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IN THE HIGH COURT OF BOMBAY
S.H. Kapadia, J.
Ms. Sunita A. Gandhi ..... Plaintiff.
Versus
Mrs. Leena Gandhi Tewari others ..... Defendants.
Notice of Motion No. 716 of 1994 in Suit No. 760 of 1994, decided on 6-8-1997.
Advocates appeared :
E.P. Bharucha with Kevick Setalwad and Manoj Sanklecha i/b Dapthery Pareira Diwan, for the plaintiff.
Virendra Tulzapurkar with Pradeep Sancheti i/b Dhru Co., for the defendant No. 1.
Ms. Cardozo, for defendant No. 1.
T.N. Subramanium i/b Narayanan Narayanan, for defendant Nos. 4 and 5.
Sections 12 and 28-See Indian Trust Act, 1888, Section 63.
Section 9-See Indian Trust Act, 1888-Section 63
Order XL, Rule 1-See-In- fun Trusts Act, 1988, Section 63.
(Indian) Trusts Act, 1888
Section 63-Code of Civil Procedure, 1908, Order XL, Rule 1-Beneficiaries seeking appointment by receiver-Trust property leased to company-Major shares held by trustee---Dismissal in favour of company-Justification for receiver-The case prima facie of breach of trust-Appointment of receiver granted on conditions only.- The question is of protecting the property. The question is of getting the best possible income for the trust and the beneficiaries. It is well settled that in certain cases, the allegations arc so relevant that the Court can grant interim relief even after the Court is satisfied that these relevant allegations/averments are ultimately required to be remitted to prove. It is for this reason that the court is not going into the validity of the Suit Agreement of 1992, but the court is treating all these agreements including the Suit Agreement as a ci1Lumstances to show breach of trust, prima facie.
Section 63- Trust property leased a low rates to a company-Trustee having controlling shares-Beneficiaries seeing for breach of trust---Contention-Acquishing demise by inaction-Held---Case of breach of trust-No effect of acquiescence,-In this connection, it may be mentioned that a beneficiary who does not actually know the consequence of alienations is not affected with the knowledge of breach of trust because he might, by enquiry, have ascertained the fact. The reason being that it is the duty of the trustees and not the beneficiary to see that the trust fund is not a proper state. Even in case of Fletcher v. Collins, the observations dearly indicate that acquiescence on the part of the beneficiary would arise if, the beneficiary had induced the trustees to enter into the agreement. In the present case, there is no such inducement even alleged. In the present case, the trustees have never discharged their obligations by calling upon defendant No.5. Company to pay the best possible rent taking into account the interest of beneficial ries. In the circumstances, prima facie the court is not inclined to accept the contention of counsel that in view of the alleged acquiescence on the part of the plaintiff, plaintiff is not entitled to any reliefs.
Section 63-Bombay Rents, Hotel and Lodging House Rates Control Act, 1967, Sections 12 and 28Code of Civil Procedure, 1908, Section 9-Lease in favour of company-Controlled by trustee-Jurisdiction of Civil Court-Challenged-Contention matters of tenancy are subject matter of Small Causes Court-Held-Present care is not of tenancy but breach of trust.- The suit is based on breach of trust. In the present matter, the suit claims cannot be defeated on the ground that defendant No.5 is likely to move the Small Causes Court, particularly, when the benefit has been taken by the company which is the alter ego of the trustee herself. This is particularly with regard to the threat of moving the Small Causes Court for fixation of standard rent. In such matters, the deaf distinction between the cause of action in a suit on a breach of trust and a suit arising under the Rent Act is required to be kept in mind-In cases where the Court relieves a trustee from the liability arising on account of breach of trust must apply an objective test viz., whether the trustee has acted reasonably as well as honestly and the burden of showing lies on the trustee. In considering a reasonableness of his action, the Court will consider whether a prudent man would have disposed of the trust property in the manner complained had it been his own personal property. In the present case, on facts, prima facie, I am of the view that transactions entered into with defendant No.5 are not at arms length.
Section 63-Property leasted on monthly basis-By a trustee, at low price to company hold by him-Doctrine of tracing-Held-Holder fully aware of trust property-Worth being traced in hands of holder.-Section 62 and 65 of the Trusts Act explains the beneficiarys right to recover the trust property from a trustee whereas Section 63 gives a right to recover the trust property from an alienee. In the present case, one more aspect needs to be mentioned that the Suit Agreement which is claimed to be a monthly tenancy by defendant No.5 is preceded by agreements which they claim to be Tenancy Agreement. As observed by Levin On Trust, 16th Edition and as stated above, when a trustee alienates the property by way of lease, it amounts to alienation of a limited right, but, it is for a price and if it is for the price, it is the duty of the trustees to see to it that the best rent is obtained and the best rent is that which takes into account file interest of the beneficiaries.
Section 63- Trustee demiting property-Who is having major share in lease holding company-Lease at low price-Breach of trust-Agreement clearly provide lease on market price-Held-By partial act of trustee, beneficiary are badly affected.-The trust never took action against the company i.e., defendant No.5 although the subsequent agreements are to the detriment of the interest of the beneficiaries. The object was only to benefit defendant Nos. 4 and 5 companies. As stated above, where the trustees act to favour objects of the trust other than those specified in the trust, then they are guilty of breach and if, the trustees fail to take appropriate action against the companies, they have failed in their duty as trustees.
Section 63--Bombay Rents, Hotel and Lodging House Rates Control Act, 1967, Section 12-As per agreement lease of trust property to be an market rate-For a fixed period-Property leased to a member at minimum price-Contention-Best price attempted-Held-Settlement should be beneficial to trust-Demise of property by trustee is prejudicial-The trustees cannot demise that partial interest in their own favour. (See Levin on Trust, page 697 (16th Edition)). Breaches of trust are of different types. A breach of trust may be deliberate or inadvertent it may consist of an actual misappropriation or misapplication of a trust property. It may consist of a failures to carry out the positive obligation of trusties. It may be in the injury to the interest of the beneficiaries. A trustee who acts with the intention of benefiting persons who are not the objects of the trust is not less dishonest because, he does not benefit himself.
The property has been let out by the trust to the company and the entire crux of the above discussion is to show, prima facie, that all the above paper arrangements have been effected in order to obtain the benefit, not for the objects, of the trust or for the beneficiaries under the trust, but, to give the benefit to a third party viz., the company and in the circumstances, the trustees have not only failed in their duties by not insisting on a higher rate of rent (sic) by not taking proper steps to protect the property by alternating the property in such a manner that on the expiry of the trust deed, the distribution would be totally set at naught and in the above circumstances, a very strong case has been made out by the plaintiff indicating breach of trust.
S.H. KAPADIA, J.:---The above suit is filed by the beneficiary, inter alia, for cancellation of the Agreement dated 18th December 1992 being Exhibit C to the plaint entered into by defendants 1, 2 and 3 (Trustees) on the one hand and defendant No. 5 - US Vitamins (India) Limited being the subsidiary of the holding Company by the name American Products Company Limited (defendant No. 4 herein). The suit is also for an order and direction against defendant No. 5-Company to hand over vacant and peaceful possession of the premises admeasuring 10755 sq. ft. situate at Poonam Chambers, North Wing, 4th floor, Dr. Annie Beasant Road, Worli, Bombay. The suit is also for a declaration that 4600 shares in defendant No. 4 Company subscribed by defendant No. 1 (Trustee) is held by her for the benefit of the Trust and to transfer the said shares in defendant No. 4 Company to the plaintiff alongwith dividends and all other benefits accrued thereon.
2.The claim in the suit is made by the plaintiff as a beneficiary alleging that defendant No. 1 is making use of the Trust properties consisting of the above premises and 4,600 shares for her own personal profit/ gain and thereby defendant No. 1 is guilty of breach of trust. The claim made by the plaintiff beneficiary with regard to the premises is based on allegations of breach of trust against defendant No. 1 on the ground that the said Agreement dated 18th December 1992 has been entered into between the Trustees on the one hand an defendant No. 5 on the other hand in breach of the Indian Trust Act and, therefore, it is prayed that the said Agreement be declared as null and void.
The facts giving rise to the above dispute briefly are as follows :
3.Ashok Ganpat Keni (defendant No. 3 herein) as a Settlor created a Trust by way of indenture dated 5th January 1979 (Exhibit A to the plaint). Under the said settlement, plaintiff is a beneficiary of the Trust known as Susheeleena Trust alongwith her sister Mrs. Sheela Rao (not a party to the suit), defendant No. 1 herein (sister of the plaintiff), Dr. Pramila Gandhi i.e. defendant No. 2 herein (mother of the plaintiff, defendant No. 1 and defendant No. 2). In all, there are four beneficiaries under the said trust. The settlor, as stated hereinabove, is Ashok Ganpat Keni defendant No. 3 (Trustee). Defendant No. 3 is the nephew of defendant No. 2. The object of the said Trust is to distribute the income earned by the Trust among the above mentioned four beneficiaries for 15 years from 5th January 1979 upto 5th January 1994 and to distribute the corpus thereafter. Initially, in 1979 the corpus consisted only of Rs. 5,000/-. In 1979, the trustees were Arvind Gandhi (husband of defendant No. 2), defendant No. 2 and defendant No. 3. Arvind died on 15th January 1986. At that time, plaintiff was a minor. On the demise of Arvind, defendant No. 1 was inducted as a Trustee. She was the eldest of all. This induction took place on 11th February 1986. Since 1986, defendant No. 1 is a trustee alongwith defendant No. 2 and defendant No. 3. Defendant No. 1 is also a majority share holder in defendant No. 4 Company which is a holding Company of defendant No. 5. Defendant No. 4 holds 98% shares in defendant No. 5 Company. Defendant No. 1, in turn, holds 55.40% of the equity shares of the holding company and consequently, she controls defendant No. 5. According to the plaintiffs, her nominees are on the Board of Directors of defendant No. 5- Company. Defendant No. 1 is also a Director in both the above Companies.
4.On 18th December 1992, an Agreement was entered into between the trustees on the one hand and defendant No. 5 on the other hand whereby premises were let out on monthly rent to defendant No. 5. The monthly rent is payable to the trustees/owners @ Rs. 20/- per sq. ft. The area, as stated hereinabove, is 10755 sq. ft. The Office premises are located at Annie Beasant Road, Worli. The total monthly rent is Rs. 2,15,100/-. It is this Agreement which is the
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