Appeal No 216 of 1952
Appeal from the judgment and decree dated September 15 1959 of the Bombay High Court in First Appeal No 600 of 1955 from Original Decree
AV Viswanatha Sastri Rameshwar Nath SN Andley and Pk
Vohra for the appellant
SN Pershad MH Chhatrapati 1
B Dadachanji OC Mathur and Ravinder Narain for respondents Nos 1 and 2
KL Hathi and RH Dhebar for respondent No 3
The Judgment of the Court was delivered by Raghubar Dayal J
There is a temple known as Shri Chandraprabhu Khandelwal Jain Temple at Dhulia
Gulabchand Hiralal father of appellant Hukumchand Gulabchand Jain a leading member of the Khandelwal Jain Community at Dhulia looked after the temple for over 40 years till his death sometime in 1950The appellant looked after it after his father s death
Two members of the community interested in the temple held to be a public temple instituted the suit against the appellant and the Charity Commissioner Bombay praying for the removal of the appellant from possession of the trust properties for the rendering of true and faithful accounts of all the assets and income of the trust property and for the framing of the scheme for the administration of the trust
It was alleged in the plaint that the appellant s father was maintaining all accounts of income and expenditure concerning the temple and that the funds of the temple were many times advanced at interest and that the temple had come to hold large properties movable and immovable
It was further alleged that the temple had a large income from offerings house rent etc but the appellant and his deceased father had not been maintaining the accounts properly and that the
funds of the temple were being advanced at interest though no such income was shown as received recently by the appellant
The appellant in his written statement denied that the amount was so advanced at interest as alleged by the plaintiffs and stated that his father had been keeping a ledger in the name of the temple in the accounts in which its income and expenditure had been duly entered since over 40 years and that the appellant himself had kept separate account books for the temple since October 30 1951
He denied that any income recently received had not been shown in the accounts
The trial Court held that the appellant had committed minor irregularities in the maintenance of the accounts that he was liable to render accounts and that the Commissioner was to ascertain the 93 amount due from the appellant on taking the accounts
It definitely held it not established that income if any derived by way of interest on loans advanced out of the funds of the temple had not been credited to the account of the temple and that no instance of fraudulent or dishonest misappropriation of temple funds on the part of defendant No 1 or his father had been established
It found that the meeting of the community had passed a resolution on August 22 1958 by an overwhelming majority sanctioning the accounts submitted by the appellant and that only two persons who opposed against the resolution were the two plaintiffs of the suit
The Commissioner found that on the date of the institution of the suit ie on February 17 1954 Rs 10088 10 3 were due for principal and Rs 16853 6 0 were due for interest from the appellant
The plaintiffs admitted the report to be correct but the appellant contended that under the rule of damdupat interest exceeding the amount of principal could not be allowed
The appellants contention was accepted and the trial Court passed a decree on April 23 1955 for Rs 20177 4 6 against the appellant with future interest at 6 per cent per annum
We are not now concerned with the other items of the decree and therefore we make no reference to them
The appellant deposited the amount due under the decree on July 18 1955
The plaintiffs appealed and claimed a larger amount on various grounds including the one that the principle of damdupat should not have been applied and that interest on the balance of the trust fund should have been calculated and compound interest allowed in place of simple interest on the amount of the trust fund in the hands of the defendant or his father
The appellant filed a cross objection against the allowing of interest on the balance of the trust funds with his father and himself
The High Court agreed with the plaintiffs that the principle of damdupat could not be applied in the circumstances of the case and that compound interest should have been charged against the appellant
It therefore set aside the decree passed by the trial Court in so far as it determined the amount due to the temple and referred the case back to the trial Court for reassessment of the amount due to the temple having due regard to the observations made in its judgment
On an application by the appellant certificate under article 1331 of the Constitution was granted
The appellant has then filed this appeal and questioned the correctness of the order of the High Court holding him liable to pay compound interest and holding that the principle of damdupat was not applicable in this case
The High Court said in its judgment that it was the contention of the plaintiffs that the appellant s father and the appellant 3D2SCI 8 94 used the funds of the temple in their business and that they were therefore liable to account on that footing
There was no such allegation in the plaint or in the memorandum of appeal to the High Court
The High Court referred to the khulasa submitted to the Commissioner by the plaintiffs and stated that it was specifically alleged therein that the amount was being used by the defendant and his father in business
Support for such an allegation was found in the statement Exhibit 24 of the appellant s father in 1931
Reference was also made to the fact that the appellant had nowhere denied the fact of the moneys of the temple being used for the purpose of the business and to the non production of certain books of account by the appellant
His statement that they were not available was not accepted
The High Court recorded the finding in this form at p 43 of the appeal record Under these circumstances it would not be an unreasonable inference to draw that the amounts belonging to the temple were being utilised by Defendant No 1 the appellant and before him by his father in their business Having come to this conclusion and to the view that the position of the appellant s father and the appellant vis a vis the temple funds was that of a trustee the High Court considered whether the plaintiffs could claim interest on equitable grounds and held that they could claim compound interest with yearly rests as the money had been used in the business or had been so mixed up with their own funds that it was impossible to say that they had not so used it
The High Court did not apply the rule of damdupat as the liability of the appellant was not rounded on loans or on any contract
It is contended for the appellant that there was neither an allegation nor evidence to the effect that the trust funds had been used in his business by the appellant s father or the appellant and that therefore the appellant was not liable to pay compound interest on the trust funds in his hands or in the hands of his father
It was further urged that if interest was payable by the appellant s father or the appellant on the balance of trust funds it should be simple interest and the amount of interest could not be more than the amount of principal due on the date of the institution of the suit on the principle of damdupat
It has not been established in this case that the trust funds with the appellant or his father were used in their trade or business
We have already referred to the finding Of the High Court in this respect
It is a very halting finding
The High Court has not definitely held it proved that the funds were used in the business
We say so as the High Court has said at p 46 of the appeal record Since we are of the view that the defendant No 1 and his father have used the monies of the temple in their business or have so mixed it up with their own funds that it is impossible to say that they have not so used it   95 This is not a clear cut definite finding that the funds had been used in business or trade
The earlier finding noted at p 43 of the appeal record and quoted by us earlier loses its force in view of what has been said later
There is no evidence about such use of the money
There was no such allegation in the plaint
It was said in the khulasa dated December 22 4954 and included in the Additional Report of the Commissioner of even date Because the amount that was received by the defendant in respect of the temple could be utilised by the defendant in his business he used to pay interest thereon at the rate of annas 8
 This too is not as stated by the High Court a specific allegation that the amount was being used in business
The plaint did not even say that the amount had been always advanced on loan
What it said in para l is that the funds of the temple were many times advanced at interest and that no income from interest recently received had been shown in the accounts
No evidence has been led about the regular advance of the trust funds as loans
On the other hand the accounts show only a few entries about the receipt of interest on the trust funds
The statement Exhibit 24 made by the appellant s father on October 26 1931 in Regular Suit No 377 of 1931 was in a suit instituted by the appellant s father for the recovery of money advanced on a mortgage at compound rate of interest
Gulabchand father of the appellant stated in examination in chief that the funds lent were of the temple the transactions of the temple were in his name and that interest at compound rate had been agreed upon
In cross examination he stated that he had with him funds of the temple and that he paid for them compound interest at 8 annas
This statement does not necessarily mean that the appellant s father had been crediting the temple accounts with compound interest at the rate of 8 annas on the temple funds in his hands
Gulabchand made another statement on January 12 1950
It is exhibit 23
This statement was made in proceedings on Miscellaneous Application No 110 of 1949
He stated Suit No 377 of 1931 had been filed
In the same my deposition has been recorded
I have made a statement that the amount was of the temple
But I gave a statement to that effect as that amount has been set apart for the temple
I have given a statement that after the mortgage deed was executed and before the suit was filed I set apart this amount for the temple and that the transaction of the temple was in my name
That statement is correct 96 If it is the amount of the Mandir I credit it to the Khata of the Mandir
I do not pay interest for the amount of the Mandir
As there was interest in the mortgage deed I have taken interest at eight annas from Mangilal
I have made a statement that I have with me the amount of the temple and that I pay interest for it at eight annas
 These statements taken together lead to the inference that Gulabchand was not crediting interest on the temple funds in the accounts except when he received interest on the amounts lent and that this statement made in 1931 was in connection with the amount lent on a mortgage deed
He charged compound interest from the mortgagor and therefore credited that interest in the accounts
It is significant to note that the four entries about interest were for the years 1927 to 1931 when Suit No 377 of 1931 was filed
The fact that no interest appears to have been credited after 1931 bears out the inference we derive from the statements of Gulabchand
There is another matter which throws light on this question and tends to support our conclusion
The report submitted  by the Commissioner on November 29 1954 shows that the balance at the beginning of samvat year 1996 corresponding to 1939 40 was Rs 7649 14 3
The amount credited during the year was Rs 573 12 0 and the amount debited was Rs 769 3 6
If the opening balance be ignored there would be a deficit of Rs 195 7 0 and the accounts for the samvat year 1997 opened with a debit balance of Rs 195 7 0
This shows that the opening balance of samvat year 1996 ie Rs 7649 14 3 had been taken out of the accounts
It appears that this amount was taken over to some Bhandara account and was credited again in the temple accounts for samvat year 2009 ie 1952 53 after being brought out from Bhandara account
Such dealing with this amount does not appear to be consistent with its being used in business
In view of the shaky finding of the High Court about the funds being used in business by the appellant s father or the appellant and in view of what we have said above we hold that it has not been proved that these funds had been used in business and that therefore the appellant is not liable to pay compound interest on the balance of the trust funds with his father or himself
We may now consider whether the appellant is liable to pay simple interest on the balance of trust money with his father or himself
Two questions arise for consideration and they are whether the trustee is liable to pay simple interest on the trust capital in his hands and if he is so liable what rate of interest be charged from him in the present case
Interest can be allowed on equitable grounds only as no statutes in force during the period in suit and dealing with public charitable trusts made the trustee liable to pay 97 interest
The Indian Trusts Act does not apply to public or private religious or charitable endowments and therefore the provisions of section 23 thereof cannot be used for charging interest from the appellant trustee
The Charitable and Religious Trusts Act has no provision which provides for charging the trustee with interest
Reference may therefore be made in this connection to what is stated in para 1691 of Halsbury s Laws of England III Edition
38 Subject to this or unless a trustee is expressly otherwise authorised or required under the terms of his trust
he must duly and promptly invest all capital trust money coming to his hands and all income which cannot be immediately applied for the purposes of the trust and he is liable for any loss which may result from its being improperly invested or being left uninvested for an unreasonable length of time and for interest during the period of its being so left
 This is so because the trustee has to conduct the affairs of the trust in the same manner as an ordinary prudent man of business would conduct his own affairs
In para 1812 are set out the circumstances in which a trustee besides being required to account for the principal trust money can also be charged with interest on it and one of the circumstances is when the Court considers that the trustee ought to have received interest
Such could be the case when the trustee in breach of his duty retains the trust money in his own hands uninvested or mixes it with his own money or property
It appears from the Commissioner s report that the trustee in this case had over Rs 10000 in his hands from samvat year 1988 commencing from November 10 1931 upto February 17 1954 when this suit was instituted
The trustee kept such a large sum uninvested for a long time extending over 22 years
The accounts show that reasonably he could not have expected to require this amount for any current purpose of the trust during these years
He should have invested the amount
His failure to do so makes him liable to pay interest
It appears from what is said in para 1814 of Halsbury s Volume 38 that where a trustee simply fails to invest trust money which he ought to have invested or there are no other special circumstances in the case he is in general charged simple interest at the rate of 4 per cent per annum
We consider it reasonable to charge interest at 4 per cent per annum in this case
We have now therefore to decide what had been the amount of trust funds in the hands of the appellant s father at different times and what would be the amount due from the appellant on the date of the institution of the suit both for principal amount of trust money and for accumulated interest with him
We do not 98 consider it desirable that the case be sent back to the trial Court for these calculations in the light of our finding as this litigation has been pending for over 10 years and as the accounting is to be done for a period commencing from November 10 1931 from which date the accounts are available to the Court
The Additional Report of the Commissioner dated December 22 1954 shows that the amount of principal on February 17 1954 the date on which the suit was filed was Rs 10088 10 3 and that the accumulated amount of interest due on that date was Rs 16853 6 0 at the rate of 6 per cent per annum
The plaintiffs respondents admitted this report to be correct
The defendant also admitted the correctness of the principal amount found due by the Commissioner
He in fact did not even dispute that the amount of interest at 6 per cent per annum would be what has been found by the Commissioner
What he contended was that he was not liable to pay interest in excess of the amount of principal found due in view of the rule of damdupat
In these circumstances these figures can be accepted as correct
When the Commissioner had submitted his first report on November 29 1954
both the parties objected to the accounts prepared by him
The defendant had objected to the Commissioner s including a sum of Rs 7648 14 3 twice over in his accounts
This sum represents the balance at the close of samvat year 1995 corresponding to 1938 39
It was not taken over in the accounts for the samvat year 1996
The Commissioner in preparing the account took this amount into consideration without making up the accounts for the samvat year 1996
He found and noted in his accounts that the amount credited to the temple during the samvat year 2009 corresponding to 1952 53 was Rs 9978 5 3 and that this amount included a sum of Rs 7648 14 3 which had been brought from the Bhandara account
He however did not consider this sum to be the sum which had been not included in the accounts of the temple from the samvat year 1996
The learned District Judge agreed with the objection of the defendant and held that this amount had been included twice in the Commissioner s accounts
The respondents did not dispute the correctness of this finding in the High Court and therefore we do not consider it a sound contention that this sum of Rs 7648 14 3 be further added to the balance found due by the Commissioner
The appellant stated that the statement of the balance in hand submitted by him to the meeting on August 22 1953 was arrived at by adding an amount of Rs 7000 to the balance shown in the accounts as he had found a sum of Rs 7000 in a bag marked Dharmadya  inside a safe
The High Court has not considered the statement of the defendant about so finding a sum of Rs 7000 reliable
It was not urged before the High Court as has been urged 99 before us that this sum of Rs 7000 be included in the amount of trust money in the hands of the appellant on the date of the institution of the suit
The High Court merely dealt with the complaint for the respondents that the Commissioner had not taken this sum into account for the purpose of computation of interest on funds in possession of the defendant
The High Court considered this complaint to be justified
We therefore do not accept the respondent s contention that Rs 7000 be added to the balance found due by the Commissioner and hold that the High Court was in error in ordering interest to be calculated on this amount as well
According to the report of the Commissioner the amount of interest on the principal amount of trust money in the hands of the trustee worked out to Rs 16853 6 0 up to February 17 1954 at 6 per cent annum
We have held that the interest be calculated at 4 per cent per annum
If follows that at this rate the amount of interest found due by the Commissioner would be reduced to Rs 1 I235 9 4
The principal due on that date was Rs 10088 10 3
The question now arises whether the amount of interest be limited 10 the amount of principal on the basis of the principle of Damdupat or not
The High Court has held that the principle of Damdupat will not apply in this case
We agree with that opinion
The rule of Damdupat applies to cases where a loan is advanced
This is clear from Colebrooke s Digest on Hindu Law
Part I Vol
I of the Digest deals with Contracts
Book I of this Part deals with Loans and Payment
Section I of Chapter I of Book I deals with Loans in General and describes what may or may not be loaned by whom to whom and in what form with the rules for delivery and receipt
These matters are comprised under the title loans delivered rinadana  which means the complete delivery of a loan or debt by whom where and to whom made
Chapter II deals with Interest and states at the commencement of Section I Such interest as may be taken without a breach of duty on the part of the creditor is a rule dherma for delivery by the creditor
Or  for it is the nature of a loan that it should produce to the lender the principal sum advanced and interest in addition thereto
 The various Articles in this Section use the expressions creditor  render  Joan  principal  lent  borrowers  and thus make it amply clear that it deals with interest on the amounts advanced by a creditor to a debtor
Section I deals with the rates of interest to be charged
Section 1I deals with Special Forms of Interest
Paragraph 53 thereof states Interest on money received at once not year by year month by month or day by day as it ought must never be more than enough to double the debt that is more than the amount of the principal paid at the same time
 100 This is what is known by the rule of Damdupat and has been rightly construed as long ago as 1863 by the Bombay High Court in Dhondu Jagannath vs Narayan Ramchandra1
Section III deals with Interest Specially Authorized and Specially Prohibited
Article II of this Section deals with Limits of Interest
Paragraph 59 thereof states The principal can only be doubled by length of time after which interest ceases
 The limit of interest is different under other paragraphs for loans advanced in different circumstances
Paragraph 61 repeats what has been stated in paragraph 53 of Section II and adds a special rule to the effect On grain on fruit on wool or hair on beasts of burden lent to be paid in the same kind of equal value it must not be more than enough to make the debt quintuple
 It is therefore clear as stated earlier that the rule of Damdupat applies in respect of interest due on amounts lent by a creditor to the borrower the debtor
The question then is whether the funds in the hands of a trustee can be said to be such loans nationally advanced by the trustee to himself as an individual
If their character can be deemed to be such there may be a case for applying the rule of Damdupat to the interest on such funds and that if it is not so this rule of Damdupat will not apply to the interest ordered to be paid on such funds
It has been urged for the appellant that the trustee is a debtor with respect to the trust money in his hands
Reference has been made to Halsbury s Laws of England III Edition Vol
38 1044 where it is stated at para 1801 A breach of trust is in equity regarded as giving rise to a simple contract debt
 In the foot note is stated Strictly speaking the relation of debtor and creditor does not subsist between a trustee and his cestui que trust per Lindley LJ in Lewin on Trusts  15th Edition states at p 745 The debt constituted by a breach of trust is even after it has been established by a decree an equitable debt only and until the Bankruptcy Act 1869 would not have supported a petition in bankruptcy
 It was said by the Earl of Halsbury LC in Sharp vs Jackson2 It has been suggested that there was a proposition which could be maintained as to which I confess I entertain grave doubts whether any decision goes to that extent namely that the relation between a cestui que trust 101 and a trustee who has misappropriated the trust fund is not that of debtor and creditor
That it may be something more than that is true but that it is that of debtor and creditor
1 can entertain no doubt
As that question has been mooted and brought before your Lordships  House as one question for decision here I certainly have no hesitation in saying that in my opinion no such proposition can properly be maintained and that although there are other and peculiar elements in the relation between a cestui que trust and a trustee undoubtedly the relation of debtor and creditor can and does exist No other Lord expressed an opinion on this point
The correctness of this expression of the Earl of Halsbury has been doubted in Lake in re
Dyer Ex Parte  by Rigby LJ who remarked at the hearing How is a trustee a debtor  Can he be sued at common law  I do not see how he can be a debtor  for the money he is fraudulently dealing with is at law his own money
No doubt he can be called upon to replace the money but that must be by a suit in equity not at law
Notwithstanding the high authority of the statement that has been referred to I confess I do not understand it
 We are of opinion that though a trustee who has custody of trust funds has a pecuniary liability to make good those funds if he has used them and may on the basis of such a liability be said to be a debtor of the trust yet he as an individual is not a borrower of the funds from the trust and cannot be said to have taken a loan from himself as a trustee in charge of the trust funds
His liability to pay interest when ordered by the Court on equitable grounds does not come within the provisions dealing with interest in Hindu Law as mentioned in Colebrooke s Digest
There is no fixed rate of interest which a trustee be liable to pay as there is no contract between him as a trustee and as an individual to pay interest
He simply uses the money in his custody
It is only when the Court determines his liability to pay interest that interest is to be calculated on the principal amount due from him
It is not the case of a creditor letting interest accumulate and thus make the debtor pay interest much more than what he had borrowed as principal
The principle of Damdupat was evolved both as an inducement to the debtor to pay the entire principal and interest thereon at one and the same time in order to save interest in excess of the principal and as a warning to the creditor to take effective steps for realising the debt from the borrower within reasonable time so that there be not such accumulation of interest as would be in excess of the principal amount due as in that case he would have to forego the excess amount
There may be justification for the 1 715
102 principle of Damdupat applying in the case of an ordinary creditor and a debtor but there seems no justification for extending that principle to the case of a trustee who has to pay interest on the funds in his hand with respect to which on certain grounds he is held liable to pay interest
We therefore hold that the rule of Damdupat will not apply with respect to the interest adjudged payable by a trustee on his committing breach of trust with respect to the trust funds in his hands 
The result then is that the appellant is liable to pay Rs 10088 10 3 for principal and Rs 11235 9 4 as interest upto the date of the institution of the suit ie upto February 17 1954
We therefore allow the appeal set aside the decree of the High Court and modify the decree of the trial Court accordingly
The result will be that the suit temple will be entitled to get from defendant No 1 a sum of Rs 21324 3 7 upto the date of the suit together with future interest at 4 per cent per annum on Rs 10088 10 3 from the date of the suit till the date of payment
The appellant will bear his costs throughout
The costs of the respondents will come out of the estate
Appeal allowed


Summary:
The respondents who were interested in a public temple filed a suit against the appellant who was looking after the affairs of the temple
They prayed for his removal from possession of the trust properties for the rendering by him of true and faithful accounts and for the framing of a scheme
The trial court held that the appellant was liable to render accounts
Having ascertained the amount of principal it determined the interest payable at an amount equal to that of the principal on the basis of the rule of damdupat
The respondents appealed to the High Court and urged that the rule of damdupat should not have been applied and that compound interest should have been charged against the appellant
The High Court held that the appellant had used the trust moneys in his business and therefore agreed with the contention of the respondents and remanded the case to the trial court for ascertaining the amount due to the temple
In the appeal to the Supreme Court it was contended that i there were no grounds for making the appellant liable to pay compound interest and ii even if there was liability to pay any interest it was only for paying simple interest and that the rule of damdupat should be applied
HELD i It had not been proved that the trust funds had been used in the appellant s business and therefore the appellant was not liable to pay compound interest on the balance of the trust funds with him
96 G ii In the absence of statutes during the period of suit dealing with public charitable trusts making a trustee liable to pay interest interest could be charged only on equitable grounds
One such circumstance is when the Court considers that the trustee ought to have received interest as when he retains trust money in his hands uninvested
Since the accounts in the instant case show that the appellant had retained the principal amount uninvested for over twenty years he would be liable to pay simple interest at the rate of 4 per cent per annum
Even though the interest calculated at that rate exceeded the principal that entire interest would have to be paid because the rule of damdupat would not apply
The principle of damdupat was evolved both as an inducement to the debtors to pay the entire principal and interest at one and the same time in order to save interest in excess of the principal and as a warning to the creditor to take effective steps for realising the debt from the borrower within a reasonable time so that there may not be accumulation of interest in excess of the principal amount
But that rule applies only to cases where a loan is advanced
Though a trustee who had custody of trust funds has a pecuniary liability to make good those funds if he has used them and may on the basis of such a liability be said to be a debtor of the trust yet he as an individual is not a borrower of the funds from the trust and cannot be said to have taken a loan from himself as a trustee in charge of the trust funds
96 H 97 E H 99 D E 101 E F H 92 Sharp vs Jackson 1899 AC419 and Lake in re Dyer Ex Parte 19011 KB 710 referred to