2016 (2) TMI 1264 - HC - Indian Laws

Adjudication of present appeal is that Human Care Medical Charitable Trust is a Society registered under the Societies Registration Act, 1860 - cancellation of lease deed - cancellation of allotment of land - lease deed cancelled alleging breach of a condition of the lease, in that, (office-bearers) of society having sold the demise land to a third party in a clandestine manner in order to earn profit out of a concessional allotment obtained in the name of the society. HELD THAT - It is evident that learned senior counsel for appellant DDA wants us to apply the principle of 'tracing' to conclude that the consideration (money) for sale of land in question had flown into the coffers of Mr.Naresh Chandra, the President of society at the time of execution of the lease-deed dated June 11, 1996. In essence, learned senior counsel for appellant had argued that on applying principle of tracing, the position which would emerge is that when so-called loan advanced by the newly inducted members of the society is traced, the trail would end in the coffers of Mr.Naresh Chandra and his family members, which in turn would show the so-called loan was merely a camouflage but in reality consideration paid by newly inducted members to Mr.Naresh Chandra towards sale of land in question. Has DDA been able to establish that trail of loan advanced by newly inducted members of the society ends in hands of Mr.Naresh Chandra and his family members? - HELD THAT - The answer is no - No material whatsoever has been placed on record by DDA to show that the loan advanced by the newly inducted members of the society ended in the hands of Mr.Naresh Chandra and his family members. Particular emphasis was placed upon balance sheets of the society by learned senior counsel for DDA to show the end of the trail of money (loan) in the hands of Mr.Naresh Chandra and his family members. However, the balance sheets of society do not help the cause of DDA, for the balance sheets merely show various sum(s) were advanced by newly inducted members of the society viz. Mr.Sanjay Khurana and other NRIs to the society from time to time. But the trail of money gets cold here. There is no material to show that said sum(s) advanced by newly inducted members of society to the society reached the hands of Mr.Naresh Chandra and/or his family members. Such being the factual position, the irresistible conclusion which emerges is that appellant DDA failed to justify its action of cancelling the allotment of land in question in favour of the society. The legal principles which we have succinctly culled out from the impugned judgment are correct. A society is distinct from its members. If a person gives money to a society by way of a donation or even a loan and is inducted as a member of the society does not mean that the members of the society who were managing the society when the society acquired an asset have sold that asset to the person who after giving donation is inducted as a member in the society - An allegation that this is a camouflage for sale of the asset of the society would require proof of money reaching the coffers of the members who walk out. Appeal dismissed.

Summary

Issues Involved:
1. Alleged breach of lease-deed terms by the Society.
2. Cancellation of land allotment by DDA.
3. Change in the membership of the Society and its implications.
4. Application of the principle of tracing to determine the flow of funds.
5. Legality of DDA's action based on the alleged sale of land.

Issue-wise Analysis:

1. Alleged Breach of Lease-deed Terms by the Society:
The Society, registered under the Societies Registration Act, 1860, was granted a perpetual lease-deed by DDA for a plot in Dwarka to construct a hospital within two years. The lease-deed included clauses prohibiting the sale, transfer, or assignment of the land without DDA's consent and stipulated that the land should be used exclusively for hospital purposes. Despite several extensions, the Society failed to construct the hospital within the stipulated period, leading DDA to issue a show-cause notice alleging clandestine sale of the land by the Society's office-bearers.

2. Cancellation of Land Allotment by DDA:
DDA cancelled the allotment on June 2, 2009, citing gross violation of the lease-deed terms, particularly the alleged sale of the land in a clandestine manner. The Society filed a writ petition challenging the cancellation, arguing that the changes in the Governing Body were lawful and did not constitute a sale of the land.

3. Change in the Membership of the Society and Its Implications:
The Society's defense included the claim that new members were inducted due to financial contributions to construct the hospital, and the changes in the Governing Body were necessitated by the misuse of funds by the former president, Mr. Naresh Chandra. The learned Single Judge concluded that the lease-deed did not prohibit changes in membership and that such changes did not amount to a sale of the land. The Society, as a separate legal entity, continued to hold the land irrespective of its members' identities.

4. Application of the Principle of Tracing to Determine the Flow of Funds:
DDA argued that the funds contributed by new members were essentially a consideration for the sale of the land, pointing to the Society's balance sheets and other documents. The principle of tracing, as elaborated in the House of Lords' decision in Lipkin Gorman vs. Karpnale, was invoked to establish whether the funds ended up with Mr. Naresh Chandra. However, the court found no material evidence to support DDA's claim that the funds reached Mr. Naresh Chandra or his family members.

5. Legality of DDA's Action Based on the Alleged Sale of Land:
The court upheld the learned Single Judge's ruling that DDA failed to justify the cancellation of the land allotment. The legal principles established that a society is distinct from its members, and changes in membership do not equate to a sale of the Society's assets. The court emphasized that allegations of a sale disguised as membership changes require concrete proof of funds reaching the outgoing members, which DDA failed to provide.

Conclusion:
The appeal by DDA was dismissed, affirming that the Society did not breach the lease-deed terms by changing its membership. The cancellation of the land allotment was deemed unjustified, and the court reiterated the distinct legal identity of the Society from its members. The principle of tracing did not support DDA's claims, as no evidence showed that the funds contributed by new members reached Mr. Naresh Chandra or his family.