JUDGEMENT AWARDED – O.S. 25868 of 2008
(As Reported by our Lawyers on Sep 21st, 2015)
I am extremely pleased to inform you that the suit has been decreed substantially in our favour. Extracted below is the order of the court:
"The suit is partly decreed with costs. It is declared that Defendants Nos 1 to 8 have committed breach of trust and they are unfit to act as Trustees. Defendant Nos. 1 to 9 are jointly and severally liable to make good the losses caused to the Trust fund with interest at 6% p.a. from the date of suit.
The Plaintiffs are directed to suggest the name of Receiver who is acceptable by the 9th Defendant to take into account the losses caused to the Plaintiffs.
The Plaintiffs are directed to suggest names of the Trustees who are acceptable by the 9th Defendant and the Trustees to be appointed shall take appropriate action for the welfare of the retired employees.
The 9th Defendant is directed to pay unpaid pension and enhancement to all the beneficiaries, which is not any less beneficial to the employees. The Defendants are restrained from making any amendment to the CSPF and OPF which is less beneficial to pensioners.
The Plaintiffs are directed to pay court fee on the ascertained amount to be ascertained by the Receiver.
Draw the decree accordingly."
The judgement is about 246 pages long. I will apply for a certified copy of the same and inform you when we receive it.
Advocates & Solicitors
No. 33, I Cross, Xaviers Layout, Victoria Road, Bangalore 560 047
Tel / Fax: +91 (80) 41473535 / 36 / 37
THE ABOVE JUDGEMENT WAS BASED ON THE FOLLOWING WRITTEN ARGUMENTS SUBMITTED – after THE HEARINGS WERE OVER:
IN THE COURT OF THE CITY CIVIL JUDGE AT MAYO HALL, BANGALORE
O.S. No. 25868/2008
Britannia Industries Limited Pensioners' Welfare Association & Anr. Plaintiffs
A. K. Hirjee & Ors. Defendants
Written Arguments of the Plaintiffs
The Plaintiffs have filed this suit in representative capacity for and on behalf of the retired pensioners of the 9th Defendant Company (Hereinafter 'Company'). The Company set up two Trusts, the Covenanted Staff Pension Fund (Hereinafter 'CSPF'), which is the 10th Defendant herein and the Officers Pension Fund (Hereinafter 'OPF'), which is the 11th Defendant herein, to ensure payment of pension that would become due to the employees of the Company on retirement. It is the case of the Plaintiffs that they are entitled to payment of pensions by virtue of being inducted as a "Member" to the pension funds. Both the Trust Funds, are private trusts that are governed under the Indian Trusts Act, 1881. Defendants 1 to 8 (Hereinafter 'Trustees') have been and certain amongst them still are the Trustees of the 10th and 11th Defendants. The subject matter of the suit revolves around the fraud perpetuated by the Trustees acting under the instructions of the Company. For the sake of convenience, arguments in accordance with the issues framed by this Hon'ble Court.
Issue No. 1: Whether the Plaintiff proves that D1 to 8 committed breach of trust as Trustees of CSPF and OPF (Read with prayer a & b of the plaint)
The Trustees have committed breach of Trust on the following counts:
A) Their failure to ensure payment of pensions due to the retired employees since 01.04.2003, in accordance with Rule 11 to 20 of the Fund Rules
Ø Pension entitlements are governed by formula in Rule 11(a) until 31.03.2003 – admitted by DW1 (Q 171, pg 39, Vol III). DW1 has acknowledged that it was discontinued since 01.04.2003. (Q 301, pg 57, Vol III)
Ø Pensions arbitrarily stopped, despite no decision being taken by neither the old trustees nor the new trustees until receipt of Chokshi report. (Questions 487 to 495, at pg 84, Vol III) – same is violative of Rule 20 requiring commencement of pensions immediately on retirement.
Ø It is admitted by Defendants that the Rules of the CSPF & OPF have not been amended even as on date as it was rejected by the CIT (Page 32 & 70, Vol I)
Ø Despite this, beneficiaries offered reduced pension. (Ex P73 – 81, pgs 363 – 373, Vol II), which is illegal.
Ø Trustees have therefore acted in derogation of Clause (A) and 3 of the Trust Deed; Rule 11 & 20 of CSPF & OPF Rules & Section 11 of the Trusts Act.
B) Failure to pay triennial increments in pension.
Ø Triennial enhancements announced vide Ex. D5 and Ex. D9 to all beneficiaries.
Ø PW-1 has stated that letters were sent to all beneficiaries (para 11, pg 7, Vol II) – same has not been challenged in cross examination.
Ø Accordingly, there was 'review of the terms and conditions of service' as seen in Exhibits –P20, P21, P22, P24, P29, P33, P35, P36, P37, P39, P43, P44, P45 and P48
Ø The said improvements were implemented from April 1995, 1998 & 2001 as seen in Exhibits – P15, P26, P27, P28, P31, P32, P38 and P42, and thereafter the triennial adjustments due from April 2004, 2007, 2010, 2013 and thereafter arbitrarily discontinued, and remain pending.
C) Misappropriation of a sum of Rs.12,11,99,000/-
Ø Said act is violative of Rule 28 & Rule 91(2) of the CSPF & I T Rules, 1962.
Ø As a result of it being illegal, a show cause notice was issued by the Commissioner of Income Tax to derecognize the fund – admitted by them.
Ø Further, violative of Section 13, 14 & 51 (after transferring, dividends and directors commission has gone up significantly) of the Trusts Act.
Ø Liable to return the same at 6% - Section 23 of the Trusts Act.
D) Attempt to alter the Trust Deed and Rules to reduce the pension entitlement of the retired employees of the Company.
Ø Vide Ex P82 & 83, Trustees surreptitiously tried to amend the Rules inter alia – (a) from a Defined Benefit to Defined Contribution Scheme; (b) withdraw the benefits available to a deceased pensioners spouse or children; and (c) reducing the service period of the pensioner for computing pension from 'service with the Company' to only 'membership period of the fund'.
Ø AS-15, which is "Accounting for Retirement Benefits in the Financial Statements of Employers", is issued by the Institute of Chartered Accountants of India (ICAI), and are notified by the Ministry of Corporate Affairs, which derives its power under Section 210(A) r/w Section 211(3-C) of the Companies Act, 1956 – clearly states that a defined benefit scheme is one where benefit payable to the employee is determined with reference to factors such as a percentage of final salary (e.g. the average of one, three or five years' salary), number of years of service and the grade of the employee. (See Clause 6(b) of AS-15, pg 153, Vol II of Authorities) – same is identical to Rule 11(a) of the CSPF and the OPF.
Ø With respect to the confusion surrounding 32% shown in the tables, Clause 8 of AS-15 states that "in certain cases, a retirement benefit scheme may stipulate the basis of contributions on which the benefits are determined and, because of this, may appear to be a defined contribution scheme." (See pg 153, Vol II of Authorities).
Ø Had it been a defined contribution scheme, then there would have been no necessity for an actuarial valuation to be conducted. Fund Rules provide for periodic actuarial valuation – Rule 29 of the CSPF. Evidence shows several actuarial valuations having been conducted – Ex D13,14,15,16,56,60 & P120.
Ø Trustees cannot reduce the benefits payable to the beneficiaries – bound by Clause 4 of the Trust Deed, Rule 27 & 28 of the CSPF & OPF Rules respectively.
Issue No. 2: Whether the Plaintiffs are Entitled for Appointment of Trustees for the Administration and Management of CSPF and OPF? (R/w Prayer c & d)
Ø Defendants have caused severe breach of trust, have been unable to act independent of the instructions of the company - written Statement of Defendant Nos. 7 & 8, both acknowledge that fraud was perpetrated by Mr. Nusli Wadia, Chairman of the Company, in collusion with the Trustees.
Ø Further, they have submitted that they are unwilling to exercise their 'discretion' in paying pensions to members pursuant to Rule 11(b) – shows spiteful character of the Trustees – Rule 11 (b) says discretion to be exercised unless dismissed for misconduct – Jotindra Nath Roy v. Surendra Bikram Singh Agarwal, at para 7 says discretion to be exercised in favour of pensioner unless there are grounds to show that their service was unsatisfactory. (pg 145, Vol II of authorities)
Ø Pensioners have a right to proper trustees – Section 60 of the Trusts Act.
Ø When discretionary power not exercised reasonably or in good faith, court has the power to step in – Section 49 of the Trusts Act.
Ø Section 74 of the Trusts Act lays down guidelines in appointment of new trustees.
Issue No. 3: Whether the Defendants are Liable to Pay Outstanding Unpaid Pensions and Pension Enhancements to all Beneficiaries? (R/w Prayer e, f & h of the plaint)
Defendants 1-9, including the Company are liable for payment of unpaid pensions. Creation of a superannuation fund under Part XIII of the Income Tax Rules, 1962, is done for the sole purpose of making payment of pensions. It is only a tool for making these payments and seeking tax deductions accordingly. Payment of pension is one of the service conditions, obligation is on the Company. The Hon'ble Supreme Court, in Bharath Petroleum Management Staff Pensioners v. Bharath Petroleum Corporation Ltd. & Ors.,(pg 45, Vol I of Authorities), categorically stated that the employer company is obligated to pay pensions even if the existing fund does not have adequate funds. (Para 4 is relevant). Same was affirmed in Subrata Sen v. Union of India at para 14 (pg 34, Vol I of Authorities). The Defendants have sought to waive their liability on the following grounds:
A) Rule 87 of the Income Tax Rules.
Ø The said rule only applies to ordinary annual contributions and is only with respect to permissible deductions under Section 36(1)(iv) of the Income Tax Act. – affirmed by Asst. Commissioner of Income Tax, Cir. 6(3) v. Glaxo Smithkline Pharmaceuticals (See para 10 of judgement which is at page 1 of Vol I of the authorities)
Ø Letter sent by Office of the Chief Commissioner of Income Tax at Ex. P 118 (para 5 on pg 468, Vol II) – also affirms the same point.
Ø Defendants cited Commissioner of Income Tax v. Hyderabad Asbestos Cement Products Ltd. The said judgement in many instances has held that the restrictions placed in Rules 87 and 88 are only in light of Section 36(1)(iv) of the Income Tax Act, 1961 (See paragraph 7, where it is stated that "Rules 87 & 88 of the Income Tax Rules, 1962, are prescribed in pursuance of Section 36(1)(iv) of the Act.") – judgement keeps talking about deductions that will be 'allowable' – Para 12 states that "…deduction can only be confined to those limits."
B) Contributions in excess of Rule 9(b) and Clause 6 of the Trust Deed
Ø Rule 9(b) only deals with "ordinary annual contribution" only. As held in Asst. Commissioner of Income Tax, Cir. 6(3) v. Glaxo Smithkline Pharmaceuticals, there is no bar on contributions made over and above ordinary annual or initial contributions to the Fund, which may be necessitated in order to discharge the obligations arising out of the Fund.
Ø Clause 6 of the Trust Deed talks about "contributions that are received by the Trustees in accordance with the Rules" and does not restrict itself to ordinary annual contribution as contended. Being a defined benefit scheme, the contributions were very much necessary.
Ø Important to note that despite the OPF also being a defined benefit scheme, Defendants have stated that "no contributions over and above the ordinary annual contribution was ever made to the OPF" (See Questions 406 & 407, pg 73, Vol III).
Ø Defendants have feebly urged that these alleged 'excess' contributions were masked, camouflaged. However, DW-1 has in response to Questions 262-266 (pg 51, Vol III) explained the rigorous and water tight procedure in preparation and inspection of the Company's accounts. After all those checks, the said 'discovery' was allegedly made by the Managing Director. (Q 206, pg 173, Vol III).
C) Acting on advice of Chokshi Report
Ø DW-1 in response to Q 493, at pg 84 of Vol III has said that the decision to discontinue payment of pension as per the Rules were taken by the new Trustees after the receipt of report of M/s. C.C. Chokshi & Co.
Ø Said report, Ex D61, shows the fraud. It titled "draft for discussion", not issued on a letterhead, nor is it signed – D66 shows that appointment made by the Chairman, again no independence of trustees.
Ø Mr. R. Laxminarayan of M/s. C.C. Chokshi & Co., found guilty for professional misconduct by the ICAI after a detailed investigation– said order at Ex. P119 A (pg 471, Vol II) – see paragraphs 11.13 at pg 490 and 11.14 at 491.
Ø Chokshi was paid nearly thirty times extra for the said report - para 13.34, pg 508.
D) Triennial benefits allegedly not payable
(i) Invalid as requirements under Rule 19A(b) were allegedly not met
Ø It has wrongly been argued that Rule 19A(b) required an amendment to the fund to be carried out – same is not true.
Ø Further, it has been argued by the Defendants that no actuarial valuation was conducted – Doc at page No. 273 of Vol III rebuts the same. (See sub-para iii on pg 273) Additionally, Ex. D9 clearly states that based on the actuarial valuation of the Fund, there is adequate surplus in the Fund for indexing the pensions as recommended.
(ii) Pensioners who retired prior to 01.04.1995 not eligible
Ø Defendants argued that pursuant to Resolution D in Ex. D5, persons who retired "Less than 1 year before the review date" are ineligible – this stand is misplaced.
Ø A review is to be carried out every three years, "first such review to be effected from April 1, 1995".
(iii) Payable only to 'beneficiaries'
Ø Contended that beneficiaries meaning only applicable to wife, spouse or child as amended in the Deed of Variation dated 03.09.1992.
Ø However, the said interpretation is illogical as wife, spouse or child cannot retire from the Company.
Ø The term "beneficiary" as defined under Section 3 of the Indian Trusts Act, 1882, means the "person for whose benefit the confidence is accepted."
Ø Important to see the intendment – Ex. D5, agenda in the beginning – "The proposals to improve the benefits available to Members/Pensioners under the above Pension Fund"
Ø Reason for changing the meaning of beneficiaries can only be explained by production of the entire board resolution. Despite asking for the same through a notice to produce, what has been produced is only an extract – therefore adverse inference is to be drawn – Section 114(g) of the Indian Evidence Act.
Ø Well established that if the terms applied by one party is unclear, an interpretation against that party is preferred – verba chartarum forties accipiuntur contra proferentem – Bank of India & Anr. v K. Mohandas & Ors. (pg 120, Vol II of Authorities, para 32 is of relevance).
Ø Important to note that none of these contentions were pleaded/raised in the written statement. All that is said that it was a 'voluntary gesture'.
(iv) Triennial claims are based on hearsay, oral contract etc.
Ø As already stated above, triennial payments were declared to all pensioners, vide Ex. D5 and Ex. D9, plus the fact that letters were sent to everyone, which has not been challenged –Therefore, no requirement to individually produce letters. By virtue of being a member of the respective funds, pursuant to the declaration in Ex. D9, the members are entitled to triennial payments.
Ø The Defendants have alleged that the triennial increase was withdrawn vide Resolution dated 12.04.2004 – same has not been produced before this Hon'ble Court, nor has it been informed to any of the pensioners at any point of time – notwithstanding that fact, the same cannot be unilaterally withdrawn, forms a part of their service conditions as elaborated above.
Ø U.P. Raghavendra Acharya & Ors. v. State of Karnataka & Ors. (pg 58 of Vol I of Authorities) held at paragraph 31 that once the appellants had retired from service, no amendment can be made adversely affecting their pension with retrospective effect.
E) Letter dated 01.04.1996 is allegedly fraud and that Alagh acted unilaterally
Ø Exhibit Nos. 40, 49, 51, 55, 56, 88, 93, 102 & 110 have been objected to on the ground that the truth can only be proven by the author – said rule contrary to rules of evidence – best evidence rule is the document itself - Narbada Devi Gupta v. Birendra Kumar Jaiswal & Anr., (pg 112 of Vol II of authorities) held that where the execution of the document is admitted, signatures are also admitted and are marked thereafter as exhibits in court, no further proof is essential. – in this regard, important to note their objection to the document, "I am not objecting to the fact that such a letter has been received by the witness."
Ø Said letters came with another letter – confusion regarding "Annexure" – important to note that it has been stated by the witnesses that the said letter was issued along with the other letter. Suggestion of Annexure was put forward by counsel of the Defendant.
Ø Allegation that the letters are fraudulent as it discloses a pension factor which wasn't implemented as on that date – however it clearly states that "it has now been decided to improve the benefit of Pension…subject to the approval of the Commissioner of Income Tax- Calcutta."
Ø Order VI Rule 4 mandates that allegations of fraud have to be pleaded – not done.
Ø DW-2 has stated on oath, in his answer to Q 345, pg 199, Vol III that Alagh was given all his terminal dues – no resolution passed by the trustees imputing breach of trust on the former trustees (pg 190, Vol III)
Ø Doctrine of Indoor Management – Turquand's principle (pg 44, Vol II of Authorities) & Gunmala Sales (P) Ltd. v. Anu Mehta (pg 88, Vol II of Authorities)
Issue No. 4: Whether the Plaintiffs are Entitled for Permanent Injunction? (R/w Prayer G of the plaint)
Ø Section 61 of the Indian Trusts Act, 1882, confers upon the Plaintiffs, a right to compel the Trustees to act in accordance with the Rules and to restrain them from committing any contemplated or probable breach of trust.
Issue No. 5: Whether Suit is not Maintainable under Section 293 of Income Tax Act?
Ø Section 293 only places a bar to set aside or modify any proceeding taken or order made under the Income Tax Act – no prayer made by the Plaintiffs for any of the acts contemplated in the Section - therefore inapplicable.
Ø Section 9 of the CPC confers broad jurisdiction on civil courts – upheld in Ramesh Gobindram v. Sugra Humayun Mizra Wakf – paras 12,13,24,33 &34 (pg 136, Vol I of Authorities).
Issue No. 6: Whether The Suit In The Present Form Is Not Maintainable?
The Defendants have alleged that the suit in the present form is not maintainable under the following grounds:
A) Order I Rule 8 does not apply to claims for money
Ø The Defendants have placed reliance on a Madras High Court judgement, Rathnaswami Nadar & Ors. v. The Prince of Arcot's Endowments.
Ø The Hon'ble Supreme Court of India, in The Chairman Tamil Nadu Housing Board Madras v. TN Ganapathy (pg 5, Vol II of Authorities), has categorically held that "There are no words in the Rule to limit its scope to any particular category of suits or to exclude a suit in regard to a claim for money or for injunction...."
Ø It is further submitted that the present suit is either ways not a suit for money recovery, as a perusal of the reliefs claimed will show.
B) All members have to come and stake their claim before the Court
Ø The Defendants have placed reliance on a Calcutta High Court decision, i.e. Surendra Kumar Base v. District Board, Nadia & Anr.
Ø Pertinently the said judgement was before the amendment to Order I Rule 8 that happened in 1976.
Ø The Hon'ble Supreme Court in State of Andhra Pradesh v. Gundugola Venkata Suryanarayana Garu (pg 15, Vol II of Authorities), held that the only requirement for instituting a suit on behalf of numerous persons is the condition in Order I Rule 8. It does not require previous sanction or authority of the persons whose interest are sought to be espoused. Even for the purposes of Sec 80 of CPC, what is required is a notice only by the Plaintiff, not of the persons whom he seeks to represent.
Ø Additionally, the Plaintiffs are not claiming for money through this suit, but a declaration that money be paid in pursuance to the Rules. All the Plaintiffs are members of the respective funds, and by virtue of the same, are entitled to payment of pension as per the Rules.
C) Ashit Sarkar not authorised to file the suit for Plaintiff No. 1 association
Ø Defendants are seeking to place reliance on Q 29 (pg 28, Vol II), wherein Mr. Sarkar has stated that it was not 'specifically contemplated at Bangalore'.
Ø In support, they relied on a Karnataka High Court judgement, B. H. Inamdar v. B. F. Swamy – the same is not applicable as in the said case, there wasn't even a resolution authorizing the Plaintiff to file the suit and there was a specific rule in the said Society's rules with respect to the power to institute the suit, which is not the case in the Plaintiff Society's rules.
Ø PW-1 authorised to file the suit vide Ex. P2 and P3.
Ø The Hon'ble Supreme Court in United Bank of India v. Naresh Kumar & Ors. (pg 48, Vol II of Authorities), held that even where no letter of authority is furnished in favour of the person who has instituted a suit on behalf of a corporation, the Court could not have dismissed the suit on that ground. The Court, from the facts and the manner in which the case was conducted before it, could have reasonably concluded that the suit was properly authorised. If the Court was unable to come to such a conclusion, the Court ought to have directed the party to produce a proper power of attorney to prove what was done. The Court should not ensure injustice and defeat the substantive rights due to a procedural irregularity which is curable.
Ø Procedural defects and irregularities which are curable should not be allowed to defeat substantive rights or cause injustice – held in Uday Shankar Triyar v. Ram Kalewar Prasad Singh & Anr. (pg 54, Vol II of authorities)
D) Association's interests different from its members
Ø The Defendants have relied on a Madras High Court decision, i.e., The Corporation of Madras v. S. A. Khan & Ors. – important to note that in the said leave under Order I Rule 8 was not sought and was therefore not a representative suit. (See para 19 of the judgement).
Ø A Division Bench of the Hon'ble High Court of Karnataka, in State of Mysore v. Charodi Abhyudaya Sangha, (pg 10, Vol II of Authorities), held that a representative suit filed under Order I Rule 8 is maintainable by the president of the Sangha which is registered under the Act, espousing the interests of the society. Therefore, the court recognized that the interests of the society was the same as its members.
Issue No. 7: Whether the Defendants are Entitled to Execute the Trust Deed and Fund Rules Against the Beneficial Interest of the Plaintiffs?
Ø Prohibited from doing so under Clause 4 of the Trust Deed and Rules 27 & 28 of the CSPF and OPF Rules respectively.
Issue No. 8: Whether The Suit Is Time Barred?
Ø Article 103 of the Limitation Act, 1963, clearly states that to make good the loss occasioned by a breach of trust, the period of limitation shall be three years from the date of the trustee's death or if the loss has not then resulted, the date of the loss.
Ø No period of limitation for recovery of money due to a trust – Hindustan Times Ltd. v. Union of India & Ors. (pg 68 of Vol II of Authorities) held that money due from an employer to a provident fund is money due to a trust, there is no period of limitation fixed for recovery of money due to a trust under the Limitation Act, 1963.
Ø No period of limitation in claiming rightfully due pension – S.K. Mastan Bee v. General Manager, South Central Railway (pg 30, Vol I of Authorities) – Supreme Court of India negated a plea of delay and laches in a case where pension was claimed after 22 years. (See para 6).
Ø Claim to pension is continuous cause of action, Section 22 of the Limitation Act, 1963 – Shakuntala Gupta v. Municipal Corporation of Delhi (pg 16, Vol III of Authorities) held that "Right to pension is a continuing right and in that sense claim for pension would never become stale. It is akin to a continued wrong."(para 18)
Ø Copies of the Deed of Variation were only furnished in April, 2008, pursuant to order at Ex. P116 (pg 461, Vol II), without which the Plaintiffs could not institute the suit.
Date: 04.09.2015 Advocate for the Plaintiffs