CS Executive · Setting Up of Business, Industrial and Labour Laws

Non-Corporate Entities: Trusts Chapter Study Guide

Non-Corporate Entities covers business and non-business bodies that are not companies, such as partnerships, societies and trusts. For this chapter's topics, you study how a trust is created, how trustees are appointed, what they must do, when they are liable, and how a trusteeship ends. Answer by stating the provision, applying it to the facts, and concluding.

What this chapter covers

This chapter deals with entities that are not companies. In this guide the focus is the trust under the Indian Trusts Act, 1882. It also sits beside the Indian Partnership Act, 1932 and the Societies Registration Act, 1860. For example, under the Partnership Act the State Government may appoint Registrars of Firms (Section 57), and partners' mutual rights and duties can be set by contract (Section 11). Under the Societies Registration Act, the governing body is whoever the society's rules entrust with management (Section 16).

The trust topics follow the life of a trust. First it is created. Then trustees are appointed and given duties and powers. Then you learn when a trustee is liable and when he is not. Finally you learn what the beneficiary can do, and how a trustee leaves office or the trust ends.

This chapter is part of Paper 3, Part I, Setting up of Business. It helps you compare the choices a promoter has: a company, a firm, a society or a trust. Many questions are application-based, so you need to read facts carefully and match them to the exact provision.

Paper 3 is a written paper, and Part I carries 60 of the 100 marks. This chapter is rule-based, so it rewards students who know provisions precisely. Trust law uses short, clear sections with defined conditions, such as who can appoint a new trustee or when a co-trustee is liable. If you learn those conditions, you can write structured answers with a clear conclusion. Because the chapter is compact, it is also a good place to secure marks without needing long calculations.

Non-Corporate Entities: topics in the order to study them

1Nature and Creation of a TrustStart here, because every later rule depends on knowing who the author, trustee and beneficiary are and what trust property is.
2Trustees: Appointment, Duties and PowersOnce you know the parties, learn who can be a trustee, how new trustees are appointed and what duties they carry, such as protecting title to trust property.
3Trustee Liabilities and Non-Liability ProvisionsLiability only makes sense after you know the duties, since a breach of duty is what creates liability.
4Rights and Liabilities of Beneficiary; Vacating Trusteeship and ExtinctionFinish with the beneficiary's position and the ways a trustee is discharged or the trust ends, which closes the life cycle of a trust.

How to prepare Non-Corporate Entities

Treat this chapter as a set of short rules with conditions. Your aim is to recall each rule exactly and apply it to a fact situation.

Read the sections in the order of the study list and write one line for each: who, what, and under what condition.
Make a list of the six ways a trustee may be discharged (Section 71) and learn it as a fixed list, since the section says "only as follows".
Learn the triggers for appointing a new trustee under Section 73, such as disclaiming, death, six months' continuous absence from India, insolvency, or unfitness, and then who may make the appointment.
Group the non-liability rules together: predecessor's default (Section 25), co-trustee's default (Section 26) and payment without notice of transfer (Section 28). Note the exceptions to each.
Take short fact patterns and practise a three-part answer: the provision, the application to the facts, and a clear conclusion.
Spend a little time on the Partnership and Societies provisions so you can compare the entities in a setting-up question.
Revise the sections by number only where you are sure of them, and otherwise state the rule in plain words.

Common mistakes in Non-Corporate Entities

Saying a trustee is always liable for a co-trustee's breach, or never liable.
Fix: Write the rule first, then the three situations in the proviso: delivery without seeing to application, allowing receipt without enquiry, and concealing or ignoring a known breach.
Treating a successor trustee as liable for his predecessor's defaults.
Fix: State that under Section 25 a successor is not, as such, liable, and then check the facts for any fault of his own.
Adding extra ways of discharge to the Section 71 list.
Fix: Learn the six ways as a closed list and fit any fact pattern into one of them, for example consent or the Court.
Confusing who may appoint a new trustee and in what order.
Fix: Remember the order: the person named in the instrument first, then the author, continuing trustees or legal representative, and in some cases retiring trustees with the Court's consent.
Writing answers without a conclusion or section reference.
Fix: End every answer with a direct conclusion on the facts, and cite the Act and section where you are sure of it.
Mixing up the Partnership Act, Societies Registration Act and Trusts Act when comparing entities.
Fix: Keep a one-page comparison of who governs, who registers and how the entity is managed under each Act.

Last-day revision: Non-Corporate Entities

A trustee may be discharged only in the ways listed in Section 71, including extinction of the trust, completion of duties, the trust instrument, a new trustee, consent, or the Court.
Consent discharge needs the trustee and the beneficiary, or all beneficiaries if there are several, competent to contract.
Section 73 allows a new trustee when a trustee disclaims, dies, is absent from India for six continuous months, is declared insolvent, wants discharge, or is unfit.
The first person to appoint is the one nominated in the trust instrument; if none is able, the author, or the continuing trustees, and so on.
An appointment of a new trustee must be in writing under the hand of the person making it.
Under Section 75, trust property vests in the new trustee, who has the same powers as if originally nominated.
A trustee must maintain and defend suits and take reasonable steps to protect title to trust property (Section 13).
A new trustee is not, as such, liable for the acts or defaults of his predecessor (Section 25).
One trustee is not, as such, liable for a co-trustee's breach, unless an exception applies, such as handing over property without seeing to its application or concealing a known breach (Section 26).
A trustee who pays without notice of the beneficiary's transfer is not liable (Section 28).
A person to whom a beneficiary transfers his interest has the beneficiary's rights and liabilities at the date of transfer (Section 69).
The State Government appoints Registrars of Firms under the Partnership Act (Section 57).

Non-Corporate Entities practice questions

Non-Corporate Entities in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Non-Corporate Entities: frequently asked questions

What does the Non-Corporate Entities chapter cover in CS Executive?

It covers entities that are not companies, with trusts as the main focus here. You study how a trust is created, how trustees act and are held liable, and how a trustee leaves office. It also links to partnerships and societies.

Which Paper and Part is this chapter in?

It is in Paper 3, Setting Up of Business, Industrial and Labour Laws. It falls under Part I, Setting up of Business, which carries 60 marks. The paper is written and lasts three hours.

How should I answer a trustee liability question?

State the relevant rule, apply it to the facts, and then give a clear conclusion. For a co-trustee problem, check whether any exception in the proviso to Section 26 applies before deciding.

Do I need to memorise section numbers?

Learn the key ones you are sure of, such as Sections 25, 26, 28, 71, 73 and 75 of the Trusts Act. The rule and its conditions matter more than the number, so always state the rule in plain words.