Introduction

A trust is defined in Section 3 of the Trusts Act 1882 as “an obligation relating to the ownership of property arising from a trust given and accepted by the owner, or transferred and accepted by the owner in favor of another. Simply put, this obligation .is the transfer of property by the owner to another third party definitively or with himself or without or without notifying the owner, keeps property not for himself and for another.

In India, the second most popular form of registration is a trust. However, the regulations, procedures and laws related to foundations are confusing. Various public and private trusts can be established under Indian law. Here we have covered the laws and procedures relating to public charitable trusts.

The Indian Trust Act, 1882 does not apply to a public charitable trust. There is no specific law under which a public trust must be registered except in the states of Gujarat and Maharashtra. Public trusts are formed under common law and the guidelines are based on the Indian Trust Act, 1882. Other relevant laws are the Religious Endowment Act, 1863, the Charitable and Religious Trust Act, 1920 and The Bombay Public Trust Act, 1950.

If a person leaves certain property in his will to someone else and the proposed trustees confirm their will, this is an acceptance of the trust by them.

Trust and types of Trust& Legal Aspects

The Indian Trust Act (1882) defines a trust as a legal obligation attached to property and which result from the trust shown by the founder to the asset manager for the benefit of the beneficiaries indicated by the founder, including/excluding the founder himself. The person who returned or declared the trust is called the “trustee”; the person who accepts the trust is called the “trustee”. The person in whose favor the trust is received is called the “beneficiary” and the object of the trust is called the “trust asset”; the “interest” or “interest” of the beneficiary is a right against the administrator as the owner of the real estate investment; and the instrument, if any, by which the trust is declared shall be called the “trust instrument.”

Types of Trust[1]:-

There are certain known categories of trust, though they may be over-lapping and it may not be possible to tell the boundaries of one from the other. Some classifications are according to the way in which a trust is created and others according to the functioning of the trustee.

Express Trust

As Per Lord Esher M.R. enshrine the concept of an express trust:

“If there is created in expressed terms, whether written or verbal, a trust, and a person is in terms nominated to be the trustee of that trust, such a trust is in equity called an express trust.[2]” A declared trust of this kind may be embodied in an instrument to be known as the instrument of trust. It may even be oral. But if it involves immovable property to would have to be registered and if it involves movables they would have to be physically transferred to the trustee.

Implied Trust

Like an express trust, an implied trust is also created by an act of the parties. The difference is only this that the intention of the parties to create a trust, instead of being expressed in words, appears for their conduct. The conduct of the parties creates a presumption about their intention. An inference of trust is drawn only when the conduct of the parties is not explainable in any other terms than an intention to create a trust. The circumstances must give rise to a presumption of a compelling nature. As observed by Lord NOTTINGHAM L.C.: “The law never implies, the court never presumes a trust, but in case of absolute necessity.[3]” The decision of the Supreme Court in M.C. Chacko v. State Bank of Travancore seems to be based upon this principle. The court emphasized that a trust may be actual or constructive but in general the courts are very slow to infer a constructive trust.

Constructive Trust

The word “constructive” is used in equity in reference to anything so as to distinguish it from the “actual”. Examples are “constructive fraud” and “constructive notice”. When a person commits a breach of duty and there by gains and advantage over the other party to the bargain that is a “constructive fraud” in equity. “Constructive notice” refers to something which a person is taken to know though in fact he does not know.

A person contracting with a company is taken to know the company’s memorandum and articles though in fact he does not know. Similarly, when a person ought in equity to hold something in trust for another, a constructive trust arises to take care of the situation. Not to do so would amount to abuse of confidence.

Lewin on trust[4].“Constructive trust which the court elicits by a construction put upon certain acts of parties, as when a tenant for life of lease-holds renews the lease on his account, in which the law gives the benefit of the renewed lease to those who were interested in the old lease.”

Public and Private Trusts

A public trust is one which is created for the benefit of public in general. Public in general does not mean public as a whole. The trust may be created for a part or a section of the public and it will be a valid trust so long s every member of the particular class is permitted to enjoy the benefits of the trust. The general public purpose may be of any kind medical, health relief and rehabilitation, social service of any kind, education, training, etc[5].

A private trust is confined in its beneficial bounty to some private persons so that nobody beyond them can draw the benefit. Such a trust is enforceable at the private action of intended beneficiaries. A public trust is enforceable at the instance of the Attorney-General.

Resulting Trust

Whenever a trust fails in its objet or its purpose is accomplished without the trust property being exhausted what remains reverts back to the author of the trust under the concept of resulting trust. The principle is incorporated in Section 83[6] and the illustrations appended to it bring the concept to a clear relief.

It is true that the provisions of the Act are not applicable to private or public religious and charitable trusts, but nevertheless the general principles underlying Section 83 are attracted in analogous circumstances.

Precatory Trust

Precatory the word means that, it is characterized by a lack of Security or Stability that threatens with danger[7]. Trust lacks one of the certainties of a valid trust; namely, the intention of the author. Where the author fails to express his intention in clear terms, the trust which arises is in a precarious (precatory) state because it may fail to materialize. Since the language is ambiguous and uncertain, if a precatory trust is inferred it may as well happen that the settler never intended a trust and yet a trust comes into being. That is why warnings have always been expressed against such a precarious practice. JAMES LJ observed in Lamb v. Evans: “I could not help feeling that it was the officious kindness of the court of chancery in interpreting terms where in many cases the father of the family never meant to create trusts, must have been a very cruel kindness indeed.

Secret Trust

Where neither the existence of a trust nor its terms are disclosed, it is called a secret trust. Where the existence of the trust is disclosed, but its terms are not, it is a half secret trust. This is a misuse of the concept of trust. It is used as a device for retaining property under one’s own control under the guise of a trust. The consequences will depend upon the intentions of the parties and the circumstances surrounding the transaction[8].

Illusory Trust

Where a trust is created with uncertain beneficiaries so that nobody seems to be entitled to hold the trustee to his task, or where the object is so uncertain that it leaves the trustees in a state of dilemma or give them a discretion as to the objects, what comes into existence is the illusion of a trust and not its reality[9].

Legal Aspects of Trusts

What is the legal basis on which trusts are recognized and enforced?

Trusts, in general, under Indian law have a statutory basis, namely the Indian Trusts Act,1882. Generally, there are two types of trusts in India: private trusts and public trusts. The Indian Trusts Act, 1882 governs the private trusts. Public trusts are classified into charitable and religious trusts. The Charitable and Religious Trusts Act, 1920, the Religious Endowments Act, 1863, the Charitable Endowments Act, 1890, the Societies Registration Act, 1860, and the Bombay Public Trust Act, 1950 are the relevant legislations for the recognition and enforceability of public trusts[10].

Furthermore, trusts can also be used as pooling vehicles for investments, such as mutual funds and venture capital funds. These trusts are governed by a separate set of regulations: the Securities and Exchange Board of India (Mutual Funds) Regulations and Securities and Exchange Board of India (Venture Capital Funds) Regulations.

• Private Trust:-

A private trust which has movable property only does not need to be registered. However, a private trust with immovable property needs to be registered under the Registration Act,1908.Information on private trusts is not publicly available, unless such trusts have been registered.

All public trusts, irrespective of which state they are settled in, have to be registered under the Registration Act, 1908. However, there is state-specific legislation for public trusts incertain states in India. In such a case, the public trusts have to register under the state specific legislation as well as the Indian Registration Act, 1908 in that order. For example, a public state registered in states of Gujarat and Maharashtra needs to be registered under the Bombay Public Trusts Act, 1950. Under this Act, a public trust must apply for registration within three months from the date of creation[11].

• Registration under the Registration Act, 1908:

The trustee of every public trust is required to send a memorandum in the prescribed form containing the particulars, including the name and description of the public trust and the immovable property of such a public trust, to the Sub-Registrar of the sub-district appointed under the Registration Act, 1908, in which such immovable property is situated for the purpose of filing in Book No[12].

• Public or Charitable Trust

The concept of a public or charitable trust is thus explained in Snell:
“Equity has also long enforced trusts for the benefit of large and changing groups of people, or to carry out certain purposes which are beneficial to the community at large. These trusts are known as public or charitable trusts, or more shortly “charities”.
Public and Private Trusts compared

All kinds of trusts whether public or private are subject to more or less the same governing principles. Duties and disabilities of trustees are the same. There are, however, certain pints of difference between public and private trusts. Rules against perpetuity, which are applicable to all private trusts, are considerably modified in reference to publictrusts. Secondly, where the object of a public trusts becomes obsolete because people are no longer in need of that kind of charity, the objects of the trust may be varied so as so include things which are currently of public utility. Thirdly, the enforcement of public trusts is in the hands of public bodies, like the Attorney-General. Fourthly, for the encouragement of public welfare and charitable services by private organisations, benefits of tax concessions have been extended to such organizations. Lastly, a private

trust may fail for uncertainty of object, but a public trust need not be the victim of such uncertainty[13].

In such cases the author of the trust is only interested in public service. The type of service does not matter much to him. He can leave that even at the discretion of trustees. So long as charity of one kind or the other can be carried on, the trust can go on. The court or other relevant authority can order a scheme of dedication.

• Requirements of Public Trust

The general rule which emerges from judicial authorities is that an effective charitable trust must satisfy three requirements[14]:

• The trust must be of charitable nature.

(2) The trust must be for the promotion of public benefit.

(3) The trust must be wholly and exclusively charitable.

Object of Charitable Nature

In the oft-quoted judgment of the House of Lords inPammel’s case[15] their Lordships said:Charity in its legal sense comprises four principal divisions:

• Trusts for the relief of poverty;
  • Trusts for the advancement of education;

  • Trusts for the advancement of religion; and trusts for other purposes beneficial to community, not falling under any one of the preceding heads.

The trusts last referred are not the less charitable in the eye of the law, because incidentally they benefit the rich as well as the poor, as indeed, every charity that deserves the name must do either directly or indirectly. Snell presents the following list of charitable objects: the relief of aged, impotent and poor people, the maintenance of sick and maimed soldiers and mariners, schools of learning, free schools and scholars in universities, the repair of bridges, ports, havens, causeways, churches, sea banks and highways, the education and preferment of orphans, the relief, stock or maintenance for house of correction, the marriage of the poor maids,
the supportation, aid and help of young tradesman, handicraftsmen and persons decayed, the relief or redemption of prisoners or captives, the aid or ease of any poor inhabitants fifteens, setting out of soldiers and other taxes.

Charitable Trust under Various Acts:-

“Charitable purpose” includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, but does not include a purpose which relates exclusively to religious teaching or Worship[16].

Charitable purposes[17]:

For the purposes of this Act, a charitable purpose includes –

• Relief of power by or distress,
• Education,
• Medical relief

No man having a nephew or niece or any nearer relative shall have power to bequeath any property to religious or charitable uses, except by a will executed not less than twelve months before his death, and deposited within six months from its execution in some place provided by law for the safe custody of the wills of living persons[18].

A transfer of property for the benefit of the public in the advancement of religion, knowledge, commerce, health, safety or any other object beneficial to mankind[19]

• The Bombay Public Trusts Act, 1950 (registration requirements for a charitable trust): the following documents are required to be filed in order to register a charitable trust with the charity commissioner’s office:
  • A covering letter;
  • An application form in Form–Schedule II under rule 6 duly notarized;
  • A court fee stamp of Rs. 2/- to be affixed on the application form;
  • A certified copy of the trust document;

  •  A consent letter of trustees.

• Registration under the Income Tax Act, 1961: charitable or religious trusts, societies, and companies claiming exemption are required to obtain registration under this Act[20]. Private/family trusts are neither allowed such exemption nor required to seek registration under the Income Tax Act. The detailed registration procedure is set out in section 12AA of the Income Tax Act.

• Registration under the Foreign Contribution (Regulation) Act, 1976: any charitable trust desirous of receiving foreign contributions from foreign sources is required to obtain registration[21]. Any such trust which is not registered or which has been denied registration, can receive foreign contributions only after obtaining prior permission from the home ministry of the central government[22]. In order to obtain registration under the FCRA[23], the applicant association should preferably be incorporated as a legal entity, i.e. as a charitable trust and should have been working for a period of at least three years. The association must not have received any foreign contributions previously without prior permission of the government.

All the trusts have to apply for a permanent account number, which enables the trustees topay tax on behalf of the beneficiaries at the trust level itself.

• M.C. Chacko v. State Bank of Travancore

            The facts of the case were as follows:

The Highland Bank was indebted to the State Bank of Travancore under an overdraft. One M was the manager of the Highland Bank and his father K had guaranteed the repayment of the overdraft. K gifted his properties to the members of his family. The gift deed provided that the liability, if any, under the guarantee should be met by M either from the bank or from the share of property gifted to him. The State Bank attempted to hold M liable under this provision of the deed.

But he was held not liable. “The State Bank not being a party to the deed was not bound by the covenants in the deed, nor could it enforce the covenants. It is settled law that a person not a party to a contract cannot enforce the terms of the contract.

Constructive trust is created in favour of an addressee of insured articles and he can claim compensation from the Central Government on non-delivery of such articles

Conclusion

To conclude trust vehicles, which were earlier essentially being used purely as testamentary vehicles for the distribution of assets on the demise of the testator, are now being advantageously used for managing and investing assets, securing the interests of the beneficiaries by providing asset-protection and ensuring distribution of in come and assets as per the desires of the settlor. This can only be effectively achieved if the structured evised harmonises the strategic objectives of the settler with the tax, regulatory and other aspects governing such trust structure.

A settlor may set up a revocable trust in order to exercise control over the assets and distributions of income and capital from the trust or an irrevocable discretionary trust in order to safeguard the

assets against the claims of the creditors(actual and/or potential) of the settler and/or the beneficiaries or multiple trusts to achieve various objectives. Indian trust law does not lay down restrictions with respect to a trust being setup with hybrid characteristics i.e. having both, determinate and discretionary features for different classes of assets in the same trust or provide a specific format for the trust instrument. This flexibility allows a trust structure to bedevised to suit the specific needs and requirements of the settlor and eliminate the need to create multiple trusts.

Unlike most common law jurisdictions, Indian trust law does not recognize the duality of ownership viz: legal and equitable. The trustee is the legal and beneficial owner of the trust property and the beneficiaries merely have a beneficial interest in such property. Private trusts in India (of a non-religious character)set up for the maintenance and support of the settlor’s family members, areal so subject to the rule against perpetuity. This rule prescribes that a trust can be in existence for a period of 18 years from the date of death of the last existing beneficiary.

---

[1]   Gandhi B. M., “Equity, Trust and Specific Relief”, 4^thEdn., Eastern Book Co.

[2]Solar v. Ashwell, (1893) 2 QBD 390

[3]  Nathan & Marshall: A Casebook on Equity and Succession, No.46; (1676) 3 Swans 585.

[4]   12^thEdtn., p. 124 cited in Nathan & Marshall: A Casebook on Equity and Succession, No.47; 19671 Edn.,

[5]Cambay Municipality v. Ratilal Ambalal Reshamwala, 1995 Supp (2) SCC 591

[6]Sec. 83 Where a trust is incapable of being executed, or where the trust is completely executed without 

    exhausting the trust-property, the trustee, in the absence of a direction to the contrary, must hold the trust  

property, or so much thereof as is unexhausted, for the benefit of the author of the trust or his legal representative

[7]A Merrium Webster; Webster’s Seventh New Collegiate Dictionary, p.668

[8]  Maitland, Lectures on Equity, p. 61

[9]  Hanbury; Modern Equity, p. 195-203 and 242-251

[10]http://ngohelpline.in/services.htm

[11]http://business.gov.in/taxation/public_pvt_trust.php

[12]Section 89 of The Registration Act, 1908

[13]Sri Ram v. Prabhu Dayal, AIR 1972 Raj. 180

[14]Hanmantram Ramnath v. CIT, AIR 1947 Bom. 115

[15]CIT v. Pemseli, 1891 AC 531

[16]   Sec. 2 the Charitable Endowments Act, 1890

[17]   Sec. 9 The Bombay Public Trusts Act, 1950

[18]   Sec. 118 of the Indian Succession Act, 1925

[19]   Sec. 18 of the Transfer of Property Act, 1882

[20]  Sections 11 and 12 of the Income Tax Act, 1961

[21]  Section 6(1) of the FCRA

[22]   Section 6(1A) of the FCRA

[23]The Foreign Contribution (Regulation) Ac