Can societies be sued for breach of trust under Section 92 CPC? Supreme Court answers

The Supreme Court has ruled that societies can be treated as constructive trusts when they hold public donations for charitable purposes and can, therefore, face civil suits filed on allegations of breach of trust under Section 92 of the Code of Civil Procedure, 1908 (CPC) [Operation Asha v. Shelly Batra]..A Bench of Justices JB Pardiwala and R Mahadevan noted that Section 92, CPC concerns the filing of a special kind of civil suit in a representative capacity, to protect public rights.These civil suits can generally be filed against charitable or religious trusts if there is any wrongdoing (or a breach of trust) by such entities, which affects the beneficiaries'/ public's interests. The question before the top court was whether a society could also be considered to be a public trust for the purpose of Section 92, CPC, despite it not being an expressly formed trust. The Court held that such societies too can be sued under this provision, if they were formed to carry out charitable activities and held property in 'constructive' trust in the interest of its beneficiaries. The Court passed the ruling on a case concerning a registered society called Operation ASHA, which had argued that it could not be sued under Section 92 CPC since it was not a trust. The Court rejected this argument, noting that Operation ASHA was formed primarily for health-related charitable activities and that it could be sued in its capacity as a constructive trust if there is any breach of its stated charitable obligations."While the society cannot be considered as an ‘express trust’, what must also be noted, at this crucial juncture, is that, for an entity to be brought within the rigours of Section 92, the plaintiff has the option of also contending that a ‘constructive trust’ exists in the circumstances and a breach of such a constructive trust has occurred or that the directions of the Court are necessary for the administration of such a constructive trust," the August 5 ruling said. .In essence, the judgment establishes a methodology for judicial oversight over charitable societies, even if such societies lack formal trust structures. .A constructive trust is not created through an express declaration but arises by operation of law, to prevent any unjust enrichment or misappropriation of property held in a fiduciary capacity. "It (constructive trust doctrine) is imposed predominantly because the person(s) holding the title to the property would profit by a wrong or would be unjustly enriched if they were permitted to keep the property. In other words, a constructive trust, does not, like an express trust, arise because of a manifestation of an intention to create it, but it is imposed as a remedy to prevent unjust enrichment," the Court explained. This doctrine serves to ensure that such organisations remain accountable for the proper use of property entrusted to them for the public good..The plea before the Court was filed by Operation ASHA, which challenged the Delhi High Court's decision to allow a civil suit filed under Section 92, CPC to proceed for hearing. Operation ASHA was founded in 2005 for healthcare services to underprivileged populations. Its governing documents prohibit profit distribution to members and vest all property in the Executive Committee. Its co-founder, Dr. Shelly Batra, was part of the organisation for 15 years and had served as its President before she was terminated for allegedly fabricating certain documents and fund misuse.Following her removal as President and Board member, Batra and her mother filed the civil suit alleging that there were financial irregularities, fund siphoning, and statutory benefit evasion in the society's functioning.They sought trustee removal, an accounts inquiry, and governance reforms in their suit under Section 92 CPC.The society, on the other hand, maintained that a suit under Section 92, CPC was not maintainable against it since it was not a trust. After a single judge Bench and a Division Bench of the Delhi High Court rejected this argument, the society moved an appeal before the Supreme Court. .The Supreme Court noted that Section 92, CPC suits can be maintained against an entity if it has a charitable purpose, if it breached its duties as a trust (including as a constructive trust) which required court intervention to correct and if the reliefs sought by the persons who filed the suit (plaintiffs) were those provided under Section 92, CPC. Operation ASHA's tuberculosis mission satisfied charitable purpose requirements. The allegations of serious misappropriation of funds met the breach of trust criterion.Another requirement under Section 92 CPC was that the plaintiffs must be persons "having an interest in the trust." The Court held that this phrase cannot be construed too narrowly or too widely. It concluded that Dr. Batra and her mother had sufficient interest in Operation ASHA to be able to satisfy this criterion as well. "Both of them can be said to have been closely associated with the functioning of the appellant Society. Therefore, they can also be said to have a genuine, clear and direct interest in the preservation and proper management of the appellant Society and the properties which may be subject to a constructive trust, especially since they have devoted time and energy into the establishing and running of the appellant Society."The Court acknowledged Operation ASHA's argument that Dr. Batra may be trying to resolve personal grievances over her removal from the society's Board. However, it noted that the civil suit also raises larger concerns. "There are several other allegations in the plaint which cannot simply be ignored," the Court said. It concluded that the dominant purpose of the suit was protecting public charitable assets from misuse..The ruling establishes clear standards for fiduciary conduct, requiring society officials to maintain the same level of accountability as formal trustees when managing charitable assets."Any conduct by the fiduciary which deprived the intended beneficiaries of their beneficial interest in the property, in such a manner that is in contravention to the covenants that bind him and confers an advantage to him to the detriment of the intended beneficiaries, must be taken into consideration to see if a constructive trust can be raised in law," the Court has held. It proceeded to dismiss Operation ASHA's appeal and directed the Delhi High Court to proceed with the underlying suit, specifically examining whether the alleged financial improprieties established grounds for the Court's intervention under Section 92, CPC.The top court emphasized that if such circumstances are found, the High Court must identify which properties are liable to be treated as held in constructive trust and determine which of the reliefs sought in the civil suit are appropriate. .Operation ASHA was represented by Senior Advocate Dama Seshadri Naidu with Advocates Bishwajit Dubey, Radhika Bishwajit Dubey, Karan Khetani, Umesh Dubey, Madhulika, Vuzmal Nehru and Manoj K Mishra..Dr. Shelly Batra was represented by Advocates Jai Anant Dehadrai and Pulkit Agarwal. .[Read Judgment]