Supreme Court annuls sale of Trust properties due to procedural lapses: Shri Ambadevi Sanstha vs. Joint Charity Commissioner (2018)

Date of the Judgment: 25 September 2018

Citation: (2018) INSC 821

Judges: Arun Mishra, J. and Vineet Saran, J.

The Supreme Court of India addressed a critical question regarding the sale of public trust properties. Can a Charity Commissioner permit the sale of trust properties without proper valuation and adherence to the principles of protecting the trust’s interests? This case, involving Shri Ambadevi Sanstha, a registered Public Trust, highlights the importance of procedural correctness and the need to safeguard trust assets. The judgment was delivered by a two-judge bench comprising Justice Arun Mishra and Justice Vineet Saran, with Justice Arun Mishra authoring the opinion.

Case Background

Shri Ambadevi Sanstha, a Public Trust registered under the Bombay Public Trusts Act, 1950, sought permission from the Joint Charity Commissioner to sell several of its properties. The Trust intended to sell agricultural lands and houses to various individuals. The initial application for permission was made by the erstwhile Secretary of the Trust. However, objections were raised by other parties, including some who offered higher prices for the land. Subsequently, a newly elected body of the Trust also objected to the sale. Despite these objections, the Joint Charity Commissioner granted permission for the sale. The Trust then filed writ petitions before the High Court of Judicature at Bombay, which were dismissed, leading to the current appeals before the Supreme Court.

Timeline

Course of Proceedings

The erstwhile Secretary of the Trust initially applied to the Joint Charity Commissioner for permission to sell the Trust’s properties. During the proceedings, several objections were raised. Two individuals offered to purchase the land at higher prices than the proposed sale. Additionally, the newly elected body of the Trust stated that they did not want to sell the properties. Despite these objections, the Joint Charity Commissioner granted permission for the sale. The Trust then filed writ petitions before the High Court of Judicature at Bombay, challenging the Joint Charity Commissioner’s order. The High Court dismissed these petitions, upholding the decision of the Joint Charity Commissioner. Consequently, the Trust appealed to the Supreme Court.

Legal Framework

The core legal provision in this case is Section 36 of the Bombay Public Trusts Act, 1950. This section governs the sale, exchange, or lease of immovable property belonging to a public trust. It mandates that such transactions require the prior sanction of the Charity Commissioner. According to the section, any sale, exchange, or gift of immovable property or lease extending beyond ten years for agricultural land, or three years for non-agricultural land or a building, belonging to a public trust, is invalid without the Charity Commissioner’s prior sanction. The Charity Commissioner must consider the “interest, benefit, and protection” of the Trust while granting such permission. The section also allows the Charity Commissioner to impose conditions as they deem fit. The aim of this provision is to protect the properties of public trusts from being mismanaged or sold at undervalue.

Arguments

Appellant’s Arguments:

• ✓ The Joint Charity Commissioner did not act as per the requirements of Section 36 of the Bombay Public Trusts Act, 1950.
• ✓ The Joint Charity Commissioner should not have permitted the sale when the trustees stated that they did not want to sell the properties.
• ✓ The principles governing the exercise of power under Section 36 were not adhered to.
• ✓ There was no necessity to sell the Trust properties.
• ✓ The permission for sale was granted for a meager amount, not in the interest of the Trust.
• ✓ The objections raised by the Trust were rejected without proper reason.
• ✓ The High Court erred in dismissing the writ petitions.

Respondents’ Arguments:

• ✓ The permission to sell the properties was granted in the interest of the Trust, as the Trust did not have sufficient income.
• ✓ The land was situated at a distance from Amravati, making it difficult to manage.
• ✓ The Trust wanted to construct a hospital and needed funds.
• ✓ Tenders were invited for the sale of land, and the offer of Late Mr. Jaikishore Karwa was the best offer received.
• ✓ The price offered was proper, and a valuation report from the Talathi indicated that the market value was around the same price.
• ✓ The Joint Charity Commissioner did not grant permission in a mechanical way.
• ✓ The objectors did not participate in the tender process, and their offers were rightly rejected.
• ✓ The objection raised by the new body of trustees was rightly rejected as there was a dispute between the old and new trustees.
• ✓ The Trust did not submit any resolution not to sell the properties before the decision was rendered by the Joint Charity Commissioner.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issues that the court addressed can be summarized as follows:

1. Whether the Joint Charity Commissioner acted in accordance with Section 36 of the Bombay Public Trusts Act, 1950, while granting permission to sell the Trust properties.
2. Whether the Joint Charity Commissioner should have considered the objections raised by the trustees and other parties before granting permission for the sale.
3. Whether the sale of the Trust properties was in the interest of the Trust and for a fair price.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following authorities:

Judgment

How each authority was viewed by the Court?

• ✓ Cyrus Rustom Patel v. Charity Commissioner Maharashtra, (2017) 13 SCALE 44*: The Court applied the principles laid down in this case, emphasizing that the Charity Commissioner must ensure the interest, benefit, and protection of the Trust. The Court found that the Joint Charity Commissioner failed to meet these requirements.
• ✓ Chenchu Rami Reddy v. Govt. of Andhra Pradesh, (1986) 3 SCC 391*: The Court reiterated the need to protect the properties of charitable institutions and that sales should be conducted via public auction after fixing a reserve price. The Court noted that the Joint Charity Commissioner failed to follow these principles.
• ✓ R. Venugopala Naidu v. Venkatarayulu Naidu Charities, 1989 Supp (2) SCC 356*: The Court used this case to emphasize that sales should be free from suspicion and that a reserve price should be fixed based on market value. The Court found that this was not done in the present case.
• ✓ Bhaskar Laxman Jadhav v. Karamveer Kakasaheb Wagh Education Society, (2013) 11 SCC 531*: The Court applied the principle that the Charity Commissioner should reject the sale if the trustees are not voluntarily selling the land and the sale is not in the interest of the Trust. This principle was used to highlight the lack of bonafide in the present case.
• ✓ Section 36 of the Bombay Public Trusts Act, 1950: The Court found that the Joint Charity Commissioner failed to follow the procedure laid down in this section. The Commissioner did not take into account the interest, benefit, and protection of the Trust while granting permission for the sale.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the procedural lapses and the lack of transparency in the sale of the Trust properties. The court emphasized the need to protect the interests of the Trust and ensure that any sale is conducted in a fair and transparent manner. The following points weighed heavily in the mind of the Court:

• ✓ Procedural Lapses: The Joint Charity Commissioner failed to follow the correct procedure under Section 36 of the Bombay Public Trusts Act, 1950. This included not ascertaining the proper valuation of the properties, not fixing a reserve price, and granting permission in a mechanical manner.
• ✓ Lack of Transparency: The sale was not conducted transparently. The Trust had accepted earnest money before seeking permission, and higher offers were ignored by the Joint Charity Commissioner.
• ✓ Protection of Trust Interests: The court emphasized that the primary duty of the Charity Commissioner is to protect the interest, benefit, and protection of the Trust. The court found that the sale was not in the best interest of the Trust.
• ✓ Objections by Trustees: The court noted that the objections raised by the newly elected trustees were not properly considered by the Joint Charity Commissioner.
• ✓ Illegal Transactions: The court found that the transactions were illegal as the Trust had accepted earnest money and created an interest in the properties without prior permission from the Charity Commissioner.

Fact:Law Ratio Analysis: The ratio of fact to law indicates that the court gave more weight to the legal aspects of the case (70%) compared to the factual aspects (30%). This shows that the court’s decision was primarily based on the misapplication of Section 36 of the Bombay Public Trusts Act, 1950, and the failure of the Joint Charity Commissioner to follow the proper procedure, rather than just the specific facts of the case.

Key Takeaways

• ✓ Strict Adherence to Procedure: The Charity Commissioner must strictly adhere to the procedure laid down in Section 36 of the Bombay Public Trusts Act, 1950, while granting permission for the sale of Trust properties.
• ✓ Proper Valuation: It is crucial to ascertain the proper valuation of the properties and fix a reserve price before granting permission for sale.
• ✓ Transparency: The sale process must be transparent, and higher offers should be considered. Accepting earnest money before obtaining permission is illegal.
• ✓ Protection of Trust Interests: The primary duty of the Charity Commissioner is to protect the interest, benefit, and protection of the Trust.
• ✓ Consideration of Objections: Objections raised by trustees and other parties must be given due consideration.

Directions

The Supreme Court gave the following directions:

• ✓ The Trust was directed not to fritter away with the properties.
• ✓ The sale transactions were annulled.
• ✓ The purchasers were directed to restore the possession of the properties within two months.
• ✓ If the possession was not restored within two months, the concerned authority was directed to take possession with the help of police authorities.
• ✓ Compliance of the order was to be reported to the Court within 10 weeks.

Development of Law

The ratio decidendi of this case is that the Charity Commissioner must strictly adhere to the provisions of Section 36 of the Bombay Public Trusts Act, 1950, while granting permission for the sale of trust properties. The Commissioner must ensure that the sale is in the interest of the trust, is conducted transparently, and that a fair price is obtained. The judgment reinforces the principle that trust properties must be jealously protected and that any sale must be done in a manner that benefits the trust and its beneficiaries. This case does not change the previous position of law, but it reinforces the existing principles and provides a clear guideline for the Charity Commissioner to follow.

Conclusion

The Supreme Court allowed the appeals, setting aside the judgments of the High Court and the Joint Charity Commissioner. The Court held that the Joint Charity Commissioner had failed to follow the correct procedure under Section 36 of the Bombay Public Trusts Act, 1950, and had not acted in the best interest of the Trust. The sale transactions were annulled, and the purchasers were directed to restore possession of the properties. This judgment underscores the importance of procedural correctness and transparency in the sale of public trust properties.