Obligations in the Nature of Trusts: Complete Notes (Part H)

Part H covers Chapter IX of the Act (Sections 80 to 96): the cases in which the law imposes trust-like obligations without any declaration of trust, broadly corresponding to English resulting and constructive trusts, together with the benami law that displaced part of the Chapter. This consolidated note covers Topics 32 to 36.

1. The Framework (Sections 80 and 94 to 96)

Section 80: an obligation in the nature of a trust arises in the cases listed. It arises by operation of law, needs no writing or registration, and binds an obligor, not a trustee in the strict sense.
Section 95: the obligor must, so far as may be, perform the duties and bear the liabilities and disabilities of a trustee; he may claim remuneration for rightful cultivation or business use, and if he holds under contract may buy, lease or mortgage the property without court permission.
Section 96: nothing in the Chapter impairs the rights of transferees in good faith for consideration, or creates an obligation in evasion of any law.
Section 94 (repealed): the residuary provision, together with Sections 81 and 82, was repealed by the Benami Act, 1988. Whether constructive trusts can still be recognised outside the listed cases is debated; courts rely heavily on the broad Section 88.

2. Resulting Obligations (Sections 81, 83 to 85)

Section	Rule
81 (repealed)	Transferee held for the transferor where no intent to part with the beneficial interest could be inferred
83	Where a trust is incapable of execution, or executed without exhausting the property, the trustee holds the property or surplus for the author or his legal representative, absent a contrary direction; public trusts may instead be applied cy-près
84	A transferee for an illegal purpose holds for the transferor where the purpose was not carried out, the transferor is less guilty, or retention would defeat a law
85	A legatee under a bequest for an unlawful purpose (on the face of the will or secretly agreed), or whose bequest survived because revocation was prevented by coercion, holds for the testator's legal representative

3. Benami (Section 82 and the Benami Act)

Section 82 (repealed) made a person in whose name property was bought with another's money hold it for the payer. Jaydayal Poddar v Bibi Hazra (1974) set the tests for benami: source of money (the most important), possession, motive, relationship, custody of title deeds and conduct. The Benami Transactions (Prohibition) Act, 1988 prohibited benami transactions, barred the real owner's suits and defences (prospectively: Rajagopal Reddy, 1995) and repealed Sections 81, 82 and 94. The 2016 amendment (from 1 November 2016) renamed it the Prohibition of Benami Property Transactions Act, added confiscation and penalties, and excluded property held by a trustee or other fiduciary, by a karta for the family, and family holdings from known sources. Ganpati Dealcom (2022) was recalled in October 2024.

4. Constructive Obligations (Sections 86 to 93)

Section	Who holds	For whom
86	Transferee under a contract liable to rescission or induced by fraud or mistake, after notice	Transferor, on repayment
87	Debtor who becomes creditor's executor or representative	Persons interested in the estate
88	Fiduciary gaining a pecuniary advantage from his position or from conflicting dealings	Person he must protect
89	Person gaining by undue influence, without consideration or with notice	Person prejudiced
90	Tenant for life, co-owner, mortgagee or other qualified owner gaining an advantage	All interested, sharing costs
91	Acquirer with notice of a specifically enforceable contract	Prior contracting party
92	Buyer who contracted to hold the property on trust	Intended beneficiaries
93	Compounding creditor with a secret undue advantage	Co-creditors

Section 88 is the Indian statement of the strict fiduciary rule (Keech v Sandford; Boardman v Phipps): honesty and absence of loss are no defence. Section 89 adds a proprietary remedy to the Contract Act's undue influence rules (Sections 16 and 19A). Section 91 works with Section 19(b) of the Specific Relief Act and Section 40 of the Transfer of Property Act.

⚠ Key point

Part H in one line: Chapter IX imposes trust-like obligations by operation of law, binding an obligor to act as a trustee so far as may be, but never against a bona fide purchaser or in evasion of law; property results to the provider where a trust fails or an illegal purpose is abandoned, benami claims are now barred by the 1988 Act except for genuine fiduciary holdings, and fiduciaries, those using undue influence, qualified owners, rescinding parties' transferees, buyers with notice and secretly favoured creditors must hold their gains for those truly entitled.

5. The Topics of This Part

Topic 32: Obligations in the nature of trusts: concept, obligor and bona fide purchaser (Sections 80 and 94 to 96)
Topic 33: Resulting trusts (Sections 81 and 83 to 85)
Topic 34: Benami transactions: Section 82, its repeal and the Benami Act
Topic 35: Constructive trusts from a fiduciary position, undue influence and qualified ownership (Sections 88 to 90)
Topic 36: Constructive trusts from contracts, transfers and creditor arrangements (Sections 86, 87 and 91 to 93)