LEGAL AND INSTITUTIONAL FRAMEWORK
The law concerning Societies, Trusts, Waqfs and other endowments in India can be placed in three broad groupings:
(i) Societies registered under the Societies Registration Act, 1860 and various States amendments on it after 1947;
(ii) Those engaged in pure religious and charitable work registered under the Religious Endowments Act, 1863; the Charitable and Religious Trusts Act, 1920; the Waqf Act, 1995 and similar other State Acts;
(iii) Trusts and charitable institutions registered under the Indian Trusts Act, 1882; Charitable Endowments Act,
1890; the Bombay Public Trusts Act, 1950; and similar other State Acts.
Charitable organisations are also required to follow the provisions of law as applicable to their functional areas. For example, those working in the health sector need to follow the laws applicable to that sector. Similarly, organisations working on environment protection will have to abide by the Water (Prevention and Control of Pollution) Act, 1974, the Air (Prevention and Control of Pollution) Act, 1981 and the Forest (Conservation) Act, 1980 etc.
Modelled on the English Literary and Scientific Institutions Act, 1854, the Societies Registration Act was enacted in India in 1860. Towards the middle of the 19th century coinciding with the 1857 event, a number of organisations and groups were established in the country on contemporary issues of politics, literature, arts and science. The above law was enacted partly to give such organisations a legal standing and partly, to enable the colonial government to maintain a watch on them. But, the Act was not intrusive at all and it gave full freedom to the Societies/organisations which chose to register with the government.
Purpose for formation of Societies under the Societies Registration Act, 1860 :
It provides for formation of a Society for any literary, scientific, or charitable purpose, or for any such purpose as is described under Section 20 of the Act. In terms of Section 20, the following Societies may be registered under this Act:
“Charitable societies, the military orphan funds or societies established at the several presidencies of India, societies established for the promotion of science, literature, or the fine arts for instruction, the diffusion of useful knowledge, *[the diffusion of political education], the foundation or maintenance of libraries or reading-rooms for general use among the members or open to the public, or public museums and galleries of paintings and other works of art, collections of natural history, mechanical and philosophical inventions, instruments, or designs.”
Many States created separate authorities for registering and supervising such Societies. According to the Act, any seven persons who subscribe to a Memorandum of Association (MOA) can register a Society. The Memorandum should include the names of the Society, its objectives, the names, addresses and occupations of members subscribing to it as well as the first Governing Body to be constituted on registration. The MOA should be accompanied by a set of Rules and Regulations – this should include details such as the procedure for enrolment and removal of members, procedure for formation of the Governing Body, conduct of meetings, election and removal of office bearers, procedure for conducting annual General Body meetings, etc. The membership of the Society may be kept open (or by invitation) to anybody who subscribes to its aims and objectives, for which a fee may be charged. Although the Society can sue and can be sued, the liability of the members is limited, as no decree can be enforced against the members’ private assets. The Society has a perpetual existence and a common seal, and can sue or be sued in the name of the office bearer as prescribed under its rules. This enables its effective participation in public life.
A strong tenor of democracy runs through the entire Act. Alteration, extension, or abridgement of purpose of the association or any decision on amalgamation can be effected only when any such proposition is approved by three-fifth of the members present in the special meeting convened for this purpose with due notice. For dissolution of the Society also, similar approval is required. All the documents filed by the Society with the Registrar are open to inspection by any person. This enables transparency and democratic control. Members guilty of offences against the property of the Society are punishable with imprisonment or fine.
While the original Act was remarkably clear in not introducing any form of State interference into affairs of such institutions, except routine matters of filing annual statements, many of the State legislations (through post-Independence amendments) went for widespread governmental controls to deal with abuses, malfeasance and nonfeasance of Societies. The legal measures include: State’s power of enquiry and investigation; cancellation of registration and consequent dissolution of Societies; supersession of the Governing Body; appointment of administrator; dissolution; and deletion of defunct organisations. State legislations on this subject vary widely. Under Section 25 of the Karnataka Act and Section 32 of the Madhya Pradesh Act, the Registrar on his own motion, and on the application of the majority of the members of the Governing Body or of not less than one-third of the members of the Society, can hold or authorize an enquiry into the constitution, working and financial condition of the Society.
Trusts, Endowments and Waqfs are legally created as modes of property arrangement/settlement dedicated for definite charitable and religious purposes. The details with regard to their incorporation, organisational structure and distribution of functions and powers are governed by the provisions of the specific law under which they are registered.
Broadly, such organisations can assume a legal personality in the following five ways:
1. By way of formal registration before the Charity Commissioner / Inspector General of Registration under the respective State Public Trusts Act e.g. the Bombay Public Trusts Act,1950, the Gujarat Public Trusts Act, the Rajasthan Public Trusts Act etc;
2. By invoking interference of civil courts to lay down schemes for governing a Trust under Sections 92 and 93 of the Civil Procedure Code;
3. By registering the Trust deed of a Public Charitable Trust under the Registration Act, 1908;
4. By notifying an organisation in the list of Charitable Trusts and Religious Endowments which are supervised by the Endowments Commissioner of the State or by a Managing Committee formed under the Charitable Endowments Act, 1890 or under other State laws on Hindu Religious and Charitable Endowments; and
5. By creating a Waqf which could be managed under the provisions of the Waqf Act, 1995.
Some other States which have carried out major amendments in the original Act are Andhra Pradesh, Rajasthan, Tamil Nadu, West Bengal and Uttar Pradesh. The amendments mainly concern the following four issues:
1. Purpose for which Societies can be formed
2. Regulatory powers with regard to change in memorandum of association, bye-laws, alienation of property and investment, amalgamation and dissolution of the Body
3. Powers with regard to submission of annual returns
4. Powers of the State Government with regard to supersession, dissolution or cancellation of registration
In contrast to the original 1860 Act, the State amendments have considerably expanded the list of purposes for which Societies could be formed and the scope of State intervention in the affairs of the Societies. For example, the Karnataka Act goes much beyond the original purpose of promotion of science, literature, or the fine arts for instruction, diffusion of useful knowledge and includes many other activities connected with conservation and use of natural resources and scarce infrastructural facilities like land, power, water, forest etc. Similarly, with regard to change in the memorandum of association, bye-laws, alienation of property, investment, amalgamation and dissolution; submission of annual returns; and in matters of supersession, dissolution or cancellation of registration, the State has appropriated vast powers. Madhya Pradesh, Andhra Pradesh and Kerala are the other three States which have converted this enactment into a strongly State centric Act.
Trust is a special form of organisation which emerges out of a will. The will maker exclusively transfers the ownership of a property to be used for a particular purpose. If the purpose is to benefit particular individuals, it becomes a Private Trust and if it concerns some purpose of the common public or the community at large, it is called a Public Trust.
The first law on Trusts came into force in India in 1882 known as the Indian Trusts Act, 1882; it was basically for management of Private Trusts.
The amended Civil Procedure Code, 1908 also took cognizance of the emerging charity scenario through Sections 92 and 93. In terms of Section 92 of the Civil Procedure Code, 1908, interference of Civil Courts could also be invoked for laying down schemes for governing a Trust, if a breach of original trust conditions is alleged. This can be done by way of a suit filed by either the Advocate-General or two or more persons having an interest in the Trust. While deciding such suits, the Court is empowered to alter the original purposes of the Trust and allow the property or income of such Trusts to be vested in the other person or Trustee for its effective utilisation in the manner laid down by the Court. Section 93 empowers the Collector to exercise these powers in a district with prior approval of the State Government.
Under Schedule 7 of the Indian Constitution, the subject ‘Trust and Trustees’ finds mention at Entry No.10 in the Concurrent List. ‘Charities & Charitable Institutions, Charitable and religious endowments and religious institutions’ find place at Entry No.28 of this list. The first legislation on this subject was enacted by the then State of Bombay in 1950. Known as the Bombay Public Trusts Act, 1950, it was meant to deal with an express or constructive Trust for either public, religious or charitable purposes or both and included a temple, a math, a Waqf, or any other religious or charitable endowment and a Society formed either for a religious or a charitable purpose or for both and registered under the Societies Registration Act, 1860 – Section 2(13).
When the erstwhile Bombay province was bifurcated into Maharashtra and Gujarat, in 1960, both the States adopted this very law to govern Trusts and other charitable institutions falling in their jurisdiction. Madhya Pradesh and Rajasthan are the other two States in the country which have enacted their own Public Trusts laws. Other States do not have such specific Public Trusts legislations. Andhra Pradesh, Tamil Nadu and Kerala have separate Religious Endowments Acts to govern temple properties. Many States have specific legislations to manage particular endowments charities. In all other cases, Section 92 of the Civil Procedure Code dealing with public charities prevails.
Religious Endowments and Waqfs are variants of Trusts which are formed for specific religious purposes e.g. for providing support functions relating to the deity, charity and religion amongst Hindus and Muslims respectively. Unlike Public Trusts, they may not necessarily originate from formal registration, nor do they specifically emphasise on a triangular relationship among the donor, Trustee and the beneficiary. Religious endowments arise from dedication of property for religious purposes. The corresponding action among the Muslim community leads to the creation of Waqfs. Waqfs tie up the property and devote the usufruct to people.
The first legislation in this direction came up in the later half of the nineteenth century. The Religious Endowments Act, 1863 was basically a law on private endowments which placed a property under the management of Trustee/Trustees under a will for a predefined set of beneficiaries. It was a type of contract between the will maker and the Trustee. During the later part of the British Rule, many Zamindars and merchants created such endowments. In many cases, with the passage of time, such arrangements became hazy and generated a series of civil disputes. The government intervened by introducing a new law called Charitable Endowments Act, 1890. This enactment brought in some element of regulation by establishing a post of treasurer in each State to oversee the functioning of charitable endowments. It was the first step in the direction of State regulation over charities. Towards the beginning of the 20th century, many of the temples and mathas across the country had acquired considerable landed property and funds; often comparable to the holdings of a zamindari. It led to incidents of social tension and civil disputes in the adjoining areas. To deal with this situation, the government enacted a new law in the form of the “Charitable and Religious Trusts Act, 1920” which recognised the existence of such religious bodies as entities different from Endowment Trusts formed for social and charitable purposes. Trustees of such bodies were made accountable for disclosure of the income and the values of the Trust. Civil courts were given proactive powers with regard to management of the property. But any direct intervention of the government through its own functionaries viz. Deputy Commissioners/Collectors and other officials was not yet on the cards.
The scenario changed after 1947. With a view to preventing abuse of funds and to ensure uniform organisational framework for the management of such religious and charitable institutions, many State Governments enacted their own Endowments Acts and virtually took over their management installing government officials as Trustees and managers. The examples are the Madras Hindu Religious and Charitable Endowments Act, 1951; the Travancore-Cochin Hindu Religious Institutions Act 1950; the Bodh Gaya Temple Act, 1949, the Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act, 1966; and the Karnataka Hindu Religious Institutions and Charitable Endowments Act, 1997.
The Indian Constitution recognizes freedom to manage religious affairs as one of the fundamental rights of its citizen. According to Article 26 – “Subject to public order, morality and health, every religious denomination or any section thereof shall have the right:
(a) to establish and maintain institutions for religious and charitable purposes;
(b) to manage its own affairs in matters of religion;
(c) to own and acquire movable and immovable property; and
(d) to administer such property in accordance with law.
Though, the above provision gives freedom to create Trusts / charitable institutions for religious purposes, it puts some rider on administration of such property “in accordance with law” – Article 26(d).
Waqfs in India
Under Muslim rule in India, the concept of Waqf was more widely comprehended as aligned with the spirit of charity endorsed by the Quran. Waqf implies the endowment of property, moveable or immovable, tangible or intangible to God by a Muslim, under the premise that the transfer will benefit the needy. As a legal transaction, the Waqif (settler) appoints himself or another trustworthy person as Mutawalli (manager) in an endowment deed (Waqfnamah) to administer the Waqf (charitable Trust).
As it implies a surrender of properties to God, a Waqf deed is irrevocable and perpetual.
In consonance with the spirit of Islam, Indian Muslim rulers generously dedicated property such as land and its revenue rights to Waqf created with the purpose of maintaining mosques, tombs, orphanages (yatimkhanas), madrasas etc. Land could also be Waqfed for the creation of a graveyard. In many cases, donations to a Waqf were made with the intent of promoting the tenets of Islam. Under Muslim rule, the presence of Islamic courts overseen by Qazis ensured that the Mutawallis discharged their duties fairly. Mismanagement of Waqf property was considered breach of the trust reposed in them for which they were duly punished.
In the 14th century, Sultan Allauddin Khilji came down heavily on a number of Mutawallis. During the Mughal rule, Akbar appointed an Inquiry Officer to go into the allegations of misappropriation of Waqf funds by Shaikh Hassan and removed him from Mutawalliship. Ain-e-Akbari records an instance when Akbar dismissed many Qazis who had taken bribes from the holders of Waqf lands
After the collapse of the Mughal Empire, for a long period, the Waqf administration remained loosely controlled. During the first phase of the British Rule in India, the colonial administration too, apart from maintaining oversight over endowments, did not give much attention to this issue as they had a very scanty knowledge of the Islamic legal system. After 1857, when the British started expanding the Comman law regime in the country, they began exercising control over Waqfs. Their interference was mostly on charges of corruption in management of Waqf properties. Immediately after the revolt of 1857, the British Government confiscated Waqf properties such as the Jama Masjid and the Fatehpuri Mosque in Delhi. They were restored to the Trustees (Mutawallis) only after the enactment of the Charitable and Religious Endowments Act by the government in 1863. Another practice the British came down heavily on was the attempt to create family Waqfs by wealthy Muslim families desirous of keeping their property within the family yet safe from future sell-off by irresponsible progeny. In 1894, the Privy Council spoke of such efforts as concealed means for the aggrandizement of family, and noted that their provision for charity is so illusory that as long as the lineage of the donor family continues, the poor do not have any chance of receiving even a rupee from the Waqf.
The first specific law on the subject came only in 1913 when the British Government enacted the Mussalman Waqf Validating Act, 1913. Thereafter, a succession of laws came up to streamline Waqf management in India. The following is the list of important legislations enacted on the subject between 1913 and 1995:
(i) Mussalman Waqf Validating Act, 1913, (ii) Mussalman Waqf Act 1923, (iii) Bengal Waqf Act 1934, (iv) The Hyderabad Endowment Regulation, 1939, (v) U.P. Muslim Waqf Act, 1936, (vi) Delhi Muslim Waqf Act, 1943, (vii) Bihar Waqf Act, 1947, (viii) Bombay Public Trusts Act, 1950, (ix) Dargah Khwaja Saheb Act, 1955, (x) Central Waqf Act, 1954, (xi) Waqf Amendment Act, 1959, (xii) U.P. Muslim Act, 1960, (xiii) Dargah Kwaja Saheb Waqf Amendment Act, 1964, (xiv) Waqf Amendment Act, 1969, (xv) Waqf Amendment Act, 1984 and (xvi) The Waqf Act, 1995.
Currently, 300000 Waqfs in India are being administered under various provisions of the Waqf Act, 1995. This Act is applicable throughout the country except for Jammu and Kashmir and Dargah Khwaja Saheb, Ajmer. The management structure under the Act consists of a Waqf Board as an apex body in each State. Every Waqf Board is a quasi-judicial body empowered to rule over Waqf-related disputes. At the national level, there is Central Waqf Council which acts in an advisory capacity.
Non-Profit Companies (Section 25 of the Companies Act, 1956)
Section 25 of the Companies Act, 1956 provides for a mechanism through which an Association can be registered as a Company with a limited liability, if such association is formed for promoting commerce, art, science, religion or any other useful object and intends to apply its profits/income in promoting its objects. The objective of this provision is to provide corporate personality to such Associations but at the same time exempting them from some of the cumbersome legal requirements.
This Section reads as – “25(1) Where it is proved to the satisfaction of the Central Government that an association: Is about to be formed as a limited company for promoting commerce, art, science, religion, charity or any other useful object, Intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members, The Central Government may, by license, direct that the association may be registered as a company with limited liability, without addition to its name of the word “Limited” or the words ‘Private Limited’.”
|Public test||Society||Section 25 Company|
|Statue/Legislation||public Trust Act like the Bombay public Trust Act of 1950||Societies Registeration Act 0f 1860||Company Act of 1956|
|Jursidication of The Act||Concernered State where Registered||Concernered State where Registered||Concernered State where Registered|
|Authority||Charity Commisioner||Register of Societies||Register of Companies|
|Registeration||As Trust||As society(and by Default also as Trust in Maharshtra and Gujrat)||Memorandsum and Article and Association|
|Stamp Duty||Trust deed to be executed on non-judicial stamp paper of prescribed value||Non stamp paper required for Memorandsum of Associations and Rules and Regulations||Non stamp paper required for Memorandsum and Article of Association|
|No of persons needed to register||Minimum two Trustees:no upper limit||Minimum seven:no upper limit||Minimum seven:no upper limit|
|Board of Management||Trustees||Governing Body or Council/Managing or Executive Commitee||Board of Directors/Managing Commitee|
|Mode of Succession on Board of Management||Usually by appointment||Usually election by members of the General Body||Usually election by members of the General Body|
An Association registered under the above provision shall enjoy all the privileges and would be subject to all the obligations of limited companies. However, these entities will be exempted from such of the provisions of the Companies Act as notified by the Union Government under the provisions of Section 25(6) of the Act. The existing limited companies can also be transformed to a non-profit company under Section 25(3). The companies registered under this provision are subject to such conditions and regulations as the Government thinks fit and on being directed, they would be required to insert such conditions in their memoranda. Their memoranda can not be altered without the prior approval of the Union Government. The Union Government also has the powers to revoke the registration granted under this section after giving an opportunity of being heard [Section 25(7)].
The non-profit companies registered under this provision have been exempted from several provisions of the Companies Act by way of notification issued under Section 25(6) of the Act which inter alia covers the following:-
The main difference between a Trust, a Society and a Section 25 Company can be summarised in the following manner and as indicated in Table
A Society is basically an association formed by seven or more persons with some common objectives for promotion of literature, fine arts, science etc. There may or may not be some common asset to start with but, in course of time, the Society can acquire assets. In the case of a Trust, the very basis of its formation is the existence of an asset/ property which has been donated by the will maker for a particular purpose, social or religious. Charitable and religious institutions are special kinds of Trusts which have clear ecclesiastical intent. Waqf is another variant of Trust where the donor is a Muslim. The subjects on which an institution can be registered under the Societies Registration Act, 1860 are practically the same as those on which a Trust could also be formed. The Society, prima facie, is a democratic entity, as all its members (at least seven in number) have an equal say in its running whereas in a Trust, control over the property remains fully in the hands of the Trustees and depending on the clarity of the will, such a management continues to be in existence for a long time. Government intervenes only when Trustees change or the Trust becomes too old to be managed as per stipulations (cypres) of the original will, or on grounds of malfeasance or abuse of trust.
In terms of Section 2 of the Trade Unions Act, 1926, a “Trade Union means a combination, whether temporary or permanent, formed primarily for the purpose of regulating relations between workmen and employers or between workmen and workmen or between employers and employers, or for imposing restrictive conditions on the conduct of any trade or business, and includes any federation of two or more Trade Unions.”
The objective of the Trade Unions Act is to provide a legal existence and protection to the Trade Unions as defined above. A Trade Union can be registered under this Act along with the rules formed by them with regard to its objects, use of funds, maintenance of a list of members, manner of appointment of its members and executives, manner of dissolution etc. The concerned Registrar can not refuse registration if all the technical requirements have been fulfilled at the time of filing application and the Union is not held to be unlawful.
In the original Act, any seven or more members of a Trade Union were eligible to apply for registration under this Act. This however led to multiplicity of Trade Unions in the same establishment over a period of time. In order to address this problem an amendment was made in 2001 and it was provided that no Trade Union of workmen shall be registered unless at least ten per cent, or one hundred of the workmen, whichever is less, engaged or employed in the establishment or industry with which it is connected are the members of such Trade Union on the date of making of application for registration.
A new Section 9A regarding minimum requirement about membership of a Trade Union was also inserted according to which a registered Trade Union shall at all times continue to have not less than ten per cent, or one hundred of the workmen, whichever is less, subject to a minimum of seven, engaged or employed in an establishment or industry with which it is connected as its members.
The office bearers and members of the Trade Unions have been given immunity from criminal and civil liabilities for their activities undertaken in order to further the objectives of a Trade Union. However, in case of willful contravention of the provisions of the Act, or fraud or mistake in obtaining registration penal provisions could be invoked and the registration certificate can be withdrawn and cancelled by the Registrar. The Registrar is appointed by the appropriate government (both Union and State) in respect of each State. He is assisted by Additional and Deputy Registrars.
A major provision of the Act pertains to the proportion of office bearers to be concerned with a particular industry where the Trade Union has been formed. In terms of Section 22 of the Trade Unions Act inserted in 2001, not less than half of the total number of office bearers of every registered Trade Union in an unorganized sector shall be persons actually engaged or employed in an industry with which the Trade Union is connected. In other cases, all office bearers of a registered Trade Union, except not more than one third of the total number of the office bearers or five, whichever is less, shall be persons actually engaged in the establishment with which the Trade Union is connected. Importantly, it is also provided that no member of the Council of Ministers or a person holding an office of profit (not being an engagement or employment in an establishment or industry with which the Trade Union is connected), in the Union or a State, shall be a member of the executive or other office bearer of a registered Trade Union.
The multiplicity of charity laws in India has prevented evolution and growth of a proper institutional framework in this sector. While, voluntary organisations often feel harassed in complying with various legal obligations, institutions of the government too have not been effective in regulating the sector and securing legal compliance. Instances of misuse of tax provisions, fraud and poor governance have become frequent. There is need to create an effective institutional mechanism which would provide a supportive environment for the growth and development of charities in this country. India being a federal Union, a decentralized institutional setup for charities similar to that existing in the USA, seems to be appropriate. The power of registration and oversight needs to lie with the State Governments.
A Model law for Societies and Trusts
Non-Profit / Voluntary Organisations in our country operate on a wide variety of issues covering almost all aspects of socio-economic development and polity.
There are separate laws under which Societies, Trusts, charitable institutions, religious endowments and Waqf etc. can be set up. For illustration, the Societies Registration Act, 1860 is the law under which Societies of different hues are registered in India. ‘Societies’ being a State subject, the 1860 law has been adopted with some amendments by several States. The States such as Rajasthan, Karnataka, West Bengal, Madhya Pradesh, Tamil Nadu, Manipur, Meghalaya, Jammu and Kashmir and Andhra Pradesh etc. have enacted their own law on this subject. Kerala, Andhra Pradesh and Tamil Nadu and many other States have exclusive laws for governing religious endowments. Maharashtra, Gujarat, Rajasthan and Madhya Pradesh have specific Public Trusts laws to govern all kinds of Trusts and endowments (religious / non-religious) under their jurisdiction. Then, there are endowment specific laws such as the Bodh Gaya Temple Temple Act, 1949. In spite of all the above legislations, if any ambiguity crops up, the Courts take recourse to Section 92 of the CPC.
Beginning with small tuckshops in the early settlements of the USA, voluntary organisations have been in existence in some form or the other in the entire western world over the last two hundred years. During this period, an active relationship developed between the government and the voluntary sector. The United Kingdom, the USA, Canada, France and other countries of Europe have a fairly well developed system for regulation and promotion of this sector.
Diversity of laws across the States has given rise to emergence of nonuniform practices in the management of voluntary organisations. If an institution registered in one State desires to expand its activities to any other area, it needs to comply with a different set of legal requirements. The Commission is of the view that the management of civil society organisations will be far less complicated if a uniform legal regime for regulation of charity institutions is put in place for the entire country.
Currently, ‘Societies’ is a subject under the State list (Entry 32) of Schedule 7 of the Constitution, whereas ‘Trust’ is in the Concurrent list (Entry 10). “Charities and charitable institutions” are also covered under the concurrent list (Entry 28). In order to create a uniform legal environment across States, the Commission suggests that the Union Government should formulate a comprehensive model law covering both Societies as well as Trusts. This model law could be sent to the States who could adopt it with suitable modifications. While, it will not be possible here to suggest a detailed draft, the broad framework and the views of the Commission on some illustrative issues are indicated in the following paragraphs.
Key Elements of the New Law
The following three key elements would need to be explained in the proposed law:
(i) Defining Charity and Charitable Purpose
(ii) Institutional Mechanism
(iii) Interface with the State Government
A brief description of the above is as follows-
(i) Defining Charity and Charitable Purpose
The new law will need to draft a composite definition based on the contents of the original Societies Registration Act, 1860, various amended State Acts, the Bombay Public Trusts Act, 1950, Section 92 of the Civil Procedure Code and Section 2(15) of the Income Tax Act, 1961. The definition of “Charity” and “Charitable Purpose” provided in the UK Law as covers almost all the objectives listed in the extant Union and State laws and the same can be kept in mind while formulating the new legislation. Experience across the world shows that defining ‘Charity’ and ‘Charitable Purpose’ is a complex issue. The Commission is of the view that there is need to set up an Inclusive Committee which will examine this issue comprehensively and suggest an appropriate definition which would inter-alia soften charities-government relationship, particularly in tax matters.
(ii) Institutional Mechanism
In place of the present charity administration consisting of a Charity Commissioner / Inspector General of Registrations as existing in the States, the proposed law would provide for a new governance structure in the form of a three-member Charities Commission in each State with necessary support staff. It will be an autonomous Body created by law. It will have laid down functions and responsibilities and will be accountable to the State assembly through a nodal Minister. The Chairman of the Commission should be a law officer drawn from the cadre of District Judges. Out of the other two members, one should be drawn from the voluntary sector and the other should be an officer of the State Government. The functions of this Commission would be to regulate and support the sector. The law would also provide for creation of a Charities Tribunal in each State which will have appellate jurisdiction over the orders of the Charities Commission.
The functions of the Charities Commission would include:
• Registration of Non-Profit Organisations (NPOs).
• Maintaining a public register of NPOs.
• Receiving reports from NPOs.
• Audit and monitoring.
• Disseminating information on good practices / methods of management among
• Holding public discussions / consultations.
• Bringing out simple publications to educate the public about NPOs.
• To review periodically the social and economic environment of the charities.
• Acting as a permanent forum for dialogue with the sector on issues of policy and regulation.
• Administering sanctions and penalties for non-compliance.
• Resolving grievances.
The Charities Commission should be free to recruit its own staff like any other non-profit corporation and train them, and pay remuneration according to non-profit sector practices. This will give stability to the organisation and also make it possible to hire staff who have a commitment to non-profit work.
(iii) Interface with the State Government
At present, a non-profit organisation’s interaction with the State authorities consists of the following – (a) Government’s power with regard to grant of permission for alteration of the memorandum, alienation of property or inclusion of the change report; (b) Government’s powers of inspection; (c) Powers to cancel registration; (d) Powers to appoint an administrator; (e) Powers to modify / anull a decision of the Governing Body; (f ) Powers to dissolve the institution; and (g) Powers to impose penalty. In view of such vast powers available to the State machinery, there is a feeling among the NPOs that the sector has virtually become a subordinate formation of the State Government. The Commission is of the view that the NPO sector should have freedom in their functioning (as per the intent of their memorandum). Government’s interface with these organisations should be minimal and the government should work only as a facilitator and developer. The discretionary powers acquired by various State Governments during the course of time need to be dispensed with. In addition to the above, the proposed law will need to take care of the following important functional issues which are critical to a voluntary organisation’s working:
(a) Alteration in the memorandum – As per the provisions of the Societies Registration Act (as applicable to Gujarat and various other States), the memorandum of association of a Society can be altered only through a special resolution supported by a majority of not less than 3/5th of the total membership of the Society. It was brought to the notice of the Commission that this provision is highly impractical. If a Society has a large and diverse membership spread over a large geographical area, seeking attendance of 3/5th of the total membership is very difficult. The Commission is of the view that the proposed legislation should take care of this issue. A more practical approach would be to insist that such a special resolution is passed by a majority of not less than 3/5th of the total members of the Society present at the meeting. It would be in line with the provisions of the Companies Act, 1956, where a special resolution can be passed by 3/4th of the shareholders present at the meeting.
(b) Approval on change report – Section 22 of the Bombay Public Trusts Act (BPT Act), 1950 deals with ‘change’ in the entries of the Public Trusts Register (PTR) pertaining to name, composition, organisational structure, immovable property etc. Whenever an institution applies for a change in the PTR, it has to face a cumbersome and time taking process. It may often take months before the applicant gets the approval letter from the office of the Charity Commissioner. The Commission is of the view that the process needs to be simplified and made time bound. The proposed new legislation should have a provision under which the approval on change report would need to be given within a prescribed reasonable time limit (say 60 days).
(c) Alienation of immovable property – Section 36 of the BPT Act, 1950 deals with ‘alienation of immovable property of a Public Trust’. When a Public Trust submits a proposal for transfer of its property for approval of the Charity Commissioner, its disposal takes time. There is a view that the Trustees should have full powers to manage the properties in the best interests of the organisation. But the contrary argument emphasises that the delay in such cases is not only because of the intractable attitude of the authority, but it is also on account of the Trustees’ attempt to undervalue the property for private gains. The Commission is of the view that in the new enactment there needs to be a balance between the two approaches. The Authority must have reasonable opportunity to critically examine such proposals in order to check misuse. At the same time, there is need to make the disposal of such matters time bound.
(d) Contribution by Public Trusts to the State Government – Section 58 of the currently applicable Bombay Public Trusts Act deals with ‘contribution by Public Trusts to Public Trusts Administration Fund.’ Currently, Trusts have to pay 2% to 5% of their gross revenue to the State Government under this clause. For many of the organisations, this amount appears to be excessive. The Commission is of the view that there is need to have a relook at this issue.
Issue of giving priority attention to larger Organisations – India has a large number of voluntary sector organisations, a majority of whom are very small in terms of their scale of operations. Currently, the overseeing authorities spend a disproportionately large amount of time and staff on routine matters relating to smaller charities and the attention given to larger organisations is inadequate and ineffective. Thus, many important and urgent matters of such institutions remain unattended or take inordinately long to get settled. Such delays often stifle fundflow to ongoing projects. The Commission is of the view that there is need to introduce provisions which would take away the burden of routine work relating to smaller charities from the authorities. This could be in the form of prescribing a threshold annual income for the voluntary sector. Charities having incomes below this level will have fewer compliance requirements with regard to submission of returns, reports, permissions etc. However, in case any irregularity is detected, they will be liable for punitive action as prescribed under the law. To start with, the cut off limit could be set at Rs. 10 lakhs which could be reviewed for upward revision once in five years. Such a provision, on the one hand, would create a conducive atmosphere for smaller charities and on the other, would enable the authorities to find time to attend to the needs of institutions engaged in major works.
Third Sector Organisations in India raise funds primarily from four major sources viz. individuals, private foundations (national as well global), business houses and government. In recent years, the diaspora is also playing a leading role in contributing to social causes.
The character of funding to voluntary organisations is highly skewed. Organisations which take up contemporary issues and are able to project their requirements articulately through the media are able to secure the bulk of funding, leaving the residue for smaller and not-so-savvy organisations.
Funding also depends on the nature of activity – some sectors like conservation of environment, nutrition supplement and creation of urban facilities are more popular and “glamorous” and therefore attract more funds, while others like human rights, gender equality and cultural preservation often have to suffer for want of resources. A survey conducted by the Consumer Education and Research Centre in Ahmedabad in the early 90s found that out of over 8,000 Trusts and 2,000 Charitable Societies registered in the city, only 144 had annual incomes of over Rs. 100,000 (US$2,173) whereas the combined total was Rs.1,440 million.
In India, individual donations to charity organisations has been meagre. While the quantum of donation to the voluntary sector from government and foreign donor sources has increased considerably during the past decade, private philanthropy by individuals, Trusts, foundations, and corporates has not expanded commensurately. This kind of fund raising consists of direct donations by the public (either a one time act or a recurring transaction). Donations may also come through by patronizing sales of items like greeting cards, diaries, handlooms and handicraft products and by organizing events like art auctions, music programes etc.
Individual donation is more prevalent during major crisis situations. During the earthquakes in Gujarat and Maharashtra, and the cyclone in Orissa, there were generous donations from individuals as well as corporate organisations.
Many agencies such as the Department for International Development (DFID) (British Government), Swedish International Development Cooperation Agency (SIDA) (Swedish), Norwegian Agency for Development Cooperation (NORAD) (Norway), and Danish International Development Agency (DANIDA) (Denmark) are permitted to support NGOs directly without seeking specific project approval from the Government of India. However, some of the agencies need specific project approval of the Government before they can finance an NGO. In addition, bilateral fund support to the Government of India or to a State Government or to other government agencies, often, specifies the percentage of funds that must be spent through non-governmental organisations. The recent increase in bilateral funding to the government has increased the flow of funds to NGOs.
The system of corporate donation for philanthropic activities has a history in India. In earlier times, merchants supported relief activities during the times of flood or famine. They built temples, promoted schools, and encouraged artistic pursuits. In the pre-Independence era, many big business houses set up Trusts and Foundations to support schools, colleges and charitable hospitals. Later, some of the multinationals also joined in.
Corporate Social Responsibility (CSR)
‘Corporate Social Responsibility’ may be defined as a corporate entity’s commitment to welfare of society and community and its adherence to ethical values. The term may be relatively new in the Indian lexicon but the concept is certainly not. Traditions of “trusteeship”, “giving” and “welfare” have existed since long in our society. The concept of social good has always been part of the Indian psyche. From the beginning of the 20th century, business and industry in India have in different ways been paying attention to their obligation and commitment towards society and the community. The large number of schools, colleges, hospitals and other charitable establishments, which were set up in the 20th century in different parts of the country, are fine examples of such social commitment.
In recent years, CSR has shifted from the domain of charity to the domain of standard business practices. Together with ‘profit’ and ‘growth’, it is one of the essential parameters which define a business. Stakeholder awareness, increasing power of civil society, intensity of competition and environmental challenges are some of the factors which have increased the emphasis on CSR in recent times.
Both the Union and State Governments provide considerable budgetary support to voluntary organisations on a wide range of activities like rural technology, concerns of social welfare, primary education, maternal and child health care, adult education, empowerment of women and rehabilitation of the disabled. Apart from making direct disbursement of grants to voluntary agencies, Government of India has also set up especially empowered Autonomous Bodies to provide support to the activities of the Third Sector Organisations (TSOs). The Central Social Welfare Board (CSWB) and National Institute of Public Cooperation and Child Development (NIPCCD) are two such prominent Bodies dealing with Government – NGO interface in the social welfare sector, while the Council for Advancement of People’s Action and Rural Technology (CAPART) is an agency which finances voluntary organisations to stimulate grass roots participation and encouragement of rural technology. There are more than 437 such autonomous organisations functioning under various Ministries of the Government of India excluding those under Scientific Departments. The Commission will examine this issue in its report on TOR No.1 i.e. “Organisational Structure of the Government of India”.
Accreditation of Voluntary Organisations
Accreditation is a formal recognition of the achievements of an organisation, linked to some internal / external norms such as commitment to long term aims and objectives, organisational ability, adherence to financial norms, transparency and accountability etc.
A large number of voluntary organisations receive grants from government for a variety of purposes such as social and welfare services, surveys, studies, monitoring, evaluation etc. These organisations vary greatly in their capability and credibility. In the absence of any system of accreditation / certification, the government agency at both Union and State level have found it extremely difficult to distinguish between organisations who value for quality and those which have been set up almost solely for the purpose of receiving government grants. In this context, it is widely recognized that there is need to have a system of accreditation and certification for Voluntary Organisations, which would facilitate and bring transparency in the Government-NGO partnership, particularly in the work of funding agencies. The procedure adopted for accreditation / certification should not be so complex as to lead to harassment, delay and corruption.
It is generally agreed that accreditation could be best done by the voluntary sector itself. However, attempts to form a Self-Regulatory Body of voluntary organisations in the country have not succeeded so far. There is a feeling that government needs to be involved in this process.