Operation Asha v. Shelly Batra & Ors.

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property, particularly where the trustees themselves or their legal representatives claim adversely to the trust. It is for this reason that the law vests the property belonging to the society in its governing body.

71. The phrase “property belonging to a person” has two general meanings (1) ownership, (2) the absolute right of user (per Martin, B. in Attorney General v. Oxford & C. Railway Co. [(1862) 31 LJ 218] , LJ at p. 227). “Belonging” connotes either ownership or absolute right of user (Wills, J. in Governors of St. Thomas’s, St. Bartholomew’s and Bridewell Hospitals v. Hudgell [(1901) 1 KB 364] ). The Centre has an absolute right of user over its immovable properties which it has been exclusively exercising all throughout. Section 5 of the Societies Registration Act clearly declares that the property belonging to the society, meaning under its user, if not vested in the trustees shall be deemed to be vested in the Governing Council of the society.

72. In the present case, it is nobody’s case that the property remains vested in the trustees of Dorabji Tata Trust. It has been canvassed on behalf of the first respondent that the property is vested in the Central Government. However, the Central Government has never claimed any title to the property adverse to the first respondent Tata Memorial Centre. It is true that the property dedicated to Tata Memorial Centre has not been transferred to the Society by the Central Government. But the fact is that it is the Governing Council of the first respondent which has been administering and controlling the day-to-day affairs of Tata Memorial Centre and its property funds, employment of its staff and their conditions of service. Hence, in view of the above referred to factual as well as legal scenario the first issue will have to be decided that the property dedicated to the first respondent will be deemed to be vested in the Governing Council of the first respondent Society.” (Emphasis supplied)

77. What follows from a conspectus of the aforesaid decisions discussing Section 5 of the Societies Registration Act, 1860 and the vesting

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of property in the governing body of the society is that, a society registered under the aforesaid Act is not a juristic person or a body corporate capable of holding property by itself. It is for this reason that a fictional vesting of the ‘property belonging to the society’ has been made in favour of the governing body of the society.

78. However, it is to be noted that the property can also be held in trust by certain trustees and this is evident from the use of the phrase “if not vested in trustees”. Several decisions have interpreted this to mean that there must be certain circumstances which give rise to the existence of a trust prior to the registration of the entity/institution as a society. However, it is our view that the aforesaid phrase cannot be restricted to such a narrow interpretation i.e., that the formation of the trust, either expressly or impliedly, must pre-exist the registration of the society. We say this simply because, if it were so, instead of using the phrase “if not vested in trustees”, the language employed in the provision would have read “if not already vested in trustees”. Therefore, the property belonging to the society can be vested in trustees even after its registration as a society. There is nothing under Section 5 which bars the same.

79. However, if it is argued that a trust has instead separately been created for holding the property of the society after its registration as a society, the same must be clear and sufficiently proven. The considerations that would have to be weighed in order to ascertain if a public trust has been created prior to the registration of the society are already very lucidly elaborated in the decisions of this Court in Babu Bhagwan Din (supra), Gurunatharudhaswami (supra), Bihar State Board (supra) and Kuldip Chand (supra). Therein there remained no formal recognition of any sort of the entity/institution and the court was tasked to see if - (a) properties were vested in a public trust and, (b) if the trustee(s) was fettered with any obligation that required the properties to be applied for a certain purpose and, (c) if there was any condition or conduct which revealed a restriction of the exercise of individual rights over the said property or its proceeds. The aforesaid considerations, along with some others may also be pertinent to determine if the society, after its registration, has created a trust or entrusted other trustees with the property belonging to itself. It is not possible to exhaustively lay down all those circumstances in which such a separate trust can be said to be created. Having said so, one of the possible methods in which

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the society can create or intend to create a separate trust for holding its properties is when its Rules and Regulations or the Articles of its Memorandum of Association provide for a separate trust or trustee(s) for the purpose of holding its properties. Alternatively, as in Young Mens Christian Association of Ernakulam (supra), the trustee (if they happen to also be a society) can mention in their Articles of Memorandum of Association that they hold the property belonging to another society as trustees. Further, the existence of an unequivocal trust deed executed by the society or its member representative, in favour of another trustee, for the purpose of holding its properties, could also seal the deal as far as the separate creation of a trust is concerned. All these could be a pertinent factors in determining the existence of a trust, separate from the governing body of the society, in which the property belonging to the society is vested. In this scenario, such a trust could be subjected to the jurisdiction under Section 92 of the CPC provided the other conditions for its invocation are met.

80. In the absence of the creation of a trust as aforesaid, property would be deemed to be vested in the governing body only. The governing body of the society upon which property is otherwise vested is duty bound to ensure that the property is put towards and utilised for the purposes/aims of the society as laid out in its Memorandum of Association or any Rules and Regulations governing the said matter. In case the society is dissolved, a decision must be made to transfer or vest all the property in another society working towards a like cause and the members would not have any right to distribute the assets belonging to the society between themselves. Therefore, both during the subsistence and dissolution of the society, the members or the governing body cannot be said to possess any beneficial or individual interest over the property vested in them.

81. Hence, it follows that whenever a property is transferred to a society which is working towards a public purpose of a religious or charitable nature, the property would be said to belong to the society and be automatically vested in its governing body. Once a society is registered, all gifts, donations, grants-in-aid, etc. would vest in its governing body as per the mandate of Section 5 of the Societies Registration Act, 1860, in the absence of the creation of a separate trust/entrustment to other trustee(s), for the said purpose.

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82. Moving ahead, the mere fact that a distinct trust can also be created i.e., either prior to or post the registration of a society under the Societies Registration Act, 1860 would not alter the capacity in which the governing body holds the properties belonging to the society. The governing body would also hold such properties in a well-confined fiduciary capacity. In other words, the phrasing of Section 5, more specifically that “if not vested in trustees, shall be deemed to be vested, for the time being, in the governing body of such society”, does not indicate that if a trust has not be created for the purpose of holding the society’s properties, any fiduciary obligation that the governing body might owe to the society vis-à-vis the management and administration of the properties would dissipate into thin air. The aforesaid language employed in Section 5 must not be seen as giving rise to two polar opposite mechanisms through which the property of the society can be held i.e., either in a trust with air-tight fiduciary obligations or not in a fiduciary capacity at all. In other words, it must not be read to mean that if the property is not vested in trustees, then it would remain vested in the governing body who would have zero fiduciary obligations. The governing body is also bound by duties of that of a fiduciary and this remains further fortified by the fact that the governing body does not enjoy any beneficial interest over the properties that it holds and must ensure that it is used for the object for which the society has been created.

83. In our opinion, the reason behind the use of the word “trustees” in the phrase “if not vested in trustees”, is a reflection of the intention of the legislature that the vesting of the property belonging to the society cannot be made in a casual manner to any and all persons regardless of any obligation. For argument, let’s say that the phrase instead read as “if not vested in any person”. In such a scenario, the persons in whom the property of the society vested would be able to possibly assert their own individual title or a competing claim to the property. This would give rise to a conflicting situation and deviate from the original purpose for which the property belonging to the society came to be vested in a third person. This is precisely the reason due to which the word “trustees” has been used under Section 5 of the Societies Registration Act, 1860. While interpreting the words employed in Section 5, we must not detract from the underlying purpose and objective for which it came to be enacted. Legislative creativity was employed to ensure that the incapability of the society to hold the

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property by itself does not have any practical effect on its ability to use and administer those properties. The idea was to ensure that the property of the society may not be squandered or the object and purpose for which the society was formed may not be defeated by persons having control of the properties. The property was vested in such persons such that, in all circumstances, they would remain bound and accountable to the society. The governing body of the society would, no doubt, remain tethered to the aims and objectives for which the society was formed and would be able to deal with the properties only as per the Rules and Regulations of the Memorandum of Association. The other persons who are capable and allowed to hold the property of the society were also intended to be bound in a similar fashion and hence, the provisions incorporated the word “trustees” to instil in such person(s), a fiduciary obligation which they could not deviate from or ignore. However, this by itself, by no stretch of imagination, can be interpreted to mean that since the provision allows for the property to be held by trustees separately, the governing body of the society would not be constrained with any fetter as regards their dealing with the property belonging to the society. It may happen, more often than not, that a society does not create a trust for the purpose of holding its properties and that is precisely why, there is an automatic vesting in the governing body. What must instead reinforced is that, despite this automatic vesting in the governing body, the fiduciary capacity in which the governing body would hold the properties, not be altered. In simpler words, Section 5 seemingly provides two options, or mechanisms through which a society can hold the property belonging to itself – One, in trustee(s) or, two, in the governing body of the society. Both these mechanisms/options belong to the same genus (fiduciaries), albeit they don’t fall in the same species (the former is a trustee stricto sensu and the latter is not).

84. The governing body of the society would not only hold the properties and administer it as per their bye laws to fulfil its fundamental aims but also safeguard it for the future members of the society or the future governing body who would also have to tread the same path and continue the aims and objects of the society as envisaged by the founding members or as reflected in its governing documents. Therefore, perpetuity is assigned not only to the identity of the society but also to the properties which belong to it, provided the society is not dissolved. This adds to the reason that the governing body also acts within the contours of a strict fiduciary relationship.

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85. Therefore, while it cannot be considered as an ‘express trust’, what must also be noted, at this crucial juncture, is that, for an entity to be brought within the rigours of Section 92, the plaintiff has the option of also contending that a ‘constructive trust’ exists in the circumstances and a breach of such a constructive trust has occurred or that the directions of the Court are necessary for the administration of such a constructive trust.

d. The doctrine of constructive trust and its applicability to a society functioning for public purposes of a religious or charitable nature

86. In light of the discussion in the preceding paragraphs, we are tasked with determining whether a constructive trust could be created in a circumstance wherein a society vests its property in its governing body through the deeming fiction employed under Section 5 of the Societies Registration Act, 1860.

87. On the one hand, an express trust is a legal relationship which is created by an individual(s) out of his own volition, while manifesting an intention to create a trust. This manifestation of intention can be express, either by words or through conduct. However, it is not always necessary that such intention be overt, unambiguous and unequivocal. Sometimes, the existence of an express trust might have to be inferred from the attending circumstances. In other words, a trust would be an express trust whether expressed in certain unambiguous language or whether inferred from uncertain ambiguous words and conduct of the settlor, for example, where precatory words are used by the settlor indicating a prayer or expectation that something be done in a specific manner such that it be imperative and binding in the circumstances. In English private trust jurisprudence, as expounded in the landmark decision in Knight v. Knight reported in (1840) 3 Beav 148, ‘three certainties’ were required – (a) certainty of intention or an imperative that a trust be created; (b) certainty of the subject- matter or the property subject to the trust and; (c) the certainty of objects or the beneficiaries and the interest to be enjoyed by them. In that context, it was observed as thus: “[…] To create by precatory words such a trust as the Court will carry into execution, there are three requisites; first, the precatory words must be sufficiently clear; secondly,

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there must be a certainty as to subject of the gift; and, thirdly, the objects to take must be certain. […] […] As to the first requisite, no particular form of words is necessary; it is sufficient for a testator “ to express a desire as to the disposition of the property, and the desire so expressed amounts to a command […] -xxx- Secondly, the subject of the gift is sufficiently certain, being the estates and personal property devised and bequeathed by the will. Thirdly, the persons to take are sufficiently defined being persons in the male line in succession; a description much more perfect than the expressions “family,” “relations,” which have been held sufficiently certain to be carried into execution; […] -xxx- On the whole, I am under the necessity of saying, that for the creation of a trust, which ought to be characterised by certainty, there is not sufficient clearness to make it certain that the words of trust were intended to be imperative, or to make it certain what was precisely the subject intended to be affected, or to make it certain what were the interests to be enjoyed by the objects.” (Emphasis supplied)

88. The aforesaid principle has been codified in Indian jurisprudence under the Indian Trust Act, 1882 governing private trust which defines a private trust as a an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner. While we are not directly importing the aforesaid principles laid out under the Indian Trusts Act, 1882, which governs private trusts, for application to a ‘public trust’, these principles aid in construing how an express trust, whether public or private, may be created. P Ramantha Aiyar in his Advanced Law Lexicon also adds that it is not necessary that the word ‘trust’ be

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used. The trust would be express even if it has to be made out from the terms of an instrument. Therefore, a declared and ascertainable intention to create a trust is the cornerstone of an express trust which further determines where the trustee’s fiduciary obligation can be sourced from.

89. Importing these principles to a society and its governing body which holds property on its behalf, it cannot be ascertained with reasonable certainty whether a fairly clear intention to create a trust on part of the settlor could be said to exist when the deeming fiction under Section 5 of the Societies Registration Act, 1860 is set into motion. It goes without saying that if the society creates a trust separately, as reflected in the words “if not vested in trustees”, an express trust would be created. However, in the absence of the same, the intention of the settlor to create a trust is difficult to ascertain, more so because the legislative framework under which this vesting is done is distinct. This is notwithstanding the fact that the governing body would still be acting in a fiduciary capacity.

90. On the other hand, a constructive trust, arises by operation of law, without regard to or irrespective of the intention of the parties to create a trust. It is imposed predominantly because the person(s) holding the title to the property would profit by a wrong or would be unjustly enriched if they were permitted to keep the property. In other words, a constructive trust, does not, like an express trust, arise because of a manifestation of an intention to create it, but it is imposed as a remedy to prevent unjust enrichment. A fiduciary element may be present in the declaration of a constructive trust when, say, for example, whenever a person clothed with a fiduciary character, gains some personal advantage by availing himself of his situation as a trustee. In such cases, such person would also become a trustee of the advantage so gained. In other words, if a trustee, by reason of his position, acquires any advantage of a valuable kind, he would be a constructive trustee of that advantage. Furthermore, although some form of wrongdoing is generally required for the imposition of a constructive trust, it is not always a necessary element. It may also be imposed in case of a mistake where no wrongdoing is involved, say, for instance, when a fiduciary makes some profit even though he has not acted fraudulently.

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91. However, it cannot be strictly said that only cases which contain a fiduciary element would serve as a bedrock for the declaration of a constructive trust. The circumstances which give rise to it may or may not involve a fiduciary relation - at least, this is the proposition laid down under American jurisprudence. Quoting the observations of Cardozo, J. in Beatty v. Guggenhein Exploration Co. reported in (1919) 225 N. Y. 380 - “a constructive trust is a formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee”. In his subsequent decision rendered in Meinhard v. Salmon reported in (1928) 249 N.Y. 458, he also observed that – “A constructive trust is then the remedial device through which the preference of the self is made subordinate to loyalty to others”. It is, therefore, designed to prevent fraud or other inequity. In applying this doctrine, courts be said to also resort to the maxim – “equity regards as done that which ought to be done”. According to American jurisprudence, an express trust is a substantive institution whereas a constructive trust is purely a remedial institution. That the term “constructive trust” was an expansive remedial concept and quite different from a fiduciary relation present in express trusts, was set in stone by the Restatement of the Law, Restitution promulgated by the American Law Institute in the year 1936. Comment (a) to Section 160 defining a constructive trust reads as follows: “The term “constructive trust” is not altogether a felicitous one. It might be thought to suggest the idea that it is a fiduciary relation similar to an express trust, whereas it is in fact something quite different from an express trust. An express trust and a constructive trust are not divisions of the same fundamental concept. They are not species of the same genus. They are distinct concepts. A constructive trust does not, like an express trust, arise because of a manifestation of an intention to create it, but it is imposed as a remedy to prevent unjust enrichment. A constructive trust, unlike an express trust, is not a fiduciary relation, although the circumstances which give rise to a constructive trust may or may not involve a fiduciary relation.” (Emphasis supplied)

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92. It is largely believed that English Courts are generally reluctant to accept the doctrine of unjust enrichment as a broad ground for imposing a constructive trust, whereas the United States is more open to recognising it as a sufficient basis. In other words, American courts more often use constructive trust as a remedial device where specific restitution is appropriate on detailed consideration of the facts, whereas English Courts adopt a more institutional approach where some form of a fiduciary or quasi-fiduciary relationship is a pre-requisite instead of just prioritizing the overall equities. Therefore, in implying the existence of a constructive trust, the English Courts recognise or give legal efficacy to a relationship or ‘institution’ that already exists. Some critics argue that the traditional American approach was, however, akin to that of England but that the doctrine was slowly expanded beyond the parallels of a fiduciary relationship over the period of time.

93. An example of the modern American approach is evident from the decision in Newton v. Porter reported in 69 N.Y. 133 (1877) wherein a constructive trust was imposed on the products of larceny. According to experts, this decision marked the cusp in the change of approach by the American Courts (from the English model to a remedial one) because in Campbell v. Drake reported in 39 N.C. 94 (1845), on similar facts, the Supreme Court of North Carolina had held that where a clerk in a store pilfered money and goods from his employer and uses those proceeds in the purchase of a tract of land, the employer who was robbed could neither hold the clerk nor his representatives after his death, as trustees of the land for the benefit of the employer, so as to enable him to call for a conveyance of the legal title to himself. To further elaborate, Campbell (supra) held as follows: “Nevertheless, we believe the bill cannot be sustained. The object of it is to have the land itself, claiming it as if it had been purchased for the plaintiff by an agent expressly constituted; and it seems to us, thus stated, to be a bill of the first impression. We will not say, if the plaintiff had obtained judgment against the administrator for the money as a debt, that he might not come here to have the land declared liable, as a security, for the money laid out for it. But that is not the object of this suit. It is to get the land, which the plaintiff claims as his; and, upon

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the same principle, would claim it, if it were worth twenty times his money, which was laid out for it. Now, we know not any precedent of such a bill. It is not at all like the cases of dealings with trust funds by trustees, executors, guardians, factors, and the like; in which the owner of the fund may elect to take either the money or that in which it was invested. For, in all those cases, the legal title, if we may use the expression, of the fund, is in the party thus misapplying it. He has been entrusted with the whole possession of it, and that for the purpose of laying it out for the benefit of the equitable owner; and therefore all the benefit and profit the trustee ought, in the nature of his office, and from his relation to the cestui que trust, to account for to that person. But the case of a servant or a shop-keeper is very different. He is not charged with the duty of investing his employer’s stock, but merely to buy and sell at the counter. The possession of the goods or money is not in him, but in his master; so entirely so, that he may be convicted of stealing them, in which both a cepit and asportavit are constituents. This person was in truth guilty of a felony in possessing himself of the plaintiff’s effects, for the purpose of laying them out for his own lucre; and that fully rebuts the idea of converting him into a trustee. If that could be done, there would be, at once, an end to punishing thefts by shop men. If, indeed, the plaintiff could actually trace the identical money taken from him, into the hands of a person who got it without paying value, no doubt he could recover it; for his title was not destroyed by the theft. But we do not see how a felon is to be turned into a trustee of property, merely by showing that he bought it with stolen money. […]” (Emphasis supplied)

94. However, in Newton (supra), the Court of Appeals of New York took the view that the absence of a conventional relation of a trustee and cestui que trust between the plaintiff and the persons who committed larceny, would not stand in the way of enforcing an equitable remedy in the form of a constructive trust. It was opined that this would place the owner, who had been a victim of larceny and was deprived of

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his property, in a less favourable position in a court of equity than persons who lost their property through an abuse of trust or by the wrongful acts of a trustee to whom the possession of that trust property was confided. This must not be countenanced, according to the Court. The relevant observations are thus: “It is insisted by the counsel for the defendants that the doctrine which subjects property acquired by the fraudulent misuse of trust moneys by a trustee to the influence of the trust, and converts it into trust property and the wrong-doer into a trustee at the election of the beneficiary, has no application to a case where money or property acquired by felony has been converted into other property. There is, it is said, in such cases, no trust relation between the owner of the stolen property and the thief, and the law will not imply one for the purpose of subjecting the avails of the stolen property to the claim of the owner. It would seem to be an anomaly in the law, if the owner who has been deprived of his property by a larceny should be less favorably situated in a court of equity, in respect to his remedy to recover it, or the property into which it had been converted, than one who, by an abuse of trust, has been injured by the wrongful act of a trustee to whom the possession of trust property has been confided. The law in such a case will raise a trust invitum out of the transaction, for the very purpose of subjecting the substituted property to the purposes of indemnity and recompense. “One of the most common cases,” remarks Judge Story, “in which a court of equity acts upon the ground of implied trusts in invitum, is when a party receives money which he cannot conscientiously withhold from another party.” (Sto. Eq. Juris., § 1255.) And he states it to be a general principle that “whenever the property of a party has been wrongfully misapplied, or a trust fund has been wrongfully converted into another species of property, if its identity can be traced, it will be held in its new form liable to the rights of the original owner, or the cestui que trust.” (§ 1258. See also, Hill on Trustees, p. 222.) We are of opinion that the absence of the conventional relation of trustee and cestui que trust between the plaintiff and the Warners, is no obstacle to giving the plaintiff the

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benefit of the notes and mortgage, or the proceeds in part of the stolen bonds. (See Bank of America v. Pollock, 4 Ed. Ch., 215.)” (Emphasis supplied)

95. In a similar fashion, in Pope v. Garrett reported in 147 Tex. 18 (1948), the Supreme Court of Texas had opined that a constructive trust could arise in a situation wherein the testator was prevented, by physical force or by creating a disturbance, shortly before her death, by two of her heirs, from executing a will solely in favour of the plaintiff who was the intended beneficiary. Therein, the legal title to the heirs has passed on account of intestate succession and it was held that the heirs who were guilty of the wrongful acts would become constructive trustees for the intended beneficiary. Additionally, since some of the other innocent heirs would not have inherited interest in the property but for the wrongful acts committed by some of the heirs, it was opined that the imposition of a constructive trust on the property that passed to all the heirs was a necessary remedy in the interests of justice. In other words, the policy against unjust enrichment was also considered sufficient to justify the imposition of a constructive trust upon the other innocent heirs as well. In deciding so, it was observed as follows: “[…] In Binford v. Snyder, 144 Texas 134, 138, 189 S.W. (2d) 471, the court quoted with approval the general rule as to the use of the constructive trust thus stated in Ruling Case Law: “It is a well settled general rule that if one person obtains the legal title to property, not only by fraud, or by violation of confidence of fiduciary relations, but in any other unconscientious manner, so that he cannot equitably retain the property which really belongs to another, equity carrier out its theory of a double ownership, equitable and legal, by impressing a constructive trust upon the property in favor of the one who is in good conscience entitled to it, and who is considered in equity as the beneficial owner.” See also 54 Am. Jur., pp. 167-169, Sec. 218. It has been said that “The specific instances in which equity impresses a constructive trust are numberless,

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-- as numberless as the modes by which property may be obtained through bad faith and unconsientious acts.” Pomeroy’s Equity Jurisprudence, (5th Ed.) Vol. 4, p. 97, Sec. 1045. A few cases will be cited where trusts have been raised on account of facts like, or somewhat like, those in the instant case. -xxx- The argument is often made that the imposition of the constructive trust in a case like this contravenes or circumvents the statute of descent and distribution, the statute of wills, the statute of frauds, or particularly a statute which prohibits the creation of a trust unless it is declared by an instrument in writing. It is generally held, however, that the constructive trust is not within such statutes or is an exception to them. It is the creature of equity. It does not arise out of the parol agreement of the parties. It is imposed irrespective of and even contrary to the intention of the parties. Resort is had to it in order that a statute enacted for the purpose of preventing fraud may not be used as an instrument for perpetrating or protecting a fraud. […] In this case Claytonia Garrett does not acquire title through the will. The trust does not owe its validity to the will. The statute of descent and distribution is untouched. The legal title passed to the heirs of Carrie Simons when she died intestate, but equity deals with the holder of the legal title for the wrong done in preventing the execution of the will and impresses a trust on the property in favor of the one who is in good conscience entitled to it. -xxx- The policy against unjust enrichment argues in favor of the judgment rendered herein by the district court rather than that of the Court of Civil Appeals. But for the wrongful acts the innocent defendants would not have inherited interests in the property. Dean Roscoe Pound speaks of the constructive trust as a remedial institution and says that it is sometimes used “to develop a new field of equitable interposition, as in what we have come to think the typical

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96. In Pope (supra), it was clarified that there may be multiple circumstances in the background of which a constructive trust may be impressed upon the property in favour of the one who is, in good conscience, entitled to it and who would be considered as its beneficial owner in equity. It may be when one person obtains legal title to property by (a) fraud, or (b) violation of confidence of fiduciary relations, or (c) in any other unconscientious manner, such that he cannot equitably retain the property which belongs to another. Further, it was added that there may be a numberless amount of situations, as numberless as the modes by which the property may be obtained through bad faith and unconscientious acts, wherein equity can impress a constructive trust.

97. In McAnulty v. Std. Ins. Co. reported in (2023) 81 F.4th 1091, the United States Court of Appeals for the Tenth Circuit was faced with a dispute over the life insurance proceeds between a decedent’s ex-wife and his wife during his death. The ex-wife complained of unjust enrichment and imposition of a constructive trust on her behalf. The decedent’s only life insurance policy named his wife as the beneficiary while a divorce decree between the decedent and his ex-wife required him to maintain a $10,000 life insurance policy with the plaintiff as the sole beneficiary until his maintenance obligation to her was lawfully terminated. Amongst other things, while remanding the matter for further proceedings, it was underscored that unjust enrichment must first be established before the doctrine of constructive trust is resorted to as a remedy and that gaining an advantage for oneself through fraud or breach of fiduciary duty would not be the exclusive ground for establishing a constructive trust. The relevant observations are thus:

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“One final comment on constructive trusts. The district court apparently assumed that a claim of unjust enrichment requires a showing that the defendant’s property can be traced back to the plaintiff. But this is not so. The constructive-trust doctrine, including the practice of tracing, arises only after the plaintiff has established a cause of action for unjust enrichment. “The first step [in an unjust- enrichment constructive-trust claim] is to establish that the defendant is liable in restitution.” Restatement (Third) § 55 cmt. a. Only once a cause of action has been shown does the inquiry turn to whether “the transaction that is the source of the liability is one in which the defendant acquired specifically identifiable property.” Id. If the answer is yes, that property can be subject to a constructive trust with no need for any tracing analysis. But that entrusted property can then be traced forward to other property upon which a constructive trust can be imposed. […] That a “constructive trust is a remedy,” Restatement (Third) § 55 cmt. a. not a prerequisite to a showing of unjust enrichment, is underscored by the Restatement (Third)’s placement of § 55 (the section dedicated to constructive trusts) in Chapter 7, which is titled “Remedies.” -xxx- however, Coriell did not say that gaining an advantage for oneself through fraud or breach of fiduciary duty is the exclusive ground for establishing a constructive trust. Indeed, the very next sentence of the opinion states: “Constructive trusts are such as are raised by equity in respect of property which has been acquired by fraud, or where, though acquired originally without fraud, it is against equity that it should be retained by him who holds it.” 563 F.2d at 982 (internal quotation marks omitted; emphasis added). Hence, Coriell is fully consistent with imposing a constructive trust in this case.” (Emphasis supplied)

98. Therefore, the American approach is that there is no unyielding formula to which a court of equity is bound to, in deciding whether

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a constructive trust can be imposed since it is the equity of the transaction which will shape the measure of the relief. To put it simply, the focus of judicial enquiry would shift from the establishment of a fiduciary/confidential relationship and its abuse, to a determination of only whether someone has been unjustly enriched and should therefore, be subject to an ‘equitable duty’ to return the unjust benefit.

99. On the other hand, English courts have stuck to the institutional model which is underpinned by the existence of a fiduciary/confidential relationship between the person(s) upon whom a constructive trust is imposed and the person(s) in whose favour it is created. Since the imposition of a constructive trust would have an impact on property rights, the English Court are circumspect in imposing it for the bare reason that justice be done inter se parties. According to English jurisprudence, a constructive trust is an institution very much like the express trust – a trust by analogy. It arises by operation of the law but when one person is under an existent obligation to hold a certain property for another. The constructive trust would come into existence from the date of the circumstances which give rise to it and the function of the court would only be to declare that such a trust has arisen in the past. In Bailey v. Angove’s Pty Ltd. reported in (2016) UKSC 47, the United Kingdom Supreme Court stressed on the differences between an institutional and a remedial constructive trust as follows: “27 English law is generally averse to the discretionary adjustment of property rights, and has not recognised the remedial constructive trust favoured in some other jurisdictions, notably the United States and Canada. It has recognised only the institutional constructive trust: Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, 714–715 (per Lord Browne-Wilkinson), FHR European Ventures LLP v Cedar Capital Partners LLC [2015 AC 250, para 47. In the former case, the difference was explained by Lord Browne-Wilkinson in the following terms: “Under an institutional constructive trust, the trust arises by operation of law as from the date of the circumstances which give rise to it: the function of the court is merely to declare that such trust has arisen in the past. The

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consequences that flow from such trust having arisen (including the possibly unfair consequences to third parties who in the interim have received the trust property) are also determined by rules of law, not under a discretion. A remedial constructive trust, as I understand it, is different. It is a judicial remedy giving rise to an enforceable equitable obligation: the extent to which it operates retrospectively to the prejudice of third parties lies in the discretion of the court.” (Emphasis supplied)

100. Keech v. Sandford reported in (1726) Sel Cah Ch 61 is a landmark English decision on constructive trusts and a reflection of the rule that a person in a fiduciary position must not put himself in a position where his interest conflicts with that of the cestui que trust. Therein, a trustee, who held a lease on behalf of an infant beneficiary, made use of his influence in order to obtain a renewal of the lease for himself. Applying the principles of equity, the trustee was declared as holding the renewed lease also for the beneficiary and it was observed as thus: “If a trustee on the refusal of a lessor to renew a lease to the trust were permitted to take a lease for himself, few leases would ever be renewed in favour of trusts. This prohibition was wholly understandable at that time. Many ecclesiastical , charitable and public bodies were by law restricted as to the length of leases which they were able to grant and leases were therefore renewed more or less as a matter of right. By taking a renewal of a lease for himself, a trustee was therefore in practice depriving the trust of a grant which it had a right to expect.”

101. In Paragon Finance plc v. Thakerar & Co. reported in (1999) 1 All ER 400, the Court of Appeal highlighted a fine distinction between the use of the words ‘constructive trust’ and ‘constructive trustee’ by equity lawyers in two entirely different situations. The first, is where, a person, though not expressly appointed as a trustee, has assumed the duties of a trustee and is holding property by virtue of a lawful transaction or legal arrangement and subsequently, commits a breach of trust. The legal arrangement through which he assumes the duties

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of a trustee/fiduciary in the first place, is independent of the breach of trust and such an underlying relationship by which control of the property is obtained is not what is assailed or impeached by any plaintiff. He does not receive the trust property in his own right but by an agreeable transaction and his possession of the property is characterised by the confidence/trust reposed in him. The subsequent appropriation of the property by him for his own use is a breach of that trust and he is made accountable since he was entrusted with obligations of a trustee and it would be unconscionable for him to assert any adverse beneficial interest over the property entrusted to him. The second, is where the trust obligation itself arises as a direct consequence of the transaction through which control of the property is obtained. That very transaction is impeached by the plaintiff, as fraudulent. No obligation or confidence is reposed on the defendant and if he received any trust property at all, it would be by means of an unlawful transaction and from the moment of receipt, be adverse to the plaintiff. What English jurisprudence refers to as the ‘institutional constructive trust’ is the former scenario and not the latter. The relevant observations are reproduced below: “Regrettably, however, the expressions ‘constructive trust’ and ‘constructive trustee’ have been used by equity lawyers to describe two entirely different situations. The first covers those cases already mentioned, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff. A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the constructive trustee really is a trustee. He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not

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impugned by the plaintiff. His possession of the property is coloured from the first by the trust and confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust. Well-known examples of such a constructive trust are McCormick v Grogan (1869_ LR 4 HL 82 (a case of a secret trust) and Rochefoucald v Boustead [1897] 1 Ch 196 (where the defendant agreed to buy property for the plaintiff but the trust was imperfectly recorded). Pallant v Morgan [1952] 2 All ER 951, [1953] Ch 43 (where the defendant sought to keep for himself property which the plaintiff trusted him to buy for both parties) is another. In these cases the plaintiff does not impugn the transaction by which the defendant obtained control of the property. He alleges that the circumstances in which the defendant obtained control make it unconscionable for him thereafter to assert a beneficial interest in the property. The second class of case is different. It arises when the defendant is implicated in a fraud. Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be ‘liable to account as constructive trustee’. Such a person is not in fact a trustee at all, even though he may be liable to account as if he were. He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case the expressions ‘constructive trust’ and ‘constructive trustee’ are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are ‘nothing more than a formula for equitable relief’: Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 2 All ER 1073 at 1097, [1968] 1 WLR 1555 at 1582 per Ungoed-Thomas J. The constructive trust on which the plaintiffs seek to rely is of the second kind. The defendants were fiduciaries, and held the plaintiffs’ money on a resulting trust for them pending completion of the sub-purchase. But the plaintiffs

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cannot establish and do not rely upon a breach of this trust. They allege that the money which was obtained from them and which would otherwise have been subject to it was obtained by fraud and they seek to raise a constructive trust in their own favour in its place.” (Emphasis supplied)

102. In Stevens v. Hotel Portfolio II UK Ltd. reported in (2025) UKSC 28, one Mr. Ruhan, a director of Hotel Portfolio II UK Ltd (hereinafter HPII) was a constructive trustee of unauthorised profits in the sum of around £95m made in breach of his fiduciary duty as the director of HPII. Starting about a week later, the whole of that dividend was spent by him upon speculative projects of his own such that all of it was lost, untraceable and could not be recovered. Therefore, there was a breach of his duties as a constructive trustee as well. The main issue was whether a constructive trust of this kind would give rise to any liability on part of the dishonest assistant of the constructive trustee to compensate the beneficiary (HPII) for loss caused by such breach. While answering in the affirmative, the majority opinion observed as follows: i. First, that there was no fundamental difference in the relationship between a trustee and beneficiary on one hand, and the analogous relationship between a fiduciary and principal on the other. Therefore, when unauthorised profits were made by the fiduciary, he became a constructive trustee of the said monies immediately upon its receipt under an institutional constructive trust. This principle, that a trustee or fiduciary hold such profits upon an immediate institutional constructive trust for the beneficiary cannot be said to depend upon the fact that the fiduciary acted dishonestly. This rule of equity must not be solely anchored on the existence of fraud or the absence of bona fides on part of the fiduciary. A constructive trust can be imposed in the absence of fraud as well. ii. Secondly, when the unauthorised profits are dissipated, the constructive trustee is said to have breached his duties because, at the very least, he must conserve the said property/money for the benefit of the beneficiary and not deploy it in such a manner which destroys the beneficiary’s proprietary interest in it. The relevant observations are thus:

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“21. […] First, there is no fundamental difference between the relationship between trustee and beneficiary and the analogous relationship between fiduciary and principal (such as director and company) in the present context. Most of the basic principles were originally fashioned to regulate the former and later applied analogically to the latter, once it was clearly established, over a century ago, that a company is both legal and beneficial owner of its property: see Rukhadze v Recovery Partners GP Ltd [2025] UKSC 10; [2025] 2 WLR 529, paras 3, 16, 24-25. In what follows I will refer generally to trustee and beneficiary, save where it is necessary to speak distinctly of fiduciary and principal. -xxx-

23. Thirdly and importantly, it is common ground that Mr Ruhan became a constructive trustee of the dividend immediately upon its receipt, under an institutional (rather than purely remedial) constructive trust. Furthermore, although there may be debate in particular cases about the precise nature and extent of the duties of the trustee under such a constructive trust, it is common ground that Mr Ruhan’s dissipation of the dividend was a breach of them. This is because at the very least the constructive trustee’s duty is to conserve the trust property for the benefit of the beneficiary, rather than to deploy it in a way which destroys the beneficiary’s proprietary interest in it, as Mr Ruhan did, dishonestly assisted in that regard by Mr Stevens. And it is inherent in that common ground that, whereas Mr Ruhan had been a fiduciary for HPII rather than a trustee stricto sensu, the relationship between them in relation to the dividend once received by Mr Ruhan was that of trustee and sole beneficiary, in which capacity HPII had a right to call on Mr Ruhan for the transfer of the property on demand, albeit in fact in ignorance of that right, or indeed of the existence

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of the dividend itself or of the constructive trust of it affecting Mr Ruhan. […] -xxx-

29. […] This is not how the constructive trust arises. It is equity’s automatic and immediate response to a set of facts, just as is the common intention trust which ordinarily comes into existence when two people together buy a home which is conveyed into the name of one of them, with the mutual intent that they should be co-owners of it. -xxx-

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42. […] The constructive trust of profits imposes the usual obligation on the constructive trustee not to dissipate the trust property, and the usual obligation on both him, and upon any dishonest assistant in the dissipation, to compensate the beneficiary for any loss caused thereby. -xxx-

100. It may assist in the digestion of this over-long judgment if I summarise my essential conclusions of law, as follows: (1) Like any other trust, a constructive trust of unauthorised profits gives rise to an immediate proprietary interest of the beneficiary in the fund representing those profits, from the moment of their receipt by the trustee. (2) A dissipation of the fund by the trustee is a breach of trust for which the trustee is liable to compensate the beneficiary for the loss of its proprietary interest. That loss is generally to be assessed by reference to the value of that proprietary interest, but for the dissipation of which would still belong to the beneficiary. (3) A person who dishonestly assists the trustee in the dissipation is jointly liable with the trustee for the loss caused by the dissipation. (4) Those general principles are unaffected by the facts that (a) the fund held on constructive trust is or represents unauthorised profits made in an earlier breach of fiduciary duty to the same beneficiary, (b) the making of the profits caused the beneficiary no loss and (c) the effect of the constructive trust of the profits was to confer a gain on the beneficiary.[…]” (Emphasis supplied)

103. The constructive trust, according to England, arises the moment the breach of fiduciary duty occurs which obliges the fiduciary to treat the profit as belonging to the principal. They reject the idea that this

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constructive trust could be regarded as remedial which is imposed at some later date by the court in exercise of their remedial discretion. It is merely recognized at a later date but is ‘institutional’ since it is deemed to arise automatically as a matter of law in specified circumstances as opposed to being dependent on the discretion of the court.

104. Therefore, constructive trusts are usually regarded as a residual category and is a legal fiction ‘constructed’ by equity i.e., it attaches by law to specific property which is not expressly subject to any trust but held by a person in circumstances where it would be inequitable to allow said person to assert full beneficial ownership of the property. Therefore, it is imposed not necessarily to effectuate an expressed or implied intention but to redress a wrong. It is the result of judicial intervention. A constructive trustee is not necessarily a trustee in the traditional sense but is nevertheless treated as such by equity. While English courts emphasize on a pre-existing and underlying fiduciary obligation, American courts are much more liberal with the concept and impose it as a remedy where circumstances warrant such intervention.

105. Most common law jurisdictions are accepting towards the doctrine of constructive trust as adopted in England i.e., the institutional model rather than a purely remedial one. Therefore, jurisprudentially there would remain no bar for India to also adopt such an approach. We say so also because, the Indian Trusts Act, 1882 (although dealing with private trusts) recognises the concept of an English ‘constructive trust’. Under Chapter IX titled ‘Obligation in the nature of trusts’ delineates several provisions wherein a resulting or a constructive trust, as accepted in common law may be created. Additionally, the Statement of Objects and Reasons of the Act reads as follows: “With the few exceptions mentioned in this Statement, the rules contained in the Bill are substantially those now administered by English Courts of Equity and (under the name of ‘justice, equity and good conscience’) by the Courts of British India. The Bill distributes the subject under the following heads : I, Preliminary : II, the creation of trusts : III, the duties and liabilities of trustees : IV, their rights and powers : V, their disabilities : VI, the rights and liabilities of the beneficiary :

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VII, vacating the office of trustee : VIII, the extinction of trusts; and IX, certain obligations of the nature of trusts. -xxx- Where no trust is declared, but for the purposes of justice the law deems one to have been created, the trust is by English lawyers termed constructive. Benami transactions, where property is transferred to for a consideration paid by B, and makes the payment for his own benefit, have for centuries been familiar to the people of India : gains made by one person at the cost of another are an everyday source of litigation; and in no country, owing to the extreme sub-division of immovable property and the partition of inheritances, are constructive trusts more common. Chapter IX avoids the fiction implied in the term ‘constructive trusts’ by treating such confidences as obligations in the nature of trusts properly so called. It specifies the fourteen principal cases in which such an obligation arises, as follows:

1. Where it does not appear that the transferor of property intended to dispose of the beneficial interest (Section 80):

2. Where property is transferred to one person for a consideration paid by another (Section 81):

3. Where the trust is incapable of execution or is executed without exhausting the property (Section 82):

4. Where a transfer of property is made for an illegal purpose (Section 83):

5. Where a bequest is made for an illegal purpose, or where the revocation of a bequest is forcibly prevented (Section 84):

6. Where a transfer is made in pursuance of a rescindable contract (Section 85):

7. Where a transfer is made in fraud of the transferor’s creditors (Section 86):

8. Where a debtor becomes his creditor ’s legal representative (Section 87):

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9. Where a pecuniary advantage is gained by a person in a fiduciary character (Section 88):

10. Where an advantage is gained by the exercise of undue influence (Section 89):

11. Where an advantage is gained by a tenant for life or other qualified owner in derogation of the rights of other persons interested in the property (Section 90):

12. Where property is acquired with notice of an existing contract affecting it (Section 91):

13. Where a person contracts to buy property to be held on trust (Section 92):

14. Where one of several compounding creditors, by a secret arrangement with the debtor, gains an advantage over his co-creditors (Section 93): The Bill also contains a general clause (Section 94) providing for cases not so specified. It is believed that this clause will cover that form of constructive trust which the Punjab Courts have held to arise when a co-sharer in a village community absents himself without expressly abandoning his rights.” (Emphasis supplied)

106. It is evident from the Statement of Objects and Reasons that the provisions contained in the Indian Trusts Act, 1882 are substantially those which were administered by the English Courts of Equity. As regards Chapter IX, a reference is made to the English approach of constructive trusts and it is stated that where no trust is declared but the law deems one to have been created for the purposes of justice, such a trust would be termed as ‘constructive’. The rationale behind the enactment of Chapter IX was to avoid the fiction implied in the term ‘constructive trusts’ and to codify the doctrine within established parameters so that, even when motivated by the canons of justice, equity and good conscience, unfettered discretion is not employed by the courts while declaring a constructive trust (like in American jurisprudence). However, merely because the Chapter is titled ‘Obligations in the nature of a trust’, it cannot be stated

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that the concept of constructive trusts have been effaced from our statute books. Furthermore, the repeal of a few provisions under this Chapter, more specifically Sections 81, 82 and 94 respectively, by the Prohibition of Benami Property Transactions Act, 1988, cannot be considered to reflect the intention of the legislature to do away with the concept of constructive trusts in the Indian context, in its entirety. At the most, it could be said that certain types of constructive trusts were declared to be impermissible under the Indian regime. Therefore, there being no prohibition on the declaration of ‘constructive trusts’ or as we call it, ‘obligations in the nature of a trust’ as far as private trusts are concerned, there would also remain no inhibition on courts to declare or impose a constructive trust on public entities. The same is an equitable doctrine which can be resorted to when the conditions for its imposition are met.

107. That constructive trusts can be imposed in the Indian regime was also alluded to by this Court in Janardan Dagdu Khomane and Another v. Eknath Bhiku Yadav & Ors. reported in (2019) 10 SCC 395 which elaborated on the doctrine of constructive trust. While also quoting Story who explained the doctrine of ‘constructive trust’ in equity jurisprudence, it was stated that the receiving of money which cannot be conscientiously retained is sufficient to raise a trust, in equity, in favour of the party for whom or on whose account the money was received. It was reiterated that a constructive trust arises by operation of law, irrespective of whether the parties harboured any intention to create a trust. The relevant observations are reproduced as thus: “32. A constructive trust arises by operation of law, without regard to the intention of the parties to create a trust. It does not require a deed signifying the institution of trust. Under a constructive trust, the trust arises by operation of law as from the date of the circumstances which give rise to it. The function of the court is only to declare that such a trust has arisen in the past.

33. Constructive trust can arise over a wide range of situations. To quote Cardozo, J., “a constructive trust is a formula through which the conscience of equity finds expression”.

34. Story on Equity Jurisprudence has explained “Constructive Trust” as:

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“One of the most common cases in which a Court of equity acts upon the ground of implied trusts in invitum, is where a party has received money which he cannot conscientiously withhold from another party. It has been well remarked, that the receiving of money which consistently with conscience cannot be retained is, in equity, sufficient to raise a trust in favour of the party for whom or on whose account it was received. This is the governing principle in all such cases. And therefore, whenever any controversy arises, the true question is, not whether money has been received by a party of which he could not have compelled the payment, but whether he can now, with a safe conscience, ex aequo et bono, retain it. Illustrations of this doctrine are familiar in cases of money paid by accident, or mistake, or fraud. And the difference between the payment of money under a mistake of fact, and a payment under a mistake of law, in its operation upon the conscience of the party, presents the equitable qualifications of the doctrine in a striking manner. It is true that Courts of Law now entertain jurisdiction in many cases of this sort where formerly the remedy was solely in Equity; as for example, in an action of assumption for money had and received, where the money cannot conscientiously be withheld by the party; following out the rule of the Civil Law; Quod condition in debiti non datur uitra, quam locupletior factus est, qui accepit. But this does not oust the general jurisdiction of Courts of Equity over the subject-matter, which had for many ages before been in full exercise, although it renders a resort to them for relief less common, as well as less necessary, than it formerly was. Still, however, there are many cases of this sort where it is indispensable to resort to Courts of Equity for adequate relief and especially where the transactions are complicated, and a discovery from the defendant is requisite.

35. Section 90 (sic) of the Trusts Act states that if there is a person in a fiduciary relation to another, he cannot take advantage of that position so as to gain something exclusively for himself, which he otherwise would not have obtained, but for the position which he held.

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36. Section 94 of the Trusts Act, 1882 has allowed the creation of a constructive trust when situations went beyond the confines of the Act. Section 94 has later been repealed by the Benami Transactions Prohibition Act, 1988. Section 94 of the Trusts Act read: “94. Constructive trusts in cases not expressly provided for.—In any case not coming within the scope of any of the preceding sections, where there is no trust, but the person having possession of property has not the whole beneficial interest therein, he must hold the property for the benefit of the persons having such interest, or the residue thereof (as the case may be), to the extent necessary to satisfy their just demands.”

37. In Gopal L. Raheja v. Vijay B. Raheja [Gopal L. Raheja v. Vijay B. Raheja, 2007 SCC OnLine Bom 399 : (2007) 4 Bom CR 288] , the Bombay High Court restrained itself from exercising its equitable jurisdiction to apply the English doctrine of constructive trust when the legislature had specifically deleted it from the Trusts Act.

38. In our view, the repeal of Section 94 of the Act does not put any fetter in declaring a trust, even if the situation falls outside the purview of the Act. Its jurisdiction can be derived from Section 151 CPC and Section 88 of the Trusts Act. (Emphasis supplied)

108. In Janardan Dagdu Khomane (supra), this Court also noted that Section 88 of the Indian Trusts Act, 1882 provides that if a person is in a fiduciary relation to another, he cannot take advantage of that position so as to gain something exclusively for himself, which he otherwise would not have obtained but for the position he held. Although the decision of the Bombay High Court in Gopal L. Raheja v. Vijay B. Raheja reported in 2007 SCC OnLine Bom 399 had refrained from exercising its equitable jurisdiction to apply the English doctrine of ‘constructive trust’ citing the repeal of Section 94 in the Indian Trusts Act, 1882 by the Prohibition of Benami Property Transactions Act, 1988, this Court disagreed with the said view and remarked that such a repeal does not put any fetter in declaring a trust “even if the

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situation falls outside the purview of the Act”. It was opined that the jurisdiction to invoke the said doctrine can always be derived from Section 151 of the CPC and Section 88 of the Indian Trusts Act, 1882.

109. However, it must be noted that an institutional constructive trust would arise the very moment any fiduciary removes or diverts the property from its intended beneficiaries for his exclusive benefit or for the benefit of those who are not the intended beneficiaries. This need not necessarily be due to an intention to defraud but may also arise due to a mistake. In other words, the moment the fiduciary receives money which he cannot conscientiously retain for himself, a constructive trust would be raised in favour of the beneficiaries on whose account the money was originally received. To put it simply, the factum that the fiduciary ‘withheld’ the property from its rightful beneficiaries must be established. This would constitute a breach of his/her fiduciary duty and this benefit which has accrued to him would be held in constructive trust. The breach of his fiduciary duty i.e., his duty towards the society and its intended beneficiaries, must exist.

110. Coming back to the facts of the present case, the main aim and objective of the appellant Society is of a public and charitable nature. It is also limpid from the MoA, that all the incomes, earnings, movable or immovable properties are to be solely dedicated and applied towards to the promotion of the society’s aims. The MoA also lays down a strict “no profit rule” to the members of the Board, in any manner whatsoever. Article 11.2.1 of the AoA vests all the properties, both movable and immovable and all other kinds of assets in the Executive Committee of the appellant Society. Article 11.2.3.4 provides for a fundraising mechanism by way of gifts, donations, grants-in-aid or otherwise, both within and outside India. Article 11.2.3.5 allows for the Executive Committee to raise loans for the purpose of furthering the objects of the appellant Society. Article 11.2.3.6 allows the receiving of monies, securities, instruments, investments or any other assets for and on behalf of the appellant Society. Article 13, in the most unambiguous manner states that funds will be raised by way of grants-in-aid, donations, gifts, subscription fees and income from investments, loans and other means available to the Society and that they will be used to carry out the aims and objectives of the Society.

111. A perusal of the MoA and AoA of the appellant society reveals that it is a society of a charitable nature, having its properties vested in the

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governing body, who act as its fiduciaries. As elaborated previously, any conduct by the fiduciary which deprived the intended beneficiaries of their beneficial interest in the property, in such a manner that is in contravention to the covenants that bind him and confers an advantage to him to the detriment of the intended beneficiaries, must be taken into consideration to see if a constructive trust can be raised in law. All those diverted properties would then be held in a constructive trust by those fiduciaries who diverted it, in the capacity of ‘constructive trustees’. The respondent nos. 1 and 2 respectively have levelled several allegations of siphoning of funds by the respondent nos. 3 and 4 respectively. The same would have to be conclusively proved for a constructive trust to have been created in equity. Obviously, at the stage of this present litigation, it is not possible for this Court to enter into an extensive factual inquiry in this regard. That is for the High Court to satisfy after the suit is allowed to progress. However, the allegations in the plaint may be said to prima facie satisfy the condition required to apply the doctrine of constructive trust to the present facts. Not to mention that, if these allegations are found to have no substance or plainly false, the entire suit would fail. But, in the peculiar circumstance in which the present matter rests, that would happen also for the reason that the circumstances which required the imposition of a constructive trust do not exist.

112. Thus, yet another ingredient under Section 92 of the CPC which requires to be satisfied, has been fulfilled. The counsel for the appellant society has also submitted that the plaint is not entirely convincing on the whether the appellant society can be considered to be a constructive trust for the purposes of Section 92 and that there is only one paragraph in the plaint devoted to the aforesaid question. However, it is our view that the plaint cannot be scrutinised in such a mechanical manner. It is the substance of the claim which must be looked into and not merely the wording. Read in the right context, the plaint is sufficiently forthcoming about the facts and circumstances which evidence the existence of a constructive trust, at least at present, under the eyes of law.

B. A breach of trust or the directions of the court being necessary for the administration of the trust

113. A suit under Section 92 can be maintainable for two broad reasons – one, that there has been a breach of any express or constructive

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trust created for a charitable or religious purpose or, two, that the directions of the court are necessary for the administration of such an express or constructive trust. The same was also emphasized by the decision of this Court in Syed Mohd. Salie Labbai v. Mohd. Hanifa reported in (1976) 4 SCC 780. Therein, it was held that a suit against persons exercising de facto control over property which has been dedicated for public use, would be maintainable, specifically when such properties are alleged to have been mismanaged and not maintained. The relevant observations are thus: “64. […] It is true that Section 92 of the Code of Civil Procedure applies only when there is any alleged breach of any express or constructive trust created for a public, charitable or religious purpose. It also applies where the direction of the court is necessary for the administration of any such public trust. In the instant case the defendants have no doubt been looking after the properties in one capacity or the other and had been enjoying the usufruct thereof. They are, therefore, trustees de son tort and the mere fact that they put forward their own title to the properties would not make them trespassers […] We, therefore, hold that Section 92 of the Code of Civil Procedure is clearly applicable to the case.

65. Counsel for the appellants lastly argued that there is no evidence to show that the appellants have committed any negligence in managing the trust properties. Even the trial court which had dismissed the plaintiffs’ suit had returned a clear finding of fact that the defendants were guilty of gross negligence in managing the properties. In this connection the trial court found as follows: “It was pointed out that there was mismanagement. That there is mismanagement cannot be disputed. For one thing, in spite of the decree of the court for removal of certain superstructures on the burial ground the Labbais evaded the issues for a period of over twenty years. The plaintiffs have proved that Plaint B schedule property has been dedicated to the durga. But this property has been alienated by the predecessors-in-interest of the defendants. In

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exchange, they have obtained C Schedule property.... The next contention was that the defendants have not maintained accounts. It is true that the evidence does not disclose that any accounts were maintained or being maintained by the Labbais defendants.” The learned Judge, however, tried to explain away these acts of misfeasance on the ground that as the Rowthers undertook not to interfere with the management or ask for the account, the negligence committed by the defendants, if any, was not actionable. In view of our findings, however, that the mosque, its adjuncts and the burial ground are public wakfs the question of negligence assumes a new complexion. Apart from the acts of mismanagement, there is definite oral evidence of the plaintiffs to show that the graveyard is not properly managed and maintained. The boundary wall has broken and cattle enter the graveyard leading to its desecration. The evidence of the plaintiffs also shows that even the mosque is in a state of disrepair and no attempt is made to repair or maintain it properly. Further-more, the defendants have constructed shops on a part of the graveyard and in spite of several decrees of the courts to demolish those shops they have not yet obeyed the orders of the court to demolish the same. In these circumstances, therefore, there is overwhelming evidence on the record to show that the defendants were guilty of grave mismanagement, and therefore a clear case for formulating a scheme under Section 92 of the Code of Civil Procedure by a suit has been made out by the plaintiffs. The scheme, however, will be confined only to the mosque, its adjuncts and the burial ground and not to the durgah which has been held to be the private property of the defendants.” (Emphasis supplied)

114. In Ramji Tripathi (supra), this Court while holding that a suit for the vindication of personal or individual rights was not maintainable, observed that: i. First, the facts and particulars as regards the defect in the machinery for administration which plagued the trust and which

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required rectification, must be specifically pleaded. A bald and standalone prayer that the direction of the court may be necessary would not be enough and would be a mere pretence for the purpose of bringing the suit under Section 92. In simpler words, it must be shown that the directions of the court are ‘necessary’ in the facts and circumstances of the matter and such a statement must not be made in vacuum without any basis in reason or facts. ii. Secondly, that it is only the allegations in the plaint that need to be looked into in the first instance to determine whether a suit would fall within the contours of Section 92. However, once the evidence is taken, if the court is of the opinion that the alleged breach of trust has not been made out and the prayer seeking directions from the court is vague and/or rests on a flimsy foundation, then the suit may be dismissed. The relevant observations are thus: “13. The trial court as well as the High Court found that there was no evidence to substantiate the allegations regarding the breach of trust said to have been committed by Respondent 1. In para 20 of the plaint, there was an allegation that the direction of the Court was necessary for the administration of the Trust. But no reasons were given in the plaint why the plaintiffs were seeking the direction of the Court. There were no clear allegations of maladministration viz. that Respondent 1 was diverting the Trust properties for his personal benefit or that he was committing any devastavit. The High Court was of the view that since the plaintiffs did not plead facts and particulars as regards the defect in the machinery for administration which had crept in under custom or rules which required rectification, the prayer for direction was a mere pretence to bring the suit under Section 92. A direction cannot be given by the Court unless it is shown that it is necessary for the proper administration of the Trust. We do not think it necessary to decide for the purpose of this case whether the words “where the direction of the court is deemed necessary for the administration of any such Trust” must be interpreted

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as meaning that where the court has to give directions in the nature of framing a scheme or otherwise for the administration of the Trust or whether those words can refer only to directions given to existing trustee when there is one or to new trustee when one is to be appointed or to directions when there are allegations of maladministration amounting to breach of trust. It is sufficient for the purpose of this case to say that the prayer for direction was a prayer in vacuum without any basis in reason or facts.

14. It is, no doubt, true that it is only the allegations in the plaint that should be looked into in the first instance to see whether the suit falls within the ambit of Section 92 (See Association of R.D.B. Bagga Singh v. Gurnam Singh [AIR 1972 Raj 263 : 1972 WLN 157 : 1972 Raj LW 182] , Sohan Singh v. Achhar Singh [AIR 1968 P&H 463 : ILR 1968 Punj 359 : 1968 Cur LJ 480] and Radha Krishna v. Lachhmi Narain [AIR 1948 Oudh 203 : 1948 OWN 179] . But, if after evidence is taken, it is found that the breach of trust alleged has not been made out and that the prayer for direction of the court is vague and is not based on any solid foundation in facts or reason but is made only with a view to bring the suit under the section, then a suit purporting to be brought under Section 92 must be dismissed. This was one of the grounds relied on by the High Court for holding that the suit was not maintainable under Section 92.” (Emphasis supplied)

115. In Vidyodaya Trust (supra), this Court had explained that in order to constitute a breach of trust, there must be an element of dishonest intention and lack of probity. If a mistaken action has been undertaken but with all bona fides, the same would not amount to a breach of trust. The Court also employed the test of a ‘prudent man’ to see whether the required standards of care, caution, rectitude and accuracy, without any reckless indifference has been exhibited by the trust and its trustees. In the first instance, the court is required to only look into the allegations in the plaint to see whether a suit

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under this provision lies. Once the suit commences and after the evidence is taken, if it is revealed that the breach of trust which has been alleged is not made out or, that the prayer for direction of the court is vague and not based on any solid factual or reasonable foundation, the court would be free to dismiss the suit for the said reasons. The relevant observations are reproduced hereinbelow: “12. […] Only if the preconditions are satisfied then only leave can be granted as provided in Section 92. There must be an element of dishonest intention and lack of probity. When action is taken bona fide though there may be mistaken action, that would not amount to breach of trust. -xxx-

14. In reply, learned counsel for the respondents submitted that while deciding on the question whether leave is to be granted the statements in the plaint have to be seen and not the allegations in the written submissions. It is permissible to strike down the portion of averment. Though the general principle may apply to the facts of the present case, what is expected to be seen is if the trust has acted as a prudent man would do and the standards of care and caution required to be taken by a prudent man, and there should not be reckless indifference and highest standard of rectitude and accuracy is to be maintained. -xxx-

20. In Swami Paramatmanand case [R.M. Narayana Chettiar v. N. Lakshmanan Chettiar, (1991) 1 SCC 48] it was held that it is only the allegations in the plaint that should be looked into in the first instance to see whether the suit falls within the ambit of Section 92. But if after evidence is taken it is found that the breach of trust alleged has not been made out and that the prayer for direction of the Court is vague and is not based on any solid foundation in fact or reason but is made only with a view to bringing the suit under the section then suit purporting to be brought under Section 92 must be dismissed.” (Emphasis supplied)

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116. In the present case, the respondent nos. 1 and 2 respectively have alleged that the respondent nos. 3 and 4 respectively, were indulging in gross financial impropriety, misconduct and siphoning off of funds/ donations received by the appellant Society for personal gains. As discussed in the previous section of this judgment, having arrived at the conclusion that the present situation pertains to a ‘constructive’ and not an ‘express’ trust, the question remains how the aforesaid allegations are to be considered, particularly in light of the condition vis-à-vis Section 92 CPC presently discussed in this section. As elaborated, the aforesaid allegations would have to be proven to serve a dual purpose i.e., to first, attract the doctrine of ‘constructive trust’ to be imposed in equity and second, to proceed to prove that there has been a subsequent breach of that constructive trust or at least, that the directions of the court would be necessary for the administration of that constructive trust. To assert that there has been a breach of the constructive trust which was imposed upon an fiduciary who became a constructive trustee by virtue of his/her actions, it must be proven that the funds or property of the society that were allegedly diverted or siphoned by the respondent nos. 3 and 4 respectively were further ‘divested’ by them for purposes which do not align with the aims and objectives of the appellant Society, similar to that which occurred in Stevens (supra). In other words, the duties which bound the respondent nos. 3 and 4 respectively upon being designated as ‘constructive trustees’ must have also been breached. Even if a further divestment of those diverted/siphoned funds had not occurred and they still remained intact but in the possession of the constructive trustees (respondent nos. 3 and 4 respectively) in their individual and not their fiduciary capacity, the plaintiffs can assert that directions pertaining to that constructive trust would still be needed from the court. Presently, we are convinced that directions, at the very least, are indeed necessary.

117. The respondent nos. 3 and 4 respectively have vehemently assailed the credibility of the Interim Forensic Audit Report and the Final Forensic Audit Report as being riddled with inconsistencies, unsubstantiated findings and categorical bias. However, at this stage of the proceeding, it would not be appropriate for the court to assess the veracity and legitimacy of all those observations/findings arrived at in the aforesaid reports with a view to verify the allegations made by the respondent nos. 3 and 4 respectively.

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118. This Court in Ramji Tripathi (supra) had observed that at the stage of grant of leave, it is only the allegations in the plaint which must be looked into in the first instance with a view to ascertain if the alleged breach of trust or the fact that the directions of the Court may be necessary, is evident or palpable and if the suit can be brought within the ambit of Section 92. Even keeping aside the several forensic and audit reports which suggest that the affairs of the appellant Society must be scrutinised, a reading of the averments of the plaint fairly reveals the questionable conduct on behalf of respondent nos. 3 and 4 respectively. The allegations made therein are serious and cannot be ignored. Ultimately, as explained by us in the preceding paragraphs, if those allegations are proven to be false, mala fide and unfounded in the course of the suit proceedings, the entire case of the plaintiffs may fall and the suit be dismissed. However, to force a halt and sever the suit at its root, on the aforesaid contentions of the respondent nos. 3 and 4 respectively, which require an extensive factual inquiry, would not be proper at this stage.

C. The institution of the suit must be made by two or more persons “having an interest in the trust”

119. The phrase “persons having an interest in the trust” must neither be construed too narrowly or too widely. It must not be narrow for the reason that the word used is “interest” instead of “direct interest”. However, it must also be remembered that while no direct interest is required, the interest must denote a present and substantial interest and not a sentimental, remote, fictitious or purely illusory interest. It must be clear and direct. The reason behind the incorporation of this phrase under Section 92 of the CPC again boils down to the object of preventing frivolous and mischievous applications being filed by busy bodies, unconnected members of the public, and persons who do not possess a specific interest in the trust.

120. In T. Varghese George v. Kora K. George reported in (2012) 1 SCC 369, this Court considered the locus standi of the plaintiffs to institute the suit under Section 92 concerning a secular public educational trust. Therein, of the three plaintiffs, one was a member of the Board of Trustees nominated by the founder himself, the second plaintiff was the brother-in-law of the founder who had raised funds for buying lands for the institution and for the construction of its school buildings and the third plaintiff was a parent of a student attending the

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institution. Considering the above, this Court had opined that none of these persons could be criticised as persons who lacked any good intention for the Trust and that they were persons interested in the functioning of the Trust. The relevant observations are reproduced hereinbelow: “31. As can be seen from this section two or more persons having interest in the trust may institute a suit in the Principal Civil Court of Original Jurisdiction to obtain a decree concerning a public charity for various purposes mentioned therein. Such suit will lie where these persons make out a case of alleged breach of any trust created for public purposes or for directions of the court for administration of the trust. One of the purposes set out in sub-section (1)(g) is settling a scheme, sub-section (1)(b) speaks about a new trustee being appointed, and sub-section (1)(a) speaks about removing a trustee. Out of the three persons who filed Civil Suit No. 601 of 1987, Shri D.V.D. Monte was a member of the Board of Trustees nominated by the founder Shri T. Thomas himself. Shri Kora K. George is brother-in-law of Shri T. Thomas. He has raised funds for buying lands for the Institution, and for constructing the buildings of the School. Therefore, although the Single Judge held that he could not be said to be a person having interest in the Trust, that finding was reversed by the Division Bench in OSA No. 49 of 1995. Dr. Natrajan is a parent of a student of the Institution. None of these persons can be criticised as persons lacking good intention for the Trust.” (Emphasis supplied)

121. Coming back to the facts of the present case, it can be seen that the respondent no. 1 (original plaintiff no. 1) was the co-founder-cum- President of the board of the appellant Society who had devoted around 15 years in service of the appellant Society and the public at large. The respondent no. 2 (original plaintiff no. 2) albeit being the mother of the respondent no. 1, is a current board member of the appellant Society. Both of them can be said to have been closely associated with the functioning of the appellant Society. Therefore, they can also be said to have a genuine, clear and direct interest in

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the preservation and proper management of the appellant Society and the properties which may be subject to a constructive trust, especially since they have devoted time and energy into the establishing and running of the appellant Society.

122. While scrutinising whether the respondent nos. 1 and 2 respectively are persons interested in the trust and whether they are bringing the suit in a representative capacity, it is not just their designation or position which must be given importance to. They might be seen members of a society (former and current), who happen to be agitating a suit against other members, however, due regard must be given to whether they’re representing themselves solely as members in seeking certain remedies or if they have also brought the suit in the interest of the public at large, especially the beneficiaries. It must also be seen whether it is a vested interest in the matter which is the pure and sole reason for bringing the suit or if public interest is also brought to the notice of the court. We are not convinced that the respondent nos. 1 and 2 respectively are merely bringing forward some issues pertaining to disputes between members. While they have sought some remedies related to personal grievances and the wrongful dismissal of the respondent no. 1 which could be seen as unduly magnifying an election dispute, there are several other allegations in the plaint which cannot simply be ignored and which give the respondent nos. 1 and 2 respectively, a dual role/ capacity, whilst they’re agitating the matter under Section 92 of the CPC. The larger background in which the suit is brought alludes to the existence of public interest also at play.

123. The respondent nos. 3 and 4 respectively have primarily objected to the inclusion of the respondent no. 2 as one of the original plaintiffs since they contend that she has been roped in merely to fulfil the mandatory condition of having a minimum of two plaintiffs under Section 92. They have also alleged that there might be some discrepancies in the signatures of the respondent no. 2 and that there is a possibility of them being forged. However, it is not for a court at this stage of the suit to assess the validity of these allegations, especially when the respondent nos. 3 and 4 have not been able to categorically assert that the respondent no. 2 is not a board member of the appellant Society or is in no manner associated with the organisation or is a person not having a direct interest in the functioning of the appellant Society. Such being the

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case, the impugned decision was right in so far as taking the view that the respondent nos. 1 and 2 respectively are “persons having an interest in the trust”.

D. The reliefs falling within the scope of those enumerated under Section 92(1) of the CPC along with the object, purpose and capacity in which the suit is brought.

124. Section 92(1) of the CPC provides for a list of reliefs which can be obtained by the plaintiffs through a decree from the court. They relate to removing a trustee, appointing a new trustee, vesting any property in a trustee, directing accounts and inquiries, declaring what proportion of the trust property or of the interest therein shall be allocated to any particular object of the trust, authorising the whole or any part of the trust property to be let, sold, mortgaged, or exchanged, settling a scheme, or granting such further or other reliefs as the nature of the case may require. As has been indicated by us in the preceding paragraphs, a suit under Section 92 is a special suit of a representative nature which must essentially be brought by plaintiffs in their capacity as representatives of the public and for the vindication of public rights.

125. In Mahant Pragdasji Guru Bhagwandasji v. Patel Ishwarlalbhai Narsibhai reported in (1952) 1 SCC 323, this Court had held that the plaintiffs must pray for one or the other of the reliefs that are specifically mentioned under Section 92(1). Therein, the courts had concurrently found, after examining the evidence on record that was adduced by the parties, that the allegations of breach of trust were not made out. The plaintiffs therein, had not sought for any direction from the court for the proper administration of the trust either. Therefore, the very foundation of the suit under Section 92 became wanting and there remained no cause of action for the institution of the suit. In such circumstances, while dismissing the suit, the High Court had, however, recorded a conclusive finding about the existence of a public trust and made a declaration to that effect. This Court was of the view that such a finding was wholly inconsequential and could not be made a part of the decree or the final order in the shape of a declaratory relief for the reason that it cannot fall under those reliefs mentioned under Section 92(1). The relevant observations are thus: “9. […]Such suit can proceed only on the allegation that there is a breach of such trust or that directions from the

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court are necessary for the administration thereof, and it must pray for one or other of the reliefs that are specifically mentioned in the section. It is only when these conditions are fulfilled that the suit has got to be brought in conformity with the provision of Section 92CPC. As was observed by the Privy Council in Abdur Rahim v. Mohd. Barkat Ali [Abdur Rahim v. Mohd. Barkat Ali, (1927-28) 55 IA 96 : 1927 SCC OnLine PC 98] , a suit for a declaration that certain property appertains to a religious trust may lie under the general law but is outside the scope of Section 92CPC.

10. In the case before us, the prayers made in the plaint are undoubtedly appropriate to the terms of Section 92CPC and the suit proceeded on the footing that the defendant, who was alleged to be the trustee in respect of a public trust, was guilty of breach of trust. The defendant denied the existence of the trust and denied further that he was guilty of misconduct or breach of trust. The denial could not certainly oust the jurisdiction of the court, but when the courts found concurrently, on the evidence adduced by the parties, that the allegations of breach of trust were not made out, and as it was not the case of the plaintiffs, that any direction of the court was necessary for proper administration of the trust, the very foundation of a suit under Section 92CPC, became wanting and the plaintiffs had absolutely no cause of action for the suit they instituted. In these circumstances, the finding of the High Court about the existence of a public trust was wholly inconsequential and as it was unconnected with the grounds upon which the case was actually disposed of, it could not be made a part of the decree or the final order in the shape of a declaratory relief in favour of the plaintiffs.

11. It has been argued by the learned counsel for the respondents that even if the plaintiffs failed to prove the other allegations made in the plaint, they did succeed in proving that the properties were public and charitable trust properties—a fact which the defendant denied. In these circumstances, there was nothing wrong for the court to give the plaintiffs a lesser relief than what they actually claimed. The reply to this is, that in a suit framed under

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