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Regulate, don’t strangulate, public trusts

| Updated on September 24, 2020 Published on September 24, 2020

Rather than weed out the black sheep, the proposed TN law on public trusts will end up hurting well-run charities

Trust our policymakers to come up with a law that is an overkill, you will be rarely disappointed. One such law is the Tamil Nadu Public Trust Act 2020. The Act, which seeks to regulate public trusts in the State, was recently passed by the Legislature.

Such are the provisions of this Act that it would become nigh impossible for well-managed trusts to carry on with their good work. That apart, it will increase interference from government officials, feed corruption and, in a worst case scenario, allow the government to take control of the trusts.

Public trusts play an important role in supplementing government’s work when it comes to education, healthcare and other social endeavours. But for their good work, the State will end up much lower in the social sector rankings.

The triggers for this legislation are two-fold. An advocate had filed a petition in the Madras High Court asking for directions to the State government to frame schemes/guidelines and form supervisory committees for proper functioning of public trusts. The court had directed the government to consider the representation of the petitioner on merit and act accordingly.

Around the same time, the Supreme Court had asked another petitioner, who had sought direction from the apex court to debar convicted persons from holding office of the trustee in a public trust, to make a representation to various States that do not have such a rule. His representation was received by the Tamil Nadu government in July 2018. In response to these representations, the State government chose to bring in a wholesome legislation to regulate public trusts.

Today, public trusts are regulated in a limited manner. Those that are religious in nature are governed by the Hindu Religious and Charitable Endowments Act.

Other non-religious charitable trusts, though registered, are outside the purview of the authorities. They, however, submit their accounting statements to the IT Department to claim exemption from income tax.

Even though non-religious trusts are not closely regulated, remedies always existed when it came to any misdeed. People could approach courts if a trust moved away from any of its stated objectives. Police complaints could also be filed to seek justice for violations that are criminal in nature.

It is true that public trusts have been misused for nefarious activities in the past and there is a strong merit in introducing disqualification criteria for the trustees, especially in Tamil Nadu where powerful people with dubious distinctions prefer to run education institutions (read engineering and medical colleges). Also, some form of oversight is always welcome. But provisions of the proposed law are such that it will hurt well-run trusts more rather than weeding out the black sheep.

Take the case of information that is sought while registering a trust under this Act.

The application must contain, among other things, the list of movable and immovable properties of the trust in the State, their approximate value, income derived from these properties and other sources, and average annual expenditure.

Well-run trusts fear that much of the information being sought could be misused and expose them to various pulls and pressures. When it comes to income and expenditures, they are already being provided to the Income Tax Department every year.

Room for interference

There is also a general fear that more than a supervisory responsibility, many provisions allow strong interference by the government and its officials. The Act states that “...the Registrar may, from time to time, issue directions, to any trustee of a public trust or any person connected therewith, to ensure that the public trust is properly administered and the income thereof is properly accounted for or duly appropriated and applied to the objects and for the purpose for which it is created.”

That is not it. The Act stipulates that the money of the trust must be kept in a scheduled bank or a post office savings bank or in any bank registered under the Tamil Nadu Co-operative Societies Act, but it empowers Registrars to permit the trustee of any public trust to invest money in any other manner. This, experts say, could the pave way for pressures to put money in activities that the trustees may be unwilling to do so.

Some provisions make operations of the trust difficult. The Act says that no agricultural land or building can be leased for more than five years and it is three years for non-agricultural buildings without the previous sanction of the Registrar. Typically, trust land is leased to schools and colleges for a period of 30 years. CBSE and AICTE insist on a larger lease period. Seeking official sanction every three years opens doors for quid pro quo.

That apart, the Registrar has powers to call for a special audit of accounts of a trust where ever he/she deems it necessary, enter and inspect the property of the trust, fill vacancies in the Board of Trustees in certain circumstances, and even drag the trustees to court for alleged mismanagement of the trust.

Frivolous litigations could increase too, as the Act allows any person having interest in the trust to inspect the budget, the balance-sheet, income and expenditure account and the audit report on payment of a fee. Any disgruntled individual could inspect the books, raise issues or even drag the trustees to the court.

Clearly, there are better ways to regulate public trusts. The law in its present form will fail to deliver on its objectives and cause massive collateral damage. Unscrupulous elements will attempt to take advantage of the information that trusts will make available publicly as per the Act and harass them. Potential for corruption increases and, as mentioned earlier, a government can even use this law to take control of any trust.

In such a scenario, well-run trusts may opt to close down their operations. If the objective is to just regulate the public trusts, the proposed law is akin to swatting a fly with a sledge hammer.

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Published on September 24, 2020
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