Should Religious Boards Be Incorporated?

Abstract

The Churches of South India (CSI) Trust Association (in short, ‘The Company’) is a public charitable trust registered under Section 25 of the Companies Act, 2013 for the promotion of religion and other charitable purposes. As the primary object of any religious charitable institution, the company aims at giving monetary assistance to societies, hostels, hospitals, etc. existing in connection with the Church. It is indeed fascinating that CSI is the only religious institution registered under the Companies Act. The paper addresses the problems faced by religious boards, which presently take the form of trusts, and how these can be solved by incorporating them into Section 8 companies under the Indian Companies Act, 2013. This paper further addresses the lack of checks and balances in a religious trust and how the separation of ownership and management in a corporation would help restore these checks and balances. Lastly, the paper focuses on whether religious corporations get any added benefits due to the fundamental rights attributed to them.

Keywords: Religious Corporation, Section 8 Company, Checks and balances in a religious corporation, Fundamental rights

Introduction

India is a secular country with equal freedom for all religions.  It is indeed high time we took a closer look at the “divine corruption” in religious institutions. Religious institutions, marked by its non-profit or charity motives, in reality have religiously as well as financially rich boards. It would be surprising to many to have witnessed Lord Balaji of Tirupati Tirumala Devasthanam (TTD) as the business partner of a travel agency. A large number of devotees consider deities as their business partner with a promise to deposit a portion of their profits to the hundi.

“It is a mini state in itself, giving rise to corruption at every level” – says a temple official at TTD who feels that corruption has become a norm at the institution. The level of corruption can be attributed to the conduct of those officials charged with administration of such charitable organizations and the necessary inference is that the legally required standards of conduct of religious institutions are ill-defined and poorly executed. A study says that this is largely due to the failure of law to comply with the rapid evolution of religious institutions into large and complex modern charitable organizations.

At a time when corrupt officials and administrators encompass religious management trust boards, incorporation of these as religious corporations would help in improved recognition and better legal standing. The several advantages a religious corporation has over a religious trust board is as follows:

  • Separate legal personality attributed to corporations not present in trust form

As per Salmond on Jurisprudence, “the incorporation of a firm is nothing less than the birth of a new being, to whom the whole business and property is transferred, a being without soul or body, not visible save to eye of the law, but of a kind whose power and importance, wealth and activity, are already great, and grow greater every day”. The most noteworthy difference between a corporation and a trust is the separate legal personality attributed to a corporation, which gives it the capacity to enter into legal relationships. By this, the law attributes the acts and knowledge of natural persons to the company in appropriate situations. A religious board, if incorporated, will have a separate existence away from the members who constitute it unlike a trust, which is not a legal entity but an obligation imposed on the ostensible owner of property to use the same for a particular object for the beneficiaries. Thus, all trustees are considered joint owners of the trust property and in case of a suit, the trustees should collectively sue or be sued. When we speak of a trust, it is merely an obligation annexed to the trust property. It is not a legal entity in any sense. For example, a trust cannot hold property but a trustee can, who is an entity by himself.

One of the major reasons attributed to rampant corruption within religious boards is the fact that trustees themselves hold the trust property. The fundamental cause of corruption is attributed to human desires, which are never-ending. Even though, ideally, the trustees should work for the welfare of the beneficiaries, psychology would suggest otherwise. It is universal truth that an individual would place his interests above those of others. Thus, when it comes to entities, which work with a non-profit motive, it is always better to take away too much power granted to individuals. This would necessarily mean that the trust and not the trustees should be given power to hold property, which can be achieved through incorporation of trust boards.

Separate legal entity concept also comes up with more protection to the board of trustees as a suit can only be initiated against the trust and not the trustees except in case of a tort or crime committed by the trustees.

It can also be seen that in most Hindu religious institutions, the deity is attributed the status of legal personality (whose property will be taken care by the manager as the manager of an infant heir) which the researcher thinks is a flawed concept. This is for imposing tax on the huge amounts of donations they get. However, giving a legal personality status would mean that the deity is given the capacity to enter into legal relations; for example, Lord Balaji of TTD is a business partner of a travel agency. This can give rise to fallacies. For example, a minor partner is only admitted to the benefits of a partnership. One of the fallacies that can arise is that a deity can never become a major and hence it will keep getting the benefits of a partnership.

  • Dilution of powers in a corporation v. Concentration of powers in a trust

As Montesquieu contended in the eighteenth century, for man to attain political liberty, the government should be so constituted, as one man need not be afraid of another.  The most influential piece of political writing in the eighteenth century was founded on the assumption that concentration of power is dangerous to liberty. Separation of powers, from a governmental perspective, has been considered as a protection against despotism. Taking the analogy, Separation of Powers between the board of trustees, beneficiaries and settlor of a religious trust board is as essential as the separation of powers of government. Concentration of power in any one entity would hamper the growth of an organization. Checks and balances are the foundation of an efficient organization.

As the number of devotees seem to be rising over the years, the size and complexity of religious institutions is on a rise. Where a large and fluctuating number of members are involved, the company has distinct advantages as an organizational form. This is due to the distinct line of separation between the members of the company (usually shareholders) and the management of the company (vested in a board of directors) unlike in a trust where the trustees are the legal owners as well as the managers of the trust property. Even though trustees are mere legal owners and not beneficial owners, the ownership status granted to trustees leads to overlapping of functions between owners and managers. Incorporation would solve this issue at the grass root level as incorporation would mean that the ownership would rest with the corporation, which is a separate legal entity, and management and administration with the board of trustees. This distinct separation between the board of directors and the owners in a company gives both the entities the power to have a check on the other, for example, the shareholders, in a company, have the power to remove the directors through an ordinary resolution. However, in a trust, the trustees can be removed only if the deed provides the beneficiaries with such powers. Separation of management and ownership, thus, limits the power of decision agents to expropriate the interests of owners due to ample checks and balances.

  • Better regulatory and compliance mechanism

With a rise in the unscrupulous conduct of trustees of religious institutions, an efficient regulatory mechanism is the need of the hour. With the Companies Act, 2013 new regulatory provisions have been brought in. The Act shows government’s commitment to strengthening corporate regulation.

A companies Act, in itself, is a complete legislation. It encompasses not only provisions on regulation, financial propriety and methodologies to control the functioning of a corporation, but, in itself, contains penal provisions, fine based provisions and creates a greater sense of liability to follow other forms of inter-linked laws. The greatest example may be that, after the Companies Act, 2013 act came into existence, company directors can be directly held liable for the violation of any laws starting from the Factories Act, 1948, to the ESI Act, 1948 to non-compliance with procedures such as payment of bonus as well as payment of wages. It not only creates duties, but liabilities too. There are over 100 different ways and penal provisions to prosecute a person for violation of norms under the new Act and all these are regulated by an external agency which is the National Company Law Tribunal, which has been constituted under Section 408 of the Companies Act, 2013 to regulate its own procedure in accordance with the rules of equity and natural justice. All these are not extended to a trust. Thus, through this form of greater strength of regulation, the Act is juxtaposed with other Acts, thus creating a web of compliance mechanism. These laws are interlinked with labor norms, statutory safety norms, financial norms and taxation-based norms.

Moreover, the qualification of trustees as provided by Section 10 of the Indian Trusts Act, is anyone who is capable of holding property. The Religious and Charitable trust Act doesn’t specify any such qualifications. However, Under Schedule XIII of the 2013 Act, certain qualifications for persons to be directors have been given such as he or she should not have been sentenced to imprisonment for any period, or a fine imposed under certain statutes. Thus, in finality, the Companies Act ensures that the board of directors and other persons in charge of a company, even if a Section 8 company, must be clear of criminal and other penal charges whereas trustees do not have such obligations. This, in itself, ensures that a number of anti-social or improper elements do not wriggle their way into a religious corporation. This has been specifically incorporated in the 2013 Act with the intention that the director of a company must be one with greatest moral responsibility, as the running of a company requires so.

A company gives more importance to the duty to follow procedures correctly as can be seen from penalty for not complying with requirements for formation of a company, for incorporation of a company, for not preparing financial and annual reports, board’s report, etc. However, in a trust, penalty is attributed only in case of actual misappropriation of property by the trustees. Imprisonment has not only a deterrent value, but it serves also as a temporary preventive measure. Thus, every step that the company takes is being crosschecked in order to minimize the chances of arriving at a bad decision. This kind of existence of strong prophylactic rules makes a company’s compliance mechanism much better than that of a trust.

The added advantage to incorporating religious trust boards is the attribution of Fundamental Rights. The separate legal person concept of incorporation would mean that a religious trust board, once incorporated, would get all the fundamental rights attributed to ‘persons’ under the Indian Constitution, 1950 (Eg. – Articles 14, 21, 26 and 27). This gives the state control over the religious trusts, which after incorporation become religious corporations.

Personal laws govern creation and administration of religious trust boards in India. The application of Article 14 would mean that no religious board would be favored before the law unless there is a reasonable classification in doing so. As the long title of the Companies Act, 2013 suggests, incorporation would consolidate the law relating to religious boards in the country.

Also, religious trust boards, once incorporated under Section 8 of the Companies Act, 2013 as a non-profit company, gets the advantages of Article 27 of the Constitution which exempts corporations incorporated for the promotion of a particular religion from payment of taxes.

Thus, fundamental rights attributed to religious corporations would bring in uniformity in regulation of religious trust boards.

Conclusion

The concept of non-profit corporations is a coming of age concept that has attracted little attention. Companies formed under Section 8 of Indian Companies Act, 2013 with non-profit motive provide a wide option to those companies, which promote public interest. Although, initially, the idea of incorporation of religious trust board might seem revolutionary, in reality, it is a feasible and much better option.  In this era, where the number of devotees keeps rising day-by-day, the option of incorporating would help regulate the large and complex organization.

The researcher has discussed the various advantages a religious trust board gets through incorporation. These include better checks and balances due to the distinct separation of ownership and management, attribution of separate legal entity to the management board of the religious institution and taking away the separate legal personality given to the deity, better regulatory mechanism in the form of NCLT, over 100 penal provisions, fine-based provisions interlinked with other laws like Factories Act, 1948, ESI Act, 1948, etc. The researcher has also talked about the uniformity of rules in administration that can be brought about as a result of fundamental rights attributed to religious trust boards once incorporated.

The foundational cause of corruption is human desires, which are infinite. Ideally, if this is to be mitigates, every individual has to work together for the best interest of the society as such, keeping aside his/her individual interests. However, since an ideal proposal works merely on paper, incorporation of religious trust boards would be the practically best solution.

Author: Aswathy Thomas and Mithelesh D K, Tamil Nadu National Law UniversitySource:https://www.deccanchronicle.com/nation/current-affairs/200419/tirupati-works-of-garuda-varadhi-progressing-at-brisk-pace.html

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this:
search previous next tag category expand menu location phone mail time cart zoom edit close