Kondaiah, J.
1. Pursuant to the order of the Supreme Court dated 14 -9-1978 in Civil Appeals Nos. 1105, 1245 and 1269 of 1978 on its file, C. M. A. No. 147 of 1978 is restored to the file of this Court and had come up before us for deciding afresh the principal issue i.e. whether or not there has been a valid and concluded contract of sale between H.E.H. the Nizam Jewellery Trust on the one hand and the respondents 7 to 17, the various tenderers, on the other hand.
2. We may briefly state the material facts, which lie in a narrow compass and gave rise to the submission of our finding to the Supreme Court. The late H. E. H. the Nizam of Hyderabad, Nawab Mir Sir Osman Ali Khan Bahadur had executed a trust deed on March 29, 1951 true copy of which is Ext.
A-1, creating the trust called H- E. H, the Nizam's Jewellery Trust (hereinafter referred to as the 'Trust') in respect of 107 items of valuable and rare Jewellery belonging to him, for the benefit of his (1) two sons (i) Prince Azam Jah and (ii) Prince Muzzam Jah: (2) two grandsons (i) Prince Moukkarram Jah and (ii) Prince Muffakam Jah; (3) two grand daughters (i) Fatima Fouzia and (ii) Amina Narzia (4) daughter Shahazadi Begum and (i) his step brother Sahebzada Nawab Basalath Jah Bahadur and other sons and daughters. Clause 13 of the trust deed requires the trustees to sell the jewellery within a period of three years after !he death of Prince Azam Jah, who had in fact died in October. 1970. The jewellery is kept in the safe Vault of Mercantile Bank of India at Bombay as per the wish of the settlor, R. N. Malhotra (R. W. 2) the nominee of the Government of India, M. A. Abbas (R. W. 1), Prince Muffakam Jah Mr. Zaher Ahmed and Mr. Ataur Rahman are the trustees since 1977.
The trustees submitted a memorial under Ex. B-l to the Prime Minister of India to acquire the rare and valuable pieces of jewellery as part of the collection of a public museum since they are articles of great historical and cultural value for a proper and reasonable price. The efforts of the trustees, which commenced in July, 1972 as noticed from the correspondence (Exs. B-l to B-38), did not fructify. In December, 1975 the jewellery was inspected by Vittaldas (R. W. 6) and also by a Committee of Valuers appointed by Government of India They submitted their valuation reports Exs. B-123 and B-70 respectively. The Government of India had informed the trustees through Ex. B-45 dated 13-3-78 that they are not interested in acquiring any of the jewellery having antique value. In January, 1978 Prince Muzzam Jah, the principal beneficiary had expressed through Ex. B-41, his concern about the delay in selling the jewels and wanted the trustees to expedite the sale. To the same effect is Ex .B-2 from some other beneficiaries. The Trustees consulted Gazdar (R. W 3) regarding the mode of sale and decided that the best method of sale would be to invite some reputed dealers in this country and from abroad for the intended sale. Then, R. W. 3 and the Secretary of the Trust addressed letters Exs. B-72 to B-100 to some reputed jewellers specified in Ex. B-46 informing them about the intended sale of the jewellery.
Out of 107 items of jewellery mentioned in the first schedule of the trust, 37 items with which we are concerned were sought to be sold by the trustees after arranging them into different lots Exs. B-47 and B-48 are the printed brochures and Ex. B-50 is the printed list of the jewellery. The terms and conditions of sale were settled as per Ex. B-19 dated 3-3-1978. The intending purchasers were permitted to inspect the jewellery at the Bank on payment of security deposit of Rs. 30,000/- and an inspection fee of Rs. 1,500/- by each party. About 26 or 27 foreigners and 42 Indians who were permitted by R. W. 3, had inspected the jewellery on 6-3-78, 7-3-78 and 8-3-78 in the presence of some of the trustees and R. W. 3, as seen from Ex. B-134. In the course of inspection, the tenderers were informed to send their tenders, accompanied by drafts for 10 per cent, of the tender amount drawn on the State Bank of India. in sealed covers so as to reach the trustees on or before 4-00 p.m. on 9-3-78. R. W. 2, the Chairman of the trust was present on 8-3-78. He left Bombay on the 9th morning for New Delhi to attend the urgent official work, as he is Additional Secretary in the Ministry of Finance, Government or India.
On 8-3-78 all the trustees had resolved at a meeting that the tenders received be examined and decided by the trustees present at the meeting an 9-3-1978, that in case they do not find satisfactory offer or offers in respect of any of the 37 items, they could reject the tendered offers and negotiate sale of any item with any party for higher price and that the delivery of articles sold be arranged on dates convenient to the trustees, preferably not later than 25-3-1978. On 9-3-1978, the four trustees who were present at Bombay bad opened the sealed tenders and accepted all the highest tenders except m respect of item 18 which was negotiated on the next day for a higher price of Rs. 6.92 crores, The tenderers had received letters of acceptance from the Secretary of the trust on 12-3-1978 requiring them to pay the balance of 90 per cent of the tender price on or before 23-3-78 and to take delivery of the items of jewellery purchased by them. However in respect of item 16, the date was advanced to 17-3-1978 at the request of respondent 7. The sale of the 31 items of jewellery fetched 14.43 crores. Ex. B-124 dated 14-3-1978 sent by the Secretary of the trust to R.W. 2 at New Delhi was actually seen by him on 23-3-78 and only thereafter he approved the action of the other trustees in accepting the highest tenders.
3. In the meanwhile, on 10-3-1978, the first appellant one of the beneficiaries and a granddaughter of the settlor, instituted in the Court of the Chief Judge, City Civil Court, Hyderabad in O. P. No. 141 of 1978 under S. 74 of the Indian Trusts Act (hereinafter referred to as 'the Act') for removal of the trustees alleging breach of trust, dereliction of statutory duty, negligence and mismanagement with particular reference to the manner in which the valuable jewels belonging to the trust were being brought to sale. She also filed I. A. No. 563/78 along with the said O. P. on 10th March 1978 for an injunction restraining the trustees from taking any further steps towards the finalisation or tenders for the Sale of the jewellery on the ground that the sale was collusive and clandestine and trustees were going to finalise the sale on 23-3-78.
11 th and 12th March, 1978 being holidays for the Court, the application which came upon on Monday, 13th March, 1978 before the Court was ultimately taken up on 14-3-78 and on the same day an interim injunction was granted by the Court restraining the trustees from taking any steps to finalise the sale of the jewellery. On coming to know of the institution of the O. P. and the granting of the interim injunction from the newspapers R W. 2 contacted the Secretary of the Trust on phone, who confirmed the news published in newspaper. R. W. 1 filed a counter on 16-3-1978 and opposed the application for injunction. Ultimately the trial Court Passed an order vacating the interim injunction, against which the present C. M. A. is filed by the first appellant. Pending disposal of the C. M. A. this Court ordered maintenance of status quo with regard to any further action relating to the sale of the jewellery.
During the pendency of the C. M. A. respondent 6 filed an application on 11-4-1978 offering 20-25 crores for the aforesaid 37 items of jewellery. After inspecting the jewels, the 6th respondent con firmed his offer and deposited the amount and therefore he was permitted to intervene. On 12-6-1978 the first appellant was permitted to withdraw and her sister (P. W. 1) came on record as 2nd Appellant. Later the 6th respondent's offer was accepted by a Division Bench of this Court, after setting aside the earlier sales. Aggrieved by the said decision, respondent 7 and other tenderers preferred appeals to the Supreme Court on the ground that all the tenderers were not parties to the proceedings and they are entitled to be heard before any order, affecting their rights, is passed by the Court. Hence the present order of the Supreme Court directing the submission of a fresh finding on the said issue, after affording an opportunity to all the parties.
4. As per the order of the Supreme Court R-7 to R-17 were given an opportunity to file their statements and they, as well as the opposite parties, filed their respective statements and counter-statements touching upon the question of the factum, validity and propriety of the sales alleged to have been made by the trustees in favour of R. 7 to R. 17 Issues 2 to 5, framed by the earlier Bench consisting of Madhava Reddy and Narasinga Rao J J. on 10-7-78, were sought to be deleted by some of the tenderers in C.M.P. Nos. 14229, 14273 and 14340 of 1978. After hearing all the parties, we expressed the view that submission of a finding on the following two issues would be in accordance with the direction of the Supreme Court and all the Learned counsel except Mr. Y. Suryanarayana for R. 14 agreed with the same. Accordingly we decided to submit a finding on the following issues:-
(1) Whether there have been concluded contracts of sale of 337 items of jewellery between H E. H. the Nizam jewellery on the one hand and the various tenderers on the other?
(2). If Issue No. 1 is found in the affirmative, whether such concluded contracts of sale are proper, valid and binding
5. At the instance of the parties, the Court permitted them to adduce oral and documentary evidence in support of their respective claims. The second appellant offered herself as P. W. 1 for cross-examination and her evidence has, accordingly, been recorded. Mr. M. A. Abbasi a trustee and Mr. R. N. Malhotra, the Chairman of the Trust gave evidence as R. Ws. 1 and 2 respectively. The trustees also examined Dinsha Jahangir Gazdar a jeweller of Bombay and consultant of the Trust who was advising the trustees from time to time regarding the sale of the jewels. as R. W. 3 and Vittaldas, a jeweller of Hyderabad as R.W.6. to speak to his valuation of the jewels in question during the year 1975 and to prove his valuation report (Ex. B-123). Respondent 7 is the only tenderer which led evidence in support of its case and examined its partner Kashmirchand as R.W.4. Respondent's also examined Aspi Kavarana, an employee of Tajmahal Hotel, Bombay as R. W. 5 to file the hotel registers to prove the presence of respondent 6 in Bombay during the period commencing from 4-3-78 to 10-3-78. The other tenderers did not examine any witnesses but relied on the affidavits filed by them and on various other documents filed by the trustees. Exs. A-1 and B-l to B 67 were exhibited in the lower Court whereas Exs. B-68 to B-158 have been marked in this Court.
6. The sum and substance of the contention of Mr. J.V. Suryanarayana Rao, the learned counsel for the second appellant is that there was no joint execution of the trust as R. W. 2 was away from Bombay on 9-3-78 and 10-3-78, that there was neither specific authority to accept the highest tenders nor valid approval by R. W.2 of the action taken by the other trustees, and, consequently, there were no concluded contracts of sale of the jewellery, that the procedure adopted by the trustees is erroneous. improper and unjust, that there was no Proper publicity, which resulted in getting a grossly inadequate price for the jewellery, that if proper and adequate publicity was made, the jewellery would have fetched more than 14.43 crores and. in any event, not less than 20.25 crores now offered by Respondent 6, that in any event, such sales are improper, unjust, invalid and not binding on the beneficiaries and that this is a fit case where the Court should exercise its controlling power under S. 49 of the Act.
The claim of the 2nd appellant has been strongly, resisted by the learned counsel Mr. Rajni Patel, Mr. P. R. Mridul, Mr. P. Babul Reddy, Mr. Y. Suryanarayana and Mr. Y. Sivaramasastry, appearing far different tenderers respondents contending inter alia that in fact there was a concluded contract of sale in respect of every lot of the jewellery sold on 9-3-78 and 10-3-78 when the tenders of Respondents 7 to 17 were accepted by the trustees, that the trustees have absolute discretion to sell the jewellery either in a public auction or through private sale. that there was adequate and proper Publicity, that they were not bound to invite competition, that the price secured was very much higher than the value estimated by R. W.6 and the Government valuers and the same was fair and adequate once, that there was no complain either from the beneficiaries or the intending purchasers that there was no proper publication and the price of Rs. 14.43 crores fetched was grossly inadequate or low. that there is no illegality impropriety or unjustness in the method and manner adopted in the conduct of the sale that the trustees who are very respectable persons, have acted diligently. reasonably and in good faith, that there is no justification for the Court to interdict the Sales, invoking its power of control under S. 49 of the Act, as there are no mala fides, fraud or collusion, that respondent 6 who was at Bombay at the relevant period was aware of the sale of the jewellery but did not make any offer, that the subsequent offer of 20.25crores by R. 6 is not bona fide and, in any event, it is only a fancy price but not the market value, that the Court should not take cognizance of the same, that the real person behind respondent 6 is one Galadari, a smuggler of Dubai and that an adverse inference must be drawn against them as they failed to subject themselves to cross-examination in this Court by the tenderers,
7. The learned Advocate-General for the trustees contends that the trustees acted at every step in the conduct of sale of the jewellery under the strong belief and conviction that they had been exercising the discretionary power of sale prudently and with proper care and attention and in all good faith and that they were anxious to complete the sale transaction at the earliest possible time m the month of March. 1978 to enable the beneficiaries to have the benefit of exemption from the capital gains tax, as there was no certainty that such an exemption would continue to be available after the end of March, 1978. He however admits that the exercise of the discretionary power of sale by the trustees conferred on them by the deed of trust is subject to the controlling Power of his Court under S. 49 of the Act and the fact that an amount of 20.25 crores for 37 items of Jewellery has been offered by the 6th respondent in April 1978 is a matter to be taken into consideration by the Court exercising jurisdiction under S. 49, a, indicating either an error of judgment or a mistaken impression of the value of the jewellery on the part of the trustees. He further submits that the trustees had exercised the discretionary power with prudence and due care and there is no violation of S. 48of the Act as cl. 20 of the Trust deed contemplates decision of the majority of the trustees voting far the time being as a binding decision on all the trustees.
8. Sri Syed Sadatulla Hussaini the learned counsel for the 6th respondent reiterates the stand taken by the 2nd appellant's counsel and adds that the offer made by his client is genuine, that if the 6th respondent were aware of the proposed sale of the jewellery, he would have certainly offered the present amount after inspection, that his client came to know of the proposed sale of this jewellery only after the publication of the news in newspapers about the grant of the interim injunction, that his client is a businessman and the price offered by him is real market price of the jewellery but not fancy price, that his client could not make himself available in the Court for cross-examination as he had to be with his son who is seriously ill at London and that the 6th respondent has nothing to do with Galadari and no adverse inference can be drawn against the 6th respondent for his absence and that of Galadari.
9. We shall first consider the question whether or not there were concluded contracts of sale, before examining their validity or otherwise. Admittedly, the tenderers along with some others, had inspected the jewellery on 6th, 7th and 8th March, 1978 after depositing the requisite security amount and inspection fee and sent their tenders in sealed covers to the trustees on 9-3-18. Though R.W. 2 was not present on 9-3-1978 all the sealed tenders including those of respondents 7 to 17 were opened by the Secretary in the presence of the remaining four trustees at about 4-30 p.m. and a tabular statement of the several offers was prepared. R. W. 1 deposes that all the four trustees had accepted the highest tenders of respondents 8 to 17 on 9-3-78 and in respect of item 16 the tender of 7th respondent was not accepted but after negotiation the price was settled at 6.92 crores on 10-3-78. The Secretary of the Trust, on the instructions of the trustees who were present, sent the letters Exs. B-54 to B-65 respondent 7 to 17 intimating the acceptance of their tenders and requiring them to send the balance of 90 per cent of their tender amount through bank draft drawn an the State Bank of India on or before 22-3-1978 failing which the 10 per cent earnest money deposit would be forfeited to the Trust.
However, in the letter of acceptance sent to the 7th respondent, relating to sale of item 16, the date was changed to 17-3-78. Mr. Malhotra (R. W. 2) deposed that he was at Bombay on 8-3-78 with a view to satisfy himself that the response to the invitations was adequate, that the inspection was properly given by to the invitees to facilitate them to offer correct bids and that the jewels were securely kept in the Bank After enquiry, he satisfied himself that there was adequate response from bona fide bidders to offer their tenders. He further deposed that the trustees were tree to accept the highest tenders if they did not see any reason to reject them and if the trustees felt that higher amount could be fetched, they could negotiate with the tenderers and obtain higher amount from the tenderers. As he had to be away from Bombay on 9th and 10th March, 1978 due to official pre-occupations at New- Delhi. he had asked the remaining trustees to take necessary decision in the light of the terms and conditions of sale. One or two days after he reached Delhi, he was intimated on phone by the Secretary that the trustee had opened the tenders and the highest amount offered was Rs. 14.43 crores After knowing that item 16 fetched over 6 crores, he said 'Teek Hai'. In the cross-examination he admitted thus :-
'When the Secretary telephoned to ma within one or two days after I left Bombay he did not inform me as such that the trustees have accepted the tenders He did not also mention to me at that time about the negotiations with regard to item No. 16'.
10. The marginal note in Ex. B. 124 bears the initial of R. W. 2 dated 23-3-1978. He did not know when that letter was actually received in his office. He admits that by 23-3-1918 he knew that the proceedings were pending in the City Civil Court and injunction was granted restraining the trustees from delivering the Though he states that he did not receive any intimation from the Secretary before he contacted him on phone on 15th March, 1978 about the filing of the O. P. against the trustees, in his cross-examination he admits that Err. B. 124 does not make any mention about the telephonic conversation the Secretary had with him one or two days after 8-3-1978. The earliest point of time when R. W. 2, the Chairman of the Trust, had full particulars about the tenderers was only through Ex. B-124 on 23-3-1978. Till then, there was no specific approval of R. W. 2 for the acceptance of the tenders offered by R. 7 to R. 17, although the letters of acceptance on behalf of the Trust were issued by the Secretary an 10 th or 1l th March, 1978. There is no dispute with regard to the highest tenders offered by respondents 7 to 17 and their acceptance by the trustees who were present at Bombay on 9 th and 10th March 1978. in respect of 37 items of the jewellery. The dispute with regard to the factum of concluded contract of sale of the jewellery is in respect of the authority of the four trustees to accept the tenders on behalf of the trust without the acceptance of R W. 2, the Chairman of the Trust.
11. Fire may consider the law governing the execution of the trust when there are two or more trustees. The following statement of law from 'Lewin on Trusts' may be noticed in this connection:
'In the case of co-trustees the office is a joint one. Where the administration of the trust is vested in co-trustees they all form as it were but one collective trustee, and therefore must execute the duties of the office in their joint capacity. It is not uncommon to hear one of several trustees spoken of as the acting trustee but the Court knows no such distinction; all who accept the office are in the eye of the law acting trustees., If any one refuses or be incapable to join. it is not competent for the others to proceed without him, but the administration of the trust must in that case devolve upon the Court. However, the act of one trustee done with the sanction and approval of a co-trustee may be regarded as the act of both. But such sanction or approval must be strictly proved'.
The Privy Council in Man Mohan Das v Janki Prasad AIR 1945 PC 23, held the aforesaid statement of law from 'Lewin on Trusts' to be a correct statement of law applicable in England and that the same doctrine applies to India also. The Supreme Court also in Janakirama Iyer v. Nilakanta Iyer AIR 1462 SC %33, approved the same.
12. Scott an Trusts says in Vol. 2 at page 1033:--
'Where there are several trustees, they mud act unanimously in making a sale or a contract to sell. unless it is otherwise provided by the terms of the trust.
In exercising a power of sale, as in the exercise of other powers a trustee cannot properly delegate the performance of acts, which he ought personally to perform.
13. In India. Sections 47 and 48 of the Act are enacted to meet this situation. Section 48 enjoins all the trustees, if there are more than one, to join in the execution of the trust except where the instrument provides otherwise. All the trustees must, therefore, concur in the exercise of the powers conferred on them in respect of the trust property in order to bind the beneficiaries. Hence all acts which the trustee intend to take in executing of the trust must be taken by all of them acting together. the trust deed expressly provides that the execution of the trust may be carried out not by all but by one or more trustees, the matter would, in such circumstances, be governed by the special provision of the trust deed. In the present case, there is no such clause in the trust deed authorising the execution of the trust to be carried out not by all but by one or more or majority of the trustees. In the absence of such a specific provision, the general law envisaged in Section 48 of the Act would govern the present case.
14. Now we may consider the contention of the trustees and the tenderers that clause 20 of the instrument of trust (Ex Al) provides the exception indicated in Section 48 of the Act and therefore, the acceptance of the tenders by the four trustees present at Bombay on 9-3-1978 and 10-3-1978 would be binding on the beneficiaries, although R. W. 2 was at New Delhi. Clause 20 of the instrument of trust reads thus:--
'It is hereby further agreed and declared that in all matters wherein the trustees have a discretionary power the votes of the majority of the trustees for the time being voting in the matter shall prevail and be binding on the minority as well as on those trustees who may not have voted and if the trustees shall be equally divided in opinion the matter shall during the lifetime of the settlor be decided according to the opinion of the Settlor and after his death according to the opinion of the trustee most senior in age for the time being.'
15. Clause 13, which requires the trustees to sell the jewellery within a period of three years after the death of Prince Azam Jah, gives absolute discretion to the trustees to sell the jewellery either in India or in any foreign country, Clause 18 also says that the trustees may in their absolute discretion, sell the jewellery either by public auction or by private contract. A close reading of clause 20 would clearly indicate that all the trustees must execute the trust in respect of matters wherever the trustees have a discretionary power. The discretion may be absolute or unconditional, but section 49 controls the discretionary power vested in the trustees in the execution of the trust. The method and manner of the exercise of this discretionary power is indicated in clause 20. This clause, in our considered opinion would come to the aid of the trustees and the tenderers only if all the trustees were present and had participated in the decision of acceptance or rejection of the tenders on 9-3-1978 and 10-3-1978 at Bombay and if the majority was in favour of acceptance and the minority in favour of rejection but however it does not assist the present claim of the tenderers and the trustees, since all the five trustees, in fact, did not participate in this act of acceptance or rejection of the tenders, as R. W. 2 was admittedly away at New Delhi at the material time. The expression 'the Votes of the majority of the trustees for the time being voting in the matter shall prevail and be binding on the minority as well as on those trustees who may not have voted' employed in clause 20 clearly contemplates and requires the participation of all the trustees to act jointly, although they may ultimately differ in arriving at a decision. Otherwise, there was no need to use the expression 'voting and the votes of the majority of the trustees' in clause 20 of the deed. In all matters where the trustees have to exercise their discretionary power they must act jointly but not individually. If the settlor had, in the deed of trust, specifically provided that even in the absence of any of the trustees the remaining trustees can execute the trust, the decision of acceptance of the tenders by the majority who participated in the execution of the trust would certainly prevail, as such a case would then fall within the exception indicated in Section 48 of the Act. The normal rule is that all the trustees must join in the execution of the trust. It is a legal obligation and duty required to be performed by all the trustees. For the aforesaid reasons we hold that clause 20 of the instrument of trust falls under the main provision of Section 48 but does attract the exception specified there. This view of ours gains support from decision of the Supreme Court in Janakirama Iyer v. Nilakanta Iyer : AIR1962SC633 . Therein clause 23 of the deed, which was sought to be construed, read thus:--
'In all the proceedings to be taken in connection with this estate, you three, either unanimously or according to the decision of the majority, shall act'. The Supreme Court construed this clause as not falling under me exception to S. 48 and observed:-- 'It is clear that what this clause requires is that the three trustees shall act, and it provides that they shall act according to the decision which may be reached either unanimously or by majority. 'You three', that is to say, the three trustees, is the subject of the predicate 'shall act' and the words between the subject and the predicate indicate how the decision has to be reached. Reading the clause as a whole it is difficult to accept the argument that this clause allows two of the three trustees to act without joining the third trustee in the actual action to be taken in the execution of the trust. It is not necessary under the clause that in the matter of executing the trust every decision must be unanimous. The clause recognises that in some matters decision may be by majority but nevertheless it requires that once a decision is reached either unanimously or by majority, in giving effect to the decision and in taking any given action in the execution of the trust all the three must act. Thus read, this clause conforms to the statutory provisions contained in Section 48 of the Indian Trusts Act and is not intended to provide for an exception to the said provisions at all It is urged that if no departure was intended to be made from the principles laid down in Section 48 the clause need not have been added at all. This argument is wholly inconclusive..... The authors of the trust, while creating the trust, have not made elaborate provisions in respect of the several matters concerning the execution of the trust and the whole scheme of the trust deed is consistent with the operative clause 23 in that it seems to require all the trustees to act together even though the decisions which they seek to give effect to, may have been majority decisions and not unanimous decisions. Therefore, in our opinion, the Courts below mere right in holding that clause 23. like the main provision of Section 48, requires that all the trustees should have joined in the execution of the sale deeds in question'. To the same effect is the decision of the Nagpur High Court in Fakira v. Ganpat AIR 1954 Nag 92, wherein it was held that the majority decision, in order to be binding on the entire body of the trustees, should have been arrived at after due deliberations by all the trustees.
16. Applying the dictum of the Supreme Court in Janakirama lyer v. Nilakanta Iyer : AIR1962SC633 . We have no hesitation to hold that all the five trustees herein including R. W. 2 should have participated in the action of acceptance of the highest tenders of R-7 to R-17 on 8-3-1978 and 10-3-1978 at Bombay to satisfy the requirements of Section 48 of the Act. We, therefore, negative this contention of the tenderers and the trustees.
17. It is next contended by the learned counsel appearing for the traders and the trustees that R. W. 2 had. out of necessity delegated his office of trusteeship to his co-trustees as he had pressure of work which has national importance, at New Delhi in connection with settlement of exchange rare between Rupee and Rouble, that the acceptance of the highest tenders by the other trustees was only a formal' act and that, in any event, since R. W. 2 approved the action taken by the other trustees on 9-3-1978 and 10-3-1978 at Bombay, the provisions of Sections 47 and 48 of the Act are satisfied, and consequently there was concluded contract of sale between the tenderers and the trustees which is enforceable against the beneficiaries in respect of 37 items of jewellery, now in dispute.
18. Sections 46 and 47 of the Act are relevant in this regard. Section 46 prohibits a trustee from renounce his trusteeship after acceptance except (i) with the permission of the Court or (ii) with the consent of the beneficiary or (iii) by virtue of a special power in the instrument of trust. Under Section 47, a trustee cannot delegate his office or any of his duties either to a co-trustee or to a stranger, unless (i) it is specifically provided in the deed or (ii) the delegation is necessary or (iii) the beneficiary consents to the delegation or (iv) the delegation is in the regular course of business. The scope and application of Sections 46 and 47 had been considered by the Supreme Court in Abdul Kayum v. Alibhai : [1963]3SCR623 wherein the Supreme Court held at p. 313:--
'There cannot, in our opinion, be any doubt about the correctness of the legal position that trustees cannot transfer their duties, functions and powers to some other body of men and create them trustees in their own place unless this is clearly permitted by the trust deed or agreed to by the entire body of beneficiaries A person who is appointed a trustee is not bound to accept the trust but having once entered upon the trust he cannot renounce the duties and liabilities except with the permission of the Court or with the consent of the beneficiaries or by the authority of the trust deed itself. Nor can a trustee delegate his office or any of his functions except in some specified cases. The rules against renunciation of the trust by a trustee and against delegation of his functions by a trustee are embodied in respect of trustees to which the Indian Trusts Act. applies, in Sections 46 and 47 of that Act'.
The act of one of the trustees done with the sanction and approval of the other trustees may, in certain cases, be construed as the ad of all the trustees. However, such sanction or approval of the other trustee or trustees who did not actually take pan in the act must be strictly proved. The onus is on the party who sets up the plea of sanction or approval of the trustee who did not actually participate and join the other trustee or trustees who acted on behalf of the trust, to prove the same.
19. We shall now examine whether this burden has been satisfactorily discharged by the tenderers and the trustees who contended that there was delegation and approval. As a matter of fact there is no specific plea in the statements filed by the parties that there was delegation as well as approval. After attending the meeting on 9-1-1978 along with three others, R. W. 2 had attended the meeting of the trustees only on 8-3-1978 at Bombay. There is no documentary evidence to prove actual delegation of the office of the Chairman of the Trust by R. W. 2 to any other co-trustee. The resolution of the trust dated 8-3-1978 (Ex. B. 106) may be noticed :-
'Resolved that the tenders received be examined and decided by the trustees present at the meeting to be held for the purpose on 9-3-1978.
And further resolved that in case such trustees did not find a satisfactory offer or offers in respect of any of the items offered for hale, they may' reject the tendered offers and negotiate the sale of any item with any party for a higher price'.
The resolution dated 8-3-1978 only empowered the trustees present at the meeting to be held on 9-3-1978 to examine and decide the tenders received; it did not specifically authorise them to accept the highest tender. The resolution of the Trustees dated 8-3-1978 as admitted by R W. 1 in his cross-examination 'does not provide that the highest tenders should be accepted.' There is no mention or indication in this resolution that R. W. 2 would not be present on 9th as he had pressing work at New Delhi and that he had authorised specifically the other trustees to accept the tenders, much less, highest tenders, in his absence. That apart, though Ex. B. 106. the minutes of the meeting of the trustees held on 8-3-1978, specifically contemplates and indicates a convening of a meeting of the trustees on 9-3-1978 to examine and decide the tenders received, the minutes book, Ex. B. 126, does not show the convening of any meeting of the trustees on 9-3-1978. R. W. 2 has, no doubt, replied to the question asked by Mr. Y. Suryanarayana that 'all the major decisions regarding sale of jewels were taken to my knowledge and with my consent excepting that I was not physically present on 9-3-78 and 10-3-78 at Bombay.' It is not clarified as to what these major decisions were, and how and when they were consented to by him and taken to his knowledge.
20. It is not the case of either the tenderers or the trustees that delegation was permissible under the Trust deed. Their case is neither that the entire body of the beneficiaries consented to the delegation of the powers of the office of the Chairman of the Trust by R. W. 2 to any of the trustee or trustees nor that the delegation was in the regular course of business. Their contention is that the delegation war made out of necessity which we shall consider. The necessity of the presence of R. W. 2 at New Delhi has been spoken to by him. As seen from his evidence when he was recalled for cross-examination on 23-1-1979, he volunteered to state that on verification of records he found that he 'was busy at Delhi heading a group which negotiated with a High Power Russian delegation to settle Rupee-Rouble exchange rate and connected matters. I could not leave Delhi from 9-3-1978 to 23-3-1978 during which period the talks which commenced earlier on 28-1-1978 had entered a crucial stage. Those talks required my personal presence at Delhi because they are matters of national consequence'. This evidence discloses that important negotiations by R.W.2 and other Indian officials with a High Power Russian delegation to settle Rupee-Rouble exchange rate had commenced an 28-1-1978 and the same had entered a crucial stage from 9-3-1978 to 23-3-1978.
If what he has spoken to, after recall, were true, R. W. 2 must have been aware of the fact that his presence was essential at Delhi from 28-1-1978 and in particular from 9-3-1978 to 23-3-1978 If so, he, as a diligent, prudent and reasonable chairman of the trust, should have thought it just and proper to postpone the dates pertaining to the inspection of the jewellery by the intending purchasers and also the finalisation or the sale of those rare and valuable jewellery to subsequent dates as his presence and participation was essential for the proper execution of the trust, which is a statutory duty and obligation. It. W. 2 has a statutory duty and obligation to apply his mind and take part jointly fifth other trustees in the execution of the sale of this very valuable, rare and precious jewellery in his capacity as the Chairman of the trust. It is no doubt open to a trustee either to accept or reject the trusteeship when appointed; but having once entered upon the trust, he cannot renounce his duties unless he obtains the requisite permission of the Court or the consent of the entire body of beneficiaries or by the specific authority under the trust deed itself That is why any delegation normally prohibited under Section 41 Therefore we find that there was no legation.
21. Coming to the plea of approval of R. W. 2, we may notice the following admissions of R. W. 1 in his evidence.
'It is only through the note of 14-3-1978 that we obtained the written consent of Mr. Malhotra far the sale of item 16. His consent was obtained for the sales of the other jewels also only through the note of 14-3-1978'.
22. The acceptance of tenders by the other trustees was, in fact. not informed to the Chairman (R. W: 2) by either the secretary of the Trust or any of the trustees. The only authentic information about the acceptance of the highest tenders by some of the trustees Was through Ex. B. 124 which was seen for the first time by R W 2 on 23-3-1978. In view of the admitted fact of the issuance of the injunction on l4 -3-1978 restraining the trustees from proceeding further with the sale of the jewellery any concurrence or approval given by R. W. 2 subsequent to 14-3-1978 would be invalid. The mere fact that R.W. 2 was not made a party-respondent to the injunction application would not, in any way, entitle any of the trustees to do anything in furtherance of the completion of the sale of the jewellery in question. R. W. 2 was aware of the grant of the injunction and it is not open to him to do anything in furtherance of the sale transaction as a trustee. The alleged approval, on which strong reliance has been placed by the tenderers, could not legalise the action of the other trustees, as he was prevented or restrained by the order of Court granting injunction, from proceeding further in the finalisation of the alleged sale of the jewellery, therefore there was no approval by R. W. 2 of the action of the other trustees.
23. Mr. Y. Suryanarayana contends that the duties and functions performed by the trustees on 9-3-1978 and 10-3-1978 are formal and all the trustees, in particular the Chairman (R. W. 2) need not be present and in support of this contention he relied upon the decision of the Gujarat High Court in Atmaram Y Gulam Husein, : AIR1973Guj113 . Therein the passage from Lewin on ''Trusts' referred to by us earlier and the decisions of the Privy Council in Man Mohan Das v. Janki Prasad AIR 1945 PC 23 and of the Supreme Court in Abdul Kayum v. Alibhai : [1963]3SCR623 , had been followed by the Gujrat High Court. The learned Chief Justice Bhagrvati (as he then was) observed thus at p. 114:--
'Save in certain exceptional cases to which we shall presently refer, a trustee cannot delegate any of the duties, functions, and powers of his office to his co-trustees or anyone else, as that would be contrary to his obligation under the trust'.
The delegation, according to this decision, is permissible only in certain exceptional cases such as formal acts but not in respect of discharge of duties, performance of functions and exercise of powers by a trustee. Hence this decision is really against the tenderers We may notice in this 'regard the evidence of R. W. 2 himself to a question put by one of us (Kondaiah J.). He says:--
'I have been acting as the Chairman of the Board of Trustees, I agree that 9th March 1978 and 10th March 1978 are crucial dates for the finalisatian or the sales of those items of jewellery. I had other official work at New Delhi which was pressing'.
R. W. 1 also did not Say that the acts done by the trustees on 9-3-1978 and 10-3-1978 are formal as contended by Mr. P. Suryanarayana. On the other hand R. W. 2 himself says that 9 th and 10th March, 1978 are crucial dates for the finalisation of the sales of the jewellery. On a careful consideration of the entire facts and circumstances we are Satisfied that 9th and 10th March, 1978 are really crucial dates for finalisation of the sales of 37 items of the jewellery which fetched the offers amounting to Rs. 14.43 crores. The decision to sell trust property and the procedure to be followed and the steps to be taken in the conduct of sale are not at all formal but very material, which must be personally decided by the trustees jointly.
24. For the reasons stated above, we find that the trustees and the tenderers failed to prove either specific delegation or valid approval by R. W. 2 in respect of the acts of the other four trustees in the acceptance of the tenders of R.7 to R. l7 and, consequently, the provisions of Sections 47 and 48 of the Act are not only not complied with but violated. We, therefore find that the contract of sale of the jewellery, between R. 7 to R 17 and the four trustees without the Chairman of the trust (R. W. 2), is not a concluded contract, within the meaning of S. 2(h) of the Contract Act, enforceable against the beneficiaries.
25. This brings us to examine the second issue relating to the validity, propriety and binding nature of the contract of sale entered into by four of the trustees on the one hand and the various tenderers on the other. The plea of the second appellant in this regard is threefold. (i) the procedure adopted by the trustees in publishing the intended sale of the jewellery is illegal, unreasonable, Improper and unjust; (ii) the trustees did not act reasonably and in good faith but conducted the sales hastily; and (iii) the price fetched is grossly inadequate and detrimental to the interests of the beneficiaries.
26. We may state at the outset that this is a unique sale not merely because rare and valuable jewellery fetching a fabulous price is involved, but, perhaps far the first time, the Court is called upon to decide the principles and limits of its jurisdiction, with regard to sales made by trustees in exercise of their discretionary powers in the execution of the trust. Before adverting to the points pertaining to the procedure adopted in the conduct of the sale and the manner in which the sale of the jewellery has been conducted by the trustees and the adequacy or otherwise of the price obtained and whether the sales are valid and binding on the beneficiaries it is profitable to refer briefly to the law governing the general powers and duties of the trustees with regard to the sale of trust properties. Lewin on 'Trusts' (16th Edition) said on the topic 'general duty of the trustees with regard to sales' at page 580.
'A trustee for sale will remember that he is bound to sell the estate under every possible advantage to his beneficiaries, and in the case of several successive beneficiaries, with a fair and impartial attention to the interests of all the parties concerned. Trustees, if they or those who act by their authority fail in reasonable diligence in inviting competition, or in the management of the sale, or if they contract under circumstances of haste and improvidence, or contrive to advance the interests of one party at the expense of another, or make a mis-statement as to the condition of the property whereby a reduction of the contract price is necessitated may be personally responsible for the loss to the suffering party and the Court, however correct be a purchaser, will refuse at his instance to compel the specific performance of the agreement. Where trustees have a higher offer made to them when they have been negotiating far a sale to another at a lower price, they will not be justified in selling at the lower price on grounds of commercial morality'. Scott on Trusts (Vol. 2) said:--
At page 986:--
'Even where the trustee has discretion, however, the Court will not permit him to abuse the discretion. This ordinarily means that so long as he acts not only in good faith and from proper motives, but also within the bounds of reasonable judgment, the Court will not interfere; but the Court will interfere when he acts outside the bounds of a reasonable judgment............' At page 987:--
'The extent of the discretion may be enlarged by the use of qualifying adjectives or phrases such as 'absolute'' or 'uncontrolled'. Even the use of such terms however does not give him unlimited discretion......... ...' At page 997:--
'The Court will interpose where the trustee fails to use his judgment be cause of a mistake of law or of fact as to the extent of his powers or duties.........' At page 1033:--
'In selling trust property, the trustee is under a duty to use reasonable care and skill, and if his failure to do so results m a loss to the trust estate, he can be surcharged therefore............' We may notice a passage from Under-hill's Law of Trust and Trustees (12th Edition, page 373) governing improvident sale of a trust property by a trustee:
'If trustees for sale. or those who act under their authority, fail in reasonable diligence in inviting competition, or if they contract to sell under circumstances of great improvidence or waste. they will be personally responsible, Ord v. Noel (1820) 5 Madd 438 and the onus of proving that they acted reasonably is upon them--See Narris v. Wright (1851) 14 Beav 291.' We may also notice some leading English cases on this aspect. In Ord v. Noel (1820) 56 ER 962 it was held: 'Every trust deed for sale is upon the implied condition that the trustees will use all reasonable diligence to obtain the best price: and that in the execution of their trust they will pay equal and fair attention to the interests of all persons concerned. If trustees or those who act by their authority, fail in reasonable diligence -- if they contract under circumstances of haste and improvidence................ a Court of Equity will not enforce the specific performance of the contract, however fair and justifiable the conduct of the purchaser may have been.'
27. Bridger v. Rice (1819) 37 ER 303 at page 307; is an authority for the proposition that if the trustees who were bound to sell an estate to the best advantage, had, under a mistaken notion, engaged to part with it for an inadequate sum, the Court would not compel them to perform the agreement, but leave the party to his remedy.
28 .In Buttle v. Saunders (1950) 2 All ER 193 it was held that the trustees are not vested with complete freedom in the sale of trust property and they have an 'overriding duty to obtain the best price which they can for their beneficiaries and they must act with proper prudence.'
29. Mortlock v. Buller (1804) 32 ER 857 supports the view that inadequacy of consideration for sale of trust property amounts to breach of trust and the Court, in such a case, would not permit the execution of such a contract. Section 11(2) of the Specific Relief Act, 1963 makes a contract entered into by a trustee in excess of his powers or in the breach of trust specifically unenforceable. (See Fry on Specific Performance p. 177). In Dance v. Goldingham (1873) 8 Ch App 902; it was held that the sale of trust property by a trustee under depreciatory condition without complete disclosures is not enforceable. A number of English authorities have been cited by the counsel across the bar in support of their respective stands. Suffice it to say that the above quoted passage of Lewin broadly applies to the sales conducted by the trustees in India.
30. Section 15 of the Act indicates as to how a trustee should deal with trust property and it must be read with S. 49 of the Act. illustration (d) to S, 15 may. be noticed:
''A', a trustee directed to sell a trust property by auction, tells the same, but does not advertise the sale and otherwise fails in reasonable diligence in inviting competition. 'A'`, is bound to make good the loss caused thereby to the beneficiary.'
Under S. 15, a trustee is bound to deal with the trust property 'as carefully as a man of ordinary prudence would dear with such property if it were his own.;' In default of such treatment, he would be liable for the loss, destruction or deterioration of such trust property caused an account of his carelessness and imprudent act or dealing. A trustee would be exonerated from such loss, if there is any contract to the contrary. Section 48 read with S. 15 and illustration (d) to it would make it abundantly clear that the trustee while exercising his discretionary power to sell the trust property, must as a reasonable. prudent and careful person invariably invite competition by proper advertisement of the sale with the sole object of securing the best price, and if he fails to perform this duty properly and diligently he would be bound to make goad loss caused thereby to the beneficiary.
The very concept of trust indicates an implied condition that the trustee would use all reasonable diligence and act with due care and attention in the execution of the trust. When the trustee proposes to sell the trust property, he must be not only reasonable, honest, prudent, cautious, but also diligent to obtain the best price for the trust property, the trustee is, therefore, bound to sell the estate to the best possible advantage to the beneficiaries He must exercise reasonable diligence in inviting competition and in the conduct of the sale. Where the trustees fail to act in the aforesaid manner, the Court can interdict and correct the conduct of the purchaser and refuse to compel the specific performance of the agreement at his instance. In other words, the purchaser would not acquire an absolute title, but the Court would be entitled to interfere in the matter and set aside the proceedings.
31. We shall next examine the scope and application of S. 49 of the Act with particular reference to the expression 'discretionary power' used in this Section It is pertinent to notice that S. 49 which confers power of control on Court was designedly enacted by the Parliament without any exceptions unlike Ss. 47, 48 and 50 of the Act in which exemptions to the normal rules enunciated therein have specifically been made. This power of control is conferred on the Court by the sovereign Parliament with a view to safeguard the interests of the beneficiaries from the acts of omission or commission on the part the trustees, which results in injustice to them although, fraud, collusion, corrupt motives. gross-negligence or malafides have been neither alleged nor proved. The use of the word 'may' in this Section must be construed as 'shall' this control must be exercised necessary for the benefit of, and to protect the interests of, the body of beneficiaries. It is abundantly clear that this section would be attracted to any case where a trustee is conferred with any kind of discretionary power either partial, unlimited or absolute in the execution of the trust. The mere fact that the trustees are given absolute or unlimited discretionary power to do a particular act would not in any way take their case out of jurisdiction of the Court envisaged by S. 49.
The trustee may be liable to account for the loss caused to the beneficiaries on account of their collusion, fraud, gross negligence, corrupt motives and mala fides. But, however, the interests of the beneficiaries have been amply safeguarded by the legislature by enacting S. 49 which would take in any cases where loss or detriment has been caused to the beneficiaries on account of mistake of law or fact, wrong or erroneous judgment, impropriety or unreasonableness on the part of a trustee or trustees or lack of good faith in the execution of the trust. There fore, S. 49 would come into play only when the discretionary power conferred on a trustee is not exercised reasonably and in good faith and the Court has a statutory duty and oblation to exercise its control over the discretionary power of a trustee in appropriate cases where it is not exercised reasonably and in good faith and in the interests of the beneficiaries. The prime intendment and object of S. 49 is not to punish the trustees for any wrong act of omission or commission attributable to them but to protect the interests of the beneficiaries and to prevent misuse or abuse of the discretionary power, be it absolute or unlimited.
The intending purchasers of any trust Property must be aware of the tact that they cannot take advantage of any mistaken impression of law or fact or wrong or erroneous judgment. improper, unjust or unreasonable act of omission or 'commission of the trustees which results in any advantage and benefit to them and disadvantage, loss and detriment to the beneficiaries. As already stated. in order to invoke the provisions of S. 49 the beneficiary or any one who seeks the aid of the Court to interdict the act of a trustee, need not invariably establish mala fides, corrupt motives, fraud or collusion. In other words, even in the absence of fraud, collusion, corrupt motives and mala fides being established. S. 49 can be applied in a case where the trustee has 'not acted reasonably and in good faith.' Therefore we are unable to agree with the contention of the learned counsel for the trustees that as the trustees have got absolute discretion, this Court has no jurisdiction or power to interdict the action of the trustees unless the 2nd appellant establishes mala fides or fraud on the part of the trustees. However, the Court cannot interdict the action of a trustee if he has exercised the discretionary power conferred on him reasonably and in good faith. Therefore, the two essential ingredients necessary to take the aid of S. 49 are (1) reasonableness and (2) good faith.
32. We may consider at this stage, what the expression 'good faith' used in S. 49 means. 'Good faith' is not defined in the Indian Trusts Act. S. 2(h) of the Limitation Act, 1963 defines 'good faith' as 'nothing shall be deemed to be done in goad faith which is not done with due care and attention... where as cl. (22) in S. 3 of the General Clauses Act defines 'good faith' as 'a thing shall be deemed to be done in good faith where it is in fact done honestly whether it is done negligently or not.' However, the definition of 'good faith, in the General Clauses Act would not apply to the expression 'good faith' used in the Indian Trusts Act of 1882 or any other Act passed before 1897 when the General Clauses Act was enacted. (See Kailas Sizing Works v. Municipality of Bhivandi : AIR1969Bom127 and Kedarnath v.State : AIR1965All233 . In the definition of 'good faith' under Civil law emphasis is laid on 'due care and attention' but not 'honesty' (See G. S. Pathak v. S. S.Nisal : AIR1955Bom93 and Paramkirti v. Dewan Singh : AIR1961All564 .
The definition of 'good faith' as understood generally in Civil law would apply to the case on hand. In other words, due care and attention expected of a man of ordinary prudence is a requisite condition without which it cannot be said that a person has acted in good faith. Good faith normally implies not only an upright mental attitude and a clear conscience of a person but also the doing of an act indicating that ordinary prudence has been exercised according to the standards of a reasonable person. It contemplates an honest effort to ascertain the facts upon which the exercise of power has to rest. It precludes pretence or deceit and also negligence and recklessness. Lack of diligence amounts to want of good faith. A trustee executing a power of sale must exercise honesty and goad faith solely for the benefit of the trust estate. But if he acts in such a way as to prevent competition which caused sacrifice of the property, the sale will be set aside at the instance of any beneficiary.
33-34. We are unable to agree with the submission of Sri Y. Suryanarayana that the meaning of 'good faith' occurring in S. 49 of the Act has to be determined not with reference to the definition of 'good faith' occurring either in S. 2 of the Limitation Act or as defined in S. 52, I. P. C., but with reference to the following decided cases:
The decisions in Rama Aiyar v. Narayanasami Aiyar AIR 1926 Mad 609: Mohd. Khan v. Kanailal AIR 1935 Cal 625; Monahar v. Brajamohan AIR 1952 Orissa Lachmi Prasad v. Lachmi Narain AIR 1928 All 41 and Puttanna v. Ramakrishna Sastri (1907) ILR 30 Mad 195 relied upon by Mr. Suryanarayana in support of his plea that 'good faith' was consistent with the mistaken view of law and some degree of negligence and that 'good faith' does not extend beyond an honest belief in the validity of the transferee's title -- arise under S. 51 of the Transfer of Property Act whereas cases reported in Jones V. Gordon (1877) 2 App Cas 616 at page 629 and Goodman v. Harvey (1836) 111 ER 1011 at page 1013 relate to enquiry of the transferee pertaining to want of good faith. Hence all these decisions are not relevant for deciding the point at issue. We may usefully refer in this context to the decision of the Privy Council in Khoo Tek Keong v. Ch'.ng Dod Tuan NeDH 1934 AC 529 which is an authority for the proposition that the trustee must not only execute the trust honestly but must act reasonably.
Therein, the questions that fell for decision were: (1) whether the appellant, a sole surviving trustee under the will of a testator had been guilty of breaches of trust in lending trust monies at interest (a) upon the security of deposit of jewellery, (b) without security, to certain chetties and (2) if he appellant had been guilty of a breach or breaches of trust. whether he was entitled to relief from personal liability under S. 60 of the Trustees Ordinance (No 14 of 1929). In spite of the will conferring on the trustee absolute discretion in investing trust monies, the view of the trial Judge. Whitley, J., that the loans should nor be held to be breaches of trust as the testator who is no other than the appellants father had been accustomed during his life time to make similar loans and the appellant was entitled to be relieved from personal liability, was reversed by the Appellate Court which held -hat both kinds of loans referred to above were made in breach of trust and the appellant was not entitled to relief under S. 60 of the Ordinance, as, although he had acted honestly, he had not acted reasonably. The Privy Council upheld the view of the Appellate Court and observed at page 536 thus:--
'The finding of the trial Judge vouches for the appellant's honesty, but he must further establish that he acted reasonably and ought fairly to be excused for the breach of trust. His main contention is that he merely pursued the same course of conduct as the testator had pursued in his lifetime. Their Lordships, so far from finding in this fact grounds for saying that he acted reasonably and ought fairly to be excused for his breaches of trust and relieved from personal liability view it from the opposite stand-point: It indicates to their minds and the evidence by the appellant confirms it beyond doubt. that he never considered the question of these dealings with the trust funds in the light of his duty as a trustee, or paused to consider whether it was prudent for him as a trustee to lend on the personal security of the borrower 'I just followed what my father did' is- his sole explanation of his conduct in respect. In their Lordships' opinion. the appellant ought not to obtain any relief from personal liability for the loss occasioned to the estate by the loans on personal security. To apply the language used by Sir Robert Romer in the case of Chapman v Browne (1902) 1 Ch 785 at page 805 the appellant never really considered the question whether these dispositions of the trust funds were such as in their nature it was prudent and right for him as a trustee to make.'
35. Applying the aforesaid legal principles, we shall advert to the question whether the procedure adapted by the Trustees in the conduct of the sale of the jewellery is fair, proper and justified as pleaded by the tenderers or otherwise, The first duty of the trustees in the instant case, in order that they can be said to have exercised their discretionary power properly in this regard is to ascertain the market value of the 37 items of the jewellery sought to be sold by them, when they finally decided to sell. The need for such a step must have been felt all the more, in view of the admitted steady and steep rise of the market value for gold, jewellery, gems and diamonds from 1975 to March 1978. The evidence on record indicates without any doubt that the trustees have not discharged this primary duty before either publication or inspection or finalisation of the sale of these very rare and valuable pieces of jewellery having antique value. We may usefully extract herein the very admission of R. W. 1 in his cross-examination which read thus:--
'Before the jewels were published for sale, we did not ourselves value the jewels. The trustees have no definite idea about the value of these jewels when they were put up for sale. It is true that between the date of the Government of India's certificates and the date are allowed to the invitees to register their names for inspecting the jewels the interval is about 8 days.........We did not try to ascertain the market value of each item of the jewels, if they were to be sold in foreign markets. We are acting on the advice given by Mr. Gazdar to us. I did not consult anybody else excepting Mr. Gazdar regarding the value of these jewels. We did not have any preconceived ideas about the values of either the individual items of jewels or the lots into which we have grouped them.'
We, therefore, hold that the trustees have even at the outset failed to take the precaution and reasonable care as prudent men in obtaining the market value of these 37 pieces of jewellery in order to arrive at a correct conclusion in the exercise of their duty and discretionary power to accept or reject the tenders to enable them to secure the highest price for these jewels. They did not even make a sincere and honest attempt to discharge this statutory duty.
36. We shall now- deal with the point pertaining to the next important duty of the trustees to make proper and adequate publicity to invite competition. Whether the steps taken by the trustees in publishing about the sale of the trust property are fair, just, reasonable, and proper is a question of fact depending upon the facts and circumstances of each case. Ex. B-49 containing the terms and conditions of the sale of the jewellery was issued at Hyderabad on 3-3-78. As admitted by R. W. 1 during the cross-examination by Mr. Syed Sadatullah Hussaini, the trustees 'did not take effective steps to sell the items of jewellery till they received the certificate from the Government of India that the jewels are not antique and that they have taken the decision some time between the period 22-2-78 and 3-3-78 to put up these 37 items of jewellery for sale.' To be exact, the four trustees, at their meeting held at 5.00 p.m. on 5-3-78 at Bombay, resolved -- as evidenced by the minutes book Ex. B-126 -- to sell. in the first instance, these 37 items of jewellery.
They further resolved at the same meeting to permit inspection of the jewellery to the parties who were listed and permitted by, R. W. 3 for tour days i.e., 6-3-78, 7-3-78, 8-3-78 and 9-3-78. The trustees agreed to the suggestion and advice given by Mr. Gazdar (R. W. 3) not to publish the sale of the jewellery in any of the newspapers in either India or abroad but only to invite a few reputed foreign and Indian Jewellers for inspection at Bombay on the grounds of security and safety. Accordingly R. W. 3 had informed three foreign jewellers about the intended sale of jewellery under the originals of Exs. B-127 to B-129 dated 8-12-1977. R. W. 1 deposed that the parties mentioned in Ex. B-46 prepared by Gazdar, were also permitted to inspect the jewels and other uninvited persons were not allowed to inspect the jewels. The jewels are admittedly very valuable and rare pieces.
37. Being fully conscious of the fact that it was not possible to purchase this costly jewellery by any jewellers or consortium of jewellers in India, the trustees must have given, as reasonable and prudent men with due care and attention, wide. and, in any event, adequate publicity about the intended sale of this rare and costly jewellery in foreign countries as well as in India. But strangely they entirely depended upon the advice of Gazdar, R. W. 3. Though R. W. 3 was aware of the practice that jewels are sold abroad in auction rooms after making advertisement in newspapers, the trustees and R. W. 3 decided not to give any publicity in newspapers about the intended sale of this costly jewellery. The reason given by R. Ws. 1 to 3 for not making any publicity in the newspapers or any other publicity except inviting some reputed jewellers from Bombay and Delhi and some foreign countries is, apprehension about safety and security of the jewellery. According to them, there would have been every danger of loss or damage to the jewellery if the intended sale was published in the newspapers or in any other manner, as such a publication would facilitate bad characters, smugglers, thieves, robbers and dacoits to inspect the jewellery and it would be very risky for them to protect these jewels.
R-W.3 admitted that he was more concerned with the security than the price to be fetched for the jewellery in adopting this mode of sale. According to him, the safty and security of the jewellery was uppermost in the minds of the trustees and he did not pay much attention to the terms and conditions of sale published by the trustees. He also admitted that the jewellery belonged to the Ex-Nizam who was reputed to be one of the richest persons in the world and the jewellery which has also antique value, costs over some crores of rupees. The mere fact that he had sold jewellery of ex-Rajas and Maharajas and of other persons earlier without publicity either in newspapers or in any other way, would not justify the action of the trustees in the present case. Even his adoption of similar methods in selling some jewellery belonging to Nizams family trust and Nizam's Supplementary Jewellery Trust without publicity in newspapers would not justify the stand taken by the trustees in the present case. The items of jewellery to be sold are very costly and rare pieces having antique value. R. W. 3 did not conduct the sale of this type of jewellery at any time earlier. He never participated in sales of rare jewellery held abroad. Therefore. it is not reasonable and prudent for the trustees to entirely depend upon the suggestion of R. W. 3 in this regard.
38. There was no proper and adequate publicity of the sale of the jewellery not only in foreign countries but also in India. Admittedly no jeweller from Madras, Hyderabad, Bangalore, or Calcutta has been informed nor invited to take part in the sale, Nor any information or invitation sent to any jewellery in Holland. Belgium, U.K., Switzerland, Geneva, Chicago and other places. On the other hand, according to R. W. 3 himself, he did trot give any of the terms and conditions of sale to any of the parties who contacted him. Nor had he any opportunity to see the terms and conditions of sale issued on March 3, 1978 or earlier. The items of jewellery being of rare and high quality with antique value, the trustees should have given proper and adequate publicity not only in this country but also in foreign countries. They should have concentrated more on the curators, collectors and international museums who could pay not only market price but even fancy price. All the above circumstances clearly establish that there was no adequate proper and reasonable publicity about the intended sale of the jewellery.
39. Now we shall consider the contention that the time afforded to the intending purchasers is very short and unreasonable. Till 3-3-1978 when the terms and conditions of sale were issued at Hyderabad no intending purchaser of the jewellery could know about the actual items of jewellery for sale and the requisite particulars about them. The earlier three letters copies of which are Exs. B. 127 to B. 129 dated 8-12-1977, written by R. W. 3 to reputed jewellers in foreign countries were to inform them that some important items of jewellery belonging to Nizam are likely to be sold by tender in the beginning of 1978. Exs. B. 130 to B. 133, office copies of the letters dated 31-1-1978 were also to inform the foreign jewellers that some important pieces of jewels of Nizam are likely to be sold on tender basis around 6-3-1978.
There is no indication in these letters as to the actual dates fixed for inspection or for offering tenders. Exs. B. 72 to B. 87 letters written by the Secretary on 8-2-1978, indicate that the jewels would come up for sale during first or second week of March 1978, and that the exact dates would be notified later. There is no indication about the date fixed by the trustees for inspection in Exs. B. 140. B. 142, B. 143, B. 145, written by R. W. 4. It was only on 5-3-1978 at 5-00 p.m. the decision to effect the sale in convenient installments from time to time and to sell, in the first instance these 37 items and display them far inspection during 6-3-1978 and 9-3-1978 was taken. After specifying the terms and conditions on 3-3-1978 at Hyderabad there was practically no time for the intending purchasers in India, much less in foreign countries, to contact R. W. 3, to get the names approved for participating in the inspection to be given on 6-3-1978, 7-3-1978 and 8-3-1978.
It would be practically very difficult, though not impossible, for the foreign collectors curators or even for regular dealers to know about the sale of this jewellery and get themselves ready with the requisite finance to come to Bombay and participate in the purchase of the jewellery. Even if any foreign or Indian jewellers had some knowledge about the sale in the last moment, it would be very difficult to make the requisite deposits, arrange for their finance and adjust their programme to come over to Bombay at such a very short notice and even then they could not successfully inspect the jewellery within the time permitted by the trustees. The aforesaid facts and circumstances establish beyond doubt that no reasonable time and opportunity was afforded by the trustees to the intending purchasers of the jewellery.
40. As already stated a reasonable and prudent person would certainly, before putting up his property for sale, make every effort to ascertain the true and real market price of the property prevalent at the material times. This ascertainment of approximate though not exact, value of the jewellery is really necessary to enable the trustees to arrive at a correct decision or conclusion to either accept or reject the highest tender in respect of each item of the jewellery, offered by the tenderers. Without knowing what would be the value, at least approximate, of the jewellery on the material dates, it would be improper and unreasonable for any trustee to hurriedly offer this jewellery for sale to be concluded in a short time. This omission on the part of the trustees must be held to be not that of a reasonable and prudent man but a clear error of judgment. In the same way the method and the manner of the sale of the jewellery, adopted by the trustees in the instant ease is not that of reasonable and prudent person. Though no gold licence was necessary to purchase item 16 separately as that item contains 22 valuable emeralds without any gold content, still gold licence was insisted upon in the terms and conditions of sale far this item which is erroneous, improper and uncalled for. No reasonable and prudent man, with due care and attention, can be said to act in this manner if he were to sell his own jewellery of rare and high quality with antique value. costing several crores of rupees.
The prime duty of the trustees, as pointed out earlier, is to secure the best possible price for the trust property and all other objects, in our view are subordinate to this principal object. The correct legal background applicable to the functions and duties of the trustees for the sale of jewellery have not been kept in view by the trustees. They appear to hare blindly followed the advice of R. W. 3 with undue stress on the question of safety and security of jewels without securing the best possible price. It may be a bona fide mistake or an honest impression, but it amounts to wrong and erroneous judgment as it resulted in huge loss to the beneficiaries. The trustees could have certainly secured the best armed police protection at the tune or inspection of the jewellery and also taken all possible precautions to allow one, two or three persons at a time to inspect the jewellery after proper screening and satisfying about their bona fides, after giving wide publicity in foreign as well as Indian markets. At the request of the trustees the State Government of Maharashtra as well as the Central Government would certainly have provided adequate protection in this regard.
41. In view of the provisions of Sections 15 and 49 herein stated above, we are unable to agree with Mr. P. R. Mridul that primary duty is cast on the beneficiaries to adduce positive evidence to show what course a reasonable and prudent trustee would have adopted in selling these 37 items of jewellery in the instant case. We cannot also endorse the plea of Mr. Mridul that there is an obligation on the part of the beneficiary to lead evidence in support of her objection for sale and prove substantial injury or loss to the body of the beneficiaries. Where the action of the trustees is challenged by a beneficiary seeking the aid of controlling power of Court under Section 49, the initial burden is on the beneficiary to prove a prima facie case that the trustees have not acted reasonably and with due and proper care and attention in execution of the trust.
The onus shifts on the trustees when the initial burden is discharged by the beneficiaries. The trustees who are in possession of the entire material and who are also parties to the execution of the trust must satisfy the court that they acted reasonably and in good faith and in the best interests of the beneficiaries and that there is no warrant for interference by the Court. Where evidence has been let in by the parties, who are afforded full opportunity to establish their respective stands, the onus of proof fades away. The Court has to the entire evidence on record oral and documentary and see whether the trustees have acted. in the circumstances of the case, as reasonable and prudent men with due care and attention and in the best interests of the beneficiaries in the execution of the trust.
42. The next contention of the learned counsel for the respondents tenderers that the trustees must be held to have acted reasonably and in good faith as the price fetched is more than what has been estimated in the valuation reports of R. W. 6 and the Committee appointed by Government of India, also cannot be acceded to. Tale, Ex. B. 70 the value report of the committee of jewellers appointed by the Government was of January, 1976. It. W. 6 who had inspected in December, 1975 along with the valuers appointed by the Government of India, valued these 37 items at Rs. 10,26.30,000/-. He valued item 16 at 5 crores. It was sold by the trustees on 10-3-1978 for 6-92 crores and the entire 37 items fetched 14.43 crores. In the cross-examination R. W. 6 admitted that 'he had no idea as to what price the jewels would have fetched in foreign market at that time'. He says that he valued item 1 of lot No. 1 consisting of a diamond bridge in the case of Khursheed Jah Paiga at rupees ten lakhs and that the same item was Valued by the High Court of Andhra Pradesh at rupees 20 lakhs and allotted to one of the sharers. According to him, the offer of Rs. 20.25 crores for these 37 items of jewellery by respondent 6 is a fancy price, which is much higher than the market price.
In the cross-examination he admits thus: 'From 1975 to 1978 prices of gold and jewellery and precious stones are on the increase. These items of jewellery are rare jewels. They will have their own value. For these rare jewels, anybody can pay a fancy price which has nothing to do with the market price. Whoever has got more money will purchase for a fancy price. Dealers, Collectors and Rajas and Maharajas can pay a fancy price. The prices of the jewells in the Bombay market depend upon the prices of jewels in the foreign market. The prices of jewels in foreign market will always be higher than the prices of the jewels in Indian Market.' From the aforesaid admission ii is clear that there is a clear and constant rise in the price of gold, jewellery and precious stones from 1975 to 1978 and these items of jewellery are not only rare prices bur they have their own value. He is also certain that dealers, Collectors. Rajas. Maharajas and those who have got more money would and could pay fancy price and the price of jewels in foreign market would always be higher than the price of the jewels in Indian market.
The evidence of R. W. 6 supports the contention of the 2nd appellant that the basis for the value of the jewellery in question which is provided by Ex. B. 70 the report of the valuers appointed by Government and that of R. W.6 cannot be safely taken into account in judging the offers tendered by the highest tenders for each item of the jewellery. The valuation of the jewellery in Ex. B. 70 is far less than the valuation estimated by R. W. 6 in his report. Ex. B-$O has been marked with consent as the same has been produced by the Government of India from proper custody. The plea of the 2nd appellant that content of Ex. B. 70 have not been proved by examining any valuer, is opposed by tenderers. However, it does not reflect the true market price of the jewellery as on 9-3-1978. The estimate of R. W. 6 also cannot safely be relied upon, in view of his own admission that his estimate of rupees ten lakhs for item 1 of the jewellery in the earlier case was ultimately fixed at double the value estimated by him This would show that the estimation of R. W. 6 in respect of the valuation of the jewellery is on the very low side. We are not suspecting the bona fides of R. W. 6 or that of the valuers appointed by the Government. Mere wrong judgment on the part of an expert may not be considered to be mala fide or fraudulent. That apart, these estimates mere given on the basis of their examination of the jewellery in the year 1975 when the price of the jewellery was very much less than that was prevalent at the material time.
43. The reason given for the hasty and improvident action in not affording reasonable and adequate time far the intending purchasers and far not giving wide publicity about the intended sale of the jewellery in foreign as well as Indian markets is twofold: (1) the beneficiaries would lose the benefit of exemption in respect of capital gains tax if the sale was not completed before 31-3-1978; and (ii) there was pressure from the beneficiaries to sell the jewellery urgently. The ground of availability of exemption from payment of capital gains tax is not based on true statement of facts and law as indicated by Mr. P. Rama Rao, the learned standing counsel for Income-tax Department, who readily assisted this court as amicus curiae. S. 54-E of the Income-tax Act inserted for the first time by the Finance (No. 2) Act, 1977 with effect from 1-4 -1978 exempts capital gains on transfer of capital gains in cases where the sale proceeds arising from the transfer of an asset are re-invested within six months in (i) securities of the Central Government or State Government (ii) savings certificates (iii) units of the Unit Trust of India (iv) debentures specified by the Central Government (v) shares in any Indian Company which are issued to the public (v-a) equity shares; and (vi) deposits for a period of not less than 3 years with State Bank of India or any subsidiary bank or any nationalised bank. At the relevant time the exemption provided under Section 54-E in respect of capital gains was admittedly available
It is really a misconception on the part of the trustees to think that the exemption in respect of capital gains provided under Section 54-E of the In come-tax Act would be in force only up to 31-3-1978. The Finance (No. 2) Act 1977 which inserted Section 54-E did not state that this benefit would be available only up to 31-3-1978. Unless and until Parliament removed this provision from the Income-tax Act, it cannot be said that this benefit is being taken away. Some of the learned counsel for the tenderers urged that this benefit sought to be taken away by the Finance Bill, 1978. The Finance Bill of 1978 was in fact, introduced in the Parliament on 28-2-1978. Section 54-E was there with a few minor modifications, which did not touch the benefits of exemption conferred on the assessees. True as pointed out by the counsel for the tenderers the Finance Minister in his speech indicated his decision that 'fixed deposits with banks made after today will not qualify as an eligible mode of investment for the purpose of this exemption' as it was opined to have been abused as seen from the following speech of the Finance Minister,
'Banks allow substantial advances against the security or fixed deposits with them. Hence tax payers who got exemption from capital gains tax by making such deposits obtain an unduly large tax benefit without commensurate sacrifice. I have, therefore, decided that fixed deposits with banks made after today will not qualify as an eligible mode of investment for the purpose of this exemption.'
This budget speech of the Finance Minister for 1978-1979 would establish the incorrectness of the stand taken by them. The provision of exemption from capital gains in cases where the sale proceedings arising from the transfer of an asset are reinvested within six months in the units of Unit Trust of India, shares of Indian companies and other specified assets, was allowed to stand intact except in case of reinvestment in bank deposits as it was found that the same was being abused by the tax payers by getting exemption from capital gains tax and at the same time obtaining substantial advances against securities of fixed deposits with the banks. Therefore, the apprehension or fear entertained by the trustees, at that time, in this regard, is not based on any valid and justifiable ground.
We may add that the trustees have, infact, resolved to invest the sale proceeds in full in Units of the Unit Trust of India,which was considered to be more beneficial to the body of beneficiaries than the fixed deposits with the banks. This benefit of exemption from capital gains was in fact known to be available to the beneficiaries till 31-3-1979 in the instant case on 5-3-1978 when the final decision by the four trustees was taken to sell these 37 items of jewellery. Hence the trustees had no reason to hustle the sale and complete the same with undue haste and improvidence. Even if we assume for a moment that the real purpose behind this hasty and unreasonable sale is to avail exemption from capital gains tax, no explanation is forthcoming as to why the other items of the jewellery in the first schedule were also not put up for sale along with these 37 items. Still, they are with the trust
44. The second reason that some of the beneficiaries threatened legal action if the sale was not conducted expeditiously would not also justify the present action of the trustees. The trustees are not to be solely guided by what the beneficiaries dictate. They have their own duties and responsibilities in the execution of the trust. From 1972 this attempt to dispose of the jewellery was going on. After 22-2-1978, only, they had decided to sell these 37 items of jewellery. After their decision to sell the jewellery, they are bound to follow proper, reasonable, just and fair mode and manner of sale of the jewellery and afford a reasonable and adequate opportunity to the intending purchasers and also give wide publicity with a view to secure the best possible price. On other hand, they hastily and unreasonably concluded the entire transaction within about a week, though there was no time limit even according to the terms and conditions of the sale and the original schedule for inspection of the jewellery was cut down without any valid reason. That apart, the trustees are not liable for any action at the instance of the beneficiaries as long as they perform their duties in accordance with law.
45. The plea of fancy price was not raised by the tenderers either in their statements or earlier except through R. W. 6 in the box. The nomenclature whether it be market price or fancy price is not material for the trustees. Their object and aim should be to secure the best possible price.
46. The further submission advanced on behalf of the tenderers is that one of the trustees being beneficiary would not have agreed to accept their tenders on 9-3-1978 and 10-3-1978 if the price was not beneficial to the interests of the body of the beneficiaries and if there was any illegality or irregularity in the conduct of the sale. This fact by itself would not make the transaction valid if it is otherwise invalid and unenforceable for the reasons stated earlier. The conduct of the trustee who also happens to be a beneficiary would not, in any way, become less onerous simply because he is one of the beneficiaries. His action has to be judged in this context only in his capacity as a trustee, but not of a beneficiary.
47. We reject the plea of Mr.Y. Suryanarayana that the second issue on propriety should not be a factor far considering that the same is beyond the scope of our enquiry and that the second issue has been wrongly framed. The Supreme Court has clearly indicated in its order that this Court has to consider the validity and propriety of the sales in question. The following sentence in the order of the Supreme Court is a complete answer to this plea of Mr. Y. Suryanarayana. 'It is fair that they be given an opportunity to file their statements dealing with the question as to the factum, validity and Propriety of the alleged sale in their favour' Hence we are competent and have jurisdiction to consider the propriety, in addition to the validity, of the alleged sale of the 37 items of jewellery by the trustees in favour of R. 7 to R. 17.
48. We also do not agree with the contention of Mr. Rajni Patel, Mr. P. R. Mridul and Mr. Y. Suryanarayana, that in view of clauses 13 and 18 of the trust deed and as the trustees have absolute discretion to sell the jewellery either by public auction or by private contract, this Court has no jurisdiction to interdict the sales, in the instant case, held by the trustees by private contract. The decision in Tabor v. Brooks (1878) 10 Ch D. 273, relied upon by Mr. Y. Suryanarayana does not assist him. Therein the trustees of a marriage settlement were empowered to apply the income of the settled fund for the benefit of the husband, wife and their children in their 'uncontrolled and irreprehensible discretion'. The Court opined that trustees did not act judicially but still declined to interfere with their discretion as there was no proof of mala fides even when all the income was given to the husband. It admits of no doubt that where the trustees exercised their discretion arbitrarily or in unreasonable manner, the Court can always control their action. See Tempest v. Lord Camoys (1882) 21 Ch D. 571. The decisions in C. Libovite v. Official Trustee of W. B. (1969) Cal WN 1010. In Re Sewell's Estate (1870) 11 Eq 80 and in Re Blake (1885) 29 Ch. D. 913 on which Mr. Y. Suryanarayana relied, would not advance his case.
49. The learned counsel for the tenderers further contend that there was no positive evidence at the time of the acceptance of the tenders of respondents 7 to 17 available to the trustees regarding any price higher than that offered by the respondents 7 to 17 in respect of the jewellery. As already stated the trustees did not try to ascertain at least the approximate value of the jewellery before putting the same to sale. However, we have now before us the fact that the 6th respondent offered for the very same 37 items of jewellery a sum of Rs. 20.25 crores on 9-1-1978 during the pendency of this appeal in this court. The tenderers seriously contend that his offer being subsequent to the date of the sale, it should not be taken into account in finding whether the price fetched during the sales on 9-3-1978 and 10-3-1978 for the 37 items of jewellery was fair, reasonable and adequate or not. The decisions cited by Mr. Rajni Patel, Mr. P. R. Mridul and Mr. Y. Suryanarayana in this regard relate mostly to court-sales and sales conducted in public auctions.
Where there was adequate and satisfactory publicity and the mode and manner of sale was just, proper and adequate. the mere fact that there was a subsequent offer for higher amount than the amount fetched in the earlier sale would not be a factor to be taken into account. But in the circumstances of this case where we hold that there was no proper, reasonable and adequate publicity, that no reasonable and adequate time was given to the intending purchasers and that the sale was rushed through hastily and improvidently, the Subsequent offer, which came within one month from the 6th respondent which is Rs. 5-82 crores higher than the amount fetched in the earlier sale would certainly be a relevant and material factor to be taken into account in finding whether the price fetched in the earlier sale was fair, reasonable and adequate or not. The news about the sale of this jewellery was published in 'The Times of India' an 9-3-1978, along with the particulars of the jewellery. After the civil court had granted interim injunction on 14-3-1978, the newspapers gave wide publicity about the sale of this rare valuable and costly jewellery worth several crores. Within one month from the date of the sale, the present offer of the 6th respondent has been made through court. About the bona fides or genuineness of this offer, R. W. 1 himself deposed thus:
'The amount offered by Mr. Fernandes was deposited to the credit of this C. M. A. and that amount was remitted from abroad. I cannot say if the offer made by Mr. Fernandes was bona fide at the time it was made but from what has transpired subsequently, the offer of Mr. Fernandes is bona fide'.
50. The learned Advocate General who appeared for the trustees submitted that the offer of R. 6, Fernandes who had deposited the amount within the permitted time is really genuine and the same can certainly be taken into account by the court while exercising its controlling power under Section 49 of the Act. He also made it clear that the trustees are interested in getting the best possible price for the body of beneficiaries, that they acted honestly and to the best of their ability without any fraudulent or mala fide intention or corrupt motive to secure the best price for the jewellery, that the fact of the offer of Rs. 20.25 crores for the 37 items of jewellery by the 6th respondent in April 1978 is a matter to be taken into consideration by the court exercising its jurisdiction under Section 49 of the Act and that the action of the trustees in the circumstances be considered as an indication of either error of judgment or mistaken impression of the Value of the jewellery on the material dates This submission of the learned advocate General appearing for the trustees lends support to our view that this is a fit where the Court should interfere under Section 49 and protect the interests of the body of the beneficiaries in securing, the best possible price for the jewellery.
51. We cannot agree with the learned counsel that the Court can exercise the power of control vested in it under Section 49 only when there is fraud or material irregularity analogous to court sale governed by Order XXI, Rule 90 C. P. C. The decision of the Kerala High Court in K. S. Thangal v. State AIR 1968 her 197. relied upon by the learned counsel Mr. P. R. Mridul arose under Order 21, Rule 92 C. P. C. wherein the application to set aside a sale was not considered as the subsequent offer made to purchase the property at a reasonable price was found to be indefinite. The decision of the Supreme Court in Shaukat Hussain v. Bhuneswari : [1973]1SCR1022 arose under Section 47 C. P. C. wherein the validity of the court sale was challenged under Order 21, Rule 90 C. P.C. Hence that case has no bearing on the facts of the present case. Suffice it to say that similar cases cited by the counsel for the tenderers need not detain us as they relate to sales held by Court and liquidators after wide publicity and in open auction.
52. The submission of Mr. J. V. Suryanarayana Rao that the minutes book Ex.B.126 has been subsequently prepared by the trustees, cannot be accepted. True, as pointed out by the 2nd appellant's counsel, same discrepancies relating to the signature of the President and other trustees are noticed in the minutes book and this book was not filed into the trial court along with the other decouments. This book has been filed before us for the first time though it was available to the trustees and though it could have been filed by the trustees earlier. However, we do not find that this book has been got up by the trustees for this occasion.
53. The submission of the 2nd appellant that the contents of Ex. B. 70 have not been proved and the same is inadmissible on the ground that no valuer who prepared that report has been examined, cannot be accepted too. It is a document received from proper custody, the Government of India. and its authenticity is not in doubt and it has been marked with consent.
54 We are unable to agree with the submission of Mr. Y. Sivaramasastry for R. 15 for the above reasons, that there is nothing like a market value of the jewellery m question as such that the court should not substitute its opinion regarding the reasonableness and good faith of the trustees where absolute discretion is vested in them and that the adequacy or sufficiency or otherwise of the publicity is a matter of subjective satisfaction of the trustees which cannot be taken into account while exercising the power of control under Section 49 of the Act, The objection raised by the counsel for the 2nd appellant and R. 6 that there is no locus standi for R. 15 who obtained refund of :he initial deposit of 10% of the tender amount on 23-6-1978 itself to contest this proceeding must be and is hereby overruled as R. 15 is also one of the parties to whom notice has been served and is before us pursuant to the order of the Supreme Court.
55. To sum up:
LAW :
(1) It is open to the trustee either to accept or reject the office of trusteeship when appointed but he cannot renounce or transfer his duties, functions and powers to some one or body of men and thereby create new trustees in his own place, when once he entered upon the trust unless he obtains the requisite permission of the Court or with the consent of the entire body of beneficiaries or by the authority of a specific provision in the deed of the trust.
(2) Where there are two or more trustees they all form as it were but one collective trustee having statutory duty and obligation to execute the duties. powers and functions of the office of the trustee jointly unless otherwise specifically provided in the instrument of trust
(3) Delegation of the powers. functions and duties of a trustee is prohibited under Section 47 of the Trusts Act except in certain exceptional cases such as formal acts. etc.
(4) The act of one of the trustees done with the sanction and approval of the other trustees may, in certain circumstances be construed as the act of all the trustees. The onus is on the party who sets up the plea of sanction or approval of the trustee to strictly prove the same. Where evidence has been let in, the onus of proof loses its importance. The Court is competent to arrive at a correct conclusion in respect of delegation or approval which is a mixed question of fact and law on consideration of the totality of the facts and circumstances.
(5) The discretionary power conferred on the trustee under the deed of trust, be it absolute, or unconditional is subject to judicial control of the principal Court of Civil Jurisdiction under Section 49 of the Trusts Act.
(6) The term 'good faith' used in Section 49 of the Act must be meant as 'due care and attention' of a reasonable and prudent man. But the definition of 'good faith' in the General Clauses Act cannot be applied to construe the expression 'good faith' in S. 49 of the Act.
(7) The prime intendment and object of S. 49 of the Trusts Act is more to protect the interests of the body of beneficiaries than to punish the trustees for dereliction of their duties and their acts of omission or commission resulting in detriment, damage or loss to the beneficiaries although no fraud, collusion, corrupt motives, gross negligence or mala fides has been either alleged or proved.
(8) The trustees are bound to sell trust property under every possible best advantage to the body of beneficiaries to secure the highest price. The trustees must exercise prudence and reasonable diligence in inviting competition after due and proper publication with the sole object of securing the best price for the estate.
(9) The Trustees have a statutory duty and obligation to execute the trust and in particular to sell the estate with utmost diligence, care, attention and intelligence as a responsible and prudent man would deal with such property, if it were their own.
(10) Where the trustees fail to ad honestly, reasonably diligently and with due care and attention to obtain the best price for the trust property the, Court under Section 49 of the Trusts Act is not only empowered but is bound to interdict and correct the conduct of the trustees and the purchaser and refuse to compel specific performance of the agreement.
(11) Even an honest and bona fide sale of trust property by the trustees on a misconception of law or facts, wrong or erroneous judgment without the further proof that they acted reasonably and in good faith would not be valid and binding on the body of the beneficiaries and consequently, no valid and enforceable title in such property, would pass under transaction to the purchaser or purchasers as the case may be.
(12) Where the sale of the Trust property results in obtaining inadequate price on account of hasty, improvident, and unreasonable acts of commission or omission of the trustees coupled with the lack of good faith, such sale would be invalid, improper and not binding either on the trust or the body of beneficiaries in spite of absolute power being conferred on the trustees under the Trust Deed as it would come within the purview of S. 49 of the Trusts Act.
(13) The principles applicable to Court sales or liquidator sales and held by public auction after due and proper publication would not be applicable to determine the validity or otherwise of the sales of trust property by the trustees notwithstanding the fact that the deed of trust confers absolute or unlimited discretion on the trustees.
FACTS: We find contract in respect of 31 items of jewellery between the four trustees, without the Chairman (R.W. 2) on the one hand and R. 7 to R. 17 on the other on 10-3-78 and 11-3-78 when the Secretary, as directed by the four trustees, had communicated the acceptance of their tenders on behalf of the trust, has been concluded however, there was no concluded contract within the meaning of S. 2(h) of the Contract Act, enforceable against, and binding on. the trustees or the beneficiaries.
56. There is neither delegation of the duties, functions and powers of R. W. 2, the Chairman of the Trust to R. W. 1 or any other trustee in respect of the acceptance of the highest tenders of R.7 to R.17 nor any valid approval of R. W. 2 to the finalisation of the sale of these 37 items of jewellery in favour of R.7 to R. 17 by R. W. 1 and the other three trustees who were at Bombay.
57. All the trustees have not executed the trust with regard to the sale al these 37 items of jewellery jointly and collectively as required by S. 48 of the Trusts Act. Clause 20 of the instrument of trust really contemplates and envisages the joint execution of the trust and consequently the present case is governed by the main provision of S. 48 and does not fall within the exception indicated therein.
58. The trustees have not discharged their primary duty to ascertain the market value of the jewellery sought to be finally sold an 5-3-1978 on the material date and more so in view of the admitted steady and steep rise of price in the market for gold, gold jewellery, diamonds and other precious stones to enable them to correctly judge the reasonableness and adequacy of the price offered by the tenderers.
59. The trustees who have got a statutory duty and obligation to invite competition by making wide or at least adequate, and proper publicity have committed a serious mistake in blindly following the advice of Gazdar (R. W. 3) without applying their minds to the facts and circumstances in the conduct of the sale of 37 items of 'his rare and valuable jewellery having antique value.
60. The action of a beneficiary trustee must be judged not as a beneficiary but from the standpoint view of a trustee while considering his action along with other trustees in the discharge of their duty to sell the Trust property.
61. The two reasons viz., capital gain exemption and the pressure and threats of the beneficiaries given by the trustees and the tenderers for completing this impugned, hasty and hustled sale within a week, are neither true nor valid. The benefit of exemption of capital gains and in particular the re-investment of the sale proceeds in Unit Trust of India and others till the end of March 1979. as evidenced by the financial bill introduced in Lok Sabha on 28-2-1978, itself was still available on 5-3-1978, when the decisions for sale of these 37 items had been taken by the trustees. In fact. the trustees have resolved on 5-3-1978 itself to invest the sale proceeds in the Unit Trust of India. R. W. 2 the Chairman of the Trust is also the Finance Secretary of the Government of India who would have certainly known this legal position relating to the exemption of capital gains as the finance bill itself was introduced in Lok Sabha on 28-2-1978. But the trustees did not have the benefit of his advice as R.W.2 did not attend the meeting on 5-3-1978 nor does he appear to have informed the other trustees about the correct legal position in this regard.
62. The price of 14.43 crores fetched for these 37 items is really inadequate and low which is really detrimental to the interests of the body of the beneficiaries. The offer of R. 6 can and must, be taken by the Court into account while examining the adequacy or otherwise of the price fetched at the sale in the facts and circumstances of the case. If there was proper and adequate, though not wide publication in this country and in foreign markets, we are sure that these 37 items of jewellery would have fetched more and in any event not less than the 20.35 crores now offered by R. 6 in a month after the sale.
63. There are no mala fides, corrupt motives, fraud or misrepresentation on the part of the trustees in the present case. However. they did not act reasonably and in good faith, though they acted honestly without any mala fides or corrupt motives, they did not perform their statutory duties, functions and powers diligently and as reasonable prudent men would have dealt with their own property.
64. For all the reasons stated we find that there was a contract of sale but it is neither concluded contract within the meaning of S. 2(h) of the Contract. Act nor valid, proper and binding either an the trustees or on the beneficiaries.
65. On a consideration of the totality of the material and relevant facts and circumstances of the case, our finding on the principal issue framed by the Supreme Court is against the tenderers and in favour of the body of the beneficiaries holding that there has been no valid and concluded contract of sale between H.E.H the Nizam Jewellery Trust on the one hand and the respondents 7 to 17, the various tenderers on the other hand, and consequently, R. 7 to 17 have not acquired any rights of title in these 37 items of jewellery, enforceable against the trust or the body of beneficiaries
66. This finding, along with the material records, is directed to be forwarded to the Supreme Court forthwith.
67. Finding accordingly,