Public Trusts in Maharashtra : The Changing Legal landscape Recent Amendments to the Maharashtra Public Trusts Act, 1950

The Maharashtra Public Trusts Act, 1950 (‘MPT
Act’) was recently amended by the Maharashtra Public Trusts (Second
Amendment) Act, 2017 (‘Amendment Act’), which came into force on October
10, 2017. In this article, we discuss some of the key conceptual changes that
the Amendment Act has made to the MPT Act.

Background

The MPT Act was first enacted with the
objective of regulation and administration of public religious and charitable
trusts in, what was then, the State of Bombay. ¹Originally called
the Bombay Public Trusts Act, 1950, its title was changed with retrospective
effect in 2012 to the Maharashtra Public Trusts Act, 1950. Today, the MPT Act
applies to the whole of Maharashtra and regulates more than eight lakh public
religious and charitable organisations registered under it². There
are only a few states in India that have enacted legislation to regulate public
trusts, with Maharashtra being prominent on account of the MPT Act.

In recent years, the focus on regulating the
non-profit space in India has increased as governments are becoming
increasingly wary that non-governmental organisations (‘NGOs’) are being
misused for undesirable activities that range from tax evasion to funding of
terrorism. With a view to regulating such NGOs, the Central Government is even
considering (with some helpful prompting from the Supreme Court) the framing of
a central legislation for this purpose³.

It is in this environment that the
Maharashtra Government constituted a committee on January 13, 2016, under the
chairmanship of Mr. A. J. Dholakiya, former Charity Commissioner and comprising
Mr. S. B. Savle, the Charity Commissioner and other officers, to review the MPT
Act and propose amendments to it. The Dholakiya Committee’s report suggested
comprehensive amendments to the MPT Act, leading to the enactment of the
Amendment Act⁴.

_____________________________________________________

1   Preamble
to the MPT Act.

2   Statement
of Objects and Reasons in the Maharashtra Public Trusts (Second Amendment)
Bill, 2017.

 3 
Economic Times,  August 17, 2017: http://economictimes.indiatimes.com/articleshow/60100358.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

4   Statement
of Objects and Reasons in the Maharashtra Public Trusts (Second Amendment)
Bill, 2017.

Key Amendments

From a reading of the provisions of the
Amendment Act, it appears that the purpose of its enactment is mainly
three-fold: preventing misuse of the MPT Act, reducing delays in proceedings
which impact the functioning of NGOs, and streamlining processes to improve
effectiveness. The key conceptual changes which give effect to this purpose are
discussed below.

(i) Introduction of definition
of ‘beneficiary’

Background

The term ‘beneficiary’, although used in the
MPT Act, was not defined earlier. A definition has now been inserted in section
2 of the MPT Act, which is as follows: ““beneficiary” means any person
entitled to any of the benefit as per the objects of the trust explained in the
trust deed or the scheme made as per this Act and constitution of the trust and
no other person.”

The term ‘beneficiary’ acquires significance
because, in the case of a public charitable trust (not a society)⁵ ,
a beneficiary is regarded as a ‘person having interest’ in such trust (refer
section 2(10)). Consequently, a beneficiary can apply for certain significant
reliefs in respect of such trusts such as seeking institution of an inquiry,
applying for appropriate orders for protection of trust property, institution
of suits in relation to the public trust, and applying for framing of a scheme
for the trust. This definition is not relevant for a society because in the
case of a society, its members are regarded as ‘person having interest’.

The likely objective behind insertion of the
definition of ‘beneficiary’ appears to be to aid the Charity Commissioner’s
office in determination of whether the person seeking the above reliefs was
indeed a beneficiary/person having interest in the trust who had locus to make
the application. Unfortunately the definition may not serve the desired
purpose.

_____________________________________________________________________

5 Unless specified otherwise, the term ‘public
trust’ as used in this article includes a ‘society’ registered under the
Societies Registration Act, 1860 and the MPT Act

Analysis

The primary challenge in determining
beneficiaries of a public trust stems from the inherent limitation in identifying
and segregating them – as one of the essential characteristics of a public
trust (and which distinguishes it from a private trust) is that its
beneficiaries are the general public or a class thereof, and constitute a body
which is incapable of ascertainment (as observed by the Supreme Court in Deoki
Nandan vs. Murlidhar, AIR 1957 SC 133).

The second challenge is that the language of
the definition is ambiguous – although this can be said to be a consequence of
the inherent limitation discussed above. Any person who is ‘entitled’ to any of
the benefits as per the objects of the trust is regarded as a beneficiary. This
encompasses not only those who have received some benefits from the public
trust, but also those who are ‘entitled’ to them.

The term ‘entitle’ means to give a claim,
right, or title to; to give a right to demand or receive, to furnish with
grounds for claiming. The term ‘entitled to’ means ‘having a title to’ (both as
defined in The Law Lexicon, P. Ramanatha Aiyar, 3^rd Edition).

Thus, it can be said that any person who has
a potential or theoretical ‘claim’ or‘right’ to any of the benefits as per the
objects of the trust is regarded as a beneficiary. However, this interpretation
is not without doubt:

–  Firstly,
can it be said that any person has the ‘claim’ or ‘right’ to receive any
benefit from a public trust – or conversely, the trust is duty bound to benefit
such person?

–   Even
if the response is in the affirmative, given that the definition uses the term
‘objects’ and not ‘activities’, can a person claim as of right that he is a
beneficiary of the trust even if the trust has not commenced activities in
relation to a particular object?

Therefore, although the language of the
definition presumes that the phrase ‘a person who is entitled to any of the
benefits as per the objects of the trust’ constitutes an objective and
limited criterion on the basis of which it can be determined with certainty
whether a person is or is not a beneficiary, in our view, this is not the case.

Example

The above difficulties can be explained with
the aid of an example. A public charitable trust set up with the objects of
‘medical relief for the poor’ and ‘promoting primary education’, operates a
hospital for treatment of the poor, without any restriction as to religion,
community, etc. Therefore, all poor persons in India are free to seek treatment
from this hospital.

The first difficulty arises in determining
whether such poor persons are ‘entitled’ to benefits as per the objects of the
trust. Can it be said that all poor persons have the ‘right’ to seek treatment
from this hospital –would it not be within the hospital’s right to refuse to
treat someone, for instance if there is no vacancy?

Assuming this view can be taken, an odd
situation arises wherein all poor persons in India could be regarded as
entitled to benefits as per the objects of the trust, and therefore, be
classified as beneficiaries of the trust – even though they may not actually
have sought treatment from the hospital.

Moreover, the trust may not have started any
primary school in furtherance of its object of ‘promoting primary education’.
Yet, it could be argued that all children in the country who are aged between 4
and 14 years would be persons who are entitled to benefits as per the ‘objects’
of the trust – thus, as noted above, entirely defeating the purpose for
insertion of the definition of ‘beneficiary’ in the MPT Act.

(ii)  Amendments to ‘change report’
provisions

 (a)  Extension
of time for filing change report

Background

Under section 22 of the MPT Act, any change
in the particulars (such as in respect of the trustees or the properties) of a
public trust as set out in the Register of Public Trusts under the MPT Act is
required to be reported by the trustees to the Deputy or Assistant Charity
Commissioner in charge of the Public Trusts Registration Office where such
register is kept. Such report is commonly known as the ‘change report’.

A change report is required to be filed
within 90 days from the date of the occurrence of the change required to be
reported. A trustee who fails to file a change report is, on conviction,
punishable with a fine of up to Rs. 10,000, u/s. 66 of the MPT Act.

Previously, the MPT Act did not expressly
provide for an extension of time for filing change report or condonation of
delay in filing it. Pursuant to the Amendment Act, a proviso has been inserted
in section 22(1) which empowers the Deputy or Assistant Charity Commissioner to
extend the period of 90 days for filing change report on being satisfied that
there was sufficient cause for delay in filing, subject to payment of costs by
the reporting trustee, which are to be credited to the Public Trust
Administration Fund.

Interestingly, even prior to insertion of
the proviso, trustees were known to apply for condonation of delay for late
filing of change report – in some cases after many years – to the relevant
Deputy or Assistant Charity Commissioner. In fact, the Bombay High Court had
validated the permissibility of such applications under the general provisions
of section 5 of the Limitation Act, 1963 (Rajkumar s/o Pundlikrao Zape &
Ors. vs. Shantaram Amrutrao Waghmare & Ors., 2008 (3) MhLJ 209).
Therefore, the benefits of insertion of the new proviso appear to be that it
might help eliminate wasteful litigation and the Deputy or Assistant Charity
Commissioner will be able to seek costs from errant trustees for late filing of
change reports.

Analysis

Similar to section 5 of the Limitation Act,
1963, the new proviso to section 22(1) permits extension of time if ‘sufficient
cause’ is shown. This scope and purport of this expression has been extensively
considered by the Courts which have laid down the following broad principles:

–  It
is not possible to lay down precisely what facts or matters would constitute
‘sufficient cause’ u/s. 5 of the Limitation Act, 1963;

 –   That said, delay in filing an appeal should not
have been for reasons which indicate the party’s negligence in not taking
necessary steps, which it could have or should have taken (State of West
Bengal vs. Administrator, Howrah Municipality, AIR 1972 SC 749);

–  The
words ‘sufficient cause’ should receive a liberal construction so as to advance
substantial justice (State of Karnataka vs. Y. Moideen Kunhi (dead) by Lrs.
and Ors.,AIR 2009 SC 2577);

–  Length
of delay is irrelevant and acceptability of the explanation is the only
criterion for extension of time (N. Balakrishnan vs. M. Krishnamurthy,
AIR 1998 SC 3222).

Thus, each application for extension of time
will have to be considered by the Deputy or Assistant Charity Commissioner on the facts and circumstances of the case.

There are also some other aspects relevant
for consideration in relation to this proviso. First, it does not set out a
formula or cap for computation of costs for late filing, which could lead to a
situation where determination of costs is at the discretion of each individual
Deputy or Assistant Charity Commissioner. Secondly, the costs are to be borne
‘by the reporting trustee’– this position differs from that set out in sections
79A and 79B under which certain costs, charges and expenses are payable out of
the ‘property or funds of the public trust’.

 (b)
Provisional acceptance of change reports

Background

Once a change report is filed, the Deputy or
Assistant Charity Commissioner may⁶ hold an inquiry in the
prescribed manner to verify whether the change which is reported has occurred.
After completion of the inquiry, he must record his findings as to whether or
not he is satisfied that the change has occurred. If he is satisfied and
records the same in the Register of Public Trusts, he is said to accept the
change report.

Although this process is useful as, in
theory, it helps ensure transparency and honesty in the functioning of public
trusts, in practice it is time consuming and results in a huge pendency of
matters. It is believed that there are some change reports which are pending
for several years, although efforts have been made recently to dispose of old
reports at the earliest.

Such delay could obstruct the functioning of
trusts – in particular where the change which has occurred pertains to the
constitution of trustees. In such cases, the Charity Commissioner’s office may
be wary to permit applications under other provisions of the MPT Act (such as
for alienation of trust property) by the new trustees whose report is pending.
Although the Bombay High Court has held that a change of trustees becomes
effective from the date when it was brought into effect in accordance with law,
and not from the date of acceptance of the change report (Chembur Trombay
Education Society vs. D.K. Marathe and Ors., 2002 (3) BomCR 161), in
practice, the Charity Commissioner’s office may be hesitant to permit
applications by such trustees regarding whose appointment change reports are
pending.

____________________________________________________

6   Although
section 22 uses the term ‘may’ for holding an inquiry, the Bombay High Court
has held that a change report, whether contested or not, has to be decided
after holding an inquiry – refer Rajabhau Damodar Raikar vs. The Assistant
Charity Commissioner and Ors. (2016(1)BomCR233).

The fact that the pendency in change report
cases is of concern, and has prompted the enactment of the Amendment Act, has
been recognised Statement of Objects and Reasons in the Bill pertaining to the
Amendment Act as under:

“The State Government is concerned with
the huge pendency of cases before the authorities under the Act, especially the
change reports, more particularly the uncontested change reports, to make
entries in the registers kept u/s. 17 of the said Act.

 … to promote swift disposal and arrest
the pendency of the change reports u/s. 22, certain provisos are proposed to be
added to s/s. (2) to mandate the decision on the change reports within the
stipulated period, and also provide for a mechanism for provisional acceptance
of change reports and attach finality to
the orders of provisional acceptance of change in uncontested matters.”

Summary

Thus, in order to facilitate the functioning
of public trusts, the Amendment Act has inserted three provisos to section
22(2) of the MPT Act, which introduce the concept of provisional acceptance of
change reports in case of change in the names or addresses of trustees and
managers or the mode of succession to their office. The process is summarised
as follows:

–  When
such a change report is filed, the Deputy or Assistant Charity Commissioner may
pass an order provisionally accepting the change within period of 15 working
days and issue a notice inviting objections to such change within 30 days from
the date of publication of such notice;

  – If no
objections are received within the said period of 30 days, the provisional
acceptance shall become final;

–   If
objections are received within the said period, then he may hold an inquiry and
record his findings within 3 months from the date of filing objections, as to
whether the changes have occurred or not;

–   If
he is satisfied that the changes have occurred, then he must make the
corresponding changes in the Register of Public Trusts.

 (iii)  Ex-post facto
sanction

 Background

Under section 36 of the MPT Act, sanction of
the Charity Commissioner is required for the sale, exchange or gift of any
immovable property of a public trust, as well as for a lease for a period
exceeding ten years in the case of agricultural land and for a period exceeding
three years in the case of non-agricultural land or a building.

Although the Charity Commissioner had, in
circular no. 169 dated February 1, 1973, indicated that ex-post facto sanction
could be granted u/s. 36, the Bombay High Court has taken the view that only
prior sanction could be granted u/s. 36 and post facto sanction of the
Charity Commissioner is not permitted (Central Hindu Military Social
Education Society vs. Joint Charity Commissioner and Anr., 2009 (2) BomCR
499).

This dichotomy has now been settled by the
Amendment Act which has introduced sub-section (5) to section 36 to permit ex-post
facto sanction of the Charity Commissioner. As per this provision, the
Charity Commissioner may grant ex-post facto sanction to the transfer of
the trust property by the trustees in exceptional and extraordinary situations
where the absence of previous sanction results in hardship to the trust, a
large body of persons or a bona fide purchaser for value, if he is
satisfied that the following conditions are met,—

(a) there was an emergent
situation which warranted such transfer,

(b) there was compelling
necessity for the said transfer,

(c) the transfer was necessary
in the interest of trust,

(d)  the property was
transferred for consideration which was not less than prevalent market value of
the property so transferred, to be certified by the expert,

(e) there was reasonable
effort on the part of trustees to secure the best price,

(f)   the trustees’ actions,
during the course of the entire transaction, were bonafide and they have
not derived any benefit, either pecuniary or otherwise, out of the said
transaction, and

(g) the transfer was effected
by executing a registered instrument, if a document is required to be
registered under the law for the time being in force.

The said
section has been further amended by the Maharashtra Public Trusts (Amendment)
Ordinance, 2017 (‘Ordinance’) promulgated on October 10, 2017, to
provide that ex-post facto sanction may only be granted in respect of
trust property transferred after the commencement of the Amendment Act (i.e.
October 10, 2017).

Analysis

The presence of the term ‘and’ after clause
(f) above indicates that the criteria are cumulative. Further, this power is
not to be exercised routinely but only in ‘exceptional and extraordinary
situations’. Very few transfers are, therefore, likely to satisfy the
requirements of this provision for granting ex-post facto sanction.
Moreover, as per the Ordinance, only those transfers which have been effected
on or after October 10, 2017 will be eligible for such sanction.

This provision may lead to a problematic
situation in cases where a transfer of trust property is effected by trustees
on the bona fide assumption that it is a fit case for grant of post
facto sanction, but the sanction is not thereafter granted by the Charity
Commissioner because he is not satisfied that the necessary criteria are met.
As no time limit has been specified for the Charity Commissioner to dispose of
an application for ex-post facto sanction, it may even take years for an
acceptance or rejection. Unwinding the transfer after a long period of time,
particularly if there has been construction on the property post the transfer,
will not only be practically difficult but could also lead to an anomalous
legal situation if the transfer was effected under a registered instrument.

Given these risks, this provision may be
reduced to a paper provision as every diligent buyer of property is likely to
insist on prior approval to eliminate threat to title.

Apart from section 36, the concept of ex-post
facto sanction has been introduced in section 36A which requires trustees
to obtain the sanction of the Charity Commissioner to borrow money (whether by
way of mortgage or otherwise) for the purpose of or on behalf of the trust.
Sub-section (3A) has been introduced in this section to permit the Charity
Commissioner to grant ex-post facto sanction to the trustees to borrow
money from any nationalised bank or scheduled bank, in exceptional and
extraordinary situations where the absence of previous sanction results in
hardship to the trust, beneficiary or bona fide third party.

(iv)  Streamlining
processes

 Background

The MPT Act, before the amendment, had
created a hierarchy of authorities and courts to hear various
applications/matters, with different processes for each application/matter. The
Amendment Act has sought to streamline some of these processes and also reduce
the number of appeals permitted so that cases may be disposed of more
efficiently.

The Statement of Objects and Reasons in the
Bill pertaining to the Amendment Act summarises the rationale for these changes
as under:

“It was further noticed that the said Act
has created a hierarchy of authorities and courts, with a series of appeals,
applications or revisions. Orders of the Charity Commissioner, for instance,
have been made subject to challenge before the District Court, the Maharashtra
Revenue Tribunal and Divisional Commissioner. This multiplicity of proceedings
and forums under the Act, when a substantial number of judicial officers of the
rank of District Judge, discharge the functions of Charity Commissioner and
Joint Charity Commissioner has been found to be unwarranted and even
anomalous.”

In this regard,
a number of amendments have been carried out in the MPT Act, some of which are
explained below:

 –  Under
erstwhile section 50A of the MPT Act, schemes were framed and modified by the
Charity Commissioner, against which order an application could be made to the
City Civil Court in Mumbai and District Court elsewhere in Maharashtra. Now,
the power to frame and modify schemes has been granted to the Deputy Charity
Commissioner and Assistant Charity Commissioner, and such order may be appealed
before the Charity Commissioner;

–   Under
section 51, if the Charity Commissioner refuses his consent to the institution of
a suit, then the appeal will lie before the High Court instead of the
Divisional Commissioner;

–   In
the Cy pres provisions under sections 55 and 56, the power conferred on
the court originally has now been conferred on the Charity Commissioner. Thus,
earlier if inter alia a trust had failed, the Charity Commissioner could
require the trustees to apply for directions to the court, and if they failed
to apply, he could himself apply. The court could then give necessary
directions to give effect to the original intention of the author of the public
trust or object for which the public trust was created – and if the same was
not expedient, practicable, desirable, necessary or proper in public interest,
then the court could direct the property or income of the trust to be applied cy
pres to any other charitable object.

Now, the power has been conferred on the
Assistant Charity Commissioner and Deputy Charity Commissioner to pass
appropriate orders after making an inquiry and to make a report to the Charity
Commissioner; the Charity Commissioner may suo motu or on the report of
Assistant or Deputy Charity Commissioner, give the necessary directions;

– The
High Court replaces the City Civil Court in Mumbai and District Court elsewhere
as the first appellate court under the MPT Act;

–   Accordingly,
the language of the definition of “Court” has been replaced by “High Court
of Judicature at Bombay” from “in the Greater Bombay, the City Civil Court and
elsewhere, the District Court”.

 Tabular
summary

The following table sets out the changes to
the processes in respect of key provisions:

Other amendments

The Amendment Act has also carried out a
number of other modifications to the MPT Act – some of these are briefly
summarised below:

(i)  Conditions on
alienation: As noted above, u/s. 36 of the MPT Act, sanction of the Charity
Commissioner is required for alienation of immovable property of the public
trust. Such sanction may be accorded subject to such condition as the Charity
Commissioner may think fit considering the interest, benefit or protection of
the trust.

Pursuant to the  Amendment 
Act, the Charity Commissioner has been empowered to modify the
conditions imposed by him prior to the transaction for which sanction is given
is completed. Further, although he can revoke a sanction in specified
circumstances, he cannot do so after the execution of the conveyance in respect
of the immovable property except on the ground that such sanction was obtained
by fraud before the grant of such sanction.

Further, the Charity Commissioner has been
prohibited from sanctioning any lease of immovable property of a public trust
for a period exceeding 30 years.

(ii) Fixed timelines: To
reduce delays by the Charity Commissioner in processing of applications such as
for (a) granting trustees permission for investing trust funds in any manner
other than that permitted under the MPT Act (section 35); and (b) issuing
directions for the proper administration of the trust (section 41A), the
Charity Commissioner has been enjoined to decide such application within three
months from the date of receipt of such application and if it is not
practicable to do so, to record the reasons for the same.

 (iii) Revised process for suspension of trustees etc.: The process for suspension, removal or dismissal
of trustees u/s. 41D of the MPT Act has been revised for the benefit of
incumbent trustees. Earlier, upon receipt of an application for this purpose,
the Charity Commissioner could frame charges and take appropriate action as set
out in the provision. Post the amendment, the Charity Commissioner must notify
such trustee and give him an opportunity to be heard before framing such
charges. Further, he can only issue such notice only when he finds that there is
‘prima facie material’ to proceed against the said person.

 (iv) Advice
or direction of the Court: The Amendment Act has deleted section 56A of the
MPT Act under which any trustee of a public trust could apply to the court for
the opinion, advice or direction of the Court on any question affecting the
management or administration of the trust property or income. However, deletion
of this section 56A will not preclude trustees or beneficiaries from applying
for the issue of an Originating Summons in the Bombay High Court for such
advice or direction, in accordance with Chapter XVII of the Bombay High Court
(Original Side) Rules.

In conclusion

In conclusion, the amendments to the MPT Act
are a positive development and are likely to assist the earnest efforts made by
the Charity Commissioner’s office recently to improve the implementation of the
MPT Act and reduce backlog of matters.

On a separate note, we find that NGOs in
India are increasing in scale and stature, and are exploring more sophisticated
structures and arrangements for their functioning, dealings and holding of
assets. They are also seeking to professionalise their operations by adopting
corporate best practices.

When the MPT Act is next reviewed, we
suggest that some amendments which assist with this evolution, but also
maintain adequate checks and balances, be considered. These include
introduction of stricter governance standards, express inclusion of section 8
companies within the ambit of the MPT Act, facilitation of appointment of professional
trustee companies, easing of mergers of public trusts with societies,
regulating related party transactions, permitting investments in safe market
securities, and so on. _