Section 67 of The Indian Trust Act, 1882
If a partner, being a trustee, wrongfully employs trust-property in the business or on the account of the partnership, no other partner is liable therefor in his personal capacity to the beneficiaries, unless he had notice of the breach of trust. The partners having such notice are jointly and severally liable for the breach of trust. Illustrations
- (a)A and B are partners. A dies, having bequeathed all his property to B in trust for Z, and appointed B his sole executor. B, instead of winding up the affairs of the partnership, retains all the assets in the business. Z may compel him, as partner, to account for so much of the profits as are derived from As share of the capital. B is also answerable to Z for the improper employment of As assets.
- (b)A, a trader, bequeaths his property to B in trust for C, appoints B his sole executor, and dies. B enters into partnership with X and Y in the same trade, and employs A's assets in the partnership-business. B gives an indemnity to X and Y against the claims of C. Here X and Y are jointly liable with B to C as having knowingly become parties to the breach of trust committed by B.
Summary
- Section 67 of the Indian Trusts Act, 1882 protects innocent business partners when another partner wrongfully uses trust money in their business.
- If a partner who is also a trustee misuses trust funds for partnership activities, the other partners are not personally responsible for the loss.
- Innocent partners only become liable if they actually had notice, meaning they knew or should have known, about the wrongful use of trust property.
- Partners who knew about the breach are jointly and severally liable, meaning they are responsible together and also each partner is individually responsible for the entire loss.
Practical examples
FAQ
1. What is the personal liability of partners under Section 67 of the Indian Trusts Act, 1882 when one partner misuses trust property?
Under Section 67 of the Indian Trusts Act, 1882, innocent partners are not personally liable in their private capacity to the beneficiaries if a partner-trustee wrongfully employs trust funds in the partnership business, unless those partners had notice of the breach.
2. Under Section 67 of the Indian Trusts Act, 1882, what happens if partners have notice of a partner-trustee misusing trust funds?
Under Section 67 of the Indian Trusts Act, 1882, partners who have notice of the wrongful use of trust property in their business are jointly and severally liable, meaning they can be sued together or individually for the whole loss.
3. How does the Indian Trusts Act, 1882 define notice in the context of Section 67?
Under the Indian Trusts Act, 1882, notice means either that the partner actually knew about the wrongful use of trust property or that they would have known it if they had not willfully avoided asking questions or been extremely careless.
Test yourself
Q1.Under Section 67 of the Indian Trusts Act, 1882, if a partner who is a trustee wrongfully uses trust property for partnership business, when is another partner personally liable to the beneficiaries?
Q2.Under Section 67 of the Indian Trusts Act, 1882, if multiple partners have notice that trust property is being wrongfully used in their firm, what is their liability?
Q3.Under Section 67 of the Indian Trusts Act, 1882, if a partner-trustee wrongfully employs trust funds for partnership purposes, who can the beneficiary hold liable if the other partners had absolutely no knowledge or notice?
Q4.Under Section 67 of the Indian Trusts Act, 1882, what does joint and several liability mean for partners who have notice of a breach?