CS(OS) No.1931/2008 Page 1 * IN THE HIGH COURT OF DELHI AT NEW DELHI RESERVED ON: 12.11.2009 PRONOUNCED ON: 20.11.2009 + I.A. No.11202/2008 (U/S 92 CPC) AND CS(OS) 1931/2008 VINAY RAI & ANR. ..... Plaintiff Through: Mr. Ramji Srinivasan, Sr. Advocate with Mr. Vinod K. Shukla and Mr. Shakeel Ahmed, Advocates. Versus RAM KRISHAN AND SONS CHARITABLE TRUST & ORS. ..... Defendants Through: Mr. Arvind Nigam, Sr. Advocate with Mr. Amit Sibbal, Mr. Naveen Chawla and Mr. Sandeep Mittal, Advocates. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT 1. Whether the Reporters of local papers Yes may be allowed to see the judgment? 2. To be referred to Reporter or not? Yes 3. Whether the judgment should be Yes reported in the Digest? HON’BLE MR. JUSTICE S.RAVINDRA BHAT % 1. This order will dispose of an application (IA 11202/08) seeking leave to file a suit, under Section 92 of the Code of Civil Procedure Code, 1908 (hereafter “the CPC”). 2. Briefly, the suit averments, as well as those in the application are that on 14-5- 1974, late Manbhari Devi (hereafter “the Settler”)- grandmother of the first plaintiff (hereafter “Vinay”) and the second defendant (“Anil”) set up the first defendant PUBLIC CS(OS) No.1931/2008 Page 2 charitable trust (hereafter “the trust”). The trust comprised of Kulwant Rai, (father of Anil and Vinay), and his two brothers, Balwant Rai and Jaswant Rai. The objects of the trust were, charitable and included inter alia, imparting education, setting up and supporting societies or trusts, which were to promote education, health, and well being of people, and also promote literary and other associations, etc. The trust was registered in 1980; the settler, on 20-4-1981, appointed Kulwant Rai as the trust’s Chairman for life, and also appointed Vinay as Managing Trustee, responsible for its day to day affairs. It is alleged that Anil and Satya Paul were appointed as trustees, for two years. Vinay was appointed as Managing Trustee, which position, he says, he continues to hold. 3. The suit describes the relationship of Vinay with Anil, and the third defendant (Anil’s wife); the fourth defendant (Anil’s daughter) fifth defendant (Anil’s son), the sixth defendant (Anil’s sister in law) and seventh defendant, a close friend of Anil. The eighth defendant is the mother of third defendant, and the ninth defendant, an old employee of Anil. It is contended that since education was a dear subject of the settler, the trust applied for allotment of land, to the Land and Development office (L&DO) of the Central Government, for the purpose of setting up a higher secondary school, to provide affordable school education. Consequently, the trust set up the Rai school, (now called BANYAN TREE school), a recognized institution. It is contended that under Vinay’s guidance, a management school, Institute of Integrated Learning and Management, was started, which temporarily functioned from the Rai school premises in 1994. The school and the management institution received benefit of tax exemption under Income tax laws. The suit states that with age, Shri Kulwant Rai, started suffering from failing health and his memory deteriorated. Since Anil had interest in the activities of the trust, the Vinay, in good faith, along with Kulwant Rai, allowed him and his wife to look after its affairs. However, with passage of time, they started to misguide Kulwant Rai, and Vinay, and excluded information from them. Kulwant Rai and Vinay believed them. It is contended that Anil and Defendant Nos 3 to 9 systematically, and in a planned manner, since 2002-2003, succeeded in diverting crores of rupees from the trust, to new CS(OS) No.1931/2008 Page 3 trusts, societies, foundations, set up by them and other defendants with similar names. These trusts, societies, etc are sham institutions set up to defraud the trust of crores of rupees meant for charitable purposes; the diverted money is being used for personal gain. It is alleged that since Kulwant Rai started suffering from Alzheimer’s disease, since 2000, the other defendants started getting papers signed by him, and later changing the character of the board of trustees, of the trust, which they systematically commercialized. It is alleged that a bare perusal of the trust’s balance sheets would reveal that considerable amounts were spent for purposes alien to the public at large, and meant to benefit only the Defendant No. 2 to 9. The suit refers to another pending suit, CS (OS) 294/2006, where Anil has sought benefit and relief in respect of a document known as “RAI FAMILY AGREEMENT”; reference is also made to another suit, CS (OS) 1158/2005, which claims partition of a residential house. It is alleged that the Defendant Nos. 2 to 9 have sidelined the charitable objectives of the trust, and are providing education to mainly elitist sections of the society, and taking donations from the public, to give admissions. These donations are filling the coffers of Defendant Nos. 2 and 3; none of the trustees have the interests of the trust, or the general public, at heart. 4. The plaintiffs say that the defendants are running a management course, in association with the University of Bradford, UK, by charging Rs. 3 lakh plus per year; the bachelor degree course should have been stopped with the advent of new AICTE guidelines, of 2004-2005. It is however, being continued just to make money for personal gains, of the said Defendant Nos. 2 and 3, which is contrary to objectives of the trust, and against norms of the AICTE, which requires all foreign education to be recognized and approved by it. The defendants, say the plaintiffs, donated a running unit of the trust, i.e the ILIM undergraduate business school which was making surplus or profits of Rs. 5 crores per annum, to another entity, i.e the RKKR Charitable trust (eleventh defendant) absolutely free of cost. In the last 5 years, more than Rs. 20 crores were diverted from the trust and given to other entities by the defendants; not only that the ILIM UBS course continues to be run in the building of the trust, and given away to the RKKR foundation CS(OS) No.1931/2008 Page 4 (twelfth defendant). The said defendant is giving nothing in respect of such activities to the trust, which is systematically eroded of its finances and property. It is alleged that the defendants are making huge donations to other trusts, foundations, institutions, which do not benefit the first defendant trust. Reference is made to the assessment order of Assistant Director, of the income tax authorities. 5. The plaintiffs claim to be gravely disturbed by the occurrences which defeat the purpose for which the trust was set up. They mention that the eleventh defendant was set up in 2001, which is named similar to the trust, and is controlled by Defendant Nos. 2 and 3. It is alleged that in 2002-2003, the trust, under guidance of Defendant Nos. 2 to 9, donated free of cost, a running unit of the first defendant, the IILM Undergraduate business school which was generating a surplus of around Rs. 5 crores annually, and was valued, at more than Rs. 50 crores. The institution was a major revenue earner for the trust. The plaintiffs allude to an assessment order of the tax authorities which talk to two donations of the trust, (one for Rs. 4,43,37,505/-and the other, for Rs. 22,00,000) to the eleventh defendant. The plaintiff relies on the balance sheets of the trust, for 2002-2003. It is also alleged that even today the said IILM undergraduate business school uses the land allotted to the trust. The allotment of the land was made to a school; therefore, the use of the school’s land by the IILM institution is contrary to terms of allotment, and the terms of the lease. The degree offered by the said IILM has no recognition or permission from AICTE, or UGC. The plaintiffs say that the eleventh defendant was established in 2001, with a paltry donation of Rs.5000/-; it has no experience in the managing any management institution. The first defendant trust, allege the plaintiffs, has not received any benefit from the donations made to the other establishment, and institutions. All these actions, it is alleged, amount to clear breach of fiduciary duties, by the defendant No. 2 to 9. 6. The plaintiffs allege that defendants 2 to 9 have created societies and foundations to embezzle trust’s funds; they submit that in 2004-2005 the said defendants diverted Rs.1.3 crores from the trust to defendant No.14; the same year Rs.1.9 crores of worth CS(OS) No.1931/2008 Page 5 assets and buildings were donated to the said defendant No.14. It is alleged that such donations as well as the handing over of the IILM unit to defendant No.11 are not beneficial to the Trust or its overall objectives are in fact detrimental to the settler’s intentions. The plaintiffs further submit that 13th defendant housing society formed by employees (of Usha India Limited and its sister companies) in 1994 wants to construct affordable houses to staff members. The plaintiff states that 13th defendant bought 7 acres of land in Gurgaon for construction of such low cost affordable houses. The second defendant is alleged to have illegally taken control of 13th defendant, replaced its members and office bearers with his employees, relatives etc. and changed the objectives of the society to education for elitist sections of the society by charging exorbitant fees. The plaintiffs allege that the personal cars used by defendant Nos. 2 to 9 as well as their trips abroad are being financed by the Trust. Again a reference is made to an order of Income Tax Inspector Sh. V.K. Khanna adversely commenting on the salary paid to Mr. Savita Rai by the Trust. 7. The plaintiffs state that an analysis of the balance sheet of Trust for the period between 1998 to March 2005 reveal a systematic fudging of accounts by defendants 2 to 9 to cheat the Trust and fill their personal coffers. Reference is made to siphoning of funds of the Trust by claiming huge expenses for the period 2001 and 2005 towards repairs and maintenance. In March a sum of Rs.26 lakhs, towards repairs and maintenance claimed by the Trust is challenged as false, over-inflated; similarly for other periods it is submitted that the amounts of Rs.1.14 crores (2005), Rs.1.13 crores (2004); Rs.1.24 crores (2003) and Rs.0.61 crores (2002) have been claimed without basis towards repair and maintenance. Similar alleged irregularities in the claim of extra cost of construction are alluded to. 8. To establish that actions of defendant No.2 to 9 are detrimental to the Trust in over-all interests, it is contended that the balance sheet for the years 2000-2005 shows mounting liabilities. It is alleged that the borrowings which stood on Rs.1.9 crores as on 31.03.2000, increased to Rs.9.35 crores as on 31.03.2004. While so the Trust is donating CS(OS) No.1931/2008 Page 6 huge amounts to Defendants 11 to 17 and also charging its running business which was consistently generating surplus. On the basis of all these allegations, it is contended that Defendants 2 to 9 are not entitled to administer the Trust and in any case cannot dispose of its property for their personal gains. According to the plaintiffs all these circumstances are documented and reliance is placed upon balance-sheets and annual reports of the Trust that are placed on record. Similarly the Income Tax authorities orders are placed on record. The cause of action, contend the plaintiffs, arose and when the defendants held meetings of the Trust without the first plaintiff’s knowledge and started indulging in the activities detrimental to its objects. It is alleged that we are continuing one and also arose in August 2007 when the first plaintiff status was falsely denied by one R.L. Chaudhary in FAO (OS) No.331/2007, and on further deeds. The plaintiff, therefore, claims directions to remove all existing trustees from the Board of the first defendant, appoint fresh trustees to manage its affairs; appoint Court Receiver to take into custody of books of accounts, proceedings, minutes etc. and direct a full-fledged enquiry into the affairs of the Trust and issue consequential directions to the defendants to deliver possession of Trust properties in their possession to the Court Receiver. A declaration is sought that gifts and donations by the first defendant Trust to other Trust, Societies and Foundations etc. are void and illegal. 9. Supporting the averments Mr. Ramji Srinivasan, learned senior counsel points out that the donations of surplus generating IILM unit , apart from being contrary to the terms of allotment of land by the L&DO, in effect amounts to “asset stripping” of the Trust denuding it of real and effective income generating potential. Underlining this aspect, learned counsel relied upon the balance sheet placed on the record and sought to compare the levels of income generated prior to the management of IILM being handed over to defendant No.11 and the position of the Trust now. It is contended that by excluding the potential of generating meaningful income, the Trust denied the ability to realize its objectives to provide and spread meaningful education to the masses. CS(OS) No.1931/2008 Page 7 10. It is next contended that Court intervention under Section 92 is essential to protect and preserve the Trust property and ensure that the settler’s intentions manifested in the trust deed and its objectives are fulfilled. It is submitted that there is enough material on the record to establish that not only the income levels have fallen but also the Trust’s liabilities have mounted progressively exposing it to a real threat of loss of its assets and precious goodwill created by the Settler Kulwant Rai and other trustees who set up the institutions including the school by their hard work and efforts. 11. Learned counsel contended that both the plaintiffs have locus standai to maintain the present proceedings under Section 92. The first plaintiff was a managing trustee and it was only in 2007 to his shock and dismay in the course of legal proceedings he was informed by way of an affidavit alleging that the has been removed as managing trustee. He was associated right through with the Trust from 1985 onwards. Furthermore he is a member of Rai family and the grand-son of the settler. So far as the second plaintiff is concerned, it is contended that he has great concern for the Trust as it was set up by his family and being the son of the first plaintiff is vitally interested in the objectives spelt out in the Trust, and that the settler’s intentions are fulfilled and traditions carried out by future generations in the family. Learned counsel relied upon the decision reported as Mulla Gulam Ali and Safiabai D. Trust v. Deelip Kumar and Co., (2003) 11 SCC 772. 12. The plaintiffs contend that all the essential ingredients for maintaining the present action under Section 92 have been fulfilled by them. They rely upon the decision reported as R.M. Narayana Chettiar and another v. N. Lakshmanan Chettiar and others, (1991) 1 SCC 48 and Swami Aramatmanand Saraswati and Anr. v. Ramji Tripathi and Anr., AIR 1974 SC 2141. It is contended that at this stage the Court would not examine the merits of the dispute concerning the Trust but has to be broadly satisfy itself that those who have approached it are “persons interested” and that on a broad and prima facie examination of the pleadings and documents, Court intervention under Section 92 to set right the affairs of the Trust is essential. CS(OS) No.1931/2008 Page 8 13. The defendants resisted the application for leave and contend that none of the essential conditions prescribed under Section 92 is fulfilled. It is submitted that the first plaintiff’s locus standi is premised upon his being a managing trustee. The defendant pointed out that in one part of the suit, the said plaintiff states that affairs of the Trust were handed over to Defendants 2 and 3 in 2000 whereas in a latter part he avers inconsistently that he never resigned. It is submitted that yet in another part i.e. paragraph 4 of the suit, the said plaintiff states that he was illegally removed. On the basis of this and other averments, it is contended that plaintiff No.1 is not a person interested in the affairs of the suit that he concededly detached himself from the functioning of trust in 2000. The mention of irregularities for the period 1998-2002, assuming the allegations to be correct, makes the plaintiff No.1 a party to the said alleged irregularities. It is contended that the former association of the first plaintiff does not clothe him with any or sufficient interest to be called “person interested” in the affairs of the first defendant Trust, entitling him to leave. 14. It is submitted that the suit, so far as the second plaintiff is concerned is not at all maintainable because there is no material averment as to how he can ever claim to be a person or party interested in the affairs of the Trust. Learned counsel contended that the said defendant had no association with the Trust and appears to have been a minor when it was established. That he belonged to the family of the settlers who established it or is the son of the first plaintiff by itself is insufficient to confer him with any interest or locus. Learned counsel emphasized that the requirements of Section 92 are categorical in that at least two persons having interest or having sufficient interest to be called as “persons interested” in the affairs of the Trust can maintain the suit. In the present case, even if it is assumed that the first plaintiff has some semblance of interest no such interest can be seen from the averments so far as the second plaintiff is concerned. The Court, therefore, cannot grant leave as is claimed by the plaintiffs. 15. It is also contended that the averments in the suit and the application I.A.No.1102/2009, reveal that the plaintiffs’ interest is purely personal and unconnected CS(OS) No.1931/2008 Page 9 with the welfare of the Trust as is sought to be agitated. The defendant also submits that the plaintiffs have instituted the present proceedings purely by way of vendetta and with a view to settle personal scores. They refer to various litigations filed by them and Vinay’s stand about a family settlement which was duly recorded in the form of a document on 07.02.2000. They also refer to a “Rai Family Agreement” dated 19.03.2000. According to the defendants in 2005 disputes again arose between Vinay and Anil and their parents regarding house and occupation of residential house at 12 Aurangzeb Lane, New Delhi which led to filing of another suit CS(OS) No.1158/2005 by Vinay’s mother and Anil’s wife seeking partition of user and occupation of the house. Reference is also made to another suit CS(OS) No.294/2006 in which the first plaintiff was defendant – he denied the efficacy of the agreements and settlements alluded to. The defendants allege that Vinay, with a view to create confusion in the public mind and take advantage of the popularity and goodwill started infringing the trademarks and trade names “ILIM” and “Sanatan Sangeet Sanskriti” which was popularized by Defendants 2 to 5 through their hard work and dedication. It is contended that the Trust has been using the trademark without objection from any quarter including from Vinay. Reference is made to written statement in CS(OS) 294/2006. According to the Defendants, in the civil suit filed by the Trust an interim injunction granted earlier was vacated on 30.07.2007 after which the matter was carried in appeal; the Division Bench on 23.01.2008 restrained the business school managed by Vinay from issuing any advertisement in respect of any institute set up in the name of ILIM and also from converting the name of any existing institute to ILIM. It is contended that the said order subsist even as on date. 16. The Defendants further argue that the allegations about misfeasance and mal- administration of the first defendant Trust are unfounded. It is submitted that a comparison of the revenues which existed in 2000-01 (of the first defendant) with the latest revenues would disclose that actually the income has increased, contrary to the plaintiffs’ allegations. Likewise, it is contended that the liabilities against purchase of lands of the Trust were Rs.651 lakhs as on 31.03.2004; the same got reduced to Rs.37 CS(OS) No.1931/2008 Page 10 lakhs as on 31.03.2007 and are Nil as on 31.03.2008. Similarly the secured loans also diminished from Rs.588 lakhs as on 31.03.2007 to Rs.363 lakhs on 31.03.2009. 17. It is submitted that contrary to the allegations about irregularities noticed by the order of the I.T.O. the first plaintiff has deliberately withheld from this Court the fact that in appeal, the adverse observations were set aside sometime in the year 2007. The defendants also contend that the arrangement whereby the first defendant Trust handed over ILIM Business Management School to Defendant No. 11 was because of objections by the AICTE, since the institution was affiliated to Bradford University. Consequently, the institute at Noida was set-up and could apply for affiliation. It is submitted that far from there being depletion of the first defendant’s assets or corpus, in fact the 11th defendant gave the first defendant Trust Rs.4.43 crores. It is submitted that the 11th defendant conducts non-AICTE courses whereas Defendant No.12 conducts courses which are affiliated with the Indira Gandhi National Open University (IGNOU); all these were necessitated because of legal requirements. Despite knowledge these facts, the plaintiffs are levelling mala fide allegations. 18. So far as the allegations concerning increased liabilities of the first defendant Trust are concerned, it is contended that the activities of the Trust has led to increase in the number of admissions which in-turn mean that the institution has to pay back refundable security deposits which are shown in its books. Denying the allegations about inflated or false claims towards repairs and maintenance as alleged by the plaintiffs, the defendants state that the actual repairs and maintenance of the buildings according to the audited balance-sheet filed by the plaintiffs, along with their list of documents bear out the genuineness of such expenditure. The defendants also state that there is no question of falsification of the records since Income Tax Records are processed through scrutiny assessment by the authorities. 19. The defendants contend that the arrangement whereby the Trust distributed its activities by creating other foundations, societies or trusts was with a view to facilitate CS(OS) No.1931/2008 Page 11 and streamline its administration and not as the plaintiffs allege, with a view to denude the Trust of its assets or defeat its objectives. 20. The defendants rely upon the decision reported as Vidyadaya Trust –vs- Mohan Prasad R. & Anr 2008 (4) SCC Page 115 and Rahul Jain & Anr –vs- Pradeep Kumar & Ors 138 (2007) DLT 329. They contend that a suit under Section 92 should satisfy the twin requirements of the parties approaching the Court disclosing a real (as opposed to a remote) interest and that at least two persons interested in the affairs of the suit and its proper management should institute it, and claim leave. It is contended- by placing reliance on the decision in Swami Aramatmanand Saraswati that on a correct application of law declared by the Supreme Court, the present suit does not satisfy and even prima facie – the essential ingredients spelt out in Section 92 and consequently leave should be refused. 21. The above discussion would reveal that the Court’s scrutiny, at this stage has to be directed towards two questions namely, whether the plaintiffs are persons interested and therefore possess sufficient locus to maintain the present suit and secondly whether the averments in the suit and the applications prima facie disclose that Court intervention on one or some of the grounds satisfy in Section 92 is warranted. 22. In R.M. Narayana Chettiar and another v. N. Lakshmanan Chettiar and others, (1991) 1 SCC 48, the