A trustee must act exclusively in the interest of the trust. He stands to gain nothing from his work unless the trust instrument so provides.
He is required to observe the highest standard of integrity, and a reasonable standard of business efficiency in the management of the affairs of the trust; and he is subjected to onerous personal liability if he fails to reach the standards set.
Nor may he compete in business with the trust; or be in a position in which his personal interests conflict with those of the trust. He may thus be forced to forego opportunities which would be available to him if he were not a trustee.
The professionals (e.g., solicitors and banks) charge for what they do, while the non-professionals do not, because they act out of feelings of duty to the settlor.
Trusts involve administration and it comprises collection, investment, distribution, accounting, tax payment, etc., and these too depend upon the size of the trust.
At this juncture a distinction must be made between duties of trustees and their power or discretions.
A duty is an obligation which must be carried out; there is no option, it is imperative and must be performed with the utmost diligence, or exacta diligentia.
But a power is discretionary. It may be exercised or it may not. A power or discretion given by statute to trustees is in no way different from that which is given by the instrument of trust.
A trustee while exercising his power must do so honestly and while managing trust affairs must take “all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own”.
Duties of a trustee – Duties are of two types: positive and negative : positive duties oblige one to do something, negative ones oblige to abstain from doing something. Negative duties are considered to be disabilities.
The failure to perform a duty is a breach of trust. The Indian Trust Act, 1882 lays down the duties of a trustee under Sections 11 to 22 and his liabilities under Sections 23 to 30.
To execute trust [S. 11]
As laid down by the section, a trustee-
(a) is bound to fulfil the purpose of the trust; and
(b) to obey the author’s directions contained in the instrument.
Where the directions of the author are illegal, impracticable or manifestly injurious to the beneficiaries, they need not obeyed. Besides, where all the beneficiaries are competent to contract and they collectively consent to modify the directions or where a court allows a departure from them, the original directions need not be followed.
A trust is obligatory and the fulfilment of its purpose in the directed manner is the fundamental duty of a trustee.
The Explanation appended to Section 11 explains the duty of a trustee where the purpose of the trust is for the payment of a debt. There his duty will be to-
(i) pay only those debts of the author of the trust which exist and are recoverable at the date of the instrument;
(ii) where such instrument creating a trust is a will, the trustee is to pay those debts which exist and are recoverable at the date of the author’s death. The reason for this is very clear in that a will speaks from the death of a person and is effective only thereafter; and
(iii) in case of debts not bearing interest, a trustee is to make payments without interest.
A trustee is to execute the trust as far as it is practicable, legally and beneficially, for the cestui que trust; the beneficiaries, if all of them are sui juris and of one mind, can control the trust.
Section 15 informs about the care required of a trustee in dealing with trust-property. He is to observe the highest standard of integrity and a reasonable standard of business efficiency in the management of the affairs of the trust, and if he fails to reach the standards set, he will be subjected to onerous personal liability.
In using his discretion the conduct of a prudent and reasonable man is the standard by which he will be judged; if he fails to reach that, he is held liable.
As to what a reasonable man or a person of ordinary prudence would do under the circumstances is a question of fact to be answered by the court on evidence; it is not for the trustee to decide. If he can prove his diligence and the care exercised, he will not be liable.
A trustee’s discretion is subject, in India, to control by the principal Civil Court of original jurisdiction as provided in Sections 15, 36 and 49 of the Act. Whether a trust is gratuitous or for remuneration, the liability is the same.
A financial corporation granting loan on hypothecation of property of the loanee is a trustee of the property hypothecated and should act as a prudent owner, bona fide and in good faith while resorting to coercive method such as sale of the property hypothecated in case of default in repayment.
Trusteeship has nowadays become a readily available tool for every purpose of organisation and trusteeship is an institution of elasticity and generality.
In short, for the trustee, “as is the job, so is the care” to be exercised.
The following are the positive duties under the Indian Trusts Act-
(i) to preserve the trust-property, this being a stringent and a continuous duty (cf. Ss. 12, 13, 16, 18 and 20, Indian Trusts Act),
(ii) to transfer the income and the corpus to the persons entitle thereto (cf. Ss. 55 and 56, Indian Trusts Act), and
(iii) to render accounts and supply information (cf. Ss. 57, Indian Trusts Act).
The negative duties are a follows-
(i) not to make a profit out of the trust-property (cf. Ss. 50 and 51, Indian Trusts Act),
(ii) as a general rule not to purchase trust-property from himself or from his co-trustees (cf. Ss. 52 and 53, Indian Trusts Act), and
(iii) as a general rule, not to delegate his duties (cf. Ss. 47, Indian Trusts Act).