Kumar Palvt and others vs Unit Trust of India and another

Jawahar Lal Gupta, J.—Has the Unit Trust of India acted illegally and unfair;y in terminating the Rajlakshmi Unit Scheme 1992? This is the

short question that arises for consideration in this bunch of 11 petitions. The facts as relevant for the decision of these cases may be briefly notice.

In October 1992 the trust floated a scheme. It was intended to ""meet the social and economic needs of women in the country through

investment in the scheme by any person on behalf of a girl child not exceeding five years of age, which could be repurchased, by the child on

completion of (the) lock in period."" The amount invested in favour of the child was ""irrevocable in nature."" and could be claimed only by the child.

The Trust invited investors. It promised that the ""investment will grow 21 times in 20 years. Thus, Rs. 1000/- invested in the name of a female

child up to and including the age of one years will become rupees 21000/- after 20 years and Rs 5000/- thousand will become over one lakh. It

was also stated that the trust may periodically declare bonus which shall be payable on maturity. The face value of each unit was fixed at Rs. 10/-.

Minimum investment was to be in a hundred units. There was no limit on the maximum amount that an individual could invest. On maturity the child

who would then be an adult could withdraw the maturity amount by returning the Unit Certificates. Various tax benefits and exemptions were also

announced.

In pursuance to the announcement, the Petitioners invested in the scheme. The units were issued by the trust. Photocopies have been produced

as annexures with the petitions.

In August, 2000 the trust informed the investors that ""the rate of return offered under the scheme during its launch was based on estimated

returns offered by Capital Market Instruments, mainly debt instruments at that time. But it was noticed that a return of 16.16 to 16.75% would not

be maintainable"". Therefore, sales under the scheme had been suspended with effect from October 30, 1993 and the Trust had tried to continue

with the scheme with the offered rate. With the liberalization of economy and the accelerated development of capital market, interest rates have

come down substantially and it was no longer possible to redeploy the redemption proceeds to debt instruments, which were in the portfolio of the

scheme. These instructions had matured after having a maximum tenure of 9-10 years at rates that could cover the offered rate under the scheme.

Thus, the Trust felt constrained to discontinue with the scheme at the offered rate of return. Accordingly, the investors were informed that the

Board of Trustees has decided to terminate the scheme with effect from. October 1, 2000"". They were further informed that the trust shall pay the

implicit assured return, up to the date of final termination i.e. September 30, 2000"". The special incentive as announced at the time of launch,

wherever, admissible, was also to be included in the final amount.

The Investors were given the option to invest the terminal proceed in the other existing schemes of the Trust. However, those who desired to

receive the redemption cheque were asked to send the Unit Certificates duly discharged by the parent/guardian. The investors were also told that

in case they opted for redemption, the redemption cheque dated September 30, 2000 shall be dispatched within 10 days of receipt of the required

documents.

The Petitioners allege that the action of the Respondents was wholly illegal. They protested. Some of them even sent legal notices. They

demanded that the trust should continue with the scheme. Having failed in their efforts, the Petitioners have approached this Court through these

petitions. They maintain that the Trust had no jurisdiction to terminate the scheme before the date of maturity. Its action is wholly illegal and

arbitrary. It is barred by principles of equity, fair play and natural justice. It should, thus, be annulled by the issue of an appropriate writ, order or

direction.

The Respondents contest the claim. It is maintained that the decision to terminate the scheme was made bona fide. All the relevant factors were

taken into consideration. It was intended to safeguard the interest of the beneficiaries of the scheme. The action is in conformity with taw and no

ground for interference is made out. It has been pointed out that all investments carry market risks. A note of caution had been specifically given at

the threshold. It had been clarified in Clause 9 of the application form that the investors should consult their advisors or agents before investing. In

the application forms it had been specifically stipulated that the ""Units will be issued subject to the provisions of the Rajlakshmi Unit Scheme"".

It has been pointed out that each scheme u/s 22(2) of the Act has to be self-contained. The law does not permit the Trust to apply the money

received on one scheme for the purpose of another. The return on a unit scheme depends upon the capital generated by prudent management of

the funds of the particular scheme.

On these premises the Respondents pray for the dismissal of these petitions.

Learned Counsel for the parties have been heard. On behalf of the Petitioners it has been contended that the Respondents had no jurisdiction

to terminate the scheme before its maturity. Their action in not continuing with the scheme for its full term is arbitrary, unfair and illegal.

On the other hand, it was contended by Mr. Rawal that the decision was taken by the Trust after due deliberation and full consideration of the

matter. It is bona fide and in the interest of the investors. It conforms to the requirements of law.

The questions that arise for consideration are:

Is the action of the Trust in conformity with the provisions of the Unit Trust of India Act, 1963?

Is the action of the Respondents arbitrary, unjust and unfair?

Re.1- Is the action of the Trust in conformity with the provisions of the Unit Trust of India Act, 1963?

Before proceeding to consider the issue, a brief reference to the relevant provisions of the statute is necessary.

The Act was promulgated to ""provide for the establishment of a corporation with a view to encouraging saving and investment and participation in

the income, profits and gains accruing to the corporation from the acquisition, holding, management and disposal of securities"". Section 3 provides

for the establishment and incorporation of the Unit Trust of India. Chapter III relates to the management of the Trust. Section 9 inter-alia provides

that the management of the affairs of the Trust shall vest in the Board of Trustees and that the ""Board shall, in discharging its function under this

Act, act on business principles regard being had to the interest of the unit holders"". Chapter IV enumerates the powers and functions of the Trust.

Section 19 permits the Trust to carry on and transact its business. Section 19 A empowers the Trust to impose various conditions etc. Similarly

Section 19B makes a special provision for enforcement of claim by the Trust. Section 20 authorises the Trust to borrow. u/s 20A the Reserve

Bank and the Development Bank can make special contribution to the Trust. There is provision for the making of grants and donations to the Trust

in Section 20-B. u/s 20C the Trust can transfer its rights etc. Section 21 empowers the Trust to frame the Unit Schemes. It inter-alia provides as

under:

(1) For the purpose of providing facilities for participation in the income, profits and gains arising out of the acquisition, holding, management or

disposal of securities by the trust; the board may take one or more unit schemes including one or more units schemes for issuing units to persons

resident outside India in such foreign currencies, as the trust may deem fit.

(2A) Where any parent of a minor holds, deals with or makes any application for the purchase of a unit on behalf of the minor, the provisions of

the scheme, in pursuance of which the unit had been issued, shall be binding on the minor.

(2B) Where the payment of any sum becomes due on, or in respect of, any unit held on behalf of a minor, such payments shall, subject to the

provisions of the scheme, be made to the parent by whom the purchase of such unit was applied for or by whom such unit was acquired, as the

ease may be and such parent shall be entitled to receive such payment for and on behalf of the minor; and in the event of the death of the said

parent, such payment shall be made to the lawful guardian of the minor.

Explanation: references in this section to ''parent'' shall be construed as including reference to step-parent.

(3) The board may from time to time add to or otherwise amend any scheme madeunder Sub-section (1).

(4) Every scheme under Sub-section (1) and, every amendment thereof under Sub-section (3) shall be notified in the official gazette.

Section 22(3) in Chapter v. provides that ""the capital in respect of a unit scheme shall be held separately from capital in respect of any other unit

These are the relevant provisions of the Act. It is clear that the Trust has to run its affairs on business principles and in the interest of the

investor. It can make schemes from time to time. Such schemes can be varied or modified. The money collected or earned under one scheme

cannot be applied to another scheme. It is the light of these provisions that the questions as posed above have to be considered.

Admittedly, the Trust had announced its intention to promulgate the ''scheme'' in the year 1992. It had invited the investors to apply for the

allotment of units. The investors were informed that the scheme shall mature at the expiry of 16 to 20 years. They were also promised that on

maturity the money should be 21 times the initial investment. However, on account of the fluctuating financial position of the country, it was realised

that the target shall not be achieved. Thus on consideration of the matter, it was decided to terminate the scheme.

Was the Trust competent to take such a decision?

Admittedly, Section 9 requires the trust to work on business principles. For the benefit of the investor. To protect the investment made by

every person. To ensure the best returns. The Trust is truly the trustee of the peoples'' trust. It cannot betray them. While performing its functions,

the Trust cannot adopt a stubborn attitude. It cannot persist with the scheme even when the writing on the wall clearly stares it in the face. It is to

obviate such a situation that the Parliament has authorised the trust to amend, modify or vary a scheme. As noticed above, the provision contained

in Section 21(3) clearly authorises the Board of Trustees to amend or add to the scheme from time to time. The legislative intent is clear. The Trust

must safeguard the money of the investor. If necessary, it can change the scheme.

Learned Counsel for the Petitioners contended that the Trust had no power to terminate the scheme. We are unable to accept this submission.

The power to promulgate a scheme shall include the power to terminate it. The principle embodied in Section 21 of the General Clauses Act shall

be fully applicable. In any event, the power to amend the scheme as contained in Section 21(3) shall include the power to reduce the period. The

period is a part of the scheme. It is as much subject to modification as any other part. The provision of the statute is clear and categorical. The

Trust has the power to ''modify'' a scheme and say that its span of time shall be 8 years and not 20. In doing so, the Trust exercises the power

given to it by the Parliament. This is precisely what has been done in the present case.

Learned Counsel submitted that the Petitioners had made irrevocable gifts to their wards. The termination of the scheme has resulted in the

revocation of the gifts. It has the effect of taking away the benefits retrospectively. The Trust could not have done so. We are unable to accept mis

submission. There is no retrospective termination of the scheme. The benefits, which had accrued to the investors, were duly offered to them. The

offer was in conformity with the provisions of Sections 21(2A&2B). The Petitioners cannot contend that the order of termination has operated

retrospectively. All the accrued benefits having been offered, the complaint of retrospective operation of the order of termination cannot be upheld.

It was also contended that the Petitioners having acted on the representation made by the Respondent Trust, they were entitled to claim the

enforcement of the contract. The Respondent cannot be permitted to wriggle out of it. Reliance was placed on the decisions of their Lordships of

the Supreme Court in Alopi Parshad and Sons Ltd. Vs. Union of India (UOI), and UOI v. Anglo Afghan Agencies AIR 1968 SC 718.

The contention cannot be accepted. Firstly, the scheme clearly embodied a provision for its termination. A reference in this behalf can be easily

made to CI. 27. Secondly, the statute specifically authorises the Trust to modify the scheme. Thirdly, the Respondent has actually acted in the

interest of the Petitioners. It has saved them from possible losses. The Trust has exercised its judgment. The fluctuating financial position had

compelled the Trust to act. It has taken a possible view. In such a situation, it cannot be said that the principle of estoppel as enunciated by the

apex court has been violated.

In view of the above, we are clearly of the view that the impugned action is not illegal or contrary to the provisions of the statute. The first

question is accordingly answered against the Petitioners.

Re. 2: Is the action of the Respondents arbitrary, unjust and unfair?

It was contended on behalf of the Petitioners that the Respondents have acted arbitrarily, unfairly and against the principles of natural justice.

Mr. Rawal, the Additional Solicitor General and Mr. Mattewal, the Advocate General, vehemently controverted the charge.

As noticed above, the Respondent Trust was bound to act according to the established business principles. In the facts and circumstances of

the case, we are satisfied that it had really done so. It could have done nothing better. Its decision was in the best interests of the investors. The

action cannot be faulted on any ground whatsoever.

Thus, even the second question is answered against the Petitioners.

Before parting with the case, it may be mentioned that the counsel had made a prayer that the Respondent Trust should be directed to pay

interest till the day it delivers the cheque. We are unable to accept this submission. The Trust had warned the investors that Cheques dated Sept.

30, 2000 shall be sent on receipt of the duly discharged unit certificates. Still, if the Petitioners have any claim, they can seek their remedy before

an appropriate forum. In the present proceedings it is not possible to adjudicate upon this matter as it can have far reaching consequences for the

Trust. We shall say no more at this stage.

No other point was raised.

In view of the above, we find no merit in the Petitioners. Consequently, there are dismissed. There shall be no order as to costs.

Sd/- R.C. Kathuria, J.