The Doctrine of Cy-pres and National Herald

The violation of "Doctrine of Cy-pres" in national herald case

May 14, 2017

Doctrine of Cy-pres and its scope and application in national herald case

As Original petitioner Dr Subramanian Swamy puts it, National Herald is a multi-dimensional case.

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]I[/dropcap]n the history of Independent India, this case will be a landmark for the finer points of law in which it touches and sails through. It’s a law practitioner’s delight due to various interfaces of law being involved – Company Law, Income Tax, applying real estate, donation of funds in good olden days and now with donors vanishing into thin air due to passage of time – left over people absorbing intent of donors to their own intent and arrangement and legal implications for those transactions extending across India, allocation of government lands, Transfer of property act, etc.,

Let us examine, one such facet of law namely “Doctrine of Cy-pres” and its scope and application in national herald case.

To simply put “Cy Pres” doctrine allows to apply the gift to some other charitable purpose “as nearly as possible” to resemble the original trusts of the gift.

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]H[/dropcap]alsbury’s Laws of England, 3rd ed., Vol. 4, page 317, para. 645, expresses the doctrine as follows. “Where a clear charitable intention is expressed, it will not be permitted to fail because the mode, if specified, cannot be executed, but the law will substitute another mode cy-pres, that is, as near as possible to the mode specified by the donor”.

Facts of National Herald:

The Associated Journals Limited (The AJL) was the publisher of National Herald Newspaper, which was founded under the chairmanship of Shri Jawahar Lal Nehru
The AJL was formally closed and printing of National Herald, Navjivan and Qaumi Awaz was terminated and thus ceased in 2008. The AJL was at that time under a huge unpaid debt of Rs 90 Crores
The AJL borrowed from congress party 90 crores and settled this debt to others and the revised position as it stands: AJL owing 90 crores to congress
On 23 November 2010, Young Indian was incorporated as Section 25 company and its board of directors passed a resolution to own the outstanding debt of The AJL to congress party
The AJL board meeting also came to conclusion that it couldn’t discharge the debt it owed to congress party and accordingly shareholding of the AJL got transferred to Young Indian
Young Indian decided that they will take over AJL due of Rs 90 cr loan to congress at a value of Rs 50 lakh
The AJL thanked Young Indian for such a gesture and gave them their 99.99% shares to Young Indian as “consideration”.

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]o sum up, Congress party paid the outstanding loan of The AJL and became its revised creditor and to discharge this “Congress” creditor; AJL transferred its shares to Young Indian for the amount it owed to Congress. This transaction arrangement by itself is a quagmire of corporate structures being put to use leading to effect that The AJL being bought under the ultimate control of Young Indian. Congress party discharging the debt was used landmine to toss up The AJL, its assets and shareholders.

The interplay of Doctrine of Cy-pres in National Herald case:

In the event of Charitable trust being unable to discharge the trust mandate, it can consider transferring the gifts it received to another trust which comes near to its objective. The legal character of entities should closely resemble the objective. In the case of National Herald, objectives of Young Indian and Associated Journals Limited are not the same. They are different. Also, Young Indian admitting that it will not engage in publishing any newspaper including the national herald makes the case clear that doctrine of cy-pres is violated.

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]he application of the doctrine to public charities is explained in Halsbury at page 317, as follows: “WHERE a clear charitable intention is expressed, it will not be permitted to fail because the mode, if specified, cannot be executed, but the law will substitute another mode cy-pres, that is, as near as possible to the mode specified by the donor”. Not only is the doctrine resorted to for the initial application of the fund given to charity, but also for applying any surplus of capital or income or subsequent increases thereof: see Halsbury pages 318 and 323. The rule of cy-pres is in harmony with the teachings of the Hindu Shastras and has been applied to charitable gifts by Hindus – Muthukrishna Naicken v. Ram chandra Naicken and others, A.I.R. 1919 Madras 659 (8).

Referencing the above application of the doctrine of Cy-pres to National Herald only lead to the further conclusion – This complete transaction is a sham – Neither the objective was closely linked, nor its funds were applied. Letting out national herald properties for rent also denotes borderline commercial activity. It gives us a hint about thought process which may have gone through in this transaction evidencing and establishing “mensrea”.

The doctrine of Cy-Pres is the only mode available under law to transfer gifts of trust to any other. In the case of national herald, not only this doctrine is flouted but also its being done by the persons by interplaying themselves as giver and taker using corporate structures. India is land of business and trade but trade and business cant’ happen within oneself/masking oneself as other. Where a Company does an act which is ultra vires, no legal relationship or effect ensues there from. Such an act is absolutely void and cannot be ratified even if all the shareholders agree. Ref : Dr. A. Lakshmanaswami … vs Life Insurance Corporation on 11 December, 1962

Charitable trusts across worldwide offer enough width and breath for real estate planning. This case of the National herald is one of the India’s contribution to global real estate planning in a novel way.

Note:
1. Text in Blue points to additional data on the topic.
2. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.