Important Points
1. The complaint cannot be dismissed at the initial stage on the ground of alleged malafides of the complainant. Credentiality of the complainant at this stage is not relevant.
2. A Will on its own terms is inherently revocable during the lifetime of the testator. However, ‘mutual wills’ and ‘secret trusts’ are doctrines evolved in equity to overcome the problems of revocability of Wills and to prevent frauds.
3. A mere declaration can create a trust obligation, particularly when the settlor is the sole trustee under the trust.

Headnote:(i) Criminal Procedure Code, 1973 —Section 482—Indian Penal Code, 1860—Sections 120-B, 406, 417 and 420—Prayer for quashing of process issued for offences under—Allegations that dispute involved is civil dispute and on ground of alleged malafides of complainant—Complainant, respondent 2, a former employee working in MP Birla Group, claiming to be a close associates of late MP Birla and his wife, petitioned a complaint alleging offences u/ss 120B rw/s 406, 420, 467, 417 and 204 IPC—MP Birla and Smt. Birla died issueless—During their lifetime, the couple had executed mutual wills on two occasions, in year 1981 and subsequently in 1982—According to complainant, couple had decided to dispose of their assets of about 2400 crores to charity after their demise—In 1988 couple created five mutual and reciprocal trusts under which the estate went to charity as the remainder beneficiary—On death of couple, accused 1 claimed that estate of Mrs. Birla, which included estate of MP Birla, belonged to him under a will dated 18-4-1999, allegedly made by Mrs. Birla—Allegations in the complaint that accused, trustees of mutual trusts, created false evidence to show that five trusts stood revoked and dissolved three days before the alleged will executed by Mrs. Birla—According to complaint, accused 1 was the exclusive advisor and consultant of Smt. Birla personally—He was director, auditor and trustee of different MPB group of companies—Allegations against accused of criminal conspiracy to misappropriate property of public charitable institutions—Whether High Court was justified in refusing to quash criminal proceedings against the accused persons—(Yes)—Complaint is not liable to be dismissed at the initial stage.
       Held : To understand the basis of the complaint we need to understand the concept of mutual wills, mutual and reciprocal trusts and secret trusts. A will on its own terms is inherently revocable during the lifetime of the testator. However, “mutual wills” and “secret trusts” are doctrines evolved in equity to overcome the problems of revocability of wills and to prevent frauds. Mutual wills and secret trusts belong to the same category of cases. The doctrine of mutual wills is to the effect that where two individuals agree as to the disposal of their assets and execute mutual wills in pursuance of the agreement, on the death of the first testator (T1), the property of the survivor testator (T2), the subject matter of the agreement, is held on an implied trust for the beneficiary named in the wills. T2 may alter his/her will because a will is inherently revocable, but if he/she does so, his/her representative will take the assets subject to the trust. The rationale for imposing a “constructive trust” in such circumstances is that equity will not allow T2 to commit a fraud by going back on her agreement with T1. Since the assets received by T2, on the death of T1, were bequeathed to T2 on the basis of the agreement not to revoke the will of T1 it would be a fraud for T2 to take the benefit, while failing to observe the agreement and equity intervenes to prevent this fraud. In such cases, the Instrument itself is the evidence of the agreement and he, that dies first, does by his act carry the agreement on his part into execution. If T2 then refuses, he/she is guilty of fraud, can never unbind himself/herself and becomes a trustee, of course. For no man shall deceive another to his prejudice. Such a contract to make corresponding wills in many cases get established by the Instrument itself as the evidence of the agreement. (Para 13)
       Mutual wills and trusts are evidenced by the Deeds themselves (the recitals, terms and conditions mentioned therein) as also by the surrounding circumstances, namely, the simultaneity and the similarity of the terms of the wills/trusts, the pattern of successive wills, the reciprocity of one to the other, the age of the settlors, the value of the estates, dying of the settlors without any issues, making of the last will without reference to the revocation of previous wills. Lastly, in law we have the concept of accessory liability for having assisted in a breach of trust. In such a case the accused is not charged for having received trust income or assets for his own benefit but for having acted as an accessory to a breach of trust. (Para 13)
       At this stage we are required to read the complaint as it is. Suffice it to state at this stage of the matter that the couple had executed mutual wills in 1981 and 1982; followed by reciprocal trusts in 1988 which are in almost identical words. The scheme of the mutual deeds read together is almost identical. It is not disputed that a mere declaration can create a trust obligation, particularly when the settlor is the sole trustee under the trust. Before us what is argued by the appellants is that there is no valid creation of trust; that, there was no “vesting” of the assets in the three public charitable institutions; that, the act of Smt. Birla in revoking the trusts and/or treating them as her own property was within her competence; that, the trusts were revocable; that, at the highest it is case of failure of the second charity and that predominantly the dispute is a civil dispute. At this stage, we may point out that what is complained of in the complaint filed by respondent no. 2 herein is regarding the acts of management including dissolution of the trusts and making of the will by which trust properties have been allegedly converted dishonestly into personal properties of R.S. Lodha constituting an offence of criminal misappropriation under sections 405 and 406 and cheating under section 420, IPC. Here we may add that question as to whether Smt. Birla had the authority to revoke is different from the allegation that the acts of setting up personal title to the trust property constituted criminal breach of trust and that, the act was performed with the intent of converting trust property into private property pursuant to a conspiracy by the accused. In the complaint, respondent no. 2 herein has averred that he was present and consulted when the couple opted for mutual wills in 1981, 1982 and even in 1988 when mutual and reciprocal trusts were executed. The complaint is based on the alleged oral agreement and understanding between the husband and wife regarding disposal of properties on their demise. Suffice it to say that these facts in issue are matters of evidence. The question as to whether there existed a valid trust or that Smt. Birla was entitled to dissolve the trust even during her lifetime are defences which can be taken at the appropriate time. (Para 14)
       The complaint is based on mutual and oral agreements imposing secret trust obligations as evidenced by the trust deeds. In this connection we may reiterate that “secret trust” is a doctrine evolved to prevent fraud; that, fraud is not an ingredient for the application of the said doctrine. However, the substance of the complaint here is that the secret trust has become the reason for fraud because the legatee under the secret trust is made to believe by the accused that she was the beneficial owner, free from any trust. (Para 15)
       At the outset, we reiterate that credentiality of the complainant at this stage is not relevant. As stated above, in this case, what is alleged by the complaint, inter alia, is that he was a privy to the discussions and consultations and thinking which went into making of the mutual wills and the mutual trusts; that, he was a formal witness to some of these deeds and that he was aware that the couple had mutually agreed to the disposal of the property to charity after their demise. In the facts and circumstances of this case, at this stage, we are not inclined to accept the argument that the complaint should be dismissed at the initial stage on the ground of alleged malafides of the complainant. (Para 18)
       (ii) Indian Succession Act, 1925—Section 63—Will—Mutual wills, mutual and reciprocal trusts and secret trusts—Concept of—‘Mutual wills’ and ‘secret trusts’ are doctrines evolved in equity to overcome problems of revocability of wills and to prevent frauds—In case of mutual wills there is an agreement between two testators concerning disposal of their respective properties. (Para 13)

JUDGMENT

Kapadia, J.—Leave granted.

2. These appeals are filed by accused nos. 2 and 3 against the impugned judgment of the High Court of Calcutta refusing quashing of the process issued by the Chief Judicial Magistrate (CJM), Alipore in respect of alleged offences under sections 120-B/406/417/420 of the Indian Penal Code (IPC).

3. The undisputed facts are as follows :

Madhav Prasad Birla (MPB) and Smt. Priyamvada Devi Birla (PDB) were one of the richest and the wealthiest couples who had no issues during their lifetime. MPB was one of the famous industrialists from the Birla family. The couple executed mutual wills in 1981. In 1982, the couple executed mutual wills revoking the earlier mutual wills. In 1988, during their lifetime, Smt. Birla formed four trusts and MPB formed the fifth trust. These trusts, 5 in number, covered corporate assets. On 30th July 1990 MPB died. On 10.9.1990, Smt. Birla gave directions in respect of MP Birla Trust under clause 6(b) and made nominations of beneficiaries in respect of her four trusts under clause 7(a) of the trust deeds in favour of three named public charitable institutions, viz., Hindustan Medical Institution (HMI), East India Education Institution (EIEI) and MP Birla Foundation. In terms of the said nominations made after the demise of MPB, the assets of the five trusts estimated at Rs. 2400 crores stood settled for the benefit of HMI, EIEI and MP Birla Foundation. However, on 15th April 1999 PDB purported to revoke all the five trusts (stood dissolved). On 18th April 1999, Smt. Birla executed her will by which she bequeathed all her properties (including the estate of MPB) to accused no. 1, R.S. Lodha and after him his son, the value of which is around Rs. 2400 crores. Smt. Birla died on 3rd July 2004. R.S. Lodha was a trustee of MP Birla Foundation (one of the three public charitable institutions). He was also a trustee of HMI and EIEI prior to the dissolution of the five trusts w.e.f. 15.4.1999. Appellant herein, Shiva Nath Prasad, accused no. 2 was also a trustee in the five trusts. Accused no. 3, Dr. V. Gauri Shanker was a trustee in HMI, EIEI and MP Birla Foundation. He was also a trustee in three out of five mutual trusts referred to above.

4. Respondent no. 2 herein (complainant), a former employee working in MP Birla Group, claiming to be a close associate of late MPB and his wife, petitioned a complaint in the court of Chief Judicial Magistrate, Alipore in case no. C/4693 of 2004 alleging offences under the aforestated sections, viz., 120-B read with 406, 420, 467, 417 and 204 of the IPC, inter alia, on the ground that he was a witness to the intention and the wishes of the couple during their lifetime to leave their estate to charity which decision was made known to everyone close to the couple including the other members of the Birla family. According to the complainant, the couple had accordingly executed mutual wills on two occasions, first in the year 1981 and subsequently in 1982. According to the complainant, when the mutual wills were executed in 1981 and 1982, he was consulted and he had taken part in the discussion with MPB. According to the complaint, the couple had decided to dispose of their assets to charity after their demise. Respondent no. 2 herein has further alleged in the complaint that in 1988 the couple created five mutual and reciprocal trusts under which the estate went to charity as the remainder beneficiary. Respondent no. 2 further alleged that he was involved in the discussion relating to formulation of the terms and conditions to be mentioned in the five trust deeds. He was consulted in the matter of drafting of the said deeds. He was also a witness to the mutual and reciprocal agreements between MPB and PDB in regard to the five trusts. He was also a formal witness to the deeds. He was also a witness to the instrument of nominations of the beneficiaries of the five trusts. He was also a witness to the deeds of appointment of trustees of the five tr

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2006 Supreme(SC) 100

Cases Referred (5)