Under Section 63, a beneficiary can follow the trust-property into the hands of a third-person where it has come into his hand inconstantly with the trust. A transferee in good faith for consideration and without notice is an exception to this.
He can also follow the property into the hands of a transferee for consideration from such a transferee. But a beneficiary cannot follow money, currency notes and negotiable instruments into the hands of a bona fide holder to whom they have passed in circumstances.
Nothing in Section 63 shall affect the liability of a person to whom a debt or a charge is transferred. Moreover, the section explains that a judgement creditor of a trustee attaching and purchasing trust-property is not a transferee for consideration.
The beneficiary may require the transferee either to formally admit that the property is comprised in the trust, or may institute a suit for a declaration.
One more important point is that as between a trustee and his beneficiary a suit to follow trust-property is not barred by limitation. Money, currency notes, etc., cannot be followed (Section 64).
If the trustee committing a breach of trust makes good the loss so made out of his estate and thereafter becomes bankrupt, his conduct of transferring the funds to repay the loss will not be taken as a fraudulent preference by him.
Where a trustee first sells wrongfully (i.e., converts) the trust-property and then becomes an owner of the same by acquiring it, the property so acquired will again become subject to the trust, notwithstanding any want of intervening transferee in good faith or consideration [S. 65]
Equities attached to “right of following trust-property” [S. 62]
Where a trustee wrongfully purchases trust-property, a beneficiary whose right it is to recover the same and to get it re-transferred from the trustee must, repay the purchase money with interest and expenses properly incurred by the trustee.
At the same time the trustee must also account for (a) the net profits of the property, he will (b) be charged with the occupation rent of the property in his possession, and also he (c) should allow the beneficiary to deduct pro rata purchase money for the deterioration of the property.
Liability of the beneficiary [S. 68]
Impounding of beneficial interest
Section 68 fixes the liability of a beneficiary joining the breach of trust. Where a beneficiary (a) joins in committing the breach, or (b) knowingly obtains an advantage therefrom without the consent of the other beneficiaries, or (c) does not take proper steps to protect the interests of the other beneficiaries when he knows of a breach of trust, committed or intended, and conceals the same, or (d) has deceived the trustee and induced him to commit a breach thereby, he will render his interest in the trust-property liable to be impounded until the loss caused is compensated.
Impounding a beneficiary’s interest means that it will be applied so far as it will go towards providing an indemnity to the trustee in respect of the breach. Legal interest cannot be impounded; it is the equitable interest that is impounded.
Interest of a feme covert not having power of anticipation is an exception to this liability. Impounding cannot operate as against bona fide transferees for valuable consideration [S. 68].
Bar to remedies for breach of trust
A beneficiary’s right of action, i.e., his lost in one of the following ways-
(a) by lapse of time, i.e., his remedy, is law of limitation;
(b) by continued acquiescence in the breach; or
(c) by concurrence therein; or
(d) by subsequent confirmation of the breach; or
(e) by release of the trustee from his liability (see S.23 of the Indian Trust Act).
