Obligations in the Nature of Trusts: Concept, Obligor and Bona Fide Purchaser (Sections 80 and 94 to 96)

Not every trust is created on purpose. Sometimes the law requires a person to hold property for another even though no one declared a trust: because a trust failed, because property was bought with another's money, or because a fiduciary made a secret profit. English law calls these implied, resulting and constructive trusts. The Indian Trusts Act gathers them in Chapter IX (Sections 80 to 96) under the heading obligations in the nature of trusts. This note explains the concept, the position of the person bound (the "obligor"), the protection of bona fide purchasers, and the effect of the repeal of the residuary Section 94.

1. The Concept (Section 80)

Section 80, Indian Trusts Act, 1882 (where obligation in nature of trust is created)

An obligation in the nature of a trust is created in the following cases.

Section 80 is an introductory provision: it states that the following sections (81 to 94) describe cases in which an obligation in the nature of a trust arises. Three features distinguish these obligations from express trusts:

They arise by operation of law, from the facts, not from a declaration by an author. Sections 5 and 6 on formalities and certainties therefore do not apply, and no writing or registration is needed even for immovable property.
They are "in the nature of" trusts, not trusts in the strict sense. The person bound is not a trustee who accepted a confidence; he is an obligor on whom the law imposes trust-like duties.
They are closely tied to unconscionability: in most cases the law intervenes because it would be unfair for the holder to keep the property or advantage for himself.

2. The Cases Covered

Section	Situation	Category
81 (repealed)	Transfer where the transferor did not intend to part with the beneficial interest	Resulting
82 (repealed)	Transfer to one person for consideration paid by another (benami)	Resulting
83	Trust incapable of execution, or executed without exhausting the property	Resulting
84	Transfer for an illegal purpose	Resulting
85	Bequest for an illegal purpose, or revocation of a bequest prevented by coercion	Resulting
86	Transfer under a contract liable to rescission	Constructive
87	Debtor becoming the creditor's executor or other representative	Constructive
88	Advantage gained by a fiduciary	Constructive
89	Advantage gained by undue influence	Constructive
90	Advantage gained by a qualified owner	Constructive
91	Property acquired with notice of an existing contract	Constructive
92	Purchase by a person contracting to buy property to be held on trust	Constructive
93	Advantage secretly gained by one of several compounding creditors	Constructive
94 (repealed)	Residuary: any other case where the holder lacks the whole beneficial interest	Residuary

The categories in the last column are the English labels, used for convenience; the Act itself does not use them. Topics 33 to 36 examine the individual sections.

3. The Obligor's Duties (Section 95)

Section 95 (obligor's duties, liabilities and disabilities)

The person holding property in accordance with any of the preceding sections of this Chapter must, so far as may be, perform the same duties, and is subject, so far as may be, to the same liabilities and disabilities, as if he were a trustee of the property for the person for whose benefit he holds it:

Provided that (a) where he rightfully cultivates the property or employs it in trade or business, he is entitled to reasonable remuneration for his trouble, skill and loss of time in such cultivation or employment; and (b) where he holds the property by virtue of a contract with a person for whose benefit he holds it, or with any one through whom such person claims, he may, without the permission of the Court, buy or become lessee or mortgagee of the property or any part thereof.

Section 95 imports the law of express trusts "so far as may be": the obligor must preserve the property, account for it, and not use it for his own benefit, and he is liable for breach as a trustee would be. Two provisos soften the position because the obligor never chose to be a trustee:

Remuneration: if he rightfully cultivates the property or uses it in business, he may claim reasonable remuneration, unlike an express trustee (Section 50).
Dealing with the property: if he holds under a contract with the beneficiary or his predecessor, he may buy, lease or take a mortgage of the property without the court's permission that Section 53 would require of an express trustee.

4. Protection of Bona Fide Purchasers (Section 96)

Section 96 (saving of rights of bona fide purchasers)

Nothing contained in this Chapter shall impair the rights of transferees in good faith for consideration, or create an obligation in evasion of any law for the time being in force.

Section 96 does two things. It protects transferees in good faith for consideration: obligations arising under Chapter IX do not bind a purchaser who paid value in good faith, which parallels Section 64 for express trusts (Topic 27). And it prevents Chapter IX being used to evade the law: no obligation in the nature of a trust arises where recognising it would help a party get round a statutory prohibition.

5. The Repeal of Section 94

Section 94 was a residuary provision. Where none of the specific cases applied and there was no trust, but the person in possession of property did not have the whole beneficial interest, he had to hold it for those having that interest, to the extent necessary to satisfy their just demands. It gave Indian courts a flexible tool comparable to the English constructive trust.

The Benami Transactions (Prohibition) Act, 1988 repealed Sections 81, 82 and 94 together, because they had been used to enforce benami arrangements. The result is that Chapter IX is now, on its face, a closed list. Whether Indian courts can still recognise constructive trusts outside the listed cases, under the general principles of justice, equity and good conscience, is a debated question. Courts continue to impose trust-like obligations in fiduciary situations, often through Section 88, which is broad, and through general equitable principles, but they are cautious about creating new categories after Parliament's deliberate repeal.

⚠ Key point

Chapter IX lists cases in which an obligation in the nature of a trust arises by operation of law, without declaration, writing or registration (Section 80); they correspond broadly to English resulting (Sections 83 to 85) and constructive (Sections 86 to 93) trusts. The obligor must, so far as may be, perform the duties and bear the liabilities and disabilities of a trustee, but may claim remuneration for rightful cultivation or business use and, if he holds under contract, deal with the property without court permission (Section 95). Chapter IX does not impair the rights of transferees in good faith for consideration or create obligations in evasion of law (Section 96). Sections 81, 82 and 94 were repealed by the Benami Act, 1988.

6. Related Topics and Provisions

Classification of trusts (Topic 5): express and implied trusts
Resulting trusts (Topic 33) and benami transactions (Topic 34)
Constructive trusts (Topics 35 and 36)
Following and tracing (Topic 27): Section 64