Table of Contents
Introduction
Chapter VIII of the Indian Trusts Act, 1882, deals with the Extinction of Trust and, when it can be revoked, also provides that the revocation of a trust by the author under a power to do so, and until it is revoked the instrument of trust will not defeat what the Trustee has done under the trust till it is revoked.
A trust in favor of creditors can be revoked even if no power to do so in the instrument of trust is given by the reason of the express provision of Section 78 (c) of the Indian Trusts Act, 1882.
The provision that a trust can be revoked with the consent of beneficiaries provided that they are Sui Juris, has to be read along with the provisions of Section 56 of the Indian Trusts Act, 1882, under which beneficiaries who are sui juris can demand and obtain possession of the trust property. This right of the beneficiary, if exercised, amounts in effect to a revocation of the trust.
The subject of extinction of trusts is dealt with in Section 77 to 79 of the Indian Trust Act, 1882.
Circumstances When Trust Can Be Extinguished
According to Section 77, a trust can be extinguished:
- When its purpose is completely fulfilled,
- When its purpose becomes unlawful,
- When the fulfillment of its purpose becomes impossible by destruction of the trust property or otherwise,
- When the trust, being revocable, is expressly revoked.
Fulfillment Of Purpose
It is only reasonable that the purpose of a trust being completely fulfilled, the trust should be extinguished. After the purpose of the trust has been completed the trustees shall be discharged from the office and the trust shall be extinguished.
Case Law: Amrit Lal Kohli and ors. vs Harbansh Lal Kohli and ors.
Here, the plaintiff had created a trust in 1966 for the benefit of his minor sons in which one of them died and the other two had attained majority and all well-settled. Trust was to be operated till beneficiaries gained majority and establishment. The court accepted the pleading of the trustees that the purpose has been fulfilled and allowed the appeal.
Unlawful purpose
A trust is extinguished when its purpose becomes unlawful. Section 4 of Indian trust act lays down that the purpose of trust becomes unlawful when it is:
- Forbidden by law,
- Is of such a nature that, it permitted, would defeat the provisions of any law,
- Its fraudulent, or
- Involve or implies injury to the person or property of another,
- The court regards it as immoral or opposed to public policy
The law does not permit an illegal trust to be carried on when the illegality supervenes then a trust becomes extinguished thereafter.
If the trust is created for the purpose of which one is lawful and other is unlawful, then those that are lawful are clearly separable from those that are unlawful, the trust would be effective in so far as it concerns the lawful purposes. However, if it is not possible to separate the lawful from the unlawful purpose then the whole trust must fail.
Impossibility Of Fulfillment Of Purpose
A trust is also extinguished when the fulfillment of its purpose becomes impossible of performance due to destruction of property or otherwise. Thus, when owing to the property having been lost or destroyed, there is nothing left to apply towards the purpose of the trust, the trust will be extinguished.
Case Law- Gela Ram vs District board Muzaffarnagar, (1923)
When a piece of land was given to the district board to use it as a road to connect the main road with a public garden, the District Board held the land as a trustee for the public and therefore when the land on which the gardens were planted was sold and on account of the garden ceased to exist, the purpose of the transfer of the land to the District Board (i.e. the trustees) was later to have become impossible to be fulfilled and therefore the trust was extinguished, and on the extinction. The owner of the property was held to be entitled to recover.
Revocation Of Trust
A trust created by will, may be revoked at the pleasure of the testator, the reason being that a will takes effect only after his death. A trust created otherwise can be revoked only:
- Where all the beneficiaries are competent to contract by their consent;
- Where the trust has been declared by a non-testamentary instrument or by words of mouth- in exercise of a power of revocation expressly reserved to the author of the trust;
- Where the trust is for the payment of the debts of the author of the trust, and which has not been communicated to the creditors at the pleasure of the author of trust.
Burden Of Proof
In order to improve the irrevocability of the trust, the burden of proof lies on the creditors to show that they assented to and acted upon the provision of the trust.
Extinction Of Religious or Charitable Trusts
In Halsbury’s Laws of England, while dealing with creation of charitable trusts, it has been observed as under:
“Charitable trusts have sometimes been declared subject to express powers of revocation, but there has apparently been no decision on the validity of such a power except as regards the rule against perpetuities.”
The dedication of property to a charitable or religious trust is permanent. Where the dedication of property is to the service and worship of a family or a particular deity or to a public temple the dedication cannot be revoked. Once a religious trust is created and extinction of trust becomes irrevocable, irreversible and cannot be terminated. Where the trust has been effectively created even the fact the trustees have failed to carry out the objects of the trust will not invalidate it. Thus, it is clear that the provision of Section 77 of the Indian Trust Act, 1882 does not apply to religious or charitable trust.
Resulting Trusts
Upon the consequences of the extinction of trusts may be the creation of a Resulting Trust. Resulting Trusts are also created in situations where a contract is for an illegal purpose and a bequest is for an unlawful purpose. Resulting Trust is a type of trust that is imposed by law. It returns the beneficial ownership in the trust property back to the settlor. The trust property is said to “Result or Jump Back” to the transferor.
In context to Indian law, Resulting Trust may be defined as the species of implied trust, which arises or results, in favor of either of the person who creates it, or his representatives. All resulting trusts are implied trust but all implied trust are not necessarily resulting trusts.
Hanbury has observed, ”Resulting Trust occur where equity regards property which is held by a trustee as belonging in equity to the person who has transferred it to be vested in the trustee. There is no doctrinal unity to resulting trust.
Creation Of Resulting Trusts
A resulting trust arises in the following three ways–
- Where a purchase is made in another’s name or a transfer is made without consideration.
- Where the beneficial interest is disposed of either wholly or partially.
- Where the trusts are declared illegal.
- Where a purchase is made in another’s name or a transfer is made without consideration.
- Where the beneficial interest has not been disposed of either wholly or partially.
- Where the trust is incapable of execution or executed without exchanging trust property.
- Where the transfer is for illegal purposes.
- Where the bequest is for an illegal purpose.
Illustration
- A conveys property to B ‘on trust’ to be declared afterwards. No such declaration is ever made. The property results back to A.
- A conveys to B two fields, Y and Z and declares a trust of it but says nothing about Z. It cannot, consistently with the circumstances under which the transfer is made, be inferred that A intends to transfer the beneficial interest in Z. B holds Z for the benefit of A.
- A conveys property in trust to C for life, thereafter for C’s unborn son for life, and thereafter for the unborn son of such unborn son. Here the trust for C’s son and grandson contravenes the rule against perpetuities and is thus illegal. Here, subject to C’s life-interest, the trust results to A and his heirs.
Conclusion
Thus, extinction of a trust refers to the termination or dissolution of a trust, effectively ending its existence. In my opinion, it becomes important to note that the process of terminating a trust should follow the legal requirements and the procedures specified in the trust document to ensure that assets are distributed correctly and beneficiaries’ rights are protected.
