Supreme Court Clarifies Status of Khasgi Trust Properties Under Madhya Pradesh Public Trusts Act (21 July 2022)

Introduction

Date of the Judgment: 21 July 2022

Citation: 2022 INSC 629

Judges: A.M. Khanwilkar, Abhay S. Oka, C.T. Ravikumar

Can a trust, created to manage charitable properties, freely sell those properties without government oversight? The Supreme Court of India recently tackled this question in a case involving the Khasgi (Devi Ahilyabai Holkar Charities) Trust. The core issue was whether the properties listed in the Trust Deed belonged to the Trust itself or the State Government, and whether the Trust was subject to the Madhya Pradesh Public Trusts Act, 1951. This judgment clarifies the legal status of the Trust’s properties and its obligations under the state’s trust laws. The bench consisted of Justices A.M. Khanwilkar, Abhay S. Oka, and C.T. Ravikumar, who delivered a unanimous decision.

Case Background

The dispute arose from the merger of the erstwhile princely state of Indore into the newly formed state of Madhya Bharat in 1948. A covenant was executed on 30th October 1948, by the rulers of Gwalior, Indore, and other states. This covenant stipulated that the rulers would retain ownership of their private properties, distinct from state properties. Maharaja Yashwant Rao Holkar of Indore submitted two inventories: one for his private properties and another for properties known as “Khasgi Properties”.

The Government of India appointed Shri V.P. Menon to decide on the claims. Shri Menon approved the Maharaja’s private properties but declared that the Khasgi properties would lapse to the Madhya Bharat Government. However, the government would set aside an annual sum of Rs. 2,91,952 for charities, to be managed by a permanent trust.

The Khasgi Trust was eventually formed on 27th June 1962, with a Trust Deed listing numerous properties in Part ‘B’. A supplementary deed was executed in 1972, granting the trustees the power to alienate trust properties. Later, in 2012, the Collector of Indore declared that the properties listed in the Trust Deed belonged to the State Government, which led to the present dispute.

Timeline

Legal Framework

The legal framework for this case includes:

• The Covenant: Executed on 30th October 1948, this agreement between the rulers of Gwalior, Indore, and other states addressed the ownership of private and state properties upon the formation of Madhya Bharat. Article XII of the Covenant stated that the Ruler of each covenanting State shall be entitled to the full ownership, use and enjoyment of all private properties (as distinct from the State Properties) belonging to them on the date of their making over the administration of their respective States to Raj Pramukh.
  
  “(1) The Ruler of each Covenanting State shall be entitled to the full ownership, use and enjoyment of all private properties (as distinct from State properties) belonging to him on the date of his making over the administration of that State to Raj Pramukh.”
  
  “(2) He shall furnish to the Raj Pramukh before the first day of August 1948 an inventory of all the immovable properties, securities and cash balance held by him as such private property.”
  
  “(3) If any dispute arises as to whether any item of property is the private property of the Ruler or State property it shall be referred to such person as the Government of India may nominate, in consultation with the Raj Pramukh and the decision of that person shall be final and binding on all parties concerned. Provided that no such dispute shall be referable after the first day of July 1949.”
• Madhya Pradesh Public Trusts Act, 1951: This act governs the registration and management of public trusts in Madhya Pradesh. Section 2(4) defines a public trust as “an express or constructive trust for a public, religious or charitable purpose.”
  
  “2. Definitions. – In this Act, unless there is anything repugnant in the subject or context, – (4) “public trust” means an express or constructive trust for a public, religious or charitable purposes and includes a temple, a math, a mosque, a church, a wakf or any other religious or charitable endowment and a society formed for a religious or charitable purpose;”
• Section 14, Madhya Pradesh Public Trusts Act, 1951: This section requires prior sanction from the Registrar for the sale, mortgage, exchange, or gift of any immovable property belonging to a public trust.
  
  “14. Previous sanction of Registrar, in cases of sale, etc., of property belonging to a public trust. -(1) Subject to the directions in the instrument of trust or any direction given under this or any other law by any court – (a) no sale, mortgage, exchange of gift of any immovable property; and (b) no lease for a period exceeding seven years in the case of agricultural land or for a period exceeding three years in the case of non -agricultural land or building; belonging to a public trust, shall be valid without the previous sanction of the Registrar. (2) The Registrar shall not refuse his sanction in respect of any transaction specified in sub -section (1) unless such transition will, in his opinion, be prejudicial to the interests of the public trust.”
• Section 36, Madhya Pradesh Public Trusts Act, 1951: This section provides exemptions from the Act. Specifically, Section 36(1)(a) states that the act does not apply to a public trust administered by an agency under the control of the State.
  
  “36. Exemption. – (1) Nothing contained in this Act shall apply to – (a) a public trust administered by any agency acting under the control of the State or by any local authority, (b) a public trust administered under any enactment for the time being in force, and (c) a public trust to which the Muslim Wakfs Act, 1954 (29 of 1954) applies. (2) The State Government may exempt by notification, specifying the reasons for such exemption in the said notification, any public trust or class of public trusts from all or any of the provisions of this Act subject to such conditions, if any, as the State Government may deem fit to impose.”

Arguments

The arguments presented before the Supreme Court can be summarized as follows:

Submissions on Behalf of the Khasgi Trust

• The Khasgi Trust argued that the properties listed in Part ‘B’ of the Trust Deed were indeed trust properties and not state properties. They contended that these properties were dedicated to public charities and could not lapse to the State Government.
• The Trust asserted that the Supplementary Trust Deed of 1972 gave the trustees the power to alienate the properties.
• The Trust contended that it was a State-controlled trust, and therefore, the provisions of the Public Trusts Act did not apply to it, as per Section 36(1)(a) of the Public Trusts Act. They relied on an order by the Registrar of Public Trusts to support this claim.
• The Trust argued that the Collector’s order of 5th November 2012, which declared the properties to be owned by the State Government, was passed without proper notice and in violation of natural justice.
• The Trust highlighted that it had been managing the properties for over fifty years without any dispute from the State Government, and the issue was only raised after a complaint by a Member of Parliament.
• The Trust submitted that the Trustees acted in a bona fide manner and within the four corners of the Trust Deed.

Submissions of the Appellant in Civil Appeal Filed by the Purchaser

• The purchaser of Holkar Bada argued that the High Court had declared the sale deeds void without making the purchaser a party to the proceedings.
• The purchaser claimed to be a bona fide purchaser and that the sale transactions were never challenged before any competent court.
• The purchaser pointed out that the Public Interest Litigation filed against the sale was dismissed by the Uttarakhand High Court, and the dismissal was upheld by the Supreme Court.

Submissions on the Intervention Applications

• An intervenor argued that the Khasgi properties were transferred to the State Government by Shri V.P. Menon’s order and that the Trust had no authority to sell them.
• The intervenor alleged that the trustees had fraudulently executed a power of attorney to sell the property.
• Another intervenor argued that the lease granted to him for ‘Maheshwar Wada’ was a private property and should not be interfered with.
• Another set of intervenors argued for the constitution of a High-Level National Committee for managing the Trust properties and for increasing the annuity granted to the Trust.

Submissions on Behalf of the State of Madhya Pradesh

• The State argued that only one trustee had filed the writ petitions, and he was not authorized to represent the Trust.
• The State contended that the Khasgi properties had lapsed to the State Government and that the Trust Deed only authorized the trustees to maintain and preserve the properties.
• The State submitted that the correspondence between the Maharaja and the Government of India constituted a treaty, and disputes arising from it should be adjudicated by the Supreme Court.
• The State argued that the Khasgi Trust was a public trust governed by the Public Trusts Act, and the exemption under Section 36(1)(a) was not applicable.
• The State pointed out that the Trustees had not obtained prior consent from the Registrar as required by Section 14 of the Public Trusts Act.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the properties incorporated in Part ‘B’ of the Schedule to the Trust Deed are the properties of the Khasgi Trust?
2. Whether the Khasgi Trust is a Public Trust within the meaning of the Madhya Pradesh Public Trusts Act, 1951 and whether its provisions are applicable to the Trust?
3. Whether the Supplementary Trust Deed dated 08th May 1972 is legal and valid?
4. Whether the Trustees of the Khasgi Trust were under an obligation to obtain the previous sanction of the Registrar in accordance with Section 14 of the Public Trusts Act, 1951 for alienating the Trust property?
5. Whether the Division Bench of the High Court was right in holding that the impugned order dated 5th November 2012 passed by the Collector was lawful and correct?
6. Whether the High Court was justified in directing the investigation into the allegations of misappropriation against the Trustees by the Economic Offences Wing of the State Government?
7. Whether the writ petitions filed by only one Trustee of the Khasgi Trust before the learned Single Judge were maintainable?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Cases

• Parsi Zoroastrian Anjuman, Mhow v. Sub Divisional Officer/The Registrar of Public Trusts and Anr. [2022 SCC Online SC 104] – This case was used to interpret the scope of Section 14 of the Madhya Pradesh Public Trusts Act, 1951. The court noted that the Registrar’s power to refuse sanction for alienation of trust property is limited to cases where the transaction is prejudicial to the interests of the trust.
• Akhil Bhartiya Upbhokta Congress v. State of Madhya Pradesh and Ors. [2011 (5) SCC 29] – This case was cited to emphasize that public property must be alienated through a fair and transparent process to ensure the best possible price.

Legal Provisions

• Article XII of the Covenant: This article defines the ownership of private properties of the rulers of the covenanting states.
• Section 2(4) of the Madhya Pradesh Public Trusts Act, 1951: This section defines a public trust.
• Section 14 of the Madhya Pradesh Public Trusts Act, 1951: This section mandates prior sanction from the Registrar for the sale, mortgage, exchange, or gift of any immovable property belonging to a public trust.
• Section 36 of the Madhya Pradesh Public Trusts Act, 1951: This section provides exemptions from the Act for certain public trusts.
• Sections 17, 22 and 23 of the Madhya Pradesh Public Trusts Act, 1951: These sections outline the powers of the Registrar to audit, inspect and inquire into the affairs of a public trust.
• Sections 26 and 27 of the Madhya Pradesh Public Trusts Act, 1951: These sections outline the power of the Registrar to make an application to the Court for directions and the powers of the Court to pass orders in this regard.

Authority Consideration Table

Judgment

The Supreme Court’s judgment addressed each submission made by the parties and provided clarity on the legal issues.

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court’s reasoning for resolving the issues was supported by the following authorities:

• Parsi Zoroastrian Anjuman, Mhow v. Sub Divisional Officer/The Registrar of Public Trusts and Anr. [2022 SCC Online SC 104]*: The Court followed this case to interpret Section 14 of the Madhya Pradesh Public Trusts Act, emphasizing that the Registrar’s power to refuse sanction is limited to cases where the transaction is prejudicial to the trust’s interests.
• Akhil Bhartiya Upbhokta Congress v. State of Madhya Pradesh and Ors. [2011 (5) SCC 29]*: The Court applied the principles from this case to emphasize the need for a fair and transparent process when alienating public property, ensuring the best possible price.
• Article XII of the Covenant: The Court interpreted this article to determine the ownership of the Khasgi properties, concluding that they had lapsed to the State Government but were later transferred to the Khasgi Trust.
• Section 2(4) of the Madhya Pradesh Public Trusts Act, 1951: The Court used this definition to determine that the Khasgi Trust is a public trust as it was created for public, religious and charitable purposes.
• Section 14 of the Madhya Pradesh Public Trusts Act, 1951: The Court used this section to determine that the Trustees of the Khasgi Trust were required to obtain prior sanction from the Registrar for alienating Trust property.
• Section 36 of the Madhya Pradesh Public Trusts Act, 1951: The Court interpreted this section to determine that the Khasgi Trust does not fall under the exempted category and is governed by the provisions of the Public Trusts Act.
• Sections 17, 22 and 23 of theMadhya Pradesh Public Trusts Act, 1951: The Court used these sections to highlight the powers of the Registrar to audit, inspect and inquire into the affairs of a public trust, and to quantify any loss caused to the Trust due to the actions of the Trustees.
• Sections 26 and 27 of the Madhya Pradesh Public Trusts Act, 1951: The Court used these sections to highlight the power of the Registrar to make an application to the Court for directions and the powers of the Court to pass orders in this regard.

Final Orders

Based on its findings, the Supreme Court issued the following orders:

1. The Court set aside the judgment of the Division Bench of the High Court.
2. The Court held that the Khasgi Trust is a Public Trust within the meaning of the Madhya Pradesh Public Trusts Act, 1951, and its provisions are applicable to the Trust.
3. The Court held that the properties listed in Part ‘B’ of the Trust Deed are the properties of the Khasgi Trust.
4. The Court held that the Supplementary Trust Deed dated 08th May 1972 is legal and valid.
5. The Court held that the Trustees of the Khasgi Trust were under an obligation to obtain the previous sanction of the Registrar in accordance with Section 14 of the Public Trusts Act, 1951, for alienating the Trust property.
6. The Court held that the impugned order dated 5th November 2012 passed by the Collector was not lawful and correct, as it was passed without giving an opportunity of being heard to the Trustees and the purchasers.
7. The Court held that the High Court was not justified in directing the investigation into the allegations of misappropriation against the Trustees by the Economic Offences Wing of the State Government.
8. The Court held that the writ petitions filed by only one Trustee of the Khasgi Trust before the learned Single Judge were maintainable.
9. The Court directed the Registrar of Public Trusts to conduct an inquiry under Section 22 of the Madhya Pradesh Public Trusts Act, 1951, to determine if any loss has been caused to the Trust due to the actions of the Trustees.
10. The Court directed the Registrar of Public Trusts to take further action in accordance with the provisions of the Public Trusts Act.

Flowchart

Key Takeaways

The Supreme Court’s judgment provides several key takeaways:

• Khasgi Trust Properties: The properties listed in Part ‘B’ of the Trust Deed are the properties of the Khasgi Trust, not the State Government.
• Public Trust: The Khasgi Trust is a Public Trust under the Madhya Pradesh Public Trusts Act, 1951, and is subject to its provisions.
• Prior Sanction: Trustees must obtain prior sanction from the Registrar under Section 14 of the Public Trusts Act before alienating any trust property.
• Due Process: Any order affecting the Trust’s properties must be passed after providing an opportunity of being heard to the Trustees.
• Registrar’s Powers: The Registrar of Public Trusts has the power to conduct inquiries and take further action as per the Public Trusts Act.
• No Criminal Intent: While the Court did not find any criminal intent on the part of the Trustees, it held that the Trustees were liable to be proceeded against for illegal alienations under the Public Trusts Act.

Conclusion

The Supreme Court’s judgment in the Khasgi Trust case clarifies the legal status of properties held by public trusts in Madhya Pradesh. It emphasizes the importance of adhering to the provisions of the Madhya Pradesh Public Trusts Act, 1951, particularly the requirement for prior sanction for alienating trust properties. The judgment also underscores the need for due process in any action affecting public trust properties. This ruling ensures that public trust properties are managed transparently and in the best interests of the public. The Supreme Court has sent the matter back to the Registrar of Public Trusts to conduct an inquiry under Section 22 of the Madhya Pradesh Public Trusts Act, 1951, to determine if any loss has been caused to the Trust due to the actions of the Trustees. It has also directed the Registrar of Public Trusts to take further action in accordance with the provisions of the Public Trusts Act. This judgment will serve as a precedent for similar cases involving public trusts and their properties in Madhya Pradesh.