Holding

Only a beneficially interested person or a trustee may move under Section 25 of the Official Trustees Act, and the High Court erred in granting and later modifying the lease without public auction, rendering the orders void.

Summary

The Committee of Management of Pachaiyappa's Trust (the appellant) challenged a lease of a 5.65‑ground plot vested in the Official Trustee of Madras that had been granted to a partnership (respondent No.2) for a 30‑year term. The High Court, exercising its supervisory jurisdiction under Section 25 of the Official Trustees Act, 1913, approved the lease without a public auction and later modified its terms despite the lease order having become final. The Supreme Court examined whether a non‑beneficially interested party could invoke Section 25, whether the court should have required public auction to protect fiduciary duties, and whether a final order could be altered by a later application for modification. It held that only a beneficiary or a trustee may move under Section 25, that the High Court erred in bypassing public auction and in altering the lease terms, and that the modification order was impermissible. Consequently, both the original lease order and the subsequent modification order were set aside and the appeals were allowed.

Issues considered

Can an application for grant of lease under Section 25 of the Official Trustees Act be filed by a person who is neither a beneficiary nor a trustee?
Whether the High Court should have required a public auction before granting a lease of trust property to ensure maximum advantage to the trust?
Is a final order passed under Section 25 amenable to modification by a later application when the original order has not been appealed?
Do the terms of the lease imposed by the High Court prejudice the interests of the trust and violate fiduciary duties under the Indian Trusts Act, 1882?
Did the High Court have jurisdiction to alter the lease conditions without adequate publicity and without following the standard procedure for disposal of public/trust property?

Legislation cited

Subjects

Official Trusteetrust propertyleasefiduciary dutypublic auctionSection 25Section 26maintainabilitymodification of orderpublic trust

Judgment

A THE COMMITTEE OF MANAGEMENT OF
PANCHAIY APPA'S TR UST
v.
OFFICIAL TRUSTEE OF MADRAS AND ANOTHER

NOVEMBER 17, 1993
B
[M.N. VENKATACHALIAH, CJ, S.C. AGRAWAL
AND DR. A.S. ANAND, JJ.)

Official Trustees Act 191rSecs. 25,26-Public Trust-Grant of long
c tenn lease in respect of immovable property vested in official trustee-l'ower
of High Court to make order in respect thereof.......Principles underlying the
exercise of supervisory jurisdiction of the High Court-Equivalent to the stand-
ard for fiduciary conduct expected from a trustee-Must be guided by the
consideration, to make the trust get the maximum advantage of a transaction
D without prejudice to the security and safety of the trust property. Transactions
relating to trnst property--Postulate wide publicity-Grant of lease must be
either at a public auction or by inviting sealed offers-Must ensure participa-
tion of all interested parties to secure the best price.
Application for grant of lease with respect to trnst property-Can be
E moved only by persons beneficially interested in the trust property or by the
• trnstees.

Indian Trusts Act 1882-Secs. 15,36-Fiduciary conduct expected from
a trnstee-Bound to deal with the trust property as carefully as a man of
ordinaty prudence would deal with his own propertr-All acts must be for the
F realisation, protection or benefit of the trnst property.
The appellant, a public trust, was a residuary legatee under a will
dated 21-5-1948, executed by one K. The testator, bequeathed to the said
trust, several properties, including a plot of land admeasuring 13566.66
G sq.ft. situated at No. 21, harrington Road, Madras.

In January, 1986, the respondent No. 2, a partnership firm, consist-
ing of three unemployed medical graduates, filed before the High Court of
Madras an application seeking directions, to the official trustee to enter
into a lease agreement with them, with respect to the said plot of land. The
H applicants prayed therein, that they be granted the said plot of land on a
710
PACHAIYAPPA'STRUSTv. TRUSTEE OF MADRAS 711

lease (a) for an initial period of 50 years with an option to it to rene\\' the A
lease for a further period of 50 years. (b) For an initial rent of Rs. -'5011
per annum for the first year and for every succeeding year an increase by
5% on the rent payable in respect of' every preceding ~·ear. in order to
enable them to construct and run a medium sized Nursing Home on the
said plot.
B
The application was opposed by the appellant on the grounds that
(a) the grant of such a long term lease Is neither in the interest of the trust
nor beneficial to It, (b) it would be detrimental to the interests of the Trust,
as It would amount to tying down the property in the hands of the
applicants; (c) the rent ofTered by the respondent No. 2 ' ·as very low. (d) C
Since the solvency of the applicants was not clear, it would be highly risky
to lease out the property to them, however laudable their objects may be.

Subsequently, a supplemental report was filed by the official trustee,
respondent no. 1, stating therein that although the respondent no. 2 hai;
no legal right to insist on lease, however the same could be granted, under D
the orders of the Court, on terms and conditions beneficial to the trust
estate, or in the alternative the official trustee be permitted to lease out
the said property at a public auction after giving due puhlicity.

By its order dated 2.5.1986 the Single Judge of .he High Court E
granted the lease in favour of respondent No.2 on a monthly rent or 2,000
per annum, for an initial period of 30 years with an option or renewal lease
period according to then prevailing clrc11mstances and other terms and
conditions imposed by the Court. The said order was in appeal upheld and
confirmed by an order or the Division Bench or the High Court.
F
The respondent No. 2 then flied an application before the High
Court, seeking certain modifications with reference to the terms and
conditions of the lease imposed by the order or the Single Judge.

The appellant as well as the respondent No. 1 contested the said
application on the ground that the respondent No. 2 not having filed any G
appeal against the order of the learned single judge cannot seek to have
the said order modified especially when the same has been affirmed and
upheld by the Division Bench of High Court.

The Division Bench rejected the objections raised by the appellant H
712 SUPREl\IE COURT REPORTS. (1993) SUPP. 3 S.C.R.

A and permitted the modifications in the terms ~nd conditions of the lease,
laid down in the order of the ~ingle judge dated 2.5.19.86.

Aggrieved, the appellant filed appeals .befor~ the Supreme Court

B
Allowing the appeals, this Court r
HELD : 1. The standard for fidnciary conduct expected from a
trustee is stricter than the morals of the market place. It has been kept
for at a higher level then that trodden by the crowd. I 723-G•H]

Meinltaral v. Salman, (1928) 249 N.Y. 458, referred to.
c
2.1 So long as the property is vested in the official trustee it will be
the duty of the official trustee to take sU;ch steps and conduct himself in
such a manner as to make the trust get the maximum advantage of any
transaction ~thout prejudice to the security and safety of the trust proper-
D ty. (724-BJ .
2.2 If official trustee himself wants to lease the property, the normal
•
procedure to be adopted is by public auction. There is need for publicity ·
so that at large have notice, and a furtive ~ethod adopted for settling a
matter of this moment, behind the back of those interested and anxious to
E c~mpete, is un,justified. (719-C, 724-E]

2.3 As far possible sales of public property, when the intention is to
get the best price, ought to tftke pla<;~d publicly. Public auction with open
participation and a reserve pric~ gu~rantees public interest being fully
subserved. [724-F·G]
F
Muniswamy v. Official Trustee, (1980) 1 MW 223, followed.

KN.Guruswamy v. State of Mysore and Ors., (1955) 1 SCR 305;
v.
Fe1tilizer Corporation Kamgar Union (Regd.) Union of India, (1981) 2 SCR
G 52; State of UP v. Shiv Charan Shanna and Ors., (1981) Supp. SCC 85; Ram,
and Shayam Co. v. State of Haryana, (1985) 3 SCC 267 and Chenchu Rami
Reddy and Another!· Stat~ of A.f. & Ors., [i986] 3 SCC ~91, referred to •.

3. What is true about the property· belonging to religious and
charitable endowments and 'institutions would equally apply to trust
H property. There appears to be ,no reason why. the procedure ~f public
~ • ~ • ! ~ ~ - ' •
PACHAIYAPPA'STRUSTv. TRUSTEEOFMADRAS 713

auction should not be adopted when the lease is to be granted under an A
order passed by the High Court in exercise of jurisdiction under Sec. 25 ~
of the Official Trusts Act, 1883. If lease is granted by the Court on the
basis of an application submitted by an applicant without notice to others
who may also be interested in the lease the consequence would not be very
different from that when a lease is granted in the secrecy of an office. In
order to ensure participation by every person interested in making an
B
oiler, it is necessary that there should be wide publicity about the proposal
to give the lease and the lease is granted either by inviting bids at a public
auction or by inviting sealed oilers by a specific date. (725-H, 726-E-G]

4. The procedure followed by the Courts below in passing the order C
for grant of lease in favour of respondent No. 2 does not fulfil this
requirement. Moreover, the alternations in the terms and conditions of the
lease made by the Courts, are prejudicial to the interests of the trust. In
the pretext of modification respondent No. 2 secured substantial altera-·
lions in the terms and conditions as contained in the original order dated
2.S.86 passed by the Single Judge which had been upheld in appeal by the D.,
Division Bench of. the High Court of Madras. Under the guise of the
modification respondent No. 2 obtained review of the order which had
become final. This was impermissible in law.(726-H, 727-E-G, 729-F.-G]

S. Sec. 26 of the Official Trustees Act prescribes that any order under E
the Act may be made on an. application of any person beneficially inter-
ested in any trust property or by a trustee thereof. The Act does not
envisage an application being moved by any other person. Since respon-
dent No. 2 were neither beneficially interested nor were trustee. thereof,
their application was clearly not maintainable and the High Court was in
an error in entertaining the said application. (722-G-H] F
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 4168 and
4169 of 1988.

From the Judgment and Order dated 28.10.87 & 22.4.87 of the
Madras High Court in C.M.P. No. 14618/87 & O.S.A. No. 167of1986. G
S. Sivasubramaniam, R: Mohan, R. Nedumaran and Dr. P.B. Rao,
for the Appellant.

V. Krishnamurthy, V. Balachandran, S. Srinivasan, Yashank Adhyaru H
714 SUPREME COURT REPORTS [1993] SUPP. 3 S.C.R.

A an~P.H. Parekh for the Respondents.

The Judgment of the Court was delivered by

S.C. AGRAWAL, J. These appeals relating to grant of a long term
lease in respect of immovable property vested in the Official Trustee as
B executor and trustee raise questions relating to the exercise of the super-
visory jurisdiction by the High Court under Section 25 of the Official
Trustees Act, 1913, herein referred to as 'the Act'.

Under a will executed by the one C. Kandawamy Naidu on May 21,
C 1948, the testator made various bequests in favour of his children as well
as other persons and bequeathed the rest of his properties to the Trustees
of Pachaiyappa's Chairities subject to the conditions, payment and restric-
tions mentioned therein. The Official Trustee of Madras has been ap-
pointed as the executor and the trustee of the. will and he has been
empowered to sell and dispose of the: properties , immovable as well as
D movable. O.P. No. 278 of 1948 is the original proceeding instituted in the
Madras High Court on the basis of the said will by the Official Trustee.
Among the properties vested in the Official Trustee under the will is a
vacant plot of land measuring about 5.65 grounds (13566.85 sq. ft.) situated
at No. 21, Harrington Road, Madras. On the western side of the said plot
E of land, there is a building. The ground floor of the said building has been
let out to Pachaiyappa's Trust for the Office of the Trust. The first floor
of the building is in occupation of another tenant.

On January 29, 1986, RV.A. & Co., (respondent No. 2), a partn~r
ship firm consisting of three unemployed medical graduates, filed an
F application (CMP No. 495of1986) in O.P. No. 278of1948, wherein it was
prayed that the Official Trustee be directed to enter into a lease agreement
with the applicant firm for an initial period of 50 years with an option to
the said applicant firm to renew the lease for a further period of 50 years .
on such terms and conditions which the Court may deem fit to impose. In
G the affidavit of M.K. Rajasekar, one of the partners, filed in support of that
application, it was stated that the partnership had been formed with the
object of constructing and running a Nursing Home at Madras with a view
to provide employment to the partners who were unemployed medical
graduates. In the said affidavit, it was also stated that the applicants wish
to take the plot of land on long lease with a view to construct a medium
H size hospital with about 30 rooms .and they wanted the lease of the prope~ty
PACHAIYAPPA'STRUSTv. TRUSTEE OF MADRAS (AGRAWAL,J.) 715

initially for a minimum period of 50 years with an option to renew for a A
like period on the expiry of 50 years. In the said affidavit, it was also stated
that after the expiry of the lease period the applicants undertake to deliver
the vacant possession of the promises with all the improvements made in
the site leased out to them. As regards rent it was stated that Rs. 4,500 per
annum was a fair rent payable for the vacant land for the first year and
that for every succeeding year the rent could be increased by 5% on the B
rent payable in respect of every preceding year.

The said application was opposed by the appellant. In the counter
affidavit filed on its behalf it was stated that the grant of lease for 50 years
was not in the interest of the Trust and not beneficial to it and it would be
detrimental to the interests of the Trust to lease the property for a long c
period as it would amount to tying down property in the hands of the
applicants. It was also stated that the solvency of the applicants was not
clear and that it would not be prudent to lease the trust property for a long
period however laudable the objects of the partnership may be and it would
be highly risky to lease out the property as sought for. D
The Official Trustee also filed a report wherein he admitted the
availability of the vacant space for lease and stated that he had no objection
to the court directing reasonably long term of lease for the vacant site but
according to him the rent offered by respondent no. 2 was very low an that
the period of lease could not be as long as 50 years but it could be a lease E
for 15 or 20 years.

The Official Trustee filed a supplemental report on April 25, 1986
wherein it was stated that the applicants have no legal right to insist on a
lease and that the applicants could be granted lease only if the Court was
satisfied that the applicants are agreeable to the terms and conditions F
which would really benefit the trust estate and that the applicants who want
the indulgence of a long term lease in their favour by an order of the Court
should be prepared to offer attractive terms for grant of lease in their
favour. Thereafter the Official Trustee set out the factors which may be
taken into consideration if at all the court was inclined to grant the long G
term lease in favour of the applicant. The said factors were :

{1) The initial rent of Rs. 4,500 per annum {Rs. 375 per month)
offered by the applicants is very low and that even at the rate of
10 paise per sq. ft. the rent for the area of 13566.85 ft. comes to
about Rs. 1,336 per annum. H
716 SUPREME COURT REPORTS [1993) SUPP. 3 S.C.R.

A (2) The period of lease of 50 year with an option to renew for another
50 years is definitely not in the interest of the trust estate and
that the lease period can at best be for 15 years.

(3) The rent for the site has to be increased each year by 10%.
/
B (4) That applicants may be directed to deposit a sum of Rs. 50,000
with the Official Trustee as security deposit for the fulfilment of
the proposed project which could be forfeited in the event of
applicant failing to carry out the project or to show adequate
progress in pushing through the project within a period of one
year but it would be refunded without interest if the project as
c envisaged in the applications is completed in full.

(5) The applicants may be required to deposit Rs. 10,000 as advance
repayable without interest when the applicant vacates the proper-
ty. '
D
(6) The tenancy would stand terminated in the event of the ap-
plicants failing to pay rent continuously for a period of more than
3 months.

(7) The superstructure to be put up by the applicant must be sur-
E rendered to the trust estate at the time when they vacate without
claiming any compensation for the same.

(8) The applicants would have no right to sub-lease.

The Official Trustee further stated that if for some reason or other
F the Court holds that the lease in favour of the applicants cannot be granted
then the Official Trustee may be permitted to lease the property by public
auction through M/s. Murray and Company or some other public auc-
tioneer on terms quite favourable to the Trust Estate after giving due
publicity.
G The said application of respondent No. 2 was disposed c:>t' by a
learned Single Judge of the High Court (K.M. Natarajan, J.) by order ci~ted
May 2, 1986 by treating it as an application under Section 25 of 'the Act.
1'.he learned Single Judge came to the conclusion that it is beneficial and
in the best interest of the Trust to lease out the property to others. While
fI considering the offer made by respondent No. 2, the learned Single Judge
PACHAIYAPPA'STRUSTv. TRUSTEE OF MADRAS [AGRAWAL,l.1717

held that the monthly rent can be fixed at 15 paise per sq. ft. which works A
out to Rs. 2034 for 13566.85 sq. ft. and it could be rounded to Rs. 2,000
per month and that the rent was to be increased by 5% tvery year for a
period of first five years and thereafter by 10% every year on the rate of
the monthly rent of the preceding year. With regard to the period of lease
the learned Single Judge was of the view that the period can be fixed at 30 B
years with liberty to the applicants to apply for extension of the lease period
according to the then prevailing circumstances to. the court and abide by
the other. terms and conditions to be imposed by the Court or such other
order of the Court. As regards the objections of the appellant the learned
Single Judge observed that even though 'the appellant Trust is a residuary
legatee they have to locus standi in the matter of granting lease of the trust C
property. According to the learned Single Judge in view of Section 25 of
the Act and the decision of the Division Bench of the Madras High Court
in Muniswami Naidu v. Official Trustee, (1980) I MU 223, it is only the
Official Trustee who has to take necessary steps to secure the maxim~
advantage for the Trust without prejudice to the security and safety of the D
said Trust subject to the supervisory jurisdiction of the High Court. By his
order aforesaid, the learned Single Judge directed the Official Trustee to
lease out the vacant site on the eastern portion of the premises bearing
Door 21, Harrington Road, Madras to the extent of 13566.85 sq. ft. (5.65
grounds) subject to the following terms and conditions:
E
"(1) Initially the rent is fixed at Rs. 2,000 per month from the date
of execution of the lease deed and the same is to be increased by
5 per cent each year on the preceding year rate of rent for a period
of five years and thereafter 10 per cent.
F
(2) The period of lease is 30 years with liberty to the applicant to
apply before the expiry of the lease period to the court for ron.c'
further period and such terms as fixed by the Court, ar ;ruing to
the then prevailing circumstances, and abide by the order of the
court.
G
(3) The applicant should deposit at the time of execution of the
lease a sum of Rs. 30,000 with the Official Trustee as security
deposit for the fulfilment of the project and if he fails to carry out
the project or fails to show adequate progress in pushing through
this proje~t within a period of one year from the date of the lease, H
11 \
718 SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.

A the Official Trustee is entitled to forfeit the entire sum of Rs.
30,000 to the Trust Estate.

(4) After the project is completed in full as envisaged in the
application, the applicant is entitled to get refund of the said sum
of Rs. 30,000 from the Official Trustee.
B
(5) The applicant has also at the time of execution of the lease to
deposit a sum of Rs. 10,000 as advance with the Official Trustee,
and the same is repayable without interest at the time when the
applicant vacates the premises.
c (6) If the applicant fails to pay the rent continuously for a period
of three months, the tenancy will stand termfuated and the official
trustee is entitled to recover possession of the demised premises
with. the· superstructure.

D _(7) The applicant has to put up a north-south wall of 23 cm.
thickness to a length of 63.70 metres at his cost as mentioned in
·the report filed by the Assistant Engineer within a period of one.
year, without claiming any reimbursement or adjustment in the rent ·
payable.

E. (8) The applicant should also provide necessary gateway for the
use of the tenements in the western side as suggested by the Asst.
Engineer in his report within the said period of one year.

\ (9) The applicant must surrender the superstructures and other
constructions to be put up by them to the trust at the time when
F they vacate without claiming any compensation for the same.

(10) The applicant has no right to sub lease the premises to any
person.

(11) The applicant must at his cost provide suitable alternative
G arrangements for the tenant of the ground floor of the building in
the western side (now Pachaiyappa's Charities) to get water from
the well. Failure to comply with of the terms and conditions the
lease is liable to be terminated by official Trustee."

H Feeling aggrieved by the said order of the learned Single Judge, the
PACHAIYAPPA'STRUSTv. TRUSTEE OF MADRAS (AGRAWAl...,J.) 719

appellant filed an appeal (O.S.A. No. 167/86) which was disposed of by a A
Division Bench of the said High Court (V.Ramaswami & Bellie, JJ.) by
judgment dated April 22, 1987. It was submitted on behalf of the appellant
that, as a residuary legatee, the appellant, is not opposed to grant of lease
as such but the lease should have been given by public auction and reliance
was placed no the observations of the Division Bench of the Madras High
Court in Mw1iswami Naidu v. Official Tntstee, (supra). Rejecting the said
B
contention, the learned Judges held :
r;.-- -·

"If the Official Trustee himself wants to lease out the property, the
normal procedure to be adopted i$ by auction, but when a specific
application is made to the High Court and the learned Judge who C
hears the application is satisfied that the terms are fair and just
and there is no need for going for a public auction, it cannot be
said that the learned Judge was without jurisdiction in direction
the grant of the lease."
D
The learned Judges held that the learned Single Judge had taken into
·consideration the rent, nature of the property, the situation and the pur-
pose for which the lease is asked for and had come to the conclusion that
the direction as prayed should be given subject to the terms and conditions
mentioned by the learned Single Judge and that there was no ground to
interfere with the same. On behalf of the Official Trustee, it was, however, E
pointed out that although the order was passed by the learned Single Judge
on May 2, 1986, respondent No. 2 had not come forward with payment
and execution of the lease deed and that a specific time limit should be
fixed within which respondent No. 2 should-obtain die lease and execute
the lease deed. Accepting t_he said contention the learned Judges fixed a F
period of four months from the date of the judgment as the period within
which respondent No. 2 should approach the Official Trustee to have the
lease deed settled and executed.

In view of respondent No. 2 having failed to take any action in
pursuance of order dated May 2, 1986, passed by the learned Single Judge, G
one Md. Ummer Sheriff filed an application (CMP No. 5600 of 1986) in
O.P. No. 278 of 1948 for cancellation of the directions regarding grant of
lease in favour of respondent No. 2 and for direction that the lease be
granted to him. He expressed his willingness to pay a monthly rent of Rs.
3,000 and to a security deposit of Rs. 35,000 and an advance amount of Rs. H
720 SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.

A 15,000. In the said application, an affidavit was filed by M.K. Rajasekar, a
partner of respondent No. 2, indicating that the lease granted in favour of
respondent No. 2 may be cancelled a's they do not want to take the lease.

Subsequently, an application (C.M.P. No. 14618/87) was filed by
respondent No. 2 in O.S.A. No. 167 of 1986 whereby it was prayed that the
B order. dated April 22, 1987 in O.S.A. No. 167/86 may be modified by issuing
suitable direction with reference . to the conditions of lease imposed by
order dated May 2, 1986 by the learned Single Judge in respect of the
following matters :

"(i) to delete the provisions with reference to the enhanced rate
c of rent contained in clause 2;

(ii) to provide for the period of lease as 99 years or in any event
for 50 years with an option to renew for a further period of 50
years instead of 30 years as provided in clause 3;
D (iii) modifying clause 7 for the termination of the tenancy on the
failure of the lessee to pay the rent continuously for one year
instead of 3 months;

(iv) deleting the provisions of clause 10 with reference to the
E surrender of superstructure and other construction put up by the
lessee at the time when the lessee vacate without claiming com-
pensation; and

(v) deleting the prohibition contained in clause 11 not to sub-lease
the premises leased."
F
The said application was opposed by the appellant as well as the
official Trustee. The appellant submitted that the application was not
maintainable since the terms and conditions as contained in order of the
learned Single Judges dated May 2, 1986 had been affirmed in appeal by
G the Division Bench of the High Court. The Official Trustee submitted that
respondent No. 2 having not filed any appeal against the order dated May
2, 1986 could not seek to have the said order modified especially when the
said order had been affirmed by the Division Bench by order dated April
22, 1987. It was also submitted on behalf of the Official Trustee that in view
of the affidavit dated April 30, 1987 filed by M.K Rajasekar (in CMP No.
H 5600 of 1986) that he does not want to take the lease this application has
PACHAIYAPPA'S TRUSTv. TRUSTEE OF MADRAS (AGRAWAL,J.) 721

become infructuous. Md. Ummer Sheriff filed a separate application (CMP A
No. 16607 of 1987) in CMP 14618 of 1987 wherein it was prayed that the
Official Trustee be directed to enter into a lease agreement with him. In
the affidavit of Md. Ummer Sheriff dated October 16, 1987 in support of
that application the offer of monthly rent of Rs. 3000 per month was
reiterated and the deponent expressed his willingness to abide by all the B
necessary conditions terms and restrictions imposed by the Court.

The application for modification (CMP No. 14618 of 1987) filed by
Respondent No. 2 was disposed of by the Division Bench of the High Court
by order dated October 28, 1987. The Learned Judges rejected the objec-
tion raised by the Official Trustee that respondent No. 2 having failed to C
file an appeal against the order of the learned Single Judge dated May 2,
1986 could not seek its modification. The learned Judges were of the view
that since the application would not have 'been maintainable if it had been
filed before the learned Single Judge and, instead of allowing the question
of merger of the earlier order of the learned Single Judge in the appellate
order being argued before the learned Single Judge, it was desirable that D ,•,

the matter was de~t with by the Bench. As regards the affidavit of M.K.
Rajasekar filed on behalf of respondent No. 2 stating that they had no
inclination to accept the lease, the learned Judge held that the said a(fidavit
had been filed without the knowledge of the disposal of the appeal and
that Respondent No. 2 had, thereafter filed an affidavit in these proceed- E
ings stating that they are wi11fang to take the lease on just and fair terms and
that they only want modification of the terms. Dealing with the application
for modification on merits, the learned Judges allowed the said application
and permitted the following modifications in the terms and conditions laid
down in the order dated May 2, 1986:
F
'(1) Under Clause (2) the increase of rent would be at the rate of
5% on the original rent of Rs. 2,000 for every three years;

(2) Under. clause (3) the period of the lease would be 50 years
instead of 30 years with an option to renew for a further period G
of SO years;

(3) Under clause (7) the tenancy would be liable to be terminated
on the failure of the lessee to pay rent continuously for a period
of one ye~ instead of three years as originally provided; H
722 SUPREME COURT REPORTS (1993) SUPP: 3 s.c.R.
' '
A (4) Under clause {10) relating to surrender of the superstru~ture an.d
other construction at the end of the lease the lessee shad give
vacant possession to the lessor at the end of the lease but it
would be open to tl!_e lessor to opt to purchase the property in
case if it desired the property as it is at the then prevailing market
value to be (txed by the Public Works Department or at a figure
B which may be mutually agreed upon between the parties.

(5) Oause (ii) prohibiting sub-letting deleted.

Feeling aggrieved by the judgment dated April 22, 1987 in O.S.A. 167
C of 1986 and the order dated October 28, 1987 on C.M.P. No. 14618 of 1987
passed by the Division Bench of the High Court, the appellant has filed
these appeals. CA. No. 4169/88 is directed against the order dated April
22, 1987 passed in.O.SA. No. 167 of 1986 and CA No. 4168 of 1988 has
been tiled against the order dated October 28, 1987 passed on the applica-
tion. (C.M.P. No. 14618 of 1987) for modification.
0
We will first take up CA No. 4168 or 1986 which is directed against
. judgment dated April 22, 1987 affirming the order dated May 2, 1986
passed by the learned Single Judge for grant of lease in favour of Respon-
dent No. 2.
E As mentioned earlier the application that was filed by respondent
No. 2 for grant of lease was treated and disposed of as an application under
section 25 of the Act which reads as under :
....
"Power of High Court to make orders in resrect of property vested
F in Official Trustee. - The High Court may make such orders as it
thinks fit respecting any trust property vested in the Official Trus-
tee, or the income or produce thereof."

Section 26 of the said Act prescribes that any order under the Act
G .may be made on the application of any person beneficially interested in
any trust property or by any trustee thereof. The Act does not envisage an
application being moved by any other person. Respondent No.. ,2 were
neither beneficially interested in the trust property nor were t}iey truStees ·
thereof. The application filed· by Respondent No. 2 was thu8 clearly not
maintainable and the HigJi Court was ·in error in entertaining the said
H application. The proper course was that Respondent No. 2rshould have
PACHAIYAPPA'S TRUSTv. TRUSTEE OF MADRAS (AGRAWAL,J.] 723

approached the Official Trustee with their proposal for grant of lease and A
if the Official Trustee, after examining the same, found it to be in the
interest of the Trust, he could move the Court for appropriate directions.

Apart from maintainability of the application filed by Respondent
no. 2, we find that in deciding to grant the lease in favour of Respondent
No. 2 the High Court has failed to protect the interests of the Trust Estate. B
In this context, it is necessary to mention that the appellant, who is the
residuary legatee under the will and is beneficially interested in the proper-
ty sought to be leased, had objected to the proposed,lease. The Official
Trustee, took the stand that he would have no objection to grant of lease
if the court was satisfied that respondent No. 2 was agreeable to terms C
which would really benefit the trust estate. His stand was that if respondent
no. 2 wanted the indulgence of a long term lease in their favour by an order
of the court they should be prepared to offer attractive terms for the grant
of the lease in their favour. The Official Trustee also indicated the factors
which may be taken into consideration by the Court. The High Court has, D
however, imposed terms for grant of lease which are more favourable to
Respondent No. 2 as compared to the terms suggested by the Official
Trustee.

In this regard it may be mentioned that in view of Section 9 of the
Act when the Official Trustee has been appointed trustee under a will he E
holds the property vested him upon the trust expressed in the will. Under
Section 7 of the Act, the Official Trustee acts as an ordinary trustee and
has the same powers, duties and liabilities and is entitled to the same rights
and privileges and is subject to the same control and orders of the Court
as any other trustee acting in the same capacity. According to the Indian p
Trust Act, 1882 a trustee is bound to deal with the trust property as
carefully as a man of ordinary prudence would deal with such property if
it were his own (Section 15) and a trustee can be do all acts which are
reasonable and proper for the realisation, protection or benefit of the trust
property (Section 36). Describing the standard for fiduciary conduct ex-
pected from a trustee, Cardozo, J. has said : G

"A trustee is held to something stricter than the morals of the
market place. Not honesty alone but the punctilio of an honor the
most sensitive, is then the standard of behaviour. ...... Only thus
has the level of conduct for fiduciaries been kept at a higher level H
724 SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.

A than that trodden by the crowd." (See Meinharal v. Salman,, (1928)
249 N.Y. 458 at page 464.

In Muniswami Naidu v. Official Trustee (supra), while referring to the
duties of Official Trustee, it has been held :

B "So long as the property is vested in the Official Trustee it will be
the duty of the Official Trustee to take such steps and conduct
himself in such a manner as to make the trust get the maximum
advantage of any transaction without prejudice to the security and
safety of the trust property itself."
c In the said case, it has been further held that if the Official Trustee
him self wants to lease out the property the normal procedure to be
adopted is by public auction. The said view is in consonance with the law
laid down by this Court in the Context of alienation of public property.

D In KN. Guruswamy v. State of Mysore and Ors., (1955) 1 SCR 305 the
Court was dealing with the sale of a liquor contract. It was observed that
matters of "consequence to the State revenue cannot be dealt with arbitrari-
ly and in the secrecy of an office." The Court has emphasized the need for
publicity so that people at large have notice. It was held that "the furtive
method adopted of settling a matter of this moment behind the backs of
E those interested and anxious to compete is unjustified." (p.312)

In Fertilizer Corporation Kamgar Union (Regd.) v. Union of India,
(1981) 2 SCR 52, it is has been observed (Chandrachud, CJ.):

n.........We want to make it clear that we do not doubt the bonafides
F of the authorities, but as far as possible, sales of public property,
when the intention is to get the best price, ought to take place
publicly. The vendors are not necessarily bound to accept the
highest or any other offer, but the public at least gets the satisfac-
/
tion that the Government has put all the cards on the table."
G
Relying on the said observations this Court in State of U.P. · v. Shiv
C'iaran Shanna & Ors. etc., (1981) Supp. SCC 85, has held that "public
auction with open participation and a reserved price guarantees public
interest being fully observed".

H In Kiim & Shayam Co. v. State of Haryana & Ors., (1985) 3 SCC 267,
PACHAIYAPPA'STRUSTv. TRUSTEE OF MADRAS (AGRAWAL,J.] 725

it has been laid down : A
"On the other hand, disposal of public property parta~e~ th~.
character of a trust in that in its disposal there should be notl!fug
hanky panky and that it must be done at the best price 'so that
larger revenue coming into the offers of the State administration
would serve public purpose viz. the welfare State may be able to ·."!! ·
expand it s beneficient activities iby the a".ailability of larg~r funds .
.:.....But where disposal is for augmentation of revenue and nothing
else, the State is under an obligation to secure the best market
price avail~ble in a market economy. An owner of private property .
need not auction it nor is he bound to dispose it of at a current c- ·
market price. Factors such as personal attachment, ot~ty, ~ ·
kinship, empathy, religious sentiment or limiting ~~choice to
whom may be willing to sell, may permit him to sell the_properly-
at a song and without demur. A welfare State as the owner of the
public property has no such freedom while disposing of.4lie ·public
property." (p.277) D
In Chenchu Rami Reddy & Anr. v. Govt. of A.P. & Ors., (1986] 3 SCC
391, while dealing with sale of property of a religious endowment governed
by the Andhra Pradesh Charitable and Hindu Religious Institutions and
Endowments Act, 1966, this Court has held that what is true of public E
property is equally true about the property belonging to the religious
institutions and endowments and has further pointed out :

"....the trustees or persons authorised to sell by private negotiations,
can, in a given case, enter into a secret or invisible underhand d ...~
or understanding with the purchasers at the cost of the concerned F
institution. Those who are willing to purchase by private negotia-
tions can also did at a public auction. Why would they feel shy or
be deterred from bidding at a public auction? Why then permit
sale by private negotiations which will not be visible to the public
eye and may even given rise to public suspicion unless there are · G
special reasons to justify doing so? And care must be taken to fix
a reserve price after ascertaining the market value for the sake of
safeguarding the interest of the endowment." (pp.307-308)

The aforesaid observations in the context of public property and
property belonging to religious and charitable endowments and institutions H
726 SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.

f.. would equally apply lo trust property as in the present case.
'--..
The Division Bench onhe High Court has held that although the
Official Trustee, if he were lo lease out lo property, should have done so
by public auction but since lease was being granted under order passed hy
B the High Court after being satisfied that the terms are fair and just, there
was no need to go for a public auction. This raises the question - how would
the Court satisfy itself the terms are just and reasonable? For such satis-
faction the Court must have adequate material to make a proper assess-_
ment. This cannot be possible on the basis of the terms offered by the
applicant approaching the Court. Whether the said terms are just and
C reasonable, and in the interest of the trust, can be determined by making
a comparative assessment of competing offers and, therefore, it is necessary
that the persons interested in taking the lease must have an opportunity to
make an offer. Public auction is the means for enabling such persons to
make their offers. In the matter of exercise of its supervisory jurisdiction
under Section 25 of the Act the High Court has to be guided by the same
D consideration which governs the administration of trust property by the
official Trustee, namely, "to make the trust get the maximum advantage of
a transaction". Since public auction after adequate publicity ensures par-
ticipation of those who are interested and anxious to compete, it normally
secures the best price. There appears to be no reason why this procedure
of public auction should not be adopted when the lease is to be granted
E under an order passed by the High Court in exercise of the jurisdiction
under Section 25 of the Act. It is no doubt true that an order under Section
25 of the Act is passed in a judicial proceeding conducted in open Court
under public gaze. This necessarily postulates adequate publicity of the
matter under consideration to enable persons having an interest to appear
F and put forward their point of view before the Court. If lease is granted by
the Court on the basis of an application submitted by an application
without notice to others who may also be interested in the lease the
consequence would not be very different from that when a lease is granted
in the secrecy of an office. In order to ensure participation by every person
interested in making an offer it is necessary that there should be wide
G publicity about the proposal to give the lease and the lease be granted
either by inviting bids at a public auction or by inviting sealed offers by a
specified date.

The procedure followed by the learned Single Judge in passing the
H order for grant of leave in favour of respondent No. 2 does not fulfil this
PACHAIYAPPA'S TRUSTv. TRUSTEE OF MADRAS [AGRAWAf..,J.j 727

requirement It cannot be disputed that respondent No. 2 had a laudable A
object in constructing a hospital with 30 rooms. But there can he nthcr
applicants with equally laudable objects or other applicants having the
same object who could offer better terms. This could only known if wider
publicity had been given to the proposal and offers had been invited. This
appears to have been suggested by the Official Trustee also in his Sup-
B
plemental Report dated April 25, 1986 wherein he sought permission to
lease the property by public auction through M/s Murray and company or
some other auctioneer on terms quite favourable to the Trust Estate after
giving due publicity. We are unable to appreciate why the learned Single
judge did not choose to adopt the said· course.
c
The learned Single Judge was also not right in holding that the
appellant has no locus standi in the matter. Apart from being a tenant on
the ground floor of the building adjacent to the vacant plot of land the
appellant trust, is also the residuary legtee under the will and has a
beneficial interest in the trust property sought to be leased. The appellant
was, therefore, entitled to raise objections regarding grant of lease in favour D
of respondent No. 2 on the ground that the said lease was not in the interest
of the trust property and the said objections could not be brushed aside
on the view that the appellant had no locus standi.

Furthermore we find that while directing grant of lease in favour of E
Respondent No. 2 the learned Single Judge has altered the conditions as
suggested by the Official Trustee in the matter of - (i) lease period (ii) rate
of increase of rent and (ii) the amount of security deposit. The Official
Trustee had suggested a maximum lease period of fifteen years but under
clause (2) of the conditions the lease period has been fixed at 30 years with
an option to renew. The Official Trustee had suggested increase in rent @ F
10% per year but in clause (1) of the conditions the said increase was
reduced to 5% for the first five years. The Official Trustee had suggested
a security deposit of Rs. 50,000 but in clause (3) of the conditions it was
reduced to Rs. 30,000. All these changes were prejudicial to the interest of
the Trust Estate. The learned Judge has not given any reason why condi- G
tions as suggested by the Official Trustee could not be imposed.

The Division Bench, while upholding the order of the learned Single
Judge has not taken note of these infirmities in the said order. For the
reasons aforementioned we are unable to uphold the order dated May, 2,
1986 passed by the learned Single Judge as well as the judgment of the H
728 SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.

A Division Bench dated April 22, 1987 affirming the said order of the learned
Single Judge in appeal. C.A. No. 4169 of 1988 must, therefore, be allowed.

We would now come lo C.A. No. 4168 of 1988 which is directed
against .the order passed by the Division bench on application filed by
Respondent No. 2 for modification of the order dated April 22, 1987 in
B OSA 167 of 1986. In this context it has to be noted that by judgment dated
April 22, 1987 the Division Bench had dismissed the appeal and affirmed
the order dated May 2, 1986 passed oy the learned Singh Judge. I
Respondnet No. 2 had not chosen to file an appeal against the said order
of the learned Single Judge and they allowed the said order to become
C final. By the application for modification Respondent No. 2 sought
modification of important terms and conditions relating to (i) period of
lease, (ii) rate of increase of rent (iii) surrender of superstructure at the
time the lessee vacates the land and (iv) right to sub-let the premises. The
modifications were such as to alter the character Of the order sought to be
modified. Moreover the modifications that were sought even went beyond
D the terms that were offerred by respondent No. 2, in the affidavit of M.K.
·· Rajasekar filed in support of the application for grant of lease. In para-
graph No. 11 of the said affidavit, it was stated :

"I further state that after the expiry of the lease period the applicant
E undertake to deliver vacant possession of the said premises with
all the improvements.made in the site lease out to the applicant."

Clause (9) of the terms and conditions imposed by the learned Single
Judge was in the following terms :

F "The applicant must surrender the superstructures and other con-
structions to be put up by them to the Trust at the time when they
vacate without claiming any compensation for the same."

By the application for modification which has been allowed by the
G learned Judges of the Division Bench of the High Court clause (9) of the
conditions has been substituted and it has been provided :

"As provided in the transfer of property Act, this clause will be
modified to the effect that at the end the tenancy, the lease shall
give vacant possession to the lessor. But, however, it will be open
H to the lessor to opt to purchase the property in case if it desired
PACHAIYAPPA'STRUSTv. TRUSTEE OF MADRAS [AGRAWAL,J.) 729

the property as it is, at the then prevailing market value, to be fixed A
hy thi: Puhlic Works Department or at a figure which may be
mutually agreed upon between the parties."

Similarly in paragraph No. 14 of the affidavit of M.K. Rajasekar it
was stated :
B
"I, therefore, state that· the applicants offer to pay a rent of Rs.
4,500 for the building site for the first year and for every succeed-
ing years by increasing the rent by five percent on the rent payable
in respect of every preceding year."

The learned Single Judge in clause (1) of the terms and conditions
c
directed:

(1) "Initially the rent is fixed at Rs. 2000 per month from the date
of execution of the lease deed and the same is to be increased by
S per cent each year on the preceding year rate of rent for a period D
of five years and thereafter 10 per cent."

In the application for modification the modification that was sought
was "an uniform increase of 5 per cent for every five yesrs" and the
modification that has been allowed is increased of 5% on the original rent E
for every three years.

Notable among the other modifications which have been permitted
are : (i) the period of the lease has been raised from 30 years to 50 years
with an option to renew for another 50 years, and (ii) deletion of the
prohibition relating to sub-lease. It would thus appear that on the pretext F
of modification Respondent No. 2 has secured substantial alteration in the
terms and conditions as contained in the original order dated May 2, 1986
passed by the· learned Single Judge which had been upheld in appeal by
the Division Bench. In other words under the guise of modification
Respondent No. 2 have obtained review of the order which had become
final. This was impermissible in law. The order passed by the Division G
Bench does not give any indication as to why it became necessary to give
there concessions to respondent No. 2. It has not been shown that nobody
else was prepared to take the lease on the terms and conditions laid down
in the order dated May 2, 1986 and that without making those modifica-
tions the plot of land could not be given on lease. On the other hand we H
730 SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.

A find that there was another offer by Md. U mm er Sheriff offering to take
the lease on the same terms and conditions with a higher rest of Rs. 3000
per month. The order dated October 28, 1987 passed by the Division Bench
on the application for modification (CMP No. 14618/87) cannot, therefore,
be upheld and C.A. 4168 of 1988 filed against the said order also deserves.
B to be allowed.
'Before parting with the case we feel constrained to say that the order
dated May 22, 1986 passed by the learned Single Judge which was affirmed
in appeal by the Division Bench as well as the order dated October 28, ·
1987 passed by the Division Bench on the application for modification
C leave an impression that the learned Judges were more concerned with the
interests of Respondent No. 2 than those of the trust estate though the
primary duty of the Court was to safeguard the interest of the Trust which
was being administered by the Official Trustee and in doing so they not
only ignored the objections raised by the residuary legatee who was the
beneficiary under the Trust, but also did not accept the suggesti.ons made
D by the Official Trustee in the interest of the trust. In the matter of grant
of leases and licences and award of contracts by the executive the decisions
of this Court require the authorities to apply standards or norms which are
not arbitrary, irrational or irrelevant. People expect much higher standards
.. from the judiciary and rightly so. It would be a sad day if an impression
E gains ground that the judiciary is not free from the malaise that afflicts
other fields of State activity. We need say no more at this stage.

In the result, the appeals are allowed, the judgment dated April 22,
1987 passed by the Division Bench in O.S.A No. 167/86 as well the order
dated May 2, 1986 passed by the learned Single Judge on C.M.P. No.
F 495186 in O.P. No. 278/48 and the order dated October 28, 1987 passed by
the Division Bench on C.M.P. No. 14613/87 in O.S.A No. 167/86 are set
aside. The parties are left to bear their own costs.

T.W. Appeals allowed.

I