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Case Number

S.A No. 1082 of 1939.

Advocates

Messrs. B. Sitarama Rao and K.R Rama Ayyar for the Appellants.
Messrs. T.M Krishnaswami Ayyar and V. Minakshisundaram for the Respondents.

Judges

Venkataramana Rao, J.

Acts

S. 62 of the Trust Act

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Smart Summary

Structured Summary of the Opinion (Second Appeal concerning Trust Property)

Factual and Procedural Background

The second appeal arises from a suit for recovery of possession of the property described in Schedule A. The plaintiff was a trustee of certain charities under a scheme decree in O.S. No. 13 of 1922 (Sub-Court Madura). The Schedule A property admittedly belonged to the charity but was sold on 7-12-1924 by the 1st defendant (who was then a trustee) for Rs. 2,212 to the 2nd defendant.

The 2nd defendant firm was thereafter adjudicated insolvent; the Official Assignee of Madras acquired its properties and by a conveyance dated 7-5-1929 sold the property (among others) to Maya Nadar & Bros. On the date of the suit, the property vested in defendants 4 to 6. Defendant 4 died during the litigation; defendants 8 to 10 are his legal representatives and are the appellants. Defendant 5 was adjudicated insolvent and the Official Receiver, Madura, representing his estate, is defendant 7.

The plaintiff impeached the sale in favour of the 2nd defendant on the ground that it was in excess of the trustee's powers. Both lower courts found for the plaintiff on that point (a finding not challenged in the second appeal). The appellants' primary contention was that they (and defendants 6 and 7) are entitled either to recover the Schedule B properties (allegedly put up as security) or to recover the Rs. 2,212 purchase price before the plaintiff could recover possession of the Schedule A property. Both courts rejected that relief.

Legal Issues Presented

Whether defendants (appellants) are entitled to recover the Schedule B property or the purchase price of Rs. 2,212 before the plaintiff can recover possession of the Schedule A property which the trustee sold.
Whether the transactions evidenced by Exhibits C and C-1 amounted in law to an exchange (i.e., the trustee conveying trust property to himself and then selling it), or instead amounted to a sale by the trustee with his own property conveyed to the trust as the purchase consideration.
Whether the equitable principle reflected in Section 62 of the Trusts Act (regarding a trustee wrongly buying trust property) applies to public religious trusts as it does to private trusts.
Whether, given the pleadings and facts, the appellants are entitled to any relief in this suit or whether the title to Schedule B property should be investigated in separate proceedings.

Arguments of the Parties

Appellants' Arguments (as presented by Mr. Sitarama Rao)

The Schedule B property must be deemed conveyed to the trust for the price of Rs. 2,212; therefore the trust benefited from that property and cannot retain that benefit while recovering possession of the Schedule A property.
Accordingly, the appellants (successors-in-title) and defendants 6 and 7 are entitled to recover the Schedule B property (or Rs. 2,212) before the plaintiff may recover possession of Schedule A property.

Respondent / Opposing Arguments (as presented by Mr. T.M. Krishnaswami Iyer)

The specific plea for reconveyance of Schedule B property or repayment of Rs. 2,212 was not specifically pleaded, although defendants 4 to 6 did plead that the plaintiff should not obtain cancellation of the sale without repaying purchase money and expenses.
There was no assignment by the Official Assignee of the covenant relating to the security in Ex. C-1 in favour of the 2nd defendant or his assignees.
The plaintiff's case (as maintained) was that the Schedule B property itself is charity property and not property of the 1st defendant.
The contention that Section 62 of the Trusts Act applies to public religious trusts was disputed: the counsel argued the provision would not apply and that the conveyance should be treated as void, not merely voidable; also that the trustee had appropriated the purchase price for himself.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court first examined the true character of the transactions evidenced by Exhibits C and C-1 (both dated 7-12-1924). Ex. C purports to be a declaration of trust by the 1st defendant reciting that, because the Schedule A charity property did not yield sufficient income, he had fixed the price at Rs. 2,212 and completed a sale to the 2nd defendant; in substitution he was setting apart his own Schedule B property (also worth Rs. 2,212) for the charity. Ex. C-1 is an absolute sale by the 1st defendant in favour of the 2nd defendant for Rs. 2,212 and contains a clause providing the Schedule B property as security to protect the purchaser against encumbrances or litigation.

The court disagreed with the Subordinate Judge's view that the transaction should be treated as an exchange (i.e., the trustee conveying trust property to himself and then selling it). Instead, the court concluded that, in substance, the 1st defendant as trustee sold the Schedule A (trust) property to the 2nd defendant and, for the purchase price, conveyed his own Schedule B property to the trust. Viewed this way, the transaction is essentially a sale by the trustee with the trustee's own property substituted as consideration for the trust.

Having characterised the transaction as a sale followed by the trustee's conveyance of his own property as consideration, the court addressed the consequence of setting aside the sale as being in excess of the trustee's powers. The court relied on the equitable principle embodied in Section 62 of the Trusts Act, which it quoted and described as material:

“When a trustee has wrongly bought trust property the beneficiary has a right to have the property declared subject to the trust or re-transferred by the trustee, if it remains in his hands unsold, or, if it has been bought from him by any person with notice of the trust, by such person. But in such case, the beneficiary must repay the purchase money paid by the trustee, with interest, and such other expenses (if any) as he has properly incurred in the preservation of the property.”

The court rejected the argument that the transaction was void in law. It held that the sale was voidable (on the ground of excess of powers) rather than void ab initio. The court further reasoned that the equitable principle in Section 62 is not limited to private trusts: it is an equitable principle applicable to trusts generally, and thus the principle should apply to public religious trusts as well.

However, the court observed procedural and evidentiary limits to granting relief to the appellants in the present suit. The written statement did not specifically seek reconveyance of Schedule B property or repayment of the Rs. 2,212 (though there was a general plea that purchase money and expenses should be repaid). Moreover, the title to the Schedule B property (whether it was charity property or property of the 1st defendant) was not fully tried: Issue II (relating to that question) had been raised but was not determined by the courts below.

Rather than remanding the case for trial on Issue II, the court considered it preferable to leave the question of title to Schedule B property (and any consequential relief) to be investigated in a separate suit. The court noted that the appellant's counsel had no objection to this course.

Holding and Implications

Holding: The second appeal is dismissed. Leave to appeal is refused.

The court directed that, because the decision was reached on a view different from that of the Subordinate Judge, each party shall bear their own costs in the second appeal.

Direct consequences for the parties:

The appeal by the appellants (defendants' representatives) is dismissed and they are not granted the relief of reconveyance of Schedule B property or mandatory repayment as part of this proceeding.
The question whether Schedule B property is charity property or belongs to the 1st defendant (and, if it belongs to the 1st defendant, whether the successors-in-title are entitled to relief) is left unresolved in this suit and was directed by the court to be investigated in a separate suit.
Each party bears their own costs in the second appeal; leave to appeal further is refused.

Broader legal implication: The court applied the equitable principle reflected in Section 62 of the Trusts Act to the facts and indicated that this principle is not confined to private trusts but applies to public religious trusts as an equitable rule. The opinion, however, does not purport to establish a new binding precedent beyond the disposition of the parties and leaves the title-related questions for separate litigation.

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Kanagavelu Nadar And Others v. Sooravali Subbier And Others

This second appeal arises out of a suit for recovery of possession of the property comprised in Schedule A by the plaintiff who was a trustee of certain charities under a scheme decree in O.S No. 13 of 1922 on the file of the Sub-Court Madura. The said property admittedly belonged to the charity, but it was sold on 7-12-1924 by the 1st defendant who was then a trustee of the charity for Rs. 2,212 to the 2nd defendant. The 2nd defendant firm was adjudicated insolvent and all its properties and effects including the said property vested in the Official Assignee of Madras who by a conveyance dated 7-5-1929 sold this property among other properties to the firm of Maya Nadar & Bros. and on the date of this suit the said property vested in defendants 4 to 6. The 4th defendant died during the pendency of the litigation and defendants 8 to 10 who are the appellants herein are his legal representatives. The 5th defendant was adjudicated an insolvent and the Official Receiver, Madura, as representing his estate is the 7th defendant in the suit.

The sale in favour of the 2nd defendant was impeached by the plaintiff on the ground that it was in excess of the powers of the trustee and invalid. Both the Courts have answered that question in favour of the plaintiff and this finding is not challenged in second appeal by Mr. Sitarama Rao, learned Counsel for the appellants. But the main contention urged by him is that his clients and defendants 6 and 7 are entitled to recover the properties comprised in the B schedule or the Rs. 2,212 the purchase price paid for the sale of A schedule property before the plaintiff can recover possession of the said A schedule property. Both the Courts have negatived this contention and declined to give the relief asked for on behalf of defendants 4 to 7.

To appreciate the contention of Mr. Sitarama Rao a few facts are necessary. On 7-12-1924, two documents came into existence, viz. Exs. C and C-1. Ex. C purports to be a declaration of trust executed by the 1st defendant. The recitals in the said deed are that as the A schedule property which was dedicated to charity was not yielding proper income, he for the benefit of the said charity settled the price of the said property at Rs. 2,212 and completed the sale deed in favour of N.K.K Venkataramana Iyer, the 2nd defendant herein, that in substitution of A schedule property, through the said document Ex. C. he was setting apart of his free will the property comprised in B schedule which is also worth Rs. 2,212 and which belonged to him so that the income of the said property may be utilised for the said charity. Ex. C-1 is a deed of absolute sale in favour of the 2nd defendant by the 1st defendant for Rs. 2,212. He recites almost the same facts as in Ex. C. In the said document also occurs the recital that A schedule property which was being sold was not yielding any income and therefore he had to sell this property to the 2nd defendant and that in substitution thereof he was giving his own property. To provide against any loss that the 2nd defendant may sustain by reason of the conveyance he provided the following security, viz., the B schedule property. The clause relating thereto runs thus:

“If any encumbrances or litigations should arise and you should incur a loss, you shall get the undermentioned second item of property shown as security for the same; to this effect is the deed of absolute sale of punja land executed by me out of my free will.”

The contention of Mr. Sitarama Rao is that for the price of Rs. 2,212, B schedule property must be deemed to have been conveyed by the 1st defendant to the trust and therefore it had the benefit of that property and the trust must re-convey the property under Sch. B or pay the price thereof because while getting A schedule property, it cannot be allowed to retain the benefit it had from the money received from the 2nd defendant.

The contention of Mr. T.M Krishnaswami Iyer is that this plea for the recovery of B schedule property or its price was not specifically raised in the pleadings though no doubt there was a plea in the written statement of defendants 4 to 6 that the plaintiff should have no right to get the cancellation of the sale without repaying the defendants the purchase price and the amount spent by them. Again there was no assignment of the covenant relating to the security in Ex. C-1 in favour of the 2nd defendant or his assignors by the Official Assignee. Mr. T.M Krishnaswami Iyer also stated that the plaintiff's case is that the B schedule property is also charity property and is not property belonging to the 1st defendant. In fact an issue (issue II) was raised in the case but that was not gone into by both the Courts.

The learned District Munsif observed that he considered it unnecessary to decide the said issue. The learned Subordinate Judge dealt with the case on the assumption that the property belonged to the 1st defendant. The view he took was that the transaction represented by Exs. C and C-1 in effect amounted to an exchange between the 1st defendant in his personal capacity and the 1st defendant in his capacity as trustee, that he took the trust property in exchange for his own and sold the property and appropriated the sale proceeds himself. Taking this view he held that the defendants 5, 6 and 8 to 10 cannot claim possession of the property described in Sch. B or any charge on the property on the ground that their predecessor-in-interest did not purchase the B schedule property from the Official Assignee and further that there was no warranty of title given by the Official Assignee in favour of their predecessor-in-title and there was no assignment by the Official Assignee of the covenant relating to security in Ex. C-1 in favour of the predecessor-in-title. The question is whether the view taken by the learned Subordinate Judge is sound and whether any relief can be given to defendants 5, 6 and 8 to 10 in this suit.

After listening to the arguments of learned Counsel on both sides, it seems to me that the view taken by the learned Subordinate Judge that the transactions represented by Exs. C and C-1 amount in law to an exchange is not correct. The substance of the transaction is that the 1st defendant as trustee sold the A schedule property to the 2nd defendant and for the purchase price he conveyed his own property to the trust. If the matter is viewed thus, the question is, when the sale of A schedule property is set aside on the ground that there was no valid necessity to sell that property, whether the trust is not bound to refund the benefit it had by virtue of the sale. If the question related to a private trust and even if it is assumed that the purchase was by the trustee himself, there can be no doubt that the trustee or his alienee will be entitled to call upon the trust to surrender the benefit the trust had by virtue of the sale in his favour. This principle is recognised by Legislature in S. 62 of the Trust Act which so far as is material for the present discussion runs thus:

The contention of Mr. T.M Krishnaswami Iyer is that provision will not apply to a case of public religious trust and that the conveyance of A schedule property must be deemed to be void and the trust is not bound to refund any benefit which it had received and in fact no benefit was received because the 1st defendant appropriated the purchase price for himself. I am not inclined to agree with the contention of Mr. Krishnaswami Iyer that the transaction is void. The sale can only be held to be voidable on the ground that it was in excess of the powers of the trustee. His contention that the transaction is void is based on the ground that the transaction must in law amount to an exchange and the trustee must be deemed to have conveyed the A schedule property to himself and then sold it under Ex. C-1. As I have already stated I am not inclined to take this view of the transaction.

Again the question is not whether the transaction is void or voidable but whether a trust is entitled not only to recover the trust property which has been wrongfully conveyed but also retain any benefit it had from the transaction. I do not see why the principle in S. 62 should not be held applicable to the case of public religious trusts. I am inclined to hold that the principle is an equitable one which would apply to the case of a trust whether public or private.

But the question is whether the appellants are entitled to get any relief in this suit. In the written statement no relief was asked for the reconveyance of the B schedule property or the sum of Rs. 2,212 though no doubt they asked for a refund of the purchase price. Further the title to B schedule property was not gone into. Instead of remanding the suit for trial on issue II, I think it is more desirable that the question of title to B schedule property i.e, whether it is charity property or property belonging to the 1st defendant and if so whether the 4th defendant should not be given the relief which he is entitled to if it is found to be property belonging to the 1st defendant may be left for investigation in a separate suit. The learned Counsel for the appellant has also no objection to this course being adopted.

In the result the second appeal is dismissed. But as I am deciding the case on a view quite different from that taken by the learned Subordinate Judge I direct each party to bear their own costs in the second appeal.

Leave to appeal refused.

Appeal dismissed.

N.R.R

Kanagavelu Nadar And Others v. Sooravali Subbier And Others

Structured Summary of the Opinion (Second Appeal concerning Trust Property)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellants' Arguments (as presented by Mr. Sitarama Rao)

Respondent / Opposing Arguments (as presented by Mr. T.M. Krishnaswami Iyer)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Kanagavelu Nadar And Others v. Sooravali Subbier And Others

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