RFA(OS) No. 44/2008 Page 1 of 37 * IN THE HIGH COURT OF DELHI AT NEW DELHI + RFA(OS) No. 44/2008 Reserved on: December 17th, 2008 % Date of Decision: January 16th, 2009 Anil Nanda & Anr. ..... Appellants Through: Mr. S. Ganesh, Sr. Advocate with Mr. P.K. Bansal, Advocate. Versus M/s Escorts Ltd. & Ors. ..... Respondents Through: Mr. Arvind Nigam, Mr. R.M. Mehta and Ms. Simran Mehta, Advocates for Respondents No. 1, 3, 4 and 5. Mr. P.V. Kapoor, Sr. Advocate with Mr. Anshul Tyagi, Mr. Manik Sood, Advocates for Respondent No. 2. CORAM: HON'BLE MR. JUSTICE MUKUL MUDGAL HON'BLE MR. JUSTICE MANMOHAN 1. Whether the Reporters of local papers may be allowed to see the judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in the Digest? Yes J U D G M E N T MANMOHAN, J 1. The Appellants have filed the present appeal being RFA(OS) No. 44 of 2008 under Section 96 of the Code of Civil Procedure, 1908 (hereinafter to be referred as ‗CPC‘) against RFA(OS) No. 44/2008 Page 2 of 37 the judgment and order dated 3rd July, 2008, by virtue of which the plaint filed by the Appellants has been rejected under Order VII Rule 11 Clauses (a) and (d) of the CPC. 2. It is pertinent to mention that the Appellants had filed the present suit praying for the following reliefs:- ―1A. pass a decree of declaration declaring that no amalgamation of EHIRC- Delhi took place with EHIRC Chandigarh. a) in the alternative, pass a decree of declaration declaring the amalgamation of EHIRC-Delhi with EHIRC-Chandigarh as non- est, void and bad in law in view of the provisions contained in the Societies Registration Act, 1860; b) pass a decree of declaration thereby declaring the conversion of EHIRC- Chandigarh (post amalgamation) into a Limited Company under the Companies Act, 1956, as being void and contrary to law; c) pass a decree of permanent injunction in favour of the Plaintiffs and against the Defendant No. 1, injuncting its officers, agents and employees from transferring, alienating or otherwise creating any third party rights or interest with respect to the shares held by the Defendant No. 1 in Defendant No. 2; d) pass a decree of permanent injunction in favour of the Plaintiffs and against the Defendant No. 2, its officers, agents and employees from registering any transfer of shares effected by the Defendant No. 1; e) pass a decree of mandatory injunction directing the restoration of the assets, properties and facilities of the Second Defendant, and its ownership, management and control and its character and structure to its original status of a public charitable institution, dedicated wholly and exclusively to public service; RFA(OS) No. 44/2008 Page 3 of 37 f) award costs of the suit in favour of the Plaintiffs and against the Defendants; g) pass such further order or directions as this Hon‘ble Court may deem fit and proper on the facts of the present suit.‖ 3. The learned Single Judge by the impugned order has dismissed the suit filed by the Appellants on the grounds that firstly, mandatory leave under Section 92 of CPC had not been obtained by the Appellants prior to the institution of the suit and secondly, no relief personal to the Plaintiffs had been claimed in the plaint. The reasoning of the learned Single Judge in rejecting the plaint is reproduced hereinbelow:- ―17. The first thing that has to be considered in this case is whether the suit is of the kind as would fall within the four corners of Section 92, CPC. It is apparent that before Section 92, CPC is attracted, there must be (1) as alleged breach of trust; (2) the trust may be express or constructive; (3) the trust, however, must have been created for public purposes (of a charitable or religious nature); and (4) the suit must be instituted so as to obtain a decree of the nature indicated in clauses (a) to (h) of sub-Section (1) of Section 92, CPC. It has to be seen as to whether the present case satisfies these tests. In the earlier part of this judgment, the averments made in the plaint have been referred to in detail and they clearly indicated that the plaintiffs have alleged breach of trust. It is also clear that the plaintiffs have alleged that EHIRC-Delhi was constituted for public purposes of a charitable nature. The reliefs that have been sought all pertain to re-establishing the public charitable nature of the assets of EHIRCL (Defendant No.2), owned in major share by Escorts Limited (Defendant No.1). Such reliefs may be covered under clause (c) and definitely under clause (h) of sub-Section 1 of Section 92, CPC. In my view, therefore, the plaintiffs were RFA(OS) No. 44/2008 Page 4 of 37 required to have obtained the leave of the court before instituting the present suit. As noted in the decisions referred to by the learned counsel for the defendant No.1, the requirement of obtaining leave of the court is not a mere formality, but a mandatory condition precedent for the institution of a suit under Section 92, CPC. If this pre-condition is not satisfied, the suit would be barred by the provisions of Section 92, CPC consequently, the plaint would be liable to be rejected on the ground referred to in clause (d) of Order 7 Rule 11, CPC. In the present case, this condition precedent has not been satisfied. Admittedly, no leave of the court has been taken prior to the institution of the present suit. Consequently, the plaint has to be rejected under order 7 Rule 11 (d), CPC. 18. With regard to the argument that the plaint does not disclose a cause of action, it may be noted that, if it is for the time being assumed that Section 92, CPC does not apply, the plaint does not disclose any cause of action in favour of the plaintiffs. The entire suit is based on the allegation of breach of trust and conversion of a society having public charitable objects into a company with objects of private gain and profitability. No relief personal to the plaintiffs have been claimed in the plaint. The question that may be asked is - how are the plaintiffs affected? Why have they filed this suit? Obviously, they have not sought any personal relief. Therefore, they are not personally affected. Then, what have they sued for and for whom? These questions and answers indicate and reinforce the conclusion that the suit cannot, but be one which falls within the four corners of Section 92, CPC. Because, the moment one tries to bring it out of the folds of Section 92, CPC, it does not appear to have the oxygen to survive. The suit has also not been filed in a representative capacity under Order 1 Rule 8, CPC. Can one bring a suit in which a relief is claimed for another person? Certainly not. Since the plaintiffs do not claim any reliefs for themselves, it is apparent that they do not have any cause of action. The plaint is, therefore, also liable to be rejected on the RFA(OS) No. 44/2008 Page 5 of 37 ground that it does not disclose a cause of action in favour of the plaintiffs‖. (emphasis supplied) 4. Mr. S. Ganesh, learned Senior Counsel appearing for the Appellants contended that the Appellant No. 2 had made a contribution of Rs. 1.5 Crores to the corpus of Escort Heart Institute and Research Center, Delhi Society (hereinafter to be referred as ‗EHIRC‘) on the footing that it was a purely charitable body, whose income would be utilized solely for charitable purposes. He referred to Clause 3(s) of the Memorandum of Association of EHIRC-Delhi which states, ―that this Society is charitable one and has not been started with a view to earn any profits. All income of the Society shall be utilized towards the promotion of the aims and objects of the Society.‖ 5. Therefore, Mr. Ganesh submitted that Appellant No. 2 had a vital interest in ensuring that the said charitable society remains engaged only in charitable activities and that its assets and funds including the contribution made by Appellant No. 2 are not fraudulently diverted for private benefit of any person. 6. Mr. Ganesh further stated that Appellant No. 1 was on the governing body of EHIRC-Delhi Society and was representing RFA(OS) No. 44/2008 Page 6 of 37 Appellant No. 2. He referred to para-7 of the plaint wherein it has been stated that the moving force behind the formation of the charitable society was late Mr. H.P. Nanda who was the father of Plaintiff No. 1 and who conceived the idea of setting up a charitable institution of world fame to help the weaker sections of the Society. According to Mr. Ganesh, Plaintiff No. 1 was not a stranger to the trust. Mr. Ganesh stated that the Appellants were aggrieved by amalgamation of charitable EHIRC-Delhi Society with a non charitable Chandigarh society and then the subsequent incorporation of the amalgamated society as a company. He further stated that after incorporation of the charitable society as a company, shares had been issued and the said shares had been transferred for huge consideration to individuals other than those involved in the institution of the initial charitable society. He further stated that Appellant No. 1 had a direct and personal interest in ensuring that the said charitable society and the hospital operated by it retains its purely charitable character and is not converted into a private profit making business for the benefit of certain individuals. Consequently, according to him, the Appellants have a cause of action founded not only on a contract but also on torts of fraud, deceit, misrepresentation and conversion against the Defendants in the suit. RFA(OS) No. 44/2008 Page 7 of 37 7. Mr. Ganesh further submitted that under Section 9 of CPC, a suit can be filed by any party raising a civil dispute against the Defendants and the Civil Courts would have jurisdiction to determine all disputes of a civil nature unless and until the same are barred under a statute so as to subsequently oust the jurisdiction of a Civil Court in that regard. In this connection he relied upon the observations of the Hon‘ble Supreme Court in Nagri Pracharini Sabha and Another. v. Vth Additional District and Sessions Judge, Varanasi and Others reported in 1991 Suppl. (2) SCC 36, wherein it has been held, ―A litigant having a grievance of a civil nature has, independently of any statute, a right to institute a suit in the civil court unless its cognizance is either expressly or impliedly barred. The position is well settled that exclusion of jurisdiction of the civil court is not to be readily inferred and such exclusion must be either express or implied.‖ 8. He further relied upon the judgment of the Apex Court in Dwarka Prasad Agarwal v. Ramesh Chandra Agarwala reported in AIR 2003 SC 2696, wherein it has been held, ―The dispute between the parties was eminently a civil dispute and not a dispute under the provisions of the Companies Act. Section 9 of the Code of Civil Procedure confers jurisdiction upon the civil courts to determine all dispute of civil nature unless the same is barred under a statute either expressly or by RFA(OS) No. 44/2008 Page 8 of 37 necessary implication. Bar of jurisdiction of a civil Court is not to be readily inferred. A provision seeking to bar jurisdiction of civil Court requires strict interpretation. The Court, it is well- settled, would normally lean in favour of construction, which would uphold retention of jurisdiction of the civil Court. The burden of proof in this behalf shall be on the party who asserts that the civil Court's jurisdiction is ousted. (See Sahebgouda (dead) by LRs. and others v. Ogeppa and others. (2003 (3) Supreme 13). Even otherwise, the civil Court's jurisdiction is not completely ousted under the Companies Act, 1956.‖ 9. He further submitted that the provisions of Section 92 of CPC are not at all attracted to the present case. According to him, the reliefs prayed for in the instant suit are completely outside the ambit of Section 92 of CPC. According to him, Section 92(h) of CPC cannot be construed in a manner which is not related to Clauses (a) to (g) of Section 92(1) of CPC. In this connection, he relied upon a judgment of Privy Council in the case of Abdur Rahim and others v. Syed Abu Mahomed Barkat Ali Shah and others reported in AIR 1928 Privy Council 16, wherein it has been held as under:- ― Two questions only have been argued before this Board. The first is whether the suit is maintainable in view of the provisions of Sub-S. (2), S.92, Civil P. C., 1908; and the second is whether the suit is barred by the rule of res judicata under Expl. 6 S. 11, Civil P.C. RFA(OS) No. 44/2008 Page 9 of 37 It is urged broadly on behalf of the respondents that all suits founded upon any breach of trust for public purposes of a charitable or religious nature, irrespective of the relief sought, must be brought in accordance with the provisions of S. 92, Civil P.C. The short answer to that argument is that the Legislature has not so enacted. If it had so intended, it would have said so in express words, whereas it said, on the contrary, that only suits claiming any of the reliefs specified in sub-S. (1) shall be instituted in conformity with the provisions of S. 92, sub- S (1). The reliefs specified in sub-S. (1) (a) to (h) do not cover any of the reliefs claimed in this suit unless the words ― further or other relief‖ in Cl. (h) can be held to cover them. It is argued that the words Such further or other relief as the nature of the case may require must be taken, not in connection with the previous Cls. (a) to (g) , but in connection with the nature of the suit, viz., any relief other than (a) to (g) that the case of an alleged breach of an express or constructive trust may require in the circumstances of any particular case. Their Lordships are unable to accept this argument. First, because the words ―further or other relief‖ must on general principles of construction be taken to mean relief of the same nature as Cls. (a) to (g). Secondly, because such construction would cut down substantive right which existed prior to the enactment of the Code of 1908, and it is unlikely that in a Code regulating procedure the Legislature intended without express words to abolish or extinguish substantive rights of an important nature which admittedly existed at that time. xxx xxx xxx Their Lordships see no reason to consider that S. 92 was intended to enlarge the scope of S.539 by the addition of any relief or remedy against third parties, i.e., strangers RFA(OS) No. 44/2008 Page 10 of 37 to the trust. They are aware that the Courts in India have differed considerably on the question whether third parties could or should be made parties to a suit under S. 539, but the general current of decisions was to the effect that even if such third parties could properly be made parties under S. 539, no relief could be granted as against them. In that state of the previous law, their Lordships cannot agree that the Legislature intended to include relief against third parties in Cl. (h) under the general words ―further or other relief.‖ The conclusion is that, inasmuch as the suit out of which this appeal arises did not claim any such relief as is specified in sub-S. (1), S.92, that section was no bar to the maintainability of the suit without the sanction of the Advocate-General and in the Court of the Subordinate Judge.‖ (emphasis supplied) 10. Mr. Ganesh submitted that the suit instituted by the Appellants seeks relief against the third parties and various reliefs of declaration and mandatory injunction in restoration of the assets, properties as well as the character and structure of EHIRC- Delhi to its original status of a public charitable trust. He submitted that none of these reliefs are covered by Section 92 of CPC. 11. According to him, filing of an application under Order VII Rule 11 CPC by the Defendants/Respondents was nothing but a gross abuse of process of Court and the same was done with mala fide object of perpetuating a fraud which prima facie had been found to be committed by the Defendants as would be RFA(OS) No. 44/2008 Page 11 of 37 apparent from the interim order dated 30th September, 2005 passed by another learned Single Judge of this Court. The relevant portion of the said order is reproduced hereinbelow for ready reference:- ―IANo.7817/2005 Issue notice for same date. Counsels for defendant nos.1 and 2 accept notice. The plaintiffs contended that Escort Heart Institute and Research Centre, Delhi (also referred to as EHIRC, Delhi) was the Society which was registered in 1981 with the object of running a world-class specialist heart institute for the general public and to carry out research and development work in the field of medicine which categorically stipulated in its memorandum of association that it is a charitable institute and has not been started with a view to earn profits. All income of the society was to be utilized towards the promotion of aims and objects of the society. On account of the society being a charitable society, the Authorities allotted land measuring about two acres for a paltry sum of Rs.10,000/- per acre and gave other concessions and benefits, e.g., recognition under Section 35 of the Income Tax Act, 1961 entitling deduction under the Income Tax Act, 1961; a complete tax exemption under Section 10(21) of the Income Tax Act, 1961 as a charitable institute; recommendation under Section 80G of Income Tax Act, 1961 entitling the donors to tax deductions on donations made to EHIRC, Delhi and import of medical and other equipments at concessional rates of customs and excise duty. EHIRC, Delhi accumulated reserves of Rs.110/- crores by way of donations and income. After the demise of Shri H.P. Nanda in April 1999, another society, EHIRC, Chandigarh was created which was not for charitable purpose. The society, EHIRC, Delhi which was a charitable society, was merged with the Society at Chandigarh resulting into surpluses and assets of RFA(OS) No. 44/2008 Page 12 of 37 charitable society becoming available for non- charitable purpose. At the time of merger, EHIRC, Chandigarh had assets worth Rs.7,000/-only. Subsequently, EHIRC, Chandigarh was registered as a company with limited liability under part IX of the Companies Act with effect from 30th May, 2000 and thereafter assets of more than Rs.100 crores were transferred to EHIRC Ltd (Defendant No.2). The plaintiff contended that when the application for registration as a limited company was made, the paid up share capital of the new society was Rs.20.06 lakh which within a period of six days and just two days prior to formal incorporation was raised to Rs.200 lakh by allotting/transferring shares to defendant No.1 and other persons and companies and in the process, EHIRC, Delhi, a charitable society with charitable objects and reserves of over Rs.100 crores, was converted into a limited company and the defendant No.1 became 80% owner of EHIRC Ltd, defendant no.2. The newly formed company EHIRC Ltd., defendant no.2, also gave inter corporate deposits of Rs.13.15 crores to defendant No.1 and pledged its assets in favor of ICICI Bank Limited as security for a loan of Rs.75 crores given to the defendant No.1. In addition, defendant no.1 took a loan of Rs.100 crores from LIC by pledging the shares of defendant no.2. xxx xxx xxx Foremost submission of the learned Counsel for the Defendant no.1 is that the shareholding and assets of defendant no.2 have already been transferred and therefore, no restrain order can be passed. In my view this amounts to that since alleged grabbing of assets of Charitable Society, illegality and fraud of defendants have already been done which started about four year back and since no action was taken by the plaintiffs since then, therefore the defendants be allowed to perpetuate this alleged illegality and fraud. This contention seems to be devoid of any legal and equitable rational. There was no satisfactory answer from the defendants as to how the Charitable purpose for which the RFA(OS) No. 44/2008 Page 13 of 37 institution EHRIC, Delhi was created could be thwarted completely by creation of a new society without charitable purpose and merger with that of charitable society and thereafter creation of a new company and transfer of all the assets which were meant for Charitable purposes, for personal gains of Defendants no.1 to 5, except the interpretation of provisions of Societies Registration Act and Companies Act and the plea that no illegality and violation of any enactment has been committed. The interpretation of provisions of Society Registration Act and Companies Act as given by the counsel for the defendant no.1 has been specifically and very emphatically refuted by the plaintiffs' counsel. The counsel for defendant no.1 has not given any justifiable reason for appropriating the corpus of charity for personal use of defendant nos.1 to 5. In the facts and circumstances as has been laid before me it cannot be inferred that Charity which was perceived by Late Shri H.P.Nanda and for which Charitable Society was created, was ultimately to enure only for his selective progeny and not for the public at large. The counsel for the defendant no.1 very emphatically contended that the plaintiff no.1 has initiated the present legal proceedings to take his share and not for any other reason. Mr. Singh, Learned Counsel for Plaintiff no.1 has strongly refuted it and contended that his client does not want even a paisa from this as it was meant for Charity and he can not and will not be a part of this illegal appropriation. Even if the shareholding and assets of defendant no.2 have been transferred in favor of a third party, the corpus which was for Charitable purpose has not been completely wiped out and is with defendant nos.1 to 5 in some form or other. To protect whatsoever is left with the defendants, it will be just and appropriate to direct the defendant nos.1 to 5 not to do anything further to dilute and wipe out this corpus which was meant only for Charitable purpose. The defendants have converted a society which was for charitable purpose and which was started with a view not to earn profits and for charities of public at large, into other entities which are profit making and have appropriated the assets. RFA(OS) No. 44/2008 Page 14 of 37 There are serious allegations of fraud against the defendants. The acts committed by the defendants in creation of another society, merger of two societies and thereafter floating a company with limited liability and the new company giving loans to defendant no.1 and pledging its assets for the loans given to defendant No.1 and thereafter transfer of shareholding and assets to third parties, require adjudication and investigation. If the defendants further appropriate the amounts or dilute the corpus of charitable society in whatsoever form it is with the defendants or do anything this may lead to multiplicity of proceedings which will also have irreversible consequences which must be checked. The argument of the learned counsel of the defendant No.1 that since assets of defendant No.2 have already been transferred and the transferee company is not impleaded as a party and transferee will be impacted in case any interim order is passed, in my opinion is devoid of any rationale nor shall dissuade this Court from protecting from alleged fraud and curbing the alleged illegalities