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Indian Law of Trusts Does Not Accept Salmond, as to Dual Ownership

Created: 07 Jul 2024 at 23:29

Saji Koduvath, Advocate, Kottayam.

1. Introduction

Under English law of trusts, there is ‘duel ownership’ over the trust property.

  • First is the ‘legal ownership’. It is vested with trustees.
  • The other is the ‘equitable or beneficial ownership’. It is vested with the beneficiaries.

Indian law on trusts differs from English-Trust-Law on the doctrine of ‘duel ownership’. Because, under Indian law:

  1. Trustee is the ‘sole’ (legal) owner of the trust property.
  2. Beneficiaries do not have ‘beneficial ownership’; they have only ‘beneficial interest’.
  3. Trustees only ‘hold’ the trust property, and it is for mere administration.
  4. Trustees hold the trust property for the ‘benefit of the beneficiaries’; not ‘on their behalf‘.
  5. Since the trustees only ‘hold’ the properties for the beneficiaries, no legal ‘title’ vests with the trustees, though they have legal ‘ownership’.

2. Salmond Propounds doctrine of ‘Duel Ownership’

Under English law, when the author of the trust creates a trust, by the dedication of the endowed property, he transfers the ‘legal ownership’ on the trust-property to the trustees and ‘beneficial ownership’ to the beneficiaries. Salmond on Jurisprudence (12th  Edition, page 256) refers these propositions as under:

  • “A trustee is the legal owner of the property, the actual owner thereof having lost title thereto by the creation of a trust. The equitable ownership in the trust property vests in the beneficiaries. The trust is thus an incident of dual ownership in which the creator of the trust no longer figures.”

3. Doctrine of ‘Duel Ownership’ has no Universal Acceptance.

Doctrine of duel-ownership on trust property is peculiar to English law. It has no universal acceptance.

In The I Congresso Del Partido [(1977) 1 Lloyd’s Rep. 536 ] the Queen’s Bench Division (Admiralty Court) pointed out that the trust-concept ‘involving a dichotomy between legal and equitable ownership is unknown to some, and perhaps most, other jurisdictions’. [Referred to in Owners and Parties Interested in the Vessel M.V. “Dong Do” v. Ramesh Kumar, (2000) 1 Cal LT 367 ].

Definition of trust in the Indian Trusts Act, 1882

Sec. 3 of the Indian Trusts Act, 1882 defines trust as under:

  • “Trust: A ‘trust’ is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner:

From the definition it is clear that ‘Trust’, in law, holds the following conceptions:

  • Trust is ‘an obligation’ upon the trustee.
  • It is to administer the endowed property.
  • The administration must be done by the trustee as if he is the owner.
  • It must be done by him accepting the desire of the author.
  • And, the same must be for the benefit of the beneficiaries.

4. ‘Trustee’ is the Sole ‘Owner’ According to    the Definition of ‘Trust’

From the definition of ‘trust’ in the Indian Trusts Act, 1882 it is clear that the Act does not recognise ‘beneficial ownership’ in the beneficiaries. It recognises ‘ownership in trustee’ alone.

The definition of trust in Sec. 3 can be analysed as under:

(i) A ‘trust’ is an obligation-

  • annexed to the ownership of property (to administer), and
  • (i) arising out of a confidence reposed in (trustee, by the author) and accepted by the owner (that is, trustee, the legal owner), or (ii) declared and accepted by him(that is, trustee),#
    • for the benefit of another, or of another and the owner (that is, trustee, the legal owner).
  • # the obligation that is declared and accepted by the same person. This situation comes-up when the the author himself declares to act as trustee. See notes below under the head: ‘Obligation … Declared And Accepted By Him’.

(ii) Confidence is ‘Reposed’ by the Author

Trust is defined to be an obligation arising out of a confidence ‘reposed in’ (the owner/trustee). When the ‘author of the trust’ is defined, it is stated:

  • “The person who reposes or declares the confidence is called the ‘author of the trust’.”

Therefore, it is definite that the words, ‘confidence reposed in the owner’, denote the confidence that is ‘reposed’ by the author[2] ‘in the owner’.

(iii) The ‘Owner’ in whom  the Confidence is ‘Reposed’, is Trustee

As stated above, it is the author who ‘reposes’ the confidence; and the confidence is ‘reposed in’ the ‘owner‘. Then, who is the ‘owner’?

  • It is trustee.[3] 

The nexus between owner and trustee is clear from the definitions of ‘trust’ and ‘trustee’.

  • When ‘trust’ is defined, it is stated:
    • the confidence is ‘accepted by the owner’;
  • When ‘trustee’ is defined, it is stated:
    • the confidence is ‘accepted by the trustee’.

According to the definition of trust, the ‘obligation’ stands ‘annexed to the ownership’ of the trust-property. Sec. 6 of the Trusts Act makes it clear that ‘a trust is created when the author of the trust transfers the trust property to the trustee’. Therefore, the ‘obligation’ upon the trustee casts a duty upon him to administer the trust-property as (if) he is its ‘owner’.

(iv) The definition of Trust can be explained as under:

A trust is an obligation annexed to the ownership of property,Trust is an obligation (upon trustee[4]) to administer[5] the trust-property as its (legal) owner
and arising out of a confidenceDuty of a Trustee is fiduciary[6] in nature.[7]  It is moral as well as legal.[8]
reposed inConfidence is reposed in Trustee (by the Author[9]).
and accepted by the owner,Trustee,[10] the (legal) owner,[11] must have accepted the confidence (reposed in by the author).
or declared and accepted by himTrustee (when author himself is the trustee[12]) can ‘declare and accept’ the ‘confidence’.
for the benefit of another, or of another and the owner.Author creates trust for the benefit of others. Trustee can be one among the beneficiaries.

5. Indian Law Recognises ‘Legal Ownership‘ on Trustees; Not ‘Title’

The Privy Council, in Chhatra Kumari Vs.  Mohan Bikram (1931),[13] held as under:

  • “The Indian Law does not recognise legal and equitable estates. By that law, therefore, there can be but one owner; and where the property is vested in a trustee, the owner must, their Lordship think, be the trustee. This is the view embodied in the Indian Trusts Act: See Sec. 3, 55, 56, etc. … “[14]

Inasmuch as Indian Law does not recognise legal and equitable estates (‘ownerships’)[15] and trustee alone has ownership (legal ownership), this ‘ownership’ of trustees is not the ‘legal (or trust) ownership’ that is understood in English law.

In English law, when ‘legal ownership’ is referred to, it denotes ‘legal estate’. It is one component the duel-ownership. It confers a ‘title’ upon the trustee. But, in Indian Law, the trust properties ‘vest’ in the trustees for the limited purpose of administration or management; and the trustees only ‘hold’ the properties.[16]

6. Indian Law Does Not Recognise Equitable Ownership (Estate) of Beneficiaries

Similarly, the Indian Trusts Act does not refer to ‘beneficial ownership’; it refers merely to ‘interest’ or ‘beneficial interest’ of the beneficiary[17] It is clear from the following affirmations in the definition of ‘trust’ in Sec. 3 of the Indian Trusts Act, 1882:

  • (i) “A ‘trust’ is an obligation … arising out of a confidence reposed in and accepted by the owner… for the benefit of another….”
  • (ii) “(T)he ‘beneficial interest’…  is his (beneficiary’s) right against the trustee as owner of the trust property.”

In English law, when ‘beneficial interest’ is referred to, it denotes – ‘beneficial ownership’ or ‘beneficial estate’, the second component among the duel ownership.

The courts in India have followed the principles in Trusts Act, as to legal ownership of trustees and beneficial interest of the beneficiaries, in Common Law of Trust; and disfavoured doctrine of ‘duel ownership’.[18]

Thus, under the Law of Trust in India, trustee holds the trust property as its sole (legal) owner, subject to the obligation to use this ownership for the benefit of the beneficiaries.[19]

The legal entitlement of beneficiaries in a trust (that is, beneficial interest) is legibly stated in The Province of Bihar v. FR Hayes,  1946-14 ITR 326 (Patna), by Fazl Ali, CJ (as he then was) while interpreting Bihar Agricultural Income-Tax Act, 1938, referring the definition of trust in the Indian Trusts Act, as under:

  • “The framers of the Act must be assumed to have known the accepted legal meaning of the expression and also known that the term ‘beneficiary’ in law is not generally used with reference to a full legal owner but with reference to a person who has ‘beneficial interest’ in some property which is usually in the possession and control of another person. The distinction between beneficial interest and legal ownership is one of the most notable features of a trust and in my judgment ‘beneficiaries’ referred to in Section 11 are those persons who have merely beneficial interest in a property while the legal ownership of the property vests in a person or persons who hold the property for their benefit.”

7. Trustee Holds ‘For the Benefit Of’; Not ‘On Behalf Of’ the Beneficiaries

The Indian Trusts Act, 1882 repeatedly lays down – trustees are ‘holding’ trust property (Sec. 10, 29 and Chap. IX: Sec. 80 onwards).  It is subject to the obligation to use his ownership ‘for the benefit of’ the beneficiaries.

Sec. 10 of the Indian Trust Act, 1882 reads:

  • 10. 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.

Sec. 29 of the Indian Trust Act, 1882 reads:

  • 29. Liability of trustee where beneficiary’s interest is forfeited to Government.—When the beneficiary’s interest is forfeited or awarded by legal adjudication to the Government, the trustee is bound to hold the trust property to the extent of such interest for the benefit of such person in such manner as the State Government  may direct in this behalf.

In WO Holdsworth  Vs. State of Uttar Pradesh[20]  it is laid down by our Apex Court as under:

  • “23. Whatever be the position in English Law, the Indian Trusts Act, 1882 (2 of 1882) is clear and categoric on this point. … These definitions emphasise that the trustee is the owner of the trust property and the beneficiary only has a right against the trustee as owner of the trust property. The trustee is thus, the legal owner of the trust property and the property vests in him as such. He, no doubt, holds the trust property for the benefit of the beneficiaries but he does not hold it on their behalf. The expressions ‘for the benefit of’ and ‘on behalf of’ are not synonymous with each other. They convey different meanings.”

Our Apex Court observed in Comm. Wealth Tax Vs. Kirpashanker Dayashankar[21] that the trustee holds the trust property ‘on his own right’ and not ‘on behalf of’ someone else though he holds it ‘for the benefit of’ the beneficiaries.

Obligations are casted upon trustees, only to manage the trust property for the benefit of the beneficiaries.[22] It is beyond doubt that the trustee has no ‘proprietary interest’ inasmuch as the beneficial interest is ‘carved out’[23] in the property itself. (It is not a mere ‘right’ similar to ‘right of easement’ for the dominant owner; but, it is an ‘interest’.) In dealings with the world at large, the trustee personates or represents as the owner of the property.[24]

8. View of Salmond Adopted  in Societies Registration Act

While dealing with the chief classes of persons on whose behalf the protection of trusteeship is extended, Salmond on Jurisprudence lays down:[25]

  • “Thirdly, it is expedient that property in which large numbers of persons are interested in common should be vested in trustees.”

This ‘wider’ or ‘general’ principle is accepted in the Societies Registration Act when it refers to ‘trustees’ in Sec. 5. It 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.”

[1]     Chhatra Kumari Vs.  Mohan Bikram: AIR 1931 PC 196; Uma Roy Vs. Mehamala Dey: 1988 2 Cal HN 128. Upendrabhai Shantilal Maniar Vs. Sheth Shri Morarjibhai Dhanjibhai: 2008 3 Guj LH 308; 2008 3 GLR 2324.

[2]     Allahabad    Bank  Vs. IT Commr.: AIR 1953 SC 476; Chikkamuniyappa Reddy Vs. State of Karnataka: ILR 1997  Kar 2460; Dinshaw Rusi Mehta Vs. State of Maharashtra: AIR 2017 SC 1557.

[3]     Khairul Bashar Vs. ThannuLal: AIR1957 All 553; Mysore Spinning and Manufacturing Co Vs. CIT: 1966-61 ITR 572 (Bom); Christopher Karkada VS Church of South India: ILR 2012  Kar 725; Chockalinga Sethurayar Vs. Arumanayakain: AIR  1969 SC 569;       Rajah SagiJanaki Vs. Appururu Bhukta: 1976-2 AndWR 117, 1976-1 APLJ 312;       Special Secy. Govt of WB Vs. State Bank of India: AIR  1989 Cal 40; CIT Vs. K Shyamaraju: 1991-1 KantLJ 233; Chikkamuniyappa Reddy Vs. State of Karnataka: ILR 1997  Kar 2460.

[4]     Sec. 11 of the Trusts Act casts duty on the trustee to execute the trust, by fulfilling ‘the purpose of the trust’, and obeying ‘the directions of the author of the trust’.

[5]     Ramabai Govind Vs. Raghunath Vasudevo: AIR 1952 Bom 106; State Bank of India Vs. Spl. Secretary: 1995-Supp. 4 SCC 30; Bhavna Nalinkant Vs. Commr. Gift Tax: 2002-174 CTR 152,2002-255 ITR 529.

[6]     R P Kapur Vs. Kaushalya Edl Trust: 1982-21 DLT 46: ILR  1982-1Del 801; Gobinda Chandra Ghosh Vs. Abdul Majid: AIR1944  Cal 163.

[7]     Paru Vs. Chiruthai: 1985 KerLJ 480, 1985  KerLT 563: Referred: UN Mitra’s Law of Limitation and Prescription, 9th Edn., Vol. II, at page 1574, Para 66; Bhavna Nalinkant  Vs. Commr Gift Tax: 2002-174 CTR 152: 2002-255 ITR 529; CBSE Vs. Aditya Bandopadhyay: AIR 2011 SCW  4888:  2011-8 SCC 497; Reserve Bank of India Vs. Jayantilal N.  Mistry: AIR 2016 SC 1.

[8]     DinshawRusi Mehta Vs. State of Maharashtra: AIR 2017 SC 1557

[9]     Mysore Spinning Vs. Commr of IT: ITR 1966-61 572 (Bom); Ramdass Trust Vs. Damodardas: 1967 RLW(Raj) 273; Canara Bank Vs. State of Kerala: AIR 1982 Ker 1: ILR 1981-2 Ker 649; R P Kapur Vs. Kaushalya: 1982-21 DLT 46; ILR  1982-1 Del 801; Chikkamuniyappa Reddy Vs. State of Karnataka: ILR 1997  Kar 2460.

[10]   Mysore Spinning Vs. Commr of IT: ITR 1966-61 572 (Bom); R P Kapur Vs. Kaushalya: 1982-21 DLT 46; ILR  1982-1Del 801; Chikkamuniyappa Reddy Vs. State of Karnataka: ILR 1997  Kar 2460; DinshawRusi Mehta Vs. State of Maharashtra: AIR 2017 SC 1557.

[11]   Trustee is the owner.

      Chhatra Kumari Devi Vs. Mohan Bikram   Shah:  AIR 1931 PC 196; WO Holdsworth Vs. The State of Uttar Pradesh: AIR 1957 SC 887; Khairul Bashar Vs. Thannu Lal: AIR1957 All 553; Ramdass Trust Vs. Damodardas: 1967 RLW (Raj) 273; Quoted in: Sagar Sharma Vs. Addl. CIT: 2011-239 CTR 169:  2011-52 DTR 89. Benafasilal Rajgorhia Vs. Central Bank of India: 1971-76 Cal WN 807; Bomi Munchershaw Mistry Vs. Kesharwani Co Op H. Society: 1993 BCR 301; Chikkamuniyappa Reddy Vs. State of Karnataka: ILR 1997  Kar 2460.

[12]   Heeralal  Vs. Firm RatanlalMahavir Prasad:1964 RajLW  33

[13]   AIR 1931 PC 196.

[14]   Quoted in Special Secy. Govt of W B Vs. State Bank of India: AIR 1989 Cal 40; Christopher Karkada Vs. Church of South India: ILR 2012  Kar. 72; Raja Sir Muthiah Chettiar Vs. Commissioner of IT: 1984-38 CTR 76: 1984-17 TAXMAN 142: 1984-148 ITR532: Commissioner of Income Tax Vs. Ganga Properties Ltd: 1970-77 ITR 637; Sardarilal Vs. Shrimati Shakuntla Devi: AIR 1961 P&H 378.

[15]   Chhatra Kumari Vs.  Mohan Bikram: AIR 1931 PC 196.

[16]   Thiagesar Dharma Vanikam Vs. Comner. IT, Madras: AIR 1964   Mad 483

[17]   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.

[18]   Chhatra Kumari Devi Vs. Mohan Bikram Shah:  AIR 1931 PC 196;       WO Holdsworth Vs. The State of Uttar Pradesh: AIR 1957 SC 887; Commissioner of Wealth Tax Vs. Kripashankar: AIR 1971 SC 2463,       Bai Dosabai Vs. Mathuradas: AIR 1980 SC 1334;        Bomi Munchershaw Mistry Vs. Kesharwani Co Op H. Society: 1993-2-BCR-301;       Hem Chandra Vs. Suradham Debya: AIR 1940 P.C. 134;       Ramabai Govind Vs. Raghunath Vasudevo: AIR 1952 Bom 106.       Deoki Nandan  Vs.  Murlidhar:  AIR 1957 SC 133;       Behari Lal Vs. Thakur Radha Ballabhji: AIR 1961 All 73.

[19]   Kansara Abdulrehman Sadruddin Vs. Trustees,  Maniar Jamat: AIR 1968 Guj 184.

[20]   AIR 1957 SC 887; See also: Ramabai Govind Vs. Raghunath Vasudevo: AIR 1952 Bom 106.

[21]   AIR 1971 SC 2463.

[22]   Kansara Abdulrehman Sadruddin Vs. Trustees Maniar: AIR 1968 Guj 184

[23]   Christopher Karkada Vs. Church of South India: ILR 2012  Kar 725; Ramabai Govind Vs. Raghunath Vasudevo: AIR 1952 Bom 106; Special Secy. Govt. of W B Vs. State Bank of India: AIR 1989 Cal 40.

[24]   Govardhandhari Devsthan  Vs. Collector of Ahmednagar: AIR 1982  Bom 332. Kapoorchand Rajendra Kumar Jain Vs. Parasnath Digambar: 2000-1 MPJR 199

[25]   Salmond on Jurisprudence: 12th  Edition, page 257.

Read in this Cluster  (Click on the topic):

Book No, 1 – Civil Procedure Code

Power of attorney

Title, ownership and Possession

Principles and Procedure

Land Laws/ Transfer of Property Act

Evidence Act – General

Contract Act

Easement

Stamp Act

Will

Book No. 2: A Handbook on Constitutional Issues

Book No. 3: Common Law of CLUBS and SOCIETIES in India

Book No. 4: Common Law of TRUSTS in India

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