History of Trust Law in India

Trust law today is a major part of International Legal Institutions all over the world. A key development was the codification of the trust law by the colonial government of India which embraced the ‘obligational’ model of the trust that removed the notion of ‘equitable ownership.’ Transplantation of trust law into British India happened in late 19th Century. Transplantation went hand in hand with transformation. The Indian Trusts Act (ITA) 1882 was a code that embraced a purportedly distinct model of trust, one that was ‘obligational’ in nature and had no division between legal and equitable ownership. British India had a rich tapestry of trusts and trust-like devices, the regulations of which produced a complex body of law. With the abolition of East India Company’s trade policy in 1813, the influx of European capitalist increased into India which led to the growth of the use of private and charitable trusts among them. These took the form of English trusts and were regulated by the English law. There were also several ‘trust-like’ devices used by the native population for different purposes, such as Islamic waqf, benami transactions etc. These operated in society without interference from the colonial courts. But in some cases, the disputants chose to litigate in those courts which made it necessary for Anglo-Indian judges to confront the native trust-like’ devices. The courts did not interfere with them and applied the only native law. Disputes were either decided in accordance with Hindu and Islamic law or on the basis of ‘justice, equity and good conscience.’ But the judges approached them through the lens of Anglicized concepts and made use of their own vocabulary. This produced linguistic and conceptual distortion, but it also invited the importation of English principles in respect of native ‘trust-like’ devices and more broadly. The judicial treatment of Islamic waqf changed its application as a whole in later point of time and same is with Hindu benami transactions which engrafted English concepts. There were also attempts by natives to settle their property on the basis of English-form private trusts which differed from native ‘trust-like’ devices. This was most frequently done in a will.

In Krishnaramani Dasi v. Ananda Krishna Bose, Markby J held that a Hindu could not create a trust by will or otherwise. He thought that the same facts arose in England, it would have been a simple case of giving the legal estate to a trustee and the equitable interest of the family. However, the very foundation of the English trust, i.e. the duality of the estate, did not exist in Hindu Law and was therefore not open to a Hindu to establish. Nevertheless, the appeal court soon signalled a change of course. In Krishnaramani Dasi v Ananda Krishna Bose, Macpherson J stated that there is nothing in Hindu law which is inconsistent with the idea of trust as these are not unknown to Hindu Law and has been recognised and administered for a century by English courts, hence they are bound to recognise trusts and to give effect to them. Consequently, after few judgements, it was affirmed that a Hindu could create a trust for the purpose of carrying out his lawful intentions. In this way, Anglo-Indian courts facilitated the use of trusts by natives.

Overall, the reception of English-based trust law in India had its origins in two related developments. The first was the conceptualization of native ‘trust-like’ devices.  Anglo-Indian judges drew an analogy between them and English-trusts, which was misleading. It was inappropriate to stress the perceived analogy too far and fail to respect the significant differences between the two set of devices. Anglo-Indian Judges formed the opinion that behind those devices one could find a notion of ‘trust’ which was broader than the technical meaning that a trust law in English law. It centred on fiduciary relations and possession over property coupled with an obligation to use it for the benefit of a person other than the possessor. From this, they drew the conclusion that the native laws were not unfamiliar with trusts. The second development was when the natives tried to set-up trusts that went beyond the normal ‘trusts-like’ devices. The Courts allowed natives to create trusts in an Anglicized form, which were governed in theory by native law, but in practice, the English Law stripped of some of its most peculiar features.

The reception of English-based trust law in India was not merely the result of legal theorizing, the natives in society were attempting to distribute their property among their families by creating trusts of an Anglicized form in their wills, the practice which was copied from Europeans. The process of reception had an ideological dimension. For some judges like Markby J, the introduction of English- trust type trusts and trust law among natives ought to be resisted because it would in reality, be a violation of the oft-declared intention of the Legislature, which was to preserve the natives’ personal laws.

Anglo-Indian codification was a complex legal project with multiple facets. It was a battleground of contrasting political ideologies jurisprudential framework and individual personalities, which later affected the substance of the code. The Government of India Act 1833 provided for the creation of a uniform body of codified law throughout India, early results were Indian Penal Code and Code of Criminal Procedure. The rapid pace of legislation in few coming decades raised concerns among some sections of the colonial administration, contributing to the limited activity. After the appointment of Whitley Stokes as a law member, codification returned to the forefront of the government’s legislative activity, one of the results were Trusts Bill of 1878. But the codification of trusts law proved contentious as it was not supported by everyone and one of the main opponents of the codification was James Fitzjames Stephen. Paradoxically Stephen was a staunch supporter of codification and he, as a member of law commission, oversaw the enactment of Evidence Act, the Contract Act and CrPC. But Stephen’s objection only pertained to the codification of trusts law. His central argument was that English trust law was unsuitable for transplantation into India. Stephen questioned the feasibility of having a trust law that avoided dual ownership and the division between law and equity. Stokes and a new law commission, set up under him in 1879 to review the state of codification, refuted Stephen’s criticisms as it claimed that the bill did not introduce a foreign concept into India, but built upon an existing one. Another reason they gave, was that the English-based rules in the bill were already administered by Anglo-Indian courts under ‘justice, equity and good conscience.’ This led to comparison between codification of law by legislature and case law. The courts were already deciding cases on trusts between natives gave rise to danger of Anglicisation of native law. The legislation came as a curative to it as it was based on the pursuance of simplicity, clarity and rational appreciation of the principles that ought to and could be adopted. Another refutation it asserted was that the growth in numbers and wealth of European settlers in India made it imperative that they should enjoy a clear body of law on the subject. The India Trust Act was eventually passed in January 1882.

The salient feature of the ITA is the definition of the ‘trust’ in section 3 as ‘an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner’. The origins and definition in the ITA can be traced to the draft NYCC. This defined a ‘voluntary trust’ as ‘an obligation arising out of a personal confidence reposed in, voluntarily accepted by one, for the benefit of another. Many seventeenth and eighteenth century writers took a view on this and were not agreed, with some explaining the trust in proprietary terms and others in contractual terms. Analysing the writing of many authors and their treatises in 17th and 18th century, the trust was emphasised in its proprietary dimension. Only after mid-19th century writers endorsed more openly an obligation based definition of trusts and decisive step in this direction was taken by the NYCC drafters in 1865. It would be wrong to think that the conceptualization of the trust underwent a decisive shift from proprietary to obligational in the closing decades of the nineteenth century. The latter was a more recent development, but it never gained complete ascendancy. The two co-existed in professional literature with the majority of works continuing to follow the former model. The division was regarded as a unique characteristic of English law and the peculiar conditions of landholding in England, and as alien to Indian thinking and practices. ITA bestowed the view of trust as an obligation with legislative authority and fixity.

There are some provisions in the ITA which display proprietary nature of the beneficiary’s right. Section 56 enacts that, ‘where there is only one beneficiary and he is competent to contract, or where there are several beneficiaries and they are competent to contract and all of one mind, he or they may require the trustee to transfer the trust-property to him or them, or to such person as he or they may direct’. Thirdly, it has been pointed out that the beneficiary’s rights bind third parties even though the third parties may not be aware of those rights, hence they must be seen as proprietary. There are many other sections like section 58, 63 and 64, from which one can conclude that the obligation-based understanding of the trust in the ITA does not apply in any real sense beyond the definitions in section 3. But these can also be interpreted from both the ways i.e. by obligational model and proprietary institution. In the end, whether conceived as proprietary or obligational, the beneficiaries’ rights in England and India were not dissimilar. Despite any innovation, the theoretical analysis of the trust in the ITA had limited practical importance, affecting little of the actual working of the trust. In other words, there could be a recognizable trust law without the notion of dual ownership. This affected the transferability of the Act’s model of the trust, making it more exportable across the British Empire and beyond.

The ITA over the years escapes the major legislative revisions and the Indian courts have regularly resorted to English case law where the Act offers no solutions. In D.H. Vahalia v V.P. Bhatt, the court held that it is entitled to apply rules of English law, as laid down by judicial decisions in that country as the rules of justice, equity and good conscience. The references to English law have the potential to distort the analysis of the nature of the trust and of the beneficiary’s interest in the ITA, and these distortions have sometimes occurred. For the most of the times the Indian Courts have faithfully adhered to the ITA’s conceptual framework but in some cases, the language of dual ownership has crept into the judicial analysis. Moreover, when applying the ITA the courts have occasionally described the beneficiary’s position as proprietary. The analytical ambiguity surrounding the nature of the trust in the Indian case law is connected to the continuing resort to English law, but it also has its roots in the ITA, which despite defining the trust as an obligation, provides the beneficiary with rights that could be thought of as proprietary. In Punjab Province v Daulat Singh, Varadachariar J took the view that once the definitional and theoretical language is stripped away, ‘it will be found that for all practical purposes there is little or no difference between a beneficiary under the English law and a beneficiary under the Indian Trusts Act, so far as the substance is concerned.’

The ITA had a more concrete influence in Ceylon, now Sri Lanka. At that time it was under British rule and was open to influence by Anglo-Indian policy. By moving to Ceylon, it was moving into a mixed legal system. The Ceylonese legal system had deep roots of civilian influence after years of Dutch occupation, but it was increasingly exposed to the influence of the common law under the British. The introduction of English-based trust law into Ceylon was largely the work of the courts. But it was quite haphazard and conflicting. To resolve this the Ceylon government decided to provide a comprehensive body of trusts law by enacting the Trusts Ordinance 1917 (CTO). CTO is essentially a modified copy of the ITA. There was a widespread perception among the colonial administrators that the ‘material conditions’ and ‘needs’ of the local population in Ceylon and India were similar, giving rise to analogous problems and common solutions. This practice was often encouraged by the Colonial Government, which strove to ensure that laws across the colonies were as far as possible uniform or similar.

The ITA had an additional attraction in Ceylon. Its conceptualization of the trust as an obligation and its refusal to acknowledge any division of ownership in the trust property fitted well with the existing position in Ceylonese case law. When introducing the CTO, there was no mention of the trust’s interaction with the Roman-Dutch law, which does not accept divided ownership. The view taken was that none existed since the CTO vested ownership in the trustee and did not perceive the beneficiary’s interest as proprietary. As in the ITA, the protections given to the beneficiary’s interest in the CTO closely resemble those in English law, where the interest is frequently described as some form of ownership. The issue ultimately relates to the analysis of the beneficiary’s interest. Ceylonese courts have not spoken with one voice on this as in many cases it adhered to the interpretation of CTO but in others they have included concepts of English Law, describing interest as ‘beneficial ownership’ and treating the trust as giving rise to dual ownership. In all cases, however, they have failed to address any potential inconsistency with the civilian notion of unitary ownership. On the whole, the courts have shown a tendency to focus on the content of the beneficiary’s rights, seemingly untroubled about the theoretical nature of those rights and its broader consequences.

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