TRUST AS A FORM OF CONTRACT IN INDIA

1. INTRODUCTION

Albeit a considerable number of individuals are doubtful of trust in business, a component of

trust must exist in order for contracts to be signed and business deals made. In any case, it is by
and large idea that bygone times of an arrangement fixed with a handshake does not exist
anymore. Under Indian law Trusts have a legal premise, to be specific the Indian Trusts Act,
1882. Sec-7 of the Indian Trusts Act, 1882 states that a trust might be made by each individual
capable to contract. Furthermore, this competency has been characterized under Section 11 in
The Indian Contract Act, 1872 which states:

“Every person is competent to contract who is of the age of majority according to the law to
which he is subject,1 and who is of sound mind and is not disqualified from contracting by any
law to which he is subject.”1

But where the trust is created on behalf of minor, permission from civil court jurisdiction should
be obtained first. A trust may emerge out of an agreement. A contract between two people to
assist a third individual makes a trust for the third individual if the agreement is simply not close
to home just, but rather includes some particular property or cash. Notwithstanding, a trust may
emerge, by contract, will, endowment, inheritance, and so forth An agreement and trust are two
unique ideas. There are certain points on which they go apart under the trust laws in India2

 A contract can emerge just out of an agreement. An arrangement isn't vital for the
production of a trust under the trust laws in India. A trust may shape part of a legally
binding contractual arrangement. For instance in a running business was moved under an
arrangement which accommodated ordinary installments out of profits for the transferors
spouse. This was held to comprise a trust arrangement for the wife.
 A contract is an arrangement between the an arrangement in particular. One can sue the
other and the other way around however not third individual can sue them for the breach of
the contract, regardless of whether the agreement was obviously made for the benefit of that
third person. Where a substantial trust emerges, the individual for whose advantage it is
made has a full right to enforce the equivalent regardless of whether he was not involved
with the exchange which achieved the making of the trust.

This article will discuss the Indian Position and Current Scenario of Trust Laws in India. In an
attempt this extract will answer questions like what is the Purpose of Creating trust, who may be
trustee, what are kinds of Trusts, what are the requirements for starting Public Trust, what are the
liabilities of trustee and their rights and owners. After discussing the Current scenario and some
issues the article will conclude with some suggestions and the road ahead.
1
The Indian Contract Act, Sec. 11 (1872)
2
Team Legal Helpline India, Trust Laws in India, December 26, 2014
https://www.legalhelplineindia.com/trust-laws-in-india/
2. HISTORY OF TRUST LAWS IN INDIA

Transplantation and Transmission of trust law into British India occurred in late nineteenth
Century. English India had a rich embroidery of trusts and trust-like gadgets, the guidelines of
which created an intricate group of law. With the annulment of East India Company's exchange
strategy 1813, the inundation of European entrepreneur expanded into India which prompted the
development of the utilization of private and beneficent trusts among them. These appeared as
English trusts and were controlled by the English law. There were likewise a few 'trust-like'
gadgets utilized by the local populace for various purposes, for example, Islamic waqf, benami
exchanges and so forth These worked in the public arena without impedance from the frontier
courts. Yet, sometimes, the disputants decided to contest in those courts which made it important
for Anglo-Indian appointed authorities to defy the local trust-like' gadgets. The courts didn't
meddle with them and applied the main local law. Questions were either chosen as per Hindu
and Islamic law or based on 'equity, value and great still, small voice.' But the appointed
authorities moved toward them through the viewpoint of Anglicized ideas and utilized their own
jargon. This delivered etymological and reasonable mutilation, however it likewise welcomed
the importation of English standards in regard of local 'trust-like' gadgets and all the more
comprehensively. The legal treatment of Islamic waqf changed its application in general in later
purpose of time and same is with Hindu benami exchanges which engrafted English ideas. There
were likewise endeavors by locals to settle their property based on English-structure private
trusts which varied from local 'trust-like' gadgets. This was most as often as possible done in a
will.

In Krishnaramani Dasi v. Ananda Krishna Bose 3, Markby J held that a Hindu could not create a
trust by will or otherwise. He believed that similar realities emerged in England; it would have
been a straightforward instance of giving the legitimate home to a trustee and the evenhanded
enthusiasm of the family. Be that as it may, the very establishment of the English trust, for
example the duality of the bequest, didn't exist in Hindu Law and was along these lines not open
to a Hindu to build up. By and by, the allure court before long flagged a change obviously. In
Krishnaramani Dasi v Ananda Krishna Bose, Macpherson J expressed that there isn't anything in
Hindu law which is conflicting with trust as these are not obscure to Hindu Law and has been
perceived and directed for a century by English courts, consequently they will undoubtedly
perceive trusts and to offer impact to them. Therefore, after scarcely any decisions, it was
insisted that a Hindu could make a trust to complete his legitimate aims. In this way, Anglo-
Indian courts facilitated the use of trusts by natives.4

3
Krishnaramani Dasi v. Ananda Krishna Bose 4 B.L.R. O.C. 279 ( 1869)
4
Shiren Panjolia, History of Trust Laws in India , November 11, 2017
https://shirenpanjolia.wordpress.com/2017/11/11/history-of-trust-law-in-india/
The gathering of English-based trust law in India was not only the aftereffect of legitimate
estimating; the locals in the public eye were endeavoring to convey their property among their
families by making trusts of an Anglicized structure in their wills, the training which was
replicated from Europeans. The cycle of gathering had a philosophical measurement. For certain
appointed authorities like Markby J, the presentation of English-trust type trusts and trust law
among locals should be opposed in light of the fact that it would truly, be an infringement of the
frequently proclaimed goal of the Legislature, which was to protect the locals' very own laws.

3. TRUST LAWS IN INDIA

According to section 3 of Indian Trust Act 1882: “A Trust is an obligation annexed to the
ownership of the 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.”

Trust is made for release of the charitable and/or religious sentiments of the author of settlor of
the trust, in a way that guarantees public advantage; For claiming exception from Income tax , in
regard of livelihoods applied to magnanimous or strict purposes; For the government assistance
of the individuals from the family and additionally different family members, who are reliant on
the settlor of the trust; For the best possible administration and protection of a property. For
regulating the affairs of a provident fund, superannuation fund or gratuity fund or any other fund
constituted by a person for the welfare of its employees.5

According to Section 7 of the Indian Trusts Act, a trust might be made by each person competent
to contract and by or on behalf a minor, with the permission of a principal court of original jurisdiction.
Following are qualified to make a Trust . Yet, there are sure components to be satisfied Under
Sec. 6 of the Act how the creator could make the trust, assign trustees and give them his money
assign trustees assign trustees assign trustees. It might be express or suggested. 6

 Intention of the author to create the trust.

 Purpose of the trust.
 The monetary asset is assigned for the benefit of the trustee.
 Gives control or transfer the trust property to the trustee which includes intention of
the author.
 Trustee can claim expenses & salary from the benefits from the trust of his work.

5
Umesh Olekar, Trust - Creation of trust as per Indian law, September 16, 2020
http://www.legalserviceindia.com/legal/author-7517-umesh.html
6
Sushant Singh Chauhan, How is a trust managed under Indian law, September 11, 2017
https://blog.ipleaders.in/trust-law india/#:~:text=SECTION%207%E2%80%93%20Competent%20to
%20contract,jurisdiction%20should%20be%20obtained%20first.
The requirement of the trust law is that the author should indicate by words or conduct with the
reasonable intention to create a trust. For example: A property transfer within the same family no
valid trust will arise because the beneficiary of the trust is not indicated with certainty similarly if
the transferee distributed the property amongst the member of same family, as he should think
most deserving, here there is also no valid trust because there should be no certainty about
beneficiaries but where a person transfer is property and his assets to another person for payment
of his creditor. This is not trust but a transfer on a condition mentioned under a trust law in India.

There are different kinds of trust which are discussed below-

 Express trust– If the trust was created verbally, in written or in expressed term and a
person is being nominated to be the trustee of the trust it would amount to express trust. If
the property is moveable then firstly it should be registered & have to physically transferred
to the trustee.

 Implied trust– An implied trust is also created by an act of the parties. It appears from the
conduct of the parties.The conduct of the party creates presumption & also shows the
intention of the parties.

 Public & private trust– A public trust under the trust law in India is one which is created
for the benefit of the public. In general Public doesn’t mean public as whole. The trust may
be created for a part of public & it will be valid trust so long as every member of particular
class is permitted to enjoy the benefit of the trust. Examples of general public purpose are-
medical, health, social service, education, training etc. Private trust is basically is made for a
specified person so that no one left the one can draw the benefit. Such a trust is enforceable
at the private action of intended beneficiary.

 Secret Trust– Where neither the existence of trust nor its terms are disclosed, it is called
secret trust. In case the existence of trust is disclosed but its terms are not disclosed it is a
half secret. This is a misuse of concept trust.

There are certain duties and liabilities of Trustees 7

Duties -Section 11 of the trust laws in India requires the trustee to fulfill the purpose of the
trust. In carrying out the purpose of the trust the trustee has to follow the directions of the author
given at the time of the creation of the trust. This section requires the trustee to inform himself

7
Medha Srivastava and Akshit Kapoor, India: Trusts, 19 December 2019
https://www.mondaq.com/india/trusts/876980/trusts
of the state of trust property. As soon as possible, after accepting his office, the trustee is bound
to acquaint himself with the nature and circumstances of trust property the trustee has to assert
his right to the property and to protect the title to the property. For this purposes the trustee has
the power to maintain and defend suits and all other authorities under the trust laws in India.

Every fiduciary is under a duty not to set up jus tertii against his own beneficiary. An agent, for
example, cannot attempt to retain the property of his principal claiming that it is his property.
No bailee can claim as against his bailor that the property under bailment belongs to him. Such
persons also cannot claim that the property belongs to a third person. So Section 14 makes it a
duty of the trustee not to set up any claim to the property either for himself or in favour of third
person

Section 20 of the trust laws in India introduces the concept of trust securities. The securities
listed in the section are known as trust securities. Trustees are required to invest only in those
securities and in no others. The section restricts the freedom of trustees in this respect. The
restriction is necessary in the interest of trust property. The restriction can, however, be ruled
out be a direction contained in the instrument of trust. But in the absence of any such direction
the requirements of the section are mandatory.

Liablities- Liabilities of trustees are stated in Sections 23 to 30 of the trust laws in India. They
are as follows:–

 Liability for breach of trust -Where the trustee commit breach of trust, then he is liable
to compensate the beneficiary or the trust property which loss sustained unless the
beneficiary has by fraud induced the trustee to commit the breach. A trustee committing a
breach is not liable to pay in some following cases-

1. When he has actually received interest,

2. Where he may be fairly presumed to have received interest.
3. Where the trustee ought to have received interest.

 No set off against liability -Where a breach of trust in two distinct forms, one causing
loss & the other brings profit, the trustee cannot say that his liability for the loss should
be reduced by set off against it the gain in simple words if breach of trust cause loss the
trustee has to bear. If it brings gains it will go the benefit of trust property.
  The position of co-trustees- The general rule is that a trustee is not liable for the breach
of trust committed by any one of his co-trustees
EXCEPTIONS-

 Section 26 declares where the trustee is liable for the breach of his co-trustees.
 Where he has delivered the trust property of his co-trustee without seeing to its proper
application
 Where he comes to know of a breach of trust committed by his co-trustee or intended to
commit & trustee doesn’t take proper steps to protect the interest of the beneficiary.

4. CURRENT SCENARIO

Trusts today assume a huge function in generally monetary and overall sets of laws and are
perceived under the Hague Convention. In a transition to renew old laws, the administration in a
market boosting activity as of late reported a proposition to revise the Indian Trust Act, 1882
("Act") to allow all trusts to put resources into offers and obligations of recorded organizations.

The legislature has absolved non-occupants and private optional trusts from compulsory
documenting of salary assessment forms electronically. As needs be, it has been concluded that
it won't be required for specialists of non-inhabitants if his or its complete pay surpasses Rs 10
lakh to electronically outfit the arrival of salary of non-occupants for evaluation year 2012-13.
The current e-filing software doesn't acknowledge the arrival of a private optional trust in the
status of a 'singular', it stated, including, e-recording of assessment form in such case isn't
compulsory.8

5. CONCLUSION

From the above focuses examined clearly the state isn't the owner of the regular resources in the
country anyway a trustee who holds watchman relationship with the people. By tolerating this
errand the state is depended upon to be dedicated to the interests of its inhabitants and to deliver
its commitment with the eagerness of the occupants on the most crucial level and remember
them for dynamic cycle concerning the organization of typical resources in the country. The
Indian Trusts Act 1882 courses of action with all the issues related to trusts, trustee and
beneficiaries .According to Sec. 10 of Indian Trusts Act 1882 states that ""Every Person
equipped for holding property might be a trustee; in any case, where the trust includes the

8
R & A Associates, TRUST-AN OVERVIEW December 4, 2012
https://www.rna-cs.com/trust-an-overview-2/
activity of carefulness, he can't execute it except if he is skillful to contract." Thus trustee holds a
guardian position.

Also, as indicated by Section-9 of Indian Trust Act 1886"Every individual equipped for holding
property might be a recipient." Thus a recipient can be a minor, or under a psychological
incapacity (in truth numerous trusts are made explicitly for people with those legitimate
drawbacks). It is additionally conceivable to have trusts for unborn kids, in spite of the fact that
the trusts must vest inside the pertinent unendingness period. In this manner in the wake of
thinking about the thought start to finish it has been clear the anyone prepared for taking physical
responsibility for legitimate title of the property can be a trustee. Also, there is no limitation to
the amount of trustees to hold the circumstance in one trust