: 1 : IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION NOTICE NOTICE NOTICE OF MOTION NO.171 OF 2002 OF MOTION NO.171 OF 2002 OF MOTION NO.171 OF 2002 WITH WITH WITH NOTICE NOTICE NOTICE OF MOTION NO.3013 OF 2002 OF MOTION NO.3013 OF 2002 OF MOTION NO.3013 OF 2002 WITH WITH WITH NOTICE NOTICE NOTICE OF MOTION NO.2762 OF 2003 OF MOTION NO.2762 OF 2003 OF MOTION NO.2762 OF 2003 WITH WITH WITH NOTICE NOTICE NOTICE OF MOTION NO.3398 OF 2003 OF MOTION NO.3398 OF 2003 OF MOTION NO.3398 OF 2003 WITH WITH WITH NOTICE NOTICE NOTICE OF MOTION NO.3490 OF 2004 OF MOTION NO.3490 OF 2004 OF MOTION NO.3490 OF 2004 IN IN IN SUIT SUIT SUIT NO.2135 OF 2001 NO.2135 OF 2001 NO.2135 OF 2001 Sandeep G. Raheja ....Plaintiff V/s. Chandru L. Raheja & Ors. ....Defendants Mr.Janak Dwarkadas, Senior Advocate, with Mr.P.K. Samdhani, Senior Advocate and Mr.Simil Purohit i/b. K.D. Abhichandani, for the Plaintiff. Dr.Virendra Tulzapurkar, Senior Advocate, i/b. Wadia Ghandy & Co., for Defendant No.1. Mr.Praveer Diwan, Advocate, with Ketan Gupta i/b. A.T. Agarwal, for Defendant No.2. Mr.S.J. Pamnani, Advocate, for Defendant Nos.3 & 4. Mr.F.E. DeVitre, Senior Advocate, with Z.T. Andhyarujina i/b. Humranwala & Co., for Defendant No.5. Mr.C.U. Singh, Advocate, with Geetanjali Prabhu i/b. Ms.S.M. Lanjewar, for Defendant No.6. Ms.Kunti Jhaveri, Advocate, with Jayesh Vyas i/b. Bilawala & Co., for Defendant No.7. Mr.Chirag Balsara, Advocate, with Madhur Rai i/b. N. Shah & Himayatullah, for Defendant No.8. Mr.A.Y. Bookwala, Senior Advocate, with Mr.H.N. Thakore and Ms. Purvi Chhatrapati i/b. Thakore Jariwala & Associates, for Defendant No.9. : 2 : CORAM : S.J. VAZIFDAR, J. DATED : 16TH NOVEMBER, 2006. ORAL JUDGEMENT : 1(A)(a) The reliefs sought by the plaintiffs in the above Notices of Motion fall into two categories. The first relates to the protection of the assets of the trust. It was not necessary to consider the same as all the parties have agreed to the appointment of a Receiver/Administrator in respect of the assets of the Trust. The second relates to restraint orders against Defendant no.9 in respect of 18 acres of land which belonged to the trust but was sold by Defendant no.8 to Defendant no.9 in exercise of its powers under an English mortgage. The plaintiff has challenged the entire process commencing for the resolution of the Board of Trustees offering the property as security for the dues of Defendant no.7 to Defendant no.8 to the sale thereof by Defendant no.8 to Defendant no.9 (b) I have in the paragraphs immediately proceeding the operative part of this order (Paragraphs 121 to 126) demonstratead how though I have refused restraint orders against Defendant no.9 on merits in fact :- (i) the Plaintiffs interest qua the : 3 : property is fully protected, (ii) if the Plaintifff establishes the case on merits his suit will stand decreed as prayed and, (iii) the claim if decreed will be fully satisfied. (B) Despite the same, as the matter was argued at length and as it pertains to a trust I have dealt with the rival contentions at length. The Parties : 2. The Plaintiff and Defendant No.5 are the sons of Defendant Nos.6 and 1 respectively. Defendant Nos.3 and 4 are the sons of Defendant No.2. Defendant Nos.1, 2 and 6 are the Trustees of a private family trust called the "Raj Trust" (hereinafter referred to as "the Trust"). The Plaintiff and Defendant Nos.3, 4 and 5 are the beneficiaries of the Trust. . In respect of the disputes concerning the Trust Defendant Nos.1 and 2 constitute the majority and Defendant No.6 is in the minority on the Board of : 4 : Trustees. . Defendant No.7 Asiatic Properties Limited is a closely held company in which the shares are held by the parties herein through the members of their family / associates / sister concerns. Defendant No.8, Infrastructure Leasing and Financial Services Limited (ILFS) and Defendant No.9 Aman Spices Private Limited were subsequently impleaded for the reasons and in the circumstances I shall mention later. The Plaint : 3. The suit as originally filed was for an order removing Defendant Nos.1 and 2 from the Trust and appointing two other persons in their place; for an order directing Defendant Nos.1 and 2 to deliver the trust properties and funds in their hands to the new trustees and Defendant No.6; for an order restraining Defendant Nos.1 and 2 from acting as trustees; for accounts on the footing of wilful default and payment by Defendant Nos.1 and 2 in accordance therewith and for an injunction restraining Defendant Nos.1 and 2 from dealing with or alienating the trust properties. Amendments : : 5 : 4. The plaint was amended four times on 14.08.2003, 17.11.2003, 02.12.2004 and 23.11.2005. The amendments were necessitated by reason of certain events that transpired or came to the notice of the Plaintiff from time to time after the suit was filed. A. By the first amendment the Plaintiff impleaded Defendant Nos.7 and 8 and sought a declaration that a resolution dated 20.03.2001 passed by the trustees offering to give an immovable property belonging to the Trust as security to Defendant No.8/ILFS for the credit facility granted by Defendant No.8 to Defendant No.7 is null and void; for a declaration that the mortgage or security created by Defendant Nos.1 and 2 and/or the Trust over the said property is null and void; for a decree cancelling and setting aside the said mortgage, if any; for an order restraining Defendant No.8 from invoking the said mortgage for security; for a declaration that the mortgage or security is null and void and for an order restraining Defendant No.8 and Defendant Nos.1 and 2 from acting in furtherance of the mortgage. : 6 : B(i). By the second amendment the Plaintiff challenged the creation of an English mortgage dated 17.10.2003 by Defendant Nos.1 and 2 and/or the Trust in respect of the said property in terms and for reliefs similar to those urged and sought by the Plaintiff in respect of the said mortgage as aforesaid. The Plaintiff also sought an order restraining Defendant no.8/ILFS from acting on the English mortgage inter-alia by selling the said property in exercise of its power as an English mortgagee. (ii). By the second amendment the Plaintiff also sought a declaration that the trustees are liable to divide and distribute the corpus of the Trust amongst the beneficiaries namely the Plaintiff and Defendant Nos.3, 4 and 5 in the proportion of 37.5% each to the Plaintiff and Defendant No.5 and 25% jointly to Defendant Nos.3 and 4. This amendment was sought as during the pendancy of the suit the date of distribution stipulated in the Trust Deed had arrived and the Board of Trustees had unanimously agreed to the said shares. : 7 : C. By the third amendment the Plaintiff impleaded Defendant No.9 and sought a declaration that the Deed of Sale/Conveyance dated 04.06.2004 executed by Defendant No.8 conveying the property to Defendant No.9 is null and void and for reliefs consequent thereto. In the alternative, the Plaintiff sought an order directing Defendant No.7 to pay to the Trust the value of the said property together with interest. D. By the fourth amendment the Plaintiff introduced additional grounds to challenge the said sale of the property by Defendant No.8 to Defendant No.9. The Plaintiff inter-alia contended that Defendant No.1 was not a bona-fide purchaser of the property in as much as it purchased the property at the instance of Defendant No.1 and that Defendant No.9 is a front company of Defendant No.1. The Five Notices of Motion : 5(a). The main reliefs in Notice of Motion No.171 of 2002 pertains to the appointment of a Court Receiver : 8 : of the Trust fund and all the properties of the Trust and to restrain Defendant Nos. 1 and 2 from acting as trustees and exercising any powers under the Trust Deed, for disclosure and for an injunction restraining Defendant Nos.1 and 2 from alienating the assets of the Trust. (b). In Notice of Motion No.3013 of 2002, the Plaintiff sought an order restraining Defendant Nos.1 and 2 from alienating, disposing of, encumbering etc. the properties of the Trust in any manner. (c). In Notice of Motion No.2762 of 2003, the Plaintiff sought similar reliefs as also an order in the alternative directing Defendant Nos.1, 2 and 6 to divide and distribute the corpus of the Trust fund amongst the beneficiaries. Further the Plaintiff sought an order restraining Defendant No.8 from invoking the mortgage or security created by Defendant Nos.1 and 2 and/or the Trust in respect of the suit property. The Plaintiff further sought an order restraining Defendant Nos.1 and 2 from acting on a resolution dated 28.03.2001 passed at the meeting of the Board of Trustees offering to give the suit property as security to Defendant No.8 and/or from doing anything in furtherance of the purported : 9 : mortgage in favour of Defendant No.8. (d). In Notice of Motion No.3398 of 2003, the Plaintiff once again sought some of the aforesaid reliefs. In addition thereto the Plaintiff has sought an order restraining Defendant No.8 from exercising or acting in pursuance of the equitable mortgage created on 12.12.2001 and the English mortgage dated 17.10.2003 and from selling, encumbering or creating any third party interest in respect of the said property. (e). In Notice of Motion No.3490 of 2004, the Plaintiff has sought an order restraining Defendant No.9 from selling, disposing of, encumbering or creating any third party interest in respect of the said property. 6(a). Defendant Nos.1 to 5 have agreed to the appointment of a private Administrator/Receiver of the Trust. Further the Plaintiff failed to obtain ad-interim orders restraining the sale of the said property to Defendant No.9. Thus by the time the hearing before me commenced Defendant No.8 in exercise of its rights under the said English mortgage by a deed of sale/conveyance dated 04.06.2004 sold the : 10 : property to Defendant No.9. (b). In the circumstances, it is now necessary for me to consider the reliefs claimed only in Notice of Motion No.3490 of 2004. While doing so of course it will be necessary for me to consider the merits of the matter leading to the sale of the property by Defendant No.8 to Defendant No.9 for if the Plaintiff succeeds in respect of any of them he may well be entitled to the reliefs in Notice of Motion No.3490 of 2004. In other words, it will be necessary for me to deal with the rival contentions between the parties regarding the validity of the resolution of the Trust to create a security in favour of Defendant No.8, the creation of the equitable mortgage by the Trust in favour of Defendant No.8, the power granted by the Trust to Defendant No.8 to convert the same into an English mortgage, the conversion/creation of the English mortgage and finally the sale of the property by Defendant No.8 to Defendant No.9 in exercise of its powers under the English mortgage. The Trust Deed : 7. One Mrs.Bindu Raheja, the aunt of the Plaintiff and Defendant Nos.3 to 5, being desirous of : 11 : making a voluntary settlement for the benefit of the said beneficiaries settled upon trust a sum of Rs.1,000/- under the Deed of Settlement dated 11.09.1985 made between her as the settlor and Defendant Nos.1, 2 and 6 as the trustees. The date of distribution under the Deed of Trust was 18 years from the date of the Deed i.e. 10.09.2003. The trustees had the power to advance the date of distribution. That power however has not been exercised. I will set out the relevant clauses of the Trust Deed at the appropriate places. Facts : 8. It is necessary to set out not only those facts which are relevant to Notice of Motion No. 3490 of 2004. As observed ealier the only remaining dispute which I am called upon to decided pertains to the creation of the mortgages and the sale of the property by Defendant No.8 to Defendatn No.9. 9(a). The Plaintiff, Defendant No.6 and one Mrs.Durga S. Raheja as three of the nine Directors of Defendant No.7 addressed a letter dated 22.12.2000 to Defendant No.8 stating that at a meeting of the Board : 12 : of Directors of Defendant No.7, a proposal had been moved inter-alia to consider and offer the said land belonging to the Trust. These three Directors had opposed such a proposal. They set out their reasons for the same in detail. In paragraphs 6, 8 and 9(b) of the letter they stated as follows :- "6. Another proposal for rollover of credit facility of Rs.15.00 Crores stated to have been granted by you to the Company against the Club Cabana Project and to offer collateral security of a plot of land admeasuring about 18 Acres belonging to ’Raj Trust’ as additional security for the rescheduling of the loan instalments was also passed by the other Directors by majority. 8. As regards giving collateral security of the land belonging to ’Raj Trust’ (of which Mr.Gopal L. Raheja is one of the Trustees) as additional security for the loan granted by you to the Company, it is pointed out that no such proposal has been considered or approved by the Trustees of the Raj Trust. In any event it is beyond the rights and powers of the Trustees to give property of the Trust as security except in the course of regular business of the Trust, it is the bounden duty of the Trustees to act only for and in the interest of the Trust and to ensure that none of the properties of the Trust are diverted for any purpose other than those of the Trust. Any deviation from this solemn rule would tantamount to breach of trust and breach of duty and care expected of the Trustees towards the Trust and its beneficiaries. 9. ...................................... (a). ...................................... (b). If the other Directors offer any property belonging to Raj Trust as collateral security for or in respect of the loan granted by you to the Company and is accepted by you, : 13 : then and in such event, you shall be liable for all costs and consequences arising from such ultra vires act; including to make good any loss suffered by the Trust and/or its beneficiaries." (b). By a letter dated 26.12.2000 addressed to the trustees, Defendant No.7 stated that Defendant No.8 had indicated its willingness to consider the roll over of a credit facility of Rs.15 crores granted to it provided it could offer certain assets of its own or of its sister concern as additional security for rescheduling the repayment of the loan instalments. Referring to the resolution of the Board of Directors of Defendant No.7 approving the proposal mentioned above, Defendant No.7 requested the trustees to approve the offer of 18 acres of land situated at Shettigere Village, Bangalore as additional security. The letter ends as follows :- "We hereby undertake that you shall not be liable for payment of any loan sanctioned by M/s. IL & FS." (c). Defendant No.8 replied to the said letter dated 22.12.2000 by its letter dated 29.12.2000 addressed to Defendant No.6. Defendant No.8 merely stated that the issues raised by Defendant No.6 are an internal matter of Defendant No.7 and may need to be resolved likewise. : 14 : (d). By a letter dated 04.01.2001 addressed to Defendant No.8 the Plaintiff, Defendant No.6 and the said Mrs.Durga S. Raheja reiterated the contents of the letter dated 27.12.2000 and stated that if despite the same Defendant No.8 went ahead with the said proposal, it would do so at its risk. 10. It is important to note that the only objection raised to the creation of security over the said land was on the ground that it would be beyond the powers of the trustees. This was the only ground stated in the correspondence that followed between the Plaintiff/Defendant no.6 and the other Defendants which I shall deal with. 11. By a notice dated 22.03.2001 issued under the signature of Defendant No.2, a meeting of the Board of Trustees was convened on 28.03.2001 to transact the following business :- "1. To review the working of the Trust. 2. To review the letter received from M/s. Asiatic Properties Limited and approve offering security of 18 acres of land situated at Shettigere Village, Devnahalli Taluk, belonging to M/s. Raj Trust and to pass suitable Resolution in this regard. 3. Any other business with the permission : 15 : of the Chair." 12. By a letter dated 27.03.2001 addressed to Defendant Nos.1 and 2, Defendant No.6 opposed the proposal of offering the property of the Trust as security for a loan to be taken by a third party and stated that the same was beyond the rights and powers of the trustees. 13. At the meeting of the Board of Trustees held on 28.03.2001, the following resolutions were passed:- "RESOLVED THAT the property of M/s. Raj Trust, admeasuring approximately 18 Acres, situated at Shettigera Village, Devanahalli Taluk, Bangalore, be given as collateral security to M/s. IL&FS for loan sanctioned by them to M/s. Asiatic Properties Limited. FURTHER RESOLVED THAT Mr.Arjun M. Menda and Mr.C.L. Raheja are hereby authorized to severally sign any such papers for offering security of the Trust property. Certified True Copy For Raj Trust Sd/- TRUSTEE." . At the meeting Defendant No.6 admittedly protested the creation of the said security. 14. The minutes of the meeting recorded the fact that the letter dated 27.03.2001 was read by Defendant : 16 : No.6 at the said meeting. There is therefore no dispute that at the meeting Defendant No.6 did not vote in favour of the resolution. 15. By a letter dated 08.05.2001 addressed to Defendant Nos.1 and 2, Defendant No.6 recorded what transpired at the meeting of the Board of Trustees from 28.03.2001. He stated that he had reiterated his objections stated in his letter dated 27.03.2001. He further stated as follows :- "Approving of such a request is not only irregular but also beyond the rights and powers of the Trustees. It is the bounden duty of the Trustees to act only for and in the interest of the Trust and to ensure that none of the properties of the Trust are diverted for any purpose other then those of the Trust. Any deviation from this solemn rule tantamount to breach of trust and breach of duty and care expected of the Trustees towards the Trust and its beneficiary. This proposal should not have even been considered by the Trust." 16. The suit was filed on 18.6.2001. The Plaintiff and Defendant No.6 contended that as no documents were therefore sent to Defendant No.6 for signature they believed that in view of the protest by Defendant No.6 the Trust would not have created security in respect of the said property for the loans taken by Defendant No.7 from Defendant No.8. Thus when the suit was filed on 18.06.2001, the Plaintiff : 17 : had no reason or occasion to challenge the mortgage. 17. The Plaintiff has further contended that even thereafter neither the actual resolution dated 28.03. 2001 nor the minutes of the meeting were made available to the Plaintiff. Thus Defendant Nos.7 and 8 were not impleaded in the suit. 18. On 12.12.2001, Defendant No.2 apparently deposited the title deeds in respect of the 18 acres of land with intent to create security by way of mortgage by deposit of title deeds with Defendant No.8. This is evidenced by a usual memorandum recording the deposit of title deeds also dated 12.12.2001. A special Power of Attorney dated 12.12. 2001 was executed by the Trust in favour of Defendant No.8. The Power of Attorney was executed only by Defendant No.2 on behalf of the Trust. Clause 5 of the Power of Attorney reads as under :- "5. To finalize and execute mortgage deed containing such covenants, conditions, provisions and stipulations including granting of power to the mortgagee to sell the said property privately and without intervention of any Court of law, as IL&FS, in its sole discretion may deem fit." 19. By a letter dated 31.01.2003 addressed to Defendant No.2 on behalf of Defendant No.7 Defendant : 18 : No.8 refused to consider the alleged request by Defendant No.7 for restructuring the loan and recalled the same in the sum of Rs.17,42,52,118/-. Defendant No.8 threatened to invoke the security in the event of Defendant No.7 failing to repay the loan. 20. It appears that the Plaintiff and Defendant No.6 had to adopt proceedings in order to obtain the necessary documents especially those which call for consideration in this order. 21. The Plaintiff alleges to have discovered the creation of security from the Balance Sheet of Defendant No.7 for the year ended 31.03.2002. The Plaintiff thereafter took out Chamber Summons No.353 of 2003 for amendment to impugn the mortgage. From the affidavits-in-reply, the Plaintiff discovered that the mortgage was created not merely in respect of the land at Shettigere Village as stated in the resolution dated 28.03.2001 but also in respect of the land in Sadahalli Village. From the affidavits the Plaintiff also discovered the facts relating to the creation of the equitable mortgage on 12.12.2001. The Plaintiff therefore took out another Chamber Summons, being Chamber Summons No.525 of 2003, for amendment. Both the Chamber Summons were allowed by an order dated : 19 : 24.07.2003. 22(a). At a meeting of the trustees held on 08.09.2003 the ratio of the benefits to be given to each of the beneficiaries was agreed upon unanimously. The Plaintiff and Defendant no.5 were alloted a share of 37.5 per cent each and Defendant nos.3 and 4 were together alloted the balance 25 per cent. (b) Defendant No.6 however protested against the decision of Defendant Nos.1 and 2 to postpone the date of distribution viz. 10.9.2003 i.e. the date on which the Trust came to an end. It is not necessary for me to decide this issue at this stage even if I agree with the Plaintiff’s contention that the distribution of the corpus ought not to be postponed. It would not be possible for the Court to do so at this stage as there are several impediments to the same even in practical terms. For instance the Plaintiff contends that he is entitled to distribution in specie. According to him it is neither necessary nor desirable to sell all the properties of the Trust and to distribute the sale proceeds thereof. This issue in turn raises its own complications. Until all the receivables / book debts are brought in, it would be difficult to apportion the properties in specie. : 20 : Thus the question of actual distribution must await a further proceeding at a later appropriate stage. I therefore do not intend expressing any opinion about the decision of the majority of the trustees to postpone the date of distribution. 23. In view thereof and in view of the Defendant’s consent to the appointment of a Receiver/Administrator in respect of the Trust property, it is not necessary to deal with one of the main contentions of Defendant Nos.1 to 5 that the question of distribution must be decided only on the basis of the Trust forming a part of the southern entities of the Raheja family. 24(a). The Plaintiff took out Notice of Motion No.2762 of 2003. By an order dated 01.10.2003, the ad-interim application was rejected. The Division Bench by an order dated 04.11.2003, rejected the Plaintiff’s Appeal, being Appeal No.899 of 2003, against the said order. The Appeal was filed on 10.10.2003. During the course of the hearing before the Appeal Court, the Defendants made a statement as recorded in the order that the equitable