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Hukumchand Gulabchand JaIn Vs. Fulchand Lakhmichand JaIn and ors. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies
CourtSupreme Court of India
Decided On
Reported inAIR1965SC1692; (1965)67BOMLR807; 1965MhLJ609(SC); [1965]3SCR91
ActsConstitution of India - Article 133(1); Hindu Law
AppellantHukumchand Gulabchand Jain
RespondentFulchand Lakhmichand JaIn and ors.
Cases ReferredSharp v. Jackson
Books referredHalsbury's Laws of England, III Edition. Vol. 38 :
trusts and societies - recovery of money - article 133 (1) of constitution of india and hindu law - appellant trustee of temple and its properties - suit instituted praying removal of appellant from possession of trust properties and for rendering of true accounts of all assets and income of trust property - commissioner found rs. 10,088 were due for principal and rs. 16,853 were due for interest from appellant - appellant contended that under rule of 'damdupat' interest exceeding amount of principal could not be allowed - appellant's contention accepted and trial court passed a decree for rs. 20,177 against appellant with future interest at 6 % per annum - appellant deposited amount due under decree - respondents filed appeal before high court claiming larger amount against appellant -.....raghubar dayal, j. 1. there is a temple known as shri chandraprabhu khandelwal jain temple atdhulia. gulabchand hiralal, father of appellant hukumchand gulabchand jain, aleading member of the khandelwal jain community at dhulia, looked after thetemple for over 40 years till his death sometime in 1950. the appellant lookedafter it after his father's death. to members of the community interested inthe temple, help to be a public temple, instituted the suit against theappellant and the charity commissioner, bombay, praying for the removal of theappellant from possession of the trust properties, for the rendering of trueand faithful accounts of all the assets and income of the trust property andfor the framing of the scheme for the administration of the trust. it wasalleged in the plaint that.....

Raghubar Dayal, J.

1. There is a temple known as Shri Chandraprabhu Khandelwal Jain Temple atDhulia. Gulabchand Hiralal, father of appellant Hukumchand Gulabchand Jain, aleading member of the Khandelwal Jain Community at Dhulia, looked after thetemple for over 40 years till his death sometime in 1950. The appellant lookedafter it after his father's death. To members of the community interested inthe temple, help to be a public temple, instituted the suit against theappellant and the Charity Commissioner, Bombay, praying for the removal of theappellant from possession of the trust properties, for the rendering of trueand faithful accounts of all the assets and income of the trust property andfor the framing of the scheme for the administration of the trust. It wasalleged in the plaint that the appellant's father was maintaining all accountsof income and expenditure concerning the temple and that the funds of thetemple were many times advanced at interest and that the temple had come tohold large properties, movable and immovable. It was further alleged that thetemple had a large income from offerings, house-rent etc., but the appellantand his deceased father had not been maintaining the accounts properly and thatthe funds of the temple were being advanced at interest, though no such incomewas shown as received recently by the appellant.

2. The appellant, in his written statement, denied that the amount was soadvanced at interest as alleged by the plaintiffs and stated that his fatherhad been keeping a ledger in the name of the temple in the accounts in whichits income and expenditure had been duly entered since over 40 years and thatthe appellant himself had kept separate account books for the temple sinceOctober 30, 1951. He denied that any income recently received had not beenshown in the accounts.

3. The trial Court held that the appellant had committed minorirregularities in the maintenance of the accounts, that he was liable to renderaccounts and that the Commissioner was to ascertain the amount due from theappellant on taking the accounts. It definitely held it not established thatincome, if any, derived by way of interest on loans advanced out of the fundsof the temple had not been credited to the account of the temple and that noinstance of fraudulent or dishonest misappropriation of temple funds on the partof defendant No. 1 or his father had been established. It found that themeeting of the community had passed a resolution on August 22, 1958, by anoverwhelming majority, sanctioning the accounts submitted by the appellant andthat only two persons who opposed against the resolution were the twoplaintiffs of the suit.

4. 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 admittedthe report to be correct but the appellant contended that under the rule ofdamdupat interest exceeding the amount of principal could not be allowed. Theappellants contention was accepted and the trial Court passed a decree on April23, 1955, for Rs. 20,177-4-6 against the appellant, with future interest at 6per cent per annum. We are not now concerned with the other items of the decreeand therefore we make no reference to them.

5. 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 appliedand that interest on the balance of the trust fund should have been calculatedand compound interest allowed in place of simple interest on the amount of thetrust fund in the hands of the defendant or his father.

6. The appellant filed a cross-objection against the allowing of interest onthe balance of the trust funds with his father and himself.

7. The High Court agreed with the plaintiffs that the principle of damdupatcould not be applied in the circumstances of the case and that compoundinterest should have been charged against the appellant. It therefore set asidethe decree passed by the trial Court in so far as it determined the amount dueto the temple and referred the case back to the trial Court for re-assessmentof the amount due to the temple having due regard to the observations made inits judgment. On an application by the appellant, certificate under Art. 133(1)of the Constitution was granted.

8. The appellant has then filed this appeal and questioned the correctnessof the order of the High Court holding him liable to pay compound interest andholding that the principle of damdupat was not applicable in this case.

9. The High Court said in its judgment that it was the contention of theplaintiffs that the appellant's father and the appellant used the funds of thetemple in their business and that they were therefore liable to account on thatfooting. There was no such allegation in the plaint or in the memorandum ofappeal to the High Court. The High Court referred to the khulasa submitted tothe Commissioner by the plaintiffs and stated that it was specifically allegedtherein that the amount was being used by the defendant and his father inbusiness. Support for such an allegation was found in the statement Exhibit 24of the appellant's father in 1931. Reference was also made to the fact that theappellant had nowhere denied the fact of the moneys of the temple being usedfor the purpose of the business and to the non-production of certain books ofaccount by the appellant. His statement that they were not available was notaccepted. The High Court recorded the finding in this form (at p. 43 of theappeal record) :

'Under these circumstances it would not be anunreasonable inference to draw that the amounts belonging to the temple werebeing utilised by Defendant No. 1 (the appellant) and before him by his fatherin their business.'

10. Having come to this conclusion and to the view that the position of theappellant's father and the appellant vis-a-vis the temple funds was that of atrustee, the High Court considered whether the plaintiffs could claim intereston equitable grounds and held that they could claim compound interest withyearly rests, as the money had been used in the business or had been so mixedup with their own funds that it was impossible to say that they had not so usedit. The High Court did not apply the rule of damdupat as the liability of theappellant was not founded on loans or on any contract.

11. It is contended for the appellant that there was neither an allegationnor evidence to the effect that the trust funds had been used in his businessby the appellant's father or the appellant and that therefore the appellant wasnot liable to pay compound interest on the trust funds in his hands or in thehands of his father. It was further urged that if interest was payable by the appellant'sfather or the appellant on the balance of trust funds, it should be simpleinterest and the amount of interest could not be more than the amount ofprincipal due on the date of the institution of the suit on the principle ofdamdupat.

12. It has not been established in this case that the trust funds with theappellant or his father were used in their trade or business. We have alreadyreferred to the finding of the High Court in this respect. It is a very haltingfinding. The High Court has not definitely held it proved that the funds wereused in the business. We say so, as the High Court has said (at p. 46 of theappeal record) :

'Since we are of the view that the defendant No. 1and his father have used the monies of the temple in their business or have somixed it up with their own funds that it is impossible to say that they havenot so used it .....'

13. This is not a clear-cut definite finding that the funds had been used inbusiness or trade. The earlier finding noted at p. 43 of the appeal record andquoted 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 allegationin the plaint.

14. It was said in the khulasa dated December 22, 1954 and included in theAdditional Report of the Commissioner of even date :

'Because the amount that was received by thedefendant in respect of the temple could be utilised by the defendant in hisbusiness he used to pay interest thereon at the rate of annas 8.'

15. This too, is not, as stated by the High Court, a specific allegationthat the amount was being used in business.

16. The plaint did not even say that the amount had been always advanced onloan. What it said in para 1 is that the funds of the temple were many timesadvanced at interest and that no income from interest recently received hadbeen shown in the accounts. No evidence has been led about the regular advanceof the trust funds as loans. On the other hand, the accounts show only a fewentries about the receipt of interest on the trust funds.

17. The statement, Exhibit 24, made by the appellant's father on October 26,1931, in Regular Suit No. 377 of 1931, was in a suit instituted by theappellant's father for the recovery of money advanced on a mortgage at compoundrate of interest. Gulabchand, father of the appellant, stated inexamination-in-chief, that the funds lend were of the temple, the transactionsof the temple were in his name and that interest at compound rate had beenagreed upon. In cross-examination he stated that he had with him funds of thetemple and that he paid for them compound interest at 8 annas. This statementdoes not necessarily mean that the appellant's father had been crediting thetemple accounts with compound interest, at the rate of 8 annas, on the templefunds in his hands.

18. Gulabchand made another statement on January 12, 1950. It is exhibit 23.This statement was made in proceedings on Miscellaneous Application No. 110 of1949. He stated :

'Suit No. 377 of 1931 hadbeen filed. In the same my deposition has been recorded. I have made astatement that the amount was of the temple. But I gave a statement to thateffect as that amount has been set apart for the temple. I have given astatement that after the mortgage deed was executed and before the suit wasfiled, I set apart this amount for the temple and that the transaction of thetemple was in my name. That statement is correct.

If it is the amount of theMandir, I credit it to the Khata of the Mandir. I do not pay interest for theamount of the Mandir. As there was interest in the mortgage deed, I have takeninterest at eight annas from Mangilal. I have made a statement that I have withme the amount of the temple and that I pay interest for it at eight annas.'

19. These statements, taken together, lead to the inference that Gulabchandwas not crediting interest on the temple funds in the accounts except when hereceived interest on the amounts lent and that this statement made in 1931 wasin connection with the amount lent on a mortgage deed. He charged compoundinterest from the mortgagor and therefore credited that interest in theaccounts. It is significant to note that the four entries about interest werefor the years 1927 to 1931 when Suit No. 377 of 1931 was filed. The fact thatno interest appears to have been credited after 1931 bears out the inference wederive from the statements of Gulabchand.

20. There is another matter which throws light on this question and tends tosupport our conclusion. The report submitted by the Commissioner on November29, 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 theyear was Rs. 573-12-0 and the amount debited was Rs. 769-3-6. If the openingbalance be ignored, there would be a deficit of Rs. 195-7-0 and the accountsfor the samvat year 1997 opened with a debit balance of Rs. 195-7-0. This showsthat the opening balance of samvat year 1996, i.e. Rs. 7,649-14-3, had beentaken out of the accounts. It appears that this amount was taken over to someBhandara account and was credited again in the temple accounts for samvat year2009, i.e., 1952-53, after being brought out from Bhandara account. Suchdealing with this amount does not appear to be consistent with its being usedin business.

21. In view of the shaky finding of the High Court about the funds beingused in business by the appellant's father or the appellant and in view of whatwe have said above, we hold that it has not been proved that these funds hadbeen used in business and that therefore the appellant is not liable to paycompound interest on the balance of the trust funds with his father or himself.

22. We may now consider whether the appellant is liable to pay simpleinterest on the balance of trust money with his father or himself.

23. Two questions arise for consideration and they are whether the trusteeis liable to pay simple interest on the trust capital in his hands and if he isso liable what rate of interest be charged from him in the present case.Interest can be allowed on equitable grounds only as no statues in force duringthe period in suit and dealing with public charitable trusts made the trusteeliable to pay interest. The Indian Trusts Act does not apply to public orprivate religious or charitable endowments and therefore the provisions of s.23 thereof cannot be used for charging interest from the appellant trustee. TheCharitable and Religious Trusts Act has no provision which provides for chargingthe trustee with interest.

24. Reference may therefore be made in this connection to what is stated inpara 1691 of Halsbury's Laws of England, III Edition. Vol. 38 :

'Subject to this, or unless a trustee is expresslyotherwise authorised or required under the terms of his trust, he must duly andpromptly invest all capital trust money coming to his hands, and all incomewhich cannot be immediately applied for the purposes of the trust; and he isliable for any loss which may result from its being improperly invested orbeing left uninvested for an unreasonable length of time, and for interestduring the period of its being so left.'

25. This is so because the trustee has to conduct the affairs of the trustin the same manner as an ordinary prudent man of business would conduct his ownaffairs. In para 1812 are set out the circumstances in which a trustee, besidesbeing required to account for the principal trust money, can also be chargedwith interest on it and one of the circumstances is when the Court considersthat the trustee ought to have received interest. Such could be the case whenthe trustee, in breach of his duty, retains the trust money in his own handsuninvested or mixes it with his own money or property.

26. It appears from the Commissioner's report that the trustee in this casehad over Rs. 10,000 in his hands from samvat year 1988 commencing from November10, 1931, upto February 17, 1954, when this suit was instituted. The trusteekept such a large sum uninvested for a long time extending over 22 years. Theaccounts show that reasonably he could not have expected to require this amountfor any current purpose of the trust during these years. He should haveinvested the amount. His failure to do so makes him liable to pay interest.

27. It appears from what is said in para 1814 of Halsbury's Volume 38 thatwhere a trustee simply fails to invest trust money which he ought to haveinvested or there are no other special circumstances in the case, he is ingeneral charged simple interest at the rate of 4 per cent per annum. Weconsider it reasonable to charge interest at 4 per cent per annum in this case.

28. We have now therefore to decide what had been the amount of trust fundsin the hands of the appellant's father at different times and what would be theamount due from the appellant on the date of the institution of the suit, bothfor principal amount of trust money and for accumulated interest with him. Wedo not consider it desirable that the case be sent back to the trial Court forthese calculations, in the light of our finding, as this litigation has beenpending for over 10 years and as the accounting is to be done for a periodcommencing from November 10, 1931, from which date the accounts are availableto the Court.

29. The Additional Report of the Commissioner, dated December 22, 1954,shows that the amount of principal on February 17, 1954, the date on which thesuit was filed, was Rs. 10,088-10-3 and that the accumulated amount of interestdue on that date was Rs. 16,853-6-0 at the rate of 6 per cent per annum. Theplaintiffs-respondents admitted this report to be correct. The defendant alsoadmitted the correctness of the principal amount found due by the Commissioner.He, in fact, did not even dispute that the amount of interest at 6 per cent perannum would be what has been found by the Commissioner. What he contended wasthat he was not liable to pay interest in excess of the amount of principalfound due, in view of the rule of damdupat. In these circumstances, thesefigures can be accepted as correct.

30. When the Commissioner had submitted his first report on November 29,1954, both the parties objected to the accounts prepared by him. The defendanthad objected to the Commissioner's including a sum of Rs. 7,648-14-3 twice overin his accounts. This sum represents the balance at the close of samvat year1995 corresponding to 1938-39. It was not taken over in the accounts for thesamvat year 1996. The Commissioner, in preparing the account, took this amountinto consideration without making up the accounts for the samvat year 1996. Hefound and noted in his accounts that the amount credited to the temple duringthe samvat year 2009 corresponding to 1952-53 was Rs. 9,978-5-3 and that thisamount included a sum of Rs. 7,648-14-3 which had been brought from theBhandara account. He however did not consider this sum to be the sum which hadbeen not included in the accounts of the temple from the samvat year 1996.

31. The learned District Judge agreed with the objection of the defendantand held that this amount had been included twice in the Commissioner'saccounts.

32. The respondents did not dispute the correctness of this finding in theHigh Court and therefore we do not consider it a sound contention that this sumof Rs. 7,648-14-3 be further added to the balance found due by theCommissioner.

33. The appellant stated that the statement of the balance in hand submittedby him to the meeting on August 22, 1953 was arrived at by adding an amount ofRs. 7,000 to the balance shown in the accounts as he had found a sum of Rs.7,000 in a bag marked 'Dharmadya' inside a safe. The High Court has notconsidered the statement of the defendant about so finding a sum of Rs. 7,000reliable. It was not urged before the High Court, as has been urged before us,that this sum of Rs. 7,000 be included in the amount of trust money in thehands of the appellant on the date of the institution of the suit. The HighCourt merely dealt with the complaint for the respondents that the Commissionerhad not taken this sum into account for the purpose of computation of intereston funds in possession of the defendant. The High Court considered thiscomplaint to be justified. We therefore do not accept the respondent'scontention that Rs. 7,000 be added to the balance found due by the Commissionerand hold that the High Court was in error in ordering interest to be calculatedon this amount as well.

34. According to the report of the Commissioner, the amount of interest onthe principal amount of trust money in the hands of the trustee worked out toRs. 16,853-6-0 up to February 17, 1954 at 6 per cent annum. We have held thatthe interest be calculated at 4 per cent per annum. If follows that at thisrate the amount of interest found due by the Commissioner would be reduced toRs. 11,235-9-4. The principal due on that date was Rs. 10,088-10-3. Thequestion now arises whether the amount of interest be limited to the amount ofprincipal, on the basis of the principle of Damdupat, or not. The High Courthas held that the principle of Damdupat will not apply in this case. We agreewith that opinion.

35. The rule of Damdupat applies to cases where a loan is advanced. This isclear from Colebrooke's Digest on Hindu Law.

36. Part I, Vol. I, of the Digest deals with Contracts. Book I of this Partdeals with Loans and Payment. Section I of Chapter I of Book I deals with Loansin General and describes what may or may not be loaned by whom, to whom and inwhat form, with the rules for delivery and receipt. These matters are comprisedunder the title 'loans delivered (rinadana)', which means the complete deliveryof a loan or debt, by whom, where and to whom made. Chapter II deals withInterest and states at the commencement of Section I :

'Such interest, as may be taken without a breach ofduty on the part of the creditor, is a rule (dherma) for delivery by thecreditor. Or .... for it is the nature of a loan, that it should produce to thelender the principal sum advanced, and interest in addition thereto.'

37. The various Articles in this Section use the expressions 'creditor','lender', 'loan', 'principal', 'lent', 'borrowers' and thus make it amply clearthat it deals with interest on the amounts advanced by a creditor to a debtor.Section I deals with the rates of interest to be charged. Section II deals withSpecial Forms of Interest. Paragraph 53 thereof states :

'Interest on money, received at once, not year byyear, month by month, or day by day, as it ought, must never be more thanenough to double the debt, that is, more than the amount of the principal paidat the same time.'

38. This is what is known by the rule of Damdupat and has been rightlyconstrued, as long ago as 1863, by the Bombay High Court in Dhondu Jagannath v.Narayan Ramchandra [1863] Bom.H.C47]. Section III deals withInterest Specially Authorized and Specially Prohibited. Article II of thisSection deals with Limits of Interest. Paragraph 59 thereof states :

'The principal can only be doubled by length oftime, after which interest ceases.'

39. The limit of interest is different under other paragraphs for loansadvanced in different circumstances. Paragraph 61 repeats what has been statedin paragraph 53 of Section II and adds a special rule to the effect :

'On grain, on fruit, on wool or hair, on beasts ofburden, lent to be paid in the same kind of equal value, it must not be morethan enough to make the debt quintuple.'

40. It is therefore clear, as stated earlier, that the rule of Damdupat appliesin respect of interest due on amounts lent by a creditor to the borrower, thedebtor. The question then is whether the funds in the hands of a trustee can besaid to be such loans notionally advanced by the trustee to himself as anindividual. If their character can be deemed to be such, there may be a casefor applying the rule of Damdupat to the interest on such funds and that if itis not so, this rule of Damdupat will not apply to the interest ordered to bepaid on such funds.

41. It has been urged for the appellant that the trustee is a debtor withrespect to the trust money in his hands. Reference has been made to Halsbury'sLaws of England. III Edition, Vol. 38, page 1044 where it is stated at para1801 :

'A breach of trust is, in equity, regarded asgiving rise to a simple contract debt.'

42. In the foot-note is stated :

'Strictly speaking, the relation of debtor andcreditor does not subsist between a trustee and his cestui que trust (perLindley, L.J. in (1886) 18 Q.B.D. 295.'

43. Lewin on 'Trusts', 15th Edition, states at p. 745 :

'The debt constituted by a breach of trust is, evenafter it has been established by a decree, an equitable debt only, and untilthe Bankruptcy Act, 1869, would not have supported a petition inbankruptcy.'

44. It was said by the Earl of Halsbury, L.C., in Sharp v. Jackson [[1899]A.C. 419, 426] :

'It has been suggested that there was a propositionwhich could be maintained, as to which I confess I entertain grave doubtswhether any decision goes to that extent, namely, that the relation between acestui que trust and a trustee who has misappropriated the trust fund is notthat of debtor and creditor. That it may be something more than that is true,but that it is that of debtor and creditor. I can entertain no doubt. As thatquestion has been mooted and brought before your Lordships' House as onequestion for decision here, I certainly have no hesitation in saying that in myopinion no such proposition can properly be maintained, and that although thereare other and peculiar elements in the relation between a cestui que trust anda trustee, undoubtedly the relation of debtor and creditor can and doesexist.'

45. No other Lord expressed an opinion on this point.

46. The correctness of this expression of the Earl of Halsbury has beendoubted in Lake, in re. Dyer, Ex Parte [[1901] 1 K.B. 710, 715] by Rigby L.J.,who remarked at the hearing :

'How is a trustee a debtor Can he be sued atcommon law I do not see how he can be a 'debtor', for the money he is fraudulentlydealing with is, at law, his own money. No doubt he can be called upon toreplace the money, but that must be by a suit in equity, not at law.Notwithstanding the high authority of the statement that has been referred to,I confess I do not understand it.'

47. We are of opinion that though a trustee, who has custody of trust funds,has a pecuniary liability to make good those funds if he has used them and may,on the basis of such a 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 besaid to have taken a loan from himself as a trustee in charge of the trustfunds. His liability to pay interest, when ordered by the Court on equitablegrounds, does not come within the provisions dealing with interest in HinduLaw, as mentioned in Colebrooke's Digest.

48. There is no fixed rate of interest which a trustee be liable to pay asthere is no contract between him as a trustee and as an individual to payinterest. He simply uses the money in his custody. It is only when the Courtdetermines his liability to pay interest that interest is to be calculated onthe principal amount due from him. It is not the case of a creditor lettinginterest accumulate and thus make the debtor pay interest much more than whathe had borrowed as principal.

49. The principle of Damdupat was evolved both as an inducement to thedebtor to pay the entire principal and interest thereon at one and the sametime in order to save interest in excess of the principal and as a warning tothe creditor to take effective steps for realising the debt from the borrowerwithin reasonable time so that there be not such accumulation of interest aswould be in excess of the principal amount due, as in that case he would haveto forego the excess amount. There may be justification for the principle ofDamdupat applying in the case of an ordinary creditor and a debtor, but thereseems no justification for extending that principle to the case of a trusteewho has to pay interest on the funds in his hand with respect to which oncertain grounds he is held liable to pay interest. We therefore hold that therule of Damdupat will not apply with respect to the interest adjudged payableby a trustee on his committing breach of trust with respect to the trust fundsin his hands.

50. The result then is that the appellant is liable to pay Rs. 10,088-10-3for principal and Rs. 11,235-9-4 as interest, upto the date of the institutionof the suit, i.e. upto February 17, 1954.

51. We therefore allow the appeal, set aside the decree of the High Courtand modify the decree of the trial Court accordingly. The result will be thatthe suit temple will be entitled to get from defendant No. 1 a sum of Rs.21,324-3-7 upto the date of the suit, together with future interest at 4 percent per annum on Rs. 10,088-10-3 from the date of the suit till the date ofpayment. The appellant will bear his costs throughout. The costs of therespondents will come out of the estate.

52. Appeal allowed.

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