits or benefits he derived while acting as an agent or a trustee and properly account for the same to the principal. Therefore, the High Court was right in its holding that the petitioner was an agent and trustee acted in the fiduciary capacity on behalf of the respondent-plaintiff as General power-of-attorney.
A society itself can be a trustee
A society can be formed for the administration of a trust.[9] If a trust is created for the benefit of a religious society, such trust shall continue to exist and it would not cease to exist by the resolution of the society. Such ‘creation of trust’ is considered by our Apex Court in Vinodkumar M. Malavia Vs. Maganlal Mangaldas Gameti[10] and held:
- “The High Court has rightly observed that: ‘… the trust which has been created as public trust for a specific object and the charitable or the religious nature or for the bonafide of the Society or any such institution managed by such trusts for charitable and religious purpose shall continue to exist in perpetuity and it would not cease to exist by any such process of thinking or deliberation or the Resolution, which does not have any force of law’.”
Suit shall be in the Personal Name of President, Chairman, etc. of a Society
Sec. 6 of the Societies Registration Act, 1860 reads as under:
- 6. Suits by and against societies – Every society registered under this Act may sue or be sued in the name of the president, chairman, or principal secretary, or trustees, as shall be determined by the rules and regulations of the society, and, in default of such determination, in the name of such person as shall be appointed by the governing body for the occasion.
- Provided that it shall be competent for any person having a claim or demand against the society, to sue the president or chairman, or principal secretary or the trustees thereof, if on application to the governing body some other officer or person be not nominated to be the defendant.
From the expression in Sec. 7 of the Societies Registration Act, that ‘proceedings shall be continued in the name of or against the successor of such person’, it is clear that the words in Sec. 6 of the Societies Registration Act, ‘sue or be sued in the name of President, Chairman, or Principal Secretary, or Trustees,’ refers to filing suit by or against the President, Chairman, Principal Secretary or Trustees in their ‘personal name’; and not in their ‘official status’ “as” President, Chairman, Principal Secretary or Trustees.
Our Law Does Not Favour ‘Corporation Sole’
Our law does not favour characterising a ‘Corporation Sole’ as a Juristic Person,[15] except officials such as President of India, District Collectors, Secretaries/Office-Heads of various Departments of Government, Village Officers, etc.
S Govinda Menon Vs. Union of India: AIR 1967 SC 1274
Our Apex Court held in S Govinda Menon Vs. Union of India: AIR 1967 SC 1274 as under:
- “It was also contended by the appellant in this connection that as the Commissioner was made a Corporation sole under s. 80 of the Act as a separate and independent personality, he was not subject to the control of the Government and no disciplinary proceedings ‘Could be initiated against him. We do not think there is any substance in this argument. It is true that the Commissioner has been made a Corporation sole under s. 80 of the Act which states that the Commissioner shall have perpetual succession and a common seal and may sue and be sued in his corporate name. Section 81(1) of the Act provides for the establishment of a Fund called ‘The Madras Hindu Religious and Charitable Endowments Administration Fund’ and further states that the Fund shall vest in the Commissioner. It was argued for the appellant that the corporate entity created by s. 80 of the Act has a separate legal personality. But there is a juristic distinction between a Corporation sole and a Corporation aggregate, and the Corporation sole is not endowed with a separate legal personality as the Corporation aggregate. As Maitland said:
- “If our corporation sole really were an artificial person created by the policy of man we ought to marvel at its incompetence. Unless custom or statute aids it, it cannot (so we are told) own a chattel, not even a chattel real. A different and an equally inelegant device was adopted to provide an owning ‘subject’ for the ornaments of the church and the minister thereof-adopted at the end of the Middle Ages by lawyers who held themselves debarred by the theory of corporations from frankly saying that the body of parishioners is a corporation aggregate. And then, we are also told that in all probability a corporation sole ‘Cannot enter into a contract except with statutory authority or as incidental to an interest in land ………. Be that as it may, the ecclesiastical corporation sole is no juristic person‘; he or it is either natural man or juristic abortion.” (See ‘Selected Essays of’ Maitland” pp. 100 & 103).
- Keeton has also observed as follows
- “It was a device for transmitting real property to a, succession of persons without the necessity for periodic. conveyances. It was never intended that this device should’ be erected into a psychological person with a developed existence of its own In dealing with a corporation sole, the courts have never treated it as a conception similar in essential characteristics to a corporation aggregate. They have restricted its utility to the transmission of real, or exceptionally, by custom, as in Byrd v. Wilford, and now by statute, personal property from one holder of an office, lay or ecclesiastical, to his successor” (See ‘Elementary Principles of Jurisprudence’ by Keeton, 2nd Edn. pp. 155 & 162).”
- We accordingly reject the contention of the appellant that the Commissioner has a separate legal personality as corporation sole under s. 80 of the Act and that he is exempt from disciplinary proceedings for any act or omission committed in his capacity as. Commissioner. In our opinion, the object of the legislature in enacting ss. 80 and 81 of the Act was to constitute a separate Fund and to provide for the vesting of that Fund in the Commissioner as a corporation sole and thereby avoid the necessity of periodic conveyances in the transmission of title to that Fund.”
Sec. 6 Impliedly Bars Filing a Suit in the Name of Society
Our Apex Court has repeatedly[16]made it clear that Sec. 6 of the Societies Registration Act provides that a registered society must sue or be sued through the office bearer or a nominee, as provided in that section. Therefore, it can be concluded that Sec. 6 impliedly bars filing a suit in the name of the society, otherwise than through its President, Secretary or the nominated person (in their personal names).
Conclusion
Both trustees and Governing Bodies of societies are administrators only. They are bound by the trust deed or bye laws, as the case may be. They are in a fiduciary relationship vis-à-vis, the beneficiaries of the trust or the members of the society, and the property placed for their administration. Suits by or against the trusts and societies are to be filed in the (personal) names of the trustees or Governing Body members.
[1] 12th Edn., p.805
[2] 4th Edition, Page 23
[3]Quoted in Arjan Singh Vs. Deputy Mal Jain: ILR 1982-1 Del 11.
[4]Underhill: ‘Law relating to Trusts and Trustees’:13th Edition, Page 23; Quoted in Arjan Singh Vs. Deputy Mal Jain: ILR 1982-1 Del 11
[5] See: Court On Its Own Motion v. Chandigarh Administration: 2020 0 Supreme(P&H) 239
[6] See: Balram Chunnilal Vs. Durgalal Shivnarain: AIR 1968 MP 81.
[7] Salmond on Jurisprudence: 12th Edition, page 257.
[8] AIR 1994 SC 2694
[9] Tata Memorial Hospital Workers Union Vs. Tata Memorial Centre: AIR 2010 SC 2943
[10] 2013 AIR (SCW) 5782: AIR 2013 SC (CIV) 2849; (2013) 15 SCC 394
[11] AIR 2005 SC 2544: 2005 (10) SCC 760.
[12] Quoted in Vinodkumar M Malavia Vs. Maganlal Mangaldas Gameti: 2013 AIR (SCW) 5782: AIR 2013 SC (CIV) 2849; (2013) 15 SCC 394.
[13] AIR 1958 AP 773
[14] Quoted in Chief Controlling Revenue Authority Vs. H Narasimhaiah: AIR 1991 Kar 392.
[15] Samatha Hyderabad Abrasives And Minerals Vs. State of AP: AIR 1997 SC 3297; T.K. Santhanagopala Chettiar Vs. Thimmi M. Seetharama Chettiar 1968-2 Mad LJ 41; S Govinda Menon Vs. Union of India: AIR 1967 SC 1274; S C Sreemanavikraman Raja Vs. Controller of Estate Duty: 1957-2 Mad LJ 226 (Rajagopala Ayyangar, J.).
[16] Board of Trustees, Ayurvedic & Unani Tibia College, Delhi Vs.The State: AIR 1962 SC 458; Illachi Devi Vs. Jain Society Protection of Orphans India AIR 2003 SC 3397; Tata Memorial Hospital Workers Union Vs. Tata Memorial Centre, AIR 2010 SC 2943.
