Can a 'Trust' under the Indian Trusts Act, 1882 be a 'Body Corporate' under the Companies Act, 1956?
Sub-section (7) of Section 2 of the Companies Act, 1956 defines a Body Corporate or Corporation as follows:-
“Body Corporate” or “Corporation” includes a company incorporated outside India but does not include---
(a) a corporation sole;
(b) a co-operative society registered under any law relating to co-operative societies; and
(c)
any other body corporate (not being a company as defined in this Act),
which the Central Government may, by notification in the Official
Gazette, specify in this behalf.
Institution
or body which can be regarded body corporate---- Department’s
Circular:--- The question whether a particular institution or body
other than that specified in sub-clauses (a), (b) and (c) of clause (7)
of section 2 is a “body corporate” under the Companies Act, 1956 has to
be decided with reference, among other things, to the status, mode of
incorporation, constitution, etc., of the institution. It is not
possible for the Department to lay down any general definition other
than that given in the Act or to furnish a list of bodies which are
deemed to be “bodies corporate” under section 2(7). Generally speaking,
the Department would consider that any corporate body, i.e., a body
which has been or is incorporated under some statute and which has a
perpetual succession, a common seal and is a legal entity apart from the
members constituting it, will come within the definition of the term
"body corporate". The term will not, however, include a society
registered under the Societies Registration Act, 1860, or any of the
bodies which have been specifically excluded by sub-clauses (a), (b) and
(c) of clause (7) of section 2. (Circular No. 8(26)/2(7)/63-PR, dated
13-03-1963)
The
Supreme Court of India in Ashoka Marketing Ltd v Punjab National Bank,
(1990) 4 SCC 406 held that “The expression ‘body corporate’ is used in
legal parlance to mean a public or private corporation.”
Further,
the Supreme Court of India, in Board of Trustees, Ayurvedic and Unani
Tibia College v. State of Delhi, AIR 1962 SC 458 while posing the
question as to what is a corporation, the court answered it with the
statements contained in HALSBURY 4th Edn., Vol.9, para 1201 as:- “A
Corporation may be defined as a body of persons (in the case of a
corporation aggregate) or an office (in case of a corporation sole)
which is recognized by the law as having a personality which is distinct
from the separate personalities of the members of the body or the
personality of the individual holder for the time being of the office,
in question.”
The
Supreme Court of India again in S. P. Mittal v. Union of India, AIR
1983 SC 1, summed up the essential elements in the legal concept of a
corporation, which are: “(1) a continuous identity, i.e., the original
member or members or his or their successors are one; (2) the persons to
be incorporated, (3) the name by which the persons are incorporated,
(4) a place, and (5) words sufficient in law to show incorporation. A
corporation aggregate can express its will by deed under a common seal.”
Corporation
also means any body corporate established by or under Central,
Provincial or State Act. It can be brought into existence by a statute.
In
legal parlance, a legal person is any subject-matter other than a human
being to which the law attributes personality. The law, in creating
legal persons, always does so by personifying some real thing. The thing
personified may be termed the corpus of the legal person so created; it
is the body into which the law infuses the animus of a fictitious
personality. Thus a Corporation, being the creation of law is
undoubtedly a legal person. It comes into existence by the lawful
authority of incorporation. A corporation, having neither soul nor body,
cannot act save through the agency of some representative in the world
of real men. Whatever a corporation is reputed to do in law is done in
fact by the directors or the shareholders as its agents and
representatives.
Trust
literally means a confidence which one reposes in another. Creation of a
Trust is regulated by the Indian Trusts Act, 1882. According to Section
3 of the Act, a Trust is 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. A trust is a curious instance of duplicate
ownership which allows for the separation of the powers of management
and the rights of enjoyment. Trust property is that which is owned by
two persons at the same time, the relation between the two owners being
such that one of them is under an obligation to use his ownership for
the benefit of the other. The former is called the trustee, and his
ownership is trust-ownership; the latter is called the beneficiary, and
his is beneficial ownership.
The
trustee is destitute of any right of beneficial enjoyment of the trust
property. His ownership, therefore, is a matter of form rather than
substance, nominal rather than real. If we have regard to the essence of
the matter rather than to the form of it, a trustee is not an owner at
all, but a mere agent, upon whom the law has conferred the power and
imposed the duty of administering the property of another person. In
legal theory, however, he is not a mere agent but an owner. He is a
person to whom the property of some one else is fictitiously attributed
by the law, to the extent that the rights and powers thus vested in a
nominal owner shall be used by him for the benefit of the real owner. As
between trustee and beneficiary, the law recognizes the truth of the
matter; as between two, the property belongs to the latter and not to
the former. But as between the trustee and third persons, the fiction
prevails. The trustee is clothed with the rights of his beneficiary, and
is so enabled to personate or represent him in dealings with the world
at large.
The
purpose of trusteeship is to protect the rights and interests of
persons who for any reason are unable effectively to protect them for
themselves. The law vests those rights and interests for safe custody,
as it were, in some other person who is capable of guarding them and
dealing with them, and who is placed under a legal obligation to use
them for the benefit of him to whom they in truth belong.
In
a celebrated case, Sir Edward Coke C.J enunciated that the first
essential for a valid corporation is a “lawful authority of
incorporation”.
The
courts in India in various decisions held that the instrument of
registration does not by itself lend legal entity to a trust. The
Supreme Court of India in AIR 1957 SC 887 (891) held that “A trustee is
legal owner of trust property and the property vests in him. He holds
trust property for the benefit of beneficiaries but does not hold it on
their behalf.
In
Duli Chand v Mahabir Prasad etc. Trust AIR 1984 Del 145 (DB) the court
observed that a trust is “not like a corporation which has a legal
existence of its own and therefore, can appoint an agent. A trust in not
in this sense a legal entity. It is possible for some of the trustees
to authorize the others to file a suit but this could only be done by
the execution of a power of attorney.”
It
was also held in H. N. Bhiwandiwala v Zoroastrian Co-op. Bank AIR 2001
Bom 267 that, a suit against a trust is not maintainable as it is not a
legal entity. Observed, “all the trustees must be made a party.”
It
was further held in N. T. P. C. v Canara Bank (1999) 97 Comp. Cas. 930
at Pages 937-38 that “Trusts created under Indian Trusts Act, 1882 are
not legal entities as public trusts registered under the Societies
Registration Act are.
It
would be pertinent to speak about the section 10 of the Indian Trusts
Act, 1882 which provides that every person capable of holding property
may be a trustee, but where the trust involves the exercise of
discretion, a trustee must be a person competent to contract. Thus there
is no statutory prohibition upon the appointment of any person as a
trustee, who should be a person capable of taking and holding legal
estate, possessed of natural capacity and legal ability to execute the
trust, and domiciled within the jurisdiction of the court.
In
view of the above discussion as well as the decisions that a Trust is
an obligation annexed to the ownership of property and a trustee is a
person who accepts a confidence which gives rise to obligation annexed
to the ownership of property. But a trust is not a legal entity in the
eye of law as it has no lawful authority of incorporation. Generally,
the assumption that an entity will behave substantially as expected.
Trust may apply only for a specific function. As such a Trust under the
Indian Trusts Act, 1882 cannot be a ‘Body Corporate’ under the Companies
Act, 1956.
