The Law of Dissolution of Public Trusts in India: Navigating Statutory Voids and Judicial Doctrines

The Law of Dissolution of Public Trusts in India: Navigating Statutory Voids and Judicial Doctrines

Introduction

A public trust, in Indian jurisprudence, is an endowment where the beneficial interest is vested in an uncertain and fluctuating body of individuals, be it the public at large or a considerable portion thereof (Deoki Nandan v. Murlidhar And Others, 1957). By their very nature, such trusts are intended to be perpetual, serving charitable, religious, or public utility purposes indefinitely. However, circumstances may arise where the objects of a trust become impracticable, its purposes are fulfilled, or its continued existence is no longer viable, necessitating its dissolution. The legal framework governing the dissolution of public trusts in India is notably complex and fragmented. A cardinal point of departure is the explicit exclusion of public or private religious or charitable endowments from the purview of the Indian Trusts Act, 1882 (Shyamabai v. Madan Mohan Mandir Sanstha, 2009). Consequently, the process of dissolution is not governed by a single, comprehensive statute but rather by a mosaic of state-specific legislation, provisions within the Code of Civil Procedure, 1908, and overarching equitable doctrines developed by the judiciary. This article provides a scholarly analysis of the legal principles governing the dissolution of public trusts in India, examining the interplay between trustee authority, the terms of the trust deed, statutory mechanisms, and the pivotal role of the doctrine of cy-près.

The Perpetual Nature of Public Trusts and the Limits of Trustee Authority

The foundational principle of a public trust is its permanence. The property dedicated to the trust is divested from the settlor and vested in the trust's purpose for the benefit of the public. The trustees, therefore, act not as owners but as fiduciaries, charged with the administration of the trust property in furtherance of its objects. This fiduciary duty imposes stringent limitations on their authority. The Supreme Court in Sheikh Abdul Kayum v. Mulla Alibhai (1963) decisively held that trustees cannot abdicate their duties or delegate their core functions to another body without explicit authorisation in the trust deed or by the court. This principle logically extends to the act of dissolution; trustees possess no inherent power to unilaterally terminate a public trust and dispose of its assets. Such an act would constitute the ultimate abdication of their fiduciary responsibility.

This concept resonates with the broader Public Trust Doctrine, which posits that certain resources are held by the state in trust for the public and cannot be alienated for private gain (IN RE : T.N. GODAVARMAN THIRUMULPAD v. UNION OF INDIA AND ORS., 2024). By analogy, the assets of a public charitable trust are impressed with a public character. The Supreme Court has repeatedly affirmed that the state, as a trustee, must protect such resources for the enjoyment of the general public rather than permit their use for private ownership or commercial purposes (Fomento Resorts And Hotels Limited And Another v. Minguel Martins And Others, 2009). The trustees of a charitable trust are under a similar, if not identical, obligation to ensure the trust's assets are perpetually dedicated to the public good and are not impaired or diminished.

The Role of the Trust Deed: The "Dissolution Clause" Conundrum

A recurring issue, particularly in the context of tax law, is the significance of a "dissolution clause" in the trust deed. For decades, Income Tax authorities have often insisted on a specific clause stipulating that upon dissolution, the trust's net assets will be transferred to another trust with similar objects, as a precondition for granting registration under Section 12AA of the Income Tax Act, 1961. However, a consistent line of judicial pronouncements from the Income Tax Appellate Tribunal (ITAT) has established that the absence of such a clause is not a valid ground for rejecting registration.

The ITAT's reasoning, across numerous cases, is that the general law of the land already provides a robust safety net. In cases like Tara Educational And Charitable Trust v. Director Of Income Tax (2014) and Kamla Nevatia Charitable Trust v. Directorate Of Income Tax (Exemption) (2017), the Tribunal held that state-level legislations, such as the Bombay Public Trusts Act, 1950, and the inherent jurisdiction of the courts, mandate the application of the cy-près doctrine. The Tribunal in RAHEE FOUNDATION, MUMBAI v. DIT (E), MUMBAI (2016) noted that even without a specific clause, the trust, upon dissolution, would be guided by the Charity Commissioner under the relevant state act. This position was further solidified in cases concerning trusts under the Rajasthan Public Trust Act, 1959, where it was held that if a trust is irrevocable and registered as charitable, the Charity Commissioner would invariably take over the assets on dissolution (M/S SIDHA STHAN SHRI KAPALESHWAR MAHADEV SANYAS ASHRAM TRUST, AJMER v. COMMISSIONER OF INCOME TAX (EXEMPTIONS), JAIPUR, 2017). The judiciary has thus clarified that the trust deed does not operate in a vacuum; its silence on dissolution is filled by the mandatory provisions of public law, which prevent the misappropriation of trust assets.

Statutory Frameworks and Judicial Intervention

In the absence of a central governing act, the dissolution and management of public trusts fall under specific statutory provisions and the court's inherent jurisdiction.

Section 92 of the Code of Civil Procedure, 1908

Section 92 of the CPC is the principal statutory tool for judicial oversight of public charitable and religious trusts. It empowers the Principal Civil Court of original jurisdiction, upon a suit instituted by the Advocate General or two or more persons having an interest in the trust, to pass decrees, including removing any trustee, appointing a new trustee, and settling a scheme for its management. While the section does not explicitly use the word "dissolution," its power to settle a scheme is wide enough to encompass the winding up of a trust and the transfer of its assets to another institution. As the Delhi High Court observed in Shishir Bajaj v. India Youth Centres Trust (2010), matters concerning the administration of a public trust are not a private lis but are for the vindication of public rights, squarely placing them within the court's purview under Section 92.

State-Specific Public Trust Acts

Several states have enacted their own legislation to govern public trusts, such as the Maharashtra Public Trusts Act, 1950, and the Rajasthan Public Trust Act, 1959. These statutes typically establish a Charity Commissioner or an equivalent authority with extensive regulatory, investigative, and quasi-judicial powers. These acts institutionalize the process for altering or winding up a trust whose objects have failed. They provide a formal mechanism for the application of the cy-près doctrine, requiring the trustees to seek the sanction of the Charity Commissioner before the trust's assets can be applied to a new purpose. The state also retains legislative power to regulate the secular administration of even the most prominent religious institutions, as affirmed in Sri Adi Visheshwara Of Kashi Vishwanath Temple, Varanasi And Others v. State Of U.P And Others (1997). However, this power is not absolute and cannot be used to arbitrarily extinguish a trust or take over its property without due process and a clear public purpose (Anurag Krishna Sinha v. The State of Bihar, 2024).

The Doctrine of Cy-Près: The Guiding Principle of Dissolution

The doctrine of cy-près (a Norman-French term meaning "as near as possible") is the cornerstone of the law on the dissolution of public trusts. It is a principle of judicial construction that when a charitable gift or trust's original purpose becomes impossible, impracticable, or illegal to perform, a court or the relevant authority may direct that the trust funds be applied to another charitable purpose that approximates the original intention of the settlor as closely as possible. This doctrine ensures that property once dedicated to charity remains in the charitable domain in perpetuity.

The application of this doctrine is the ultimate safeguard against the failure of a public trust. It prevents the trust property from reverting to the settlor or their heirs (resulting trust) or from being distributed among the trustees. The Supreme Court's articulation of the Public Trust Doctrine in environmental law provides a powerful parallel. In Intellectuals Forum, Tirupathi v. State Of A.P And Others (2006), the Court noted that property subject to a public trust must be held available for use by the general public and cannot be sold or diverted from its particular use. The cy-près doctrine is the specific legal tool that applies this philosophy to charitable endowments. Upon dissolution, the court's primary duty is not to terminate the trust in a conventional sense but to redirect its charitable impulse towards a new, viable object, thereby honouring the settlor's intent and preserving the assets for public benefit.

Conclusion

The dissolution of a public trust in India is a process steeped in equitable principles and governed by a decentralized legal framework. It is clear that trustees lack any inherent power to dissolve a trust, a limitation rooted in their profound fiduciary duties (Sheikh Abdul Kayum). The absence of a dissolution clause in a trust deed is not fatal, as the overarching principles of public law, codified in state acts and the CPC, provide a mandatory procedure for the disposition of assets (ITAT jurisprudence). The primary mechanism for managing the end-of-life of a public trust is judicial or quasi-judicial intervention, typically through the powers of the civil court under Section 92 of the CPC or the authority of a state Charity Commissioner. At the heart of this entire process lies the doctrine of cy-près, which ensures that the public and charitable character of the trust's assets is preserved in perpetuity. While the legal landscape could benefit from greater legislative clarity, as noted by the Madras High Court in M. Gandhi v. State Of Tamil Nadu (2018), the Indian judiciary has effectively constructed a robust and coherent framework that balances the need for flexibility with the paramount duty to protect property dedicated to the public good.