Can an NRI be a trustee in India? My readers have been asking this question since the time I wrote my first article on how to create a public charitable trust. I get these queries from non-resident Indians (NRI) as well as from people residing in India. At times, NRIs want to start a trust in India because they want to do some social work. At other times, a trust started by Indians want to include an NRI in the board of trustees. The question rises whether it is at all possible to bring an NRI person in the board of trustees. Let's explore the issue and see what different clauses in the law say about it.
As you may know, trusts in India are governed by the Indian Trusts Act 1882. Most of the states have adopted this act and other have adopted it with a few changes. This act has sections that stipulate as to how a trust should function and who can be a trustee.
The Indian Trusts Act 1882 does not explicitly bars an NRI from becoming a trustee but there are a few indirect consequences that may hamper the way. The biggest hurdle is the Section 73 of the Indian Trusts Act 1882 which talks about “Appointment of new trustees on death, etc.” states that:
“Whenever any person appointed a trustee disclaims, of any trustee, either original or substituted, dies, or is for a continuous period of six months absent from India, or leaves India for the purpose of residing abroad, or is declared an insolvent, or desires to be discharged from the trust, or refuses or becomes, in the opinion of a principal civil court of original jurisdiction, unfit or personally incapable to act in the trust, or accepts an inconsistent trust, a new trustee may be appointed in his place by…”
This language is a bit confusing and leaves scope for multiple interpretation. This portion of the act deems an NRI unfit to be a trustee because of his/her absence from India for more than six months. At the same time, this section does not bar the Author / Settler of the Trust or Board of Trustees from appointing an NRI as a trustee.
The next clause as hurdle in the way of an NRI becoming a trustee lies in Section 60 which talks about “Right to proper Trustee” and states that:
The beneficiary has a right (subject to the provisions of the instrument of trust) that the trust-property shall be properly protected and held and administered by proper persons and by a proper number of such persons.
Explanation I: The following are not proper persons within the meaning of this section:
A person domiciled abroad: an alien enemy: a person having an interest inconsistent with that of the beneficiary : a person in insolvent circumstances; and, unless the personal law of the beneficiary allows otherwise, a married woman and a minor.
This section states that beneficiaries of the trust have a right to have proper trustees. It further says how proper it is to make someone a trustee. Section 60 also explicitly says that it is improper to appoint a person domiciled abroad a trustee.
The act also states that a trustee has to be amenable to the jurisdiction of the Civil Court of India. An NRI person remains out of the jurisdiction of the Indian civil courts and if that person does not act as a proper trustee, the Indian courts will not be able to take an action.
[ A similar question, whether a government employee can become a trustee. Get the answer! ]
Despite all this, there is no explicit restriction on an NRI becoming a trustee in an Indian trust. See, as I said before, the act is not clear on this question. The settler or board of trustees may appoint an NRI as trustee but such an appointment may face legal hurdles later on. Therefore, if it can be avoided, it is better to appoint only resident Indian citizen as trustees (who also fulfill the requirement stated in Section 10).
Section 10 of the Indian Trusts Act 1882 states that “Every person capable of holding property may be a trustee; but, where the trust involves the exercise of discretion, he cannot execute it unless he is competent to contract.”
The NRI person must be competent to enter into a contract as per Indian Contract Act, 1872. You should also note that a trust in which an NRI is a trustee can not do anything which is prohibited in India for the NRIs.
So far, this is all I have on the question of whether an NRI can be appointed as a trustee. I am still consulting a couple of lawyer friends on this topic and I will update the article if I will have any new information. If you have any relevant information, please let me know through comments section. Thank you for using TechWelkin!