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Satya Kinkar Dutt and anr. Vs. Kiron Chandra Sinha and ors. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies;Civil
CourtKolkata High Court
Decided On
Case NumberSuit No. 2699 of 1953
Judge
Reported inAIR1954Cal432,58CWN853
ActsTrusts Act, 1882 - Sections 10, 46 to 54, 70, 71 and 73; ;Presidency Towns Insolvency Act, 1909 - Sections 10, 103A and 119
AppellantSatya Kinkar Dutt and anr.
RespondentKiron Chandra Sinha and ors.
Appellant AdvocateA.C. Lahiri and ;H.N. Ghosh, Advs.
Respondent AdvocateDebi De, Adv.
Cases ReferredHerbert v. Sayer
Excerpt:
- .....towns insolvency act. is the recognition that something more than the order adjudicating a trustee insolvent is necessary to discharge a trustee. what is implicit in the insolvency act is made explicit in the indian trusts act whose pro-visions i have already discussed. in other words, a trustee when he suffers insolvency incurs an incipient disqualification which does not mature to disrupt his tenure as trustee until his discharge by appointment of a new trustee in his place. 9. this conclusion is not a result which at first sight appears to be commendable, because an insolvent whom the law considers incapable of managing his own properties and, therefore, divests him, should still permit him to manage somebody else's property in trust. but that appears to be the law. what.....
Judgment:

P.B. Mukherji, J.

1. This Originating Summons raises some interesting and import-ant questions under the insolvency law and the trust law. It is registered as a suit under the Original side Rules of this Court.

2. It is a vendor-purchaser summons taken out by the intending purchasers Satya Kinkar Dutt and Satya Sankar Dutt under an agreement for sale dated 9-5-1953. Their vendors, namely, Kiron Chandra Sinha, Jotindra Nath Bose & Pasupati Nath Bose, are among the defendants on this application. The two other defendants in this proceeding are the two trustees Kartick Chandra Mallick and Ganesh Chandra Mallick. The vendors under Clause 4 of the agreement for sale are required to make a 'good marketable title'.

3. The facts may be briefly stated to appreciate the points of law that this summons calls for determination.

4. One Rai Bahadur Debendra Nath Mallick, a Hindu governed by the Dayabhaga School of Hindu law, executed a Deed of Settlement on 2-1-1925 in respect of diverse properties which 'inter alia' included premises Nos. 30A to 30B, Dharamtolla Street, Calcutta, now intended to be sold under the Agreement for sale.

The main provisions in the Deed of Settlement were, that the Settlor appointed himself as a first trustee, that the Settlor's wife Brojo Sundari Dassi was to enjoy the properties in suit for her natural life and after her death such properties would vest in specified shares absolutely in the five sons of the settlor, and that the trustees for the time being would partition such properties among the five sons in accordance with their shares defined in the Deed of Settlement.

The Deed of Settlement also provided that after the death of the Settlor, his two male heirs eldest in age then surviving would be the trustees. The Settlor died in February, 1926, and the 4th and 5th defendants Kartick and Ganesh being the two male heirs eldest in age then surviving; became trustees under the Deed of Settlement, and acted as such in respect of these properties.

The Settlor's wife Brojo Sundari Dassi died in May, 1933. The important event for the purpose of this summons occurred on 22-2-1938 when the defendant trustee Ganesh was adjudicated insolvent. He remained insolvent till 9-5-1944 when the order for his adjudication was annulled by this Court. During his insolvency on 24-4-1944, the insolvent-defendant Ganesh along with defendant Kartick as trustees sold and transferred the properties in suit to the first three defendants Kiron, Jotin and Pasupati.

Apart from this sale by the trustees in 1944, the searches regarding the title of these properties have revealed that prior to such sale, some of the beneficiaries dealt with their interest in some of these properties, as if they were absolute and in-dependant owners, as for instance, a sale by defendant Ganesh of his share to his wife Biraja on 10-1-1938 just prior to his insolvency, mortgage by defendant Kartick of his share on 14-3-1938, and mortgage by one Gour, another son of the Settlor.

5. It was on 9-5-1953 that the first three defendants in consideration of a sum of Rs. 76,000/-entered into the Agreement for sale of the properties in suit to the plaintiffs & received Rs, 5,001/-as earnest money thereunder from the plaintiffs. The pivotal question relates to the validity of the title of the vendors who purchased these properties from a trustee who was insolvent at the time.

6. The first question raised on this summons for determination is :

(a) whether the 5th defendant Ganesh was competent to sell as trustee in the conveyance dated 24-4-1944 during the period of his insolvency. This question raises the most important point of this summons. The point is, can a bankrupt trustee act as a trustee after his order of adjudication and when his order of adjudication is in operation and has not been annulled. On an anxious consideration of the different sections of the Trusts Act and the Presidency Towns Insolvency Act, I have come to the conclusion that he can, and the answer to Question (a) on the summons as aforesaid must be in the affirmative. I will, briefly, state my reasons for this conclusion.

7. Section 70, Trusts Act indicates two circumstances when the office of a trustee is vacated. One, of course, is the death of a trustee, and the other is his discharge from his office as a trustee. Section 71, Trusts Act lays down six methods by which a trustee may be discharged from his office and these six methods are expressly stated in the Act to be the 'only' methods. Among those six methods described in Section 71 of the Act, insolvency of a trustee is not one. Therefore, the insolvency of a trustee will not 'ipso facto' discharge him from his office of a trustee. The mere fact of insolvency of a trustee will not discharge him but some further step will have to be taken to effect his discharge. That further step is the appointment of a new trustee in his place. This conclusion is supported by Section 73, Trusts Act where it is provided that whenevej any person appointed as a trustee 'is declared insolvent', a new trustee may be appointed in his place.

Insolvency does not discharge him, but provides a ground for his discharge which has to be availed by appointing a new trustee in his place. Until, therefore, a new trustee is appointed in the place of the bankrupt trustee, the bankrupt trustee must be held to continue his office of a trustee. The result appears to follow from the construction of Sections 70, 71 and 73, Trusts Act. Chapter 5, Trusts Act dealing with the disabilities of trustees in Sections 46 to 54 does not affect this result.

8. This view is also fortified by the Presidency Towns Insolvency Act and its relevant sections on the point. A reference to Part 8, Presidency Towns Insolvency Act will show the penalties and disqualifications of an insolvent in cases governed by that Act. But that Chapter of the Statute and specially Section 103-A, Presidency Towns Insolvency Act appearing therein and dealing expressly with the disqualifications of an insolvent make no provision for saying that a person who Ss adjudged an insolvent is by that fact alone of his adjudication disqualified forthwith from holding his office of a trustee.

There are other indications in the Presidency Towns Insolvency Act which support the same conclusion. Section 119 of that Act makes an express reference to the case of insolvency of a trustee under Trustees Act, 1866 because the Trustees Act, unlike the Trusts Act, does not itself provide for the case of insolvency of a trustee under the Trustees Act. It provides that in that event Section 35, Trustees Act will have effect so as to authorise the appointment of a new trustee in substitution for the insolvent.

The words used in Section 119, Presidency Towns Insolvency Act are, however, significant pointers to the conclusion that the insolvency by itself will not discharge the trustee, such words are 'if it appears expedient to do so' and 'whether voluntarily resigning or not'. These words imply that there may be cases where the trustee has not voluntarily resigned after the order adjudicating him insolvent, thereby creating the eventuality of his continuance as a trustee and that in case of such adjudication, a new trustee is not appointed as a matter of course but only if to the Court 'it appears expedient to do so.'

The present case before me is not that of a trustee under the Trustees Act, and the reference to Section 119, Presidency Towns Insolvency Act is made only to show, first, that there is no inherent legal incapacity in the bankrupt trustee to continue to act as trustee, and, secondly, to show that implicit in the scheme of the Presidency Towns Insolvency Act. is the recognition that something more than the order adjudicating a trustee insolvent is necessary to discharge a trustee. What is implicit in the Insolvency Act is made explicit in the Indian Trusts Act whose pro-visions I have already discussed. In other words, a trustee when he suffers insolvency incurs an Incipient disqualification which does not mature to disrupt his tenure as trustee until his discharge by appointment of a new trustee in his place.

9. This conclusion is not a result which at first sight appears to be commendable, because an insolvent whom the law considers incapable of managing his own properties and, therefore, divests him, should still permit him to manage somebody else's property in trust. But that appears to be the law. What appears at first sight to be unreasonable, on a closer consideration yields some justification.

When a person becomes insolvent, the law divests him of his own properties because they are made beholden to answer for his debts and in order to do so, the management of his own properties is taken out of his hands and put in the hands of the Official Assignee. But with regard to trust properties, they are not his own properties and they do not vest in the Official Assignee and the law leaves it open to the authors of a trust or the beneficiaries the right to consider Whether even in insolvency they should continue their trustees but ensures that should they choose to discharge him, the law would offer the fact of the insolvency of the trustee as a good ground for appointment of a new trustee in his place.

The apparent incongruity of the situation was seen by Jessel, M. R. in -- 'Re. Barkar's Trust', (1875) 1 Ch. p., 43 (A) where the learned Master of the Rolls in describing the duty of the Court to remove a bankrupt trustee expressly. refers to special circumstances where a trustee can continue as a trustee although he has become bankrupt in these terms:

'In my view, it is the duty of the Court to remove a bankrupt trustee who has trust money to receive or deal with so that he might misappropriate it. There may be exceptions in special circumstances to that general rule; and it may also be that where a trustee has no money to receive, he ought not to be removed merely because he has become bankrupt; but I consider the general rule to be as I have stated. The reason is obvious. A necessitous man is more likely to be tempted to misappropriate trust funds than one who is wealthy; and besides a man who has not shown prudence in managing his own affairs is not likely to be successful in managing those of other people.'

The clear reference by the learned Master ot the Rolls to the possibility of a bankrupt trustee continuing as a trustee even in special circum-tances at least shows that there is no inherent legal infirmity or incapacity in a bankrupt trustee to continue as trustee until he is discharged by the appointment of a new trustee in his place.

10. Mr. Lahiri for the applicant-plaintiffs has argued the case with great fairness and has drawn my attention to Section 10, Trusts Act which says, 'Every person capable of holding property may be a trustee'. His argument is that an insolvent is not capable of holding property. It is contended that the capacity to hold property is the indispensable qualification of a Trustee and if he loses that qualification, and in this case it is suggested that he has lost it by insolvency, then he can no longer be said to remain a trustee. This argument requires a critical examination.

11. The basic assumption in this argument is that the insolvent suffers from an absolute incapacity to hold property. That assumption is not, in my judgment, sound. It is true that under the Presidency Towns Insolvency Act the property of the insolvent vests in the Official Assignee on-the making of the order of adjudication and such property becomes divisible among his creditors. Of course, the only property that vests in the Official Assignee is the property of the insolvent and not other persons' property which he held in trust at the time. It is also plain that such vesting of the property in the official Assignee does not affect the power of any secured creditor to realise or otherwise deal with his security.

That seems to be the broad effect of Section 17, Presidency Towns Insolvency Act. While this relates to property of the insolvent at the point of time when he is adjudicated, namely, his present properties, the law also in certain circumstances provides for avoidance of voluntary transfers and preference with regard to the insolvent's past dealings as in Sections 55 and 56 of that Act. But with regard to future property or after-acquired property, the law appears to be more tender to the insolvent than with regard to his past dealings and present property, present at the time of the adjudication.

Property acquired by the insolvent after adjudication and before discharge does not vest in the Official Assignee immediately on the making of the order of adjudication. The Official Assignee has a right to intervene in such after-acquired property on behalf of the insolvent's estate. But if he does not so intervene, then the property is held by the insolvent and he is capable of holding such property.

This result has been produced by a long line of interpretation and series of cases beginning with -- 'Moses Kerakoose v. Benjamin Brookes', 8 Moo Ind App 339 (PC) (B); -- 'Kristocomul Matter v. Suresh Chunder Deb', 8 Cal 556 (C); -- 'Dasarathy v. Mahamulya', AIR 1920 Cal 817 (D) and ending with the more recent pronouncements as 'In Re. Sriniyasa Rao', AIR 1947 Mad 187 (E) and an older decision of the same High Court in -- 'Sri Ramalu Naidu v. AndulammaP, 30 Mad 145 (F).

The inspiration for the doctrine that the insolvent is capable of holding such after-acquired property until intervention by the Official Assignee appears to be the English decision in -- 'Herbert v. Sayer', (1844) 5 QB 965 (G). It has been held in India that an insolvent can validly mortgage his after-acquired property or can validly assign a decree obtained by him for personal services rendered after adjudication if such transfers were made before the intervention by the Official Assignee. Indeed it has also been held that unless the Official Assignee has intervened it is competent for the insolvent, his legal representatives and his assigns even to maintain a suit for the recovery of after-acquired immovable property or for any other relief in respect thereof against a stranger and the Official Assignee is not a necessary party to such suit.

In other words, the insolvent can assert a title to after-acquired property and hold the same against the whole world except the Official Assignee. The position, however, is different under the Provincial Insolvency Act where even the after-acquired property vests in the Receiver. This general discussion is intended to show that in any event there is no complete destruction of the insolvent's legal capacity to hold property such as to make him legally incompetent by virtue of his insolvency alone to continue as a trustee.

Viewed in that light, Section 10, Trusts Act cannot, in my judgment, be construed as having the effect that the moment a trustee becomes insolvent he ceases to be a trustee by the very order of his adjudication.

Mr. Debi De appearing for the trustees has contended that the proper meaning to be attributed to Section 10 is that the trustee must be originally capable of holding property but he need not continue to have such capacity. In other words, his argument is that the capacity to hold property relates to the point of time when a person becomes a trustee and does not mean continuing capacity after he has become a trustee. Having regard to the view that I have already taken, I consider it unnecessary to decide that general point of construction which Mr. De has raised about the meaning of the words 'capable of holding property' in Section 10, Trusts Act for I am concerned only with the position of an insolvent. If Section 10, Trusts Act meant an immediate disqualification of the trustee to act as such on the very making of the order of his adjudication, then such a construction will militate, against the provisions of Sections 70, 71 and 73, Trusts Act which I have discussed and from which, I deduce that the trustee may continue to act as a trustee even after his bankruptcy until he is discharged by the appointment of a new trustee in his place.

12. I, therefore, hold that an order of adjudication of a trustee does not by itself discharge him and the bankrupt trustee continues as a trustee until he is discharged by the appointment of a new trustee in his place. For the reasons I have recorded above, I answer Question (a) raised on this summons in the affirmative.

13. The next question raised on this summons for determination is:

' (b) whether the beneficiaries could lawfully and/or validly deal with their interest in the said property before the sale of the same on 24-4-1944 by the trustees.'

14. The answer to this question depends partly on the provisions of the Deed of Settlement. The Deed provides conveyance of the properties in suit to the Settlor himself as trustee 'for and during the term of his natural life upon the trust and subject to the declaration and conditions hereinafter declared and mentioned'.

Clause 3 of the Deed of Settlement is in the following terms :

'That after the death of the Settlor his two male heirs eldest in age then surviving shall be the trustees of the said estate and carry out the terms and conditions of the herein created trust.'

The title to the properties, therefore, by virtue of these provisions in the Deed of Settlement vests in the trustees.

Among the duties and trusts declared by the Deed of Settlement to be carried out by the trustees, the following provisions are material for the purpose of determining the question. They are: '(i) After the decease of the Settlor's said wife, the trustees shall in the first instance have power to partition and divide the said properties after having them valued by a competent Engineer, in proportion hereinafter mentioned, viz., the Settlor's eldest son Kartick Charan Mallick will get absolutely 5 annas share thereof, the Settlor's second son Ganesh Chandra Mallick will get absolutely 2 annas 9 pies share thereof, the Settlor's third son Mahesh Chandra Mallick will get absolutely 2 annas 9 pies share thereof, the Settlor's fourth son Gour Chandra Mallick will get absolutely 2 annas 9 pies share thereof, and the Settlor's 5th son Hari Charan Mallick will get absolutely 2 annas 9 pies share thereof'

(ii) 'or in the alternative if the aforesaid partition be not convenient, the trustees shall be at liberty to have the aforesaid properties valued by a proper and competent Engineer and sell either by public sale or private contract the aforesaid premises at a price not less than a reserve price to be fixed by the aforesaid Engineer appointed by the trustees and divide the net sale proceeds' according to the shares mentioned above.

(iii) 'It is hereby further provided that pending the aforesaid partition or sale whatever the case may be, the trustees shall have full power ami absolute authority to manage the aforesaid properties in any manner they think fit and proper and divide the net income realised therefrom amongst the Settlor's aforesaid five sons' in the proportions mentioned above.

15. On a construction of these relevant provisions of this Deed of Settlement, I am of the opinion that the legal estate vested in the trustee appointed thereunder. I hold, therefore, that the beneficiaries could not in those circumstances deal with the legal estate in the said properties. Any attempt to deal with the same by the beneficiaries is, therefore, void. But the beneficiaries, however, could, in my opinion, deal with their beneficial interest only.

In my view, the terms of the Deed of Settlement make it clear that until the distribution of the properties by the trustees in the manner declared the provisions of the Deed which I have just quoted above, the 'absolute' shares, namely, 5 annas for Kartick, and 2 annas 9 pies for the other 5 sons, could not be disposed of by the son benefi-ciaries. I, therefore, answer Question (b) raised on this summons by holding that the beneficiaries could lawfully and validly deal with their beneficial interest in the said properties but not their legal estate in such properties as it remained vested in the trustees.

(15a) The next question raised in this summons for determination is :

(c)'Whether the beneficiaries are necessary parties in effecting the sale between the plaintiffs and the first three defendants and whether they should be joined in the conveyance as confirming parties.'

16. The answer to this question follows from the answer to the previous question. I am of the opinion that the legal interest in the said properties is completely represented by the trustees under the Deed of Settlement and by the express terms thereunder, the trustees have 'full power and absolute authority to manage the aforesaid properties in any manner they think fit and proper' and as there is no question of the sale being beyond the power of the trustees and as no question of its impeachment on any ground of unreasonableness or 'mala fides' under Section 49, Trusts Act is even alleged, it is not necessary to join the beneficiaries. I, therefore, answer the question accordingly.

17. The next question raised on this summons for determination is :

(d) 'Did the sale by the 4th and 5th defendants as trustees on 24-4-1944 pass a valid and lawful title in favour of the first three defendants in view of the dealings by the beneficiaries of their interests as aforesaid?'

18. This also is consequential. The answer to this question is in the affirmative because the trustees had all the legal title in themselves. I have already said that no dealing by the beneficiaries in this case on the facts could effect the legal title which remained with the trustees at the material time.

19. The next question asked on this summons for determination is :

(e) 'If it be held that the defendant Ganesh was not competent to act as trustee, being insolvent on the material date of sale, was the sale dated 24-4-1944 by the defendant Kartick alone valid and legal?'

Having regard to the opinion I have already expressed that defendant Ganesh was competent to act as a trustee because he was not discharged by the appointment of a new trustee in his place, this question does not arise for an answer. I, therefore, do not answer this question.

20. This disposes of the different questions asked on this Originating Summons. Having regardto the circumstances in this case, I think the bestorder for costs will be that each party will bearhis own costs.


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