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Trustee Liabilities and Non-Liability Provisions under the Indian Trusts Act

Updated 11 October 2026 · Fact-checked

A trustee who commits a breach of trust must make good the loss to the trust property or beneficiary (Section 23). The Act then lists cases where a trustee is not liable, such as a predecessor's default (Section 25), a co-trustee's default (Section 26, with exceptions) and payment without notice of a transfer (Section 28).

Understand Trustee Liabilities and Non-Liability Provisions

A trustee holds property for the benefit of others. If the trustee breaks the trust, the law makes the trustee pay for the damage. This is the starting point. Section 23 says the trustee must make good the loss which the trust property or the beneficiary has sustained.

The duty is not absolute. The trustee is not liable if the beneficiary induced the breach by fraud. The trustee is also not liable if the beneficiary, being competent to contract, concurred in the breach without coercion or undue influence, or later acquiesced in it with full knowledge of the facts and of his rights against the trustee.

Interest follows a set pattern. The general rule is that a trustee in breach pays no interest. Interest is payable only in listed cases: where he actually received interest, where he unreasonably delayed paying trust money to the beneficiary, where he ought to have received interest but did not, and where he may fairly be presumed to have received it. In the first case he accounts for the interest actually received. In the other three he accounts for simple interest at 6% per annum, unless the Court directs otherwise. Failure to invest and accumulate attracts compound interest with half-yearly rests. Using trust property in trade or business makes him liable, at the beneficiary's option, for compound interest with half-yearly rests or for the net profits.

The Act also protects trustees from liability for things that are not really their fault. Under Section 25, a trustee who succeeds another is not, as such, liable for the acts or defaults of his predecessor. Under Section 26, one trustee is not, as such, liable for a breach by a co-trustee, subject to Sections 13 and 15. Under Section 28, a trustee who pays or delivers trust property without notice that the beneficiary's interest has vested in another person is not liable.

The words "as such" matter. A trustee is not liable merely because of his office. He becomes liable if he is himself at fault, for example by neglect or by ignoring a known breach. Section 26 lists three such cases, and the protection is lost in them unless the trust instrument expressly declares otherwise.

Key rules to remember

Liability for breach (Section 23): Trustee must make good the loss to the trust property or beneficiary; Exceptions: beneficiary induced the breach by fraud, or a competent beneficiary concurred or later acquiesced with full knowledge of the facts and his rights, without coercion or undue influence.
Interest on breach (Section 23): General rule: no interest. Cases (a) actual interest received: account for it. Cases (b), (c), (d): simple interest at 6% p.a. unless Court directs otherwise; (b) unreasonable delay in paying the beneficiary, (c) ought to have received interest but did not, (d) fairly presumed to have received interest.
Compound interest or profits (Section 23): Failure to invest and accumulate: compound interest, half-yearly rests. Use in trade or business: compound interest (half-yearly rests) or net profits, at beneficiary's option; Compound interest is at the same rate, 6% p.a.
Predecessor's default (Section 25): Successor trustee is not, as such, liable for the acts or defaults of his predecessor; He is liable for his own failure, for example not acting on a breach he knows of.
Co-trustee's default (Section 26): One trustee is not, as such, liable for a co-trustee's breach, subject to Sections 13 and 15; Unless the instrument expressly says otherwise, he is liable in the three cases (a), (b) and (c) below.
Exceptions to Section 26: (a) delivered trust property to co-trustee without seeing to its proper application; (b) allowed co-trustee to receive trust property without due enquiry, or to retain it too long; (c) became aware of a breach committed or intended and either concealed it or did not within a reasonable time take proper steps to protect the beneficiary; Joining in signing a receipt does not by itself make a co-trustee liable if he proves he did not receive the property.
Payment without notice (Section 28): Beneficiary's interest vested in another + trustee has no notice + trustee pays the person who would otherwise have been entitled = trustee not liable; All three conditions must be met.
Beneficiary at fault (Section 68): Beneficiary's interest can be impounded until the loss is compensated; Applies where a beneficiary joins in the breach, knowingly takes an advantage without the others' consent, conceals a known breach or fails to act within a reasonable time, or deceives the trustee into the breach.

How to solve Trustee Liabilities and Non-Liability Provisions questions

Use the same sequence for any problem on trustee liability. Decide who is claiming, what went wrong, and which section protects or exposes the trustee.

1Identify the trustee being questioned and the wrong done. Was it the trustee's own act, a predecessor's, a co-trustee's, or a payment to the wrong person?
2State the general rule: under Section 23 a trustee in breach must make good the loss.
3Check whether the beneficiary induced the breach by fraud, or being competent concurred or acquiesced with full knowledge. If yes, Section 23 relief applies.
4If the default is by another person, pick the section: Section 25 for a predecessor, Section 26 for a co-trustee, Section 28 for payment without notice of a transfer.
5Test the exceptions. For Section 26, check the three cases (a) to (c), and whether the instrument expressly provides otherwise. For Section 28, check that the trustee had no notice.
6If liability exists, consider interest under Section 23 and note the beneficiary's option where trade or business use is involved.
7Consider the beneficiary's own conduct under Section 68, which may allow the other beneficiaries to impound his interest.
8Write a clear conclusion naming the trustee, the section and the result.

Quickest way: Three-question test for non-liability

When to use it: Use this in short-answer or case-based questions when time is tight.

Ask: whose default is it? Own, predecessor, co-trustee, or none (payment case).
Match the section: predecessor means Section 25, co-trustee means Section 26, payment without notice means Section 28.
Ask: did this trustee do something himself, such as hand over property carelessly, fail to enquire, or ignore a known breach? If yes, the protection fails; if no, he is not liable.

Common mistakes in Trustee Liabilities and Non-Liability Provisions

Saying a trustee is never liable for a co-trustee's breach.
Students remember the main rule of Section 26 and forget the proviso.
Fix: Always check the three cases: delivery without seeing to application, allowing receipt without enquiry or retention too long, and concealing or ignoring a known breach.
Saying a successor trustee is liable for a predecessor's default because he took over the trust.
Students assume the office carries the past liability.
Fix: Section 25 says he is not, as such, liable. Only his own failure, such as ignoring a known breach, can make him answerable.
Applying Section 28 without checking notice.
The protection looks automatic when the trustee pays the original beneficiary.
Fix: Protection applies only if the trustee had no notice that the interest had vested in another person. If he knew, he is not protected.
Stating that interest is always payable on a breach of trust.
Students link loss with compensation and assume interest follows.
Fix: The general rule is no interest, with listed exceptions. Illustration (a) to Section 23 shows a loss with no interest.
Treating a co-trustee who signs a joint receipt as automatically liable.
Signing seems to prove involvement.
Fix: A co-trustee who joins in signing a receipt and proves he did not receive the property is not answerable by reason of that signature only.
Mixing up Section 28 of the Trusts Act with Section 28 of the Partnership Act on holding out.
Both appear in the same chapter and carry the same number.
Fix: Write the Act's name with the section. Trusts Act Section 28 is about payment without notice. Partnership Act Section 28 is about holding out.

Worked examples

Example 1

A and B are co-trustees of a trust for D. They sell trust property. The sale money is received by B alone and kept with him. A pays no attention for two years, then asks B to invest it. B is insolvent and the money is lost. Is A liable?

Show the solution

General rule: under Section 26, one trustee is not, as such, liable for a co-trustee's breach.
Check the proviso. A allowed B to receive the trust property and did not make due enquiry about B's dealings with it, and allowed B to retain it longer than the circumstances reasonably required.
This falls within case (b) of Section 26. The trust instrument is not stated to say otherwise.
This matches the illustration to Section 26, where the other co-trustee may be compelled to make good the amount.

Answer: A is liable. The protection in Section 26 is lost because A allowed B to receive and keep the money without due enquiry, so A may be compelled to make good the loss to D.

Example 2

X is a trustee for P. P transfers his beneficial interest to Q. X has no notice of the transfer and pays the trust income to P. Q claims the amount from X. Decide.

Show the solution

Identify the rule: Section 28 protects a trustee who pays without notice of the vesting of a beneficiary's interest in another person.
Check the conditions. P's interest has vested in Q. X had no notice of the vesting. X paid P, who would have been entitled in the absence of the transfer.
All three conditions are met, so X is not liable for the amount paid.
Note that Section 69 gives the transferee Q the rights and liabilities of the beneficiary at the date of transfer. Q's remedy lies against P, not X.

Answer: X is not liable to Q under Section 28. Having paid in good faith without notice, X is protected. Q must look to P for the amount.

Exam tips

Write the section number with every point. ICSI answers are marked on the provision, the analysis and the conclusion.
In co-trustee questions, always list the three cases under the Section 26 proviso and match the facts to one of them.
Mention the words "as such" in Sections 25 and 26. They show the examiner you understand why the protection is limited.
Where the question includes a beneficiary who helped the breach, add Section 68 and the idea of impounding his interest.
Keep Section 23 interest rules ready: no interest by default, 6% simple in the listed cases, compound with half-yearly rests for non-investment and trade use.

Practice questions from Non-Corporate Entities

Trustee Liabilities and Non-Liability Provisions: frequently asked questions

What does Section 25 of the Indian Trusts Act say?

It says that a trustee who succeeds another is not, as such, liable for the acts or defaults of his predecessor. The liability of the successor arises only for his own acts or omissions.

When is a trustee liable for a co-trustee's breach under Section 26?

Ordinarily he is not. He is liable, unless the instrument expressly says otherwise, if he handed over property without seeing to its application, allowed the co-trustee to receive or keep it without due enquiry, or knew of a breach and concealed it or failed to act within a reasonable time.

What is the effect of Section 28 of the Indian Trusts Act?

If a beneficiary's interest vests in another person and the trustee, without notice of this, pays or delivers the trust property to the person who would otherwise have been entitled, the trustee is not liable for it.

Is a trustee liable to pay interest on a breach of trust?

Not in every case. Section 23 allows interest only in listed cases, such as actual receipt, unreasonable delay or failure to invest. Simple interest is at 6% per annum unless the Court directs otherwise, and compound interest applies in cases of non-investment and use in trade.

Can a beneficiary lose his interest because of a breach of trust?

Yes. Under Section 68, if he joins in the breach, knowingly takes an advantage, conceals a known breach or deceives the trustee, the other beneficiaries can have his interest impounded until the loss is made good.