Trust Property Cannot Be Alienated Unless It Is For Benefit Of Trust And/Or Its Beneficiaries: Supreme Court

The Supreme Court observed that a trust property cannot be alienated unless it is for the benefit of the Trust and/or its beneficiaries.

When a Trust property is transferred without prior sanction of the Registrar under Section 14 [of Madhya Pradesh Public Trusts Act, 1951] and/or without following a fair and transparent process, it can be always said that the Trust property is not being properly managed or administered, the the bench comprising Justices AM Khanwilkar, Abhay S. Oka and CT Ravikumar observed in a judgment in the matter of Khasgi (Devi Ahilyabai Holkar Charities) Trust.

Though the bench set aside the direction issued by Madhya Pradesh High Court for an investigation by the Economic Offences Wing (EOW) against the trustees, it directed the Registrar under the Public Trusts Act, having jurisdiction over the Trust, to call for the record of the Trust relating to all the alienations made by the Trustees.

One of the issues raised in the appeal was whether the provisions of the Public Trusts Act apply to the Khasgi Trust. The court noted that the trust was created with the object of preservation and maintenance of the Trust properties which are charities and endowments. "Thus, it can be said that the Khasgi Trust, is an express Trust for public, religious and charitable purposes. Under Section 4(1) of the Public Trusts Act, every such Trust requires compulsory registration.", the court said.

The court noted that Section 14 imposes an embargo on the sale, mortgage or gift of any immovable property of the Public Trust as well as lease for a period exceeding seven years in the case of agricultural lands, or for a period exceeding three years in case of a non-agricultural land or building. The court observed:

"Section 14 is applicable to immovable property of a Public Trust. Section 13 governs the investment of public trust money. The State's control of charities and religious endowments in some form is not foreign to our jurisprudence. A Public Trust invariably depends on charity done by individuals by donating immovable property or by making cash donations. Though in law, the assets and properties of a Public Trust vest in its Trustees, they hold the Trust property in a fiduciary capacity for the benefit of the beneficiaries of the Trust. They hold the property for giving effect to the objects of the Public Trust. A Trust property cannot be alienated unless it is for the benefit of the Trust and/or its beneficiaries. The Trustees are not expected to deal with the Trust property, as if it is their private property. It is the legal obligation of the Trustees to administer the Trust and to give effect to the objects of the Trust. Therefore, the statutes dealing with the Public Trusts which are operating in various States, provide for limited control of the activities of a Public Trust. The control is exercised by providing for the submission of the annual accounts by the Trustees and filing of returns with the concerned charity organization or other authority under the law. There are statutory constraints on the power of the Trustees to alienate the property of a Public Charitable Trust. There are provisions in such statutes for penalizing the Trustees for misappropriation of the property of the Trust. Many such Statutes empower the authorities under the Statutes to remove a Trustee of a Public Trust, on account of misbehaviour or acts of misappropriation, etc. The Trustees are the custodians of Trust properties. The Trustees have a duty to safeguard the interests of the beneficiaries of the Public Trust. That is how, a provision in Public Trust Law, like Section 14 of the Public Trusts Act, is of importance. This provision seeks to protect the Trust property in the hands of the Trustees from unwarranted alienations"

The judgment also discusses the power of Registrar under various provisions of the Trust Act. Regarding Section 14, it observed thus:

When a Trust property is transferred without prior sanction of the Registrar under Section 14 and/or without following a fair and transparent process, it can be always said that the Trust property is not being properly managed or administered. In such a case, apart from exercising the power under Section 23, the Registrar can make an application under sub-Section (1) of Section  inviting the attention of the Court to the mismanagement of the Trust..Under sub-Section (2) of Section 26, the Registrar can himself make an application to the Court seeking the exercise of powers under Section 27. On such an application being made and after holding an inquiry, the Court has the power to remove the Trustees of the Trust or to issue directions as provided in Section 27.

The court noted that all the alienations made by the Trustees of Khasgi Trust except one have been made without complying with the mandatory requirement of obtaining the previous sanction as required by sub Section (1) of Section 14. The bench therefore issued the following directions:

"We direct the Registrar under the Public Trusts Act, having jurisdiction over Khasgi Trust, to call for the record of the Trust relating to all the alienations made by the Trustees. After holding an inquiry as contemplated by Section 23, the Registrar after giving an opportunity of being heard to all 70 concerned shall determine whether by virtue of the alienations made by the Trustees, any loss was caused to the Public Trust. If according to him any such loss was caused to the Public Trust, he shall decide and quantify the amount liable to be paid by the concerned Trustees to the Khasgi Trust. g. After holding an inquiry as aforesaid, if found necessary, he may invoke the power of making an application to the Court under sub-Section (2) of Section 26.The Registrar may take such other action and initiate such other proceedings which are warranted by law"

Case details

Khasgi (Devi Ahilyabai Holkar Charities) Trust Indore vs Vipin Dhanaitkar |  2022 LiveLaw (SC) 623 | SLP (CIVIL) No. 12133 of 2020] | 21 July 2022 | Justices AM Khanwilkar, Abhay S. Oka and CT Ravikumar

Headnotes

Trust - A Trust property cannot be alienated unless it is for the benefit of the Trust and/or its beneficiaries. The Trustees are not expected to deal with the Trust property, as if it is their private property. It is the legal obligation of the Trustees to administer the Trust and to give effect to the objects of the Trust. (Para 45)

Madhya Pradesh Public Trusts Act, 1951 ; Section 14 - Powers of Registrar - When a Trust property is transferred without prior sanction of the Registrar under Section 14 and/or without following a fair and transparent process, it can be always said that the Trust property is not being properly managed or administered - The Registrar can refuse sanction only when he is satisfied that the transactions will be prejudicial to the interests of the Public Trust. (Para 43 - 47)

Madhya Pradesh Public Trusts Act, 1951 ; Section 36 - Sub-Sections (1) and (2) of Section 36 operate in different fields. When sub-Section (1) is applicable to a Public Trust, none of the provisions of the Public Trusts Act is applicable to the Trust. Sub-Section (2) is an independent power of the State Government to issue a notification exempting certain Public Trusts from all or any of the provisions of the Public Trusts Act. (Para 39)

Summary : SC set aside the direction issued by MP HC for an investigation by the Economic Offences Wing (EOW) against the trustees of the Khasgi (Devi Ahilyabai Holkar Charities) Trust of Indore over alleged misappropriation of government properties - Madhya Pradesh Public Trusts Act 1951 will apply to the Khasgi trust and directed the trustees to get the Khasgi Trust registered under the Public Trusts Act by making the necessary application within a period of one month - Registrar under the Public Trusts Act, having jurisdiction over Khasgi Trust, to call for the record of the Trust relating to all the alienations made by the Trustees.

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