Case: Hukumchand Gulabchand Jain Vs. Fulchand Lakhmichand Jain And Others

1. There is a temple known as Shri Chandraprabhu Khandelwal Jain Temple at Dhulia. Gulabchand Hiralal, father of appellant Hukamchand Gulabchand Jain, a leading member of the Khandewal Jain Community at Dhulia, looked after the temple for over 40 years till his death sometimes in 1950. The appellant looked after it after his fathers 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 appellants 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 appellant2. The appellant, in his written statement, denied that the amount was so advanced at interest as alleged by the plaintiff and stated that this 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 accounts3. 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 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. 1or his father had been established. It found that the meeting of the community had passed a resolution on August 11, 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 suit4. The commissioner found that on the date of the institution of the suit, i.e., on February 17, 1954, Rs. 10,088-10-3 were due for principal and Rs.16,853-6-0 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. 10,177-4-6 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 them5. 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 father6. The appellant filed a cross-objection against the allowing of interest on the balance of the trust funds with his father and himself7. 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 it so far as it determined the amount due to the temple and referred the case back to the trial Court for re-assessment 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 Art. 133 (1) of the Constitution was granted8. 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 case9. The High Court said in its judgment that it was the contention of the plaintiffs that the appellants father and the appellant 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 appellants 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 appellants 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 founded on loans or on any contract10. 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 appellants 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 appellants 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 damdupat11. 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, AO 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...."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 plaint12. It was said in the khulasa dated December 11, 1954, 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 business13. The plaint did not even say that the amount had been always advanced on loan. What it said in para 1 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 funds14. The Statement, Exhibit 24, made by the appellants father on October 26, 1931, in Regular Suit No. 377 of 1931, was in a suit instituted by the appellants 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 uponIn 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 appellants father had been crediting the temple amounts with compound interest, at the rate of 8 annas, on the temple funds in his hands15. 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 correctIf 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 19276 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 Gulabchand16. There is another matter which throws light on this question and tends to support our conclusion. The report submitted by the Commission on November 29, 1954 shows that the balance at the beginning of samvat year 1996, corresponding to 1939-40 was Rs. 7,649-14-3. The amount credited during the year was Rs. 537-12-0 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, i.e., Rs. 7,649-14-3 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, i.e., 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 business17. In view of the shaky finding of the High Court about the funds being used in business by the appellants 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.

Court's reasoning:
35. We are of opinion that though a trustee, who has custody of trust funds, has pecuniary liability to make good those funds if he has used them and may, on the basis of such 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 Colebrookes Digest36. 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 principal37. 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 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