Sections 86-87 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 86 says that property transferred under a contract that is liable to rescission, or that was induced by fraud or mistake, must be held for the transferor once the transferee has notice, subject to repayment of the consideration actually paid. Section 87 says that a debtor who becomes the executor or other legal representative of his creditor must hold the debt for the persons interested in it. Both are "obligations in the nature of trusts" under Chapter IX. The Act deals with private trusts; public, charitable and religious trusts are governed by other laws (see private vs public trust). If you are on either side of such a transfer, our legal dispute resolution team can review the documents.
Section 86: where property is transferred in pursuance of a contract that is liable to rescission, or induced by fraud or mistake, the transferee must, on receiving notice to that effect, hold the property for the benefit of the transferor, subject to repayment by the transferor of the consideration actually paid. Section 87: where a debtor becomes the executor or other legal representative of his creditor, he must hold the debt for the benefit of the persons interested in it.
Section 86: transfer under a rescindable contract
Section 86 reads: "Where property is transferred in pursuance of a contract which is liable to rescission or induced by fraud or mistake, the transferee must, on receiving notice to that effect, hold the property for the benefit of the transferor, subject to repayment by the latter of the consideration actually paid."
| Part | In plain terms |
|---|---|
| "transferred in pursuance of a contract" | There is a contract and a transfer made under it |
| "liable to rescission or induced by fraud or mistake" | The contract can be set aside, or was brought about by fraud or mistake |
| "on receiving notice to that effect" | The duty starts when the transferee is told of the problem |
| "hold the property for the benefit of the transferor" | He holds it for the person who transferred it |
| "subject to repayment by the latter of the consideration actually paid" | The transferor must pay back what the transferee actually paid |
Two features stand out. The duty arises "on receiving notice to that effect", so the transferee's obligation runs from notice; before that, the section does not say he holds the property for the transferor. And the transferor does not get the property back for nothing: the repayment of "consideration actually paid" is part of the rule. The section does not say how a contract becomes "liable to rescission", or what "mistake" or "fraud" mean; those depend on the law of contract and are not defined here. The text is silent on how notice must be given, or in what form.
The section is not a code on rescission. Its role is to say how the property is held, as a kind of trust, between notice and the final sorting out of the contract.
Section 87: debtor as creditor's representative
Section 87 reads: "Where a debtor becomes the executor or other legal representative of his creditor, he must hold the debt for the benefit of the persons interested therein."
The point is conflict of interest. A person who owes money to a deceased creditor and who then becomes the creditor's executor or legal representative could be tempted to treat the debt as extinguished. The section prevents that: he holds the debt, that is, the claim he owes, "for the benefit of the persons interested therein", such as the beneficiaries of the estate. It does not set out how the debt is to be paid, and it does not say what interest applies. The text is silent on those points.
How the two sections fit into Chapter IX
Both sections are placed among the cases in which, though no express trust has been declared, the person holding property must hold it for someone else. That is the meaning of "obligations in the nature of trusts". Once a person is caught by section 86 or 87, section 95 says he must, so far as may be, perform the duties and bear the liabilities of a trustee for the person for whom he holds; see sections 95-96. So a transferee who has received notice under section 86 should look after the property, keep it separate, and avoid dealing with it for his own gain. Section 96 also protects transferees in good faith for consideration, so a later honest buyer from the transferee is not, on the text, undone by these obligations.
The two sections share one idea: a person should not keep for himself something that the law regards as belonging to another. Under section 86 the reason is a defective contract. Under section 87 the reason is a conflict of interest created when the debtor steps into the creditor's shoes.
The Act's illustrations
In the scanned copy consulted, no illustrations are printed under sections 86 and 87, so none are restated here.
A modern example of our own
- Section 86. Geeta Rao sells a flat to Mohit for Rs 70 lakh, induced by Mohit's false statement about its title. Geeta later learns this and sends Mohit notice. From receiving the notice, Mohit must hold the flat for Geeta's benefit, subject to Geeta repaying the Rs 70 lakh Mohit actually paid.
- Section 86, mistake. If Geeta had sold the flat because both sides made a mistake in the contract, the same logic applies once the transferee has notice, on the text of the section.
- Section 87. Naveen Kulkarni lends Rs 10 lakh to Anita. Naveen dies, and his will names Anita as executor. Anita must hold the debt she owes for the persons interested in Naveen's estate and cannot treat it as cancelled.
What the instrument of trust can change
Sections 86 and 87 do not mention the instrument of trust. These are obligations imposed by the Act, not terms chosen by a settlor, and the text does not say whether a deed can change them. A person who is appointed executor and owes a debt to the deceased should take advice and disclose the debt rather than rely on a clause. For how the person who holds property under such an obligation is treated, see the general rule in section 95 at sections 95-96.
Practical points
- Buyers: if you receive a notice that your contract is being set aside for fraud or mistake, keep the property safe, do not sell or charge it, and take advice, because section 86 treats you as holding it for the transferor.
- Sellers: serve a clear written notice and keep proof of delivery, since the duty runs from notice.
- Be ready to repay what the transferee actually paid; section 86 makes that part of the arrangement.
- Executors: declare any personal debt you owe to the deceased at the start. Do not treat it as ended by your appointment.
Need help with a fraudulent or mistaken transfer, or a debtor-executor?
If you want to set aside a transfer, or you have received a notice of rescission, or an executor owes the estate money, the documents will show what applies. Our legal dispute resolution team can review them and advise.
Key takeaways
- Section 86: a transferee under a rescindable contract, or one induced by fraud or mistake, holds the property for the transferor once he has notice.
- The transferor must repay the consideration actually paid.
- Section 87: a debtor who becomes his creditor's executor or legal representative holds the debt for the persons interested in it.
- The Act does not define rescission, fraud or mistake in these sections.
- No illustrations are printed under these sections in the scanned text.
Read next
- Section 88: advantage gained by a fiduciary
- Sections 84-85: transfer or bequest for illegal purpose
- Sections 80-83: obligations in the nature of trust and trust incapable of execution
- Liabilities of trustees for breach of trust
Disclaimer: Based on the text of the Indian Trusts Act, 1882 as consulted on 1 October 2026 from a scanned copy; the Act applies to private trusts, and public, charitable and religious trusts are governed by other laws. This article is general information, not legal advice; check the official text and take advice before acting.