Cause Title : Mrs. Vatsala Jagannathan vs K. Jagannathan, Arb. O. P. (Comm. Div.) No.163 of 2022, Madras High Court
Date of Judgment/Order :
Corum : Mr. Justice Senthilkumar Ramamoorthy
Citied:
- Vidya Drolia v. Durga Trading Corporation (Vidya Drolia), 2021 2 SCC 1
- Chloro Controls India Pvt Ltd v. Severn Trent Water Purification Inc.(Chloro Controls), (2013) 1 SCC 641.
- Purple Medical Solutions Pvt. Ltd. v. Miv Therapeutics Inc. and Others (Purple Medical Solutions), Manu/SC/0139/2015
- Andal Dorairaj v. Hanudev Infopark (Andal Dorairaj), 2016-2-L.W.9.
- Cheran Properties Limited v. Kasturi And Sons Limited(Cheran Properties), (2018) 16 SCC 413.
- Dr.Papiya Mukherjee v. Aruna Banerjea & another (Papiya Mukherjee), 2022 SCC Online Cal 595.
Background
The petitioners state that they entered into a memorandum of agreement (MoA) with the first respondent in relation to the development of land owned by the first petitioner into a multi-storied residential or commercial building. For that, two general powers of attorney were executed by the first respondent in favour of Mr.Naren Rajan, the then Managing Director of the first respondent. The petitioners claimed that by relying on such powers of attorney, Mr. Rajan who was an “alter ego” of the first respondent, fraudulently mortgaged the Land in favour of the Indian Bank and received a loan from the lender but did not put up any construction. The said lender/Indian Bank, in turn, assigned the debt to an asset reconstruction company, namely, Reliance Asset Reconstruction Company Limited (the ARC). The ARC initiated action to enforce the security interest. At that juncture, the petitioners redeemed the mortgage by paying a sum of Rs. 9 crore in installments between December 2015 and April 2016.
Instead of acting in accordance with the MoA, in breach of trust, the first respondent and Mr.Naren Rajan dealt with the Land for their personal enrichment. The dispute raised by the petitioners for adjudication by an arbitral tribunal is a claim for restitution of the unlawful proceeds arising out of breach of trust committed in relation to the Land.
The Petitioners argued that the dispute is not barred by limitation and that the petitioners are entitled to the benefit of Section 10 of the Limitation Act. According to learned counsel, Section 10 applies both to express and implied trusts and the latter falls into two categories, namely, constructive trusts and resulting trusts. The MoA read with the general powers of attorney resulted in the creation of an implied resulting trust and that the characteristic feature of a resulting trust is the intention of parties to vest the property in the trustee for a specific purpose, it was submitted that the Land was vested in the first respondent and its Managing Director with the intention that the same would be used exclusively for purposes of developing a multi-storied building in accordance with the MoA.
Mr.Naren Rajan, died on 21.05.2015. Upon his death, respondents 2 to 5 stepped into his shoes as his legal heirs.
The Respondents argued that :-
1) Section 10 of the Limitation Act is not applicable because it applies only to express and not implied trusts.
2) Respondents 2 to 5 are non-signatories to the arbitration agreement.
3) Respondent 5 holds only 100 shares in the first respondent company and Respondents 3 & 4 were not involved in the first respondent company and became shareholders after the death of Mr.Naren Rajan.
3) The Petitioners have by filing 2 suits and reserving the right to file separate suits had waived their right to refer the present dispute for arbitration.
Judgment
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