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CS Executive · Setting Up of Business, Industrial and Labour Laws · Non-Corporate Entities

Two trustees, Meera and Kiran, sell trust property and Kiran receives the sale money. Meera pays no attention for two years and only then asks Kiran to invest it. Kiran becomes insolvent and the money is lost. The trust instrument has no contrary declaration. Under the Indian Trusts Act, 1882, what is Meera's position?

Meera may be compelled to make good the lost amount. Under the Indian Trusts Act, 1882, absent a contrary declaration, a trustee is liable if she allows a co-trustee to receive trust property without due enquiry or to retain it longer than reasonably needed, as happened here.

  1. ANot liable, because Kiran alone received the money
  2. BNot liable, because Kiran became insolvent
  3. CLiable only for interest and not the principal
  4. DShe may be compelled to make good the amount, as she failed to enquire and allowed Kiran to retain it too longCorrect

Explanation

A trustee is liable where she allows a co-trustee to receive trust property and fails to make due enquiry, or lets him retain it longer than circumstances reasonably require. Meera ignored the matter for two years, so she may be compelled to make good the amount. The 'only Kiran received' argument fails because of this exception.

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