A public trust is a vehicle which is set up for the specific benevolent purpose of the author to provide for a certain purpose or object for the benefit and need of the beneficiaries.
There are two types of trusts in India, i.e. private trusts and public trusts. Private trusts are governed by the Indian trusts Act, 1882. Public trusts are bifurcated into two, i.e. charitable trusts and religious trusts, and the public trusts are governed by The Charitable and Religious Trust Act, 1920, the Religious Endowments Act, 1863, the Charitable Endowments Act, 1890, the Maharashtra Public Trust Act, 1950, etc., which are some of the statutes for the enforcement of public trusts in India. The Public Trusts in Maharashtra are governed by the provisions of The Maharashtra Public Trusts Act, 1950 ("MPTA")
What is a Public Trust?
Public Trust means an express or constructive trust for either a public, religious or charitable purpose or both, and includes a temple, a math, a wakf, church, synagogue, agiary or other place of public religious worship, a dharmaday 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. There is no central act to govern public trusts, but various states have enacted their own separate acts according to their conditions and administration.
A public trust is a vehicle which is set up for the specific benevolent purpose of the author to provide for a certain purpose or object for the benefit and need of the beneficiaries who may not be specifically defined in the trust deed, but include a wide genus of people who fall within the parameters of the object and purpose of that trust. There are more regulations, checks and balances for the functioning, governing and maintenance of such public trusts as it is meant for the benefit of an undefined majority of people and the management of such trust should not be left unchecked so that the purpose for which the trust is set up is not vitiated or destroyed. A public trust is open for inspection, questions and details of its trustees, management and purpose and since it is in public domain, special care should be taken to ensure that transparency, effectiveness and utility of such trusts are not diminished and continue to serve the beneficiaries for whom such trust is set up. There is no central act to govern public trusts, but various states have enacted their own separate acts according to their conditions and administration. To register a public trust all one needs is a draft of trust deed stating the trustees, the objectives of the trust, and the intended beneficiaries who are a part of the general public. The public trust is then registered under the State Trusts Act, thereby making the trust eligible for tax rebates under the provisions of The Income Tax Act. Religious Endowments and Wakfs are variants of public trusts.
Some of the Advantages of creation of Public Trust:
- Trust can be formed for charitable / religious purposes, enabling the settlor to implement the desire to do something valuable for either (i) public at large with a specific agenda, say providing financial help for medical treatment, basic education, higher education, woman empowerment, disabled people or (ii) religious purposes;
- Since the public trusts are governed under the applicable laws of the state and broadly, they are monitored by the Charity Commissioner, the chances of fraud and manipulations by the Trustees is very rare;
- Charitable or religious trust enjoys several tax exemptions and benefits under the Income Tax Act;
- Donations to eligible charitable institutions are also deductible from taxable income of the donor; and
- It enables the settlor to put to use his/her own property for charitable/ religious purposes.
Difference between a Public Trust and a Private Trust
There are quite a few differences between a Public Trust and a Private Trust, and the basic difference between two is that the Public Trust is for the benefit of public at large in general and the private trust is for the benefit of a specific beneficiary/ beneficiaries. So the basic difference between both the trusts is that in the Public Trust, the interest is vested in an uncertain and fluctuating body, whereas in the Private Trust, the beneficiaries are definite and ascertained individuals. In Public Trust, the beneficial endowments vests in uncertain and fluctuating body of persons either a public at large or some considerable portion in public trusts, whereas, in the Private Trust, the beneficiaries are definite and ascertained individuals. A public trust is managed by a board of trustee, whereas, the private trust is managed by either the managing trustee or the few appointed trustees.
General procedure followed for setting-up a Public Trust
It is advisable to seek an advice and assistance of an Advocate for the purpose of setting up a trust, may it be private or public.
In case of Public Trust, whether in relation to movable property or immovable property and whether created under a Will or inter vivos, registration is optional, but desirable. In case of Charitable or Religious Trust in relation to an immovable property, for claiming exemption under the provisions of The Income Tax Act, 1961, it is essential that the instrument of trust is duly registered.
For the registration of the Public Trust, an application ("Application"), duly verified and signed by the authorised trustee(s), accompanied with the copy of an instrument of trust, has to be made in the prescribed form to deputy or assistant charity commissioner of the region or sub-region within the limits of which the trustee has an office for the administration or where the trust property is situated.
The Application should contain detailed information, such as(i) Name of the public trust,
(ii) Names and address of the trustees and the manager,
(iii) Mode of succession to the office of the trustee,
(iv) List of immovable and moveable trust property and their approximate value,
(v) Address of the trust to which any communication can be made, and other details on estimated income and expenditure of the Public Trust.
Permission of Charity Commissioner for dealing with the Assets of the Public Trust
The trust property is held by the trustees only for the benefit of the beneficiaries of the public trust and thus the trustees act in a fiduciary capacity. However, there have been instances of misuse of powers by the trustees, whereby the public trust properties have been misappropriated, resulting into great loss to the public trusts. With a view to discourage such unauthorized transfer/ alienation, restrictions have been imposed on the powers of the trustees of the public trust by incorporating Section 36 in MPTA, which provides that a prior permission of Charity Commissioner is required for:(i) Sale, exchange or gift of immovable property; and
(ii) Lease for a period of 3 years or more (10 years for agricultural land).
This provision indicates that even in a case in which the trust deed confers authority on the trustees to alienate trust property whenever necessary, sanction of the Charity Commissioner would be necessary.
The trust property is not the personal property of the trustees and as a custodian of public trust, the Charity Commissioner is enjoined to ensure that the trust property is not alienated unless the alienation is in the interest of the trust and the Charity Commissioner is also enjoined to ensure that nothing less than the full market price of the property is received by the trust.
It is therefore obvious that before the Charity Commissioner can sanction an alienation of trust property, he has to apply his mind to few material questions, i.e.(i) Whether there is compelling necessity to justify the alienation in questions,
(ii) Whether the proposed alienation is fair and does in any way adversely affect the interest of the trust,
(iii) Whether he should not grant such sanction,
(iv) Whether such sanction should be subject to any condition.
Further, the time limit is fixed for completion for the sale in order to protect the interest of the trust and the beneficiaries of the Public Trust. It is always in the interest of the Trust to get the entire consideration strictly within the time fixed by the Charity Commissioner.
The power to issue lawful direction under Section 36 is very wide, and the Charity Commissioner may revoke the sanction so granted, on the ground that such sanction was obtained by fraud or misrepresentation made to him or by concealing from the Charity Commissioner the facts material for the purpose of giving sanction; and direct the trustee to take such steps within a period of 180 days from the date of revocation (or such further period not exceeding in the aggregate one year as the Charity Commissioner may from time to time determine) as may be specified in the direction for the recovery of the property.
Further, Section 36 does not confer power on the Charity Commissioner to accord sanction after the transaction is completed and validate it by post facto sanction. Giving such a sanction would be against the empress requirement of Section 36 ofMPTA.
Process of amending to a Trust (e.g: Change, addition of trustees and deletion of name of trustee)
Amending or modifying a Public Trust can be done with the permission of the Charity Commissioner. The Public Trusts Registration Office maintains a register and books containing data on public trusts after conducting inquiry and collecting necessary details about the trustees, assets, composition, purpose of the trust and etc. If there is any change in the entries for any reason, the trustees of such public trust must, within the period specified, report such change or proposed change to the Public Trust Registration Office, where the registers are maintained. After receiving the report and conducting necessary investigation, the authorised officer may effect such change or modification in the registers maintained thereat.
If the change relates to immovable property, the trustees must, along with a report, furnish a memorandum containing the details of the change in the immovable property.
Any person interested in the public trust may apply to the Charity Commissioner either for appointment of a new trustee, or for suspension, removal or discharge of a trustee under certain circumstances being(i) Death of a trustee,
(ii) Absence of the trustee from the country for a continuous period of six months without leave of the Charity Commissioner,
(iii) Trustee is declared insolvent,
(iv) Refuses to act as trustee,
(v) Becomes unfit or incapable in the opinion of the Charity Commissioner or
(vi) Is convicted of an offence of moral turpitude, etc.
An order of the Charity Commissioner is deemed to be a decree of the Court and an appeal shall lie to the High Court.
There is jurisdictional bar on any civil court to decide or deal with any question which under the law is required to be decided by any officer or authority under MPTA.
For Public Trusts, there are quite a lot regulations, checks and balances for the functioning, governing and maintenance of such public trusts as it is meant for the benefit of an undefined majority of people, since the management of such Trust should not be left unchecked so that the purpose for which the trust is set up is not vitiated or destroyed. Further, a public trust, unlike a private trust is open for inspection, questions and details of its trustees, management and purpose and as it is in public domain, special care should be taken to ensure that transparency, effectiveness and utility of such trusts are not diminished and continue to serve the beneficiaries for whom such trust is set up.
The writer is Associate Partner of Rajani AssociatesYou can now invest in mutual funds with moneycontrol. Download moneycontrol transact app. A dedicated app to explore, research and buy mutual funds.