Supreme Court Orders Fresh Auction for Trust Property Sale: Ganesh Ramchandra Jadhav vs. Govardhan Sanstha (2021)

Date of the Judgment: 19 July 2021
Citation: 2021 INSC 471
Judges: Dr. Dhananjaya Y Chandrachud, J and M.R. Shah, J. The judgment was authored by Dr. Dhananjaya Y Chandrachud, J.

Should a public charitable trust’s property be sold to the highest bidder, or should the court ensure the trust receives the absolute best market value? The Supreme Court of India recently addressed this critical question in a case involving a property sale by a charitable trust. The court emphasized the need to protect the interests of public trusts by ensuring that their properties are sold for the best possible price through a transparent auction process.

Case Background

The case revolves around a 2-hectare 48-are land parcel owned by Shri Govardhan Sanstha (Regd) Wai, a registered charitable trust. In 2015, the trust sought to develop the property and invited bids. Two bids were received, one from the appellant, Ganesh Ramchandra Jadhav, and another from the second respondent. The trust accepted the second respondent’s offer of ₹32 lakhs and 6000 sq. ft. of constructed area.

An application was filed before the Joint Charity Commissioner, Pune, for approval under Section 36(1) of the Maharashtra Public Trust Act, 1950. The Joint Charity Commissioner rejected the application, citing the lack of a resolution to sell the property and the inadequacy of the offer compared to the land’s valuation. The High Court of Judicature at Bombay initially set aside this rejection, directing a fresh decision. However, the Joint Charity Commissioner again rejected the application, noting the second respondent’s unchanged offer and the trust’s ability to pursue legal remedies against non-paying tenants.

Subsequently, the High Court directed a fresh bidding process, where only the second respondent bid ₹50 lakhs. The appellant then intervened, offering ₹75 lakhs. Despite multiple opportunities, the appellant failed to deposit the offered amount. The second respondent then matched the appellant’s offer and increased it to ₹80 lakhs. The High Court then directed the sale to the second respondent for ₹80 lakhs.

Timeline

Course of Proceedings

The Joint Charity Commissioner, Pune, initially rejected the trust’s application to sell the property, citing procedural lapses and an inadequate offer. The High Court of Judicature at Bombay initially set aside this rejection, directing the Charity Commissioner to reconsider the matter. However, the Charity Commissioner again rejected the application. The High Court then directed a fresh bidding process. The appellant intervened, offering a higher amount, but failed to deposit it. The High Court ultimately directed the sale to the second respondent, who had matched the appellant’s offer and increased it to ₹80 lakhs. This decision was challenged before the Supreme Court.

Legal Framework

The case primarily involves Section 36(1) of the Maharashtra Public Trust Act, 1950, which governs the sale of trust property. This section mandates that the Charity Commissioner’s approval is required for such sales, ensuring that the sale is in the best interest of the trust. The Supreme Court also referred to previous judgments that emphasized the need for transparency and the protection of public trust properties.

The relevant provision is Section 36(1) of the Maharashtra Public Trusts Act, 1950, which states:
“36. Alienation of immovable property of public trust.—(1) Notwithstanding anything contained in the instrument of trust, no sale, exchange, gift, mortgage or lease of any immovable property of a public trust, shall be valid without the previous sanction of the Charity Commissioner.”

Arguments

Appellant’s Arguments:

• The appellant argued that they had demonstrated their bona fides by complying with the Supreme Court’s order to deposit ₹1 crore, exceeding their initial offer of ₹75 lakhs.
• They contended that the High Court should have granted them more time to deposit the offered amount, especially since the property belonged to a public charitable trust.
• The appellant asked the court to set aside the High Court’s order and restore the writ petition for a fresh consideration.

Second Respondent’s Arguments:

• The second respondent argued that they had consistently participated in the auction process and that the appellant had failed to avail the opportunities granted by the High Court.
• They contended that the court should reject the appellant’s offer and award the property to them, based on established legal principles.
• The second respondent argued that the appellant had defaulted on his promise to pay the amount.

Innovativeness of the argument: The appellant’s argument was innovative in that despite defaulting in the High Court, they showed their bona fides by depositing a higher amount in the Supreme Court, thereby emphasizing the need to protect the interest of the trust.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue before the court was:

1. Whether the High Court was justified in directing the sale of the trust property to the second respondent based on their progressively increased offer, or whether a fresh auction should have been ordered to ensure the best price for the trust.

Treatment of the Issue by the Court

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

Authorities

The Supreme Court referred to the following cases and legal provisions to support its decision:

Judgment

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

How each authority was viewed by the Court?

• The Court cited Cyrus Rustom Patel v Charity Commissioner [ (2018) 14 SCC 761]* to emphasize the duties of a trustee to protect the interest of the trust.
• The Court cited Chenchu Rami Reddy v. State of A.P. [(1986) 3 SCC 391]* to highlight the need for public officials to be vigilant in protecting public property.
• The Court cited R. Venugopala Naidu v. Venkatarayulu Naidu Charities [1989 Supp (2) SCC 356]* to underscore that fraudulent sales of public charity properties through private negotiations should not be permitted.
• The Court cited Bhaskar Laxman Jadhav v. Karamveer Kakasaheb Wagh Education Society [(2013) 11 SCC 531]* to highlight the need to prevent the abuse of process of law in the sale of public trust properties.
• The Court considered Section 36(1) of the Maharashtra Public Trusts Act, 1950* to emphasize that the sale of public trust property requires prior sanction of the Charity Commissioner.

What weighed in the mind of the Court?

The Supreme Court was primarily concerned with protecting the interests of the public charitable trust. The court observed that the second respondent’s offer had increased gradually, suggesting that the true market value of the property had not been realized. The court emphasized the need for a transparent auction process to ensure the trust receives the best possible price for its property. The Court also took into consideration the fact that the appellant had deposited a sum of Rs 1 crore in the High Court, thereby showing their bona fides.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio Analysis:

Logical Reasoning:

The Supreme Court considered the High Court’s decision to award the sale to the second respondent, who had progressively increased their offer. However, the Court found that this approach did not adequately protect the interests of the public charitable trust. The Court noted that the second respondent’s offer had increased in small increments, suggesting that the true market value of the property had not been realized. The Court emphasized the need for a transparent auction process to ensure that the trust receives the best possible price for its property.

The Court also considered the appellant’s conduct, noting that while the appellant had defaulted before the High Court, they had demonstrated their bona fides by depositing ₹1 crore with the High Court as per the Supreme Court’s order. This deposit indicated the appellant’s genuine interest in acquiring the property and further underscored the need for a fresh auction to maximize the value for the trust.

The Court quoted from Cyrus Rustom Patel v Charity Commissioner, stating, “…the property of religious and charitable institutions or endowments must be jealously protected.” The Court also quoted from Bhaskar Laxman Jadhav v. Karamveer Kakasaheb Wagh Education Society, stating, “the safest course was to sell off the trust land through auction.” Finally, the Court stated, “it would be in the best interest of the Trust if the maximum price is made available for the trust land from the open market.”

The Court did not discuss any alternative interpretations but focused on the need for a transparent auction process to ensure the best value for the trust. The final decision was to set aside the High Court’s order and direct a fresh auction, emphasizing the importance of protecting public trust properties.

Key Takeaways

• Public trust properties must be sold through a transparent auction process to ensure the best possible price.
• Courts must prioritize the interests of public trusts over the interests of individual bidders.
• Progressive increases in offers during private negotiations may not reflect the true market value of the property.
• Bona fide actions of parties, such as depositing a higher amount, can be considered by the court.

The judgment underscores the importance of transparency and fairness in the sale of public trust properties. It clarifies that the primary goal is to maximize the value for the trust, not to simply accept the highest offer from a specific bidder. This decision will likely influence future cases involving the sale of trust properties, emphasizing the need for a transparent auction process.

Directions

The Supreme Court issued the following directions:

1. The Joint Charity Commissioner shall obtain a fresh valuation report for the property and fix an upset price, which shall not be less than ₹1 crore.
2. The Joint Charity Commissioner shall invite fresh bids by publishing an advertisement in at least two widely circulated local newspapers.
3. Both the appellant and the second respondent are at liberty to submit fresh bids.
4. The Joint Charity Commissioner shall submit a report to the High Court of Judicature at Bombay, which shall consider the report and pass final directions.
5. The High Court’s order dated 26 February 2021 is set aside, and the writ petition is restored.
6. The amount of ₹1 crore deposited by the appellant shall be invested in a fixed deposit and shall abide by the High Court’s directions.

Development of Law

The ratio decidendi of this case is that the sale of public trust property must be conducted through a transparent auction process to ensure the best possible price for the trust. This decision reinforces the principles laid down in previous judgments, emphasizing the need for vigilance and transparency in protecting public trust properties. It also clarifies that the court should prioritize the interest of the trust over the interest of individual bidders and that the court may order a fresh auction even if the previous bidding process had been completed.

Conclusion

The Supreme Court’s decision in Ganesh Ramchandra Jadhav vs. Govardhan Sanstha (Regd) Wai Pune and Others emphasizes the importance of transparency and fairness in the sale of public trust properties. By ordering a fresh auction, the court ensured that the trust would receive the best possible value for its property, setting a precedent for future cases involving similar issues. The judgment underscores the need for courts to prioritize the interests of public trusts and to be vigilant in protecting their assets.