FAQ on The Bombay Public Trust Act 1950
Q. What is a trust?
A. Section 3 of the Indian Trusts Act defines a trust as “an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by him for the benefit of another”.
Q. Can NGOs be registered as public trusts?
A. Since there is no specific NGO legislation in force, several NGOs in Maharashtra and Gujarat are registered as trusts.
Q. What about the applicability of The Indian Trusts Act, 1882?
A. The Indian Trusts Act, 1882 is applicable to private trusts. The principles of this Act are applied in States that do not have a Public Trusts Act in force.
Q. What is the geographic jurisdiction of the Bombay Public Trusts Act, 1950?
A. It is applicable in the states of Maharashtra and Gujarat, albeit with certain variations in the provisions in the two States.
Q. Is it necessary to register a trust as a Society under the Act of 1860?
A. No. However, in Maharashtra and Gujarat State, all Societies registered under the Act of 1860 are also required to register as a trust under the BPTA 1950.
Q. What is the difference between a Public and a Private trust?
A. A public charitable trust has, for the purpose of its objects, the members of an uncertain and fluctuating body.
Q. How can public purpose be ascertained?
A. In ascertaining whether a purpose is public or private, one has to see if the class to be benefited, or from which the beneficiaries are to be selected, constitute a substantial body of the public. Hence, trusts which lack the public element, such as trusts for the benefit of workmen or employees of a company, however numerous, have been held not to be “public charitable”.
Q. If a trust has members of the same family on the board of trustees, does it lose its public character and become a private trust?
A. The management of a trust or, rather, who manages the trust (i.e., members of one particular family, etc.) does not determine the public nature of a trust. What is essential is whether the purpose of the trust and the application of its income and property are for the benefit of the public, not who controls it.
Q. Is trust the only option for advancing public charitable purpose?
A. The legal framework in India gives non-profits a choice to register either as a trust, society or section 25 company.
Q. What are the advantages of registering as a public trust?
A. With regard to simplicity and ease in registration procedures, trust offers the best choice. One needs just two trustees to start (societies require a minimum of seven), the paper work is less elaborate and in certain states where there is no charity commissioner; the trust deed can be easily registered with the sub-registrar’s office.
Trusts also offer autonomy in management/administration. One may remain a trustee for life and new trustees may be selectively appointed over a period of time. On the other hand, in a society or section 25 company, there is need for a general body of members, periodic elections and annual general meetings. The set-up is more democratic.
Q. With whom should public charitable trusts be registered?
A. With the deputy or assistant charity commissioner of the region in the State.
Q. What are the purposes for which a trust may be created?
A. According to section 9(1) of the BPTA, public charitable trusts may be registered with the office of the charity commissioner for any one or more of the following purposes:
- relief of poverty or distress;
- medical relief;
- provision for facilities for recreation or other leisure time occupation (including assistance for such provision), if the facilities are provided in the interest of social welfare and public benefit;
- advancement of any other object of general public utility, but does not include a purpose which relates exclusively to religious teaching or worship.
Q. Is it necessary for a trust to have property?
A. A public charitable trust is generally floated with some property (movable or immovable) which legally vests in the trustees. A trust may be settled with a token property of, say, Rs. 100/-.
Q. Who is a Settlor and can he/she be a trustee?
A. A Settlor is an individual or institution who creates or settles the trust and entrusts the trust and the trust property to a trustee or trustees.
Q. What is the minimum and maximum number of trustees required to constitute a Board of trustees?
A. The Act is silent in this regard and therefore by inference even a single trustee can be on the Board. However, this is not a good or desirable practice. At the time of registration, the charity commissioner usually insists on minimum of two trustees to start and run a trust. In law, there is no maximum limit to the number of trustees on the Board of a trust. The minimum and maximum number of trustees should be clearly stated in the trust deed.
Q. Can founders or settlors also be trustees and for how long?
A. The founders or settlors of a trust can also be the trustees and remain so for life, and they need not be re-elected or re-appointed unless otherwise provided in the trust deed.
Q. Is trusteeship for life?
A. Yes, unless a term of office is specified in the trust deed or a trustee decides to voluntarily resign, or the charity commissioner or a court frames a scheme in this regard.
Q. How can new or additional trustees be appointed?
A. The surviving trustees may appoint new trustees (up to the limit prescribed in the trust deed) by resolutions and filing change report with the charity commissioner.
Q. In whom is trust property vested?
A. All the properties (movable and immovable) of the trust legally vest in the trustees.
Q. How can trustees avoid conflict of interest in matters of property?
A. In principle, a trustee cannot buy the property of the trust himself and he cannot sell any of his properties to the trust either - the mischief in both the cases being the likelihood of a conflict between his interest and his duties as a trustee.
Q. What is the liability of a trustee?
A. In law, a trustee can be held personally liable. Also, all trustees are jointly and severally responsible.
Q. Can a foreigner be a trustee?
A. Foreigners or persons who are not citizens of India are not specifically debarred under the provisions of the Bombay Public Trusts Act or the Indian Trusts Act from taking up office of a trustee.
Q. Can a trustee delegate his powers?
A. A trustee cannot delegate any of his duties, functions and powers to a co-trustee or any other person though, as a general rule, executive acts may be delegated. However, where a trustee has to exercise discretion, he must exercise the discretion personally and cannot delegate it.
Q. Can a trustee be removed from office?
A. The charity commissioner (only in the state of Maharashtra) has powers under section 41D of the Bombay Public Trusts Act to suspend, remove or dismiss any trustee of a public trust if:
- there is persistent default in the submission of accounts, report or return;
- willful disobedience of any lawful order issued by the department;
- continuous neglect of duty or breach of trust;
- misappropriation or improper use of trust property;
- if the trustee is convicted of an offence involving moral turpitude.
Q. What is the procedure for registering a trust?
A. The application for registration of a public charitable trust should be submitted at the office of the charity commissioner having jurisdiction over the region/sub-region of the state in which the trust is to be registered.
The application should be made in the prescribed form (Schedule II) providing details regarding name of the trust, names and addresses of the trustees, mode of succession, etc.
The trust deed should be executed on non-judicial stamp paper, the value of which would depend on the valuation of the trust property.
In Maharashtra state, the trustee applying for registration is also required to submit an affidavit, and all co-trustees are required to sign a consent letter. A nominal registration fee is also charged.
Q. Are trusts required to convene Annual General Meetings and periodic elections?
A. Unlike societies, trusts generally do not have a general body of subscribing members and, as such, there is no legal necessity for annual general meetings or annual reports for members or periodic elections.
Q. How many meetings should the trust convene during a year and is there a procedure for it?
A. The statute books do not lay down the minimum number of times Board members must meet. The Board of trustees may meet as often as required or as prescribed in the trust deed. Ideally, the board may meet four to six times a year. However, this may vary. Procedures for calling and conducting meetings are usually laid down in the trust deed. Fifteen days prior notice is generally adequate. The chairman presides over all meetings of the Board and usually enjoys a casting vote.
Q. Can trusts borrow money?
A. Loans and advances raised by the trust should have the approval of the charity commissioner (u/s 36 A (3) of the Bombay Public Trusts Act) and no trustee should take loans for himself from the trust property.
Q. Are trusts allowed to generate profit?
A. Yes. Trusts are often referred to as “non-profit organizations”. The term “non-profit” or “not-for-profit” means “non-profit distributing”. “Non-profit” does not mean the trust should not generate a profit and run in perpetual loss. Profit, if any, should be ploughed back into the organization for “charitable purposes” and not distributed by way of dividends, etc., to trustees or members of the organizations.
Q. What are the sources of income for a trust?
A. A trust may have the following sources of income:
- donations from individuals, companies, trusts/foundations, government, foreign agencies, charity cash box, etc.;
- interest/dividends On short/long-term investments;
- sale of products: usually prepared by beneficiaries of the trust;
- rent: If the trust leases out its property like office space, hall, etc.;
- membership fees/subscriptions.
Q. Can a trust receive corpus donation?
A. Yes. Provided the donor gives such a direction to the trust in writing.
Q. Can a trust receive anonymous donations?
A. From the financial year 2006-07, anonymous donations to charitable trusts and institutions will be taxed. However, anonymous donations to religious trusts and institutions will not be taxed. Anonymous donations to trusts and institutions having both religious and charitable objects will not taxed as long as they are given for religious purpose.
Q. Can a trust give a corpus donation to another trust?
A. Yes. However, Under the Income Tax Act, as amended a few years ago, one trust can donate to another trust only from it's current income and not from it's accumulated funds.
Q. Can a trust sell, alienate, lease or gift immovable property?
A. Permission of the charity commissioner is necessary for sale or lease of trust property u/s 36 of the Act.
Q. Is there a provision in the Act to prevent waste or damage to trust property?
A. Section 41E of the BPTA also empowers the charity commissioner to grant temporary injunction or to pass any other order with the intent of staying and preventing waste, damage or improper alienation (transfer) of trust property.
Q. Should changes in the Board of trustees be reported to the charity commissioner?
A. Under section 22 of the Bombay Public Trusts Act, whenever a change in any moveable or immovable property or names of trustees, etc., takes place, a change report should be filed with the department in the prescribed Schedule III.
Q. Are trusts required to contribute two per cent of the income to the charity commissioner?
A. According to section 58 of the Bombay Public Trusts Act, “Every public trust shall pay to the Public Trusts Administration Fund annually such contribution at a rate or rates not exceeding 5% of the gross annual income, or of the gross annual collection or receipt, as the case may be, as may be notified, from time to time, by the State Government”. Gross annual income does not include corpus donations or deductions allowed by Rule 32 of the Bombay Public Trusts Rules, 1951.
Public trusts exclusively for secular education, medical relief, veterinary treatment of animals, relief of distress caused by natural calamity are exempted from payment of contribution. In the case of multi-purpose trusts, deductions are allowed for the portion of the gross income or collection or receipt spent for any one or more of the aforesaid purposes.
Deductions are also permitted for donations received from other public trusts and grants received from government and/or local authorities.
The rate of contribution since April 1, 1989 has been 2% of the gross annual income.
Q. Is amalgamation of trusts possible?
A. Section 50A(2) of the Bombay Public Trusts Act allows two or more public trusts to be amalgamated or merged into one single legal entity by framing a common scheme of management or administration.
Q. What is the procedure for amalgamation?
A. The procedure for amalgamation requires a proper application with court fee stamp to be made to the charity commissioner who, in turn, may also require the trustees to publish a notice in this regard in a newspaper. There should be proper justification for the amalgamation, and the consent for amalgamation should preferably be unanimous on the part of the trustees of all the trusts to be amalgamated.
After the final order is passed by the charity commissioner, those trusts which are amalgamated cease to exist as separate legal entities and instead, a new legal entity in the form of a new amalgamated trust emerges with a new registration number and scheme of management.
Q. What can be done if the objects of a trust become obsolete?
A. In case it becomes difficult to carry out the obsolete objects of the trust, the doctrine of cy pres (i.e., changing the objects as close to the original as possible) can be applied for changes. Such an order can be obtained from a civil court.
Q. Can a trust be dissolved?
A. A trust may be extinguished or terminated if “its purpose becomes unlawful” (vide section 77 of the Indian Trusts Act, 1882). However, when a public charitable trust is properly and completely constituted, it becomes irrevocable, even though it is voluntary. Accordingly, there is no provision under the various Public Trusts Acts (including the Bombay Public Trusts Act, 1950) to legally terminate or dissolve a valid public charitable trust.
Noshir H. Dadrawala
Centre for Advancement of Philanthropy