Holding

The trustees obtained permission to sell the trust property by fraud on the court through suppression of a higher offer, making the sale order a nullity.

Summary

The Joshi Ambashankar Family Trust, a charitable trust, sought High Court permission to sell a property after obtaining a modification order allowing sale with court approval and 3/4 trustee concurrence. While the trustees received an offer of Rs.9 lakh from a group of purchasers, the appellants (Gowrishankar and others) had earlier offered Rs.14.2 lakh, which the trustees failed to disclose in their application for permission. The High Court, relying on the trustees' representation that the Rs.9 lakh was the highest offer, granted permission, leading to a sale to the purchasers. The appellants alleged fraud on the court for suppressing their higher offer and obtained a single judge order setting aside the sale, which was later reversed by a Division Bench. The Supreme Court held that the trustees indeed committed fraud on the court by nondisclosure, rendering the sale order a nullity, and remitted the matter to the High Court to invite fresh offers not less than Rs.19.40 lakh.

Issues considered

The trustees' nondisclosure of a higher offer constitutes fraud on the court.
Whether a decree obtained by fraud on the court is a nullity under Indian law.
The relevance of the appellants' offer being bona fide to the fraud inquiry.
The rights of the purchasers as alleged bona fide purchasers in light of the alleged fraud.
The appropriate remedy and whether the High Court should be directed to call for fresh offers.

Legislation cited

Income Tax Acts. 230-A

Subjects

charitable trustsale of trust propertyfraud on courtnullity of decreebona fide purchasercourt permission to sellmodification of trust deedcivil procedure

Judgment

GOWRISHANKAR AND ANR. A
v.
JOSHI AMBA SHANKAR FAMILY TRUST AND ORS.

FEBRUARY 22, 1996

[A.M. AHMADI, CJ, M.K. MUKHARJEE AND B
SUJATA V MANOHAR, JJ.)

Charitable Tmst-Set up for the benefit of poor relations and for other
charitable and pious pwpose;,~Paucity of funds to cany out the pur-
poses-Application to High Cowt for modification of the tenns so as to em- C
power the Tmstees to sell the properties-Granted by the High Cowt subject
to pennission of the Court and concwTence of 3/4th of the total no. of tmstees
in office-Highest offer of Rs. 9 lakhs-Permission to sell granted by the
Cowt-All tenants intimated-Notice by the appellant-Alleging that the Tmst
and purchaser played fraud on the Cowt-Suppressed highest offer by appel-
lant-Application for setting aside the sale-High Court granting it and order- D
ing the sale of the property to appellant for Rs. 14,20,000 and retwning the
money paid by the earlier purchaser-On appeal, held Tmstees obtained the
pennission to sell the prope1ty to the purchasers by practising fraud upon the
Cowt-Matter remitted to the Division Bench of the High Cowt to call for
fresh offers not less than the appellant's offer of Rs.. 14,20,000 and to grant E
pe1mission to sell the prope1ty on such te1ms as law and equity may demand.

S.P. Chengalvaraya Naidu v. Jagannath, [1994) 1 SCC 10, relied on.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3684 of
1996. F
From the Judgment and Order date 11.7.95 of the Madras High
Court in O.S.A. Nos. 52 and 61/95 and application No. 432/95 in CS. No.
530 of 1979.

Soli J. Sorabjee, G.P. Srivastava, Mahesh Agrawal and E.C. Agrawala G
for the Appellants.

K.J. John for the Respondent No. 7.

P.P. Rao, M.V. Chandra, M.A. Chinnasamy for the Respondent Nos.
10-15. II
949
950 SUPREME COURT REPORTS [1996] 2 S.C.R. ,

A The following Order of the Court was delivered :

Special leave granted. Heard the learned counsel for the parties.

This appeal is directed against the judgment and order dated July
11, 1995 rendered by the Madras High Court disposing of two original side
B appeals. Facts leading to this appeal and relevant for its disposal are as
under.

By a deed of declaration dated January 15, 1939 ,one Ambasankar
Joshi created the respondent No. 1-trust in relation to his three immove-
C able properties, one of which is house and ground No. 429 (new No. 162)
at Mint Street, Madras (hereinafter referred to as the 'property') for the
benefit of his poor relations and for other charitable and pious purposes.
A'S the trustees were finding it difficult to carry out the purposes of the
trust for paucity.of funds they moved the High Court in 1979 for modifica-
tion of the terms or the trust deed so as to empower them to sell the above
D properties. By its order dated November 28, 1983 the High Court granted
such power subject to the condition that it would be exercised only with
the permission of the Court and the concurrence of 3/4th on the total
number of trustees in office.

E Armed with the above order the trustees invited offers for purchase
of the property and on receipt of some offers sought permission of the
High Court to sell the same at the highest price offered which was granted
on February 9, 1984. However, inspite of the permission so granted, the
trustees did not sell the property at the highest price offered, which was
Rs. 3,15,000 till then, and instead thereof invited, and received, fresh offers
F including one from the respondent Nos. 10 to 15 (hereinafter referred to
as the 'purchasers') who are brothers and members of a joint family, for
Rs. 9,00,000. By a resolution dated December 7, 1989 the trustees accepted
the offer of the purchasers and entered into a formal agreement for sale.
with them on Decembet ·15, 1989, after receiving a sum of Rs. 1,50,000 as
G earnest money. Then on January 15, 1990, the trustees applied for the
clearance certificate required under the income tax Act for sale of the
property. A week thereafter-on January 23, 1990 to be precise the appel-
lants herein sent a letter to the trustees which reads as under :

"By an order dated 9th February, 1984 in application No. 68 of
H 1984 in C.S. No. 530 of 1979 on the Original side of the High Court
GOWRISHANKAR v. JOSHI AMBA SHANKAR FAMILY TRUST 951

at Madras His Lordship Mr. Justice Sangottuvelan was pleased to A
permit the Trust, the applicant in the above Application to sell the
immovable property together with the superstructure thereon bear-
ing door No. 162 (old No. 420), Mint Street, Madras-79 at the
highest price off~red.

As offers were not called for by due publication in the press B
for which we were waiting so far, we are now offering for the said
property together with the superstructure, fittings and fixtures,
being door No. 162 (new) Mint Street, Madras-79 a sum of
Rs.14,20,000 (Rupees fourteen Lakhs and Twenty thousand only)
which price is negotiable. C
We have been in occupation of the said premises for over a
half century running a Hotel Industry, a portion thereof being
occupied for our personal residential purposes, paying rent to the
Trust regularly and without default during all these years. Since
we are keenly interested in the property we therefore request you D
to consider the offer, which is negotiable favourably, kindly ac-
knowledge and let us have a favourable reply at the earliest.

Thanking you."

In acknowledging the above letter the trustees intimated the appel-
E
lants, by letter dated February 26, 1990, that their offer to purchase the
property for Rs. 14,20,000, would be placed before the meeting of the
trustees and the decision taken would be communicated to them; and,
accordingly, asked them to wait for the result of the meeting.
F
Thereafter on March 16, 1990 the trust through its managing trustee,
filed an application in the High Court (Application No. 1660 of 1990)
seeking permission to sell the property to the purchasers for Rs. 9,00,000
as, according to them it was the highest offer, and to execute and register
the necessary deed of sale.
G
By an order dated March 29, 1990 a learned Judge of the High Court
granted the permission sought for and directed the trustees to invest the
sale proceeds, in such manner as the majority of them might deem fit and
proper. Pursuant to the said order sale deeds were executed in favour of
the purchasers on April U, 1990, and all the tenants of the property, H
j
952 . SUPREME COURT REPORTS [1996] 2 S.C.R.

A including the appellants, were intimated of such sale.

Thereafter on July 2, 1990 the appella!'ts sent a notice, through their
Advocate, to the trust, the trustees and the purchasers alleging that they
also played a fraud on the Court, the Registration Department and the
Income-tax Department when they declared that the property fetched a
B highest offer of Rs. 9,00,000 as it price, in that, they suppressed the fact
that they (the appellants) had offered to purchase the property for
Rs. 14,20,000, it was further alleged that the purchasers were aware of their
offer as they were informed of the same through one of them (respondent
No. 11). the appellants gave out that in case the property was not said to
C · them at the price offered by them on or before July 10, 1990 they would
not only take action to set aside the sale but lodge complaints with the
registration and income tax departments and also move the High Court for
taking action against the trust for filing false affidavit. In their separate
replies thereto, the respondents denied the allegations made by the appel-
D lants; and the purchasers stated in their reply, inter alia, as follows :

"Our client made enquiries with the trustees with regard to your
statement that your client had offered to buy the property for Rs.
14,20,000 by his letter dated 23rd January 1990. Our client has been
informed by the trustees that though your client issued the letter,
E he did not evince any interest in finalising the transaction nor did
he take any further steps for effecting purchase. It is also stated
by the vendors (Trustees) that your client had sought complete
vacant possession and stipulated other conditions making it clear
that he was not keen on buying the property but only wanted to
F stop any sale of the property so that he could continue in the
premises as a tenant. Your client is occupying the premises on a
nominal rent and he was always interested in continuing in the
premises on the name terms.

Our client further state that the trustees had informed him that
G your client had claimed from them some amount to vacate the
premises, which the trustees had declined. After our client pur-
chased the property when they demanded vacant possession, your .....-
I

client against demanded payment of Rs. 2 lacs which was refused
by our client, who threatened to take legal action by evicting him
H from the premises."
l
GOWRISHANKAR v. JOSHI AMBA SHANKAR FAMILY TRUST 953

In view of the stand so taken by the respondents, the appellants filed A
an application on July 28, 1990 (being No. 801of1990 for setting aside the
order permitting the sale in favour of the purchasers. In the application
they stands, inter alia, as follows :

"The first Respondent ought to have informed that Hon'ble Court
my offer of Rs. 14,20,000 as otherwise the Hon'ble Court would B
not have permitted for the sale for Rs. 9,00,000. Obviously a fraud
has been committed and raise affidavit has been filed to misdirect
this Hon'ble Court.

Respondents 10 to 15 were quite aware of my offer much before C
the filing of the application and they have colluded with Respon-
dents 1 to 9 in knocking away the Schedule property for
Rs.9,00,000."

In contesting the application the managing trustee filed a counter
affidavit detailing the facts leading to the passing of the order permitting D
the sale of the property (which we have noticed earlier). We categorically
denied that there was any fraud or collusion with the purchasers and
assorted that the trustees had acted bona fide. In their counter affidavit the
purchaser claimed that they were bona fide purchasers and they had no
knowledge whatsoever of alleged offer made by the appellants. Beside, they E
reiterated the stand taken by them in their reply to the notice of the
appellants dated July 9, 1990 while the application for setting aside the sale
was awaiting disposal, the appellants filed a further affidavit on January 19,
1994 offering in pay a total sum of Rs. 19,40,000 for purchasing the
property.
F
After hearing the parties and taking into consideration all facts,
including the above offer, the learned Judge allowed the application prin-
cipally on the ground that the trustees had played fraud on Court by not
disclosing the highest offer or the appellate (the appellants herein) and
colluding with the purchasers and passed the following order :
G

- "That on receiving a sum of Rs. 19,40,000 (Rupees Nineteen
lakhs and forty thousand only) the 1st Respondent herein , do
execute and register the sale deed in respect of the property more
fully set out in the Schedule hereto in favour of the Applicants
herein; H
954 SUPREME COURT REPORTS [1996] 2 S.C.R.

A That from and out of the said sale consideration the earlier
Purchased I Respondents 11 to 15 herein, shall be paid a sum of
Rs. 9,00,000 (Rupees Nine Lakhs only) together with the cost of
the stamp papers and the Registration charge and that the balance
amount shall be appropriated for the trust; and
B That the Respondents 1 to 8 herein (the trustees) do pay the cost
of Rs.10,000 (Rupees ten thousand only) to the Respondents II to
15 herein, and the said costs shall be borne by them personally
and not out of the trust fund."

C Aggrieved by the above order the trust and the purchasers preferred
two separate appeals before the Division Bench ('bench' for short) which
were allowed and the order of the learned Single Judge was set aside. In
setting aside the order the Bench held that the finding of the learned Judge
that the permission to sell the property was obtained by fraud was patently
wrong and that the offer of the appellants was not a bona fide one. It
D further held that the purchasers had bona fide purchased the property for
value without notice of the offer of the appellants dated' January 23, 1990.
With the above findings and, in View of an affidavit filed by the purchasers
before it expressing their willingness to pay Rs. 19,40,000 for the property,
the same amount as offered by the appellants before the Single Judge - the
E Bench passed the following order :

"Consequently, we direct Respondents 10 to 15 to pay a sum of
Rs. 10,40,000 being the difference between the amount already
paid by them as sale price for the properties and the sum of Rs.
19,40,000. The said amount shall be paid to the trust on or before
F 30.9.1995.

With the above directions the appeals are allowed. The order
of the learned Single Judge dated 2.2.1995 is set aside. The Ap-
plicant shall pay the costs of the appellants, in each appeal, the
counsel's fee is fixed at Rs. 5,000." .
G
Having heard the learned counsel for parties and carefully perused
the entire materials on record we are unable to sustain the impugned order
admittedly, in their application filed on March 10, 1990, seeking permission
to sell the property the trustees did not disclose the offer made by the
H appellants on January 23, 1990 and, as already notice, such non-disclosure
1 GOWRISHANKAR v. JOSHI AMBA SHANKAR FAMILY 1RUST 955

prompted the Single Judge to conclude that the respondents practised A
fraud upon the Court. The Bench, on the other hand, held that failure on
the apart of the trustees to make a reference to the offer· of the appellants
while seeking permission of the Court to sell the property did not amount
to fraud on their part. It appears that in arriving at the above conclusion,
the Bench relied upon the following statements made in the counter
affidavit filed by the trustees in opposing the application on the appellants B
for setting aside the sale as, according to the Bench, those statements were
not controverted by filing a reply thereto :

"However, since an offer was made by the Applicants, the
Trustees discussed the Matter. In the course of the discussion, it C
was made known to the Applicants that the sale of the property
would be as is where is condition and the Applicants were required
to confirm that the offer would be for sale without vacant posses-
sion. The Applicants promised to come back, but never responded
thereafter. The Applicants did not follow up the matter further
and it was very evident from the conduct of the Applicant that they D
were only trying to protract the matter and put for in the agreed
sale to Seshmal Jain and five others.

I state that the Applicants were aware of the offer of Seshmal
Jain and five other and the agreement entered into with them. The E
attempt of the Applicants was only to sabotage the said proposed
sale. The Applicant were occupying substantial portion of the
property for a normal rent of Rs. 275 and they had succeeded in
their attempt at preventing the sale of the property for the past so
many years. Even after obtaining the Court permission in 1984,
they were able to prevent the sale by dissuading intending pur- F
chasers. They merely wanted to continue in the property paying a
nominal rent, which would be possible only if they continued to
own the property.

I state that the Applicant were aware of every step that was G
being taken towards the sale of the property.

Adverting to para 7, I state that at the time the Application was
made to this Hon'ble Cowt, there was no valid offer by the Applicants
as alleged. The Applicants had made an offer on the 23rd January
1990, but had wanted vacant possession. Since that was not possible, H
956 SUPREME COURT REPORTS (1996] 2 S.C.R.

A they had not pursued the offer. It was evident from the conduct of
the AppliCants that they were not serious about the alleged offer
made on 23rd January 1990. The trustees have acted bonafide. I
stou~ly deny the averment that a fraud was committed or a false
affidavit filed as alleged by the Applicants nor was this Hon'ble
Court, misdirected."
B
(emphasis supplied)

In our considered view the above approach of the Bench in dealing
with the matter ·was patently wrong for instead of deciding the mool
C question as to whether the trustees had suppressed the offer of the appel-
lants while seeking permission of the High Court to sell the property and
thereby committed fraud upon the Court, the Bench went on the decide
whether the appellants' offer was a bona fide necessitating its disclosure
and answered the same in the negative accepting the belated ...... and, as
the discussion to follow will indicate the specious ...... plea put forth by the
D trustees in that regard while contested the application of the appellants for
setting aside the sale. As has been already noticed as early as on January
23, 1990 the appellants had made the offer to purchase the property and
in replying thereto by their letter dated February 26, 1990 the trustees not
only stated that the offer would be placed before the meeting of the·
E trustees but also intimated the appellants that they would be informed of
the decision. Surprisingly, however, instead of informing the appellants
about the decision, if any, taken as promised,.the trustees filed within a
fortnight of their above reply the application seeking permission to sell the
property wherein they did not disclose the appellants' offer and on the
contrary started, inter alia, as follows :
F
"The applicant states that by the Order dated 9th February 1984,
this Hon'ble Court had permitted that Trustees to sell the schedule
property at the highest price offered. The Applicant is advised and
believe the same to be true that in view of the order of this Hon'ble
Court, at would in order for the Trust to sell the property at the ·
G
aforesaid highest offer received. However, the Applicant by way of
abundant caution has been advised to approach this Hon'ble Cowt
to pray for and obtain a specific pemiission for the sale of the
schedule property at the aforesaid highest offer Rs.9,00,000.

H The Applicant states that apart from calling for offers, the Trustees
GOWRISHANKARv. JOSHIAMBA~HANKARFAMILYTRUST 957

hav~ m3:de enquiries and have been duly satisfied that taking into A
account that nature and condition of the building, the number of
tenants occupying the building and the fact that the property is
sought to be sold in "as is where is" condition along with the tenants
without vacant possession being given to the purchaser, the price
offered is reasonable. The trust have also applied for an Income-tax B
Clearance Certificate s a pre-condition to the sake and the Income
tax authorities have, after due enquires, issued a Certificate under
Section 230-A of the Income Tax Act.

The applicant states that if the property is not sold at the highest offer
now received, it would be difficult to secure other or further offers for C
the property, which is deteriorating day by day. Considering the
meagre return from the property, it would not be in the interest
of the Trust to retain the property as such."

(emphasis supplied)
D
The assertion made by the trustees in the above quoted passage that
in spite of their best efforts they could not get any offer above Rs. 9,00000,
which obviously referred to the offer made by the purchasers, was patently
incorrect and untrue; and, there cannot be by manner of doubt that by
making those incorrect and untrue statements they persuaded the Court to E
grant permission to sell the property for a price of Rs. 9,00000. If really
the trustees were acting Bona fide in dealing with the property it was
exp~cted of them to first disclosed the offer of the appellants and then
plead their inability to accept the same detailing the reasons therefor.
Instead or so doing not only they suppressed that offer but asserted in no
uncertain terms that the highest offer received by them was from the F
purchasers and that it would be difficult to secure other or further offers
for the property. The Bench however did not consider the above facts and
circumstances, which unmistakably indicated the oblique designs of the
trustees, from a proper perspective and proceeded to upset the finding of
the Single Judge on the tenuous ground that their failure to disclose the G
appellants' offer was justified as it was not a bona fide one. It is pertinent
to point out here that the trustees raised the issue regarding the bonafides
of the appellants' offer only in support of their inability to accept the same
and not in justification or their non-disclosure as held by the Bench.

Equally unjustified was the Bench in concluding that the offer of the H
958 SUPREME COURT REPORTS [1996) 2 S.C.R.

A appellant was not a bona fide one, relying solely upon certain statements
made by the tr'ustees in their counter affidavit (quoted earlier) as according
to the Bench they were not controverted through a rejoinder. Even if we
proceed on the basis that those statements remained uncontroverted still
they cannot be relied upon as they do not stand the test of probability and
were clearly made as an after thought. According to the trustees' version
B
made therein they discussed about the offer of the appellants and then
.made it known to them (the appellants) that the sale of the property would
be on 'as is where is condition'; and therefore, they asked tl:e appellants
to confirm that the offer would be for sale without vacant possession but
the appellants did not respondent though they had promised to come back.
c Certain other averments have also been made therein to contend that the
appellants were not serious about the offer. No correspondence much less
contemporaneous record, nor any other material was produced before the
Court in support of the above claim made in the counter affidavit. At the
risk of repetition, it may be recalled that the trustees had earlier intimated
D the appellants that they would discuss about their offer and asked them to
wait for their decision. Instead of keeping to their pi:omise of communicat-
ing their decision they moved the Court a few days later where they took
a diametrically opposite stand. It is evident therefor that there was no basis
whatsoever for the trustees to contend, and for that matter the Bench to
rely upon only the bald statement of the trustees to hold that the appellants
E were not serious about their offer.

For the foregoing discussion it must be held that the trustees ob-
tained the permission to sell the property to the purchasers practising fraud
upon the Court and in view of the following observation of this Court in
S.P. Dhengalvaraya Naidu v. Jagannath, [1994] 1 SCC 1:
F
"It is the settled proposition of law that a judgment or decree
obtained by playing fraud on the court is a nullity and non est in
the eyes of law. Suc.h a judgment/decree by the first court of by
the highest court has to be treated as a nullity by every court,
G whether superior or inferior. It can be challenged in any court even
in collateral proceedings."

The question whether ther purchasers purchased property bona fide sub-
sequent to the permission so granted without notice of the appellants' offer
H is immaterial in this appeal. We therefore allow this appeal, set aside the
I
GOWRISHANKAR v. JOSHI AMBASHANKAR FAMILY TRUST 959

impugned order and keeping in view the fact that both the appellants and A
the purchasers subsequently offered (o purchase the property for Rs.
19,40,000, remit the matter to the Division Bench of the High Court to call
for fresh offers from them, which, needless to say, shall not be less than
the above amount and grant permission to sell the same at the higher offer
received on such terms as law and equity may demand. The appellants shall B
be entitled to costs of this appeal from the trustees which be assess at Rs.
10,000.

G.N. Appeal Allowed.