Trustee to
execute trust.

11. The trustees is bound to fulfil the purpose of the
trust, and to obey the directions of the author of the trust given at the time
of its creation, except as modified by the consent of all the beneficiaries
being competent to contract.

Where the beneficiary is incompetent to contract, his
consent may, for the purposes of this section, be given by a principal Civil
Court of original jurisdiction.

Nothing in this section shall be deemed to require a trustee
to obey any direction when to do so would be impracticable, illegal or
manifestly injurious to the beneficiaries.

Explanation : Unless a
contrary intention be expressed, the purpose of a trust for the payment of
debts shall be deemed to be (a) to pay only the debts of the author of
the trust existing and recoverable at the date of the instrument of trust, or,
when such instrument is a will, at the date of his death, and (b) in the
case of debts not bearing interest, to make such payment without interest.

Illustrations

(a) A, a trustee,
is simply authorised to sell certain land by public auction. He cannot sell the
land by private contract.

(b) A, a trustee of certain land for
X, Y and Z, is authorized to sell the land to B for a specified sum. X,
Y and Z, being competent to contract, consent that A may sell the land
to C for a less sum. A may sell the land accordingly.

(c) A, a trustee for B and her children, is directed by the
author of the trust to lend, on B's request, trust-property to B's husband. C,
on the security of his bond. C becomes insolvent and B requests A to make the
loan. A may refuse to make it.

Trustee to inform himself of state of trust-property.

12. A trustee is bound to acquaint himself, as soon as
possible, with the nature and circumstances of the trust-property; to obtain,
where necessary, a transfer of the trust-property to himself; and (subject to
the provisions of the instrument of trust) to get in trust-moneys invested on
insufficient or hazard­ous security.

Illustrations

(a) The trust-property is a debt
outstanding on personal security .--The instru­ment of trust gives the trustee
no discretionary power to leave the debt so outstanding. The trustee's duty is
to recover the debt without unnecessary delay.

(b) The trust-property is money in
the hands of one of two co-trustees. No discretionary power is given by the
instrument of trust. The other co-trustee must not allow the former to retain
the money for a longer period than the circumstances of the case required.

Trustee to protect title to trust-property.

13. A trustee is bound to maintain and defend all such
suits, and (subject to the provisions of the instrument of trust) to take such
other steps as, regard being had to the nature and amount or value of the
trust-property, may be reasonably requisite for the preservation of the
trust-property and the assertion or protection of the title thereto.

Illustration

The trust-property is immovable property which has been
given to the author of the trust by an unregistered instrument. Subject to the
provisions of the Indian Registration Act, 1877 (3 of 1877), the trustee's duty
is to cause the instrument to be registered.

Trustee not to set up title adverse to beneficiary.

14. The trustee
must not for himself or another set up or aid any title to the trust-property
adverse to the interest of the beneficiary.

Care required from trustee.

15. A trustee is bound to deal with the trust-property as
carefully as a man of ordinary prudence would deal with such property if it
were his own; and, in the absence of a contract to the contrary, a trustee so
dealing is not responsible for the loss, destruction or deterioration of the
trust-property.

Illustrations

(a) A, living in Calcutta, is a
trustee for B, living in Bombay. A remits trust funds to B by bills drawn by a
person of undoubted credit in favour of the trustee as such, and payable at
Bombay. The bills are dishonoured. A is not bound to make good the loss.

(b) A, trustee of leasehold property,
directs the tenant to pay the rents on account of the trust to a banker, B,
then in credit. The rents are accord­ingly paid to B, and A leaves the money
with B only till wanted. Before the money is drawn out, B becomes insolvent. A,
having had no reason to believe that B was in insolvent circumstances, is not
bound to make good the loss.

(c) A, a trustee of two debts for B, releases one and
compounds the other, in good faith, and reasonably believing that it is for B's
interest to do so. A is not bound to make good any loss caused thereby to B.

(d) A, a trustee directed to sell the
trust-property by auction, sells the same, but does not advertise the sale and
otherwise fails in reasonable diligence in inviting competition. A is bound to
make good the loss caused thereby to the beneficiary.

(e) A, a trustee for B, in execution
of his trust, sells the trust-property, but from want of due diligence on his
part fails to receive part of the purchase money. A is bound to make good the
loss thereby cause to B.

(f) A, a trustee for B of a policy of
insurance, has funds in hand for payment of the premiums. A neglects to pay the
premiums, and the policy is consequently forfeited. A is bound to make good the
loss to B.

(g) A bequeaths certain moneys to B and C as trustees, and
authorizes them to continue trust-moneys upon the personal security of a
certain firm in which A had himself invested them. A dies, and a change takes
place in the firm B and C must not permit the moneys to remain upon the
personal security of the new firm.

(h) A, a trustee for B, allows the
trust to be executed solely by his co-trustee C. C misapplies the
trust-property. A is personally answerable for the loss resulting to B.

Conversion of perishable property.

16. Where the trust is created for the benefit of several
persons in succession, and the trust property is of a wasting nature or a
future or reversionary interest, the trustee is bound, unless an intention to
the contrary may be inferred from the instrument of trust, to convert the
property into property of a permanent and immediately profitable character.

Illustrations

(a) A bequeaths to B all his property
in trust for C during his life, and on his death for D, and on D's death for E.
A's property consists of three leasehold houses, and there is nothing in A's
will to show that he intended the houses to be enjoyed in specie. B should sell
the houses, and invest the proceeds in accordance with section 20.

(b) A bequeaths to B his three
leasehold houses in Calcutta and all the furniture therein in trust for C
during his life, and on his death for D, and on D's death for E. Here an
intention that the houses and furniture should be enjoyed in specie appears
clearly, and B should not sell them.

Trustee to be impartial.

17. Where there are more beneficiaries than one, the trustee
is bound to be impartial, and must not execute the trust for the advantage of
one at the expense of another.

Where the trustee has a discretionary power, nothing in this
section shall be deemed to authorize the Court to control the exercise
reasonably and in good faith of such discretion.

Illustration

A, a trustee for B, C and D, is empowered to choose between
several specified modes of investing the trust-property. A in good faith
chooses one of these modes. The Court will not interfere, although the result
of the choice may be to vary the relative rights of B, C and D.

Trustee to prevent waste.

18. Where the trust is, created for the benefit of several
persons in succession and one of them in possession of the trust-property, if
he commits, or threatens to commit, any act which is destructive or permanently
injurious thereto, the trustee is bound to take measures to prevent such act.

Accounts and information.

19. A trustee is bound (a) to keep clear and accurate
accounts of the trust-property, and (b) at all reasonable times, at the
request of the beneficiary to furnish him with full and accurate information as
to the amount and state of the trust-property.

Investment of trust-money.

20. Where the trust-property consists of money and cannot be
applied immediately or at an early date to the purposes of the trust, the
trustee is bound (subject to any direction contained in the instrument of
trust) to invest the money on the following securities, and on no others:—

(a) in promissory notes, debentures,
stock or other securities of any State Government or of the Central Government,
or of the United Kingdom of Great Britain and Ireland:

Provided that securities,
both the principal whereof and the interest whereon shall have been fully and
unconditionally guaranteed by any such Government, shall be deemed, for the
purposes of this clause, to be securities of such Government;

(b) in bonds, debentures and annuities charged or
secured by the Parliament of the United Kingdom before the fifteenth day of
August, 1947 on the revenues of India or of the Governor General in Council or
of any province:

Provided that, after the
fifteenth day of February, 1916, no money shall be invested in any such annuity
being a terminable annuity unless a sinking fund has been established in
connection with such annuity; but nothing in this proviso shall apply to
investments made before the date aforesaid;

(bb) in India three and a half per
cent stock, India three per cent stock, India two and a half per cent stock or
any other capital stock which before the 15th day of August, 1947, was issued
by the Secretary of State for India in Council under the authority of an Act of
Parliament of the United Kingdom and charged on the revenues of India or which
was issued by the Secretary of State on behalf of the Governor-General
incouncil under the provisions of Part XIII of the Government of India Act,
1935;

(c) in stock or debentures of, or shares in. Railway or
other Companies the interest whereon shall have been guaranteed by the
Secretary of State for India in Council or by the Central Government or in
debentures of the Bombay Provincial Co-operative Bank, Limited, the interest
whereon shall have been guaranteed, by the Secretary of State for India in
Council or the State Government of Bombay;

(d) in debentures or other securities for money issued,
under the authority of any Central Act or Provincial Act or State Act, by or on
behalf of any municipal body, port trust or city improvement trust in any
Presidency-town, or in Rangoon town, or by or on behalf of the trustees of the
port of Karachi:

Provided that after the
31st day of March, 1948, no money shall be invested in any securities issued by
or on behalf of a municipal body, port trust or city improvement trust in
Rangoon town, or by or on behalf of the trustees of the port of Karachi;

(e) on a first mortgage of immovable
property situate in any part of the territories to which this Act extends ¹[***]:

Provided that the
property is not a leasehold for a term of years and that the value of the
property exceeds by one-third, or, if consisting of buildings, exceeds by
one-half, the mortgage-money;

²[(ee)in units issued by the Unit Trust of
India under any unit scheme made under section 21 of the Unit Trust of India
Act, 1963 (52 of 1963); or]

(f) on any other security expressly authorized by the
instrument of trust, ² [ or by the
Central Government by the notification in the Official Gazette,] or by any rule
which the High Court may from time to time prescribe in this behalf:

Provided that, where
there is a person competent to contract and entitled in possession to receive
the income of the trust-property for his life, or for any greater estate, no
investment on any security mentioned or referred to in clauses (d), (e)
and (f) shall be made without his consent in writing.

Power to purchase redeemable stock at a
premium.

20A. (1) A trustee may invest in any of the securities
mentioned or referred to in section 20, notwithstanding that the same may be
redeemable and that the price exceeds the redemption value:

Provided that a trustee may
not purchase at a price exceeding its redemption value any security mentioned
or referred to in clauses (c) and (d) of section 20 which is liable to be
redeemed within fifteen years of the date of purchase at par or at some other
fixed rate, or purchase any such security as is mentioned or referred to in the
said clauses which is liable to be redeemed at par or at some other fixed rate
at a price exceeding fifteen per centum above par or such other fixed rate.

(2) A trustee may
retain until redemption any redeemable stock, fund or security which may have
been purchased in accordance with this section.

Mortgage of land pledged to Government under
Act 26 of 1871 - Deposit in Government savings bank.

21. Nothing in section 20 shall apply to investments made
before this act comes into force, or shall be deemed to preclude an investment
on a mortgage of Immovable property already pledged as security for an advance
under the Land Improvement Act, 1871 (26 of 1871), or, in case the trust-money
does not exceed three thousand rupees, a deposit thereof in a Government
Savings Bank.

Sale by trustee directed to sell within
specified time.

22. Where a trustee directed to sell within a specified time
extends such time, the burden of proving, as between himself and the beneficiary,
that the latter is not prejudiced by the extension lies upon the trustee,
unless the extension has been authorized by a principal Civil Court of Original
jurisdiction.

Illustration

A bequeaths property to B, directing him with all convenient
speed and within five years to sell it, and apply the proceeds for the benefit
of C. In the exercise of reasonable discretion, B postpones the sale for six
years. The sale is not thereby rendered invalid, but C, alleging that he has
been injured by the postponement, institutes a suit against B to obtain
compensation. In such suit the burden of proving that C has not been injured
lies on B.

Liability for breach of trust.

23. Where the trustee commits a breach of trust, he is
liable to make good the loss which the trust-property or the beneficiary has
thereby sustained, unless the beneficiary has by fraud induced the trustee to
commit the breach, or the beneficiary, being competent to contract, has
himself, without coercion or undue influence having been brought to bear on
him, concurred in the breach, or subsequently acquiesced therein, with full
knowledge of the facts of the case and of his rights as against the trustee.

A trustee
committing a breach of trust is not liable to pay interest except in the
following cases :—

(a) where he has
actually received interest;

(b) where the breach consists in unreasonable delay
in paying trust-money to the beneficiary;

(c) where the trustee ought to have received interest, but
has not done so;

(d) where he may be
fairly presumed to have received interest.

He is liable, in case (a), to account for the
interest actually received, and, in case (b), (c) and (d), to
account for simple interest at the rate of six per cent per annum, unless the
Court otherwise directs;

(e) where the breach consists in failure to invest
trust-money and to accumulate the interest or dividends thereon, he is liable
to account for compound interest (with half-yearly rests) at the same rate;

(f) where the breach consists in the employment
of trust-property or the proceeds thereof in trade or business, he is liable to
account, at the option of the beneficiary, either for compound interest (with
half-yearly rests) at the same rate, or for the net profits made by such
employment.

Illustrations

(a) A trustee improperly leaves
trust-property outstanding, and it is conse­quently lost: he is liable to make
good the property lost, but he is not liable to pay interest thereon.

(b) A bequeaths a house to B in trust
to sell it and pay the proceeds to C. B neglects to sell the house for a great
length of time, whereby the house is deteriorated and its market price falls. B
is answerable to C for the loss.

(c) A trustee is guilty of unreasonable delay in investing
trust money in accordance with section 20, or in paying it to the beneficiary.
The trustee is liable to pay interest thereon for the period of the delay.

(d) The duty of the trustee is to
invest trust-money in any of the securities mentioned in section 20, clause
(a), (b), (c), or (d). Instead of so doing, he retains the money in his
hands. He is liable, at the option of the beneficiary, to be charged either
with the amount of the principal money and interest, or with the amount of such
securities as he might have purchased with the trust-money when the investment
should have been made, and the intermediate dividends and interest thereon.

(e) The instrument of trust directs the trustee to
invest trust-money either in any of such securities or on mortgage of immovable
property. The trustee does neither. He is liable for the principal money and
interest.

(f) The instrument of trust directs
the trustee to invest trust-money in any of such securities and to accumulate
the dividends thereon. The trustee disregards the direction. He is liable, at
the option of the beneficiary, to be charged either with the amount of the
principal money and compound interest, or with the amount of such securities as
he might have purchased with the trust-money when the investment should have
been made, together with the amount of the accumulation which would have arisen
from a proper investment of the intermediate dividends.

(g) Trust-property is invested in one of the securities
mentioned in section 20, clause (a), (b), (c) or (d). The trustee sells
such security for some purpose not authorized by the terms of the instrument of
trust. He is liable, at the option of the beneficiary, either to replace the
security with the interme­diate dividends and interest thereon, or to account
for the proceeds of the sale with interest thereon.

(h) The
trust-property consists of land. The trustee sells the land to a purchaser for
a consideration without notice of the trust. The trustee is liable, at the
option of the beneficiary, to purchase other land of equal value to be settled
upon the like trust, or to be charged with the proceeds of the sale with
interest.

No set-off allowed to trustee.

24. A trustee who is liable for a loss occasioned by a
breach of trust in respect of one portion of the trust-property cannot
set-off-against his liability a gain which has accrued to another portion of
the trust property through another and distinct breach of trust.

Non-liability for predecessor's default.

25. Where a
trustee succeeds another, he is not, as such, liable for the acts or defaults
of his predecessor.

Non-liability for co-trustee's defaults.

26. Subject to
the provisions of sections 13 and 15, one trustee is not, as such, liable for a
breach of trust committed by his co-trustee:

Provided that, in the
absence of an express declaration to the contrary in the instrument of trust, a
trustee is so liable—

(a) where he has delivered trust-property to his co-trustee
without seeing to its proper application;

(b) where he allows his co-trustee to receive
trust-property and fails to make due enquiry as to the co-trustee's dealings
therewith, or allows him to retain it longer than the circumstances of the case
reasonably require;

(c) where he becomes aware of a breach of trust committed or
intended by his co-trustee, and either actively conceals it or does not within
a reason­able time take proper steps to protect the beneficiary's interest.

Joining in
receipt for conformity.

A co-trustee who joins in signing a
receipt for trust-property and proves that he has not received the same is not
answerable, by reason of such signature only, for loss or mis-application of
the property by his co-trustee.

Illustration

A bequeaths certain property to B and C, and directs them to
sell it and invest the proceeds for the benefit of D. B and C accordingly sell
the property, and the purchase money is received by B and retained in his
hands. C pays no attention to the matter for two years and then calls on B to
make the investment. B is unable to do so, becomes insolvent, and the
purchase-money is lost. C may be compelled to make good the amount.

Several liability of co-trustees.

27. Where co-trustees jointly commit a breach of trust, or
where one of them by his neglect enables the other to commit a breach of trust,
each is liable to the beneficiary for the whole of the loss occasioned by such
breach.

Contribution as
between co-trustees.

But as between the trustees themselves, if one be less
guilty than another and has had to refund the loss, the former may compel the
latter, or his legal representative to the extent of the assets he has
received, to make good such loss; and if all be equally guilty, any one or more
of the trustees who has had to refund the loss may compel the others to
contribute.

Nothing in this section shall be deemed to authorize a
trustee who has been guilty of fraud to institute a suit to compel
contribution.

Non-liability of trustee paying without notice
of transfer by beneficiary.

28. When any beneficiary's interest becomes vested in
another person, and the trustee, not having notice of the vesting, pays or
delivers trust-property to the person who would have been entitled thereto in
the absence of such vesting, the trustee is not liable for the property so paid
or delivered.

Liability of
trustee where beneficiary's interest is forfeited to the
Government.

29. When the beneficiary's interest is forfeited or awarded
by legal adjudication to the Government, the trustee is bound to hold the
trust-property to the extent of such interest for the benefit of such person in
such manner as the State Government may direct in this behalf.

Indemnity of trustees.

30. Subject to the provisions of the instrument of trust and
of sections 23 and 26, trustees shall be respectively chargeable only for such
moneys, stocks, funds and securities as they respectively actually receive, and
shall not be answerable the one for the other of them, nor for any banker,
broker or other person in whose hands any trust-property may be placed, nor for
the insuffi­ciency or deficiency of any stocks, funds or securities, nor
otherwise for involuntary losses.