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Tirunarayana Pillai and anr. Vs. P.R.Y. Manickavachagam Chettiar and ors. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies
CourtChennai
Decided On
Judge
Reported inAIR1934Mad448; 155Ind.Cas.359
AppellantTirunarayana Pillai and anr.
RespondentP.R.Y. Manickavachagam Chettiar and ors.
Cases ReferredWrightson v. Cooke
Excerpt:
.....steps mentioned in the decree and carry out the trust including inter alia the re-sale of certain trust properties which he found the trustees had themselves purchased benami in the names of others provided that the re-sale fetched a better price than that at which the trustees themselves had purchased and ordered the trustees to pay four sums of money which he found that they had made themselves liable for by reason of their neglect of duty. this objection is valid and would have had to be given effect to and the decree amended in consonance with section 62. but this objection has now become unnecessary to entertain because respondents 1 and 2 (plaintiffs) represent that owing to the change of conditions principally the fall in land values on account of the economic depression which..........not getting the lands cultivated and houses lat, not keeping proper accounts, buying the trust properties at auctions themselves in the name of benamidars while not paying the purchase money due on those purchases, underselling the trust properties, partiality in the distribution of dividends, etc, and prayed for removal of the trustees and appointment of new trustees, administration of the trust properties, accounts of the dealings by the trustees and recovery of what may be found due from the trustees and other appropriate reliefs.3. defendants 1 to 3 adopted the same defence denying the charges and asking that the suit should be dismissed. the lower court raised four issues of which the most important was issue 1 which raised the question whether the acts of malfeasance,.....
Judgment:

Pandalai, J.

1. The appellants are defendants 1 and 2 in the lower Court. On the death of appellant 1 (defendant 1) pending this appeal the other appellant applied to add his legal representative, who opposed the application and stated that he did not wish to continue the appeal. The appellants being co-trustees and the presence of all trustees before the Court being necessary to determine the appeal by the surviving trustee and the questions arising between the trustees and the respondents oestui que trust, we ordered the addition of the legal representative of the deceased defendant 1 as a co-respondent.

2. The suit though originally brought by two plaintiffs was afterwards continued as a representative one on behalf of all creditors of defendants 5 to 8 for whose benefit they executed a trust deed Ex.1 dated 19th August 1923 of all their properties mentioned' in the 'Schedules attached thereto constituting defendants 1 to 4 and another, since deceased, trustees to sell and distribute the proceeds rateably among their creditors mentioned in Schedule A thereto. The plaintiffs (respondents 1 and 2) charged the trustees with several breaches of trust, passive and active, such as not getting in all the properties, not getting the lands cultivated and houses lat, not keeping proper accounts, buying the trust properties at auctions themselves in the name of benamidars while not paying the purchase money due on those purchases, underselling the trust properties, partiality in the distribution of dividends, etc, and prayed for removal of the trustees and appointment of new trustees, administration of the trust properties, accounts of the dealings by the trustees and recovery of what may be found due from the trustees and other appropriate reliefs.

3. Defendants 1 to 3 adopted the same defence denying the charges and asking that the suit should be dismissed. The lower Court raised four issues of which the most important was issue 1 which raised the question whether the acts of malfeasance, misfeasance, and gross negligence complained of against defendants 1 to 4 are true and if so to what relief the plaintiffs are entitled. The learned Judge heard the evidence which was voluminous and delivered a careful and painstaking judgment considering the Several charges and passed a preliminary decree in terms of paragraph 95 of his judgment removing the trustees from their office and proposing to appoint suitable persons in their stead at the time of the final decree. He also directed that the new trustees when appointed should take the steps mentioned in the decree and carry out the trust including inter alia the re-sale of certain trust properties which he found the trustees had themselves purchased benami in the names of others provided that the re-sale fetched a better price than that at which the trustees themselves had purchased and ordered the trustees to pay four sums of money which he found that they had made themselves liable for by reason of their neglect of duty.

4. In this appeal by defendants 1 and 2 most of the conclusions arrived at by the learned Judge are not questioned by them, but respondent 1 has raised by way of memorandum of objections questions involving the liability of the trustees which the learned Judge has either rejected or not expressed any opinion upon on account of the state of the contentions before him. On account of the number of questions thus involved the most convenient way of disposing of this appeal is to deal seriatim with the objections raised by both parties and then decide what in the circumstances at present existing is the most suitable form of decree to be passed. (His Lordship then decided some of the objections on facts and proceeded). The next objection raised by the appellants relates to the directions in the decree about the re-sale of the properties which the learned Judge found had been purchased by the trustees them, selves in the names of their servants and dependents. This would appear to have been the subject which occupied the bulk of the trial in the lower Court. The trustees denied that they had parchased any properties for their own benefit. The plaintiffs alleged that defendant 1 purchased the properties specified in the judgment for a total price of Rs. 5,775 in the name of one Somasundara Mudaliar and that defendant 2 purchased the properties also specified for a total price of Rs. 34,080, through one Mahadeva Ayyar.

5. It was also elicited that a firm of which defendant 4 was a partner had been allowed to buy a mill for Rs. 5,050, that defendants 1 and 2 had not brought into account even the above said sums on the due dates, that defendant 2 was still in arrears to the extent of Rs. 8,939-11-6 and that 4th defendant's firm had paid nothing at all as a consequence of which a decree was obtained against firm. It appeared also that defendant 4 was quite unable to pay any portion of the decree amount. He did not appear at the trial nor has he appeared here. The learned Judge dealt with the benami purchase of defendants 1 and 2 very elaborately in paras. 43 to 36. In para. 88 he records these findings that the purchases by defendants 1 and 2 of the properties mentioned therein were benami and for their own benefit and invalid. In para. 87 he deals with the purchase by defendant 4's firm but says that that was not included in the charges mentioned in the plaint. On these findings he directed in the preliminary decree that the properties bought by defendants 1 and 2 should be re-sold by the new trustees when appointed but that if the re-sale did not fetch the price at which the defendants had bought, the sales to the defendants should stand. He did not give any direction as to the price of the mill and therefore must be deemed to have held that the new trustees should be bound by the sale and that they should recover the amount of the decree obtained therefore from the judgment-debtors (defendant 4 and his partner).

6. The appellants' objection about this part of the decree is that by Section 62, Trusts Act, the Court had no power to make an order directing a conditional re-sale conditional on such sale producing a higher price than that for which the trustees themselves bought. This objection is valid and would have had to be given effect to and the decree amended in consonance with Section 62. But this objection has now become unnecessary to entertain because respondents 1 and 2 (Plaintiffs) represent that owing to the change of conditions principally the fall in land values on account of the economic depression which has prevailed for the last three years, a re-sale of the properties is not necessary at all because the properties are not likely to fetch anything like the price for which the trustees themselves bought in 1925. They therefore say that they are willing that the trustees should keep their purchases upon the footing that they owed the price to the trust fund from the dates of those purchases and be made to account on that footing. The learned Advocate-General has not questioned the finding that the purchases were benami in favour of defendants 1 and 2 and that they were grave breaches of trust. He has also properly admitted that on that finding if those purchases are upheld, as the plaintiffs are willing that they should be upheld, the trustees would be liable to account for the purchase money from the due dates and can be charged with interest for the unpaid sums during the time they failed or delayed to bring it to account. He however asks that in calculating the interest on the unpaid purchase money credit should he given, according to the resolution of the trustees and the conditions of sale for dividends payable to the purchasers as creditors. This was not questioned by the plaintiffs and' suitable directions will have to be given in the decree by omitting the provision for the re-sale of the properties and substituting therefor an inquiry into the purchase money, payable by defendants 1 and 2 with interest on the above footing.

7. Now we come to the objections raised by the respondents. But before dealing with them we may refer to two objections raised by the added respondent, the legal representative of the deceased defendant 1. His first objection is that though he has been added as a respondent on the application of appellant 2 (defendant 2) that is effective only for the purpose of the appeal and that as respondents 1 and 2 have not-made a separate application to implead the legal representatives of the deceased defendant 1 in the memorandum of objections he cannot be deemed to be a party to the memorandum of objections so as to be bound by adverse finding against defendant 1, if any, arrived at therein. This, in our opinion, is an incorrect view. Defendant 1 was originally impleaded in the memorandum of objections.

8. It is true that on his death pending the appeal there was no separate application to bring his legal representatives on the memorandum of objections apart from the application by the co-appellant himself to bring on the record of the appeal. This in our opinion was sufficient to implead the legal representatives of the deceased defendant 1 for the purposes both of the appeal in which he was originally a party (appellant) and of the memorandum of objections to which also he was originally made a party. For this purpose the memorandum of objections and the appeal itself cannot be regarded as two separate proceedings requiring that the' same party should be impleaded by two a separate applications for the same purpose. Order 41. Rule 22(A) Civil P.C., was relied upon as showing that an appeal and a memorandum of objections have now been regarded as separate proceedings as it is now the law that though the original appeal is withdrawn or dismissed for default the memorandum of objections has still to be proceeded with. That provision was inserted in the Code of 1908 to alter the law which existed before, that when for any reason such as withdrawal or dismissed for default the appeal ceased to be pending, the memorandum of objections fell with it.

9. But this provision has not the effect of making the two distinct proceedings for the purpose now contended that where a party is already impleaded both in the appeal and the memorandum of objections two separate applications are necessary to bring his legal representatives on the record. No authority was cited for this contention and the only one which was referred to, Venkatachariar v. Ponnappa Aiyengar A.I.R. 1919 Mad. 1026, is rather against than in favour of the contention. We disallow it. Another contention of the added respondent was, he cannot be impleaded on account of breach of trust which may be established against the deceased defendant 1. According to the learned advocate the cause of action for breach of trust does not survive against the legal representatives of a deceased trustee but dies with him. This is quite incorrect, as the legal representatives of a deceased trustee can certainly be proceeded against in respect of breaches of trust by the deceased. The manner in which and the extent to which they will be liable are different matters but ordinarily there can be no doubt that the assests of the deceased in their hands are liable for the breaches of trust: Lewin, Edn. 13, p. 949, Hardwicke (Lord) v. Vernon 4 Ves. 411.

10. Respondents 1 and 2 first object that the trustees should have been made liable for taking no steps to get in the outstandings due to the business carried on by defendants 5 to 8 at Colombo. The trust deed (Ex. 1) does contain a general clause at the end vesting in the trustees for the benefit of the creditors till other properties of the debtors be. sides those enumerated in the schedules. But the schedules which appear to have been carefully drawn up do not mention any outstandings at Colombo as due to the debtors. But if it were shown that the trustees bad reasonable grounds to know that there were any such outstandings, they would still be liable to exercise reasonable diligence to realise them. As a matter of fact there is no evidence of a tangible character to show that there were any outstandings worth pursuing at Colombo. The trustees themselves required the debtors to produce all their books including the Colombo accounts, but it appears from the evidence of D.W. 6, who was looking after the management of the trust under the trustees and of D.W. 27 (defendant 2) that the Colombo accounts were not produced. There is nothing however to show that the trustees received any later information of any outstandings at Colombo nor is there in this case in which 44 witnesses Were in all examined anything to show that there Was any such outstanding. In the absence of any such proof the only conclusion possible is that the plaintiffs have failed to establish any negligence or breach of trust against the trustees in this matter.

11. The second objection relates to the sale of the Vijiyapuram mill. The facts about this property are that after the fruitless attempts to sell the properties referred to already, the' mill which had cost the debtor's family Rs. 19,500 to erect was finally sold for Rs. 5,050 at an auction held on 5th December 1925 to one Chidambara Thevan. It is now admitted that this Chidambara Thevan was an alias for the firm of defendant 4 and his partner. This defendant 4 who was one of the trustees was also the person who was put in charge of the mill pending the sale and also of some properties belonging to the trust in that village. Thus the price was really payable by defendant 4 and his partner. Quite apart from the gross impropriety of allowing a trustee himself to buy trust property of which all these trustees, viz. defendants 1, 2 and 4 seem to have been guilty, there was in this case the additional breach of trust of not insisting upon the payment of the price; for it is now admitted that no portion of this price has ever been paid and defendant - 4 also did not account to his co-trustees for the income of the trust properties in his charge. The mill stood on some leasehold property. The lease expired. Defendant; 4's firm re-sold the mill to third parties who removed the materials of the mill from the premises. Thus the trust has lost both the trust property and the price therefor as a result of the action of the trustees. Therefore they had to institute a suit (O.S. No. 14 of 1929) for the recovery of the price and the income from the village with interest thereon less the dividend due to the firm as creditors.

12. They obtained a decree for Rupees 5,453-1-0 against the firm, i.e. defendant 4 and one Khadir Ibrahim Rowther. Defendant 4 is described as quite unable to pay anything. Whether anything will be recovered from the other defendant cannot now be stated. These facts which have not in any way been controverted furnish an instance of very grave breach of trust on the part of these trustees. It was bad enough, for the trustees to buy trust properties for themselves but, to do so without even paying the price for which they bought was scarcely honest. Trustees are not authorised to give possession of property comprised in a trust for sale before receiving the purohase money : Lewin, Edn. 13, p. 1072; Godefroi, Edn. 5, p. 321, citing Oliver v. Court 8 Price 127 at p. 166. The learned judge's only ground for not visiting the trustees with the consequence of this act was that the plaintiffs did not make out a specific charge in the plaint. But as the evidence and the judgment show the facts which were elicited at the trial were incapable of dispute and it is therefore necessary to deal with the point in a suit brought for breach of trust. For the reasons given already for the purchase of defendants 1 and 2 and for the additional reason that the mill can no longer be traced, the only course left is to make the trustees liable for the money due to the trust which we may take as fairly represented by the decree amount in O.S. No. 14 of 1929 with interest thereon as provided therein. The trustees, who obtained that decree may if they pay their money to the trust according to the directions in the decree execute it for their personal benefit and recover what they can from the judgment-debtor.

13. The third objection raised by the respondents is that the trustees have loot maintained proper accounts or furnished them to plaintiffs on demand and that on the facts proved in the case an account should be ordered against them on the footing of wilful default. The learned Judge deals with this question of the accounts kept by the trustees in paras. 34 and 42. He found that the only account produced by the trustees was Ex. 12 and that it was not regularly and correctly kept from day to day but was mostly written up for the purpose of being produced in Court. In aid of this conclusion he referred to the fact that it is in the handwriting of Narayanaswami, Ayyar who was not employed by the trustees before August 1925, that pp. 1 to 58 appear to have been written at the same time and that the book contains entries of payments not on the dates they should occur but oh subsequent dates and he also points out other inaccuracies. With much of this criticism it is impossible not to agree, but we are not prepared to say that Ex. 12 is a fabrication which does not represent as far as it goes a bona fide presentation of the income and expenditure of the trust funds. It must be remembered that the trustees themselves are not accountants. They are mirasdars and agriculturists. The men employed by them viz. Chandrasekharam Pillai and Pakkiria, were apparently not capable of maintaining accounts in proper form. Ex. 12 which is written by D.W. 6, Narayanaswami Ayyar, is also in this sense not above criticism as an account book. The more important question however is whether Ex. 12 as far as it goes can be shown to be untrue in the sense that the actual receipts are not entered or the expenditure entered is fictitious or excessive. After the discussion which this matter has tinder-gone in the lower Court and before us, except as to the matters in which the trustees can be made liable for breach of trust our attention has not been drawn to any instance in which Ex. 12 has been shown to be untrue by omit, ting to enter actual receipts or by entering untrue disbursement.

14. The faults of Ex. 12 are really due to the faults in the mode of account keeping. They are not faults involving dishonesty or misconduct. We do not say that the trustees were justified in not heeding the notice Ex. CC dated 6th December 1926 given to them before the suit by the plaintiffs for the disclosure of their accounts and if they had done so many of their difficulties in this case would have been minimised. Therefore, if for no other reason they have been personally visited with the costs by the lower Court, an order folly justified by numerous authorities, Springett v. Dashwood 2 Giff 521, Wroe v. Seed 4 Giff 425. And if for no other reason than that an accounting party not rendering accounts properly but retaining trust moneys (such as the unpaid purchase moneys due by them on the several benami purchases) in their hands must pay interest even if the debt by its nature does not earry interest, these trustees must pay interest : Pearse v. Green 1 Jac & W 135. But we are unable to agree with the learned Judge when he says that Ex. 12 is not a true account of the trust estate. We do not mean that it is not necessary to take an account for that has not been done.

15. What we mean is that the account to be taken must be a common account which will give the plaintiffs liberty to surcharge and falsify : see Peary Mohan v. Manohar : AIR1924Cal160 , citing, In re Stevens Goolee v. Steens (1898) 1 Ch. 162, but not an account on the footing of wilful default. Our reason for refusing to order an account on the ground of wilful default for the period covered by Ex. 12 is not that instances of wilful default have not been proved which might have justified such an order, but that the' plaintiffs having ample opportunity of scrutinising Ex. 12 have made all their charges thereon to the lower Court by I.A. 300 of 1929 and we have considered them and incorporated our conclusions on such of them as are worthy of notice in she directions we propose to give. It will only lead to further acrimonious and protracted disputes to leave any such matters open.

16. The above however, relates only to the period to which the account Ex. 12 relates, i.e., up to the end of 1928. Soon after this appeal was filed a stay order was obtained from this Court staying practically the whole of the further proceedings contemplated by the preliminary decree passed by the learned Judge. AH that has been done in pursuance of that decree is, we are informed that Rs. 7,560-10-0 mentioned therein has been deposited by the trustees. in Court and has been received by the plaintiffs and other creditors in payment of what remained due out of the 1 1/2 annas in the rupee dividend declared by the trustees. In consequence of this the administration of the trust and. maintenance of accounts have remained in the bands of the trustees up to date. The accounts subsequent to 1st January 1929 have not been produced into Court at all and this makes it necessary that the accounts for that period also should be taken. The evidence, in the case naturally does, not refer to this period nor to any matters arising therefrom. We have considered the basis on which this account should be ordered and have come to the conclusion that in view of what has been disclosed as to the period before 31st December 1928 in the first instance the account for this period, also should be a common account; with liberty to the plaintiffs to allege any further specific acts of wilful default within the subsequent period which may be disclosed from the account of that period to be hereafter produced.

17. To explain our meaning we should refer to the distinction between the two ways in which an account on the footing of wilful default may be ordered. : see Peary Mohan v. Manohar : AIR1924Cal160 . We do not think that the evidence justifies an order for a general account on the footing of wilful default, but we direct that if on the accounts to be hereafter produced which the plaintiffs have had no opportunity to scrutinise any particular transactions should be disclosed which are open to the charge of wilful default, the plaintiffs should have a chance of having those particular charges investigated. Even where the period from which such charge arises is such that they should be put on the pleadings and unless so put, the Court -will not inquire into them at all; the mere fact that they ate not on the pleadings will not prevent such charges from being raised if in the course of the investigation (of an account in common form) facts are ascertained which render it reasonable to believe there has been wilful default and in such a case the Court will assist parties complaining of misconduct by trustees: Per Denman, J., in Smith v. Armitage (1884) 24 Ch. D. 727 . Where however the period of the account to be investigated is after the suit and the charges could not therefore be put into the pleadings and instances of wilful defaults have been proved as to the period for which accounts are produced to give liberty to the plaintiffs to allege particular instances when they are discovered in the actual account taking is the only possible way of not shutting them out altogether without a hearing. The case cited by the learned Advocate General, Wrightson In re Wrightson v. Cooke (1908) 1 Ch. 789, was one of charging further breaches of trust and the distinction is there pointed out at pp. 799 and 800 between charging fresh breaches of trust not alleged in the pleadings for obtaining relief against the trustees on that ground or for removing them and the rule enabling further instances of wilful default to be proved on an account ordered on that basis. In English practice the former is not permissible, but the latter is.

18. The fourth objection raised by the respondents relates to the interest on the unpaid purchase money due by defendant 2 on his purchase through Mahadeva Ayyar amounting according to the statement furnished to us to Rupees 8,939-11-6 and on the payments made by defendants 1 and 2 long after the purchase money was due. We have already referred to this subject and propose to make suitable directions in the decree charging defendants 1 and 2 with interest for non-payment or late payment of the purchase moneys.

19. We have now dealt with the specific objections raised by the appellants and the respondents. As matters now stand the surviving trustees do not object to their removal and it is not necessary to appoint new trustees fox carrying out what remains of the trust as we are told that only one property (a small house in Thirumalavasal) remains to be sold. We have decided to get this done by an officer of Court and for the remainder it consists mostly of taking accounts and winding up this trust for sale which has already been pending too long. As a result, in modification of the decree of the lower Court, we declare as follows : (The judgment then concludes with directions for drawing up the decree.)


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