& Anr Vs. Joshi Amba Shankar Family Trust & Ors  INSC 305 (22 February 1996)
A.M. (Cj) Ahmadi A.M. (Cj) Mukherjee M.K. (J) Manohar Sujata V. (J)
1996 SCC (3) 310 JT 1996 (2) 560 1996 SCALE (2)454
O R D
the learned counsel for the parties.
appeal is directed against the judgment and order dated July 11, 1995 rendered by the Madras High Court
disposing of two Original Side appeals. Facts leading to this appeal and relevant
for its disposal are as under.
dead of declaration dated January 15, 1934 one Ambasnker Joshi created the
respondent No. 1-Trust in relation to his three immovable properties, one of
which is house and ground No. 429 (new No. 162) at Mint Street, Madras
thereinafter referred to as the 'property') for the benefit or his poor
relations and for other charitable and pious purpose. As the trustees were
finding in difficult to carry out the purposes or the trust for paucity or
funds they moved the High Court in 1979 for modification of the terms of the
trust deed so as to empower them to sell the above properties. By its order
dated November 23, 1983 the High Court granted such power
subject to the condition that it would be exercised only with the permission of
the Court and the concurrence of 3/4th on the total number of trustees in
with the above order the trustees invited offers for purchase of the property
and on receipt of some offers sought permission of the High Court to sell the same
at the highest price offered which was granted on February 9, 1984.
inspite of the permission so granted, the trustees did not sell the property at
the highest price offered, which was Rs. 3,15,000/- till then, and instead
thereof invited, and received, fresh offers including one from the respondent
Nos. 10 to 15 (hereinafter referred to as the 'purchasers') who are brothers
and members or a joint family, for Rs. 9,00,000/-. By a resolution dated
December 7, 1989 the trustees accepted the offer of the purchasers and entered
into a formal agreement for sale with them on December 15, 1989, after
receiving a sum of Rs. 1,50,000/- an earnest money. Then on January 15, 1990, the trustees applied for the
clearance certificate required under the Income Tax Act for sale of the
property. A week thereafter - on January 23, 1990 to be precise the appellants herein sent a latter to the trustees
which reads as under:
an order dated 9th
February, 1984 in
Application No. 68 of 1984 in C.S. NO. 530 of 530 of 1979 on the Original side
of the High Court at Madras His Lordship Mr. Justice Sangottuvelan was pleased
to permit the trust, the applicant in the above Application to sell the
immovable property to together with the superstructure therein bearing door No.
162 (old No. 420), Mint Street, Madras - 79 at the highest price offered.
offers were not called for by one publication in the press for which we were
waiting so far, we are now offering for the said property together with the
superstructure, fittings and fixtures, being door No. 162 (new) Mint Street,
Madras 79 a sum of Rs.14,20,000/- (Rupees Fourteen Lakhs and Twenty thousand
only) which price is negotiable.
have been in occupation of the said promises for over a half century running a
Hotel Industry, a portion thereof being occupied for our personal residential
purposes, paying rent to the Trust regularly and without default during all
these years. Since we are keenly interested in the property we therefore
request you to consider the offer, which is negotiable favorably. Kindly
acknowledge and let us have a favorable reply at the earliest.
you." In acknowledging the above letter the trustees intimated the
appellants, by letter dated February 26, 1990, that their offer to purchase the
property for Rs.14,20,000/-, would be placed before the meeting of the trustees
and the decision taken would be communicated to them; and accordingly, asked
them to wait for the result of the meeting.
on March 16, 1990 the Trust through the managing trustee, filed an application
in the High Court (Application No. 1660 of 1990) seeking permission to sell the
property to the purchasers for Rs.9,00,000/- as, according to them, it was the
highest offer, and to execute and register the necessary deed of sale.
order dated March 29, 1990 a learned Judge of the High Court granted the
permission sought for and directed the trustees to invest the sale proceeds, in
such manner as the Majority of them might deem fit and proper., Pursuant to the
said order said deeds were executed in favour of the purchasers on April 12,
1990 and all the tenants of the property , including the appellants, were
intimated of such sale.
on July 3, 1990 the appellants sent a notice, through their Advocate, to the
Trust, the trustees and the purchasers alleging that they had played a fraud on
the Court, the Registration Department and the income-tax Department when they
declared that the property fetched a highest offer of Rs.9,00,000/- as its
price, in that, they suppressed the fact that they (the appellants) had offered
to purchased the property for Rs.14,20,000/-. It was further alleged that the
purchasers were aware of their offer as they were informed of the same through
one of them (respondent No. 11). The appellants gave out that in case the
property was not said to them at the price offered by them on or before July
10, 1990 they would not only taken action to set aside the said but lodge
complaints with the registration and income tax departments and also move the
High Court for taking action against the Trust for filing false affidavit. In
their separate replies thereto, the respondent denied the allegations made by
the appellant; and the purchasers stated in their reply, inter alia, as
client made enquiries with the trustees with regard to your statement that your
client had offered to buy the property for Rs.14,20,000/- by his latter dated 23rd January 1990. Our client had issued the letter,
he did not evince any interest in finalizing the transaction not did he take
any further steps for effecting purchase. It is also stated by the Vendors
(trustees) that your client had sought completes vacant possession and
stipulated other conditions making it clear that he was not keen on buying the
property but only wanted to stop any sale of the property so that he could
continue in the premises as a tenant. Your client is occupying the promises on
a nominal rent and he was always interested in continuing in the premises on
the same terms.
client further states that the trustees had informed him that your client had
claimed from them some to vacate the premises, which the trustees and declined.
After our client purchased the property when the demanded vacant possession,
your client again demanded payment of Rs, 2 lacs which was refused by our
client, who threatened to take legal action by evicting him from the
premises." In view of the stand so taken by the respondents, the
appellants filed an application on July 28, 1990 (being No.801 of 1990) for setting
aside the order permitting the sale in favour of the purchasers. In the
application they stated, inder alia, as follows:- "The first Respondent
ought to have informed this Hon'ble Court my offer of Rs. 14,20,000/- as
otherwise the Hon'ble Court would not have permitted for the sale for Rs,
9,00,000/-. Obviously a fraud had been committed and raise affidavit has been
filed to misconduct this Hon'ble Court.
10 to 15 were quite aware or my offer much before the filing of the application
and they have colluded with respondents 1 to 9 in knocking away the Schedule
property for Rs. 9,00,000/-." In contesting the application the managing
trustee filed a counter affidavit detailing the facts leading to the passing of
the order permitting the said of the property (which we have noticed earlier).
He categorically denied that there was any fraud or collusion with the
purchasers and asserted that the trustees had acted bona fide. In their counter
affidavit the purchasers claimed that they were bona find purchasers and they
had no knowledge whatsoever of the alleged offer made by the appellant.
Besides, they reiterated the stand taken by them in their reply to the notice
of the appellants dated July 3, 1990. While the application for setting aside
the sale was awaiting disposal, the appellants filed a further affidavit on January 19, 1994 offering to pay a total sum of
Rs.19,40,000/- for purchasing the property.
hearing the parties and taking into consideration all facts, including the
above offer, the learned Judge allowed the application principally on the
ground that the trustees had played fraud on Court by not disclosing the
highest offer of the applicants (the appellants herein) and colluding with the
purchasers and passed the following order:
on receiving a sum of Rs.19,40,000/- (Rupees Nineteen lakhs, and forty thousand
only ) the Ist Respondent herein, do execute and register and sale deed in
respect of the property more fully set out in the Schedule hereto in favour of
the Applicants herein;
from and out of the said sale consideration the earlier Purchasers/Respondents
11 to 15 herein, shall be paid a sum of Rs.9,00,000/- (Rupees Nine lakhs only)
together with the cost of the stamp papers and the Registration charges and
that the balance amount shall be appropriated for the Trust; and That the
Respondents 1 to 8 herein (the trustees) do pay that cost of Rs. 10,000/-
(Rupees ten thousand only) to the Respondents 11 to 15 herein, and the said
costs shall be borne by them personally and not out of the Trust Fund."
Aggrieved by the above order the trust and the purchasers preferred two
separate appeals before the Division Bench ('Bench' for short) which were
allowed and the order of the learned Single Judge was set aside. In setting
aside the order the Bench held that the finding or the learned Judge that the
permission to sold the property was obtained by fraud was patently wrong and
the the offer of the appellants was not a bona fide one. It further held that
the purchasers had bona fide purchased the property for value without notice of
the offer of the appellants dated January 23, 1990. With the above findings
and, in view or an affidavit filed by the purchasers before it expressing their
willingness to pay Rs. 19,40,000/- for the before the Single Judge the bench
passed the following order:
we direct Respondent 10 to 15 to pay a sum or Rs.10,40,000/- being the
difference between the amount already padi by them as sale price for the
properties and the sum of Rs.19,40,000/-. The said amount shall be paid to the
trust on or before 30.9.1995.
the above directions, the appeals are allowed. The order of the learned Single
Judge dated 2.2.1995 is set aside. The Applicant shall pay the costs of the
appellants in each appeal, the counsel's fee is fixed at Rs.5,00/-."
Having heard the learned counsel for parties and carefully perused the entire
materials on record we are unable to sustain the impugned order. Admittedly, in
their application filed on March 10, 1990, seeking permission to sell the
property the trustees did not disclose the offer made by the appellants on
January 23, 1990 and, as already noticed, such non-disclosure prompted the
Single Judge to conclude that the respondents practised fraud upon the Court.
The Bench, on the order hand, held that failure on the part of the trustees to
make a reference to the offer of the appellants while seeking permission of the
Court to sell the property did not amount to fraud on their part. It appears
that in arriving at the above conclusion, the Bench relied upon the following
statements made in the counter affidavit filed by the trustees in opposing the
application of the appellants for setting aside the sale as, according to the
Bench, those statements were not controverted by filing a reply thereto:
since an offer was made by the Applications, the Trustees discussed the matter.
In the course of the discussion, it was made known to the Applicants that the
sale of the property would be as is where is condition and the Applicants that
the sale of the property would be as is where is condition and the Applicants
were required to confirm that the offer would be for sale without vacant
possession. The Applicants promised to come back, but never responded
thereafter. The Applicants did not follow up the matter further and it was very
evident from the conduct of the Applicant that they were only trying to
protract the matter and put for in the agreed sale to Seshmal Jain and five
state that the Applicants were aware of the offer of Seshmal Jain and five
others and the agreement entered into with them.
attempt of the Applicants was only to shortage the said proposed sale. The
Applicants were occupying substantial portion of the property for a nominal
rent of Rs. 275/- and they had succeeded in their attempt at preventing the
sale of the property for the post so many years. Even after obtaining the Court
permission in 1984, they were able to prevent the sale by dissuading intending
merely wanted to continue in the property paying a nominal rent, which would be
possible only if they continued to own the property.
state that the Applicants were aware of every step that was being taken towards
the sale of the property.
to para 7, state that at the time the Application was made to this Hon'ble
Court, there was not valid offer by the Applicants as alleged. The Applicants
had made an offer on the 23rd January, 1990, but had wanted vacant possession.
Since that was not possible, they had not pursued the offer, it was evident
from the conduct of the Applicants that they were not serious about the alleged
offer made on 23rd January 1990.
trustees have acted bona fide.
stoutly deny the averment that a fraud was committed or a false affidavit filed
as alleged by the Applicants nor was this Hon'ble Court misdirected." (emphasis
supplied) In our considered view the above approach of the Bench in dealing
with the matter was patently wrong for instead of deciding the moot question as
to whether the trustees had suppressed the offer of the appellants while
seeking permission of the High Court to sell the property and thereby committed
fraud upon the Court, the Bench went on to decide whether the appellants' offer
was a bona fide one necessitating its disclosure and answered the same in the
negative accepting the belated ... and, as the discussion to follow will
indicate the specious plea put forth by the trustees in that regard while
contesting the application of the appellants for setting aside the sale. As has
been already noticed as early as on January 23, 1990 the appellants had made
the offer to purchase the property and in replying thereto by their letter
dated February 26, 1990 the trustees not only stated that the offer would be
placed before the meeting of the trustees but also intimated the appellants
that they would be informed of the decision.
however, instead of informing the appellants about the decision, if any, taken
as promised, the trustees filed within a fortnight or their above reply the
application seeking permission to sell the property wherein they did not
disclose the appellants' offer and on the contrary stated, inter alia, as
applicant states that by the Order dated 9th February 1984, this Hon'ble Court had permitted the Trustees to sell
the schedule property at the highest price offered. The Applicant is advised
and believe the same to be true that in view of the order of this Hon'ble Court, it would in order for the Trust to
sell the property at the aforesaid highest offer received. However, the
Applicant by way of abundant caution has been advised to approach this Hon'ble
court to pray for and obtain a specific permission for the sale of the schedule
property at the aforesaid highest offer of Rs.9,00,000/-.
states that apart from calling for offers, the Trustees have made enquiries and
have been duly satisfied that taking into account the nature and condition of
the building, the number of tenants occupying the building and the fact that
the property is sought to be sold in "as is where is" condition along
with the tenants without vacant possession being given to the purchaser, the
price offered is reasonable. The trust have also applied for an Income-tax
Clearance Certificate as a pre-condition to the said and the income tax
authorities have, after due enquiries, issued a Certificate under enquiries,
issued a Certificate under Section 230-A of the income tax Act.
applicant states that if the property is not sold at the highest offer now
received, it would be difficult to secure other or further offers for the
property, which is deteriorating day by day.
the meagre return from the property, it would not be in the interests of the
trust to retain the property as such." (emphasis supplied) The assertion
made by the trustees in the above quoted passage that in spite of their best
efforts they could not get any offer above Rs. 9,00,000/-, which obviously
referred to the offer made by the purchasers, was patently incorrect and
untrue; and, there cannot be any manner of doubt that by making those incorrect
and untrue statements they persuaded the Court to grant permission to sell the
property for a price of Rs. 9,00,000/-. If really the trustees were acting bona
fide in dealing with property it was expected of them to first disclose the
offer of the appellants and then placed their inability to accept the same
detailing the reasons therefore instead or so doing not only they suppressed
that offer but asserted in no uncertain terms that the highest offer received
by them was from the purchasers and that it would be difficult to secure other
or further offers for the property. The Bench however did not consider the
above facts and circumstance, which unmistakably indicated the oblique designs
of the trustees, from a proper perspective and proceeded to upset the finding
or the Single Judge on the tenuous ground that their failure to disclose the
appellants' offer was justified as it was not a bona fide one. It is pertinent
to point out here that the trustees raised the issue regarding the bonafides of
the appellants' offer only in support of their inability to accept the same and
not in justification of their non disclosure as held by the Bench.
unjustified was the Bench in concluding that the offer of the appellant was not
a bona fide one, relying solely upon certain statements made by the trustees in
their counter affidavit (quoted earlier) as according to the Bench they were
not controverted through a rejoinder. Even it we proceed on the basis that
those statements remained uncontroverted still they cannot be relied upon as
they do not stand the test or probability and were clearly made as on after
thought. According to the trustees' version made therein they discussed about
the offer of the appellants and then made it known to them (the appellants)
that the condition'; and therefore they asked the appellants to confirm that
the offer would be for sale without vacant possession but the appellants did
not respond though they had promised to come back. Certain other averments have
also been made therein to contend that the appellants were not serious about
the offer. No correspondence much less contemporaneous record, nor any other
material was produced before the Court in support of the above claim made in
the counter affidavit. At the risk of repetition, it may be recalled that they
would discuss about their offer and asked them to wait for their decision.
Instead of keeping to their promise of communicating their decision they moved
the Court a few days later where they took a diametrically opposite stand. It
is evident therefore that there was no basis whatsoever for the trustees to
contend, and for that matter the Bench to rely upon only the bald statement of
the trustees to hold that the appellants were not serious about their offer.
the foregoing discussion it must be held that the trustees obtained the
permission to sell the property to the purchasers practising fraud upon the
Court and in view of the following observation of this Court in S.P. Chengalvaraya
Naidu vs. Jagannath [(1994) 4 SCC ] :
is the settled proposition of law that a judgment or decree obtained by playing
fraud on the court is a nullity and non est in the eyes or law. Such a
judgment/decree - by the first court or by the highest court has to be treated
as a nullity by every court, whether superior or inferior, it can be challenged
in any court even in collateral proceedings." the question whether the
purchasers purchased the property bona fide subsequent to the permission so
granted without notice of the appellants' offer is immaterial in this appeal.
We therefore allow this appeal, set aside the impugned order and keeping in
view the fact that both the appellants and the purchasers subsequently offered
to purchase the property for Rs. 19,40,000/-, remit the matter to the Division
Bench of the High Court to call for fresh offers from them, which, needless to
say, shall not be less than the above amount the grant permission to sell the
same at the higher offer received on such terms as law and equity may demand.
The appellants shall be entitled to costs of this appeal from the trustees
which we assess at Rs.10,000/-.