Indian Trusts Act, 1882
4. Lawful purpose
A trust may be created for any lawful purpose. The purpose of a trust is lawful unless it is (a) forbidden by law, or (b) is of such a nature that, if permitted, it would defeat the provisions of any law, or (c) is fraudulent, or (d) involves or implies injury to the person or property of another, or (e) the court regards it as immoral or opposed to public policy.
Every trust of which the purpose is unlawful is void. And where a trust is created for two purposes, of which one is lawful and the other unlawful, and the two purposes, cannot be separated, the whole trust is void.
Explanation: In this section, the expression "law" includes, where the trust property is immovable and situate in a foreign country, the law of such country.
(a) A conveys property to B in trust to apply the profits to the nurture of female foundlings to be trained up as prostitutes. The trust is void.
(b) A bequeaths property to B in trust to employ it in carrying on a smuggling business, and out of the profits thereof to support A's children. The trust is void.
(c) A, while in insolvent circumstances, transfers property to B in trust for A during his life, and after his death for B. A is declared an insolvent. The trust for A is invalid as against his creditors.
Comment : It is well settled that it is open to the settlers to create a trust for discharging the debts of their creditors. Such an object cannot be said to be unlawful. Chogmal Bhandari v. Deputy Commercial Tax Officer II Division, Kurnool AIR 1976 SUPREME COURT 656