A Registered Society Be Considered a Constructive Trust: SC

In a significant judgment, Operation Asha v. Shelly Batra and others [MANU/SC/1020/2025], the Supreme Court considered whether the organization, Operation ASHA, registered under the Societies Registration Act, 1860, met the requirements of Section 92 of the Civil Procedure Code (CPC) to have a suit filed against it under that provision.

The Supreme Court held that the mere registration of a society under the Societies Registration Act, after it had already taken on the characteristics of a public trust, does not alter the nature of its properties, which were already constituted as trust properties. However, the Court also clarified that registering as a society does not automatically confer the character of a trust upon the society’s properties.

The Supreme Court outlined the principles concerning Section 92 of the CPC and explained the conditions under which a registered society can be deemed a ‘constructive trust’, making it susceptible to a suit under Section 92.

The Supreme Court’s conclusions are as follows:

1. Section 92 suits are representative in nature. These suits are special because they are filed on behalf of the public and in the public interest. Obtaining the court’s permission, or ‘leave,’ before proceeding with the suit is a procedural safeguard. It prevents public trusts from being harassed by frivolous lawsuits and avoids wasting resources that could be used for public charitable or religious purposes. At this stage, the court doesn’t decide the merits of the case or grant substantive rights to the parties.
2. Conditions for a maintainable suit under Section 92. As established in previous decisions, a suit under this provision requires three conditions to be met: (a) the trust must be for public charitable or religious purposes; (b) there must be a breach of trust or a need for court direction in the trust’s administration; and (c) the relief sought must be one of the reliefs listed in Section 92(1) of the CPC. A failure to meet even one of these conditions is sufficient to dismiss the suit.

• Public purpose defined. A trust is considered to have a ‘public purpose’ when its beneficiaries are the general public and cannot be individually identified. Even if the beneficiaries aren’t the public at large, they must be a classified section of the public, not a pre-determined group of specific individuals.

1. The crucial factor is whether the organization is a trust. A key requirement for a Section 92 suit is determining if the institution against which relief is sought is, in fact, a ‘trust’ or a ‘constructive trust.’
2. Inferring the creation of a public trust. When an institution lacks formal recognition as a trust, its creation can be inferred from the surrounding circumstances. While not an exhaustive list, these factors may include:
   1. The manner in which the property was acquired, including the intent behind the grant (e.g., for the public’s benefit versus for a private individual).
   2. Whether the grant came with any specific obligation or condition on its use.
   3. Whether the ‘dedication’ was complete, meaning the original owner fully relinquished ownership of the property.
   4. Whether the public or an unascertainable class of people had any right over the organization or its properties.
   5. How profits are used—specifically, if they are reinvested for the organization’s goals.
3. Effect of later registration as a society. If an entity, after having already met the criteria of a public trust, is later registered as a society under the Societies Registration Act, 1860, it will still be treated as a ‘public trust.’ This principle, affirmed by the Kerala High Court, means the properties retain their trust character.

• Effect of initial registration as a society. If an institution is registered as a society from its inception, its property acquisitions don’t automatically make it a trust. The act of registration itself doesn’t automatically transform the society’s property into trust property.
• Vesting of property under Section 5 of the Societies Registration Act. Section 5 of the Act provides that a society’s property, if not vested in trustees, is deemed to be vested in its governing body. This is necessary because a registered society is not a legal person capable of holding property on its own.

92. Interpreting the phrase ‘if not vested in trustees.’ This phrase suggests that a trust can be created—either expressly or by implication—to hold a society’s properties, either before or after registration. If the trust was created before registration, and the circumstances in point (v) are met, all the properties are considered ‘trust property’ and fall under Section 92. If a trust is created after registration, it must be clearly proven. In both scenarios, an ‘express trust’ is created, satisfying the initial requirement of a Section 92 suit.
93. Fiduciary duty of the governing body. In the absence of a separate trust, the society’s property is vested in the governing body. This body has a fiduciary duty to use the property for the society’s stated aims. Upon dissolution, members cannot distribute the assets among themselves. The governing body and members have no beneficial interest in the property; they must protect it for future members, ensuring the society’s continuity.
94. Legislative intent of Section 5. Section 5 provides two methods for a society to hold property: either through trustees or through its governing body. Both options involve fiduciaries, meaning individuals or groups with a duty to act in the best interest of others. While both are fiduciaries, a trustee is a ‘trustee stricto sensu’ (a trustee in the strict legal sense), whereas a governing body member is not.

• The concept of a ‘constructive trust.’ Even if an organization isn’t an ‘express trust,’ it can still be subject to a Section 92 suit if it’s considered a ‘constructive trust.’ This is a key point for plaintiffs.
• What is a constructive trust? A constructive trust arises by operation of law, regardless of the parties’ intent. It is imposed when a person would be unjustly enriched or would profit from a wrongdoing by keeping property they shouldn’t. The English model of a constructive trust, which is followed here, recognizes an existing fiduciary relationship. It arises when a person is already obligated to hold property for another. The court’s role is to declare that such a trust arose at the time of the circumstances that created it.
• Requirements for applying the constructive trust doctrine. For this equitable doctrine to apply, the fiduciary must have received property that they cannot, in good conscience, keep. It must be proven that the fiduciary withheld property from its rightful beneficiaries or misused it for personal gain. This misuse must be established for a constructive trust to come into being.

1. Defining ‘persons having an interest in the trust.’ The phrase should be interpreted broadly but not excessively so. It means a present and substantial interest, not a sentimental, remote, or illusory one.

• Scope of reliefs under Section 92(1). The reliefs sought must be those listed under Section 92(1). The ‘further or other relief’ clause (h) refers to reliefs that are of a similar nature to those specifically listed in clauses (a) to (g), not entirely different or unrelated reliefs.

1. The suit’s underlying purpose. Given the special nature of a Section 92 suit, which is for the vindication of public rights, courts must look beyond the specific reliefs requested and consider the suit’s true object. The presence of some private rights being agitated should not lead to the outright dismissal of the suit, as long as it’s filed in a representative capacity. However, reliefs related to purely private rights cannot be granted in such a suit.