Institute of Legal and Management Studies

The Supreme Court on Tuesday (Aug. 5) held that there's no bar to a representative suit under Section 92 of the Code of Civil Procedure, 1908 (“CPC”) against a society registered under the Societies Registration Act, 1860 if it qualifies as a 'constructive trust'.

Mere registration of a society under the Societies Registration Act, after the entity attained the characteristics of a public trust, will not change the character of the properties which had already been constituted as trust properties.

At the same time, the Court added that registration as a society would not automatically invest the properties of the society with the character of a trust.

The bench comprising Justices JB Pardiwala and R Mahadevan approved the impugned findings, observing that if the society's acts align with the functions of a trust by virtue of its structure, public funding, and charitable objectives, then a representative suit against the society's irregularities would be maintainable against the society.

“When no formal recognition has been given to the institution (society), the creation of a trust can be inferred from the relevant circumstances surrounding the coming into existence of and functioning of the institution/entity in question.”, the Court said.

The court had listed out a tentative list of the relevant circumstances which may signify that the society may be considered as a 'constructive trust'.

“Although it is not possible to provide an exhaustive list of the same, yet they may include –

(a) the method of devolution of the property to the institution or its acquisition and the circumstances along with the intention behind the grant of property i.e. whether it was for the benefit of the organization/public beneficiaries or for the personal benefit of any particular individual/family;

(b) whether the grant is accompanied with any fetter/obligation or qualified with a condition, either express or implied, regarding its use by the grantee;

(c) whether the 'dedication' was complete i.e., whether there was an absolute cessation or complete relinquishment of ownership of the property on the part of the grantor and a subsequent vesting of the property in another individual (trustee) for the said object;

(d) whether the public user or an unascertained class of individuals could exercise any 'right' over the organization and its properties;

(e) the manner of use of the profits accrued, more particularly, whether it is applied/re-applied towards the benefit of the organization and its objectives, etc.”

“If the aforementioned circumstances exist and the entity has been, much later in time, registered as a society under the Societies Registration Act, 1860, it would still be treated as a 'public trust' as per the dictum of the Full Bench of the Kerala High Court in Kesava Panicker (supra) wherein it was observed that the mere factum of registration of a society under the Societies Registration Act, 1860, after it attained the characteristics of a public trust, could not change the character of the properties which had already been constituted as trust properties.”, the Court added.

The Case

The Case arises out of a bitter dispute between co-founders of the society i.e., Respondent No.1-Dr. Shelly Batra and Respondent No.3-Mr. Sandeep Ahuja meant to serve people who are in medical need. Dr. Batra, who was removed from her position as President and board member in 2020, had alleged large-scale mismanagement, financial impropriety, and breach of the organisation's bye-laws, and filed a representative suit under Section 92 CPC seeking judicial intervention.

Aggrieved by the Single Judge and Division Bench decision of the High Court to declare the suit as maintainable, the Appellant-Society moved to the Supreme Court.

The High Court upheld the maintainability of the suit under Section 92 CPC noting that Appellant-Society stands with the test of 'constructive trust' because the grant-in-aid, donation or gift made by a third-party to the society would, by its very nature, be intended to be used for the benefit of those in need of medical care in furtherance of the objects of the society. The High Court said this in-itself would be sufficient to infer that all such grants-in-aid, donations gifts etc., made to the society would become property 'entrusted' to it, by reason of which the society would acquire the character of a 'constructive trust'.

Decision

Affirming the High Court's decision, Justice Pardiwala, in a detailed judgment, elaborated on the circumstances under which a society may be deemed a constructive trust, placing particular emphasis on its structural framework, funding sources, and charitable objectives. These elements, the Court held, constitute a sine qua non for determining whether a society falls within the ambit of a constructive trust under Section 92 of the CPC.

Reference was drawn from the Kerala High Court's Full Bench decision in Kesava Panicker v. Damodara Panicker and others 1974 SCC OnLine Ker 58, where the already existing public trust was transformed into a society for seeking an exemption under Section 92 CPC. Supporting the High Court's ruling, the Court observed:

“mere a 'subsequent' registration of the same entity as a society under the Societies Registration Act, 1860 would not take away from its character as a public trust and affect the maintainability of a suit under Section 92 of the CPC. A trust was already created by the public for a public charitable purpose and the properties were already imbued with the character of trust properties and impressed with the trust. The mere registration as a society to alter or circumvent the status of things which was already present, was what was disallowed.”

In the present case, even though the Appellant-Society was not a registered "trust," the Court held it functions at part with a 'constructive trust' because its funds are meant solely for public benefit, the MoA and AoA prohibit accumulation personal profits, and all properties, gifts, grants-in-aid and donations were vested in the Society's Executive Committee to be used per the society's charitable objectives.

Accordingly, the appeal was dismissed.

Cause Title: OPERATION ASHA VERSUS SHELLY BATRA & ORS.

Citation : 2025 LiveLaw (SC) 775

Click here to read/download the judgment

Appearance:

For Petitioner(s) Mr. Dama Seshadri Naidu, Sr. Adv. Mr. Bishwajit Dubey, Adv. Ms. Radhika Bishwajit Dubey, Adv. Mr. Karan Khetani, Adv. Mr. Umesh Dubey, Adv. Ms. Madhulika, Adv. Ms. Vuzmal Nehru, Adv. Mr. Manoj K. Mishra, AOR

For Respondent(s) Mr. Jai Anant Dehadrai, Adv. Mr. Sidharth Sharma, Adv. Mr. Anubhav Lamba, Adv. Mr. Pulkit Agarwal, AOR