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

Two trustees, Rohan and Sunita, sell trust property. The sale money is received by Rohan and kept with him. Sunita pays no attention for two years and then asks him to invest it. Rohan has become insolvent and the money is lost. No contrary declaration exists in the trust instrument. What is Sunita's position under the Indian Trusts Act, 1882?

Sunita may be compelled to make good the lost amount. Under the Indian Trusts Act, 1882, a trustee is liable if she lets a co-trustee receive trust property without due enquiry or retain it longer than reasonably required, and two years of inattention fits that exception.

  1. AShe is not liable, as she never received the money
  2. BShe is not liable because Rohan alone was insolvent
  3. CShe may be compelled to make good the amount, since she allowed him to retain it without due enquiryCorrect
  4. DShe is liable only if she signed a receipt

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. Sunita ignored the matter for two years, so she may be compelled to make good the loss. Not having received the money does not protect her here.

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