Liabilities of Beneficiaries and Their Transferees (Sections 68 and 69)

Beneficiaries are usually the victims of a breach of trust, but not always. A beneficiary may join in the breach, profit from it, hide it, or trick the trustee into it, to the detriment of the other beneficiaries. Section 68 makes such a beneficiary bear the loss out of his own interest. Section 69 then states the position of a person who takes a transfer of a beneficiary's interest. This note closes Chapter VI.

1. Liability of a Beneficiary Joining in Breach (Section 68)

Section 68, Indian Trusts Act, 1882 (liability of beneficiary joining in breach of trust)

Where one of several beneficiaries (a) joins in committing a breach of trust, or (b) knowingly obtains any advantage therefrom, without the consent of the other beneficiaries, or (c) becomes aware of a breach of trust committed or intended to be committed, and either actually conceals it, or does not within a reasonable time take proper steps to protect the interests of the other beneficiaries, or (d) has deceived the trustee and thereby induced him to commit a breach of trust, the other beneficiaries are entitled to have all his beneficial interest impounded as against him and all who claim under him (otherwise than as transferees for consideration without notice of the breach) until the loss caused by the breach has been compensated.

The four grounds

Ground	What the beneficiary did	Example
(a) Joining in the breach	Participated with the trustee in committing it	Agreeing with the trustee to an unauthorised loan to a business in which he is interested
(b) Knowingly obtaining an advantage	Took a benefit from the breach, knowing of it, without the other beneficiaries' consent	Accepting an advance of capital he knows the trustee has no power to make
(c) Concealment or inaction	Knew of a committed or intended breach and either actively concealed it or failed within a reasonable time to protect the others	Discovering that the trustee is siphoning funds and saying nothing
(d) Deceiving the trustee	Induced the breach by deception	Falsely telling the trustee that all beneficiaries have agreed to a distribution

The remedy: impounding

The other beneficiaries may have all of the wrongdoing beneficiary's interest impounded, that is, held back and applied towards making good the loss, until the loss has been compensated. Impounding operates:

Against him and all who claim under him, including his heirs, assignees and creditors;
Except transferees for consideration without notice of the breach, who are protected;
Until compensation is complete; the interest is not forfeited outright, and any balance remains his.

Relationship with Section 23

Section 68 complements Section 23. Under Section 23, a beneficiary who fraudulently induced the breach, or who freely concurred or acquiesced with full knowledge, cannot sue the trustee for the loss (Topic 17). Under Section 68, the other beneficiaries, who did not participate, can recover from his interest. Section 33 adds that a trustee who has made good the loss has a charge on a gaining beneficiary's interest for what that beneficiary received (Topic 19). The combined effect is that the loss falls, so far as possible, on those responsible for it.

2. Rights and Liabilities of a Beneficiary's Transferee (Section 69)

Section 69 (rights and liabilities of beneficiary's transferee)

Every person to whom a beneficiary transfers his interest has the rights, and is subject to the liabilities, of the beneficiary in respect of such interest at the date of the transfer.

A beneficiary may transfer his interest under Section 58 (Topic 25). Section 69 decides what the transferee gets: exactly what the beneficiary had at the date of transfer, no more and no less.

Rights: the transferee takes the beneficiary's rights to income, to specific execution, to information and inspection, and to the remedies in Sections 59 to 66.
Liabilities: he takes the interest subject to any liability attached to it at the date of transfer, such as a charge for an overpayment (Section 32), a charge in favour of the trustee for a benefit received from a breach (Section 33), or impounding for the transferor's participation in a breach (Section 68), subject to the protection Section 68 gives to transferees for consideration without notice of the breach.
Notice to the trustee: the transferee should notify the trustee promptly, because a trustee who pays the original beneficiary without notice of the transfer is protected (Section 28).

⚠ Key point

Where one of several beneficiaries joins in a breach, knowingly obtains an advantage from it without the others' consent, conceals or fails within a reasonable time to act on a known breach, or deceives the trustee into it, the other beneficiaries may have all his beneficial interest impounded against him and those claiming under him (except transferees for consideration without notice) until the loss is compensated (Section 68). A beneficiary's transferee takes the rights and is subject to the liabilities of the beneficiary in respect of the interest at the date of transfer (Section 69).

3. Related Topics and Provisions

Breach of trust and liability (Topic 17): the Section 23 defences
Protection and indemnity of trustees (Topic 19): Sections 28 and 33
Rights of the beneficiary (Topic 25): transfer under Section 58