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R.M.A.R.A.R.R.M. Arunachalam Chettiar Vs. Official Assignee and anr. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies
CourtChennai
Decided On
Reported inAIR1935Mad60; 155Ind.Cas.772
AppellantR.M.A.R.A.R.R.M. Arunachalam Chettiar
RespondentOfficial Assignee and anr.
Cases ReferredSethuramaswamier v. Meeruswamier
Excerpt:
.....of which on their present scale fail to absorb a large portion of the interest. the conduct both of mani chetty and of the present insolvents shows that when the business gets into difficulty, the so-called trust fund is drawn on to make good the losses incurred in trade, and the trust was treated as being of a revocable nature......alleging that that sum was due to a charity beling the principal and interest of half of a trust fund. the question before our learned brother was whether there had in fact been an irrevocable trust created in favour of a charity of which the amount claimed by the petitioner was half.2. the petitioner's case is that for the purpose of conducting uchikala kattalai in sri nataraja temple in chidambaram em. ar. ar. arunachalam chettiar, the lather of ar. ar. sm. somasundaram chettiar (deceased) and the grandfather of the petitioner founded and established a kattalai and set apart certain sums of money as a permanent endowment thereof constituting himself as the trustee on behalf of his family. he invested the money in the family business in accordance with the custom prevailing.....
Judgment:

Beasley, C.J.

1. This is an appeal from a judgment of Stone, J., and is a matter arising out of the insolvency of a firm known as the Ar. Ar. Sm. Firm. There are two insolvents, namely, Arunchalam Chettiar and Sundaresan Chettiar, sons of Ar. Ar. Sm. Somasundaram Chettiar (deceased). The petitioner is the brother's son of Ar. Ar. Sm. Somasundaram Chettiar. In his petition in the Insolvency Court he asked for a direction that the Official Assignee should pay him out of the assets of the insolvents the sum of Rs. 19,481-7-2 alleging that that sum was due to a charity beling the principal and interest of half of a trust fund. The question before our learned brother was whether there had in fact been an irrevocable trust created in favour of a charity of which the amount claimed by the petitioner was half.

2. The petitioner's case is that for the purpose of conducting Uchikala Kattalai in Sri Nataraja temple in Chidambaram Em. Ar. Ar. Arunachalam Chettiar, the lather of Ar. Ar. Sm. Somasundaram Chettiar (deceased) and the grandfather of the petitioner founded and established a kattalai and set apart certain sums of money as a permanent endowment thereof constituting himself as the trustee on behalf of his family. He invested the money in the family business in accordance with the custom prevailing among the Nattukottai Chetties to carry interest at the Madras Nadapu rate with yearly rests. It is alleged that he managed the trust fund during his lifetime maintaining distinct accounts headed with the name of the charity and that the fund accumulated by accrual of interest from time to time. After his death in 1901 a partition was effected between the petitioner and Ar. Ar. Sm. Somasundarm Chettiar on 18th April 1901 and it was then agreed and arranged that the several family trusts should be continued and for the purpose of administration should be divided and held in two equal shares, one share being under the control and management of the petitioner and the other under the control and management of Somasundaram Chettiar, the amounts carrying interest at the same rate as before.

3. The trust fund as then shown in the account books was divided and half of it, namely, Re. 3,016-9-8, was received by Somasundaram Chettiar and the other half was received by the petitioner. Somasundaram Chettiar invested his half share of the fund in the business he was carrying on behalf of his branch of the family and kept distinct accounts in respect of it under the name and heading of the said charity. Somasundaram Chettiar died in 1923 and then his sons, the insolvents, took possession of the estate and assumed the control and management of the fund, it is alleged, with full knowledge that it was to be applied for the specific charitable purpose already mentioned, and it was held by them in a fiduciary capacity and as trustees thereof. The insolvents were adjudicated on 16th July 1925 and the Official Assignee, respondent 1 here, took possession of all the property including the assets of the business in which the alleged trust fund had been invested.

4. The origin of the fund is unknown but it is said that it has a continued existence of 60 years. There is no deed of gift and all that there appears to be is an entry in the account books the ledger page being headed with the name of the temple in the following way; 'Credit and debit account of Uchikala Kattalai of Chidambaram temple.' It is alleged that the object of this trust was to provide for the performance of certain duties in the temple by people who are known as Dikshithars and who received a fee for the performance of those duties. The sums of money so expended from time to time are debited against this account and in the account maintained by the petitioner interest according to the Madras Nadappu rate is credited? to that account. It is contended that these duties have been performed by the Dikshithars, who are persons forming the general trustees of the temple a very large body, continuously, and there being no deed of gift the petitioner relies upon the following matters in support of his case that the fund was an endowment for the charity, namely, the Uchikala Kattalai of this temple.

5. They are (1) that the fund was set apart in the books, (2) that it has continued for 60 years, (3) that an entry is found showing that a stranger to the family contributed Rs. 100 in 1899, (4) that the duties have been continuously performed, (5) that interest was paid for 11 years up to the date of partition and after the partition upto the present time by the petitioner showing that this interest did not belong to the petitioner but to the fund, and (6) that where wrong debits had been made there has been a re-credit. All these matters it is contended on the appellant's behalf show that a trust fund was created. Stone, J., however held against this contention. The respondents contend that the entry in the account books is nothing more than a credit entry in favour of the temple and rely further on the fact that the existence of the trust was never communicated to the trustees of the temple.

6. On this point Taylor v. London and County Banking co. (1901) 2 Ch D 231 was relied upon by the appellant. There, one of the two trustees of a settlement received a sum of money belonging to the settlement and without the knowledge of his co-trustee fraudulently 'applied it to his own use. By entries in his books, under the heading of the trust, he purported to appropriate his own mortgage debt to answer the sum of which he had defrauded the trust estate, but he never communicated the purported appropriation either to his co-trustee or to his cestuis que trust all of whom were sui juris. It was held by Vaughan Williams and Stirling, L.JJ. (Rigby, L.J., dissenting), that there had boon a good appropriation in favour of the settlement though not communicated by the trustee either to his co-trustee or to his cestuis que trust. This is a certainly a case where there was no communication to a cestuis que trust of an appropriation in favour of a trust. But this clearly was an exceptional case and is certainly distinguishable on the ground that there was without question a settlement and one of the trustees had acted fraudulently and in order to cover up his fraud made an appropriation of his own money concealing that fact and the fraud from his co-trustee and the cestuis quo trust.

7. It is very different where a trust is originally started and the beneficiaries of the trust are kept unaware of its existence or of its obligations and this in my view is of serious importance because it bears strongly upon the question of irrevocability of the trust. An uncommunicated trust can much more conveniently be revoked than one of which the beneficiaries are aware and the revocation of which they arc likely to oppose. This case was considered in In re Cozens, Green v. Brisley (1913) 2 Ch. D 478. There it was hold that in all cases whore it is alleged that a defaulting trustee has appropriated securities to make good his breaches of trust and a declaration of trust is relied on, the Court must be satisfied that a present irrevocable declaration has been made the Court refused to accept as evidence of such a declaration of trust pencil entries in private accounts kept by the defaulting trustee never communicated to any one and which in some cases appeared to have been altered and stated that the absence of communication in itself raised a strong inference against an intention to make the appropriation irrevocable. Neville, J., in that case was of the opinion that the finding in Taylor v. London and County Banking Co. (1901) 2 Ch D 231, was not necessary for the decision of the case. In my view Taylor v. London and County Banking co. (1901) 2 Ch D 231 can hardly be relied upon as an authority against the general proposition that a trust must be communicated to its beneficiaries. Another case relied upon by the appellant was Gopal jew Thakur v. Radha Binode 1925 Cal 996 when an extract from a judgment in Ganga Varain v. Brindabun Chundur (1865) 3 W.R. 142, was quoted with approval, namely:

One test of a bona fide or a nominal endowment is to see how did the founder treat this property, or how have descendants treated it; has the income of the endowed lands been continually applied to the object of dedication.

8. Clearly these principles cannot be disputed. Maruti Ramja Rao v. Mallapur Shri Gopal Krishna 1932 Bom. 305 is to the same effect. A passage in a judgment in an income-tax case was also referred to in support of the appellant's case. The case is Rm Ar. Ar. Rm. Aruna Challam Chettiar v. The Commissioner of Income-tax, Madras (1928) 3 I.T.C. 38 and the passage reads as follows:

We are far from saying that it is necessary in order to create a trust that the person in whose favour the trust is created should know about it.

9. That is an extract from my own judgment and I feel sure that I must be understood to have meant only that there may be some exceptions to the general rule that a trust to be effective must be communicated to the cestuis que trust or that he should at least know about it. The question as to whether there has been an irrevocable trust or not must, in my opinion, be a question of fact in almost every case, and no doubt the facts relied upon by the appellant are strong ones but against them there are put the following matters, namely, that there is no evidence here that the owners of the fund intended to part with the ownership and control of it, that its existence was never communicated to the general trustees of the temple and that on a division the fund appears to have been treated as an asset in the partition. It is further contended that, if it were a trust fund, it could not have been partitioned. Further, there is no evidence about its original deed or document. There is only a ledger entry in 1901 and that does not mention that the sums credited there are hold in trust for the temple. There is certainly no recital of a trust in it nor arc its objects defined. It is, I think, quite clear that no third party could enforce this trust which seems to S be entirely for the benefit of the founders of it and the family and not of strangers and thus there is an absence of charitable object. The general trustees of the temple have not sought to enforce it and its continuance, it seems to me, is purely voluntary. One test in such cases must be what those who are alleged to be obliged to carry out the trust would do in certain eventualities, (or instance, when hard pressed for money. What happened in this case? It is perfectly clear that even during the life time of the father of the insolvents the services which were being performed at the temple were stopped without objection being raised by any poison. It is true that when Mani Chetty failed to carry out the objects of the alleged trust the burden was shouldered by another member of the senior branch but there is nothing to show that it was anything more than a voluntary act on the part of the latter. A letter from the petitioner to one of the Dikshatars certainly seems to me to shed some light upon this question. It is Ex. 16. There the appellant asks:

It is necessary that Thirupakshi and Pavadai should be conducted on the 27th instant or can it be stopped?

10. Thirupakshi is one of the offices the performance of which according to the appellant the trust had in view and in this letter he himself makes a suggestion that it should cease. In Ex. X dated 1st January 1922 reference is made to 1 Mani Chetti's difficulties and it is there stated that the expenses of Thirupakshi, and Pavadai would be sent as soon as better times come. In Ex. 1 it is stated:

S.M.A.R. Avergal (1st insolvent) has sent word that Uchikala Kattalai may be stopped.

11. But there is, to my mind, a still more important matter. Whereas in the accounts of the appellant interest at the Madras Nadappu rate was credited to the temple, in the accounts kept by the insolvents' branch in respect of that half share of the fund no interest at all wasf credited. That is clearly indicative on the fact that it was not regarded as a fund invested on behalf of the temple. No doubt the appellant has continued to have the offices performed at the temple but care must be taken to distinguish the voluntary acts of charitably minded people from those who have no option in the matter, and after taking all the circumstances into consideration I am not satisfied that the appellant, was bound to apply the fund for the= purposes for which it has been applied; particularly having regard to the fact that the other branch of the family ceased to so apply it. The splitting up, of the alleged trust into two on a partition seems to me also to be inconsistent with a trust; and the case relied upon by the appellant, namely Ramanathan Chetty v. Murugappa Chetty (1904) 27 Mad. 192 does not really support the appellant's contention. In that case there was no splitting up of a trust fund. It was the management of the fund which was split up and it was there held that, it was competent for co-trustees to settle a scheme of management by each of the co-trustees in rotation; and on, appeal to the Privy Council, it was held that such an arrangement was not improper and was not a breach of trust : see Ramanathan Chetty v. Murugappa Chetty (1906) 29 Mad. 283. The decision was considered in Ayiswaryanadaji Saheb v. Sivaji Raja Sahed 1926 Mad. 84, where Kumaraswami Sastriar, J., points out that the decision of their Lordships of the Privy Council rested on usage as regards the Trusteeship and on p. 146 says:

I find nothing either in Ramanathan Chetty v. Murugappa Chetty (1904) 27 Mad. 192 or Ramanathan Chetty v. Murugappa Chetty (1906) 29 Mad. 283 which compels us to hold that the office should be treated as partible property and that on partition of the other properties of the family this office should be held by turns

and on p. 147 ;-

I do not find anything in the decision of their Lordships of the Privy Council in Ramanathan Chetty v. Murugappa Chetty (1904) 27 Mad. 192, to warrant the rule that even in the case of public charities and trusts, the claims of the dividing coparceners should override the interests of the institution and the observation of their Lordships in Sethuramaswamier v. Meeruswamier 1917 P.C. 190 rather suggests that the rule laid down as to turns of management on partition applies only to private charities.

12. It seems to me to follow that, if the office of a trustee is not partible, then the trust itself must also not be so, and the fact that it was partitioned appears to mo to be entirely inconsistent with the existence of a trust. There is a further difficulty indicated by the learned trial Judge and that is that assuming that the trust fund was incapable of being so divided, the result has been that two trusts have been formed one created by one branch of the family and the other by the Insolvents' branch of the family, and as I have pointed out before, dealt with by the latter in a different way, namely, by its discontinuance and non-payment of interest to the trust. How can a trustee of trust A claim to enforce trust B of which he is not a trustee at all? Stone,J., has, in my opinion, correctly answered that ho cannot do so. For the reasons I have stated, in my view, this application was rightly dismissed. It follows that this appeal also must be dismissed with, costs on same scale as in the trial -Court.

13. O.S. Appeal No. 93 of 1933. - Dismissed with costs.

Butler, J.

14. O.S. Appeal No. 92 of 1933. - I respectfully concur. There is one aspect of the matter to which I consider it desirable to draw attention. After the division of the alleged trust fund in 1901 the two funds were treated in different manners by the petitioner and the insolvents. The former allowed interest on the amount placed to the credit of the Kattalai, and the latter did not. The amount as per account was then Rs. 3,016 odd with each trustees. The insolvents' accounts now show (Ex. G) a credit balance of Rs. 1,244-2-4 whereas the petitioner's accounts (Ex. A) show a balance of Rs. 24,556-5-0. Thus the fund with the petitioner, after meeting all charges on his share, has increased by eightfold in less than 30 years, and then; is nothing to indicate how the surplus is ever to be employed, and it would seem that the cestuis que trust would have no right to apply for its application, provided that the service of the Kattalai is properly maintained. The petitioner claims that there should be set apart as trust moneys from out of the assets of the insolvents, not the amount shown to the credit of the Kattalai in the insolvents' accounts, but the amount, which the account should have shown, if it had been treated in the same manner as in petitioner's. This would entail the setting aside of a large fund to the benefit of a trust of an ill denned nature, the expenses of which on their present scale fail to absorb a large portion of the interest. Supposing therefore that interest should have been allowed on the fund, the result would have been that an ever smaller proportion of the amount at credit would be paid towards the Kattalai, while the balance, which could be continually increasing, would stand to the credit of the alleged trust in the accounts, but in effect would be employed by the 'trustee' in his own business for his personal benefit. The conduct both of Mani Chetty and of the present insolvents shows that when the business gets into difficulty, the so-called trust fund is drawn on to make good the losses incurred in trade, and the trust was treated as being of a revocable nature. I would therefore hold that the trust is both indefinite in character and of a revocable nature, and fails to comply with the requirements of a valid trust. I therefore agree that the appeal must be dismissed with costs.


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