Anil Nanda And Another vs M/S Escorts Limited And Others
2008 Latest Caselaw 909 Del

           THE HIGH COURT OF DELHI AT NEW DELHI

%                                            Judgment delivered on: 03.07.2008

+             IA 9339/2005 (U/O 7 R 11, CPC) by Defendant No.1
              IA 9359/2005 (U/O 7 R 11, CPC) by Defendant No.2
              in CS(OS) 1372/2005


ANIL NANDA AND ANOTHER                                            ... Plaintiffs

                                             - versus -

M/S ESCORTS LIMITED AND OTHERS                                    ... Defendants

Advocates who appeared in this case:
For the Plaintiffs     : Mr S. Ganesh, Sr Advocate with Mr V. P. Singh, Sr Advocate
                         and Mr P.K. Bansal
For the Defendant No.1 : Dr A.M. Singhvi, Sr Advocate with Mr C. Martin and
                         Mr Simran Mehta
For the Defendant No.2 : Mr P.V. Kapoor, Sr Advocate with Mr Sanjeev Puri
For the Defendant No.3 : Mr Anshul Tyagi
For the Defendant No.6 : Ms Avnish Ahlawat with Ms Nidhi Gupta
For the Defendant No.8 : Mr V.K. Tandon

CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED

      1.

Whether Reporters of local papers may be allowed to see the judgment ? YES

2. To be referred to the Reporter or not ? YES

3. Whether the judgment should be reported in Digest ? YES

BADAR DURREZ AHMED, J

1. These applications under Order 7 Rule 11 of the Code of

Civil Procedure, 1908 (hereinafter referred to as „CPC‟) were heard

together and are being disposed of by this common judgment. In IA

No.9339/2005, the defendant No.1 has sought the rejection of the

plaint on the plea that the suit appears from the statements in the

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.1 of 18 plaint to be barred by law inasmuch as it is alleged that the condition

precedent of taking leave of the court under Section 92, CPC has not

been fulfilled. The plaint is also sought to be rejected on the ground

of limitation and acquiescence. In IA No.9359/2005, the defendant

No.2 has sought the rejection of the plaint on the ground that it does

not disclose a cause of action. The plea of limitation has also been

taken.

2. Dr Singhvi, appearing on behalf of the defendant No.1 /

applicant, drew the attention of the court to the various averments

made in the amended plaint. In paragraph 7, it has been mentioned

that in the year 1981, the Escorts Heart Institute and Research

Centre, Delhi (EHIRC-Delhi) was registered as a charitable society

under the Societies Registration Act, 1860 with the objective of

running a world class specialist heart institution for the general

public and to carry on research and development in the field of

medicine. It is further stated that the aims and objects of EHIRC-

Delhi clearly and categorically provided that the society would be a

charitable one and was not started with a view to earn profits and

clause 23 of the Rules and Regulations clearly provided that no part

of the societies funds, or the income thereof shall inure to the benefit

of any governor, officer or member of the society. It was also stated

in the said paragraph that the moving light behind the formation of

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.2 of 18 this society was Late Shri H.P. Nanda, father of the plaintiff No.1

and defendant No.4, who had conceived the idea of setting up a

charitable institute of world fame, to help the weaker sections of

society and to create a medical infrastructure for the citizens of

India.

3. In paragraph 1 of the plaint, it has been stated that the

plaintiff No.1 (Mr Anil Nanda) is a former member of the governing

body of EHIRC-Delhi and that he was representing the plaintiff

No.2 on the governing board of EHIRC-Delhi. The plaintiff No.2

has been described in paragraph 2 of the plaint as a company

registered under the Companies Act, 1913 and as a substantial donor

towards the creation of the corpus of EHIRC-Delhi having

contributed about Rs 1.5 crores approximately and, therefore, the

plaintiff No.2 was vitally interested in the present proceedings.

4. In paragraph 9 of the plaint, it has been stated that the heart

institute that had been set up on the land provided by the

Government on concessional rates, was also granted several

exemptions / concessions under the Income Tax Act, 1961 being a

charitable institute as also concessional rates of customs and excise

duties in respect of import of medical and other equipments. In

paragraph 11 of the plaint, it is alleged that soon after the death of

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.3 of 18 Late Shri H.P. Nanda in April, 1999, some of the members of the

governing body of EHIRC-Delhi, headed by the defendant No.4 (Mr

Rajan Nanda) and in collusion with the defendant No.5 with an

intention of grabbing its huge reserves and its substantial assets and

with a view to misuse and appropriate the funds of EHIRC-Delhi,

for their private gains, formed another society with an identical

name - Escorts Heart Institute and Research Centre, Chandigarh

(EHIRC-Chandigarh) which was registered as a society at

Chandigarh, solely with the intention to misappropriate funds of

EHIRC-Delhi.

5. In paragraph 12 of the plaint, it is alleged that the

Memorandum of Association of EHIRC-Chandigarh is virtually

identical to that of EHIRC-Delhi with one exception and that is the

omission of clause 3 (s) which required that all income of the

society would be utilised for the purposes of promotion of the aims

and objects of the society and that the society would be a charitable

one. It is alleged in paragraph 13 that in view of the deletion of

clause 3(s), EHIRC-Chandigarh could apply its income for

purposes, which may not be charitable in nature, for example, for

distribution of dividends to members.

6. The plaint then contains various allegations with regard to

forged and fabricated resolutions passed in various meetings and the IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.4 of 18 facts leading upto the dissolution of EHIRC-Delhi and its

amalgamation with EHIRC-Chandigarh. It is also alleged in

paragraph 14 that this resulted in the accumulated surpluses and

assets of EHIRC-Delhi becoming available for application to non-

charitable purposes in EHIRC-Chandigarh. This amalgamation, it is

alleged, resulted in the change in the fundamental character of

EHIRC-Delhi. In paragraph 17 of the plaint, it is alleged that

EHIRC-Chandigarh moved an application under Section 565 of the

Companies Act, 1956 for registration as a limited company under

Part IX of the Companies Act, 1956. Thereafter, the new company

- Escorts Heart Institute and Research Centre Limited (EHIRCL)

[Defendant No.2] was incorporated with the Registrar of

Companies, Punjab, Himachal and Chandigarh having its office at

Jallandhar, as on 30.05.2000. It is alleged that in this way, EHIRC-

Delhi, a charitable society, with charitable objects and reserves of

over Rs 110 crores was converted into a limited company in which

Escorts Limited (defendant No.1) held 80% of the shares. The

balance 20% being held by other private companies / individuals.

7. In paragraph 31 of the plaint, it is alleged that the

Memorandum of Association of EHIRC-Delhi, created an obligation

on the members of that society to utilise the income and property of

that society only for the purpose of charity. It was further averred

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.5 of 18 that any diversion of income and property for non-charitable

purposes would constitute "a breach of trust reposed in the

governing body". It was further alleged that the amalgamation of

EHIRC-Delhi with EHIRC-Chandigarh resulting in the alienation of

the property of EHIRC-Delhi and its utilisation for the purposes

other than those for which the members had been originally

authorised thus constitutes "a breach of trust".

8. In paragraph 33 of the plaint, it has been alleged that Escorts

Limited (Defendant No.1) as a founder member of the governing

body of EHIRC-Delhi, was entrusted with the obligation to utilise

the income and properties of EHIRC-Delhi only for charitable

purposes. It is further averred that Escorts Limited (Defendant

No.1) was in a fiduciary capacity and by adopting the colourable

device of amalgamation and registration of a limited company, has

obtained a substantial beneficial interest in the property of the

society and has also sought to make profits like selling its interest in

the property in the shape of shares in EHIRCL (Defendant No.2). It

has then been alleged that the action of Escorts Limited (Defendant

No.1) in acquiring the beneficial interest in the properties meant for

public charity while being legally obliged to act as a trustee for the

same is "a breach of trust as also a criminal breach of trust‟.

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.6 of 18

9. Again in paragraph 40 of the plaint, it is averred that the

series of events from the amalgamation of EHIRC-Delhi with

EHIRC-Chandigarh till the conversion of EHIRC-Chandigarh into

the company (EHIRCL) had resulted in a charitable society holding

public funds being illegally converted into a limited company which

exists for profits / assets to be distributed amongst its members. In

this context, it has been alleged that the conversion of EHIRC-

Chandigarh into a company limited by shares capable of distributing

dividends and assets to its members is in complete violation of the

provision of the Companies Act, 1956 and "is a breach of trust"

and a fraud on the exchequer and the general public, including the

various donors to EHIRC-Delhi.

10. In the cause of action paragraph, i.e., paragraph 45 of the

plaint, the plaintiffs have stated that the cause of action for filing the

present suit arose when EHIRC-Delhi was wrongly amalgamated

with EHIRC-Chandigarh and when the same was wrongly converted

into a limited company and when funds were raised by defendant

No.1 against its shares in defendant No.2 and lastly when the

plaintiffs came to know through newspaper reports, including the

Hindustan Times, New Delhi dated 21.09.2005 that the defendant

No.1 is proposing to divest its holding in defendant No.2 to third

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.7 of 18 parties and is not going to get the character of defendant No.2

reconverted to a society having a charitable purpose.

11. In the context of these pleadings, the plaintiffs have made the

following prayers:-

"PRAYERS In the facts and circumstances, it is therefore, most respectfully prayed that this Hon‟ble Court may be pleased to:-

1A. pass a decree of declaration declaring that no amalgamation of EHIRC Delhi took place with EHIRC Chandigarh.

a).. in the alternative, pass a decree of declaration declaring the amalgamation of EHIRC-Delhi with EHIRC-Chandigarh as non-est, void and bad in law in view of the provisions contained in the Societies Registration Act, 1860;

        b)..    pass a decree of declaration thereby declaring the
                conversion    of     EHIRC-Chandigarh        (post

amalgamation) into a Limited Company under the Companies Act, 1956, as being void and contrary to law;

c).. pass a decree of permanent injunction in favour of the Plaintiffs and against the Defendant No.1, injuncting its officers, agents and employees from transferring, alienating or otherwise creating any third party rights or interest with respect to the shares held by the Defendant No.1 in Defendant No.2;

d).. pass a decree of permanent injunction in favour of the Plaintiffs and against the Defendant No.2, its officers, agents and employees from registering any transfer of shares effected by the Defendant No.1;

e).. pass a decree of mandatory injunction directing the restoration of the assets, properties and facilities of the Second Defendant, and its ownership, management and control and its character and IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.8 of 18 structure to its original status of a public charitable institution, dedicated wholly and exclusively to public service;

f).. award costs of the suit in favour of the Plaintiffs and against the Defendants;

g).. pass such further order or directions as this Hon‟ble Court may deem fit and proper on the facts of the present suit."

12. Dr Singhvi, the learned senior counsel, appearing on behalf

of the defendant No.1, submitted that the averments made in the

plaint, which have been indicated above, leave no manner of doubt

that the plaintiffs‟ present suit is founded upon the alleged breach of

trust created for public charitable purpose. The relief that has been

sought in the present suit also falls within the scope of the reliefs

indicated in clauses (a) to (h) of sub-Section (1) of Section 92, CPC.

Consequently, it was contended, it became incumbent upon the

plaintiffs to have obtained the leave of the court before they

instituted the present suit. It was submitted that the requirement of

taking leave of the court before a suit of the nature indicated in

Section 92, CPC could be instituted, is a mandatory one and is a

condition precedent to the maintainability of the suit. In case such

leave has not been taken when it is required to be taken, the suit

would be barred by law and the plaint would be liable to be rejected

under Order 7 Rule 11 (d), CPC. Dr Singhvi also submitted that it

has not been stated anywhere in the plaint that any leave was taken.

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.9 of 18 Consequently, placing reliance on R.M. Narayana Chettiar and

Another v. N. Lakshmanan Chettiar and Others: AIR 1991 SC

221, Hari Bhagwan Sharma and Others v. Badri Bhagat

Jhandewalan Temple Society and Others: 27 (1985) DLT 68,

Jathedar Sandhu Singh and Others v. Charan Singh and Others:

AIR 1972 P&H 347, R. Krishnappa Shetty v. L. Ramakrishnappa

and Others: 1995 AIHC 308 and Lucknow Diocessan Trust

Association, Allahabad and Others v. Sachindranand Bakshi and

Others: AIR 1990 Allahabad 202 (DB), the learned counsel

submitted that the plaint ought to be rejected.

13. It was also contended by Dr Singhvi that the plaint was

liable to be rejected on the ground of limitation and acquiescence.

He submitted with reference to paragraph 45 of the amended plaint,

which relates to cause of action, that, according to the plaintiffs, the

cause of action arose when EHIRC-Delhi amalgamated with

EHIRC-Chandigarh. That happened in 1999-2000. The cause of

action, according to the plaintiffs, again arose when EHIRC-

Chandigarh was converted into a limited company (EHIRCL). That

also happened on 30.05.2000, the date of incorporation. It was also

submitted that, in any event, the plaintiff No.1 was a director in

EHIRC-Delhi as well as in the defendant No.1 in 1990-2000 and

was well-aware of all these facts. Consequently, the clock for the

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.10 of 18 purposes of limitation began to run in the year 2000 and expired in

2003. The suit has been filed in 2005 and is, therefore, barred by

time.

14. In IA No. 9359/2005, Mr P.V. Kapoor, the learned senior

advocate, who appeared on behalf of the applicant/defendant No.2,

submitted that the plaint does not disclose any cause of action and

the suit is also barred by limitation. With regard to his first

contention, he submitted that a reading of the plaint would indicate

that it is based entirely on the allegation that a charitable society has

been converted into a company without charitable objects and this

has amounted to breach of trust on the part of the members of the

governing body of EHIRC-Delhi. The reliefs are also directed

against the amalgamation of EHIRC-Delhi with EHIRC-Chandigarh

and its subsequent conversion into a limited company (EHIRCL).

Restoration of the assets and properties to the original status of a

public charitable institution has been sought. It is clear that the

plaintiffs have not claimed any personal reliefs for themselves. Nor

have they indicated as to which legal right of theirs has been

violated or infringed by the defendants. Consequently, the

plaintiffs, who do not seek any relief for themselves, would

obviously not have any locus standi or cause of action for seeking

the reliefs that they do in the present suit. Referring to the Supreme

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.11 of 18 Court decision in Popat and Kotecha Property v. State Bank of

India Staff Association: JT 2005 (12) SC 302, Mr Kapoor

submitted that the plaintiffs must show a clear right to sue and if that

is not disclosed, then the plaint ought to be rejected under Order 7

Rule 11, CPC. He also referred to T. Arivandandam v. T.V.

Satyapal and Anr.: 1977 (4) SCC 467 to submit that the plaint must

be read in a meaningful manner and not in a formal way to see as to

whether it discloses a clear right to sue in the plaintiff.

15. On the question of limitation, Mr Kapoor submitted that the

amalgamation of EHIRC-Delhi with EHIRC-Chandigarh and its

subsequent conversion into a company all took place in 1999-2000.

He also submitted that the plaintiff No.1 was a party to those

decisions. In any event, the suit could, if at all, have been filed in

2003, but was filed on 29.09.2005 and, therefore, it was barred by

time.

16. In response to these arguments, Mr Ganesh, the learned

senior counsel, who appeared on behalf of the plaintiffs, firstly

submitted that the suit is not barred by limitation in view of Section

10 of the Limitation Act, 1963 which indicates that there is no

limitation to follow property held in trust. Of course, this argument

can only be made when the plaintiff accepts that EHIRC-Delhi was

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.12 of 18 actually a trust and the assets were held under trust. According to

Mr Ganesh, once the argument of Section 92, CPC is taken up, the

argument based on limitation disappears. The two are mutually

exclusive. With regard to the contention that leave had not been

taken for filing the present suit, Mr Ganesh submitted that Section

92, CPC is not attracted in the present case. He referred to

Chairman Madappa v. M. N. Mahanthadevaru and Others: AIR

1966 SC 878 (para 10) to submit that the object of Section 92 was

to protect trusts from frivolous litigation by third parties. He also

referred to R.M. Narayana Chettiar and Another v. N.

Lakshmanan Chettiar and Others: 1991 (1) SCC 48 to submit in

similar vein that Section 92, CPC was intended to prevent

harassment of the trustees through frivolous litigation by third

parties. However, I do not see as to how these decisions in any

manner promote the case of the plaintiffs. What has to be seen, as is

noted below, is whether the ingredients of Section 92, CPC are

satisfied or not. He also submitted that suit against third parties

does not attract Section 92, CPC. The defendant No.1 and

defendant No.2 are not trustees and the reliefs are claimed against

them, therefore, Section 92, CPC would not be applicable. He also

referred to Bishwanath and Another v. Sri Thakur Radha

Ballabhji and Others: AIR 1967 SC 1044 to submit that the suit

against a alienee of trust property is not one which is covered under

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.13 of 18 Section 92, CPC. But it must be remembered that in the case before

the Supreme Court, there was no allegation of breach of trust,

whereas in the present case, the suit is founded on the allegation of

breach of trust. Mr Ganesh also referred to various other decisions,

including Kalyana Venkataramana Aiyangar and Another v.

Kasturi Ranga Aiyangar: AIR 1917 Madras 112 (FB), Abdur

Rahim and Others v. Syed Abu Mahomed Barkat Ali Shah and

Others: AIR 1928 Privy Council 16, Veerbasavaradhya and

Others v. Devotees of Lingadagudi Mutt and Others: AIR 1973

Mysore 280, Uma Shanker and Others v. Salig Ram and Others:

AIR 1975 Allahabad 36 (FB), Harendra Nath Bhattacharya and

Others v. Kaliram Das (dead) by his Legal Representatives and

Others: AIR 1972 SC 246, Bishwanath and Another v. Sri Thakur

Radha Ballabhji and Others: AIR 1967 SC 1044 and Sri Vedagiri

Lakshmi Narasimha Swami Temple v. Induru Pattabhirami

Reddy: AIR 1967 SC 781.

17. The first thing that has to be considered in this case is

whether the suit is of the kind as would fall within the four corners

of Section 92, CPC. It is apparent that before Section 92, CPC is

attracted, there must be (1) an alleged breach of trust; (2) the trust

may be express or constructive; (3) the trust, however, must have

been created for public purposes (of a charitable or religious nature);

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.14 of 18 and (4) the suit must be instituted so as to obtain a decree of the

nature indicated in clauses (a) to (h) of sub-Section (1) of Section

92, CPC. It has to be seen as to whether the present case satisfies

these tests. In the earlier part of this judgment, the averments made

in the plaint have been referred to in detail and they clearly indicated

that the plaintiffs have alleged breach of trust. It is also clear that

the plaintiffs have alleged that EHIRC-Delhi was constituted for

public purposes of a charitable nature. The reliefs that have been

sought all pertain to re-establishing the public charitable nature of

the assets of EHIRCL (Defendant No.2), owned in major share by

Escorts Limited (Defendant No.1). Such reliefs may be covered

under clause (c) and definitely under clause (h) of sub-Section 1 of

Section 92, CPC. In my view, therefore, the plaintiffs were required

to have obtained the leave of the court before instituting the present

suit. As noted in the decisions referred to by the learned counsel for

the defendant No.1, the requirement of obtaining leave of the court

is not a mere formality, but a mandatory condition precedent for the

institution of a suit under Section 92, CPC. If this pre-condition is

not satisfied, the suit would be barred by the provisions of Section

92, CPC consequently, the plaint would be liable to be rejected on

the ground referred to in clause (d) of Order 7 Rule 11, CPC. In the

present case, this condition precedent has not been satisfied.

Admittedly, no leave of the court has been taken prior to the

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.15 of 18 institution of the present suit. Consequently, the plaint has to be

rejected under order 7 Rule 11 (d), CPC.

18. With regard to the argument that the plaint does not disclose

a cause of action, it may be noted that, if it is for the time being

assumed that Section 92, CPC does not apply, the plaint does not

disclose any cause of action in favour of the plaintiffs. The entire

suit is based on the allegation of breach of trust and conversion of a

society having public charitable objects into a company with objects

of private gain and profitability. No relief personal to the plaintiffs

have been claimed in the plaint. The question that may be asked is -

how are the plaintiffs affected? Why have they filed this suit?

Obviously, they have not sought any personal relief. Therefore,

they are not personally affected. Then, what have they sued for and

for whom? These questions and answers indicate and reinforce the

conclusion that the suit cannot, but be one which falls within the

four corners of Section 92, CPC. Because, the moment one tries to

bring it out of the folds of Section 92, CPC, it does not appear to

have the oxygen to survive. The suit has also not been filed in a

representative capacity under Order 1 Rule 8, CPC. Can one bring a

suit in which a relief is claimed for another person ? Certainly not.

Since the plaintiffs do not claim any reliefs for themselves, it is

apparent that they do not have any cause of action. The plaint is,

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.16 of 18 therefore, also liable to be rejected on the ground that it does not

disclose a cause of action in favour of the plaintiffs.

19. As regards the issue of limitation, it would not be appropriate

to go into this question at this stage because, in my view, had a

decision not been taken with regard to the Section 92, CPC

argument and the decision that the plaint does not disclose a cause

of action, then it would have been necessary for me to examine the

question of limitation. I further note that if that had been the case,

then the question of limitation could not have been answered at this

stage without requiring further evidence because there is a plea of

knowledge taken by the plaintiff No.1 and that plea has to be taken

to be true and correct while deciding an application under Order 7

Rule 11, CPC. The issue of limitation, if the suit were to survive,

would have had to be decided at the stage of trial. Consequently, I

cannot and need not return any finding on this aspect.

20. In view of the foregoing discussion, since I have held that

the condition precedent for filing of a suit under Section 92, CPC

has not been satisfied and that, in any event, the plaint does not

disclose a cause of action in favour of the plaintiffs, the plaint is

rejected under the provisions of Order 7 Rule 11 clauses (d) and (a)

(respectively).

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.17 of 18 These applications are allowed. The plaint is rejected. The

suit and all pending applications stand disposed of.

BADAR DURREZ AHMED (JUDGE) July 03, 2008 dutt

IA Nos.9339/05 & 9359/05 in CS(OS) 1372/05 Page No.18 of 18