Can a Trust be Registered as a Society? Can a Society be Converted into a Trust?

Jojy George Koduvath

Abstract

A Trust cannot be registered as a Society; why?
Both are different legal conceptions.
A trust is an obligation, in law. A society is a collection of members.
The fundamental principles upon which a trust is founded cannot be varied.

A Society cannot be converted into a Trust; why?
Because, the fundamental rules of a society or a club cannot be altered even by a unanimous vote of the members.
There is no provision in the SR Act to change the character of the society to a trust. The only provision is for the amalgamation of societies.

A Trust and a Society Carry Distinct Legal Characters

A society is a compendium of persons. Concept of association of persons is not attached to a trust.
A trust is a legal concept alone. A society is a reality as it is a collection of its members.
Administration of a property is the sole aim of a trust. Existence of property is not a necessary component of society.
Trustees are determined or appointed as intended by the founder of the trust. The society itself determines its office bearers.
A trust is always for the administration of properties. A property need not be for a society.
A trust is administered by the trustees appointed by the person who founded the trust. A society functions according to the byelaws adopted (written or otherwise) by the founding members.
A trust is made for the benefit of one or more persons viewed by the founder. The aim and object of a society is determined by the byelaws adopted by the founding members.
Trust property automatically vest in the trustees. No such vesting in society.
Different enacted laws govern the trust and society.
Different procedure governs the administration and winding up of a trust and a society.

Difference Between a Trust and a Society

An association of persons, or a society, is formed with specific aims and objectives, by the joint effort of its founding members. It is governed under its byelaws. A trust is an obligation created by the author or founder of the trust, upon the trustee in whom burden is cast upon to administer the property for the benefit of the beneficiaries.
A society functions under its bye laws formulated by the founding members. The administration of a trust is carried on under the directions of the author (in the deed of foundation, or otherwise).
The byelaws of a society can be amended as provided under the bye laws and/or under the provisions of the Act under which it is registered. The edicts of the founderin the founding deed of a trust cannot be varied.
A society can be wound up following the procedures specified in the law. In trust, the principle is ‘once a trust always a trust’.
The property of a society vests with its members subject to its basic principles or trustupon which it is founded and to the Act, if any, under which it is registered. A trustee is the legal-owner of the trust property and the property vets in him as such.
A society functions under its bye laws which partake the character of a contract. The State and the Court protect the trust as ‘parens patreae’.
The administrators of a society can resign their office. But the trustees cannot renounce.
In terms of Section 5 of the Societies Registration Act, the property of a society could vest in the trustees; and only in the absence of vesting of such property in the trustees the same would be deemed to have been vested for the time being in the governing body of such society. (Church of North India Vs. Lavajibhai Ratanjibhai: AIR 2005 SC 2544: 2005 (10) SCC 760; Vinodkumar M. Malavia Vs. Maganlal Mangaldas Gameti: 2013 AIR (SCW) 5782: (2013) 15 SCC 394.)

What is Trust?

‘Trust’ is defined in Sec. 3 of the Indian Trusts Act, 1882 as under:

“A ‘trust’ is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner,”

Therefore, in law:

Trust is ‘an obligation’.
It arises when a property is endowed by its owner for the benefit of another.
Trust is created when a trustee is appointed.
The trustee administers the property as required by the author.
It has to be done by the trustee as if he is the owner of the property.

This obligation upon the trustee to administer the endowed property, as if he is its owner and as directed by the author, for the benefit of another, is ‘trust’ in law.

Essential elements for formation of a trust are the following:

(a) Intention to create a trust on the property, for the specified purpose, by the author,
(b) Reposing-in/declaring confidence in trustee by the author,
(c) Acceptance of the confidence (reposed in or declared by the author) by the trustee,
(d) Transfer of trust-property to the trustee,
(e) Obligation upon the trustee to administer the trust property, (i) as its ‘legal owner’, (ii) for the benefit of the beneficiaries.

Trust being an ‘obligation’* annexed to or enjoined upon the dedicated property, ‘trust’ cannot be an association of persons or a juristic person. In law, ‘trust’ is neither a tangible-endowment nor a corporal-institution.** Grammatically, it is an ‘abstract countable noun’, similar to ‘a business’, ‘an idea’ or ‘a duty’.

*Note: Specific Relief Act, 1963 [Sec. 2(a)] defines: “‘obligation’ includes every duty enforce by law’.
**Duli Chand Vs. Mahabir Pershad Trilok Chand Charitable Trust: AIR 1984 Del 144; Ramdass Trust Vs. Damodardas 1967 Raj LW 273;
It is referred to in
Sagar Sharma Vs. Additional Commissioner of Incometax: 2011-239 CTR 169: 2011-336 ITR 611.
See also:
Thiagesar Dharma Vanikam Vs. CIT: AIR 1964 Mad 483: [1963] 50 ITR 798 (Mad);
Kishorelal Asera Vs. Haji Essa Abba Sait Endowments: 2003-3 Mad LW 372: 2003-3 CCC 367.
[It is quoted in Thanthi Trust Vs. Wealth Tax Officer: (1989) 78 CTR 54: (1989) 45 TAXMAN 121: (1989) 178 ITR 28;
Sambandam Died Vs. Nataraja Chettiar: 2012-1 Mad LW 530].

‘Trust’ is Personified, Even In Legal Parlance

Sec. 6 of the Indian Trusts Act, 1882, reads as under:

“Creation of trust: Subject to the provisions of section 5, a trust is created when the author of the trust indicates with reasonable certainty by any words or acts (a) an intention on his part to create thereby a trust, (b) the purpose of the trust, (c) the beneficiary, and (d) the trust-property, and (unless the trust is declared by will or the author of the trust is himself to be the trustee) transfers the trust-property to the trustee.”

Because, ‘a’ trust is ‘an’ obligation annexed to the trust property and has no existence without its trust property, generally, the endowment/institution, upon which the obligation of ‘trust’ is pervaded, is personified as ‘trust’, even in legal parlance. In any case, it has no corporate personality; and it is not a legal person.[Thiagesar Dharma Vanikam Vs. CIT: AIR 1964 Mad 483].

In Illustration (b) of Sec. 15 of the Trusts Act, the expression ‘trust’ is used an entity. The Illustration (b) of Sec. 15 reads: “(b) A, trustee of lease-hold property, directs the tenant to pay the rents on account of the trust to a banker, B, ….”

The term ‘trust’ is also used as a compendious expression taking in the trustees, the beneficiaries and the subject matter of the trust.[Thiagesar Dharma Vanikam Vs. CIT: AIR 1964 Mad 483. It is quoted in Thanthi Trust Vs. Wealth Tax Officer: (1989)78 CTR 54: (1989) 178 ITR 28. See also: Kishorelal Asera Vs. Haji Essa Abba Sait Endowments: 2003-3 Mad LW 372: 2003-3 CCC 367.]

Similarly, when ‘a trust’ is created under the auspices of an association, the terms ‘trust’ and ‘association’ are generally used as synonyms, in view of the underlying significant nexus between the members of the association and the ‘trust’. An association can be formed for the administration of a ‘trust’;[Tata Memorial Hospital Workers Union Vs. Tata Memorial Centre: AIR 2010 SC 2943] and an artificial (or legal) person can be a trustee.[Yogendra Nath NaskarVs. Commissioner of Income Tax, Calcutta: AIR 1969 SC 1089]

No beneficial-Interest or Enjoyment over Property of Society – Interest Created is that of Bare Trustees

The vesting of legal ownership of the property of a society in the governing body is merely a ‘method or mechanism permitted by the law’. [Board of Trustees, Ayurvedic & Unani Tibia College Vs. The State: AIR 1962 SC 458] During the subsistence of a registered society, or on dissolution, the members do not have any proprietary-interest or right of beneficial-enjoyment _{[That is, ‘proprietary interest’ or interest pertaining to owner]} in the property of the society. [Board of Trustees, Ayurvedic & Unani Tibia College Vs. The State: AIR 1962 SC 458; Dharam Dutt Vs. Union of India: AIR 2004 SC 1295.]

In Pamulapati Buchi Naidu College Committee, Nidubrolu Vs. Govt. of Andhra Pradesh,[AIR 1958 A P 773: See also: Raj Kumar Gaba Vs. State of UP: 2012-49 VST 252; Commissioner of Income Tax Vs. Merchant Navy Club: 1974-96 ITR 261; Gurdwara Prabandhak Committee Vs. Jagmonan Singh: ILR 1971-2 Del 515.] it was observed – what was vested in the College Committee or its governing body was a ‘right of management’ simpliciter, and there was no question of the members of the society or the members of the governing body being ‘beneficially interested’ in its property. Then, it was held as under:

“The Societies Registration Act, therefore, does not create in the members of the registered society any interest other than that of bare trustees.”

Underhill, in his treatise, ‘Law of Trusts and Trustees’, explained:

“However, the crucial difference surely is that no absolutely entitled members exist if the gift is on trust for future and existing members, always being for the members of the Association for the time being. The members for the time being cannot under the Association rules appropriate trust property for themselves for there would then be no property held on trust as intended by the testator for those persons who some years later happened to be the members of the Association for the time being.” [Quoted in Most Rev. PMA Metropolitan Vs. Moran Mar Marthoma: AIR 1995 SC 2001- Para 69.]

“A trust is primarily a legal concept”

‘Trust’ is essentially a legal concept attached to the endowed property. It arises by the appointment of a trustee. For creation of a trust, the trust-property must have been transferred to the trustee. (Maulavi Kamiruddin Khan Vs. BadrunNisa Bibi: AIR 1940 Pat 90; Chief Controlling Revenue Authority Vs. Banarsi Dass: AIR 1972 Del 128; Pankumari Kochar SmtVs. Controller of Estate Duty: 1969-73 ITR 373.) The Delhi High Court held in Birdhi Chand Jain Charitable Trust Vs. Kanhaiya Lal Sham Lal, ILR 1973-1 Del 144, as under:

“A trust is primarily a legal concept, a mode of transfer of property and of holding property. On the other hand, an institution is primarily a social concept. It is not a legal concept at all. For, there is established legal method by which an institution may come into being. It may be established by way of an organisation which may assume any or no legal form. It may be a trust or a company or a statutory corporation or a mere unincorporated association or a society registered or otherwise. It is its work and place in the society that is the hall-mark of an institution. As observed by Lord Macnaghten in Mayor, etc. of Manchester V. Mcadam,3 Tax Cases 491 at 497, ‘it is the body (so to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle.’ In the present case, the founders of the trust may have transferred their property to a charitable purpose and thus created a public trust. But the body to translate the trust into a living and active principle has not yet come into existence. It is that body which will be entitled to be called an institution. It is not a mere legal arrangement like a trust but an active working body with a social impact which can be called an institution.”

Incidents of ‘Trust’ in Property of Clubs and Societies

Four views are possible.

(i) Positive view: The Common Law on Trust in India gives progressive and ‘wider’ or ‘general’ connotation to ‘trust’. Thereby, pointing-out that the governing body of a society or a club acquires and holds property for and on behalf of the members of the society or club, it is said that incidents of trust are impressed upon the property of the Society or Club.

Salmond on Jurisprudence [12^th Edition, Page 326] reads:

‘The Club property is the joint property of the members, though in fact, it is often held by trustees on behalf of the members.’

Halsbury’s Law of England reads:[IV Edition, Vol. 6, Para 205]

“Unincorporated Members’ Clubs. – An unincorporated members’ club is a society of persons each of whom contributes to the funds out of which the expenses of conducting the society are paid. ……. Subject to any rule to the contrary, the property and funds of the club belong to the members of the time being jointly in equal shares. “

The property of a registered Society cannot absolutely vest in its members. By registration of a society, its property ‘shall continue to exist in perpetuity’ [Church of North India Vs. Lavajibhai Ratanjibhai: AIR 2005 SC 2544: 2005 (10) SCC 760. Followed in Vinodkumar M. Malavia Vs. Maganlal Mangaldas Gameti: 2013 AIR (SCW) 5782: (2013) 15 SCC 394] or something in the nature of perpetual succession is conceded. The property shall pass to succeeding trustees or governing body without assignment or transfer. [Board of Trustees, Ayur. & Unani Tibia College Vs. The State of Delhi: AIR 1962 SC 458; Pamula Pati Buchi Naidu College Committee, Nidubrolu Vs. Govt. of A P: AIR 1958 A P 773]

If Valid Dedication, No Change of Character, On Regn. as Socieety

“Any addition to those properties must also have the same character.”

Sec. 5 of the Societies Registration Act reads:

“Property of Society how vested: The property movable and immovable, belonging to a society registered under this Act, if not vested in trustees shall be deemed to be vested, for the time being, in the governing body…”

Section 5 of the Societies Registration Act speaks as to vesting of property ‘belonging to a society’ [Board of Trustees, Ayur & Unani Tibia College Vs. The State of Delhi: AIR 1962 SC 458] in the trustees; and only in the absence of vesting of such property in the trustees the same would be deemed to have been vested for the time being in the governing body of such society. [Church of North India Vs. Lavajibhai Ratanjibhai: AIR 2005 SC 2544: 2005 (10) SCC 760; Vinodkumar M. Malavia Vs. Maganlal Mangaldas Gameti: 2013 AIR (SCW) 5782: AIR 2013 SC (CIV) 2849; (2013) 15 SCC 394.] Therefore, it can be legitimately concluded from Section 5 that general characteristics of ‘trust’ are impressed upon the property of a society and that the members of a registered Society are trustees for* the future members who have to continue the aim and objects of the Society as envisaged by the founders or as manifested in the Rules or Bylaws.

*[Pamula Pati Buchi Naidu College Committee, Nidubrolu Vs. Govt. of A P: AIR 1958 A P 773. See also: Raj Kumar Gaba Vs. State of UP: 2012-49 VST 252; Commissioner of Income Tax Vs. Merchant Navy Club: 1974-96 ITR 261; Gurdwara Prabandhak Committee Vs. Jagmonan Singh: ILR 1971-2 Del 515.]

If there was a charitable trust created by the public, the fact of its subsequent transformation, or its registration, as a society could not change the already invested trust-character [Sukumaran Vs. Akamala Sree Dharma Sastha Idol: AIR 1992 Ker 406] and any addition to those properties must also have the same character. [Keshava Panicker Vs. Damodara Panicker: AIR 1976 Ker 86] In such a case, suit can be filed, as if it is a trust itself, under Sec. 92 of the CPC. [Amrithakumari Vs. VP Ramanathan 1999 (1) CCC 238 (Ker). Followed in ‘Abhaya’ a Society Vs. Raheem: AIR 2005 Ker 233]

Property of a Society being maintained for the benefit of its future members also, and therefore encumbered with obligations attached to ‘trust’, it cannot be dealt with by the members or its administrators disregarding the objectives of foundation of the societies. When the property is in the hands of an agent for the principal, the agent stands in the fiduciary capacity as a trustee. He has a duty and responsibility to properly account for the profits or benefits he derived while acting as the agent. [Balram Chunnilal Vs. Durgalal Shivnarain : AIR1968 MP 81. RV Sankara Kurup Vs. Leelavathy Nambiar (AIR 1994 SC 2694]

(ii) Negative view: (a) A society or club is formed by a group of people joined together on the basis of bye laws. It has the characteristics of a contract. Therefore, principles of fiduciary obligations as arises in trust do not apply to the acts and deeds of the administrators or members of a society or a club; but they are guided only by contractual obligations, either express or implied.

(b) A trust is formed only when a property is dedicated by its owner for a specified religious or charitable purpose. For a valid dedication there should be proof for divesting of the title of the founder/author* or of the person who dedicated the property. Since the property of a society or club belongs to the members of the club or society (or it vests in the society or club) there will be no ‘trust’ at all.

*M R Goda Rao Sahib Vs. State of Madras: A. I. R. 1966 S. C. 653; Ram Charan Das Vs. Mst. Girjanandani Devi AIR 1959 All. 473. Shri Ram Kishan Mission Vs. Dogar Singh AIR 1984 All 72; See also: S. Shanmugam Pillai Vs. K. Shanmugam Pillai AIR 1972 SC 2069; Controller of Estate Duty WB Vs. Usha Kumar: AIR 1980 SC 312.

(c) Even if characteristics of a trust are adumbrated upon the property of a society, as stated above, it must be noticed that once the bylaws, the Societies Registration Act or the Common Law as to societies/clubs provide a particular procedure for a particular affair (such as management or dissolution), the same has to be carried on as per that procedure. [It is trite law that if a thing is prescribed to be done in a particular way, it can be done in that way alone, and by no other way.

See: Nazir Ahmed case: AIR 1936 PC 253; Indian National Congress (I) Vs. Institute of Social Welfare AIR 2002 SC 1258; Supreme Court Bar Association Vs. The Registrar of Societies ILR 2012-22-Dlh-1031; Patna Improvement Trust Vs. Smt. Lakshmi Devi: 1963 SCR Supp. 812; State of Bihar Vs. J.A.C. Saldanha (1980) 1 SCC 554: AIR 1980 SC 326; Vinodkumar M. Malavia Vs. Maganlal Mangaldas Gameti: 2013 AIR (SCW) 5782; (2013) 15 SCC 394.

It will not be guided by general principles applicable to a trust. Thus, the intent of the Societies Registration Act is not to invest properties of the society with the character of trust property. [Keshava Panicker Vs. Damodara Panicker: AIR 1976 Ker 86. Followed G. Chikka Venkatappa Vs. D. Hanumandappa (1970(1) My. LJ]

If the property destined for religious or charitable purposes is acquired with money collected by way of contribution by the members of a society, and the society itself manages the same without dedication in favour of the public, there will be no divesting of ownership of property in favour of the trust or institution. [See: Comner. of HRE Board Vs. Vinayakar AT Sabha: AIR 1953 Mad 407.] In such a case, it may be possible to affirm – no trust is predicated. [G. Chikka Venkatappa Vs. D. Hanumandappa: 1970(1) My. LJ 196; Keshava Panicker Vs. Damodara Panicker: AIR 1976 Ker 86] The effect of the Societies Registration Act was not to invest the property ‘belonging to a society’* with the character of Trust property. [G. Chikka Venkatappa Vs. D. Hanumandappa: 1970(1) My. LJ 196] Even if the purpose for which the society was formed was charitable purpose the property acquired for this purpose will ‘belong’ to the society and there is no trust and no trust can be predicated. [Keshava Panicker Vs. Damodara Panicker: AIR 1976 Ker 86. Followed G. Chikka Venkatappa Vs. D. Hanumandappa: 1970(1) My. LJ 196]

*Sec. 5 reads: “Property of Society how vested: The property movable and immovable, belonging to a society registered under this Act, if not vested in trustees shall be deemed to be vested, for the time being, in the governing body…”

(iii) Contract with express or implied fiduciary liabilities as are applicable to trusts: The members of a club or society, both registered and unregistered, are bound by the memorandum of association and its rules and regulations. The bye laws bind its members as a contract.

[Board of Trustees, Ayur. & Unani Tibia College Vs. The State of Delhi: AIR 1962 SC 458; Siddheshwar Sahkari Sakhar Karkhana Vs. Commr. of IT, Kolhapur: AIR 2004 SC 4716; Hyderabad Karnataka Education Society Vs. Registrar of Societies: AIR 2000 SC 301; Co- op. Central Bank Vs. Addl. Industrial Tribunal, Andhra Pradesh: AIR 1969 SC 245; Naresh Chandra Sanyal Vs. Calcutta Stock Exchange Assn Ltd. : AIR 1971 SC 422; Damyanti Naranga Vs. Union of India: AIR 1971 SC 966; Daman Singh Vs. State of Punjab AIR 1985 SC 973.]

Even the formation of a society itself is based on a contract. [Zoroastrian Co-op. Housing Society Ltd. Vs. District Registrar: AIR 2005 SC 2306; State Bank of India Staff Association Vs. Mohindra Bhattacharyya: AIR 1991 Cal 378] Salmond [12^th Edition, Page 326] reads:

“The rules of the club or society constitute the basic contract to which all the members are parties.”

Since the administrators of a club or a society manage its property for and on behalf of its members, there are fiduciary liabilities akin to ‘trust’ upon such administrators. When the property is in the hands of an agent for the principal, the agent stands in the fiduciary capacity as a trustee. He has a duty and responsibility to properly account for the profits or benefits he derived while acting as an agent or a trustee to the principal. [Balram Chunnilal Vs. Durgalal Shivnarain: AIR 1968 MP 81. RV Sankara Kurup Vs. Leelavathy Nambiar (AIR 1994 SC 2694]

(iv) It remains as academic alone – to explore, whether trust or contract: In case of a breach of fiduciary duty or mismanagement on the part of the administrators of the society, it gives rise to a cause for civil action under the principles of contract, or under the doctrines such as membership rights, ultra virus the bye laws, rule of majority, oppression of minority, etc.

Our law being dealt with these matters under a developed branch of law (club/society-law), one can justifiably argue that it remains as academic alone, or lingers as superfluous, to explore whether these doctrines are sprouted from express or implied trust. It is more so in view of Sec. 88 and 95 of the Indian Trusts Act.

No Trust upon the “Property Belonging to a Society”: Exceptions

A trust cannot be created upon the “property belonging to a society”. But this proposition is subject to certain qualifications.

That is, certain properties held by a Society may be that vest with the Society only for administration –

E.g., (i) a Society is formed by the beneficiaries or administrators for proper administration of a charitable institution (already) established by a valid ‘dedication‘ of property.;
(ii) a society formed with the object of dedicating property for a public charitable purpose.

In these cases, the beneficial ownership does not vest in the society; the society functions merely as the manager or trustee of the trust property. Or, the society itself acts only as the administrative vehicle through which the trust is administered.

The courts in India have developed a substantial body of case law distinguishing property owned by a society from property held by a society in trust.

1. T.M.A. Pai Foundation v. State of Karnataka, (2002) 8 SCC 481
2. Church of North India v. Lavajibhai Ratanjibhai, (2005) 10 SCC 760
3. Raje Anandrao v. Shamrao, AIR 1961 SC 1206
4. Deoki Nandan v. Murlidhar, AIR 1957 SC 133
5. Shiromani Gurdwara Prabandhak Committee v. Som Nath Dass, (2000) 4 SCC 146
6. The Nair Service Society v. Jnana Ashram, 1992 (Kerala High Court)
7. Suburban Education Society v. Charity Commissioner, 2004 (2) Mh LJ 792
8. Kallal School case (Madras High Court, 1974)
9. M.M. Sundarar v. Mudaliar Educational Trust (Madras High Court)
10. A.R. Khan Construwell & Co. v. Youth Education and Welfare Society, 2006 (1) Bom CR 170

Fundamental Rules Cannot Not Be Altered

The trustees or the governing body administer the ‘property of the society’ as per its bye laws so as to fulfill or attain the ‘aim and objects’ the founders viewed.

The expressions in the Societies Registration Act, ‘property belonging to a society’ (Sec. 5) and ‘property of the society’ (Sec. 8 and 10), do not give the society a corporate status; it ‘merely describes the property which vests in trustees or Governing Body.’ [Board of Trustees, Ayurvedic & Unani Tibia College, Delhi Vs. The State of Delhi: AIR 1962 SC 458: Para 11]

They acquire and hold the property for and on behalf of _{[See: Harbour Division II, Madras Vs. Young Men’s Indian Association: AIR 1970 SC 1212]} the members of the society subject to the obligations imposed by law, the bye laws and the fundamental principles_{[Prasanna Venkitesa Rao Vs. Srinivasa Rao: AIR 1931 Mad. 12: Milligan Vs. Mitchel: 40 ER 852; Free Church of England Vs. Overtoun: (1904) AC 515 referred to. See also: Inderpal Singh Vs. Avtar Singh (2007-4 Raj LW 3547)]} or trust* upon which it is founded. These propositions upheld by our courts also lead to the unerring conclusion that our law brings in principles of trust in the affairs of societies and clubs.

*See: Church of North India Vs. Lavajibhai Ratanjibhai: AIR 2005 SC 2544; Vinodkumar M. Malavia Vs. Maganlal Mangaldas: 2013 AIR (SCW) 5782; (2013) 15 SCC 394. See also: Harbour Division II, Madras Vs. Young Men’s Indian Association: AIR 1970 SC 1212.

In Noel Frederick Barwell Vs. John Jackson AIR 1948 All 146 it was held as under:

“51. It has been argued by Mr. Pathak on the basis of this decision and the decision of the House of Lords in Hole v. Garnsey (1930) 1930 A.C. 472, already referred to, that the rules of every association may be divided into two classes – the rules relating to fundamentals and the ordinary rules. Learned Counsel went on to urge that the fundamental rules could not be altered even by a unanimous vote of the members, though, if the rules provided for amendments, the other rules could be ant ended. It is not necessary for me to go into this question as the point does not arise in this case, but if I may say so without meaning any disrespect, the cases cited above have entirely been misunderstood. All that their Lordships intended to say was that the rules of any club being framed for the purpose of carrying on the objects of the club, ordinarily any power to amend such rules must be limited to the contemplated scope of the original rules and that under the general powers of amendment the alteration should not affect the foundation of the club or should not be incompatible with its fundamental objects.
52. Dealing with this question Lord Han – worth, Master of the Bolls, in Doyle v. White City Stadium Ltd (1935) 1 K.B. 110 said:
‘When these rules as altered are still for the purpose of carrying out the original purpose of the society or body of persons, the altered rules are made binding on the plaintiff. If there was an attempt fundamentally to alter the purpose for which the rules had been originally drawn up, the prospective agreement to adhere to-fresh rules, or any alteration in the rules, would not apply. It is quite plain from the decision in Thelluson v. Viscount Valentia (1907) 2 Ch. 1 that if and so long as the rules are akin to the purpose for which a society exists, there is no inherent, objection to an alteration of those rules or to further rules being made for the same purpose’.”

Power to Amend the Rules of a Society or Club

The power to amend the rules of a society or club is not a power to destroy its identity. An amendment, even if passed by the requisite majority, cannot alter the fundamental objects, foundation, or basic character of the association. The amendment power is confined to changes that remain within the contemplated scope of the original constitution and are consistent with its essential purposes.

If Principles of Trust in a Club, It is in a Very Limited Sense

In Noel Frederick Barwell Vs. John Jackson (supra) it was held (majority) further as under:

“58. The next argument of learned Counsel is based on the law of trust. He has urged that the property of the club vests in the committee of management and the ordinary and temporary members are all beneficiaries and that under the law of trust all beneficiaries must join in the extinction of the trust. In a sense, “the office bearers of any public body or institution including a club, are trustees, but I am afraid this cannot be of much assistance to learned counsel. There is no question in this case of the right of the officers of the club to put an end to it and I have already said that if there is a trust it is in a very limited sense. This is a case where the members of the club have passed a resolution by a majority, that the club should be dissolved, and the decision must, therefore, to my mind, rest on the decision of two simple questions, firstly whether the rules of the club have made any provision with regard to its dissolution and, if so, whether the rules have been complied with, and secondly, if there is no such rule, whether the resolution is valid and should be given effect to.”

In this decision the minority judge pointed out, as to trust, as under:

“Finally it is said that the committee of the club are trustees of the club property and that the trust could only be extinguished with the consent of all the beneficiaries. But if a trust exists, it is created by the rules of the club and the trustees held the trust property subject to those rules; and if the rules permit of a dissolution at the will of the majority of the members then with the winding up of the club there is an extinguishments of the trust.”

Societies Registration Act Brings-forth ‘Fixity’ or Permanency.

A society or a club is a compendium of its members. Its property is the ‘joint property’ held by the members as ‘non-partiable’ or as ‘joint tenants’ (as differentiated to ‘tenants in common’) till a decision is taken for dissolution. If such property is maintained for the benefit of its future members also (and therefore encumbered with obligations as in a ‘trust’), it cannot be dealt with by the members disregarding this objectives of its foundation.

Registration of a society under the Societies Registration Act makes a sea-change with respect to the disposal of the property on dissolution; and a perpetual succession is conceded thereto. even if the property could have been distributed among its members on its dissolution, by virtue of registration, the dealings as to the property on its dissolution, is governed under the provisions of the Societies Registration Act alone. [ Board of Trustees, Ayurvedic & Unani Tibia College, Delhi Vs. The State: AIR 1962 SC 458. Dennis Lloyd, ‘Law relating to Unincorporated Associations’ (1938 Edn) quoted.]

The members of a registered Society are trustees for the future members of the Society. Registration of a Society brings-in permanency. The left-behind-property of a Society, on dissolution, goes to another Society as determined by the members of the Society or by the court (Sec. 14 of the So. Regn. Act ). Either during the subsistence of a Society or at the time of its dissolution, the members of a Society do not have any kind of beneficial-enjoyment over its property. [Board of Trustees, Ayurvedic & Unani Tibia College, Delhi Vs. The State of Delhi: AIR 1962 SC 458– Para 23]. As shown above, in Pamulapati Buchi Naidu College Committee, Nidubrolu Vs. Govt. of Andhra Pradesh, [AIR 1958 A P 773: See: also: Raj Kumar Gaba Vs. State of UP: 2012-49 VST 252; Commissioner of Income Tax Vs. Merchant Navy Club: 1974-96 ITR 261; Gurdwara Prabandhak Committee Vs. Jagmonan Singh: ILR 1971-2 Del 515] it was observed that the Societies Registration Act did not create in the members of the registered society any interest other than that of ‘bare trustees‘.

Sec. 14 of the So. Regn. Act reads as under:

14. Upon a dissolution no member to receive profit: If upon the dissolution of any society registered under this Act there shall remain, after the satisfaction of all its debts and liabilities, any property whatsoever, the same shall not be paid to or distributed among the members of the said society or any of them, but shall be given to some other society, to be determined by the votes of not less than three-fifths of the members present personally or by proxy at the time of the dissolution, or in default thereof, by such court as aforesaid:

Sec. 14 of the So. Regn. Act is enacted footing on the following general principles of law:

once a trust, always a trust;[See Narayanan Vs. Nil: AIR 2005 Mad. 17; M Ashok Kumar Vs. N Janarthana: 2013(7) Mad. LJ 273; T C Chacko Vs. Annamma: AIR 1994 Ker. 107]
cypres doctrine; ie. the court will execute or accomplish the intention of the founder of a trust ‘as nearly as possible’ when it becomes impossible to carry out his intentions; and
the court is the protector of all charities. [C Chikka Venkatappa Vs. D Hanumanthappa: 1970 (1) Mys LJ 296; Narayan Krishnaji Vs. Anjuman E Islamia: AIR 1952 Kar 14: Thenappa Chattier Vs. KuruppanChhietier AIR 1968 SC 915]

Fiduciary Position of Governing Body Members

The term ‘fiduciary’ as an adjective means ‘in the nature of a trust, having the characteristics of a trust, analogues to a trust; relating to or founded upon a trust or confidence’. ‘Fiduciary relationship’ invariably involves dominion over property which is wholly lacking in the case of a contract of suretyship or guarantee, that the surety has not received anything nor has he been given dominion with money or property and that he has no liability to account. There is no fiduciary capacity involving liability to account in relation to another. Mere confidence also cannot result in a fiduciary relationship.

Black’s Law Dictionary defines ‘fiduciary relationship’ as under:

“A relationship in which one person is under a duty to act for the benefit of the other on matters within the scope of the relationship. Fiduciary relationships, such as trustee-beneficiary, guardian-ward, agent-principal, and attorney-client, require the highest duty of care. Fiduciary relationships usually arise in one of four situations : (1) when one person places trust in the faithful integrity of another, who as a result gains superiority or influence over the first, (2) when one person assumes control and responsibility over another, (3) when one person has a duty to act for or give advice to another on matters falling within the scope of the relationship, or (4) when there is a specific relationship that has traditionally been recognized as involving fiduciary duties, as with a lawyer and a client or a stockbroker and a customer.”

Directors of a company stand in a fiduciary[Biji Pothen Vs. Thankamma John: 2012(3) Ker LT 658] position and they are legally bound to exercise their powers for the company’s benefit. They have to protect the interest of the company and its shareholders. They cannot take part in any resolution under which they gain any benefit. If interested directors take part in such transactions there would be an irregularity and it renders the resolutions voidable at the instance of the company. [See: Narayandas Shreeram Somani Vs. Sangli Bank Ltd. AIR 1966 SC 170; See also: Seth Mohan Lal Vs. Grain Chambers Ltd., Muzaffarnagar: AIR 1968 SC 772; Shackleton on the Law and Practice of meetings, 7th edition (1983), Page 230]

The general principles as to the rights and responsibilities of the directors of a company apply to the governing body members of a society also.

Fiduciary Relationship Will Not be Allowed to be Varied

It is held by our Apex Court in Marcel Martins Vs. M Printer [AIR 2012 SC 1987. Relied on Central Board of Secondary Education Vs. Adiya Bandopadhyay: (2011) 8 SCC 497] as under:

“It is manifest that while the expression “fiduciary capacity” may not be capable of a precise definition, it implies a relationship that is analogous to the relationship between a trustee and the beneficiaries of the trust. The expression is in fact wider in its import for it extends to all such situations as place the parties in positions that are founded on confidence and trust on the one part and good faith on the other.”

Principles in Sec. 46 and 47 of the Indian Trusts Act (a trustee cannot renounce or delegate duties) are applied to various affairs of fiduciary relationship,[Bonnerji Vs. Sitanath: 49 IA 46: Referred to in Arjan Singh Vs. Deputy Mal Jain: ILR 1982- 1 Del 11.]by our Courts, as they contain the common law principles of the universal rules of equity, justice and good conscience upheld by the English judges.

S. 46 and 47 of the Indian Trusts Act reads:

46. A trustee who has accepted the trust cannot afterwards renounce it except (a).. (b)..(c)..
47. A trustee cannot delegate his office or any of his duties either to a co-trustee or to a stranger, unless (a) … (b) … (c) … (d) ….

In State of Uttar Pradesh Vs. Bansi Dhar[49] it is held by VR Krishna Iyer J. –

“But while these provisions (of Indian Trusts Act) proprio vigore do not apply, certainly there is a common area of legal principles which covers all trusts, private and public, and merely because they find a place in the Trusts Act, they cannot become ‘untouchable’ where Public Trusts are involved. Case must certainly be exercised not to import by analogy what is not germane to the general law of trusts, but we need have no inhibitions in administering the law by invoking the universal rules of equity and good conscience upheld by the English Judges, though also sanctified by the statute relating to private trusts. The Courts below have drawn inspiration from Section 83 of the Trusts Act and we are not inclined to find fault with them on that score because the provision merely reflects a rule of good conscience and of general application.”

Sec. 46 and 47 of the Indian Trusts Act make it clear: a fiduciary relationship and duties attached thereto should not be unilaterally allowed to be terminated or varied [Bonnerji Vs. Sitanath: 49 IA 46: Referred to in Arjan Singh Vs. Deputy Mal Jain: ILR 1982- 1 Del 11] as it would be against the interests of society in general. These principles would apply with equal force to servants and, in fact, to anybody who has entered on another’s property in a fiduciary capacity. [Balram Chunnilal Vs. Durgalal Shivnarain: AIR1968 MP 81]

‘If Not Vested in Trustees’: Property Management & Vesting may be Separate

Though the administrative affairs of the societies are carried on by its governing body, the properties of the same may be vested with (separate) trustees (like ecclesiastical authorities, in case of certain religious societies). It is obvious that this system of vesting-of-property in trustees and administration-of-affairs by governing body, is primarily viewed in the So. Regn. Act of 1860 when it refers – ‘if not vested in trustees, shall be deemed to be vested, for the time being, in the governing body’. It is obvious that our law accepts the ‘wider’ or ‘general’ expression as to ‘trust’ (used by the progressive jurists like Salmond and Halsbury) is adopted in the So. Regn. Act. The progressive jurists preferred investing principles of trust in the matters of various fiduciary relationships under which one holds property on behalf of, or for the benefit of, others.

Halsbury’s Laws of England defines ‘trust’ as a confidence reposed in a person with respect to property of which he has possession or over which he can exercise a power, to the intent, that he may hold the property or exercise the power for the benefit of some other person or object. Salmond brings-in principles of trust in the affairs of associations. Salmond reads [12^th Edition, page 257]:

“Thirdly, it is expedient that property in which large numbers of persons are interested in common should be vested in trustees.”

It is held by the Supreme Court in RV Sankara Kurup Vs. Leelavathy Nambiar[AIR 1994 SC 2694] that the property in the hands of the agent was for the principal and the agent stood in the fiduciary capacity for the beneficial interest he had in the property as a trustee. The petitioner had acted as an agent as a cestui que trust was a trustee and he held the property in trust for the respondent in his fiduciary capacity as an agent or trustee and he had a duty and responsibility to make over the unauthorised profits or benefits he derived while acting as an agent or a trustee and properly account for the same to the principal. Therefore, the High Court was right in its holding that the petitioner was an agent and trustee acted in the fiduciary capacity on behalf of the respondent-plaintiff as General power-of-attorney.

If a trust is created for the benefit of a religious society, such trust shall continue to exist and it would not cease to exist by the resolution of the society. Such ‘creation of trust’ is considered by our Apex Court in Vinodkumar M. MalaviaVs. Maganlal Mangaldas Gameti [2013 AIR (SCW) 5782: AIR 2013 SC (CIV) 2849; (2013) 15 SCC 394] and held:

^“The High Court has rightly observed that: ‘… the trust which has been created as public trust for a specific object and the charitable or the religious nature or for the bonafide of the Society or any such institution managed by such trusts for charitable and religious purpose shall continue to exist in perpetuity and it would not cease to exist by any such process of thinking or deliberation or the Resolution, which does not have any force of law’.”

In Church of North India Vs. Lavajibhai Ratanjibhai [AIR 2005 SC 2544: 2005 (10) SCC 760.] it is held that in terms of Section 5 of the Societies Registration Act, the property would vest in the trustees, and that only in the absence of vesting of such properties in the trustees, the same would be deemed to have been vested for the time being in the governing body of such society. [Quoted in Vinodkumar M. Malavia Vs. Maganlal Mangaldas Gameti: 2013 AIR (SCW) 5782: AIR 2013 SC (CIV) 2849; (2013) 15 SCC 394]

In Pamulapati Buchi Naidu College Committee, Nidubrolu Vs. Govt. of Andhra Pradesh,* holding what was vested in the College Committee or its governing body was a right of management simpliciter and there was no question of the members of the society or the members of the governing body being beneficially interested in its property, it was observed that the Societies Registration Act, therefore, did not create in the members of the registered society any interest other than that of bare trustees.

*AIR 1958 AP 773: See also: Raj Kumar Gaba Vs. State of UP: 2012-49 VST 252; Commissioner of Income Tax Vs. Merchant Navy Club: 1974-96 ITR 261; Gurdwara Prabandhak Committee Vs. Jagmonan Singh: ILR 1971-2 Del 515; Chief Controlling Revenue Authority Vs. H Narasimhaiah: AIR 1991 Kar 392.

‘If not Vested in Trustees’: Principles of Trust , not Alien to Affairs of Societies

Sec. 5 SR Act reads:

“Property of Society how vested: The property movable and immovable, belonging to a society registered under this Act, if not vested in trustees shall be deemed to be vested, for the time being, in the governing body…”

The principles of trust are not alien to the affairs of societies. Following propositions can be legitimately put forward from Sec. 5, SR Act. That is,

(a) The system of vesting-of-property in trustees is primarily viewed in the So. Regn. Act of 1860.
(b) a society can be formed by the beneficiaries of a trust, or by its administrators;
(c) one can ‘transfer’[Section 6 of the Indian Trust Act requires ‘transfer’ for formation of a trust] property to a society creating a trust; [See Note hereunder: “Can a Society or Corporation be a Trustee?”]
(d) a trust can be created on the property of a society for the benefit of its (present and future) members and/or outsiders; and
(e) a society can be formed simultaneously with creation of a trust over the property dedicated to, or set apart for the benefit of, the members of the society; or for the benefit of such members and outsiders.It is observed in Church of North India Vs. Lavajibhai Ratanjibhai [AIR 2005 SC 2544: 2005 (10) SCC 760] that the society and (public) trust can be ‘one entity’.

If a society is formed by the beneficiaries of a public trust the trust nature of the property continues; and the trust property remains vested in (separate) trustees (if the trustees are not the governing body of the society as per the bye laws of the society).

In terms of Section 5 of the Societies Registration Act, property of a society would vest in the trustees; and only in the absence [See: Church of North India Vs. Lavajibhai Ratanjibhai: AIR 2005 SC 2544. Followed in Vinodkumar M. Malavia Vs. Maganlal Mangaldas Gameti: (2013) 15 SCC 394] of vesting of such property in the trustees the same would be deemed to have been vested for the time being in the governing body of such society. [See note below: Apparent Incongruity in Sec. 5 and 16 Explained]

Governing body is defined in Sec. 16 as under:

The governing body of the society shall be the governors, council, directors, committee, trustees, or other body to whom by the rules and regulations of the society the management of its affairs is entrusted.

Such trust can also be a ‘public/religious trust’ like a church that came for consideration of our Apex Court in Church of North India Vs. Lavajibhai Ratanjibhai [AIR 2005 SC 2544: 2005 (10) SCC 7604] and Vinodkumar M. Malavia Vs. Maganlal Mangaldas Gameti. [2013 AIR (SCW) 5782: AIR 2013 SC (CIV) 2849; (2013) 15 SCC 394] In public trust, the beneficiaries will be the general public or a class thereof.

See: Deoki Nandan Vs. Murlidhar: AIR 1957 SC 133; Commissioner of Endowments Vs. Vittal Rao: AIR 2005 SC 454; Bala Shankar Maha Shanker Bhattjee Vs. Charity Comr Gujarat State: AIR 1995 SC 167, Jammi Raja Rao Vs. Anjaneya Swami Temple Valu: AIR 1992 SC 1110, Radhakanta Deb Vs. Comr of Hindu Religious Endowments Orissa: AIR 1981 SC 798, Commissioner For Hindu Religious And Charitable Endowments Mysore Vs. Ratnavarma Hegade: AIR 1977 SC 1848, Dhaneshwarbuwa Guru Purshottambuwa Owner of Shri Vithal Rukhamai Sansthan Vs. Charity Commissioner State of Bombay : AIR 1976 SC 871; Mahant Shri Srinivas Ramanuj Das Vs. Surajnarayan Das: AIR 1967 SC 256

The property of such a public/religious trust shall continue to exist in perpetuity, and it shall not cease to exist by the resolutions of the society. [Church of North India Vs. Lavajibhai Ratanjibhai: AIR 2005 SC 2544: 2005 (10) SCC 760]

The definition of ‘Member’ (in Sec.15)* in the So. Regn. Act, 1860 is not exhaustive as it is ‘for the purposes of this Act’ alone. It is confined to the activities enjoined to the ‘members’ in the So. Registration Act [ie. to make bye laws (S. 9), to take part in the meeting to amend the ‘purposes’ (S. 12), to take decision to ‘amalgamate’ with another society (S.12), dissolution (S. 13), etc.]. Non-fulfillment of requirements specified in the definition (payment of subscription and signature in the roll/list of members) does not bar a person -especially when it is a religious society – to be its ‘member’, if he is eligible to be a member as per the bye laws of the society. It also does not downbeat the propositions on ultimate ‘vesting of property’ in ‘members’ of a society.

*Sec. 15 reads: “Member defined: For the purposes of this Act a member of a society shall be a person who, having been admitted therein according to the rules and regulations thereof, shall have paid a subscription, or shall have signed the roll or list of members thereof, and shall not have resigned in accordance with such rules and regulations….”

If the property is set apart for the benefit of its present members (or society) alone, there will not be any trust. The effect of the Societies Registration Act is not to invest properties of the society with the character of trust property. [Keshava Panicker Vs. Damodara Panicker: AIR 1976 Ker 86; See also: C Chikka Venkatappa Vs. D Hanumanthappa 1970 (1) Mys LJ 296; ‘Abhaya’ a Society Vs. Raheem: AIR 2005 Ker 233.]

Apparent Incongruity in Sec. 5 and 16 Explained

A conjoint reading of Sec. 5 and 16 may raise an inappropriateness as to the position of trustees; that is, whether trustees stand independent of the governing body (Sec. 5) or whether they stand included in the governing body (Sec. 16).

Because,

Sec. 5 lays down that ‘the property, belonging to a society, if not vested in trustees shall be deemed to be vested, for the time being, in the governing body’; and
Sec. 15 lays down that ‘the governing body of the society shall be the governors, council, directors, committee, trustees, or other body to whom by the rules and regulations of the society the management of its affairs is entrusted’.

It can be explained by the following propositions.

Both are used ‘independently’.
The scheme of the Act provides that the ‘property belonging to a society’ can be vested in an ‘independent’ trust (the trustees of which can be persons other than members of the society). [See Notes Hereunder: Church of North India Vs. Lavajibhai Ratanjibhai]
The scheme of the Act provides that trustees of such trust (even though they are not members of the society) can be the governing body, if the bye laws so provide. (It is noteworthy that the So. Regn. Act does not expressly deal with election of Governing Body.)

No provision in the SR Act to change the character of the Society to a Trust

In Chief Controlling Revenue Authority Vs. H Narasimhaiah, AIR 1991 Kar 392 (S. Mohan, Shivaraj V. Patil, JJ.), it is found as under:

“Further, according to section 14 of the Karnataka Societies Registration Act, 1960, the property, movable and immovable, belonging to the society, shall, if not vested in the trustees, shall vest with the governing body. Secondly, there is no provision in the Act to change the character of the society to a trust. The only provision is section 21 which provides for amalgamation of societies. As there is no provision to convert a society into a trust, the transaction in effect amounts to a transfer of the property thereby attracting higher stamp duty as a settlement. The term ‘declaration of trust’ as provided in article 54 of the Act is not defined but recourse can be had to the Indian Trusts Act where the term ‘trust’ has been defined as a confidence reposed in a person regarding a property. As such, a declaration of trust involves vesting of property out of confidence reposed in him. Here, in this case, there is already a society owning properties which transfers the property to a trust or transforms itself into a trust.”

Founding Endowment by Subscriptions or Donations

In ancient times religious institutions were founded and managed by rulers, or wealthy persons or families. But, in modern times the trusts are mostly founded by associations of persons, and are administered by them, as trustees.

Where a person collects subscription from various persons and builds a choultry or a temple he has a right to direct in what manner the institution should be managed and what right the trustees should have in the management of that institution. This is recognised by the Hindu Law.

There is nothing illegal or improper in a person who builds a temple whether out of his own funds or out of the funds collected by subscriptions [Re St. Leonard (1884) 10 A.C. 304] or getting donations from people to create a trust and endow it, directing by the deed of endowment, in what manner and by whom it should be managed. [Settikara Venkatarama Chettiar Vs. Opdamodaram Chettiar: LAWS(PVC) 1925-11-220] If a number of persons provide the original endowment, they may apparently together constitute the founder. [Ananda Chandra Chuckerbutly Vs. Braja Lal Singh (1922) I.L.R. 50 C. 292; Re St. Leonard (1884) 10 A.C. 304; Settikara Venkatarama Chettiar Vs. Opdamodaram Chettiar: LAWS(PVC) 1925-11-220] Every donor contributing at the time of foundation of a trust may not be a founder of the trust. Whether a contributor would become a joint founder of the trust would depend not merely upon the fact of his contribution but also upon the surrounding circumstances and the subsequent conduct of the parties. [Thenappa Chettiar Vs. N S Kr Karuppan Chettiar: AIR 1968 SC 915]

In Attorney-General Vs. Clapham [(1855) 43 E.R. 638] Lord Cranworth, Lord Chancellor observed as under:

“Where a fund is raised for a charitable purpose like that of founding a chapel and the contributors are so numerous as to preclude the possibility of their all concurring in any instrument declaring the trusts, but such a declaration is made by the persons in whom the property is vested, at or about the time when the sums have been raised, that declaration may reasonably be taken prima facie as a true exposition of the minds of the contributors. The presumption is, that the trusts declared were those which the contributors intended. It would be open to them, if the trusts were not so framed as to effect the object they had in view, to take steps for getting any errors corrected. If no such steps are taken, it must be assumed that the instrument declaring the trusts fairly embodies the intentions of the contributors.” [Quoted in: Settikara Venkatarama ChettiarVs. OP Damodaram Chettiar: AIR 1926 Mad 1150: (1926) 51 MLJ 457]

Effect of Subsequent Transformation of a Trust as a Society

Section 2(13) of the Bombay Public Trusts Act reads:

” ‘Public trust’ means an express or constructive trust for either a public religious or charitable purpose or both and includes a temple, a math, wakf, a dharmada or any other religious or charitable endowment and a society formed either for a religious or charitable purpose or for both and registered under the Societies Registration Act. 1860.”

The registration of the trust under the Societies Act would not alter the nature and character of its property. [Sukumaran Vs. Akamala Sree Dharma Sastha Idol: AIR 1992 Ker 406]In Amrithakumari Vs. VP Ramanathan, [1999 (1) CCC 238 (Ker.)] it has been held by the Kerala High Court that if there was a charitable trust created by the public, the fact of its subsequent transformation, or its registration, as a Society, could not change the trust-character of its property; and in such a case, suit could be filed under Sec. 92 CPC.

Even after formation of a society by the persons in management of an already existing trust/institution, the trust/ institution continues to hold its ‘trust-identity’. The same is the position even if the beneficiaries of a trust formed a society. In Rajan Devasahayam Vs. Hindustan Bible Institute of India, it was observed that a Trust can be registered under the Societies Registration Act. [1996 (1) L.W. 533. Referred to in Kishorelal Asera Vs. Haji Essa Abba Sait Endowments : 2003-3 Mad LW 372: 2003-3 CCC367]

Minority Status of an Educational Institution will not Lose on Registration

The majority in the seven-judge Constitution Bench in Aligarh Muslim University v. Naresh Agarwal, 2024 SCC Online SC 3213, ruled that AMU’s minority status will be lost on its registration as a Society.

Governing Body Administers Subject To Trust

The trustees or the governing body administer the ‘property of the society’ as per its bye laws so as to fulfill or attain the ‘aim and objects’ the founders viewed. Expressions in the Societies Registration Act, ‘property belonging to a society’ (Sec. 5) and ‘property of the society’ (Sec. 8 and 10), do not give the society a corporate status; it ‘merely describes the property which vests in trustees or Governing Body.’[Board of Trustees, Ayurvedic & Unani Tibia College, Delhi Vs. The State of Delhi: AIR 1962 SC 458: Para 11] They acquire and hold the property for and on behalf of [See: Harbour Division II, Madras Vs. Young Men’s Indian Association: AIR 1970 SC 1212] the members of the society subject to the obligations imposed by law, the bye laws and the fundamental principles [Prasanna Venkitesa Rao Vs. Srinivasa Rao: AIR 1931 Mad. 12: Milligan Vs. Mitchel: 40 ER 852; Free Church of England Vs. Overtoun: (1904) AC 515 referred to. See also: Inderpal Singh Vs. Avtar Singh (2007-4 Raj LW 3547)] or trust* upon which it is founded. These propositions upheld by our courts also lead to the unerring conclusion that our law brings-in principles of trust in the affairs of the societies and clubs.

*See: Church of North India Vs. Lavajibhai Ratanjibhai: AIR 2005 SC 2544; Vinodkumar M. Malavia Vs. Maganlal Mangaldas: 2013 AIR (SCW) 5782; (2013) 15 SCC 394. See also: Harbour Division II, Madras Vs. Young Men’s Indian Association: AIR 1970 SC 1212.

Effect of Unification of a Trust and a Registered Society

Trusts and societies can be dissolved only by adhering to the special procedures for the same. Unification of a registered society with a trust, under the resolutions, will not dissolve the society, automatically. Similarly, unless the properties vested in a trust are divested in accordance with law, a lawful merger cannot be claimed. Registered societies and trusts have to resort to the lawful modes for amalgamation. [Vinodkumar M. Malavia Vs. Maganlal Mangaldas Gameti: 2013 AIR (SC)(CIV) 2849; 2013 AIR (SCW) 5782; (2013) 15 SCC 394]

No principle of law permits transfer of trust

Trust is a confidential relationship which involves a special duty of loyalty to the purpose or object of the trust. Our Apex Court has held that there is no principle of law or precedent which permits transfer of trust in favour of another body of persons. [Abdul Kayua Vs. Alibhai: AIR 1963 SC 309: Referred to in Arjan Singh Vs. Deputy Mal Jain ILR 1982-1 Del 11] The Karnataka High Court held that the documents as to conversion of the properties of a society into a trust property fall within the meaning of ‘settlement’ under the Stamp Act.[Chief Controlling Revenue Authority Vs. H Narasimhaiah: AIR 1991 Kar 392] _{(It may be noted that, in this case, the court did not consider whether ‘trust’ was an ‘institution’ and whether such a change amounts to dissolution of the society.)} In Shri Digambar Jain v. Sub Registrar, Stamps, Indore [AIR 1970 MadhPra 23(FB)] it is held in a similar situation that the documents would be ‘Declaration of Trust’ and not a ‘Conveyance’.

Duty of Courts to Protect Trusts

In AA Gopalakrishnan Vs. Cochin Devaswom Board [AIR 2007 SC 3162] while adverting to the need for protecting the properties of deities, temples and Devaswom Boards, our Apex Court observed that it is also the duty of Courts to protect and safeguard the properties of religious and charitable institutions from wrongful claims or misappropriation. [It is referred to in Mandal Revenue Officer Vs. Goundla Venkaiah: AIR 2010 SC 744]

‘Breach of an Obligation’ in Sec. 38 of the Specific Relief Act

Under Sec. 38 of the Specific Relief Act the court is expressly authorised to grant injunctions to prevent breach of an obligation existing in favour of the plaintiff or where the defendant is trustee of the property for the plaintiff. Sec. 38 of the Sec. 38 of the Specific Relief Act reads:

“38. Perpetual injunction when granted.—(1) Subject to the other provisions contained in or referred to by this chapter, a perpetual injunction may be granted to the plaintiff to prevent the breach of an obligation existing in his favour, whether expressly or by implication.
(2) When any such obligation arises from contract, the Court shall be guided by the Rules and provisions contained in Chapter II.
(3) When the defendant invades or threatens to invade the plaintiff’s right to, or enjoyment of property, the Court may grant a perpetual injunction in the following cases, namely;

(a) where the defendant is trustee of the property for the plaintiff;
(b) where there exists no standard for ascertaining the actual damage caused, or likely to be caused, by the invasion;
(c) where the invasion is such that compensation in money would not afford adequate relief;
(d) where the injunction is necessary to prevent a multiplicity of judicial proceedings.

The word obligation is defined in Sec. 2 of the Specific Relief Act with a wider meaning. It is so wide that it encompass obligations ‘whether expressly or by implication’. It also reads: ” ‘obligation’ includes every duty enforceable by law to include ‘every duty enforceable by law”. The word ‘trust’ is also used in a wider sense _{[Rotopacking Materials Industry Vs. Ravider Kumar Chopra: 2003(6) BCR 6; Smt. Parul Bala Roy Vs. Srinibash Chowmal: AIR 1952 Cal 364; Referred to in Arun Kumar Mitra Vs. Gorachand Saheb Sekh Abdul: AIR 2005 Cal 178.]} in this Act as under: ” ‘trust’ has the same meaning as in Section 3 of the Indian Trusts Act, 1882 (2 of 1882), and includes an obligation in the nature of a trust within the meaning of Chapter IX of that Act.” It is also noteworthy that ‘trust’ is not alien to the affairs of a society inasmuch as the administrators of societies can be ‘trustees’ as seen from Sec. 5 and 16 of the Societies Registration Act, 1860.

Court is the Ultimate Protector of All Charities

As in the case of English Law, Indian Law also accepts court as the ultimate protector of all charities. _{[Narayan Krishnaji Vs. Anjuman E Islamia: AIR 1952 Kar 14; Thenappa Chattier Vs. Kuruppan Chhietier AIR 1968 SC 915; P. Mdhadevayya v. G. Mallikarjuniah: 53 Mys. HCR 167; Referred to in C Chikka Venkatappa Vs. D Hanumanthappa 1970 (1) Mys LJ 296]}Court is the guardian of the public charitable trust/institution._{[ChHoshiar Singh Mann Vs. Charan Singh 2009-162 DLT 208 : ILR 2009-19 Dlh 265]; See also: I Nel Son Vs. Kallayam Pastorate AIR 2007 SC 1337]}

The court has jurisdiction to enforce trusts.[See: CK Rajan Vs. Guruvayoor Devaswom Managing Committee: AIR 1994 Ker 179 – Appeal Judgment: AIR 2004 SC 561: (2003) 7 SCC 546; C Chikka Venkatappa Vs. D Hanumanthappa 1970 (1) Mys LJ 296; Thenappa Chattier Vs. Kuruppan Chhietier AIR 1968 SC 915 ; Ch Hoshiar Singh Mann Vs. Charan Singh ILR 2009 (19) Dlh 265; I Nel Son Vs. Kallayam Pastorate: AIR 2007 SC 1337; Sk. Abdul Kayum Vs. Mulla Alibhai: AIR 1963 SC 309; Subramonia Pillai Chellam Pillai Vs. Subramonia Pillai Chathan Pillai: AIR 1953 TC 198; M.G. Narayanaswami Naidu Vs. M. Balasundaram Naidu: AIR 1953 Mad 750.]

Gift on Trust to a Society

If property is gifted to a registered society on condition tht the property should be used for public purposes and cast duties on the society to act as trustee a trust is brought home. [Swami Shivshankargiri Chella Swami Vs. SatyaGyan Nikethan: AIR 2017 SC 1221]

Church of North India Vs. Lavajibhai Ratanjibhai [AIR 2005 SC 2544: 2005 (10) SCC 760]

Brief facts: The Church, FCDB, was a registered religious society. This Church and the other 6 Churches resolved to dissolve and consolidate into a single entity, The Church of Northern India (CNI). The ‘CNI Trust Association’ was subsequently formed under the Companies Act and was appointed as the trustee of the CNI. Defendants 1 to 4 (though given consent to unification proceedings earlier) obstructed the functioning of the CNI and asserted their independent right to hold all the movable and immovable properties of their congregation (Valsad Brethren Church) and took the stand that there was no resolution for ‘dissolution’ as set out in the So. Regn. Act.

During the pendency of the suit, unification was ‘given effect to’ by the Charity Commr. under the BPT Act. The plaintiffs filed the suit to declare ‘that the former FDCB has ceased to exist’ and ‘that the CNI is the legal continuation and successor of the FDCB …’ etc. The Civil Court may have jurisdiction over a matter which is outside the purview of the Act, or over a question that arises in relation to a matter unconnected with the administration or possession of the trust property.

The effect of ‘dissolving’ a registered society (FDCB) by taking a resolution for unification with other associations (Churches) to form a single entity (CNI) was placed for consideration of our Apex Court several times. Besides, this decision (Lavajibhai Ratanjibhai), Vinodkumar M. Malavia Vs. Maganlal Mangaldas Gameti [(2013) 15 SCC 394; 2013 AIR (SCW) 5782: AIR 2013 SC (CIV) 2849] is important among them. The dismissal of the suit was upheld by our Apex Court, holding that the civil court has no jurisdiction where a bar is imposed in relation to a matter over which the statutory authorities (under BPT Act) have the requisite jurisdiction and that a society created under a statute must conform to its provisions, and the courts would interfere in case of its violation.[See also: The Commissioner, Hindu Religious Endowments, Madras Vs. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, AIR 1954 SC 282; Ratilal Panachand Gandhi Vs. State of Bombay AIR 1954 SC 388.]

It was observed, inter alia, in this land-mark decision (Church of North India Vs. Lavajibhai Ratanjibhai),rendered by SB Sinha, J:

“In terms of Section 5 of the Societies Registration Act, all properties would vest in the trustees and only in case in the absence of vesting of such properties in the trustees would the same be deemed to have been vested for the time being in the governing body of such property. In this case, it is clear that the properties have vested in the trustees and not in the governing body of the society.” (Para 60)
“Unless a suit is filed in terms of Section 13 of the Act, the society is not dissolved.” (Para 64)
“Concededly, the properties of the trust being properties of the religious trust had vested in such trust.” (Para 64)
“If the properties of the churches did not belong to the society, the appellant herein cannot claim the same as their successor.” (Para 64)
“Even if it is contended that the administration of the property would mean the properties of the Brethren church both as a trust and as a society, still then having regard to the legal position, as discussed supra, the property belonging exclusively to the trust, the suit will not be maintainable (by virtue of the provisions of the BPTA).” (Para 64)

It was observed in Vinodkumar M. MalaviaVs. Maganlal Mangaldas Gameti,[(2013) 15 SCC 394; 2013 AIR (SCW) 5782: AIR 2013 SC (CIV) 2849] inter alia:

“The argument that as per Article 254 of the Constitution, the Societies Registration Act overrides the BPTA or that the Societies Registration Act and BPTA are in conflict, does not stand either, since both the statutes are not in conflict with each other. On the contrary, they are in consonance with each other regarding the administration and regulation of public and religious trusts.”
“The High Court has rightly observed that: ‘… The trust which has been created as public trust for a specific object and the charitable or the religious nature or for the bonafide of the Society or any such institution managed by such trusts for charitable and religious purpose shall continue to exist in perpetuity and it would not cease to exist by any such process of thinking or deliberation or the Resolution, which does not have any force of law’.”

Effect of Dedication of Property (for Public) by Society

Can a Society or Corporation be a Trustee?

A corporation can be a trustee. Earlier notion that a corporation could not be a trustee, as the property held by the Company or Corporation as its ‘beneficial owner’ could not be subjected to a trust for the benefit of third parties is not accepted by modern jurists.

N. SuryanarayanaIyer, in the Indian Trusts Act, observed as under:

“Formerly the notion was that the relationship of a trustee being one of confidence involving a personal element, a corporation could not be a trustee as there could not be a question of confidence being reposed in a corporation and therefore that it could not be a trustee. This notion, however, has long ago been given up. Corporate bodies have been held to be amenable to the jurisdiction in Chancery and compellable to carry out the intentions of the settlor of property which has been vested in them…. Under the Indian law also a corporation, whether aggregate or sole, can be a trustee and there is ample jurisdiction in the court to enforce the performance of its duty by such trustee.” [Quoted in: B. Ramachandra Adityan Vs. Educational Trustee Co. (P.) Ltd.: 2003-113 Comp Cases 334.]

As shown above, generally, a Society acquires property to use the same for its objectives or purposes and for its own benefit; or in other words, ultimately for the benefit of the ascertainable members of the society. And, there will be neither public trust nor dedication of property, divesting the rights of the society, for any ‘public purpose of a charitable or religious nature’.

But, if a contra indication is manifested from the basic documents and assertions of a society (or a Non-Trading-Company) or from the very nature of an institution — that is, where the property is raised solely for the purpose of dedicating the same for establishing and maintaining a public trust/institution for the benefit of the general public or of an unascertainable section thereof as in the case of a church or temple(or, where the society and trust ‘is only one entity’ as the one considered in Church of North India Vs. Lavajibhai Ratanjibhai) [AIR 2005 SC 2544: 2005 (10) SCC 760] — no doubt, it cannot be treated as the property ‘exclusively’ belonging-to-the-society and not bound by Sec. 92 CPC. In other words, if a society is formed with the object of dedicating property for a public or charitable (including religious) purpose and the property procured by the society is validly dedicated, a trust will be predicated.

A Society May Be Subjectd To The Jurisdiction of Section 92 CPC

In Young Mens Christian Association of Ernakulam Vs. National Council YMCAs of India[101] the Delhi High Court considered whether the term “express or constructive trust” in Section 92 CPC was attracted when a society (National Council YMCAs of India) held ‘in trust’ property belonging to different organisations, and observed as under:

“In this backdrop, a perusal of Section 92 of the CPC reveals that the term “express or constructive trust” does not relate to a trust constituted under the Indian Trusts Act, but anybody or entity which holds in trust any property and is created for public purposes of a charitable or religious nature. A society can also satisfy the test of express or constructive trust created for public purposes.”

The court found that the National Council YMCAs was in both ‘express’ and ‘constructive’ trust of the properties belonging to its member YMCAs. The mere fact that the defendant is a registered society did not take away its true character. The defendant is an organisation which worked for a public purpose and is subject to the jurisdiction of Section 92 of the CPC.

The defendant (National Council YMCAs of India) contended that it was not a trust but a society registered under the Societies Registration Act. There was a clear distinction between the nature of a trust and a society. If only it could be proved that the society could in fact be termed as a trust created for public purposes of a charitable or a religious character, leave under Section 92 of the CPC could be granted. The settled position on this issue was that if a society that was functioning in a fully democratic fashion, and there was no settler who had vested property in the society, leave could not be granted under Sec. 92. The defendant relied upon the following judgments:

K. Rajamanickam Vs. Periyar Self Respect Propaganda Institution, Tiruchirapalli: AIR 2007 Mad 25
S. Guhans Vs. Rukmani Devi Arundale: 1987-100 LW 182
Advocate General Vs. Bhartiya Adam Jati Sewak Sangh: 2001-3 ShimLC 319
Abhaya A Society Registered under the Travancore-Cochin Literary Vs. J.A. Raheem: AIR 2005 Ker 233
Kesava Panicker Vs. Damodara Panicker, AIR 1976 Ker 86
Swami Shivshankargiri Chella Swami Vs. Satya Gyan Niketan: 2017-4 SCC 771

The High Court distinguished Abhaya A Society, Rukmini Devi Arundale and Bhartiya Adam Jati Sewak Sangh pointing out that these cases did not show that they held ‘in trust’ any property belonging to a different organisation. The property was owned by the Society concerned and it belonged to it. In other cases also, no express or implied trust emerged.

If Valid Dedication, No Change of Character, On Regn. as Socieety

As stated above, normally, the property acquired by a society does not part-take the character of ‘public purpose’ stated in Sec. 92 CPC.[102] But, if a charitable or religious institution of a public nature[103] is expressly or constructively founded by an ascertainable number of persons or an association, by valid dedication of properties acquired by the members or society, it will accomplish the character of ‘public purpose’ stated in Sec. 92 CPC.

Subsequent registration of an association involved in a trust, under the Societies Registration Act, will not make any change to the trust character of the properties dedicated. Kesava Panicker Vs. Damodara Panicker[104] was a case where the entire community in a particular area took an active interest and contributed funds for the purpose of creating ‘a trust fund’ for establishing a school. A committee was formed for collecting funds. Utilising that fund the school building was constructed. Subsequently a society was formed and registered under the Societies Registration Act for the purpose of management of the school. A question arose whether the character of the properties would be changed by the formation of the society. The Full Bench of the Kerala High Court held as under:

“If there was a trust created by the public, for a public charitable purpose namely establishing, maintaining and running a school, the fact of the registration of a society could not change the character of the properties which had already been constituted as trust properties and impressed with the trust and any addition to those properties must also have the same character.”

A Society May Be Subjectd To The Jurisdiction of Section 92 CPC

“In this backdrop, a perusal of Section 92 of the CPC reveals that the term “express or constructive trust” does not relate to a trust constituted under the Indian Trusts Act, but anybody or entity which holds in trust any property and is created for public purposes of a charitable or religious nature. A society can also satisfy the test of express or constructive trust created for public purposes.”

K. Rajamanickam Vs. Periyar Self Respect Propaganda Institution, Tiruchirapalli: AIR 2007 Mad 25
S. Guhans Vs. Rukmani Devi Arundale: 1987-100 LW 182
Advocate General Vs. Bhartiya Adam Jati Sewak Sangh: 2001-3 ShimLC 319
Abhaya A Society Registered under the Travancore-Cochin Literary Vs. J.A. Raheem: AIR 2005 Ker 233
Kesava Panicker Vs. Damodara Panicker, AIR 1976 Ker 86
Swami Shivshankargiri Chella Swami Vs. Satya Gyan Niketan: 2017-4 SCC 771

If Valid Dedication, No Change of Character, On Regn. as Socieety

As stated above, normally, the property acquired by a society does not part-take the character of ‘public purpose’ stated in Sec. 92 CPC [Keshava Panicker Vs. Damodara Panicker AIR 1976 Ker 86; C Chikka Venkatappa Vs. D Hanumanthappa 1970 (1) Mys LJ 296]. But, if a charitable or religious institution of a public nature [Eg. A temple or a math or Guru Granth Sahib, revered in a Gurudwara] is expressly or constructively founded by an ascertainable number of persons or an association, by valid dedication of properties acquired by the members or society, it will accomplish the character of ‘public purpose’ stated in Sec. 92 CPC.

Subsequent registration of an association involved in a trust, under the Societies Registration Act, will not make any change to the trust character of the properties dedicated. Kesava Panicker Vs. Damodara Panicker [AIR 1976 Ker 86] was a case where the entire community in a particular area took an active interest and contributed funds for the purpose of creating ‘a trust fund’ for establishing a school. A committee was formed to collect funds. Utilising that fund, the school building was constructed. Subsequently, a society was formed and registered under the Societies Registration Act for the purpose of managing the school. A question arose whether the character of the properties would be changed by the formation of the society. The Full Bench of the Kerala High Court held as under:

“If there was a trust created by the public, for a public charitable purpose namely establishing, maintaining and running a school, the fact of the registration of a society could not change the character of the properties which had already been constituted as trust properties and impressed with the trust and any addition to those properties must also have the same character.”

Strict English Principles as to Trust, Not Accepted by Indian Law

According to strict English principles, there should be dual ownership upon a trust property; i.e., the legal ownership which is vested with the trustees; and the equitable or beneficial ownership, vested with the beneficiaries [Salmond on Jurisprudence: Eleventh Edition, page 307]. But, the Law on Trust in India, as expounded by judicial decisions, does not recognise legal and equitable ownership, in both public and private trusts. The courts in India confer beneficial interest [Note: Not the ‘proprietary interest’ or interest pertaining to owner; it is the interest pertaining to beneficiaries] alone upon the beneficiaries. [See: Chhatra Kumari Devi Vs. Mohan Bikram Shah: AIR 1931 PC 196; WO Holdsworth Vs. The State of Uttar Pradesh: AIR 1957 SC 887; Commissioner of Wealth Tax Vs. Kripashankar: AIR 1971 SC 2463, Bai Dosabai Vs. Mathuradas: AIR 1980 SC 1334; Bomi Munchershaw Mistry Vs. Kesharwani Co Op Housing Society: 1993-2-BCR-301; Hem Chandra Vs. SuradhamDebya: AIR 1940 PC 134].

Under the orthodox English view of trust, the trust property should be one which is capable of being transferred in favour of the beneficiaries. Since the property of a society does not go at par with the aforesaid English proposition, it can be demonstrated that properties of both registered and unregistered societies are not impressed with characteristics of ‘trust’ in its strict sense.

In Incorporated Body or Club, Trustees Act as Agents

The Supreme Court in Young Men’s India Association case [Harbour Division II, Madras Vs. Young Men’s Indian Association, Madras: AIR 1970 SC 1212] it was observed:

“… The difficulty felt in the legal property ordinarily vesting in the trustees of the members’ club or in the incorporated body was surmounted by invoking the theory of agency, i.e., the club or the trustees acting as agents of the members. ….. What was essential was that the holding of the property by the agent or trustee must be a holding for and on behalf of and not a holding antagonistic to the members of the club. …. The final conclusion of the High Court in the judgment under appeal was that the case of each club was analogous to that of an agent or mandatory investing his own moneys for preparing things for consumption of the principal, and later recouping himself for the expenses incurred. As no transaction of sale was involved there could be no levy of tax under the provisions of the Act on the supply of refreshments and preparations by each one of the clubs to its members.”

Directors of a Company, to Some Extent Trustees

In Piercy Vs. S. Mills and Co. Ltd. [(1920) 1 Ch. 77.] their Lordships observed:

“I cannot look upon the Directors otherwise than as trustees for a public Company, and I must judge of the propriety of their conduct in this matter on the ordinary principle applicable to cases of trustee and cestuique trust. If shares are issued with indecent haste and scramble ………for a different purpose, I have no doubt that the Court will interfere to prevent so gross a breach of trust. If they were issued with the immediate object of controlling the holders of greater number of shares in the Company and of obtaining the necessary statutory majority for passing a special resolution, then it will not be valid or bona fide exercise of power.” (Quoted in Kalinga Tubes Ltd Vs. Shanti Prasad Jain: AIR 1963 Ori 189).

In V S RamaswamyIyer Vs. Brahmayya and Company Official Liquidators Hanuman Bank Limited [ 1966-36 Comp. Cases 270: 1966-1 Mad LJ 234] the Madras High Court referred to various English authorities and pointed out that the directors of a company are not, properly speaking, trustees; yet they have always been considered and treated as trustees of money which comes to their hands. The High Court observed that the law in India regarding the nature of the liability of directors has not been different.

The Court referred to:

Palmer’s Company Law: “Directors are not only agents, but they are in some sense and to some extent trustees or in the position of trustees, but their position differs considerably from that of ordinary trustees, and the strict rules applicable to such trustees do not apply in all respects to directors. “
Charitable Corporation Vs. Sutton:[ 1742-2 Atk. 400] “The directors are persons selected to manage the affairs of the company for the benefit of the shareholders it is an office of trust, which, if they undertake, it is their duty to perform fully and entirely. A resolution by shareholders therefore, that shares or any other species of property shall be at the disposal of directors, is a resolution that it shall be at the disposal of trustees in other words, that the persons entrusted with that property shall dispose of it, within the scope of the functions delegated to them, in the manner best suited to benefit their cestuique trust. “
York and North Midland Ry. Vs. Hudson [1853 16 Beav. 485]
G.E. Ry. Vs. Turner:[ 1872 L.R. 8 Ch. 149] “The directors are the mere trustees or the agents of the company: trustees of the company’s money and property agents in the transaction which they enter into on behalf of the company.”
In Re Forest of Dean Co.: “…….directors are called trustees. They are no doubt trustees of assets which have come into their hands, or which are under their control…… For most purposes it is sufficient to say that directors occupy a fiduciary position and all the powers entrusted to them are only exercisable in this fiduciary capacity. ” [1878 (10) Ch(D) 450]
Buckley on the Companies Acts: “The directors of a company fill a double character. They are (i) agents of the company, and (ii) trustees for the shareholders of the powers committed to them. …. . The assets of the company are entrusted to the directors to be applied for certain defined objects, and they are responsible as for a breach of trust if they apply them to other objects.”
Halsbury’s Laws of England: “A director who has misapplied or retained or become liable or accountable for any money or property of the company, or who has been guilty of nay breach of trust in relation to the company must make restitution or compensate the company for the loss. Where the money of the company has been applied for purposes which the company cannot sanction, the directors must replace it, however honestly they may have acted. The estate of a deceased director has always been liable for his breaches of trust. “
Gore-Browne, Handbook of Joint Stock Companies: “In the case of the death of a director his estate remains liable for any breach of trust he may have committed (including any wrongful dealing with the company’s property, such as a payment of dividend out of capital or sale of its assets at an undervalue)…. ….. In regard to actions for deceit and other wrongs, the principle actiopersonalismoritur cum persona may be mentioned. Under this principle, with regard to actions for wrongs, independent of contract, done either to or by a deceased person in his lifetime, his legal personal representative could neither sue nor be sued. This is still so in some cases, e.g., defamation. Even at common law this principle is subject to the modification that where loss results to the estate of the extent of the loss or profit. “
Flitcroft’s case:[1882 (21) Ch(D) 519] “They are trustees for the company, nor for the individual shareholders. The liquidator represents the company, and is bound to discharge towards the creditors all the duties which the company owes them. It is therefore his duty when such a breach of trust as this is discovered to get a return of the assets improperly expended that they may be applied in payments of debts. The act of the directors is impeached as a breach of trust, not on the ground of tort or misfeasance. There are persons who may be made liable under section 165, without having been guilty of a breach of trust but where the person charged under that section is a trustee, the act which brings him within the section is a breach of trust”
Ramskill Vs. Edwards [1885 Ch(D) 100]
In Re Faure Electric Accumulator Company:[1889 L.R. 40 Ch(D) 141]“ With respect to the capital of the company which is under their management, it has been said that they are `quasi-trustees’ for the company: Flitcroft’s case 1882 L.R. 21 Ch(D) 519. In that and other respects they are, `to a certain extent, trustees’ (Lindley on Partnership). In the language of Lord Romilly, in York and North Midland Ry. Co. Vs. Hudson 1845 16 Beav.485, `The directors are persons selected to manage the affairs of the company, for the benefit of the shareholders it is an office of trust, which, if they undertake, it is their duty to perform fully and entirely.’ They certainly are not trustees in the sense of those words as used with reference to an instrument of trust, such as a marriage settlement or a will. One obvious distinction is that the property of the company is not legally vested in them. Another and perhaps still broader difference is that they are the managing agents of a trading association, and such control as they have over its property, and such powers as by the constitution of the company are vested in them, are confided to them for purposes widely different from those which exist in the case of such ordinary trusts as I have referred to, and which required that a larger discretion should be given to them. Perhaps the nearest analogy to their position would be that of the managing agent of a mercantile house to whom the control of its property and very large powers for the management of its business are confided but there is no analogy which is absolutely perfect. Their position is peculiar because of the very great extent of their powers and the absence of control, except the action of the shareholders of the company.”
Concha Vs. Murrieta:[1889 L.R. 40 Ch(D) 543] “It is true that no action for a tort can be revived or commenced against the representatives of the person who committed it but the case is quite different where the act is not a mere tort, but is a breach of a quasi-contract, where the claim is founded on breach of a fiduciary relation, or on failure to perform a duty. Here the father, though I do not call him a trustee, was in a position in which he owed duties of a fiduciary character to his daughter. In the very careful judgment of Lord Justice Bowen in Philips Vs. Homfray 1883 L.R. 24 Ch(D) 439, cases depending on breach of contract, express or implied, are excepted from the judgment. Here there is what we call a quasi-contract, the law implying a contract that a man will faithfully perform the duties which he has undertaken. Juan Jose Concha undertook a duty in consequence of his position, and losses arising from his breach of it can be followed up against his estate. “
In Re Lands Allotment Company:[1894 L.R. 1 Ch(D) 616] “Then, if it was an improper transaction, all those directors who were parties to this improper investment, for in this point of view it was improper, would naturally and obviously be liable to make good the money……We are asked to say that the directors are liable for these moneys upon the footing that they committed a breach of trust, but that they are not entitled to the benefit of the Statute of Limitations which was passed for the benefit of trustees. I cannot be a party to any decision so supremely absurd. Although directors are not properly speaking trustees, yet they have always been considered and treated as trustees of money which comes to their hands or which is actually under their control and ever since joint stock companies were invented directors have been held liable to make good moneys which they have misapplied upon the same footing as if they were trustees, and it has always been held that they are not entitled to the benefit of the old Statute of Limitations because they have committed breaches of trust and are in respect of such moneys to be treated as trustees.. …….. Now, case after case has decided that directors of trading companies are not for all purposes trustees or in the position of trustees, or quasi-trustees, or to be treated as trustees in every sense but if they deal with the funds of a company, although those funds are not absolutely vested in them but funds which are under their control, and deal with those funds in a manner which is beyond their powers, then as to that dealing they are treated as having committed a breach of trust. I do not believe that there has ever been any deviation from the language of the late Sir George Jessel in the case of In re Forest of Dean Coal Mining Company 1878 L.R. 10 Ch(D) 450. Sir George Jessel said this `Directors are called trustees. They are no doubt trustees of assets which have come into their hands, or which are under their control, but they are not trustees of a debt due to the company.’ So that, when they get assets of the company under their control, or into their hands, and deal with them in a way which is beyond the powers of the company, they are liable as for a breach of trust. “

Implied Trust in Sec. 82 & 94 Applied in a Proposed Society

In Ramchandra Krishna Yadav Vs. Sakharam Gangaram Mali [1996-1 All MR 338], it is observed that an elected Chairman of a proposed society, who admits that he was a leader of the villagers, collected various amounts from the proposed members and purchased the land out of that amount, was in the position as trustee qua the proposed members of the society and must hold the property for their benefit.

Applying Sec. 82 and 94 of the Indian Trusts Act, it was observed that implied trust is created though there was no express trust and no trust deed as such. Section 82 of the Act says that where property is transferred to one person for a consideration paid or provided by another person, and it appears that such other person did not intend to pay or provide such consideration for the benefit of the transferee he must hold the property for the benefit of the person paying or providing the consideration. What are called ‘express trusts’ in English Courts are called merely ‘trusts’ in the Indian Trusts Act and are dealt with therein under Sections 4 to 79; while what are called ‘constructive or implied trusts’ in English Law are called “obligations in the nature of trust” and are dealt with in Chapter IX containing Sections 80 to 96 of the Indian Trusts Act.

Church: Voluntary Association & Religious Trusts

The word ‘church’ is used to denote, generally, two ideas: voluntary association of Christians and place where persons regularly assemble for worship. Halbury’s Laws of England [4th Edition] gives the meaning of ‘Church’ as under:

“Church, when used in relation to a religious body, has two distinct meaning; it may mean either the aggregate of the individual members of thechurch or it may mean the quasi-corporate institution which carries on the religious work of the denomination whose name it bears.”

Blacks Law Dictionary defines church as under:

“Church. In its most general sense, the religious society founded and established by Jesus Christ, to receive, preserve, and propagate His doctrines and ordinances. It may also mean a body of communicants gathered into church order; body or community of Christians, united under one form of government by the profession of the same faith and the observance of the same ritual and ceremonies; place where persons regularly assemble for worship; congregation; organization for religious purposes; religious society or body; the clergy or officialdom of a religious body.”

It is observed in Most Rev. PMA Metropolitan Vs. Moran Mar Marthoma [AIR 1995 SC 2001] as under:

“A church is formed by the voluntary association of individuals. And the churches in the commonwealth are voluntary body organised on a consensual basis their rights apart from statutes will be protected by the courts and their discipline enforced exactly as in the case of any other voluntary body whose existence is legally recognized. ……”

Two (Kinds of) “Trusts” over the Parish or Branch Property

One Property, Several Trusts Possible

Trust is a general term used in wider sense in law. Therefore –

If a property is acquired by a branch of a larger body, or a parish of a Church, the entire members of the larger body, from time to time, will be presumed to be the owners, subject to (i) the byelaws of the (entire) association or trust and (ii) the purposes or objectives ‘aimed to achieve’ by that particular property.
If the bylaws (expressly or by necessary implication) provides for special beneficial enjoyment by the members of the branch or parish, over the branch/parish properties, definitely there will be two (kinds of) “trusts” over the same property – one, trust for the beneficial enjoyment of whole body; and the other, for the members of the branch/parish.

Are Shebait, Mahant, Mutawalli etc. Trustees in ‘True Sense’?

Can entre members put an end to the society?

The ownership of the property of a registered society vests in its members subject to the fundamental principles upon which it is founded [See Chapter: ‘Vesting of Property’] and the provisions of the Act under which it is registered.

It is not open for the majority of the members of a society to alter the fundamental principles upon which it is founded unless such a power is specifically reserved under the bye laws. [PrasannaVenkitesa Rao Vs. Srinivasa Rao: AIR 1931 Mad. 12 ; Milligan Vs. Mitchel: 40 ER 852 ; Free Church of England Vs. Overtoun: (1904) AC 515 referred to. See: also: Profulla Chorone RequitteVs. Satya Chorone Requitte: AIR 1979 SC 1682. Inderpal Singh Vs. Avtar Singh (2007-4 Raj LW 3547)] If a public or permanent trust is predicated by the founders or by the bye laws, the entire members of an unregistered society of a particular time cannot put an end to the society and appropriate its property.

Intention of Founders & Basic Principles, Paramount

Underhill, in his treatise, ‘Law of Trusts and Trustees’, explained it thus:

“However, the crucial difference surely is that no absolutely entitled members exist if the gift is on trust for future and existing members, always being for the members of the Association for the time being. The members for the time being cannot under the Association rules appropriate trust property for themselves for there would then be no property held on trust as intended by the testator for those persons who some years later happened to be the members of the Association for the time being”.[Quoted in Most Rev. PMA Metropolitan Vs. Moran Mar Marthoma: AIR 1995 SC 2001- Para 69]

Sec. 92 CPC is Not Attracted to Matters of a Society

Because, there will be no ‘dedication’ of “property belonging to a society”

Sec. 92 CPC envisages ‘express or constructive trust created for public purposes of a charitable or religious nature’. This requirement is brought home only when there is dedication of property. That is, unless there is an ‘express or constructive’ public trust founded by explicit ‘express or constructive’ dedication of the property divesting the rights of former owner over the same, ‘for public purposes of a charitable or religious nature’, Sec. 92 CPC is not attracted.

The characteristic distinguishing factor between a “Private Trust” and “Public Trust” is that in the former, beneficiaries are defined and ascertained individuals; but, in the latter, the beneficial interest must be vested in an uncertain and fluctuating body of persons, either the public at large or some considerable portion of it, answering particular description. Normally, there will be no explicit ‘express or constructive’ dedication of the ‘property belonging to a society’, divesting the rights of the society, ‘for public purposes of a charitable or religious nature’ (even if the society itself is formed for charitable and religious purposes); and therefore, Sec. 92 CPC will not be attracted to the ‘property belonging’ to the societies. A society has to use its property for its own purposes[‘Abhaya’ a Society Vs. Raheem: AIR 2005 Ker 233] and it will only be the property of the Society alone;[[128] Keshava Panicker Vs. Damodara Panicker:AIR 1976 Ker 86. See: also: C Chikka Venkatappa Vs. D Hanumanthappa 1970 (1) Mys LJ 296; ‘Abhaya’ a Society Vs. Raheem: AIR 2005 Ker 233] and it will not be a property in respect of which it is possible to predicate a public trust[See: Kripal Singh Bajwa Vs. Trust Manav Kendra: 2012-2 UAD 762] as envisaged in Sec. 92 CPC.

[Section 6 of the Indian Trusts Act, 1882 reads as under: “6. Creation of trust. – Subject to the provisions of section 5, a trust is created when the author of the trust indicates with reasonable certainty by any words or acts (a) an intention on his part to create thereby a trust, (b) the purpose of the trust, (c) the beneficiary, and (d) the trust -property, and (unless the trust is declared by will or the author of the trust is himself to be the trustee) transfers the trust – property to the trustee.”]

The same will be the position of Non-Trading-Companies also. [See: Kripal Singh Bajwa Vs. Trust Manav Kendra: 2012-2 UAD 762]

In ‘Abhaya’ a Society Vs. Raheem,[AIR 2005 Ker 233] while dealing whether Sec. 92 CPC is attracted to the affairs of a registered society, it is pointed out that to constitute a trust there must be author, trustees, beneficiary, trust property and beneficial interest.

It is also clear from the wording of Sec. 92 CPC that express or constructive trust in its ‘strict sense’ is envisaged in Sec. 92; and not trust in its ‘wider or general sense’ so as to include all ‘fiduciary relationships’. [The ‘wider’ or ‘general’ expression as to ‘trust’, used by the progressive jurists, is adopted in the Societies Registration Act]

Section 92 CPC is held out on the principles of ‘parens patriae’, once a trust, always a trust [See Narayanan Vs. Nil: AIR 2005 Mad. 17; M Ashok Kumar Vs. N Janarthana: 2013(7) Mad. LJ 273; T C Chacko Vs. Annamma: AIR 1994 Ker. 107] and the court is the protector of all charities.[C Chikka Venkatappa Vs. D Hanumanthappa: 1970 (1) Mys LJ 296; Narayan Krishnaji Vs. Anjuman E Islamia: AIR 1952 Kar 14: Thenappa Chattier Vs. KuruppanChhietier AIR 1968 SC 915]

In Pragdasji Vs. Ishwarlalbhai [AIR 1952 SC 143. Also See: HarendraNathVs. Kali Ram Das: AIR 1972 SC 246], our Apex Court pointed out that a suit under Sec. 92 is a suit of a special nature which presupposes the existence of a public trust of a religious or charitable character, and that it must pray for one or other of the reliefs that are specifically mentioned in the Section. It is only when these conditions are fulfilled that a suit could be brought under Sec. 92.

Section 92 CPC does not specifically make any provision to remove the persons in management of the society and to appoint new managing body.

Majority of an Association Cannot Alter Fundamental Principles

The fundamental principles upon which a trust is founded cannot be varied. Therefore, the courts cannot sanction any drastic amendment to the document of trust which would destroy the basic purpose for which the trust was created. The trust properties will not be allowed to be sold even to the members of their community for whose benefit the trust was created, and the properties were acquired.[Pragji Savji VajaVs. Chhotalal Narsidas Parmar: AIR 2014-3 Bom R 211: 2013-6 BCR 72. See also: AA Gopalakrishnan Vs. Cochin Devaswom Board: AIR 2007 SC 3162; Mandal Revenue Officer Vs. GoundlaVenkaiah: AIR 2010 SC 744; Doongarsee Shyamji Vs.Tribhuvan Das: AIR 1947 All 375; Lal Vs. Thakur Radha Ballabhji: AIR 1961 All 73; C Chikka Venkatappa Vs. D Hanumanthappa 1970 (1) Mys LJ 296: Narayan Krishnaji Vs. Anjuman E Islamia: AIR 1952 Kar 14; Thenappa Chattier Vs. Kuruppan Chhietier AIR 1968 SC 915; CK Rajan Vs. Guruvayoor Devaswom Managing Committee: AIR 1994 Ker 179 [Appeal Judgment: AIR 2004 SC 561: (2003) 7 SCC 546]

This principle in Milligan Vs. Mitchel [40 ER 852] Attorney General Vs. Anderson [(1888) 57 LJ Ch 543] and Free Church of England Vs. Overtoun [(1904) AC 515] is referred to in Prasanna Venkitesa Rao Vs. Srinivasa Rao.[AIR 1931 Mad. 12]

In Free Church of England Vs. Overtoun the House of Lords (by a majority of 5-2) found that the minority was entitled to the assets of the Free Church. It was observed that when men subscribe money for a particular object, and leave it behind them for the promotion of that object, their successors have no right to change the object endowed. It was held that, by adopting new standards of doctrine (and particularly by abandoning its commitment to ‘the establishment principle’, which was held to be fundamental to the Free Church), the majority had violated the conditions on which the property of the Free Church was held.

S. 88 & 95 of Trusts Act Encompass Govg. Bodies of Societies

Section 88 of the Indian Trusts Act expressly refers to director of a company. Though they are not express trustees, with respect to their duties, the Indian Trusts Act, 1882 takes the position of ‘executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person’ to that of trustees, in Chapter IX (Section 80 onwards) of the Indian Trusts Act. Their office is fiduciary in character.[V S Ramaswamy Iyer Vs. Brahmayya: 1966-36 Comp Cases 270, 1966-1 Mad LJ 234.] They are bound by the directives in Sec. 88.

Sec. 88 of the Indian Trusts Act, 1882 reads as under:

88. Advantage gained by fiduciary: Where a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person, and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained.

It is legitimate to comprehend that the words ‘or other person’ in Sec. 88 of the Indian Trusts Act encompass the governing bodies of societies and clubs also. By virtue of Sec. 95 of the Indian Trusts Act it is further clear that the principles and incidents of ‘trust’ are impressed upon the property held by societies and clubs also.

Sec. 95 of the Indian Trusts Act reads as under:

95. Obligator’s duties, liabilities and disabilities: The person holding property in accordance with any of the preceding sections of this Chapter must, so far as may be, perform the same duties, and is subject, so far as may be, to the same liabilities and disabilities as if he were a trustee of the property for the person for whose benefit he holds it ….. “

Also Read

Common Law of CLUBS and SOCIETIES in India

Common Law of TRUSTS in India

General Principles
Dedication and Vesting
Trustees and Management
Breach of Trust
- Breach of Trust and Removal of Trustees
Suits by or against Trusts
Law on Hindu Religious Endowments
Temples, Gurudwaras, Churches and Mosques – General
- Legal Personality of Temples, Gurudwaras, Churches and Mosques
Constitutional Principles
Ayodhya and Sabarimala Disputes
General

How to Subscribe ‘IndianLawLive’? Click here – “How to Subscribe free “

Read in this Cluster (Click on the Topic)

Civil Suits: Procedure & Principles

Book No, 1 – Civil Procedure Code

Principles and Procedure

PROPERTY LAW

Title, ownership and Possession

Recovery of Possession:

Survey, Revenue Records, Mutation

Adverse Possession

Land Laws/ Transfer of Property Act

Land Reform Laws

Power of attorney

Evidence Act – General

Sec. 65B

Admission, Relevancy and Proof

Law on Documents

Documents – Proof and Presumption

Interpretation

Contract Act

Law on Damages

Easement

Stamp Act & Registration

Natural Justice/Disciplinary Action

Divorce/Marriage

Negotiable Instruments Act

Criminal

Arbitration

Will

Book No. 2: A Handbook on Constitutional Issues

Religious issues

Can a Trust be Registered as a Society? Can a Society be Converted into a Trust?

Published by sajikoduvath

Leave a Comment Cancel reply

Share this:

Related

Published by sajikoduvath

Leave a Comment Cancel reply