High Court of Karnataka Holds Compromise Decree Requires Recall in Trust Property Sale Case

The High Court of Karnataka, in a significant judgment, has allowed a review petition challenging a compromise decree related to the sale of trust property. The court observed that any transfer of trust property should align with the trust’s interest, benefit, and protection.

Legal Point of Judgement: The primary legal issue revolved around the maintainability of a review petition against a compromise decree involving the sale of trust property and whether such a transfer was in the trust’s interest.

Facts and Issues: The petitioners, who are direct descendants and interested parties in the ‘People Charity Fund Trust’, challenged the sale of trust property under a compromise decree. They argued that the trustees acted against the trust’s objectives and compromised its interests. The key issue was whether the compromise decree was lawful and in the trust’s interest.

Court’s Assessment:

Maintainability of Review Petition: The court held that under Order 47 Rule 1 of CPC, any aggrieved person can file a review petition. The petitioners, being direct descendants and beneficiaries, had a valid interest in the trust.

Power to Sell Trust Property: The court stressed that trustees should act in the trust’s interest. The sale of trust property by private negotiation, without verifying or disclosing market value, was deemed not in the trust’s interest.

Issue of Limitation: The court observed that the appellate court cannot pass a compromise decree without addressing the issue of limitation. It was noted that if a claim is dismissed as barred by limitation, it affects the court’s jurisdiction.

Lawfulness of Compromise: The court found the compromise decree questionable, as it seemed not to be in the trust’s interest. The fact that the trustees had already identified buyers for the remaining property was not disclosed to the court at the time of the compromise.

Decision: The court allowed the review petition, recalling the judgment dated February 15, 2023, passed in RFA No.1294/2022. The RFA No.1294/2022 was restored to file for further proceedings.

Date of Decision: 7th February 2024

Smt. Kausalya Thirupuvanam VS K Raghava Reddy