Report No. 17

75. Section 65.- Section 65 should be placed after section 62.

76. The view of the Calcutta High Court in Lalit Mohan v. Kishori Mohan Roy, AIR 1949 Cal 288 (291-292), which holds that "transfer" in the section includes also "involuntary transfer", may not be strictly correct; but the conclusion is justified, as it is in the interests of the trust that the trustee should not by a subterfuge allow the trust property to be sold in an execution sale with a view to acquiring the same subsequently from the court auction purchaser. Such sales also must be brought within the net of section 65. To achieve this object, we think that the expression "otherwise transfers" should be amplified.

77. In section 65, provision should also be made on the analogy of section 62, though not to the same extent, that the beneficiary should recover the property only on condition that he pays the purchase-money which was paid to the benefit of the trust when the trustee in the first instance wrongfully alienated the trust property.

78. In order to make the position just and equitable instead of the existing provisions that trust property re-acquired by the trustee, under the circumstances stated in the section, becomes subject to the trust, it may be provided, as in section 62, that the beneficiary has a right to have the property declared subject to the trust or to have it re-transferred by the trustee.1

1. As regards the broader question as to whether section 65 should be changed and the trustee protected, see the discussion above under section 64 supra.

79. The principle of section 65 should also apply to a case where a person is party to a breach of trust by the trustee. Suitable amendment of section 65 may be made. The American Restatement, section 3181 would afford useful guidance in making the alteration. It runs as follows:-

"If the trustee in breach of trust transfers trust property to a person who has notice of the breach of trust and the property is thereafter transferred to a bona fide purchaser and subsequently is transferred to the first transferee, that transferee holds it subject to the trust."

1. Vol. 2, 954.