CS Professional · CSR and Social Governance

Societies and Trusts: formula sheet

Full chapter guide

Key formulas

Definition of trust (Section 3): Trust = obligation annexed to ownership of property + confidence reposed and accepted (or declared and accepted) + benefit of another, or of another and the owner; Quote the wording and then break it into elements.
Parties and subject matter (Section 3): Author = reposes or declares confidence; Trustee = accepts it; Beneficiary = person for whose benefit it is accepted; Trust property = subject matter; The beneficial interest is the beneficiary's right against the trustee as owner of the trust property.
Who may create a trust (Section 7): Every person competent to contract; or, with permission of a principal Civil Court of original jurisdiction, by or on behalf of a minor; Always subject to the law on how far the author may dispose of the property.
Immoveable property (Section 5): Non-testamentary instrument in writing + signed by author or trustee + registered; or by will of author or trustee; An oral trust of immoveable property is not valid. The rule does not apply where it would effectuate a fraud.
Moveable property (Section 5): Declared as for immoveable property, or ownership of the property is transferred to the trustee; Delivery of ownership to the trustee can create a valid trust without writing.
Short title, commencement and extent (Section 1): Indian Trusts Act, 1882; in force 1 March 1882; extends to the whole of India; Savings: waqf, undivided family relations, religious or charitable endowments, prize-capture trusts.
Who may create a trust (Section 7): Author = (a) every person competent to contract, or (b) by or on behalf of a minor with permission of a principal Civil Court of original jurisdiction; Subject in each case to the law on how far the author may dispose of the trust-property.
Essentials of creation (Section 6): Intention + Purpose + Beneficiary + Trust-property, each indicated with reasonable certainty, + transfer of property to the trustee; Transfer is not needed if the trust is declared by will or the author is himself the trustee. Section 6 is subject to Section 5.
Subject-matter (Section 8): Property transferable to the beneficiary; not a merely beneficial interest under a subsisting trust; A bare expectation or a mere beneficial interest cannot itself be the trust-property.
Lawful purpose (Section 4): Unlawful if: forbidden by law; defeats a law; fraudulent; injures person or property of another; immoral or opposed to public policy (as the Court regards it); An unlawful trust is void. If two purposes, one lawful and one unlawful, cannot be separated, the whole trust is void.
Extinction (Section 77): Purpose fulfilled; purpose becomes unlawful; fulfilment impossible; revocable trust expressly revoked; Link this to the creation question when the facts show the trust ending.
General rule on delegation (Section 47): Trustee cannot delegate his office or duties to a co-trustee or a stranger; This is the starting point. Always state it first, then test the exceptions.
Exceptions to the rule (Section 47 (a) to (d)): (a) instrument of trust provides; (b) regular course of business; (c) delegation is necessary; (d) competent beneficiary consents; Any one exception is enough. The beneficiary must be competent to contract, so a minor's consent does not count.
Ministerial acts (Explanation to Section 47): Attorney or proxy for an act merely ministerial, with no independent discretion = not delegation; The test is whether the agent has to use his own judgment. If not, Section 47 is not attracted.
Standard of care: Trustee must deal with trust property as a man of ordinary prudence would deal with his own; A breach of this duty makes the trustee liable to make good the loss caused to the trust.
Core duties: Prudence + proper accounts and information + impartiality + no personal profit; Use as a checklist when analysing facts.
Right to title-deed (s.31): Trustee may possess the instrument of trust and all documents of title relating solely to the trust-property; Only documents relating solely to the trust property. Do not stretch it to all documents.
Reimbursement of expenses (s.32): Expenses properly incurred in the execution of the trust, or realisation, preservation or benefit of trust-property, or protection or support of the beneficiary may be recovered from trust-property; The expense must be proper. Improper expenses are not recoverable.
First charge (s.32): Expenses paid from own pocket give a first charge on trust-property for the expenses and interest; Unless incurred with the sanction of a principal Civil Court of original jurisdiction, the charge is enforced only by prohibiting disposition of the trust-property without prior payment.
Recovery from beneficiary (s.32): If trust-property fails, trustee may recover from the beneficiary personally on whose behalf and at whose request (express or implied) he made the payment; Two conditions: the trustee paid on the beneficiary's behalf at his request (express or implied), and the trust-property failed.
Recoupment of over-payment (s.32): Mistaken over-payment to a beneficiary may be recouped out of the beneficiary's interest; if the interest fails, recover from the beneficiary personally; Applies only to over-payment by mistake.
Court's opinion (s.34): Trustee may apply by petition, without a suit, for opinion, advice or direction on present questions about management or administration of trust-property; Questions of detail, difficulty or importance not proper for summary disposal are excluded. Good-faith disclosure of facts and acting on the advice discharges the trustee's responsibility.
Sale on special conditions (s.38): Trustee making the sale may insert reasonable stipulations as to title or evidence of title, buy in the property at an auction, rescind or vary a contract for sale, and re-sell the property bought in or the subject of a rescinded contract; He is not responsible to the beneficiary for any loss caused by doing so. The stipulations must be reasonable.
Time of sale (s.38 and s.22): Trustee directed to sell or to invest in purchase of property may use reasonable discretion as to the time of sale or purchase; Where the direction is to sell at a time the trustee thinks fit, he cannot postpone the sale indefinitely. Where he extends a time specified for sale, s.22 puts the burden on him to prove the beneficiary is not prejudiced, unless a principal Civil Court of original jurisdiction authorised the extension.
Maintenance of minor (s.41): Trustee may apply income for maintenance, education or advancement of a minor; accumulate the residue; use the property itself only with court permission if income is insufficient; Income: trustee's discretion. Capital: court permission needed.
Right to specific execution (s.56): Beneficiary may require the author's intention to be executed to the extent of their interest; Where there is one beneficiary, or several who are all of one mind, and all are competent to contract, they may require the trustee to transfer the trust property to them or their nominee.
Right to information and accounts (ss.19, 57): Trustee: keep clear and accurate accounts + give full and accurate information at reasonable times on request. Beneficiary: inspect and copy instrument, title documents, accounts, vouchers, cases and opinions; Section 57 operates against the trustee and all persons claiming under the trustee with notice of the trust. Title documents must relate solely to the trust property.
Right to transfer interest (s.58): Beneficiary competent to contract may transfer, subject to the law in force on the circumstances and extent of disposal; Proviso: a married woman for whose benefit property is given so that she cannot deprive herself of her interest cannot transfer it during marriage.
Transferee of beneficiary (s.69): Transferee gets the rights and liabilities of the beneficiary in respect of that interest at the date of transfer; The transferee takes no better position than the beneficiary had.
Trustee paying without notice (s.28): No notice of vesting in another + payment to the person otherwise entitled = trustee not liable; Notice is the key condition.
Protected transferees (s.64): No beneficiary right over property held by (a) a good-faith transferee for consideration without notice of the trust, or (b) a transferee for consideration from such a person; A judgment-creditor of the trustee who attaches and buys trust property is not a transferee for consideration. Money, currency notes and negotiable instruments held by a bona fide holder to whom they passed in circulation are also outside s.63.
Impounding of interest (s.68): Beneficiary joins in breach, knowingly takes advantage, conceals or fails to act, or deceives trustee: other beneficiaries may impound all that beneficiary's interest until the loss is compensated; Applies where one of several beneficiaries acts without the consent of the others. The married woman protection applies during marriage. Impounding does not reach transferees for consideration without notice of the breach.
Trustee's settlement of accounts (s.35): On completion of duties, trustee may have accounts examined and settled and, if nothing is due, get a written acknowledgment; Useful as the trustee's counterpart to the beneficiary's right to accounts.
Vacation of office (Section 70): Office vacated = death OR discharge; These are the only two ways the office of trustee is vacated.
Discharge of trustee (Section 71): (a) extinction of trust; (b) completion of duties; (c) means in trust instrument; (d) appointment of new trustee; (e) consent of trustee and all beneficiaries competent to contract; (f) Court; The list is exhaustive: the word used is 'only'.
Petition for discharge (Section 72): Trustee petitions principal Civil Court of original jurisdiction; Court discharges if sufficient reason; Without sufficient reason, the Court will not discharge him unless a proper person can be found to take his place.
Appointment of new trustee (Section 73): Order: person nominated in instrument → author (if alive and competent to contract) / surviving or continuing trustees / legal representative of last continuing trustee / (with Court consent) retiring trustees; Appointment must be in writing under the hand of the person making it. The number of trustees may be increased.
Appointment by Court (Section 74): If appointment under Section 73 is impracticable → beneficiary petitions the Court, without a suit; Court considers the author's wishes, the wishes of the person empowered to appoint, whether the appointment promotes or impedes the trust, and the interests of all beneficiaries.
Vesting (Section 75): Trust property vests in the new trustee, solely or jointly with continuing trustees; The new trustee has the same powers as if originally nominated.
Extinction (Section 77): (a) purpose fulfilled; (b) purpose unlawful; (c) fulfilment impossible (destruction of property or otherwise); (d) revocable trust expressly revoked; Any one ground is enough.
Revocation (Section 78): Will: at testator's pleasure. Otherwise only by: (a) consent of all beneficiaries competent to contract; (b) reserved power of revocation (non-testamentary instrument or word of mouth); (c) trust for author's debts not communicated to creditors; If creditors are parties to the arrangement, their consent is needed.
Protection of trustees' acts (Section 79): Revocation cannot defeat or prejudice what trustees have duly done; Acts done properly before revocation stand.
Express trust vs. obligation in the nature of a trust: Express trust = created by the owner's declaration; Obligation in the nature of a trust = imposed by law without a declaration; Use this as the opening line when asked to distinguish the two.
Constructive trust: Unjust gain (fraud, breach of duty, abuse of position) → law makes the holder a trustee for the person entitled; Test: would it be unfair for the holder to keep the benefit?
Resulting trust: Beneficial interest not fully disposed of, or paid for by one and titled in another → benefit returns to the original owner or payer; The word 'results' means the benefit comes back.
Section 64(a) protection: Good faith + consideration + no notice of the trust (when money paid or conveyance executed) → section 63 gives the beneficiary no right in that property; All three conditions must be met. A gift fails because the section requires consideration. Notice of the trust at the stated time defeats protection.
Section 64(b) protection: Transferee for consideration from a protected transferee → also protected; Apply the wording of 64(b) as it stands: a transferee for consideration from such a transferee.
Judgment-creditor provision: Judgment-creditor attaching and purchasing trust property ≠ transferee for consideration; A further provision of section 64. Such a creditor is not protected by the section.
Money and negotiable instruments: Bona fide holder to whom money, currency notes or negotiable instruments passed in circulation → section 63 gives no right in that property; A further provision of section 64. It also says section 63 does not affect section 108 of the Indian Contract Act, 1872 or the liability of a person to whom a debt or charge is transferred.
Trust in one line: Author (settlor) + Trustee + Beneficiary + Trust property + Obligation; Five elements. A trust is not a body of members and has no membership.
Society in one line: Members + Memorandum of association + Rules + Governing body; Control comes from the members. The governing body acts for the society.
Scope of the Indian Trusts Act, 1882 (Section 1): Act does not apply to waqf under Muhammadan law, public or private religious or charitable endowments, or war-prize trusts; Quote the savings clause when asked whether the Act governs a public charitable trust.
Private vs public trust: Private: ascertained beneficiaries. Public: general public or a section of it; Test the class of beneficiaries, not the size of the trust property.
CSR use: Trust or society may implement CSR only if registered and eligible under the CSR Rules; Check the registration condition and the Schedule VII fit.

Quick revision

A trust is created when the author indicates with reasonable certainty intention, purpose, beneficiary and trust-property.
Unless the trust is declared by will or the author is himself the trustee, the trust-property must be transferred to the trustee.
A hope or request that leaves the beneficiary or property uncertain does not create a trust.
A condition attached to a bequest is not the same as a trust.
A trustee may be discharged only in the six ways the Act lists.
Discharge ways: extinction of the trust, completion of duties, means in the trust instrument, appointment of a new trustee, consent, and the Court.
Discharge by consent needs the trustee and all beneficiaries, who must be competent to contract.
Always set trustee duties against trustee rights and powers in your notes.
Learn beneficiary rights and liabilities as the mirror image of trustee duties.
Trusts and societies differ in how they are formed, governed and controlled.
In every case answer, state the provision, apply the facts, then conclude.

Common mistakes

Treating a trust as a contract. Fix: Say a trust is an obligation annexed to ownership. It needs no consideration, and the beneficiary need not be a party.
Saying the trust is a legal person that owns the property. Fix: State that the trustee is the owner and holds the property for the beneficiary, who has a beneficial interest enforceable against the trustee.
Saying a minor can never create a trust. Fix: Section 7(b) allows a trust by or on behalf of a minor with permission of a principal Civil Court of original jurisdiction.
Treating a hope or request as a trust. Fix: Apply Section 6 illustrations: 'hoping he will continue it in the family' fails for want of a certain beneficiary. Certainty is required for each essential.
Saying a trustee can never delegate anything. Fix: Always list the four exceptions and the ministerial Explanation.
Accepting a minor beneficiary's consent as valid. Fix: Write that the beneficiary must be competent to contract.
Saying a trustee can recover any expense incurred. Fix: Always write: expenses properly incurred in or about the execution of the trust.
Claiming the first charge is always enforceable by sale. Fix: Say that, unless the expenses were incurred with court sanction, the charge is enforced only by prohibiting disposition of the trust-property without previous payment. It does not let the trustee sell the property to recover the money.
Saying a beneficiary can inspect any trust document. Fix: Name the four categories in s.57: the instrument, title documents relating solely to the trust property, accounts with vouchers, and cases and opinions taken for the trustee's guidance.
Letting a beneficiary demand transfer of trust property when only some beneficiaries agree. Fix: Demand for transfer needs one beneficiary, or all beneficiaries, competent to contract and of one mind.

Exam tips

Begin with the Section 3 definition. Examiners award marks for the exact elements, so break it into parts.
In case-based questions, name the author, trustee, beneficiary and trust property from the facts before you analyse.
Link the form requirement to the type of property: registered writing for immoveable property, writing or transfer of ownership for moveable property.
Mention the Section 1 savings when facts involve a waqf, a family arrangement or a charitable or religious endowment.
For distinction questions, give four or five points such as ownership, consideration, purpose and rights of the beneficiary, and end with a conclusion.
Quote the section number first, then apply it. Examiners reward provision, analysis, conclusion in that order.
Learn the Section 6 illustrations. They give ready examples of 'not a trust' for uncertain beneficiary, property or intention.
In minor questions, name the court exactly: principal Civil Court of original jurisdiction.