creation and extinction of trusts

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Creation and Extinction of Trusts

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Table of Cases

1. Adams and the Kensington Vestry, Re, LR 27 Ch D 394.2. Chhogmal Bhandari v. Deputy Commissioner Tax Officer, AIR 1976 SC 656.3. Dassa Ramachandra v. Narasimha Damodar, 13 Bom LR 101.4. Dinshaw and Co. v. Krishna Piarey, AIR 1941 Oudh 126.5. Dutton v. Thompson, (1883)23 Ch D 278.6. Gangi Reddi v. Tami Reddi, AIR 1927 PC 80.7. Garrard v. Lauderdale, (1830)3 Sim 1.8. Gelaram v. District Board of Muzzafargarh, AIR 1923 Lah 93.9. Govindlalji v. State of Rajasthan, AIR 1963 SC 1638.

10. Harbans Singh v. Rajendra Kaur, AIR 1925 All 277.11. Harihar Prasad Singh v. Maharaja Kesho Prasad Singh, AIR 1925 Pat 68.12. Harland v. Trigg, 1 Bro CC 141.13. Isaac Nissim v. Official Trustee, Bengal, AIR 1957 Cal 118.14. Jadunath Singh v. Bisheswara Singh, AIR 1939 Oudh 17.15. Jugalkishore Rupchand v. Ambala Commercial Bank, AIR 1953 Punj 98.16. Knight v. Knight, (1840) 3 Beav. 148.17. Morice v. Bishop of London, 10 Ves 527.18. Princess Usha Trust v. CIT, 1983 Tax LR 838.19. Rajkumar Mohan Singh v. Rajkumar Pasupatinath Saran Singh, AIR 1969 SC 135.20. Ram Ran Vijay Prasad Singh v. Province of Bihar, AIR 1942 Pat 435.21. Ramchandra Sukla v. Mahadeoji, AIR 1970 SC 458.22. Re, Caplen’s Estate, Bulbeck v. Silvester, (1876)45 LJ Ch 2.23. Saunder’s Case, (1841) 4 Beav. 115.24. Subhash Chandra Bose v. Gordhandas Patel, AIR 1940 Bom 76.25. Suraj Bhan v. Bodh Nand, AIR 1987 All 183.26. Syed Zakir Ali v. Umatul Habib Begum, 1 IC 347.27. Sykes v. Beadon, 11 Ch D 170.28. Thayammal v. Perumal Chetty, AIR 1926 Mad 284.



29. Vadivelu Mudaliar v. C.N Kuppuswami Mudaliar, [1972]1 Mad LJ 265.30. Vadivelu Mudaliar v. N.S Rajabada, AIR 1967 Mad 175.31. Venkataratnam v. Bola Buravayya, AIR 1930 Mad 84.

Table of Statutes

1. Code of Civil Procedure, 1908.2. Indian Penal Code, 1860.3. Indian Registration Act, 1908.4. Indian Trusts Act, 1882.5. Limitation Act, 1963.6. Transfer of Property Act, 1882.7. Trustee Act, 1925.

Introduction

“Of all the exploits of equity the largest and the most important is the invention anddevelopment of the trust”- Maitland

According to Underhill ‘A trust is an equitable obligation binding a person(called a trustee) todeal with property over which he has control(called the trust property) for the benefit ofpersons(called beneficiaries or cestui que trust) of whom he himself may be one and any of whommay enforce the obligation’[1]. Thus the essential characteristic of a trust is that a person(the settlor) transfers property, or declares to another, or others (the trustees), propertywhich he already holds, and that property is to be managed and controlled for the bene-fit of someone else (the beneficiary).

Origin of Trusts[2]

Trusts originate when assets are transferred to another person with instructions that theassets are used to benefit a third party.

The question that arises is how can the use of the assets and the benefit of another beguaranteed? Originally it couldn’t; the transfer was the end of the matter and, despite



the undertaking by the recipient to use the property to benefit others, advantage wastaken of that position. The recipient had been endowed with the legal ownership of thatproperty and those who anticipated receiving the benefit from that property could be indifficulty.

How this was overcome marks the development of English law over all other systems.

A disappointed beneficiary could not hope to succeed by appealing to the law courts.He wouldn’t get very far. The legal ownership had been transferred and he had no legaltitle at all to the assets. Instead he appealed to the Lord Chancellor. In the early days theLord Chancellor was a cleric and was known as “Keeper of the Kings Conscience”. TheLord Chancellor was a powerful person. He had jurisdiction over spiritual matters andmatters affecting peoples’ conscience. He could not deny the authority of the law in thecommon law courts, and the rights that they conferred on others in respect of the prop-erty transfer. However, by an ingenious step, although whilst not denying the legalownership, the Lord Chancellor could exercise his jurisdiction by saying to that personthat if he did not honour his obligation this would damage his conscience. The LordChancellor would therefore feel he should take action to prevent this. He would enforcethe beneficial rights of the person who the transfer was intended to benefit.

These beneficial rights become part of the title to the property; English law, therefore,adopted a split concept of ownership. There was the legal ownership by the personholding the assets, who became known as the trustee, and there was the equitable, orbeneficial ownership held for the person, who became known as the beneficiary.

This is a simple explanation of a complex historical process but, nevertheless, upon thisdistinction between the legal and equitable ownership, the modern law of trusts has de-veloped. This split in ownership is unique to the English legal system and is unknownin civil law systems.

Types of Trusts

Many kinds of trusts are available. Trusts may be classified by their purposes, by theways in which they are created, by the nature of the property they contain, and by theirduration. One common way to describe trusts is by their relationship to the trustor’s life.



In this regard, trusts are generally classified as either living trusts (“inter vivos” trusts),or testamentary trusts.[3]

Living trusts are created during the lifetime of the trustor. Property held in a living trustis not normally subject to probate (the court-supervised process to validate a will andtransfer property on the death of the trustor)[4].

Testamentary trusts are created as part of a will and must conform to the statutory re-quirements that govern wills. This type of trust becomes effective upon the death of theperson making the will (the “decedent”) and is commonly used to conserve or transferwealth. The will provides that part or all of the decedent’s estate will go to a trustee whois charged with administering the trust property and making distributions to designatedbeneficiaries according to the provisions of the trust[5].

Most trusts involve a number of technical legal concepts relating to ownership, taxesand control. In creating a trust, one should consider several factors and obligations, in-cluding[6]:

Personal situation, including age, health and financial status;Family relationships family’s financial circumstances;Personal financial data: personal property, real estate holdings, securities, and oth-er property — as well as one’s tax situation and any debts or obligations;The purpose of the trust: one’s goals, or what one hopes to accomplish by thearrangement;The type of trust, and how versatile or flexible one’s plans are.The amount and type of property it will contain;The duration, or how long the trust will last;The beneficiaries and their specific needs;Any conditions that must be met by a beneficiary to receive benefits (such as attain-ing a certain age);Alternatives for disposing of assets in case the trust conditions are not met or cir-cumstances change; andThe trustee, and the conditions or guidelines under which he or she will function.

This project focuses on and performs a comprehensive study of the various legal issues



and aspects involved in ‘The Creation and Extinction of Trusts’. The law of trusts hasproved to be versatile and adaptable and in today’s world the law of trusts is only gain-ing in importance and stature. Trusts are making their presence felt in almost everywalk of life including international finance. Thus emphasis on the basics of the law oftrusts viz. ‘Creation and Extinction of Trusts’ assumes an even greater importance as itwill enable a fuller and more comprehensive understanding of the legal niceties in-volved in trust law and will equip one to face the challenges posed by the ever develop-ing law of trusts in today’s dynamic world.

Research Methodology

Aims and Objectives

The aim of this project is to perform a comprehensive study and analysis of the law re-lating to ‘Creation and Extinction of Trusts’. The project aims at analysing the variousstatutory provisions relating to creation and extinction of trusts in the light of case law.Another objective of this project is to study ancillary issues and questions which are in-extricably related to the creation and extinction of trusts such as revocation of trusts, es-sentials of a valid trust, reasons for creating trusts and persons competent to create andextinguish trusts. The project also throws light on the definition of trusts, origin of trustsand modern day developments in trust law.

Nature of Project

The project is analytical as well as descriptive in nature. However majority of the projectis analytical in nature.

Sources of Data

The sources of data used are primary as well as secondary in nature. A host of leadingtextbooks relating to the law of trusts have been referred to. Legal encyclopaedias havealso been referred to. Case reporters like All England Reports and All India Reporterhave also been used. Electronic information sources like Westlaw and Manupatra havebeen accessed. Information has also been accessed from the information superhighway.



Scope and Limitation

The scope of this project is limited to performing a comprehensive study and analysis ofthe Indian law relating to creation and extinction of trusts. Relevant English case lawand principles have been incorporated and analysed but American law relating to thecreation and extinction of trusts has been ignored. Moreover with respect to religioustrusts only Hindu religious trusts have been dealt with. Trusts relating to other religionsand wakfs have not been dealt with.

Research Questions

The research questions are:

What is a trust?What is the origin of the law of trusts?What are the different kinds of trusts?What are the various factors and obligations that must be kept in mind while creat-ing a trust?Why are trusts created and extinguished?Which are the relevant statutory provisions in India which deal with creation andextinction of trusts?Who are competent to create trusts?What are the essential requirements for a valid trust?How can a trust be extinguished?Why are trusts extinguished?How can a trust be revoked?How do the provisions relating to creation and extinction of trusts apply to reli-gious and charitable trusts?How is the law of trusts developing today?

Mode of Citation

A uniform mode of citation has been adopted throughout the course of the project.

Creation Of Trusts- An Exploration Of Issues And Controversies



Reasons For Creation of Trusts

The trust concept is a flexible institution which may be created for a variety ofreasons[7]:

Tax Avoidance: One of the most important reasons for the creation of a trust is toavoid or mitigate the settlor’s liability to tax. There are many ways in which thisobjective may be achieved. Subject to statutory provisions to the contrary, the sett-lor, having exhausted his personal relief from income tax may alienate his incomeby way of a trust in favour of another who may use his relief to reduce the amountof tax payable, for example, a settlor may transfer 50000 shares in a company totrustees for the benefit of his nephew N. Trustees pay income tax at the basic rateof tax. On distributing the income, the beneficiary, N is entitled to set off his per-sonal relief against the income liable to tax.To Protect Spendthrift Beneficiaries: The settlor may believe that an outright trans-fer of property to a donee may result in the dissipation of the fund by the donee.To avoid this the settlor may create a trust under section 33 of the Trustee Act, 1925in favour of the child. The protective trust is a determinable life interest in favourof the beneficiary which terminates on the happening of any course of eventswhich is capable of prejudicing the interest of the beneficiary.To Avoid Adverse Publicity from a Published Will: On death, a testator’s will ispublished and transfers as well as the identity of the beneficiaries may becomepublic. In order to avoid adverse publicity a testator may create a fully secret trustby transferring property under his will to a person whose identity is not a source ofembarrassment. Before his death the testator will make a bargain with the personto the effect that following the receipt of the he will be required to hold the proper-ty on trust for the secret beneficiary. Thus, the existence of the trust and the identi-ty of the beneficiary will be concealed on the face of the will.To Protect Purchasers Entering Into Commercial Transactions: A customer whomakes an advance payment for goods may be entitled to utilise the trust concept inorder to secure the return of the purchase money in the event of the company go-ing into liquidation.Clubs and Unincorporated Associations: Unincorporated associations have no sep-arate legal existence. Such bodies are not entitled to own funds separately for their



members. The funds are owned by the members and the trust is treated as the col-lective alter ego of the members. The members may appoint or elect officers of theclub. The officers may hold the club’s assets and income as trustees for the purpos-es declared in the constitution of the association.

Essentials For The Creation Of A Valid Trust

The essentials of a valid trust are[8]:

It must be created for a lawful purpose[9]If it relates to immoveable property, it must be declared by a non-testamentary in-strument in writing signed by the author of the trust or trustee and registered, orby the will of the author of the trust or of the trustee. If it relates to movable prop-erty it must be declared as in the case of immoveable property; or, in the alterna-tive, the ownership of the property must be transferred to the trustee[10].The author of the trust must indicate with reasonable certainty by any words oracts an intention on his part to create a trust, the purpose of the trust, the beneficia-ry and the trust property[11].Unless the trust is declared by will or the author of the trust is himself to be thetrustee, the trust property must be transferred to the trustee[12].The subject matter of a trust must be property transferable to the beneficiary; but itcannot be a mere beneficial interest under a subsisting trust[13].The author of the trust, the trustee and the beneficiary must all be competent per-sons within the meaning of section 7 of the Indian Trusts Act, 1882.

The Three Certainties of Trusts

In Knight v. Knight[14] Lord Langdale stated that there were three conditions essentialfor the creation of a valid trust. They are:

The words used must be so couched that, taken as a whole, they could be regardedimperative.The subject matter of the trust must be certain.The objects or persons intended to be benefited must be certain.



Certainty of Words

No formal language is necessary to create a trust. But what is required is an unequivocalor unambiguous expression of intention on the part of the author of the trust to create atrust[15]. The language used must make it certain that the settlor intended to constitutea trust binding on in law on himself, or the person to whom the property was given;that he intended to bind definite property by the trust and that he intended to benefit adefinite person or persons in a definite way[16].

The language used must be such as to disclose with certainty the purpose to create thetrust. And a Court will not raise a trust from where the words used and all the circum-stances it is of the opinion that a trust was not intended. In determining whether or nota trust has been created, courts will take into consideration the situation and relations ofthe parties, the character of property and the purpose which the settlor had in view inmaking the declaration. It is sufficient if the language used shows that the settlor intend-ed to create a trust, and clearly points out the property, the beneficiary and the disposi-tion to be made of the property. The use of the words ‘trust’ or ‘trustee’ is not essentialto the creation of a trust[17].

No positive rule can be laid down which shall determine in all cases what terms or ex-pressions will carry a beneficial interest or what will create a trust[18].

Precatory words such as wish, hope, desire etc. should be avoided[19]. In Adams and theKensington Vestry, Re[20], where there was a gift by a person to his wife in full confi-dence that she would do what was right as to the disposal between the children. It washeld that there was no trust in favour of the children.

Certainty of Subject Matter

It is essential that the subject matter of the trust as also the beneficiaries must be pointedout with certainty to constitute a valid trust[21]. Courts have refused to establish a trustowing to lack of certainty of subject matter where the direction provided to remembercertain persons, to reward very old servants according to their desires, to give the bulkof the property etc[22].



Where in a partition deed between father and son there was a direction that the sonshould make certain articles for divine service but no particular property was ear-marked for the purpose and there was only a prohibition that the son should not mort-gage or alienate his share, there was no trust because of absence of dedication[23].

When no specific property is earmarked but only a direction to spend out of general in-come is given there is no trust but only a charge[24].

In Ram Ran Vijay Prasad Singh v. Province of Bihar[25] where neither any land was setapart for the maintenance and support of the institution mentioned in the instrument oftrust and nor was the income from any particular property earmarked for the objects ofthe trust, it was held that there was no valid trust.

Certainty of Object

Certainty of Object is an essential requirement for a valid trust. This rule is founded onthe principle that the trust must be one which a court can control and enforce[26]. Cer-tainty of object implies that the beneficiaries must be identifiable with reasonable cer-tainty. Moreover there must also be certainty regarding the nature and quantity of inter-est which the beneficiaries have and the manner in which the trust is to beperformed[27].

Applying the rule of certainty of object- where a testator gave leaseholds to his brotherhoping ‘he will continue them in the family’, it was held that the object of the trust wasuncertain and that no trust was created[28]. In Subhash Chandra Bose v. GordhandasPatel[29] where the will provided that after applying certain legacies the residue of thetestator’s assets should be handed over to a certain person to be spent by him or by hisnominee for the political upliftment of India and preferably for publicity work on behalfof India’s cause in other countries it was held that trust was vague and could not be en-forced by the court. It was further held that a trust for the attainment of political objectsis invalid not because it is illegal but because the court has no means of judging whetherany proposed political change will or will not be for the public welfare or benefit.

Who Can Create a Trust?



Section 7 of the Indian Trusts Act, 1882 says who is competent to create a trust. This sec-tion provides that a trust can be created by every person who is competent to contract. Itfurther provides that a trust may be created by or on behalf of a minor with the permis-sion of a principal civil court of original jurisdiction. Competency to contract is the testlaid down for the capacity to create a trust. Any person who is not competent to contractcannot create a trust.

Section 7 of the Transfer of Property Act, 1882 is analogous to this section[30]. It followstherefore that a person must be competent to contract and he must further be entitled orauthorised to transfer property in order to create a trust.

English Law provides that[31]: Every person who can hold and dispose of any legal orequitable estate or interest in property can create a trust in respect thereof.

It is to be noted that the capacity of a minor to create a trust is different under EnglishLaw and different under Indian Law[32]. This is because under Indian Law a contractentered into by a minor is void whereas under English Law a contract by a minor isvoid able. Thus in India a minor is not competent to enter into any contract whatsoever,and, therefore, no trust can be created by him except as provided in section 7 of the Indi-an Trusts Act, 1882.

Mere Direction Does Not Constitute a Trust

Case law clearly illustrates that mere direction does not constitute a trust. Where an un-divided member of a joint Hindu family purported to execute a will wherein he directedhis brothers to defray the expenses of the marriage of his daughter out of an investmentof the family assets with a third person and to pay the balance to her and the brothershad agreed to act according to the directions, it was held that no separate property wasassigned in trust but only a direction to the brothers to pay out of the family assets wasgiven[33]. Where the holder of a promissory note directed the promisor to pay the inter-est after her death to her sister and on her death to divide the principal among her chil-dren in equal shares but did not transfer the promissory note itself either to the benefi-ciaries or to the trustees there was no trust as she had not parted with her legal title toher property and the mere direction to the promisor did not create a trust[34].



Allocation of Specific Property or Funds- Does It Constitute aTrust?

Where an employer made credit entries in his accounts of amounts as bonus and dear-ness allowance to the employees and acted upon those entries by representing to the In-come Tax authorities that the amounts had been set apart for the employees it was heldthat there was a trust but mere credit entries in the book of accounts by the employer asbonus to his employees would not amount to a trust[35]. The scheme of a providentfund under which monies are credited to an account of a subscriber in the books of thefund and payable to him only on retirement and non-transferable till then wouldamount to a trust[36]. Thus it is quite clear that allocation of specific property or fundswill usually constitute a trust provided the essentials of a valid trust are also present.

Creation of A Public Charitable or Religious Trust

A public charitable or religious institution can be formed either as a trust or as a societyor as a non-profit company registered under Section 25 of the Companies Act, 1956. Itgenerally takes the form of a trust when it is instituted or formed primarily by one orfew persons only[37].

Hindus have been dedicating property for religious and charitable purposes since timesimmemorial. These can be broadly classified under two heads- Istha and Purtta. Isthaworks like vedic sacrifices, gifts to priests, preserving the vedas and hospitality are ex-hausted as soon as the sacrifice is completed or the gift made and no trust arises sincethere is no obligation imposed on any person to do or continue to do something for theaccomplishment of a particular purpose. The Purtta signifies works of public utility suchas tanks, wells, groves, gifts of food, schools and temples etc. The purtta works can beduly carried out only when an institution is founded or when somebody is trusted withthe duty of performing the acts. It is thus, the purtta works wherein a trust, properlyspeaking, comes into being[38].

A religious endowment is one which has for its object the establishment, maintenance orworship of an idol or deity or any object or purpose subservient to religion. A charitableendowment is one which has for its object the benefit of the public or of mankind. There



might be a private trust for religious purposes but there can be no private charitabletrust[39].

A Hindu charitable or religious trust may be created by a Hindu who is of sound mindand not a minor, under a will or inter vivos by gift for any religious or charitable pur-pose[40]. Even a karta of a Hindu joint family can make effective dedication of a portionof the joint family property for religious and charitable purposes[41].

The essentials of a religious or charitable trust are:[42]

The object or purpose of the trust must be a valid religious or charitable purposeaccording to Hindu Law.The founder or settlor should be capable of creating a trust and dedicating hisproperty to that trust.The settlor should indicate precisely the object of the trust and the property in re-spect of which it is made. The property should be dedicated to the trust and theowner must divest himself from the ownership of that property.The trust or its objects must not be opposed to the provisions of any law for thetime being in force.

A Hindu charitable or religious endowment may be created under a will or inter vivos.No writing is necessary to create an endowment except where the endowment is createdby will in which case the will creating the trust must be in writing and attested by atleast two witnesses[43].

No written trust deed is necessary for creating a valid trust[44] since the provisions ofSection 5 of the Indian Trusts Act, 1882 do not apply to charitable or religious trusts[45].However even though it is competent for a Hindu to dedicate any immovable or mov-able property for a religious or charitable endowment without any document in writ-ing[46] it is always desirable to have a written trust deed to avoid future complications.Dedication may be inferred from long use for a charitable purpose; however, an instru-ment in writing declaring a trust is sound supporting evidence. It is always desirable tohave a written trust deed, with an intention to create a trust manifest therein in unequiv-ocal terms, followed by vesting of the trust property in the trustees for the benefit of thepublic or for a religious purpose[47].



No religious ceremony is necessary to establish a religious endowment[48] but ceremo-ny/rituals may be performed if so desired by the settlor or if decided by the trustees.

A dedication of immoveable property for a public endowment is a transfer of propertywithin the meaning of Section 5 read with Section 18 of the Transfer of Property Act,1882 and as per the provisions of Section 18(d) of the Indian Registration Act, 1908 anyinstrument (other than a will) declaring a trust in relation to an immovable propertymay be registered optionally.

Extinction Of Trusts- An Analytical Overview

Section 77 of the Indian Trusts Act, 1882 describes how a trust is extinguished. The ex-tinction of a trust may be brought about in any one of the following ways:

By the fulfilment of the object of the trustBy the purpose of the trust becoming unlawfulBy the purpose becoming impossible by either the destruction of the trust propertyor otherwiseBy the trust being revoked

It was held in Harbans Singh v. Rajendra Kaur[49] that a trust is not extinguished merelybecause one of the trustees is dissatisfied with the trust or is dissatisfied with the man-agement of other co-trustees.

Fulfilment of Object of the Trust

A trust comes into existence for the fulfilment of some object which the author of thetrust has in view. Thus logically speaking, once the specific purpose for which the trustwas created has been accomplished the trust fulfils itself and terminates[50].

In Jugalkishore Rupchand v. Ambala Commercial Bank[51] a person deposited money in abank to the credit of a company as earnest money for a tender for supplying materialsand the deposit was released on final orders on the tender, though the bank held themoney as a trustee till acceptance or rejection of the tender, the trust got extinguishedthereafter and the court held that the claim against the bank would only be as an ordi-nary debt with no preference on the basis of the trust.



Where under a contract of sale a suit fore specific performance by the vendee was dis-missed it was held that the relationship of vendor and vendee came to an end on suchdismissal and it was not competent to hold the vendor as a constructive trustee[52].

.Another case which illustrates fulfilment of purpose as a reason for extinction of a trustis Jadunath Singh v. Bisheswara Singh[53] where land was obtained by a resettlement fromthe Government and the head of the family would hold it in trust for the co-sharers butif a co-sharer took a guzari or maintenance grant in lieu of his share the trust wouldcome to an end.

In Dinshaw and Co. v. Krishna Piarey[54] it was held that a security deposit by employeeswould be held in trust by the employer but the trust would not be extinguished by amere demand for its return.

On the fulfilment of the purpose the trustee becomes a bare trustee for the person enti-tled[55].

Purpose Becoming Unlawful

According to Section 4 of the Indian Trusts Act, 1882 a trust may be created for any law-ful purpose only and every trust of which the purpose is unlawful is void. As per Sec-tion 4 the purpose of a trust is unlawful if it is:

Forbidden by lawIs of such a nature that, if permitted, it would defeat the provisions of any lawIs fraudulentInvolves or implies injury to the person or property of anotherThe court regards it as immoral or opposed to public policy[56]

Thus if the purpose of a trust becomes unlawful according to the provisions of Section 4the trust gets extinguished. According to the principle laid down in Sykes v. Beadon[57]where the illegality supervenes the trust becomes extinguished thereafter.

In Rajkumar Mohan Singh v. Rajkumar Pasupatinath Saran Singh[58] the trust deed provid-ed for liquidation of the debts of the author of the trust and entailment of property butentailment was legally not possible. It was held that owing to the entailment being legal-



ly impossible the purpose of the trust did not become unlawful and thus the trust wasnot extinguished.

Purpose Becoming Impossible

Section 77(c) states that a trust is extinguished “when the fulfilment of its purpose be-comes impossible by the destruction of the property or otherwise”. The word ‘destruc-tion’ means that the property has gone out of existence and is not available for distribu-tion. It is to be noted that a property cannot be said to be destroyed merely for the rea-son that the value of the existing trust property has become less than the outstanding li-abilities. Loss or destruction of the subject matter of the trust puts an end to the trust be-cause there is no property on which the trust can operate.

The word ‘otherwise’ in Section 77(c) covers a case where the trust property is not avail-able for the fulfilment of its purpose, where for example, all the beneficiaries under thetrust have validly transferred their interests resulting in the extinction of the trust[59].

In Gelaram v. District Board of Muzzafargarh[60] land was given to a District Board by theowner for laying a road to a public park but later the park was closed down for the pub-lic and the Court held that the trust of the roadway for the public had come to an end asthe purpose of the trust was impossible to fulfil as the park had ceased to be a publicpark. In Vadivelu Mudaliar v. C.N Kuppuswami Mudaliar[61] the trust was extinguished asits purpose could not be fulfilled owing to failure of the trustees to administer the trust.

Trust Being Revoked

According to Section 77(d) of the Indian Trusts Act, 1882 a trust is extinguished whenbeing revocable, it is expressly revoked. Section 78 of the Indian Trusts Act, 1882 dealswith revocation of trusts[62].

Extinction of a Charitable or Religious Trust

The dedication of property to a charitable or religious trust is permanent. Where thededication of property is to the service and worship of a family idol or a particular deityor to a public temple the dedication cannot be revoked. Thus once a religious trust is



created, it is irreversible, irrevocable and it cannot be terminated[63]. Where the trusthas been effectually created even the fact that the trustees have failed to carry out theobjects of the trust will not invalidate it. Thus it is clear that the provisions of Section 77of the Indian Trust Act, 1882 do not apply to religious or charitable trusts[64].

Cypress Doctrine- Avoiding Extinction of Trusts

Where it is impossible to fulfil the intention of the testator either for the reason that thepurpose of the trust is illegal or otherwise, the income of the trust may be utilised for thenearest similar lawful purpose. This is called the Doctrine of Cypress[65]. The doctrinewill not apply when contrary intentions are expressed by the testator[66].

Revocation Of Trusts

A trust created by the will of the testator may be revoked by him at his pleasure. Thismaybe done[67]:

By express wordsBy acts which lead to inference that he intended to revoke itBy subsequent willBy destruction of the will

All trusts created otherwise than by a will can be revoked only in the modes prescribedin clauses (a) to (c) of Section 78[68].

Apart from the provisions of Section 78 it is always open to the author of a trust to re-voke it if it was obtained from him by fraud or undue influence or if he executed it un-der a fundamental mistake or misapprehension as to its effect. But a trust may not be re-voked on the ground that the settlement contains unusual provisions, provided it isclear that the terms of the settlement were brought to the settlor’s attention and fully un-derstood by him[69].

Revocation with the consent of beneficiaries

A beneficiary who is not under any incapacity may put an end to a trust which is exclu-sively for his own benefit[70]. Applying this rule if money is given to a trustee for the



purchase of an annuity for a beneficiary, the latter can refuse the annuity and claim themoney. The Rule in Saunder’s Case is applicable not only to trusts for a single beneficia-ry but also where there are joint or successive beneficiaries, provided that all the possi-ble beneficiaries, under the trust are in existence, are sui juris and concur in putting anend to the trust[71].

It was held in Isaac Nissim v. Official Trustee, Bengal[72] that the settlor can revoke thetrust with the with the consent of all beneficiaries.

Power of revocation expressly reserved

Clause (b) of Section 78 declares that a trust created by a non-testamentary instrumentor orally, may be revoked, if there was a power of revocation expressly reserved to theauthor of the trust. Thus where a person asks another to acquire a certain property forhis benefit i.e. for the benefit of the settlor and allots a sum of money for the purpose butreserves to himself the power of revoking the trust, the trust is a valid one and his re-fusal after the amount is spent to further finance the work is a valid revocation of thetrust[73].

Trust in Favour of Creditors

According to clause (c) of Section 78 if a debtor conveys property in trust for the benefitof his creditors, who are not parties to the conveyance and to whom the fact of its execu-tion is not communicated, the conveyance merely operates as a power to the trustees toapply the property in satisfying their claims and inasmuch as the debtor himself is infact the only cestui que trust it is revocable by him before the property is so applied, andcannot be enforced by the creditors. A trust in favour of creditors is not, however, revo-cable if the creditors are parties to, or assent to the conveyance or if the fact of its execu-tion is communicated to them[74]. In Syed Zakir Ali v. Umatul Habib Begum[75] a debtor,by an arrangement in writing, made one of his creditors a trustee in respect of some ofhis property for the payment of his debts. No communication of the arrangement wasmade to the creditor. The debtor subsequently hypothecated a portion of the trust prop-erty to secure an advance made by a creditor who had been made a trustee under thearrangement. The creditor afterwards appropriated the property. The court held that thehypothecation bond, subsequent to the trust arrangement, under the circumstances,



amounted to revocation. This clause applies only to a trust solely for the payment ofdebts and not to a trust deed created for payment of debts and other purposes[76].

It is a well-known rule of equity that no revocation can have retrospective effect. There-fore, acts already performed in the due execution of the trust cannot be affected by anysubsequent revocation of it. This principle is reflected in section 79 of the Indian TrustsAct, 1882 which states that ‘No trust can be revoked by the author of the trust so as to defeat orprejudice what the trustees may have duly done in execution of the trust’.

Conclusion

Creation and Extinction of Trusts is an absolutely essential imperative part of the law oftrusts and has extreme importance and relevance. The various legal issues involved inthe creation of extinction of trusts form the basics which provide the foundations of thelaw of trusts. This project has explored these issues in detail and has also performed acomprehensive study and analysis of the relevant case law and statutory provisions.

The provisions relating to Creation and Extinction of Trusts in India are well developedand clear. There is not much ambiguity and the law also does not prescribe too manyformalities. Thus the law with respect to creation and extinction of trusts is reflective ofthe legislative intent of keeping the law simple and clear so as to be easily understoodand followed by the common man. Trusts are a very important part of life today and theIndian Trusts Act, 1882 does not make a person apprehensive about creating a trust orextinguishing owing to ambiguity and complexity. Thus these provisions are a step inthe right direction. Complexities will no doubt arise but the law is equipped to dealwith them

In the United States the ever-growing importance of the Law of Trusts has been realisedand the National Conference of Commissioners on Uniform State Laws has drafted aUniform Trust Code in order to provide the states with a comprehensive model for codi-fying their law of trusts. In India the law of trusts is codified and well developed. TheIndian Trusts Act, 1882 is the major statute relating to trusts. Other statutes like the Indi-an Penal Code, 1860 deal with offences relating to trusts and punishment for such of-fences. The Code of Civil Procedure, 1908 prescribes the procedure for actions relatingto trusts and the Limitation Act, 1963 prescribes periods of limitation for recovery of



property conveyed away by trustees in breach of trust.

The law of trusts today is assuming a greater significance and importance.

Some of the common benefits that trust arrangements offer include[77]:

Providing personal and financial safeguards for family and other beneficiaries;Postponing or avoiding unnecessary taxes;Establishing a means of controlling or administering property; andMeeting other social or commercial goals.

Apart from providing these benefits trusts have weaved their way into new territoryand are being applied in various new fields. Trusts are extremely versatile and adapt-able.

Innovation with respect to trusts has come in two ways[78]. First, the growth of trusts ininternational financial centres is now developing into a branch of trust law and practiceof its own. The second source is the growth of the use of trusts for other commercial op-erations. Of these, securitisation is becoming a major example. Securitisation by the useof trusts is being taken up by several countries.

Bibliography

Articles

1. David M. English, “The Uniform Trust Code (2000): Significant Provisions and Pol-icy Issues” Missouri Law Review (Spring, 2002).

Books

1. A.J Oakley, Parker and Mellows: The Modern Law of Trusts (8th ed.) (London: Sweetand Maxwell, 2003).

2. L.C Goyle, The Law of Trusts (Calcutta: Eastern Law House, 1989).3. Mohamed Ramjohn, Sourcebook on Law of Trusts (London: Cavendish Publishing

Limited, 1998).4. Nabhi Kumar Jain, Nabhi’s Formation and Management of A Trust alongwith Tax Plan-



ning, 1998-99 (New Delhi: Nabhi Publications, 1998).5. P.S Narayana, Law of Trusts, Endowments and Wakfs (Hyderabad: Gogia Law

Agency, 2000).6. Philip H. Pettit, Equity and The Law of Trusts (Kent: ELBS with Butterworths, 1990).7. Prafulla C. Pant, N. Suryanarayana Iyer’s The Indian Trusts Act (5th ed.) (New Delhi:

Butterworths, 2001).8. S. Krishnamurthi Aiyar and Harbans Lal Sarin, Principles and Digest of Trust Laws

(Allahabad: University Book Agency, 1998).

Encyclopaedias

1. Halsbury’s Laws of England (4th ed. Reissue), Volume 48 (London: Butterworths,1995).

Websites

1. ourworld.compuserve.com/homepages/pntodd/trusts/intro/cre_trus.htm#intro(Visited on 5th April, 2004).

2. www.trusts-and-trustees.com/main.htm (Visited on 7th April, 2004).3. www.wsba.org/media/publications/pamphlets/trusts.htm (Visited on 7th April,

2004).

[1] Mohamed Ramjohn, Sourcebook on Law of Trusts (London: Cavendish Publishing Lim-ited, 1998)at 11.

[2] www.trusts-and-trustees.com/main.htm (Visited on 7th April, 2004).

[3] www.wsba.org/media/publications/pamphlets/trusts.htm (Visited on 7th April,2004).

[4] Id.

[5] Id.

[6] Supra note 3.



[7] Mohamed Ramjohn, Sourcebook on Law of Trusts (London: Cavendish Publishing Lim-ited, 1998)at 18-19.

[8] L.C Goyle, The Law of Trusts (Calcutta: Eastern Law House, 1989)at 16.

[9] Section 4 of the Indian Trusts Act, 1882.



[12] Id.


[14] (1840) 3 Beav. 148.

[15] Prafulla C. Pant, N. Suryanarayana Iyer’s The Indian Trusts Act (5th ed.) (New Delhi:Butterworths, 2001)at 163.

[16] S. Krishnamurthi Aiyar and Harbans Lal Sarin, Principles and Digest of Trust Laws(Allahabad: University Book Agency, 1998)at 65.

[17] Ibid at 65-66.

[18] Supra note 16 at 66.

[19] Id.

[20] LR 27 Ch D 394.



[23] Dassa Ramachandra v. Narasimha Damodar, 13 Bom LR 101.




[25] AIR 1942 Pat 435.

[26] Morice v. Bishop of London, 10 Ves 527.


[28] Harland v. Trigg, 1 Bro CC 141.

[29] AIR 1940 Bom 76.

[30] Section 7 of the Transfer of Property Act, 1882 states: Every person competent tocontract and entitled to transferable property, or authorised to dispose of transferableproperty not his own, is competent to transfer such property either wholly or in part,and either absolutely or conditionally, in the circumstances, to the extent and in themanner, allowed and prescribed by any law for the time being in force.


[32] Ibid at 196.

[33] Thayammal v. Perumal Chetty, AIR 1926 Mad 284.

[34] Re, Caplen’s Estate, Bulbeck v. Silvester, (1876)45 LJ Ch 2.


[36] Id.

[37] Nabhi Kumar Jain, Nabhi’s Formation and Management of A Trust alongwith Tax Plan-ning, 1998-99 (New Delhi: Nabhi Publications, 1998)at 34.

[38] Id.



[39] Id.


[41] Gangi Reddi v. Tami Reddi, AIR 1927 PC 80.



[44] Ramchandra Sukla v. Mahadeoji, AIR 1970 SC 458.

[45] Suraj Bhan v. Bodh Nand, AIR 1987 All 183.

[46] Govindlalji v. State of Rajasthan, AIR 1963 SC 1638.


[48] Supra note 44.

[49] AIR 1925 All 277.

[50] For example where the author of a trust makes a provision by way of trust in re-spect of property which he is settling for the benefit of minors and provides for the es-tate being handed over to them on the attainment of majority; the duration of the trust isonly for the minority of the beneficiaries and can be terminated by the beneficiaries call-ing for a conveyance of the trust estate to them on attaining majority.

[51] AIR 1953 Punj 98.

[52] Venkataratnam v. Bola Buravayya, AIR 1930 Mad 84.

[53] AIR 1939 Oudh 17.

[54] AIR 1941 Oudh 126.

[55] Prafulla C. Pant, N. Suryanarayana Iyer’s The Indian Trusts Act (5th ed.) (New Delhi:



Butterworths, 2001)at 648.

[56] Chhogmal Bhandari v. Deputy Commissioner Tax Officer, AIR 1976 SC 656.

[57] 11 Ch D 170.

[58] AIR 1969 SC 135.

[59] Princess Usha Trust v. CIT, 1983 Tax LR 838.

[60] AIR 1923 Lah 93.

[61] [1972]1 Mad LJ 265.

[62] Revocation of Trusts as a way of extinguishing a trust is dealt with in detail in thenext section of this project.


[64] By virtue of the proviso to Section 1 the Indian Trusts Act, 1882 does not apply toreligious or charitable trusts.


[66] Vadivelu Mudaliar v. N.S Rajabada, AIR 1967 Mad 175.


[68] The clauses state that a trust created otherwise than by a will can be revoked only:

Where all the beneficiaries are competent to contract- by their consentWhere the trust has been declared by a non-testamentary instrument or by word ofmouth-in exercise of a power of revocation expressly reserved to the author of thetrust; orWhere the trust is for the payment of the debts of the author of the trust, and has



not been communicated to the creditors- at the pleasure of the author of the trust

[69] Jessel, M.R in Dutton v. Thompson, (1883)23 Ch D 278 stated that: “It is not theprovince of a court of justice to decide on what terms or conditions a man of competentunderstanding may choose to dispose of his property. If he thoroughly understandswhat he is about, it is not the duty of a court of justice to set aside a settlement which hechooses to execute, on the ground that it contains clauses which are not proper.”

[70] Rule in Saunder’s Case, (1841) 4 Beav. 115.


[72] AIR 1957 Cal 118.

[73] Harihar Prasad Singh v. Maharaja Kesho Prasad Singh, AIR 1925 Pat 68.


[75] 1 IC 347.

[76] The rationale behind the rule regarding a trust in favour of creditors was clearlystated in Garrard v. Lauderdale, (1830)3 Sim 1 wherein the Court said that: ‘I take the realnature of the deed to be, not so much a conveyance vesting a trust in A for the benefit ofthe creditors of the grantor, but rather an arrangement made by the debtor for his ownpersonal convenience and accommodation-for the payment of his own debts in an orderprescribed by himself, over which he retains power and control, and with respect towhich the creditors can have no right to complain, inasmuch as they are not injured byit- they waive no right of action and are not executing parties to it.’

[77] www.wsba.org/media/publications/pamphlets/trusts.htm (Visited on 7th April,2004).

[78] Id.

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