1. The question for decision in this second appeal is whether the defendants have been rightly held liable by the District Judge for the damages caused to the plaintiff in consequence of the investment of the money drawn by them from the Oriental Life Insurance Company as trustees under the will of one Appala Charlu with the late Messrs. Arbuthnot & Company. In consequence of the failure of Messrs. Arbuthnot and Company most of the investment was lost and the plaintiff who was appointed by the Court as trustee in the place of the defendants seeks to recover from them the amount lost with interest. According to the provisions of the will the trustees after realising the amount of the insurance were to pay Rs. 200 to the testator's brother, Rs. 400 to his daughter for her bride's jewels and the remainder to his minor son. The first sum of Rs. 200 was paid to the brother by the trustees. The remaining amount was invested by them with Messrs. Arbuthnot and Company in 1902 on fixed deposit for a period of one year. The deposit was renewed on each occasion that it fell due before the failure of the firm. The defendants handed over the deposit receipt to the plaintiff on the 19th October 1906; but before the deposit matured again the firm failed.
2. Mr. T.R. Ramachandra Aiyar, the learned vakil for appellants, has argued two contentions before us. The first is that this is not a case where the trust money could not be ' applied immediately or at an early date ' within the meaning of Section 20 of the Indian Trusts Act and that the trustees were not therefore bound to invest it on any of the securities enjoined by that section and that they were therefore bound only to act as directed by Section 15 of the Act, that is ' to deal with the trust property as carefully as a man of ordinary prudence would deal with such property if it were his own.' The second contention is that as they acted with ordinary prudence the provisions of the latter part of Section 15 must be applied that ' a trustee so dealing (that is, with ordinary prudence) is not responsible for the loss, destruction or deterioration of the trust property.' The first contention cannot be upheld. With respect to the amount payable to the minor the money could not be applied for the purposes of the trust at an early date as the trustees could not pay the money until the attainment of his majority. It is impossible to hold that they could discharge themselves by payment to the minor's natural guardian who was his mother. They took the place of the guardian so far as the protection of this money was concerned and could not lawfully make payment either to the infant or to the guardian. See Perry on Trusts Vol. 2, Section 624 and Section 41 of the Trusts Act which expressly authorises the trustee for a minor, to ' pay to the guardians, (if any) of such minor, or otherwise apply for or towards his maintenance or education or advancement, in life, or the reasonable expenses of the religious worship, marriage, or funeral, the whole or any part of the income to which he may be entitled in respect of such property.' With respect to the sum of Rs. 400 payable to the testator's daughter the money might perhaps be regarded as capable of being applied at an early date but the trustees refused to make payment when demanded by the daughter's guardian and having taken the responsibility of keeping money in investment for a long time they were bound to make the investment in accordance with their obligations as trustees. It is contended that Section 15 of the Trusts Act lays down the paramount rule applicable to all dealings of trustees with trust property and controls all other special provisions in the Act including Section 20 regulating the mode in which they should make investments and as Messrs. Arbuthnot and Company had such a high reputation for credit and solvency that any man of ordinary prudence would consider it safe to invest his money with them there was no obligation to make the investment in one of the securities mentioned in Section 20. This contention it is impossibile to accept. The specific provisions contained in the other sections of the Act are as obligatory as the general provisions in Section 15. The measure of prudence required of a trustee by Section 15 must be regulated by any specific provision applicable to special matters found in the other sections of the Act. There can be no doubt that the defendants were bound to comply with the provisions of Section 20 and having failed to do so they must be held to have committed a breach of trust although there can be no reason to doubt that they acted honestly and with the prudence which an ordinary man would exercise in the conduct of his own affairs and that they were influenced merely by a desire to secure for the minor a higher rate of interest than could have been obtained by resorting to some of other modes of investment sanctioned by Section 20. In re Speight; Speight v. Gaunt (1883) 22 Ch. D. 727. Bacon V.C. observed ' That Gaunt was full of friendly and kindly intentions towards the family of the testator I have no doubt and that he did his best to promote their interests preceding the 24th of February I have no doubt. Most perfectly honest intentions alone regulated his conduct...But that does not help me to the solution of this question in the slightest degree. It becomes now, after the facts I have stated, a question of law only. The law on the subject is and has been for centuries, too clear to admit of the possibility of doubt and neither under Lord St. Leonards' Act, nor in any of the cases in which the Court has found excuses for trustees and on some occasions has been able to relieve them from the burden sought to be cast upon them, has the Court lost sight of the plain principle that a trustee who takes another man's money into his hands is bound, whatever other duties he may have to discharge, to take care that that money shall be preserved and not to deal with it or to do anything with it which a prudent and reasonable man would not do with his own money. That is the rule which is properly to be applied to this and to all such like cases.' This observation was in no way dissented from by the Court of Appeal, Jessel M.R. only objecting to the trustee being required to take greater precautions than a prudent man of business should and dissenting from Bacon V.C. only in so far as that learned Judge observed that resort to a broker for purposes of investment was not justified. In Learoyd v. Whiteley (1887) 12 A.C. 727 Lord Watson observed : ' As a general rule the law requires of a trustee no higher degree of diligence in the execution of his office than a man of ordinary prudence would exercise in the management of his own private affairs. Yet he is not allowed the discretion in investing the moneys of the trust as if he were a person sui juris dealing with his own estate. Business men of ordinary prudence may and frequently do select investments which are more or less of a speculative character; but it is the duty of a trustee to confine himself to the class of investments which are permitted by the trust and likewise to avoid all investments of that class which are attended with hazard. So long as he acts in the honest observance of these limitations, the general rule already stated will apply.'
3. The next question is whether the defendants can be relieved from the consequences of their breach of trust by anything which can be found in Section 15 of the Trusts Act. Their contention is that the clause in Section 15 that a trustee acting with prudence is not responsible for the loss destruction or deterioration of the trust property would permit the Court in a proper case not to award damages to the beneficiary caused by a breach of trust. This is clearly not the meaning of the section. Chapter 3 of the Trusts Act treats of the ' duties and liabilities of trustees.' The various duties of trustees are laid down in sections 11 to 22. Sections 23 to 30 deal with their liabilities in cases of violations of trusts. It cannot be held that the provision in Section 15 exempting trustees from responsibility where they have acted with prudence is intended to exonerate them where by not acting with prudence they have committed a breach of trust. The meaning of the second clause of the section is that where a trustee has acted with prudence he could not be held to be guilty of breach of trust. But this rule must be applied in conjunction with the other sections which regulate the measure of prudence required in particular cases. Section 23 lays down in broad terras that ' where the trustee commits a breach of trust, he is liable to make good the loss which the trust property or the beneficiary has thereby sustained.' This statement is followed by certain exceptions to the rule. It is impossible to hold that Section 23 can be controlled by interpreting Section 15 in such a manner as to exempt a trustee from liability for damages on the ground that he has not acted with ordinary prudence. If this were the intention of the legislature it would undoubtedly have stated so by laying down a rule of liability far less comprehensive than that enacted in Section 23. The Indian Trusts Act was closely modelled on the English law of trusts. There was no power in the English Courts to save a trustee from the consequences of his breach of trust when the Indian Act was passed. Thus Bacon V.C. felt bound to award damages against the trustee in In re Speight, Speight v. Gaunt (1883) 22 Ch. D. 727 already referred to, although he held the trustee free from all blame. In England several statutes have been subsequently enacted to relieve trustees in cases where loss accrues to the estate in consequence of their acts. See sections 8 and 9 of the Trustee Act of 1893. Section 3 of the Trustee Act of 1886 gave relief to the whole extent that Mr. Ramachandra Aiyar desires that a trustee should have. It says ' If it appears to the court that a trustee, whether appointed under this Act or not, is or may be personally liable for any breach of trust whether the transaction alleged to be a breach of trust occurred before or after the passing of this Act, has acted honestly and reasonably and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the Court in the matter in which he committed such breach, then the Court may relieve the trustee either wholly or partly from personal liability for the same.' Unfortunately the Indian Courts have not been given the power to protect trustees in any case where a clear breach of trust has been committed. The ordinary principle must therefore apply, that when an injury has been caused to the beneficiary by an act done by the trustee in violation of his duty he is entitled to claim from him the damages he has sustained by his breach of trust. The District Judge's opinion that the defendants are liable for the repayment of the amount lost by the failure of Messrs. Arbuthnot and Co. must therefore be upheld.
4. The only remaining point is whether the award of interest by the District Judge on the amount lost is proper. The appellants rely on Section 23 of the Trust Act which lays down that a trustee committing a breach of trust is not liable to pay interest except in the cases mentioned therein. None of the enumerated cases would comprise this case unless it can be brought under Clause (e) which applies ' where the breach consists in failure to invest trust money and to accumulate the interest or dividends thereon.' Where the trustee invests money in an unauthorised security this must apparently be treated as tantamount to failure to invest, for a trustee cannot be taken to have fulfilled his duty to invest unless he does so in the manner required by law. Besides, it may be doubted whether the rule disentitling the beneficiary to interest except in the cases enumerated could be applied where the trust money has been altogether lost. The Court should have power in such cases to award interest as damages. Illustration to Section 23 shows that where a trustee has failed to invest trust money in the manner directed by the instrument of trust he is liable for interest although he may have made some other investment. The same principle should be applicable where the failure is in making an investment in accordance with the provisions of Section 20. Illustration (b) justifies the same conclusion. The District Judge must therefore be held to be right in awarding interest also.
5. In C.S. No. 64 of 1909 (on the file of the High Court, Original Side) where certain trustees made an investment of trust monies with Messrs. Arbuthnot and Company, Sanltaran Nair J. held that they were liable for the loss caused by the failure of the firm. He also directed the trustees to pay interest. But the arguments urged in the present case with respect to Section 15 of the Trusts Act and with regard to the trustee's liability for interest do not appear to have been addressed to the learned Judge.
6. The result is that the second appeal must be dismissed with costs.