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CS Executive · Company Law and Practice · Debt Instruments - Concepts

Kaveri Infra Ltd's debenture trust deed contains a clause stating that the trustee shall not be liable for any loss even if he fails to exercise the care and due diligence expected of a trustee. What is the legal effect of this clause under the Companies Act, 2013?

The clause is void to the extent that it exempts the trustee from liability for breach of trust where he fails to show the required care and due diligence. Only that provision is affected, not the entire trust deed, and Board approval cannot cure it.

  1. AIt is valid, as the trust deed is a private contract between the parties
  2. BIt is valid only if the company's Board approves it by resolution
  3. CIt is void to the extent that it exempts the trustee from liability for breach of trust where he fails to show due care and diligenceCorrect
  4. DIt is void in full, and the whole trust deed becomes invalid

Explanation

Section 71(7) makes any provision in a trust deed void in so far as it exempts or indemnifies the trustee against liability for breach of trust where he fails to show the required care and due diligence. Only the offending provision is void, not the whole deed. Board approval cannot validate it.

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