Report No. 89
Section 10: Suits against Trustees
10.1. Section.-Suits against trustees and their representatives.- Section 10 is one of those very rare statutory provisions which grant a total exemption from limitation for particular suits. In brief, it provides that certain suits against a person in whom property has become vested in trust for any specific purpose are not barred by "any length of time". The same principle applies to suits against the legal representatives of the trustee or against assigns from the trustee, not being assigns for valuable consideration.
The suits to which the section applies are suits for the purpose of following, in the hands of the trustee, or his legal representatives or assigns, such property or the proceeds thereof, or for an account of such property or proceeds. There is a very important Explanation to the section, which has a long historical background.1 It reads as under:
"Explanation.- For the purposes of this section, any property comprised in a Hindu, Muslim or Buddhist religious or charitable endowment shall be deemed to be property vested in trust for a specific purpose and the manager of the property shall be deemed to be the trustee thereof."
1. Cf. B.K. Mukherjee Hindu Law of Religion and Charitable Trusts, 4th Edn., 1979, pp. 298-313, paras. 6.69 to 6.98.
10.2. History of the main paragraph.- The main paragraph of the section is based on early decision and certain statutory provisions.1 But it is more elaborately worded than the earlier English provision on the subject. The current English statutory provision on the subject is, of course, fairly elaborate.2-3
1. Cf. Girinder Chunder v. Mackintosh, 1879 ILR 4 Cal 897.
2. Section 19, Limitation Act, 1939 (English) (see para. 10.6, infra).
3. Cf. Chintaman v. Khanderao, AIR 1928 Born 58.
10.3. History of the Explanation.- The Explanation, of course, does not occur in the English statutory provisions. It was, in fact, not contained even in Indian Law before 1929. It was inserted as the second paragraph of section 10 of the Act of 1908 by the Indian Limitation (Amendment) Act, 1929 (1 of 1929) to override certain judicial pronouncements. These were decisions of the Privy Council relating to Hindu religious endowments as well as Muslim religious endowments.1-2
The Privy Council held that property dedicated to God (in the Case of Hindu endowments) did not vest in the shebait, who was merely a Manager though, by custom, he might have certain beneficial interest. In law, the property vested in the idol or institution, as the case may be. Similarly, under Muslim law, the moment of waqf was created, the property vested in God Almighty and the mutawalli or Sajjadenashin had no right in the property.
He was not a 'trustee' in the technical sense.3 Accordingly, the benefit of the provision in section 10 of the Act of 1908 was not available against such persons. It was to override these pronouncements that the relevant paragraph was added in section 10 of the Act of 19.-a provision which has been carried over in the present Act.
1. Abdur Rehim v. Narain Dasa, AIR 1923 PG 44: LR 50 Cal 329.
2. Civil Justice Committee Report, LR 50 Cal 429, followed by Council of State Bill No. 8 of 1927.
3. See for other rulings before 1929, B.K. Mukherjea Hindu Law of Religious and Charitable Trusts, 4th Edn., 1979, pp. 301-304, paras. 6.74 to 6.78.
10.4. Need to cover Sikh and Jain endowments.- We have considered the question whether the Explanation to section 10 should be extended to Sikh and Jain endowments, and have come to the conclusion that the scope of the Explanation should be so widened. The mode of creation of these endowments is not substantially different from that in vogue amongst Hindus and Buddhists. The practice of having a "manager" without formally constituting him a 'trustee" is prevalent in regard to Sikh and Jain endowments also.
The section of the public interested in these endowments would, therefore, need the protection conferred by Explanation, to the same extent as those already entitled to its benefit. It may be repeated that the Explanation became necessary in view of the fact that certain judicial decisions took the view that in the case of Hindu endowments, there is no express trust as such, and the concept of trust which implies the vesting of property in the trustee, could not be appropriately applied to these endowments, because there is no vesting of property in these managers.1
Similar was the view regarding wakfs. To override this judicial pronouncements, it became necessary to provide, first that in such cases the endowment shall be deemed to be a trust; secondly, that it shall be deemed to be for a specific purpose and thirdly that the manager shall be deemed to be the trustee. The background against which the Explanation came to be inserted is to be borne in mind in suggesting its extension2.
1. Para. 10.3, supra.
2. Allah Rakhi v. Muhammad Abdul Rahim, 1933 ILR 56 All 111 (116) (PC) and cases in para. 10.3, supra.
10.5. Need for specific provision.- The express mention of Hindus, Muslim and Buddhist endowments and the omission of mention of endowments of Sikhs and Jains may create an impression that Sikh and Jain endowments are excluded from the benefit of the section. The practice of creating trusts for 'charitable purposes' is as much prevalent amongst persons following these two religions as it is amongst Hindus, Muslims and Buddhists.1 There is, in our view, hardly any reason why these two communities should be excluded from the beneficial provisions of the Explanation.
Accordingly, we recommend that the existing Explanation to section 10 should be amended suitably, on the lines mentioned above.
1. B.K. Mukherjea Hindu Law of Religions and Charitable Trusts, 4th Edn., 1979, p. 328, para. 7.12.
10.6. Trustee who is also a beneficiary the English Act, 1980.- To proceed now to a different aspect of section 10 it may be stated that the British Parliament felt that the corresponding section 19 of their Limitation Act, 1939 was working unjustly on an 'honest trustee' who was also a beneficiary under the trust.
Thus if X is a trustee of, and beneficiary under a trust alongwith three more beneficiaries A, B and C, a fifth person D can sue without any barrier of limitation to recover the furl amount of the share of the trust property to which he would have been entitled and obtain satisfaction out of the share of X, the trustee beneficiary even though limitation has expired against the other three beneficiaries A, B and C. That is to say, if the fifth beneficiary D has a 20% share, his entire share will be carved out of the allotment of X which is only 25% of the entire assets leaving him with only 5%. The amendment effected by U.K.
Limitation (Amendment) Act, 1980 has come into force on 1st May, 1980. Now, after the amendment, X will not be divested of the 20% share, but only of the excess 5%.
Section 19 of the U.K. Act of 1939 as amended in 1980 now reads as unde.-
"10. (1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an acti.-
(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or
(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.
(1A) Where a trustee who is also a beneficiary under the trust receives or retains trust property or its proceeds as his share on a distribution of trust property under the trust, his liability in any action brought by virtue of paragraph (b) of the foregoing sub-section to recover that property or its proceeds after the expiration of the period of limitation, prescribed by this Act for bringing an action to recover trust property shall be limited to the excess over his proper share.
This sub-section only applies if the trustee acted honestly and reasonably in making the distribution."
10.7. Desirability of adoption the English provision.- Though the problem sought to be remedied by the recent amendment to the English Act1 has not arisen in any case decided, the amendment incorporated a salutary rule of equity and hence we recommend its adoption in our Act.2
1. Para. 10.6, supra.
2. For the draft, see para. 10.8, infra.
10.8. Recommendation.- Accordingly, we recommend that section 10, should be re-numbered as sub-section (1) and after the words "notwithstanding anything contained in the foregoing provisions of this Act", the words and figures "but subject to the provisions of sub-section (2)" should be added in it. New sub-sections (2) and (3) should be added in section 10 as unde.-
"(2) Where a trustee who is also a beneficiary under the trust receives or retains trust property or its proceeds as his share on a distribution of trust property under the trust, his liability in any suit by virtue of sub-section (1) to recover that property or its proceeds or for an account of such property or proceeds after the expiry of the period of limitation shall be limited to the excess received or retained by him over his share.
(3) The provisions of sub-section (2) apply only if the trustee, in making the distribution, acted in good faith."
The Explanation to the section should be revised as under:
"Explanation.- For the purposes of this section any property comprised in a Hindu, Muslim, Buddhist, Sikh or Jain religions or charitable endowment shall be deemed to be property vested in trust for a specific purpose and the manager of the property shall be deemed to be the trustee thereof."