When Can S.92 CPC Suit Be Maintained Against Registered Society As 'Constructive Trust'? Supreme Court Explains Principles

The judgment, delivered by Justice JB Pardiwala and Justice R Mahadevan, summarised, the conclusions as follows :

i. A suit under Section 92 of the CPC is a representative suit of a special nature since the action is instituted on behalf of the public beneficiaries and in public interest. Obtaining a 'grant of leave' from the court before the suit can be proceeded with, acts as a procedural and legislative safeguard in order to prevent public trusts from being subjected to undue harassment through frivolous suits being filed against them and also to obviate a situation that would cause a further wastage of resources which can otherwise be put towards public charitable or religious aims. However, at the stage of grant of leave, the court neither adjudicates upon the merits of the dispute nor confers any substantive rights upon the parties.

ii. Several decisions of this Court have outlined certain conditions or essential pre-requisites that need to be fulfilled for a suit to be maintainable under this provision. This Court in Ashok Kumar Gupta & Anr vs. Sitalaxmi Sahuwala Medical Trust & Ors (2020) 4 SCC 321 delineated them as follows – (a) the trust in question must be created for public purposes of a charitable or religious nature; (b) there must exist a breach of trust or a direction of the court must be necessary for the administration of the trust; and (c) the relief claimed must be one or other of the reliefs as enumerated under Section 92(1) of the CPC. In order to successfully establish that a suit is not maintainable under Section 92, it would be sufficient to prove that any one of the conditions enumerated above has not been met, however, in order to assert its maintainability, all the aforesaid conditions need to be satisfied.

iii. A trust can be said to have been created for a 'public purpose' when the beneficiaries are the general public who are incapable of exact ascertainment. Even if the beneficiaries are not necessarily the public at large, they must at least be a classified section of it and not a pre-ascertained group of specific individuals.

iv. A crucial condition that needs satisfaction is whether the institution/organisation in relation to which certain reliefs are sought can in fact be considered to be a 'trust' or a 'constructive trust'.

v. When no formal recognition has been given to the institution, the creation of a public trust can be inferred from the relevant circumstances surrounding the coming into existence of and functioning of the institution/entity in question. Although it is not possible to provide an exhaustive list of the same, yet they may include – (a) the method of devolution of the property to the institution or its acquisition and the circumstances along with the intention behind the grant of property i.e. whether it was for the benefit of the organization/public beneficiaries or for the personal benefit of any particular individual/family; (b) whether the grant is accompanied with any fetter/obligation or qualified with a condition, either express or implied, regarding its use by the grantee; (c) whether the 'dedication' was complete i.e., whether there was an absolute cessation or complete relinquishment of ownership of the property on the part of the grantor and a subsequent vesting of the property in another individual (trustee) for the said object; (d) whether the public user or an unascertained class of individuals could exercise any 'right' over the organization and its properties; (e) the manner of use of the profits accrued, more particularly, whether it is applied/re-applied towards the benefit of the organization and its objectives, etc.

vi. If the aforementioned circumstances exist and the entity has been, much later in time, registered as a society under the Societies Registration Act, 1860, it would still be treated as a 'public trust' as per the dictum of the Full Bench of the Kerala High Court in Kesava Panicker v. Damodara Panicker and others 1974 SCC OnLine Ker 58 wherein it was observed that the mere factum of registration of a society under the Societies Registration Act, 1860, after it attained the characteristics of a public trust, could not change the character of the properties which had already been constituted as trust properties.

viii. However, if the institution has been registered, from its inception, as a society under the Societies Registration Act, 1860, it is true that whenever a society acquires property, it cannot be said that it declares itself a trustee in respect of said property. In other words, the effect of registration under the Societies Registration Act, 1860 would not be to automatically invest the properties of the society with the character of trust property. This has been consistently laid down by the decisions of several High Courts.

viii. Having said so, one must examine what effect the mechanism of vesting provided under Section 5 of the Societies Registration Act, 1860 has on the society. It reads that – “The property, movable and immovable, belonging to a society registered under this Act, if not vested in trustees, shall be deemed to be vested, for the time being, in the governing body of such society[…]”. What follows is that the property belonging to the society can either be vested in 'trustees' or in the governing body of the society. This vesting has been envisaged because a society registered under the aforesaid Act is not a juristic person or a body corporate capable of holding property by itself.

ix. The phrase, “if not vested in trustees” must be read to mean that a trust can be created, either expressly or impliedly, before or after the registration of a society, for the purpose of holding its properties. A public trust would be created prior to the registration of a society if the broad circumstances enumerated under point (v) are met. In such a case, all the properties of the society which had been imbued with the character of 'trust property' would be subject to Section 92. However, if it is argued that a trust has instead separately been created for holding the property of the society after its registration as a society, the same must be clearly and sufficiently proven. Here, the separate trust which has been created and the properties which has been vested in said trust would be subject to scrutiny under Section 92. In both these scenarios, an 'express trust' would be created and in a suit under Section 92 CPC, the first criteria i.e., the existence of an express or constructive trust, would be met.

x. In the absence of such a separate vesting in trustees as aforesaid, the property belonging to the society would be automatically vested, through a deeming fiction, in the governing body of the society. Such a governing body is duty bound to ensure that the property is put towards and utilised for the purposes/aims of the society as laid out in its Memorandum of Association or any Rules and Regulations governing the said matter. In the event of the society's dissolution, the members would not derive any right to distribute the assets belonging to the society between themselves. Both during the subsistence and dissolution of the society, the members or the governing body cannot be said to possess any beneficial or individual interest over the property vested in them. They would also safeguard the society's property for the future members of the society or the future governing body such that perpetuity is assigned to both the society and its property, unless expressly dissolved. All these factors evidence that the governing body must also act within the contours of a strict fiduciary relationship.

xi. Legislative creativity was employed to ensure that the incapability of the society to hold the property by itself does not have any practical effect on its ability to use and administer those properties while also ensuring that the property of the society may not be squandered or the object and purpose for which the society was formed may not be defeated by persons having control of the properties. Therefore, Section 5 can be seen as providing two options, or mechanisms through which a society can hold the property belonging to itself – One, in trustee(s) or, two, in the governing body of the society. Both these mechanisms/options belong to the same genus (fiduciaries), albeit they don't fall in the same species (the former is a trustee stricto sensu and the latter is not).

xii. Therefore, while the society cannot be considered as an 'express trust', what must also be noted, at this crucial juncture, is that, for an entity to be brought within the rigours of Section 92, the plaintiff has the option of also contending that a 'constructive trust' exists in the circumstances and a breach of such a constructive trust has occurred or that the directions of the Court are necessary for the administration of such a constructive trust.

xiii. A constructive trust, arises by operation of law, without regard to or irrespective of the intention of the parties to create a trust. It is imposed predominantly because the person(s) holding the title to the property would profit by a wrong or would be unjustly enriched if they were permitted to keep the property. The American and English models of 'constructive trust' although similar in nomenclature, bears a doctrinal difference, the former is remedial while the latter is institutional. In other words, in implying the existence of a constructive trust, the English Courts recognise or give legal efficacy to a fiduciary/confidential relationship or 'institution' that already exists. It would arise, by operation of law, but when one person is under an existent obligation to hold a certain property for another. This constructive trust would come into existence from the date of the circumstances which give rise to it and the function of the court would only be to declare that such a trust has arisen in the past.

xiv. What must, however, be noted is that, for this equitable doctrine to be applied, the fiduciary must receive property or money which he cannot conscientiously retain. It is only thereafter that a constructive trust would be raised in favour of the beneficiaries on whose account the money was originally received. To put it simply, the factum that the fiduciary 'withheld' the property from its rightful beneficiaries must be established. That such a fiduciary sought to misapply the property in contravention to the covenants that bound him, or sought to gain an advantage for himself, must be proved for a constructive trust to come into existence by the operation of law. That he further divested the said siphoned property/funds, would have to be proved in order to assert that the 'constructive trust' has additionally been breached. Even in the absence of such a further divestment, the directions of the court may still be necessary for the administration of the constructive trust.

xv. The phrase “persons having an interest in the trust” must neither be construed too narrowly nor too widely. It must not be narrow for the reason that the word used is “interest” instead of “direct interest”. However, it must also be remembered that while no direct interest is required, the interest must denote a present and substantial interest and not a sentimental, remote, fictitious or purely illusory interest.

xvi. The reliefs claimed by the plaintiffs, must fall within those reliefs outlined under Section 92(1). As regards the question when a relief can be considered to fall under the residual clause (h) providing for “further or other relief” under Section 92(1), this Court in Charan Singh (supra) elaborated that if the relief prayed for is not a “further relief” but an “other relief” which is not in any way consequential to or in addition of the certain other reliefs already mentioned under clauses (a) to (g) and prayed for, then the “other relief” must be akin to or of the same nature as any of the reliefs enumerated under clauses (a) to (g).

xvii. Furthermore, the special nature of the suit under Section 92 requires it to be filed fundamentally on behalf of the public for the vindication of public rights. Therefore, courts must go beyond the reliefs and also give due regard to the object and purpose for which the suit is brought. The true nature of the suit must be determined on a comprehensive understanding of the facts of the matter and a hard-and-fast rule cannot be made for the same. The fact that certain private rights are being agitated must not be reason enough to ignore the other allegations made in the suit and dismiss it outrightly, provided the suit is instituted in a representative capacity. The reliefs in the present plaint, insofar as they agitate private rights, cannot be granted under a suit of this nature.

 For factual details about the case, refer to this report.

Cause Title: OPERATION ASHA VERSUS SHELLY BATRA & ORS.

Citation : 2025 LiveLaw (SC) 775

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