Trust registration, within the framework of Indian law, finds its foundation in the statutory authority known as the Indian Trusts Act of 1882. This Act serves as a legal enactment in India specifically addressing the establishment and administration of trusts. It delineates the criteria for what qualifies as a legal trust, identifies those eligible to serve as trustees, and provides the rationale behind such appointments. Essentially, a trust is a commitment arising from the possession of property, based on the reliance placed by the owner for specific interests.
Furthermore, Formation of a Trust under Indian Trusts Act and its registration serve as more than a mere legal formality; it can function as a vehicle for pooling investments, similar to mutual funds or venture capital funds. These entities operate under a distinct set of regulations of Securities and Exchange Board of India, namely the SEBI (Mutual Funds) Regulations of 1996 and the Securities and Exchange Board of India (Venture Capital Funds) Regulations.
Definition of a Trust as per Section 3 of the Trusts Act, 1882
Section 3 of the Trusts Act, 1882, provides the following definition: “A Trust is the obligation affixed to ownership of the property, emerging out of a confidence reposed in & affirmed by owner, or declared & acquired by him, for benefit of another as well as the owner.”
Purpose for Formation of a Trust under Indian Trusts Act
The formation of a trust under Indian Trusts Act serves one or more of the following objectives, as outlined in the Act:
1. Discharge of Charitable and Religious Sentiments: Fulfilling the charitable and religious sentiments of the author or settler of the trust in a manner that ensures public benefit.
2. Income Tax Exemption: Seeking exemption from Income tax under Section 10 or 11, as applicable, for incomes designated for charitable or religious purposes.
3. Family and Kin Welfare: Serving the interests of the settler’s family members and other kin who depend on the settler of the trust.
4. Property Administration and Preservation: Ensuring the proper administration and preservation of the trust property.
5. Regulation of Funds: Regulating the functions of provident funds, superannuation funds, gratuity funds, or any other fund established by a person for the well-being of its employees.
Formation of a Trust
To establish a trust, the founder of the trust must clearly specify, based on reasonable faith, the following elements:
1. Purpose for Formation of a Trust
2. The Objective of the Trust
3. The Successor
4. The Trust Property
5. Transfer of Property to the Trustee (except in the case of a trust declared by will, as well as of faith from which the author, the creator of the trust)
It is must to recognise that the provision articulated in section 6 is contingent upon the conditions delineated in section 5. Section 5 expressly states that any trust involving immovable property is not deemed valid unless officially declared through a non-testamentary document in writing. This document must bear the signature of the trust’s founder and, when applicable, the trustees involved in the trust’s administration. The written declaration, authenticated by the signatures of these key individuals, is a prerequisite for the legal validity of a trust involving immovable property.
Capacity for Formation of a Trust under Indian Trusts Act
As general rule, an individual legally capable of disposing of a property has power of Formation of a Trust under Indian Trusts Act over the property to the extent of their power of disposition. Also, any person who can hold or acquire property is eligible to act as a trustee.
As per the section 7 of the Act, a trust can be established by an individual having the capacity to enter into a contract and plus, it can be created by minors also with the approval of the principal civil court of original jurisdiction, either by or on behalf of a minor.
Who Can Create a Trust?
In accordance with Section 7 of the Indian Trusts Act, 1882
, the Formation of a Trust under Indian Trusts Act is not restricted to a specific category of individuals but extends to various entities capable of entering into contracts:
1. Hindu Undivided Family:
An HUF, or Hindu Undivided Family, is recognised as one of the entities that can undertake the formation of a trust. HUFs are joint families governed by Hindu law, and they possess the legal capacity to create trusts under the provisions of the Trusts Act.
2. Minor:
Despite their usual legal incapacity to enter into contracts, minors can play a role in the establishment of a trust. For this, approval of a principal court of original jurisdiction is necessary on behalf of the minor.
3. Individual:
The process of forming a trust is open to any individual, irrespective of their specific status or background.
4. Association of Persons:
Associations of persons, which may include groups formed for a specific purpose or objective, are recognised as entities capable of creating trusts. This broad category encompasses various forms of collective entities coming together to fulfil common objectives through the establishment of a trust.
5. Company:
Companies, whether incorporated under the Companies Act or any other relevant legislation, possess the legal capacity to create trusts. This provision acknowledges the role of corporate entities in engaging in philanthropic or socially responsible activities by establishing trusts.
The Indian Trusts Act ensures a wide spectrum of entities, ranging from individuals to corporate bodies, are empowered for the Formation of a Trust under Indian Trusts Act, reflecting the diverse nature of contributors to the establishment of trusts in India.
Final Thoughts
The formation of a trust under Indian Trusts Act, 1882, is a versatile legal mechanism accessible to various entities, including Hindu Undivided Families, minors with court approval, individuals, associations of persons, and companies. Governed by the Act’s provisions, Formation of a Trust under Indian Trusts Act involves specifying its purpose, objectives, successors, and trust property, with property transfer to trustees being a crucial step. The Act ensures flexibility by allowing trusts to be established through non-testamentary instruments and emphasises the importance of written documentation for trusts involving immovable property. Overall, the Act provides a comprehensive framework for the establishment of trusts, catering to diverse legal entities and purposes.
