Powers of Trustees: Management, Sale, Receipts, Compromise and Maintenance of Minors (Sections 21, 22, 36 to 39 and 41 to 43)

Duties tell a trustee what he must do; powers tell him what he may do. The trust instrument is the first source of a trustee's powers, but the Act supplies a set of statutory powers that apply unless the instrument excludes or modifies them. They cover general management, sale and conveyance, receipts, compromise of claims, and the maintenance of minor beneficiaries. This note explains these powers and the limits on them. The power to vary investments (Section 40) is covered in Topic 16, and the survival and suspension of powers (Sections 44 and 45) in Topics 18 and 22.

1. General Authority (Section 36)

Section 36 is the trustee's general management power. It authorises any act that is reasonable and proper for one of two purposes:

• The trust property: realising it (collecting debts, selling where a sale is authorised), protecting it (repairs, insurance, litigation), or benefiting it (letting, improving, managing).
• An incompetent beneficiary: protecting or supporting a beneficiary who is a minor or of unsound mind, for example by paying for his care.

The limit on leases

Section 36 contains one express restriction. Except with the permission of a principal Civil Court of original jurisdiction, a trustee may not lease trust property for a term exceeding twenty-one years from the date of the lease, nor without reserving the best yearly rent that can reasonably be obtained. A long lease effectively disposes of the property for a generation, so the court must approve it.

The general authority is not a power to do anything the trustee thinks beneficial. It must be read with the trustee's duties: an act that departs from the instrument (Section 11), falls below ordinary prudence (Section 15), or benefits one beneficiary at the expense of another (Section 17) is not "reasonable and proper".

2. Powers of Sale and Conveyance (Sections 37 to 39)

These sections do not create a power to sell. They apply where the trustee is already empowered to sell, by the instrument, by the court, or by Section 16 (conversion of wasting property), and they regulate how he may sell.

The powers are broad, but they are exercised under the duty of care. The illustrations to Section 15 show that a trustee who sells by auction without proper advertisement, or who fails to collect the full price, is liable for the loss. A trustee who is directed to sell must also not buy the property himself (Section 52; Topic 24).

3. Sale Within a Fixed Time (Section 22)

Section 22 does not forbid delay; a market may be poor at the appointed time, and a sensible trustee may wait. But it shifts the burden of proof. If the trustee extends the period on his own authority, he must prove that the beneficiary was not prejudiced. If he obtains the court's authority for the extension, the burden does not shift. The illustration shows a trustee directed to sell within five years who sells in the sixth: he must prove the delay caused no prejudice.

4. Section 21: Saving of Certain Investments

Section 21 is a saving clause attached to the investment rules. It provides that Section 20 does not apply to investments made before the Act came into force, and does not prevent investment on a mortgage of land already pledged as security for an advance under the Land Improvement Act, 1871, or, where the trust money does not exceed three thousand rupees, a deposit in a Government Savings Bank. It is of limited practical importance today but completes the scheme of Sections 20 to 22.

5. Maintenance of Minors (Section 41)

• What may be applied: the income to which the minor is entitled, in whole or in part. The section does not authorise use of capital.
• For what purposes: maintenance, education, advancement in life, and the reasonable expenses of religious worship, marriage or funeral.
• How: by payment to the minor's guardian, or by direct application (paying school fees, for example).
• The residue: income not applied must be accumulated at compound interest in Section 20 securities, for whoever ultimately becomes entitled to the property.
• Discretion: the power is discretionary, and is subject to Section 49 control if not exercised reasonably and in good faith.

6. Receipts (Section 42)

Any trustee or trustees may give a written receipt for money, securities or other movable property payable or deliverable to them under the trust. In the absence of fraud, the receipt discharges the payer, who need not see to the application of the money and is not accountable for its loss or misapplication. The power makes trusts workable in commerce: a tenant paying rent or a buyer paying the price need only obtain the trustee's receipt. Where there are several trustees, Section 48 ordinarily requires all to join unless the instrument provides otherwise.

7. Compromise and Settlement (Section 43)

Litigation is costly and uncertain, and Section 43 lets trustees settle claims commercially: accepting part payment, taking security, giving time, compromising, abandoning a hopeless claim, or referring a dispute with a third party to arbitration. The power belongs to two or more trustees acting together; a sole trustee must rely on the instrument, Section 36 or the court. The illustration to Section 15 confirms that a trustee who compounds a debt in good faith is not liable for resulting loss. Arbitration of a claim against an outsider is distinct from disputes among trustees and beneficiaries, which are not arbitrable (Topic 12).

8. Related Topics and Provisions

• Investment of trust money (Topic 16): Sections 20, 20A and 40
• Co-trustees (Topic 18): Sections 44 and 48
• Discretionary trusts and the court's control (Topic 22): Sections 45 and 49
• Fiduciary disabilities (Topic 24): Section 52 on trustees for sale