RIGHTS AND LIABILITIES OF BENEFICIARY

A project submitted to

ARMY INSTITUTE OF LAW, MOHALI

Under the guidance of

Mr.AMIT KUMAR BHARDWAJ

(Assistance Professor of Law)

In the partial fulfilment of the requirements for the award of Degree of B.A.LL.B.

(5th year) 2023-2024

Law of Equity, Trust and Religious Endownments

Submitted by

INDERJEET KAUR (1976)

PUNJABI UNIVERSITY PATIALA (PUNJAB)

 DECLARATION

I hereby declare that the project work presented in this project entitled, “RIGHTS
AND LIABILITIES OF BENEFICIARY” submitted by me to Army Institute of Law,
Mohali is a record of bonafide project work carried out by me under the guidance of
Mr.Amit Kumar Bhardwaj. All the ideas and references are duly acknowledged.
Date- 27-02-2024
Place-Mohali
Name- Inderjeet Kaur
Roll no. 1976
 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to Mr. Amit Kumar Bhardwaj
who gave me valuable suggestions while doing this project as well as our principal
Dr.Tejinder Kaur who gave me this golden opportunity to do this wonderful project on
the topic “RIGHTS AND LIABILITIES OF BENEFICIARY”, which helped me in
doing a lot of research and I came to know about so many new things. This project has
enhanced my knowledge.
Name- Inderjeet Kaur
Roll no. 1976
Table of Contents

Introduction ................................................................................................................ 1

Definition of Trust ...................................................................................................... 2

Components of a Trust................................................................................................ 4

Who can be beneficiary .............................................................................................. 5

Rights of beneficiary .................................................................................................. 6

Liability of beneficiary for Breach of Trust ............................................................... 12

Rights and liabilities of Beneficiary’s Transferee ...................................................... 12

Conclusion ............................................................................................................... 12
Introduction

“Invention of trust has been ‘a most powerful instrument of social experimentation’.” “The
trust has given us a liberal substitute for a law about personified institutions . . . (and) a
liberal supplement for a necessarily meagre law of corporations.”1

The Common Law in England was deficient in certain matters of natural and universal justice
and particularly in matters of trust and confidence it took no cognizance. Thus the Common
Law being silent on the subject, Courts of Equity, considering the conscience of the party
entrusted, as bound to perform the trust, in order to prevent a total failure of justice, interfered
to compel the performance of it. The Courts of Equity assisted the trustees, whenever they
sought the aid of the courts as to the establishment, management, or execution of the trust.

Regarding the origin of trust, opinions are divided. Some authorities hold that the English
trust is connected with the Roman Fidei Commissum while others hold that it is of
indigenous growth. Maitland maintains that it did not come from outside England but
developed from ancient use.

Maitland supports his thesis by advancing the argument that the Roman terminology fidei
commissum was used in Roman law to express the obligation of the heir to execute the last
wishes of the deceased. In other words, the appointed heir who got property in trust for
another was termed fidei commissum. The expression thus belonged to the land of testament,
whereas the English word “use” had its origin in an agreement, inter vivos, between the
parties as a result of which one person held the property of another for the benefit of a third
person.

In India the law regarding trusts has been incorporated in the Indian Trusts Act, 1882.
Recapitulating succinctly what has been said before regarding the essential characteristics of
a trust in England, we can say that there are two kinds of estates, legal and equitable, of
which two different persons can be the owners and these owners can well transfer their
respective interests to any person or persons. This peculiar position of double ownership is
the distinctive and original feature of an English trust. Justice Peacock and Justice Markby
were of the opinion that no such precise idea as expressed by the English “use” and the

1
C.K. Allen: Law in the Making, pp. 415-416, citing Maitland: Lectures on Equity

1
Roman “fidei commissum” existed or was ever known to Hindu or Muslim law. But
Macpherson, J. opined to the contrary and said that a number of trusts for religious and
charitable purposes were enforced by the courts in India and gift made to an idol
tantamounted to a trust, which was beyond doubt. In Ganendra Mohan Tagore v. Upendra
Mohan Tagore2, it has been clearly expressed by Frier, J. that the double ownership idea was
unknown to Hindu and Mahomedan law but that is not a ground for drawing a baseless
conclusion that trusts were unknown to Hindu and Mahomedan law. On the contrary, the
variety of fiduciary relationship and the meticulous way in which they have been expressed in
Indian law are quite unparalleled.3 This proposition also finds support in his speech by Stokes
on the Trusts Bill in the Legislative Council in the year 1881. Before 1882, trusts under
Hindu law and Mahomedan law were enforced, but in doing so principles of English equity,
justice and good conscience were applied where necessary. It is true that before 1882, no
systematic effort was made to present the law relating to trusts which was scattered in
different provisions in various other enactments. A commission for this purpose was
appointed whose members were Whitley Stokes, .A. Turner and Raymond West, which gave
its report on November 15, 1879 and in 1882 it was passed as an Act called the Indian Trusts
Act, 1882.

Definition of Trust

The word “Trust” in its legal sense has a technical and definite meaning which is very much
different from the sense in which we use the word in our daily parlance. The three
certainities, namely, a person, who is a trustee, property which may be chattel or land or
money or any property tangible or intangible which is called trust property and a person for
whose benefit the property is held. The combination of these three elements must exist,
before we get the relationship of Trustee and Beneficiary. Mere intention to create trust
without a gift of property for the purpose or object would not be trust.

All efforts to produce a logical and satisfactory definition of trust have so far remained
unsuccessful, as has been noted by Snell, Hanbury and others.

The following eminent jurist have attempted to give defination of trust:

2
BLR (OC) 134
3
Ibid

2
LORD COKE

“A confidence reposed in some other, not issuing out of the land but as a thing collateral
thereto, annexed in privity to the estate of the land, and to the person touching the land, for
which cestui que trust has no remedy but by subpoena in the Chancery.”

PROF.KEETON

“A trust is the relationship which arises whenever a person called the trustee is compelled in
equity to hold property for the benefit of some persons or for some object in such a way that
the real benefit of the property accrues not to the trustee but to the beneficiaries or other
objects of the trust”.

STORY

“Trust is an equitable right, title or interest in property, real or personal, distinct from the
legal ownership thereof”.

HALSBURY

“A Trust in the modern and confined sense of the word is a confidence reposed in a person
with respect to property of which he has possession or over which he can exercise a power to
the intent that he may hold the property or exercise the power for the benefit of some other
person or object.”

MAITLAND

“When a person has rights which he is bound to exercise on behalf of another, or for the
accomplishment of some particular purpose , he is said to have those rights in trust for that
other or for that purpose, he is called a trustee”

Hence based on the above definitions, it can be said that a trust is an obligation associated
with the ownership of property that give rise to fiduciary relations in another person for the
benefit of a third person.

3
As per the Section 3 of the Indian Trust Act, 1882, “Trust” is an obligation annexed to the
ownership of property, and, arising out of 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.

The definition given in the Indian Trust Act is perhaps most satisfactory definition.the
objections to this definition are that it only covers private trusts and does not embrace public
trusts. Further, all the private trusts do not come within its purview. The implied, resulting
and constructive trusts are excluded from the coverage of the definition of trust. The range of
definition is limited to private express trust.

Components of a Trust

Under the Indian Trusts Act, 1882, the essential components of a trust include:

 Testator - The person who establishes the trust by transferring property to the trust.
As per Section 7 of the Indian Trust Act, a trust may be created by every person competent to
contract and by or on behalf a minor, with the permission of a principal court of original
jurisdiction.
 Trustee - The person or entity entrusted with managing the trust property for the
benefit of the beneficiaries. Trustees have fiduciary duties to act in the best interests of the
beneficiaries. Trustees are managers because they manage the trust property but all managers
are not trustees.
 Beneficiary - The person or group of people for whose benefit the trust property is
held by the trustee. Beneficiaries can be individuals, charities, or even future generations.
 Trust Property - The assets or property transferred by the settlor to the trust, which
the trustee holds and manages on behalf of the beneficiaries.
 Trust Purpose - The specific purpose for which the trust is created. It could be for
the benefit of certain individuals, such as family members or dependents, or for charitable
purposes.
 Trust Instrument - The written document that establishes the trust, outlines its terms
and conditions, and specifies the rights and obligations of the settlor, trustee, and
beneficiaries.
 Intention - The settlor must have the intention to create a trust. This intention must be
clearly expressed or implied through their actions.

4
 Element of Confidence – the person creating the trust reposes confidence in the
person in whom he vests the property to the intent that it is to be held for the benefit of a third
person.
 Trust Administration - The trustee must administer the trust property according to
the terms of the trust instrument and in accordance with the law. This includes managing,
investing, and distributing the trust assets as per the trust's objectives.

Who can be beneficiary

The person for whose benefit the trust is to be hel by the trustee is called the “beneficiary”.
Snell calls such person as the “beneficial owner of the property and trustee as the nominal
owner.”

According to Section 3 of the Act4, the person for whose benefit th confidence is accepted by
the trustee, is called the 'beneficiary'. In English Lav the person on whose behalf the rights
are to be exercised are called the cestu que trust. While the legal title of the trust property
vests in the trustee, the equitable title vests in the beneficiary. A beneficiary is entitled to
enforce th provisions of the trust. A person may at the same time be trustee and one of the
cestui que trust.

According to Section 95, every person capable of holding the property may be a beneficiary.
Any person or corporation, capable at law or in equity, of taking and holding to any extent
property or an interest in property either by a transaction operating inter vivos or by a
testamentary disposition is to the same extent capable of taking and holding a beneficial
interest as cestui que trust or beneficiary under a trust of that property or interest.

The nature of the rights of the beneficiary in the trust property has been explained by various
writers as follows:

Salmond says that 'a trust is a curious instance of duplicate ownership. Trust property is that
which is owned by two persons at the same time, the relation between the two owners being
such that one of them is under an obligation to use his ownership for the benefit of the other.

4
The Indian Trust Act, 1882
5
Ibid

5
The former is called the “trustee”, and his ownership is trust ownership; the latter is called
“beneficiary” and his ownership is “beneficial ownership”.

Snell says that “the trustee is the 'nominal', while the 'cestui que trust' is the ‘beneficial’
owner of the property”

Story points out that “a trust is an equitable right, title or interest in property, distinct from the
legal ownership thereof”.

Rights of beneficiary

1. Right to Rents and Profit (Section 55)

A beneficiary is entitled to receive the rents and profits of the trust property. This right is
subject to the provisions of the instrument of trust.

2. Right to specific execution (Section 56 para 1)

The beneficiary has the right to have the intention of the author of the trust specifically
executed to the extent of his interest. Thus he can compel the trustee by means of a court
order to carry out the purpose of the trust. Court's direction to trustee under this section would
ordinarily be binding on trustee. Trustee therefore can have recourse to a remedy available
with a superior court.6

3. Right to transfer of possession (Section 56 para 2)

Beneficiary has the right to have the trust property transferred to the beneficiary. If the
beneficiary is competent to contract, he can direct the trustee to transfer the property to
him or to any other person at his choice. If there are more than one beneficiaries, all of
them can jointly demand the property to be transferred to them. Where the trust is for
the benefit of a married woman, so that she shall not have the power to deprive herself of her
beneficial interest, the right to have the property transferred will not be available to her during
the marriage.
For example, securities are transferred to a trustee to accumulate the interest until the
beneficiary attains the age of 24, the beneficiary on attaining that age can have the
securities transferred to him.

6
Nawab Shafath Ali Khan v. Nawab Imdad Jah Bahadur, (2009) 5 SCC 162 : (2009) 2 SCC (Civ) 421

6
4. Right to inspect and take copies of instrument of Trust, Accounts, etc. (Section
57)
The beneficiary has the right to inspect and to take copies of the instrument of trust, the
documents of title relating solely to the trust property, the accounts of the trust property and
the vouchers etc., by which they are supported, and the cases submitted and opinions taken by
the trustee for his guidance in the discharge of his duty.
The legal representative of trustee, co-trustees or agent is not liable to render account of the
estate which was in charge of predecessor. But a suit for recovery of money misappropriated
by a trustee, co-trustee or agent will lie against his legal representatives.

5. Right to transfer beneficial interest (Section 58)

A beneficiary who is competent to contract has a right to transfer his beneficial
interest. This right is, however, subject to the law for the time being in force relating to the
circumstances in and extent to which such rights may be transferred. Where the trust is
for the benefit of a married woman without giving her the right of transfer, she cannot do so
during the period of her married life. The Hon’ble Supreme Court in Canbank Financial
Services Ltd. v. Custodian7 held that a beneficial interest indisputably can be transferred.
For the said purpose the only legal requirement is the essence of trust. Further held, the right
of the beneficiary to transfer his interest being absolute the transferee derives rights, title and
interest therein.

6. Right to sue for Execution of Trust (Section 59)

The section states the circumstances in which the execution of the trust can be
demanded from the court. A situation may arise in which no trustees have been
appointed, appointed, or all the trustees disclaim or have died or have been
discharged, or the execution of the trust, for any other reason, has become impracticable.
The beneficiary may apply to the court. The court is bound to carry further the trust
under its own supervision at least up to the time that trustees are appointed.
The right of beneficiary to the enforcement of the trust is, however, limited to the amount of
his interest in the trust and outside that sphere his position is generally not better than
stranger.

7
(2004) 8 SCC 355

7
This right is based on the maxim that “Equity Will Not Allow Trust to Fail for Want of
Trustee”

7. Right to proper Trustees (Section 60)

This right is based on the interest of cestui que trust. Subject to the provisions of the
instrument of trust, the beneficiary has a right to say that the trust property shall be
properly protected and that it should be held and administered by proper person and
proper number of trustees. The first explanation to the section gives the list of persons who
are not proper for this purpose:
 a person domiciled abroad;
 an alien enemy;
 a person having an interest inconsistent with that of the beneficiary;
 a person in insolvent circumstances; and,
 unless the personal law or the beneficiary allows otherwise, a married woman and a
minor.

Moreover, unsoundness of mind, conviction for a serious criminal offence, physical infirmity
may also render a person not a proper person.8

Explanation II of the section provides that when the administration of the trust involves the
receipt and custody of money, the number of trustees should be two at least.

Illustration - A conveys certain property to four trustees in trust for B. Three of the trustees
die, B may institute a suit to have three new trustees appointed in the place of the deceased
trustees.

8. Right to compel to any act of duty (Section 61)

The beneficiary has a right to assure that the trustee shall perform a particular act of duty and
also to restrain him from committing any contemplated or probable breach of trust.
If the beneficiary finds that any interest of the trust is affected due to the act or omission on
the part of the trustee, he may move the court for the injunction.
Of the two illustrations appended to the section one is like this: A contracts to pay Rs. 100 to
B every month so that B would hold the amount in trust for C. B agrees to it. But A does not

8
Tirathadas Dharam Das v. Parameswaribai, AIR 1943 Sind. 223

8
pay. The beneficiary, C, has a right to compel the trustee B, on a proper indemnity to allow
the beneficiary to sue A in the trustee’s name. According to the other illustration a land is in
the hands of a trustee for sale and distribution of the proceeds equally between the two
beneficiaries. The trustee is about to make an improvident sale of the land. Any
beneficiary may sue on behalf of himself and the other to restrain the trustee from
proceeding with the sale.

9. Wrongful purchase by Trustee (Section 62)

The beneficiary has the right to restrain the trustee from committing breach of trust. One
aspect of this right is that if the trustee has wrongfully purchased the trust property
for himself, the beneficiary can recover it back from him and also compel him to hold the
property in trust for the beneficiary. Where the property has been sold to a third person, the
beneficiary can recover from that third person if he has bought the property with notice
that it was trust property. This is known as the beneficiary’s right to follow trust property.
The beneficiary recovering back the property has, of course, to refund the purchase-money
with interest and also other expenses properly incurred in the preservation of the property.
The trustee or the purchaser from him are also under the obligation:
(a) to account for the net profits of the property during the period;
(b) to pay the occupation rent if he was in actual possession of the property;
(c) to allow the beneficiary to deduct a proportionate art of the purchase-money if the
property has been deteriorated by the acts or omissions of the trustee or the purchaser.

These right of the beneficiary cannot prejudice the following transactions:

(1) The right of lessees and others who contracted in good faith with the trustee or the
purchaser before the beneficiary instituted his suit to have the property transferred or declared
subject to the trust.

(2) The beneficiary will lose the right to have the property retransferred where he has ratified
the purchase by the trustee. It is necessary for this principle to apply that ratification should
have been the expression of a free choice on the part of the beneficiary. There should have
been no coercion or undue influence. He should have been competent to contract. He should
have ratified the transaction with full knowledge of the facts and of his rights.

9
In Ahmed Abdulla Ahmed Al Ghurair v. Star Health & Allied Insurance Co. Ltd.9,
Supreme Court held that for applying the principles governing a derivative action one
fundamental test has to be passed viz. such an action must necessarily have the sanction of
law and this shall have no obligation to a foreign entity having beneficial interest which can
be enforced in India, especially when there are provisions dealing with such a situation.

Section 62 applies to the case of religious trusts as the principle is an equitable one.

10. Right to follow trust property (Section 63)

Section 63 authorises the beneficiary to take all necessary steps to place a trust property in the
hands of rightful owner, which has gone into the hands of a stranger. The rule applies not
only to express trustees but also to all persons in a fiduciary capacity including agents.
It provides that where a trust property comes into the hands of a third person either under
breach of trust or otherwise inconsistently with the trust, the beneficiary may require
him to admit formally that it is a trust property. He may institute a suit for the
declaration that the property is comprised in the trust. Where the trustee has disposed of
the trust property and has received for it some money or property which is traceable in
his hands or in the hands of his legal representatives or legatee, the beneficiary has the
right that the same should be regarded as in trust for him to the extent to which the nature
of the property and other circumstances permit it.
The beneficiary has no right of tracing unless the property, which has gone into the hands of a
stranger is identitifiable. This rule was profounded in the leading case of Re Hallet & Co. 10

Exceptions: Section 64 restricts the right of the beneficiary to trace trust property as against
those who have acquired interest in the property in good faith. Thus, the beneficiary is
not entitled to challenge the title on respect of the property in the hands of:

(a) a transferee in good faith for consideration without having notice of the trust either when
the purchase-money was paid, or when the conveyance was executed ; or
(b) a transferee for consideration from such transferee.
The essence of the provision is that a bona fide transferee for value gets a good title and
also any transferee from him for consideration, as against the beneficiary.

9
(2019) 13 SCC 259
10
(1894) 2 QB 237

10
For the purposes of this principle a judgement creditor of the trustee attaching trust
property is not a transferee for consideration.
Where the trust property comprises of money, currency notes and negotiable
instruments, and they have passed to the hands of a bona fide holder, his rights will
depend upon law applicable to currency notes and negotiable instruments and not
according to the beneficiary’s right to trace the trust property.
A purchaser who takes trust property with notice actual or constructive of the trust must hold
the property subject to the trust even as a trustee does.
The plea of bona fide purchase for value without notice of a trust lies on the transferee.
Section 65 extends the right of the beneficiary to a certain extent. It says that where a trustee
has wrongfully purchased the trust property and subsequently himself becomes the
owner of the property, the property shall again become subject to the trust. This will
be so notwithstanding that the intervening transferees acted in good faith and had no
notice of the wrongful transfer.

11. Right against Blended Property (Section 66)

Where the trustee wrongfully mingles his own property with the trust property, the
beneficiary is entitled to a charge on the blended property for the amount due to him.

12. Wrongful employment by partner (Section 67)

Where the trust property is in the hands of a partner and he has employed the property in the
business or on account of the firm, the other partners will not be liable for such breach of trust
unless anyone of them had knowledge of the breach of trust. Partners having notice of the
breach of trust would be jointly and severally liable for the breach.
The section carries two illustrations:
a) A partner dies and leaves him share in the partnership in the hands of the other
partner in trust for his wife and children. The other partner continues the business with all
the assets. The beneficiary may compel him to account for the profits as are derived from the
late partner’s share in the capital.
b) The other illustration is that a trader transfers his property in the trade and also takes
in two partners whom he gives an indemnity against any possible claims by beneficiaries. All
the three are liable to the beneficiaries for the breach of trust.

11
Liability of beneficiary for Breach of Trust

Section 68 imposes liability upon a beneficiary in the following cases:

(1) Where he joins in committing the breach of trust;
(2) Where he knowingly obtains an advantage from the breach without the consent of the
other beneficiaries;
(3) Where he becomes aware of a breach of trust committed or intended to be
committed, and either actually conceals it, or does not within a reasonable time take proper
steps to protect the interests of the other beneficiaries;
(4) Where he deceives the trustee and induces him to commit breach of trust.
In such cases the other beneficiaries are entitled to have his beneficial interest
impounded until the loss caused be the breach has been compensated.
A beneficiary cannot make a trustee liable for losses occasioned to him by a breach of trust
which he has himself authorised or assented to.

Rights and liabilities of Beneficiary’s Transferee

Section 69 provides that a person who purchases a beneficiary’s interest gets the same
rights which the beneficiary had at the date of transfer. His interest will also remain subject
to the same liabilities s it was n the hands of the beneficiary

Conclusion

To conclude, we can say that under the provisions of the Trusts Act, the beneficiary is
entitled to many rights and is equally liable for any breaches as well. There is an equal ratio
of rights as well as the liabilities of the beneficiary. This analysis also proves that it is
compulsory for the beneficiary to maintain a good co-operation with the trustee’s of the trust,
which help him save himself from any breach of trusts.

Lastly, even though trust is primarily created for the benefit of the beneficiary, there are still
certain rights and liabilities that the beneficiary will hold, and there is still a way and manner
that a beneficiary needs to act and behave in within the limitations of the Trust.

12