Duties and Liabilities of Trustees: Complete Notes (Part C)

Part C covers Chapter III of the Act (Sections 11 to 30): the duties a trustee owes, the standard by which he is judged, the investment of trust money, his liability for breach, the position of co-trustees, and the protections the Act gives him. This consolidated note covers Topics 13 to 19.

1. Core Duties (Sections 11 to 14)

Section	Duty
11	Fulfil the purpose of the trust and obey the author's directions given at creation, unless modified by consent of all competent beneficiaries (or the court for incompetent ones); not required to obey directions that are impracticable, illegal or manifestly injurious. Trusts for debts cover only debts existing and recoverable at creation (or death), without interest on non-interest-bearing debts
12	As soon as possible, acquaint himself with the property, obtain a transfer to himself where needed, and get in money on insufficient or hazardous security
13	Maintain and defend suits and take reasonable steps to preserve the property and protect title, proportionate to its value
14	Never set up or aid a title adverse to the beneficiary

2. Care, Preservation, Impartiality and Accounts

Standard of care (Section 15): the care a man of ordinary prudence would take with his own property of that kind; a trustee meeting it is not liable for loss unless he contracted otherwise. The illustrations protect reasonable decisions that go wrong (dishonoured bills, a failed banker, a good faith compromise) but impose liability for want of diligence (poorly advertised sales, uncollected purchase money, lapsed policies, leaving all to a co-trustee).
Conversion (Section 16): for successive beneficiaries, convert wasting or reversionary property into property of a permanent and immediately profitable character, unless the instrument shows an intention that it be enjoyed in specie.
Waste (Section 18): prevent destructive or permanently injurious acts by a beneficiary in possession.
Impartiality (Section 17): do not execute the trust for one beneficiary at another's expense; hold the balance between income and capital; the court will not control a discretion exercised reasonably and in good faith.
Accounts and information (Section 19): keep clear and accurate accounts, and give a requesting beneficiary full and accurate information at all reasonable times, matched by the inspection right in Section 57.

3. Investment (Sections 20, 20A and 40)

Money that cannot be applied at once must be invested, subject to the instrument, in securities expressly authorised by the instrument or specified by the Central Government by notification (Section 20, substituted by the Indian Trusts (Amendment) Act, 2016, in force 17 April 2017). An adult life tenant's written consent is required. "Securities" bears its SCRA meaning. The 2017 notification covers government and guaranteed securities, debt mutual funds, rated corporate and bank debt, large listed equities, equity funds and index products. Redeemable securities may be bought above redemption value (Section 20A) and investments varied within the permitted range (Section 40). Choice among permitted investments is governed by Section 15. Section 21 (a saving for older investments and small Government Savings Bank deposits) and Section 22 (sale within a fixed time) are covered with trustees' powers in Part D.

4. Liability for Breach (Sections 23 and 24)

A trustee must make good the loss caused by his breach, whatever his good faith; the Act has no general power to relieve an honest trustee. He is not liable to a beneficiary who fraudulently induced the breach or, being competent and free, concurred or acquiesced with full knowledge of the facts and his rights.

Interest case under Section 23	Liability
Interest actually received	That interest
Unreasonable delay; ought to have received; fairly presumed to have received	Simple interest at 6% per annum, unless the court directs otherwise
Failure to invest and accumulate	Compound interest with half yearly rests
Use of trust property in trade or business	Compound interest or net profits, at the beneficiary's option

A gain from another and distinct breach cannot be set off against a loss (Section 24). Exemption clauses are construed strictly and cannot cover fraud or dishonesty.

5. Co-trustees (Sections 26, 27, 44, 48 and 54)

Joint action: all must join unless the instrument provides otherwise (Section 48); powers survive to continuing trustees on the death or disclaimer of one (Section 44).
Liability for a co-trustee: not vicarious, but arising from his own default in delivering property without seeing to its application, failing to enquire or allowing undue retention, or concealing or failing to act on a known breach; merely joining in a receipt is not enough (Section 26).
Joint and several liability: each liable co-trustee answers to the beneficiary for the whole loss; between them, the less guilty recover from the more guilty, the equally guilty contribute, and a fraudulent trustee cannot claim contribution (Section 27).
No inter-trustee loans: trust money may not be lent on the mortgage or personal security of a trustee or co-trustee (Section 54).

6. Protection of Trustees

Section	Protection
25	Not liable, as such, for a predecessor's acts or defaults
28	Not liable for payment to the apparently entitled person without notice that the interest has vested in another
29	Holds a forfeited interest as the State Government directs
30	Chargeable only for what he actually receives; not answerable for co-trustees, bankers, brokers or involuntary losses, subject to the instrument
33	Indemnity from a non-trustee gainer to the extent received, with a charge on a gaining beneficiary's interest; not for a fraudulent trustee

⚠ Key point

Part C in one line: a trustee must carry out the trust as directed, know, get in and protect the property, never claim against the beneficiary, act with ordinary prudence, keep the balance between beneficiaries, account fully, and invest only in authorised or notified securities; he must make good every loss from breach (with interest in the listed cases and no set-off), answers for co-trustees only through his own default though jointly and severally liable, and is protected against predecessors' defaults, payments without notice and involuntary losses.

7. The Topics of This Part

Topic 13: Core duties: executing the trust and protecting the property (Sections 11 to 14)
Topic 14: Standard of care and preservation of property (Sections 15, 16 and 18)
Topic 15: Impartiality, accounts and information (Sections 17 and 19)
Topic 16: Investment of trust money and the 2016 amendment (Sections 20, 20A and 40)
Topic 17: Breach of trust and the trustee's liability (Sections 23 and 24)
Topic 18: Co-trustees: joint action, liability and contribution (Sections 26, 27, 44, 48 and 54)
Topic 19: Protection and indemnity of trustees (Sections 25, 28 to 30 and 33)