Calcutta High Court
Mohan Lall Seal & Ors vs Kanak Lall Seal & Ors on 9 April, 2009
Author: Indira Banerjee
Bench: Indira Banerjee
Order Sheet Serial No........
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
G.A. No.3095 of 2008
G.A. No.1782 of 2008
C.S. No. 116 of 2008
In the matter of:
MOHAN LALL SEAL & ORS.
Vs.
KANAK LALL SEAL & ORS.
With
A.T.A. 2 of 2008
In the matter of :
KANAK LALL SEAL & ANR.
Vs
TRUSTEES TO THE TRUST ESTATE OF MUTTYLALL SEAL & ORS.
Before:
The Hon'ble Justice
INDIRA BANERJEE
Date: 9 th April, 2009
JUDGMENT
One Mutty Lall Seal, during his life time executed a deed of trust on 21 st February, 1848 dedicating all his properties inter alia for religious, charitable and benevolent activities.
The said trust, which was for a period of 99 years expired on 20 th February, 1947 and the trust properties devolved upon the heirs of Mutty Lall Seal. On 20 th February, 1947, the heirs of Mutty Lall Seal created a new trust to continue the benevolent activities of the original trust. The properties of the trust estate included amongst others Premises No.2 Red Cross Place, Kolkata and Premises No.6, Jawaharlal Nehru Road, Kolkata.
The plaintiffs and the defendants in CS No.116 of 2008 except the plaintiff No.11 and the Defendant No.7 are the heirs of Mutty Lall Seal.
In terms of the deed of trust dated 20 th February, 1947, the Board of Trustees were to be reconstituted every five years and was to comprise of 3 persons from the line of Panna Lall Seal, 4 persons from the line of Gobinda Lall Seal and 3 persons from the line of Kanai Lall Seal. The constitution of the Board of Trustees underwent a change in February, 2007, upon expiry of the term of five years.
The plaintiff Nos.1, 2 and 6 in C.S. No.116 of 2008 are the descendants of Panna Lall Seal, the plaintiff Nos.3, 2, 5 and 10 are the descendants of Gobinda Lall Seal and the plaintiff Nos.7 to 9 are the descendants of Kanai Lall Seal. The aforesaid plaintiffs were appointed trustees on or about 21 st February, 2007.
On 22 nd January, 2007, shortly before the constitution of the new Board of Trustees, the majority of the erstwhile trustees approved the proposal for execution of a deed of lease of Premises No.2 Red Cross Place, Kolkata, in favour of the defendant No.7at a premium of Rs.20,000,00/- and lease rent of Rs.20,000/- per month. The deed of lease was executed on 24 th January, 2007 in favour of the defendant No.7.
The plaintiff No.2 in C.S. No.116 of 2008 filed an application being ATA 1 of 2007 in this Court under Section 34 of the Indian Trusts Act, 1882 for an order of injunction restraining the trustees from dealing with and/or disposing of and/or granting any long term lease in respect of the said two properties of the trust estate referred to above.
The Court by its order dated 7 th February, 2007 directed that status quo with regard to the said properties be maintained. However, by the time the order of status quo was passed, the deed of lease referred to above, had already been executed.
The plaintiff No.2 had also filed a suit being T.S. No.331 of 2007 (Mohit Lal Seal vs. The Trust Estate of Mutty Lall Seal) in the City Civil Court at Calcutta in February, 2007 inter alia challenging the lease in favour of the Defendant No.7.
The aforesaid suit was, however, withdrawn and the present suit being C.S. No.116 of 2008 filed in this Court for inter alia a declaration that the deed of lease dated 24 th January, 2007 is illegal and void, delivery up and cancellation of the said deed of lease and other consequential reliefs.
Two applications filed in the suit being G.A. 1782 of 2008 and G.A. 3095 of 2008 have been assigned to this Bench. The first, that is, G.A. 1782 of 2008 has been filed by the plaintiffs seeking directions for issuance of public advertisements for grant of lease of the said Premises No.2 Red Cross Place, Kolkata, orders permitting the present trustees to lease out the said premises at the best available terms, injunction restraining the defendant No.7 from transferring, alienating, parting with possession or changing the nature and character of the said premises or otherwise taking steps on the basis of the deed of lease.
The application being G.A. No.3095 of 2008 has been filed by the defendant No.7 inter alia for dismissal of the suit and stay of all proceedings including G.A. No.1782 of 2008.
The defendant No.1 has, along with one Abhiram Lall Seal, filed an application under Section 34 read with Section 39 of the Indian Trusts Act, 1882 being A.T.A. No.2 of 2008 for an order of injunction restraining the trustees from cancelling the lease executed and registered on 24th January, 2007 without first procuring any better offer, directions on the trustees to accept the lease rent and other reliefs. This application has also been assigned to this Bench.
The three applications assigned to this Bench, that is, G.A. No.1782 of 2008, G.A. No.3095 of 2008 and ATA 2 of 2008 were heard together and are being disposed of by a common judgment and order.
Mr. Sakya Sen appearing on behalf of the plaintiffs submitted that the lease had been executed without issuing any public notice, without inviting open offers and without fixing any reserve price.
Mr. Sen tried to demonstrate that the lease was not in the interest of the Trust Estate, the lease premium and the lease rent being far too low.
Mr. Sen emphatically argued that the lease, which was for 99 years was liable to be set aside since the permission of the Court had not been taken.
Mr. Sen argued that under Section 36 of the Indian Trustees Act, it was necessary to obtain permission of the principal Civil Court of original jurisdiction to execute a long term lease, exceeding 21 years.
Mr. Sen further argued that even though the trust was a charitable trust to which the Indian Trusts Act did not apply all the principles embodied in the Indian Trusts Act would apply. In support of his submission, Mr. Sen cited the judgment of this Court in Dhanalal Karnawat & Anr. reported in AIR 1975 Cal. 67 and the judgment in Som Giri vs. Ram Ratan Giri reported in AIR 1941 All. 387 followed and approved in Dhanalal Karnawat (supra).
In support of his contention that the principles of the Indian Trusts Act would apply to private, public, religious and charitable endowments Mr. Sen also cited Abdul Kayum vs. Alibhai reported in 1963 SC 309.
Mr. Sen next submitted that property belonging to religious and charitable endowments could not be permitted to be sold, unless the same was justified by reasons. In support of his submission Mr. Sen cited R. Venugopala Naidu v. Venkatarayulu Naidu Charities & Ors. reported in AIR 1990 SS 444. Mr. Sen pointed out that no reasons had been given to justify the grant of lease by private negotiations at gross undervalue.
Citing the decision of the Supreme Court in Committee of Management of Pachaiyappa's Trust vs. Official Trustee of Madras & Anr. reported in 1994 (1) SCC 475, Mr. Sen submitted that lease of trust property should be granted by public auction.
Mr. Sen next cited S.J.S. Business Enterprises Pvt. Ltd. vs. State of Bihar & Ors. reported in 2004 (7) SCC 166 for the proposition that in matters of sale, adequate publicity must be given to secure the best price. Even though the judgment, which has been rendered in the context of the State Financial Corporation Act, 1951, may not strictly have application in the facts and circumstances of this case, the principles laid down therein are attracted whenever any transfer involves public interest.
Mr. Sen submitted that it was not open to the respondents to contend that the provisions of the Indian Trusts Act do not apply to the trust since it had been the consistent practice of the trustees to apply to this Court under Sections 34 and 49 of the Indian Trusts Act, for leasing out Trust Properties. Admittedly, the defendants had earlier applied to this Court for permission to lease out the trust property at Jawaharlal Nehru Road.
Mr. Dipak Basu, appearing on behalf of the defendants submitted that the Indian Trusts Act, 1882 did not have application to the Trust in the instant case which is a religious and charitable Trust.
Mr. Basu further submitted that the trust deed provided for transfer and/or lease of the trust properties by the trustees by majority opinion.
In granting the lease to the defendant No.7, an existing tenant who had held the said premises for years, the defendants had acted bona fide and in the best interest of the Trust Estate.
Mr. Basu submitted that the premises in question was encumbered with tenants, sub-tenants and unauthorized occupants. The offer of lease premium of Rs.20 lakhs and enhancement of monthly lease rent to Rs.15,000/- with provision for further enhancement every five years was a good offer.
Mr. Basu pointed out that on earlier occasions, lease of other properties had been granted by private negotiations without issuance of public notices. The plaintiffs had acquiesced in such grant of lease and the deed of lease had been executed by all the trustees including some of the plaintiffs. It was thus not open to the plaintiffs to contend that the premises in question could not been leased out except by public auction.
Mr. H.K. Mitter appearing on behalf of the defendant No.7 submitted that the defendant No.7 had already paid Rs.20 lakhs. The money paid by the defendant No.7 was blocked.
Mr. Mitter further submitted that the defendant No.7 and/or its predecessor in interest had been in occupation of the premises in question as lessees and/or tenants since 1914. The premises was fully tenanted. There were sub-tenants who had long been in possession. The premises were not free from encumbrances. The premium and the monthly rent offered by the defendant No.7 was a lucrative offer for the Trust.
Mr. Mitter also argued that the deed of trust empowered the trustees to settle property by majority decision. Since the provisions of the Indian Trusts Act, 1882 did not apply to the Trust Estate, it was not necessary for the Trustees to apply to the Court for permission to grant long term lease exceeding 36 years.
Mr. Mitter argued that it was not material whether there was necessity for the sale or not since the Trust Deed expressly clothed the trustees with authority to settle trust properties by majority opinion.
The defendant No.7 has prayed for dismissal and/or alternatively stay of trial of the suit on the ground of the same being hit by Order II Rule 2 and/or Section 10 of the Code of Civil Procedure, 1908.
It is pleaded that the issues in the suit were directly and substantially in issue in Title Suit No.331 of 2007 in the City Civil Court at Calcutta, which had been withdrawn without leave to institute fresh proceedings, and are also directly and substantially in issue in ATA 1 of 2007 pending in this Court.
In course of arguments the defendant No.7 pressed only for dismissal of the application being G.A. No.1782 of 2008. The prayer for dismissal of the suit and/or stay of trial thereof was not pressed and no arguments were advanced. The defendant No.7 also filed written notes of submissions, which are on record.
This Court, on going through the pleadings and on considering the submissions made on behalf of the respective parties, both oral as well as in writing is of the view that this suit is not liable to be dismissed nor trial thereof stayed since the earlier title suit as also the application being ATA 1 of 2007 had been filed by one of the trustees in his personal capacity. The instant suit is by the Trust and its Board of Trustees.
The issue is whether the plaintiffs should be granted the reliefs prayed for in G.A. 1782 of 2008 or whether the said application should be dismissed and further whether orders prayed for by the defendant No.1 and Abhiram Lall Seal in ATA 2 of 2008 should be passed.
Significantly, in ATA 2 of 2008 the defendant No.1 and Abhiram Lall Seal have sought orders restraining the trustees from cancelling the lease in favour of the defendant No.1 without procuring any better offer. The best offers can only be procured by open advertisements for which directions have been sought in G.A. 1782 of 2008.
In case of charitable and religious trusts, the trustees have an inherent obligation to act in the interest of the trust and its beneficiary and/or in other words, in public interest.
Public interest demands that any transfer or alienation of the trust property should be completely transparent, fair and in public interest.
It is, therefore, expedient that all transfers of property held by religious or charitable trusts, should be open, by issuance of public notices and/or advertisement. The transfer should be given sufficient publicity to fetch the best offers. This has apparently not been done.
In Dhanalal Karnawat (supra) a learned Single Judge overruled the objection that an application under Section 34 of the Indian Trusts Act, 1882 was not maintainable in respect of a charitable trust and held as follows:
"The provisions of Section 34 of the Indian Trusts Act are similar to those of Section 7 of the Charitable and Religious Trusts Act. The impugned order was made on 11 th April, 1973 on the application were in the cause title mention was made of Section 34 of the Indian Trusts Act. Apart from the said mention of Section 34 there was nothing to show that the application was not made under Section 7 of the Charitable and Religious Trusts Act. The application in effect, was made by the trustees seeking a direction from this Court to grant lease of the Trust property No.48, Sir Hariram Goenka Street, Calcutta. As a matter of fact in the Charitable and Religious Trusts Act there are no provisions similar to those contain in the latter portion of Section 36 of the Indian Trusts Act. Therefore in this respect the provisions in the Trusts Act should be followed. In a case reported in AIR 1941 All 387, the Bench decision presided over by the Chief Justice Iqbal ahmad has been that though the Indian Trusts Act does not apply to public or private religious charitable endowments, but nevertheless the principles underlying the sections served as useful guide. The sections mentioned in the said case were of course Sections 44 and 76 of the Indian Trusts Act."
The judgment in Dhanalal Karnawat (supra) is binding on this Bench of coordinate strength. Prima facie, the application being ATA 1 of 2007 is maintainable. The plaintiffs have also been able to make out a good prima facie case for the suit. The principles of Section 34 to 36 of the Indian Trusts Act, 1882 are attracted.
In Abdul Kayum vs. Alibhai (supra) the Supreme Court held that the principles embodied in the provisions of the Indian Trusts Act, 1882 would apply to public and private religious/charitable trusts.
In Venugopala Naidu vs. Venkatarayulu Naidu Charities (supra) the Supreme Court held that the Court should not permit property belonging to religious and charitable endowments to be transferred by private negotiations.
As held by the Supreme Court in Committee of Management of Pachaiyappa's Trust vs. Official Trustee of Madras & Anr. (supra) the lease of a trust property should be by public auction.
Even though the judgment has been rendered in the context of the Official Trustees Act, the principles are attracted. Even though this Court is unable to arrive at any definite finding with regard to the appropriateness of the terms and conditions on which Premises No.2, Red Cross Place, Kolkata - 700 001 has been leased out, this Court is constrained to hold that efforts to obtain the best offers had not been made.
Public notices could have ensured the best offers. The trustees ought to have issued public notices in newspapers instead of privately negotiating an apparently unconscionable bargain.
The argument of Mr. Sen regarding the change in tenancy laws with the enforcement of the West Bengal Premises Tenancy Act, 1997 and consequent improvement of the position of the Trust Estate as landlord has some force. The monthly rent was statutorily liable to be enhanced threefold. Termination would also become easier, upon enhancement of rent.
Public notice might or might not have brought better offers, but transfer upon public notice would certainly have given more transparency to the deal.
This Court is also of the view that a long term lease exceeding 21 years requires the sanction of Court as provided in Section 26 of the Indian Trusts Act, 1882 and in any case has to be at the best rent.
Properties of public and/or private charitable trust cannot be decimated by the trustees at their own whims and fancies. A property held in trust cannot be alienated save for compelling reasons at rent that is not the best. In this case, the transfer is coupled with the right of demolition and construction.
This Court is in agreement with the submission of Mr. Sen that advertisements might help secure better price for the premises in question.
In any case, when there was dissent from some trustees, the respondents should perhaps have sought leave of the Court before granting lease of the property, more so, when such leave had been obtained on earlier occasions.
The fact that on an earlier occasion lease was granted and/or property transferred without public notice is not material. On earlier occasions all the trustees might have agreed. There was no objection on the ground that the property had not been transferred at the best possible price. There now being objection, the action of the respondents would have to stand the test of judicial scrutiny.
The respondents have not been able to justify the grant of lease for a period of 99 years with the right of demolition and construction at premium of Rs.20 lakhs. The plaintiffs have made out a good case for injunction.
This Court deems it appropriate to stay the operation of the lease. The trustees shall notify the proposed lease by issuing advertisements in leading newspapers and transfer the property at the best possible price, with leave of Court. The plaintiffs may also introduce purchasers.
In case, however, better price is not received, even after advertisements, the trustees might transfer/lease out the property to the defendant No.7, the current lessee with approval/permission of Court.
All the three applications are disposed of accordingly.
(Indira Banerjee, J.) Later:
Mr. Sushanta Basu, learned Advocate appearing on behalf of the respondent No.7, prays for stay of operation of this order.
The prayer for stay is considered and refused.
It is, however, directed that the trustees shall, if they wish to transfer and/or lease out the property, issue advertisements, as directed in the judgment and order, expeditiously preferably within four weeks from the date of receipt of certified copy of this judgment and order and consider the respective offers including the offer of respondent No.7.
(Indira Banerjee, J.)