OPERATION ASHA versus SHELLY BATRA & ORS.

Summary

The Supreme Court upheld the grant of leave under Section 92 CPC to a co-founder and a board member of a charitable society registered under the Societies Registration Act, 1860 to sue over alleged siphoning of its funds by its CEO and another office-bearer. Registration as a society does not make its property trust property, and the deemed vesting in the governing body under Section 5 creates no express trust, but the governing body holds the property as a fiduciary; where fiduciaries divert the society's funds for their own benefit, a constructive trust arises by operation of law over the diverted property and can found a Section 92 suit. The plaint prima facie met all the conditions, though prayers vindicating the first plaintiff's personal grievances about her removal fall outside Section 92 and must be pursued separately.

Issues

1. Whether a society registered under the Societies Registration Act, 1860, whose property is vested in its governing body under Section 5 of that Act, can be treated as an express or constructive trust created for public purposes of a charitable nature so as to attract Section 92 CPC.
2. Whether the doctrine of constructive trust, and which model of it (institutional or remedial), is available in Indian law against fiduciaries of such a society who allegedly divert its funds.
3. Whether, at the stage of granting leave under Section 92, the plaint disclosed a breach of trust or the necessity of the court's directions for the administration of the trust.
4. Whether the two plaintiffs were 'persons having an interest in the trust'.
5. Whether the reliefs prayed for fell within Section 92(1), and whether the presence of prayers vindicating the first plaintiff's personal grievances rendered the suit non-maintainable.

Provisions considered

• Section 92, Code of Civil Procedure, 1908A suit under Section 92 is a representative suit of a special nature for the protection of public rights in a public trust; leave is a procedural safeguard against frivolous suits and confers no substantive rights. Three conditions must all be satisfied (Ashok Kumar Gupta): a trust for public purposes of a charitable or religious nature; a breach of trust or the necessity of the court's directions; and reliefs falling within sub-section (1). The Court held that the expression 'express or constructive trust' is wide enough to cover a constructive trust imposed over property diverted by fiduciaries of a registered society, and applied each condition to the plaint. (¶¶ 32, 33, 36, 38, 40, 41, 85, 112, 113, 119, 124, 136, 137)
• Section 92(1)(h), Code of Civil Procedure, 1908Following Charan Singh, where some prayers already fall within clauses (a) to (g), other prayers are 'further relief' and the word 'or' before clause (h) is read conjunctively, so that their non-conformity does not affect maintainability; had the personal-grievance prayers stood alone they would be 'other relief' required to be akin to clauses (a) to (g), which they were not. Prayers (c), (d) and (e) of the plaint fell within clauses (a), (d) and (g). (¶¶ 127, 128, 135, 137)
• Section 5, Societies Registration Act, 1860A registered society is not a juristic person or body corporate capable of holding property, so its property is deemed vested in its governing body 'if not vested in trustees'. The Court held that this phrase does not require the trust to pre-exist registration: a separate trust may be created before or after registration, but must be clearly proved. In the absence of such a trust, the governing body holds the property not as an express trustee but in a strict fiduciary capacity, bound to apply it to the society's objects, with no beneficial interest during subsistence or on dissolution; both mechanisms belong to the same genus of fiduciaries. (¶¶ 71, 77, 78, 79, 80, 81, 82, 83, 84, 89, 137)
• Section 14, Societies Registration Act, 1860Relied on, through Board of Trustees, Ayurvedic and Unani Tibia College, for the proposition that members acquire no beneficial interest on dissolution; the property must pass to another society with like objects, which reinforces the fiduciary character of the governing body's holding. (¶¶ 73, 80)
• Section 3, Indian Trusts Act, 1882The definition of a trust as an obligation annexed to the ownership of property arising out of a confidence reposed in and accepted by the owner was used, without directly importing the Act to public trusts, to explain that an express trust requires a declared and ascertainable intention to create a trust; such an intention cannot be ascertained with reasonable certainty when property merely vests in a governing body under Section 5 of the 1860 Act. (¶¶ 59, 68, 88, 89)
• Chapter IX, Sections 88 and 94, Indian Trusts Act, 1882Chapter IX ('Obligations in the nature of trusts') codifies the English constructive trust; Section 88 bars a person in a fiduciary relation from gaining an advantage for himself by that position. The repeal of Sections 81, 82 and 94 by the Benami Act of 1988 does not efface the doctrine; following Janardan Dagdu Khomane, jurisdiction to declare a constructive trust may be derived from Section 151 CPC and Section 88, and there is no inhibition on imposing a constructive trust on public entities. (¶¶ 105, 106, 107, 108)
• Section 2, Charitable Endowments Act, 1890The definition of 'charitable purpose' (relief of the poor, education, medical relief and the advancement of any other object of general public utility) was applied to hold, as an admitted position, that the society working for the treatment and prevention of tuberculosis among the underprivileged was created for a public purpose of a charitable nature. (¶¶ 43, 44)
• Section 151, Code of Civil Procedure, 1908Noted, following Janardan Dagdu Khomane, as a source of the court's jurisdiction to declare a constructive trust in situations falling outside the Indian Trusts Act. (¶¶ 107, 108)

Held

• The grant of leave under Section 92 CPC is a procedural safeguard to protect public charitable and religious trusts from frivolous or mala fide suits; at that stage the court neither adjudicates the merits nor confers substantive rights but only determines maintainability. Courts must weed out suits camouflaged as public-interest suits that are really for harassment or vindication of personal rights. To defeat maintainability it suffices to show that any one of the three Ashok Kumar Gupta conditions is unmet; to sustain it, all must be satisfied. (¶¶ 36, 37, 38, 39, 40, 41)
• Where an institution has no formal recognition, creation of a public trust may be inferred from the circumstances of its origin and functioning: the mode and intention of the grant or acquisition of property, whether the grant carried a fetter or condition as to its use, whether dedication was complete with cessation of the founder's ownership, whether the public or an unascertained class could exercise rights over it, and how its profits were applied. A trust so pre-existing is not altered by the entity's later registration as a society (Kesava Panicker). (¶¶ 46, 52, 53, 54, 55, 56, 58, 137)
• The High Courts are unanimous that a society registered under the Societies Registration Act, 1860 cannot be termed a trust or constructive trust merely because its properties vest in its governing body; the effect of registration is not to invest the society's property with the character of trust property, and the facts must disclose circumstances clearly indicating the creation of a trust. (¶¶ 59, 63, 64, 66, 67, 70, 137)
• The words 'if not vested in trustees' in Section 5 of the 1860 Act do not confine a trust to one created before registration; property belonging to a society may be vested in trustees after registration, for example by its rules providing for separate trustees, by another society declaring in its memorandum that it holds the property as trustee, or by an unequivocal trust deed, and such a trust can be subjected to Section 92 if the other conditions are met. Such a separately created trust must be clearly and sufficiently proven. (¶¶ 78, 79, 137)
• Absent a separate trust, the society's property is deemed vested in its governing body, which holds it in a strict fiduciary capacity: it has no beneficial interest during the society's subsistence or on dissolution, must apply the property only to the society's objects under its memorandum and rules, and safeguards it for future members. Section 5 offers two mechanisms, trustees or the governing body, which belong to the same genus of fiduciaries though only the former are trustees stricto sensu; the provision cannot be read to mean that a governing body not styled as trustees has no fiduciary obligations. (¶¶ 80, 81, 82, 83, 84, 137)
• A society holding property through its governing body under the deeming fiction of Section 5 is not an express trust, because the settlor's intention to create a trust, which is the cornerstone of an express trust, cannot be ascertained with reasonable certainty from a statutory vesting. The plaintiff may nonetheless contend that a constructive trust exists and has been breached, or that the court's directions are necessary for its administration. (¶¶ 85, 87, 88, 89, 137)
• A constructive trust arises by operation of law irrespective of the parties' intention, where the holder of title would profit by a wrong or be unjustly enriched. India adopts the English institutional model rather than the American remedial one: the trust is recognised, not created, by the court, arising from the moment a person under an existing fiduciary obligation receives or diverts property he cannot conscientiously retain. The Indian Trusts Act's Chapter IX recognises the doctrine, and the repeal of Sections 81, 82 and 94 by the Benami Act of 1988 does not do away with it; there is no inhibition on declaring a constructive trust over public entities. (¶¶ 90, 99, 103, 104, 105, 106, 107, 108, 109, 137)
• For the doctrine to apply to a charitable society, it must be established that the fiduciary withheld or diverted the society's property from its intended beneficiaries in contravention of the covenants binding him or to gain an advantage for himself; the diverted property is then held by him as constructive trustee. To assert a breach of that constructive trust, a further divestment of the diverted funds must be proved, but even without it the court's directions may be necessary for the administration of the constructive trust. The allegations of siphoning in the plaint prima facie satisfied this condition; if they are proved false the suit fails, both on merits and because no constructive trust arises. (¶¶ 109, 110, 111, 112, 116, 137)
• At the leave stage only the allegations in the plaint are examined, read for their substance rather than scrutinised mechanically; a plaint is not defective merely because it devotes one paragraph to the question of constructive trust. The court should not assess, at that stage, the credibility of forensic audit reports or require an extensive factual inquiry into the defendants' objections. If after evidence the breach is not made out or the prayer for directions is found vague, the suit must be dismissed. (¶¶ 112, 114, 115, 117, 118)
• The phrase 'persons having an interest in the trust' requires a present, substantial, clear and direct interest, not a sentimental, remote or illusory one, though not a 'direct interest' in the narrow sense. A co-founder and long-time President who served the society for about fifteen years and a current board member have such an interest; the objection that the second plaintiff was roped in merely to make up the number of two, and that her signatures may be forged, could not be assessed at the leave stage when the defendants did not deny that she is a board member. Whether the suit is representative depends on whether public interest is also at play, not merely on the plaintiffs' designation; prayers agitating personal grievances do not negate a dual capacity where other serious allegations concern the public beneficiaries. (¶¶ 119, 120, 121, 122, 123, 137)

Result

Appeal dismissed; grant of leave under Section 92 CPC affirmed. Suit CS(OS) No. 153 of 2020 to be commenced at the earliest, the High Court to examine whether a constructive trust is made out and, if so, delineate the properties subject to it and decide whether prayers (c), (d) and (e) may be granted; prayers concerning the first plaintiff's removal as President and board member to be agitated in a separate suit outside Section 92. Registry to circulate the judgment to all High Courts; pending applications disposed of.