Terna Public Charitable Trust v. Joint Charity Commissioner & Others (2010)

Introduction

Section 36 Bombay Public Trusts Act deals with the alienation of property belonging to a public trust. In Terna Public Charitable Trust v. Joint Charity Commissioner & Others, the Bombay High Court considered the scope of the powers of the Charity Commissioner while granting sanction for alienation of trust property under Section 36(1) of the Bombay Public Trusts Act, 1950.

The principal question before the Court was whether the Charity Commissioner could refuse sanction on the ground that the Trust had failed to establish a genuine need for alienation, even though the proposed alienation was found to be in the interest and for the benefit of the Trust.

The judgment explains that the Charity Commissioner is not required merely to examine whether the Trust will receive a good price. Before granting sanction, the authority can examine the necessity, genuineness, object, propriety, legality and justification of the proposed alienation.

Parties to the Proceedings

The petitioner was Terna Public Charitable Trust, bearing P.T.R. No. E-91, Osmanabad, through its Trustee.

The respondents before the High Court were:

1. Joint Charity Commissioner, Latur at Latur;

2. The Charity Commissioner, Mumbai;

3. The State of Maharashtra; and

4. Institute for Technology and Management, a Public Trust bearing P.T.R. No. 14745, having its address at 6th Floor, Centre Point Building, 18th Road, Chembur, Mumbai – 400 071, through its Authorized Signatory and Deputy Director, Shri Jaywant Vasudeo Shelar.

Background of the Case

Terna Public Charitable Trust owned three properties at Panvel. These consisted of Open Plot No. 9, Sector No. 12, admeasuring 2287.50 sq. metres; Open Plot No. 18/B, Sector No. 13, admeasuring 1036.29 sq. metres; and Plot No. 13, Sector No. 12, admeasuring 4516.57 sq. metres, together with construction of approximately 35,000 sq. ft. and a two-storied hospital building.

The Trust had been running a public charitable hospital on the property since 1991. The hospital was closed in 2004.

According to the Trust, there was a low response from patients and better commercial medical facilities had become available in the area. The Trust claimed that it was unable to recover even the minimum maintenance costs and was suffering losses in maintaining the hospital and the property.

Application for Alienation of Trust Property

On 4 March 2008, the Trust filed Application No. 4 of 2008 before the Joint Charity Commissioner, Latur Region, seeking sanction under Section 36(1)(a) and (b) of the Bombay Public Trusts Act to alienate the properties.

The Trust contended that continuation of the hospital was financially impracticable and that the property was lying unused while continuing to impose maintenance expenditure upon the Trust. It therefore claimed that disposal of the property would be just and equitable and in the interest of the Trust.

The property had originally been allotted by CIDCO at a concessional rate for the purpose of running a charitable hospital for poor persons in the Panvel area.

Invitation of Bids

On 16 August 2008, the Joint Charity Commissioner directed that fresh bids be invited for the property by publishing advertisements in the English daily Times of India and the Marathi daily Loksatta.

Advertisements were accordingly published on 24 September 2008.

The highest bid was submitted by I.T.M. Business School, Mumbai, which the judgment identifies as Respondent No. 4, for an amount of Rs. 6,80,00,000/-. Respondent No. 4 is formally described in the cause title as Institute for Technology and Management, a Public Trust bearing P.T.R. No. 14745.

The bidder deposited 10% of the offer amount, namely Rs. 68,00,000/-, with the office of the Joint Charity Commissioner.

Rejection of the First Application

By order dated 11 November 2008, the Joint Charity Commissioner rejected Application No. 4 of 2008.

Although the authority found that the proposed alienation was in the interest and for the benefit of the Trust, it held that the Trust had failed to establish a genuine need to alienate the property.

The Joint Charity Commissioner noted that CIDCO had allotted the property to the Trust at a concessional rate and on a meagre lease rent specifically because the Trust had undertaken to operate a charitable hospital for poor persons.

The authority further found that the Trust had failed to establish that it was financially incapable of running the hospital. The Trust was found to be financially sound and was running medical and engineering colleges.

It was therefore considered that alienation of the property would frustrate the very object and purpose for which CIDCO had originally allotted it to the Trust.

Valuation of the Property

The Joint Charity Commissioner also considered the valuation report submitted by the Trust through Bharadwaj Company.

The report showed a distress sale value of Rs. 5,85,00,000/-, whereas the actual market value was found to be Rs. 6,80,00,000/-.

After considering these circumstances, the application for sanction was rejected and the deposit made by I.T.M. Business School, Mumbai was directed to be returned.

Second Application for Permission

After rejection of the first application, the Trust filed Application No. 13 of 2008 on 27 November 2008.

The Trust produced further documents relating to the income and expenditure of the hospital in an attempt to establish and justify the need for sale of the property.

By order dated 23 January 2009, the Joint Charity Commissioner rejected the second application on the ground that another application seeking the same relief was not maintainable after the earlier decision.

Proceedings Before the Bombay High Court

The Trust challenged the order dated 11 November 2008 by filing Writ Petition No. 5888 of 2009.

The subsequent order dated 23 January 2009 rejecting Application No. 13 of 2008 was challenged by filing Writ Petition No. 6073 of 2009.

Both petitions were heard together by the Aurangabad Bench of the Bombay High Court.

Arguments of the Trust

The Trust contended that CIDCO had, by communication dated 14 March 2007, granted its no objection for transfer of the property to another Trust having the same objective, subject to permission of the Charity Commissioner.

It was therefore argued that there was no impediment on the part of CIDCO to the proposed transfer.

The Trust further argued that the Joint Charity Commissioner had exceeded his jurisdiction by examining whether the Trust actually needed to sell the property and whether such need was genuine.

According to the Trust, the trustees themselves were responsible for determining what was in the welfare and interest of the Trust. The Charity Commissioner could not sit in appeal over their decision.

It was further argued that once the authority had found that alienation for Rs. 6.80 crore was in the interest of the Trust, sanction could not be refused merely on the ground that the Trust had failed to establish a genuine need for sale.

Stand of Respondent No. 4

Respondent No. 4, whose bid for the property was the highest, supported the submissions advanced on behalf of the petitioner Trust. The learned Assistant Government Pleader appearing for Respondent Nos. 1 to 3 supported the order passed by the Joint Charity Commissioner.

Question Before the High Court

The principal question before the High Court was whether the Joint Charity Commissioner was justified in refusing sanction under Section 36(1) on the ground that the Trust had failed to establish a genuine need for alienation, even though the authority had recorded a finding that the proposed alienation was in the interest of the Trust.

Sailesh Developers and the Scope of Section 36

The High Court relied upon the Full Bench judgment in Sailesh Developers & Another v. Joint Charity Commissioner, 2007 (3) Mh.L.J. 717.

The Full Bench had held that while exercising powers under Section 36, the Charity Commissioner performs a judicial function.

Before granting sanction, the Charity Commissioner must be satisfied that the trust property is required to be alienated. Only after the necessity of sale or transfer is established can the authority proceed to ensure that the best available offer is accepted so that the transaction benefits the Trust.

The Full Bench had further observed that if trustees themselves were intended to be the final authority to determine what was in the interest of the Trust, the legislature would not have required prior sanction of the Charity Commissioner.

Suburban Education Society

The Court also considered Suburban Education Society, Mumbai & Another v. Charity Commissioner of Maharashtra State, 2004 (2) Mh.L.J. 792, which had itself been relied upon by the Trust.

That judgment recognised that the Charity Commissioner must first consider whether the Trust has a genuine need for selling its immovable property.

The second consideration is whether the property is being sold in the interest of the Trust and its beneficiaries.

Three Requirements for Sanction Under Section 36(1)

On the basis of the Full Bench and Division Bench judgments, the High Court held that before sanction under Section 36(1) can be granted, the Charity Commissioner must be satisfied about three essential matters:

In the absence of all the three findings, sanction under Section 36(1) cannot be granted. A finding that the proposed transaction is beneficial to the Trust is therefore not by itself sufficient.

Extent of the Charity Commissioner’s Powers

The High Court held that Section 36(1) regulates the power of trustees to alienate trust property by subjecting such alienation to the control and prior sanction of the Charity Commissioner.

The Charity Commissioner acts as a custodian of trust property and is competent to examine whether there exists a real and genuine need for alienation and whether the trustees have taken the decision for a genuine purpose and lawful necessity.

Considering Section 36(1) read with Section 73 and the Rules framed under the Act, the High Court held that artificial restrictions cannot be placed upon the scope of this inquiry.

The inquiry can extend to examining the object, propriety, legality and justification of the proposed alienation.

Application of the Principle to the Trust

Applying these principles, the High Court found no reason to interfere with the findings of the Joint Charity Commissioner.

The Trust had failed to establish that it was unable to operate the hospital because of insufficient income. On the contrary, its financial position was found to be strong because it was running engineering and medical colleges.

The Court also took note of the fact that the property had been allotted by CIDCO at a concessional rate for the specific purpose of operating a charitable hospital.

The High Court held that these findings were based upon relevant material and considerations. No illegality, irrationality or perversity was demonstrated which would justify interference under Articles 226 and 227 of the Constitution of India.

The mere fact that the hospital had been closed since 2004 did not establish either the necessity to sell the property or the genuineness of the alleged need.

Bara Imam Masjid Trust Distinguished

The Trust relied upon Bara Imam Masjid Trust & Others v. Charity Commissioner, Maharashtra State, 2006 (1) Mh.L.J. 809 for the proposition that the Charity Commissioner cannot substitute his own decision for that of the trustees.

The High Court held that the decision did not assist the Trust in the present case.

The Joint Charity Commissioner had merely considered alternate avenues available to the trustees while examining the object, propriety, justification and legality of the proposed alienation. He had not issued any direction compelling the Trust to use the property for a particular alternative purpose.

The Court further noted that, to the extent observations in Bara Imam Masjid Trust suggested that the Charity Commissioner could not examine the validity of the trustees’ decision to sell the property, those observations were contrary to the law laid down by the Division Bench and Full Bench.

The Court held that it was bound by the decisions of the larger Benches, which expressly recognised the power of the Charity Commissioner to examine the actual necessity of the sale and whether the need put forward for alienation was genuine.

Second Application and Public Policy

In Writ Petition No. 6073 of 2009, the Trust challenged the rejection of its second application seeking substantially the same permission to alienate the property.

The Joint Charity Commissioner had held that after the earlier application under Section 36(1) had already been decided, the second application seeking the same relief was not maintainable.

The High Court upheld this decision and held that it was based upon the principle of public policy. The decision was legal and proper and required no interference.

Ratio Decidendi

Final Order

The High Court found no illegality, irrationality or perversity in the findings recorded by the Joint Charity Commissioner and declined to interfere with the refusal of sanction.

The Court also upheld the rejection of the second application seeking the same relief.

Accordingly, Writ Petition Nos. 5888 and 6073 of 2009 were dismissed. Rule was discharged and there was no order as to costs.

Conclusion

The judgment establishes that obtaining the best price for trust property is only one part of the inquiry under Section 36(1). Before sanctioning alienation, the Charity Commissioner is entitled to examine whether there is an actual necessity for the transaction and whether the need asserted by the trustees is genuine.

The decision therefore confirms that the power of trustees to alienate trust property is subject to substantive scrutiny by the Charity Commissioner, whose inquiry extends to the necessity, genuineness, propriety, legality and justification of the proposed alienation as well as the interest of the Trust and its beneficiaries.

Case Details

Case: Terna Public Charitable Trust v. Joint Charity Commissioner & Others

Petitioner: Terna Public Charitable Trust, bearing P.T.R. No. E-91, Osmanabad, through its Trustee

Respondent No. 1: Joint Charity Commissioner, Latur at Latur

Respondent No. 2: The Charity Commissioner, Mumbai

Respondent No. 3: The State of Maharashtra

Respondent No. 4: Institute for Technology and Management, a Public Trust bearing P.T.R. No. 14745, through its Authorized Signatory and Deputy Director Shri Jaywant Vasudeo Shelar

Court: Bombay High Court, Appellate Side, Bench at Aurangabad

Bench: R.K. Deshpande, J.

Case Nos.: Writ Petition Nos. 5888 & 6073 of 2009

Date of Pronouncement: 30 June 2010

Date of Dictation: 3 July 2010

Citation: 2011 (5) Bom.C.R. 340

Key Provision: Section 36(1) of the Bombay Public Trusts Act, 1950

Result: Both Writ Petitions dismissed; Rule discharged; no order as to costs.

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