Supreme Court Sets Aside Sale of Trust Property: Cyrus Rustom Patel vs. Charity Commissioner (2017)

Date of the Judgment: 21 September 2017

Citation: (2017) INSC 816

Judges: Arun Mishra, J., Mohan M. Shantanagoudar, J.

Can a Charity Commissioner’s sanction for the sale of trust property be challenged if it appears the sale was not in the best interest of the trust? The Supreme Court of India recently addressed this critical question in a case involving the B.C. Batliwala Agiary Trust. The Court examined whether the Charity Commissioner had adequately considered the “interest, benefit, and protection” of the trust when sanctioning a sale of its prime property. This judgment, delivered by Justices Arun Mishra and Mohan M. Shantanagoudar, sets aside the sale, emphasizing the need for transparency and diligence in handling trust properties.

Case Background

The B.C. Batliwala Agiary Trust, registered under the Bombay Public Trusts Act, 1950, owned a property in Tardeo, Mumbai, which included a Parsi Fire Temple and other structures occupied by 21 tenants. The trust decided to develop the property and entered into an agreement with M/s. Astral Enterprises on 20 January 2003. The initial plan was a joint venture for development, with the condition that tenants’ interests would be protected and they would be provided flats in new buildings. The agreement also included an option for the trust to convert the joint venture into an outright sale if they deemed it necessary. The trust applied for sanction under Section 36 of the Bombay Public Trusts Act, 1950, to enter into this joint venture cum sale agreement.

Timeline:

Course of Proceedings

The Joint Charity Commissioner sanctioned the joint venture cum sale agreement on 3 July 2004, noting that while no public notice was published, it was not mandatory in all cases. The Commissioner stated that it was the trustees’ decision to whom they should sell the property, subject to the Commissioner’s sanction, and that inviting offers from third parties was not necessary. The High Court of Bombay dismissed the writ petition filed by Cyrus Rustom Patel, mainly on the grounds of delay, noting that the petitioner was aware of the transaction since 2003. The High Court also rejected a higher offer made by Nilkanth Realtors, stating it was not a genuine offer as per Section 36 of the Bombay Public Trusts Act, 1950.

Legal Framework

The core of this case revolves around Section 36 of the Bombay Public Trusts Act, 1950, which governs the alienation of immovable property belonging to public trusts. This section mandates that:

• “no sale, exchange or gift of any immovable property” of a public trust is valid without the Charity Commissioner’s prior sanction.
• “no lease for a period exceeding ten years in the case of agricultural land or for a period exceeding three years in the case of non-agricultural land or a building” is valid without the Charity Commissioner’s prior sanction.
• The Charity Commissioner may grant sanction subject to conditions, considering the “interest, benefit or protection of the trust.”
• The Charity Commissioner, if satisfied that it is in the interest of any public trust, may authorize any trustee to dispose of such property subject to such conditions as he may think fit, having regard to the interest or benefit or protection of the trust.

The section also allows the Charity Commissioner to revoke a sanction if it was obtained through fraud or misrepresentation.

Arguments

Appellant’s Submissions:

• The appellant argued that the Charity Commissioner did not safeguard the trust’s interests. The property, located in a prime area of Mumbai, was sold for a much lower value than its market price.
• The appellant contended that the trustees failed to act objectively and transparently, inviting only M/s. Astral Enterprises to the meeting and not seeking other offers.
• The appellant relied on the Full Bench decision of the High Court at Bombay in Sailesh Developers v. The Joint Charity Commissioner Maharashtra, which held that the Charity Commissioner has the power to invite better offers to safeguard the interest of the Trust.
• The appellant also cited Chenchu Rami Reddy and Another v. Govt. of A.P. and Others, R. Venugopala Naidu and Ors. v. Venkatarayulu Naidu Charities and Ors., and Bhaskar Laxman Jadhav v. Karamveer Kakasaheb Wagh Education Society, arguing that trust properties must be protected and sold through transparent methods, such as public auction.

Respondents’ Submissions:

• The respondents argued that the market value was not the primary consideration, as the deal involved settling tenants and protecting the Fire Temple.
• They contended that no other builder was willing to develop the property while keeping the Fire Temple intact.
• The respondents argued that the Joint Charity Commissioner had duly sanctioned the sale under Section 36 of the Act.
• They relied on the decision in Vedica Procon Private Limited v. Balleshwar Greens Private Limited and Others, stating that once a reasonable price is offered, a subsequent higher offer should not be considered.
• The respondents also submitted that the Full Bench decision of the Bombay High Court was not available at the time of the Charity Commissioner’s decision and should not have retrospective effect.

Submissions Table:

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue can be inferred as:

1. Whether the Charity Commissioner, while granting sanction under Section 36 of the Bombay Public Trusts Act, 1950, had adequately considered the “interest, benefit, or protection” of the trust.

Treatment of the Issue by the Court

Authorities

Cases:

• Chenchu Rami Reddy and Another v. Govt. of A.P. and Others (1986) 3 SCC 391 – Supreme Court of India: Emphasized that public property should normally be disposed of by public auction and must be jealously protected.
• R. Venugopala Naidu and Ors. v. Venkatarayulu Naidu Charities and Ors. (1989) Supp. 2 SCC 356 – Supreme Court of India: Held that fraudulent sale of public charities by private negotiations should not be permitted.
• Bhaskar Laxman Jadhav v. Karamveer Kakasaheb Wagh Education Society (2013) 11 SCC 531 – Supreme Court of India: Stated that the Charity Commissioner must consider the sale of immovable property of the trust with regard to the “interest, benefit or protection” of the trust.
• Vedica Procon Private Limited v. Balleshwar Greens Private Limited and Others (2015) 10 SCC 94 – Supreme Court of India: Considered the irregularity in the conduct of sale of property and held that once a reasonable price is offered, a subsequent higher offer should not be considered.
• Sailesh Developers v. The Joint Charity Commissioner Maharashtra; 2007 (4) ALL MR 100 = 2007 (3) Bom. CR 7 – High Court of Bombay (Full Bench): Held that the Charity Commissioner has the power to invite better offers to safeguard the interest of the Trust.
• Mehrwan Homi Irani v. Charity Commissioner (2001) 5 SCC 305 – Supreme Court of India: Held that the Charity Commissioner while granting sanction under Section 36 of the Act, must explore the possibility of getting the best price for the trust properties.

Legal Provisions:

• Section 36 of the Bombay Public Trusts Act, 1950: Governs the alienation of immovable property belonging to public trusts, requiring prior sanction from the Charity Commissioner.

Authority Table:

Judgment

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

How each authority was viewed by the Court?

• Chenchu Rami Reddy and Another v. Govt. of A.P. and Others [1986] 3 SCC 391*: The Court followed this case to emphasize the need for public auction and protection of trust properties.
• R. Venugopala Naidu and Ors. v. Venkatarayulu Naidu Charities and Ors. [1989] Supp. 2 SCC 356*: The Court followed this case to highlight that private negotiations for trust property sales should be avoided.
• Bhaskar Laxman Jadhav v. Karamveer Kakasaheb Wagh Education Society [2013] 11 SCC 531*: The Court followed this case to emphasize the Charity Commissioner’s duty to consider the “interest, benefit, or protection” of the trust.
• Vedica Procon Private Limited v. Balleshwar Greens Private Limited and Others [2015] 10 SCC 94*: The Court distinguished this case, holding that it did not apply as no proper market value was ascertained in the present case.
• Sailesh Developers v. The Joint Charity Commissioner Maharashtra [2007] 4 ALL MR 100*: The Court followed this case to highlight the Charity Commissioner’s power to invite better offers.
• Mehrwan Homi Irani v. Charity Commissioner [2001] 5 SCC 305*: The Court followed this case to state that the Charity Commissioner must explore the possibility of getting the best price for the trust properties.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the need to protect public trust properties and ensure transparency in their disposal. The Court was deeply concerned that the Joint Charity Commissioner had failed to properly assess the market value of the property and had allowed a sale that was clearly not in the best interest of the trust. The Court emphasized the importance of public auctions and transparent processes to prevent collusion and ensure that trust properties are sold at fair prices. The Court also highlighted the trustees’ failure to act objectively and their collusion with the developer, which further solidified the need to set aside the sale.

Fact:Law Ratio

Logical Reasoning:

The Court rejected the argument that the sale was necessary to settle tenants and protect the Fire Temple, stating that these objectives could have been achieved through other means. The Court also considered the fact that the trust had an exit option in the agreement, which further indicated that the transaction was not bonafide and was designed to sell the property. The Court emphasized that the trustees and the Charity Commissioner had a duty to protect the trust’s interests, which they failed to do.

The Court’s reasoning was based on the principles laid down in previous cases, which emphasized the need for public auction and transparency in the sale of trust properties. The Court also considered the Full Bench decision of the Bombay High Court, which clarified the powers of the Charity Commissioner under Section 36 of the Bombay Public Trusts Act, 1950. The Court concluded that the sale was not in the interest of the trust and that the Charity Commissioner had failed to fulfill their statutory duties.

The Court also noted that the application under Section 36 of the Act was not filed with clean hands, as the trustees had misrepresented the nature of the transaction and had sought to avoid public notice. The Court emphasized that the issuance of public notice was necessary to disclose the actual worth of the property and to ensure a fair and transparent sale process.

The Court’s decision was unanimous, with both Justices agreeing on the need to set aside the sale. The Court did not discuss any alternative interpretations, as the facts of the case clearly indicated that the sale was not in the best interest of the trust. The Court concluded that the sale was illegal and that the Charity Commissioner and the High Court had failed to properly consider the interests of the trust.

“The property of religious and charitable institutions or endowments must be jealously protected.”

“Sale by private negotiations, which is not visible to the public eye and may even give rise to public suspicion, should not, therefore, be permitted unless there are special reasons to justify the same.”

“The Charity Commissioner while granting permission under Section 36 of the Bombay Public Trusts Act could have explored these possibilities.”

Key Takeaways

• Transparency is crucial: Trust properties must be sold through transparent methods, such as public auctions, to ensure fair market value and prevent collusion.
• Protection of trust interests: Trustees and Charity Commissioners have a duty to protect the interests of the trust and must not enter into transactions that are not beneficial to the trust.
• Market value is paramount: The market value of trust properties must be properly ascertained before any sale or alienation is sanctioned.
• Public notice is essential: Public notice in newspapers is necessary to ensure that all potential buyers have an opportunity to bid for trust properties.
• Scrutiny of joint ventures: Joint venture agreements involving trust properties must be carefully scrutinized to ensure they are not a disguised sale.

Directions

The Supreme Court directed the following:

• The order passed by the Charity Commissioner and the High Court was set aside.
• The trust was directed to repay the amount of Rs. 2,95,00,000/- to the developer.
• The developer was directed to deposit the costs of Rs. 1,00,000/- with the Supreme Court Advocates Bar Association Welfare Fund within six weeks.

Specific Amendments Analysis

There was no specific amendment discussed in the judgment.

Development of Law

The ratio decidendi of this case is that the Charity Commissioner must diligently consider the “interest, benefit, and protection” of the trust when sanctioning the sale of trust property under Section 36 of the Bombay Public Trusts Act, 1950. The judgment reinforces the principle that trust properties must be protected and sold through transparent methods, such as public auctions, to ensure that the trust receives fair market value. This case also clarifies that the Charity Commissioner has the power to invite better offers to safeguard the interest of the Trust and that private negotiations should be avoided unless there are special reasons. This decision reinforces the need for transparency, objectivity, and diligence in the management of public trust properties.

Conclusion

In conclusion, the Supreme Court’s decision in Cyrus Rustom Patel vs. The Charity Commissioner Maharashtra, State & Ors. sets aside the sale of trust property, emphasizing the importance of transparency, fair market value, and the protection of trust interests. The Court held that the Charity Commissioner failed to fulfill their statutory duties under Section 36 of the Bombay Public Trusts Act, 1950, by not ensuring a transparent sale process and by not ascertaining the real market value of the property. The judgment underscores the need for trustees and Charity Commissioners to act objectively and diligently in the management of public trust properties.