In this blog post, Shubhangini Debi, a student of ULC, Gauhati University, Assam, who is currently also pursuing a  Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, analyses if a society can acquire a trust in India.

When any organisation devotes its funds for the public welfare, it is known as a Non-Profit Organisation (NPO). This can include schools, colleges, hospitals, religious organisations, etc. There are mainly three common forms of non-profit organisations: Trusts, Societies and companies incorporated under Section 8 of the Companies Act, 2013. Before we get to the answer to the question at hand, let us first understand the two most important components of this question i.e., trust and society.

Trust

Trusts are the oldest form of charitable organisations. Section 3 of the Indian Trusts Act, 1882 defines trust as ‘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’.

The person who reposes, or declares the confidence is called the ‘author of the trust’. The person who accepts the confidence is called the ‘trustee’. The person for whose benefit the confidence is accepted is called the ‘beneficiary’. The subject-matter of the trust is called ‘trust-property’. The ‘beneficial interest’ of the beneficiary is his right against the trustee as the owner of the trust property and the instrument by which the trust is made is called the ‘instrument of trust’ or the ‘trust deed’.

As provided under Section 7 of the Indian Trusts Act, 1882, ‘a trust can be created by any person who is competent to contract.’ This means even a minor can create a trust after taking permission from the Principal Civil Court of original jurisdiction. As per Section 10 of the Act, every person capable of holding property may be a trustee. Even an alien can be a trustee, but he/she must be a domicile in India. The trustee is not the owner of the trust property, but the beneficiary is or will be once the property is transferred to him. The trustee has only the possessory rights of the property until the trust expires.

Trusts have been classified into many kinds from different point of view. But generally they are classified under the following heads:

• According to the nature of the duties of the trustee, i.e. simple trust and special trust.
• According to their object, i.e. private trust and public or charitable trust.
• According to the mode of their creation, i.e. express trust, implied trust, constructive trust, resulting trust, precatory trust and secret trust.
• Trusts not covered by the classification, e. trust of imperfect obligation, purpose trust, discretionary trust and protective trust.

The two most commonly known types of trust are private trust and public trust. Private trusts are formed for the benefit of a family member (including an unborn child in the mother’s womb) or a few set of known people, whereas a public trust is formed for the benefit of the public.

Societies

Societies are of recent origin. They are of relatively modern form. Formation and governance of a society is more difficult than a trust but easier than a company. According to the Societies Registration Act, 1820, any seven members who subscribe to the Memorandum of Association can register a society. The membership of the society may be kept open (or by invitation) to anyone who subscribes to its aims and objectives, for which a fee may or may not be charged.

Societies in many states are governed by the Societies Registration Act, 1820 in its original or amended form. However, many states have now passed their own laws for regulating societies within their territory and these laws have replaced the original laws of the Societies Registration Act, 1820.

However, according to the Co-operative Societies Act, 1912, at least 10 persons who are above the age of 18 years must be members of the society to be able to register it under the Act. This provision of ten members is not applicable if the registered society is a member of another society. Each society will be governed by a committee – a committee is the governing body of a registered society to whom the management of its affairs are entrusted. The various officers of a society includes a Chairman, Secretary, Treasurer, member of committee or other persons empowered under the rules or bye laws to give directions in regard to the business of the society [Section 2(e)].

Section 18 of the Co-Operative Societies Act, 1912 provides that ‘the registration of a society shall render it a body corporate by the name under which it is registered, with perpetual succession and a common seal, and with power to hold property to enter into contract, to institute and defend suits and other legal proceedings and to so all things necessary for the purposes of its constitution.’ Hence a society can be said to be a juristic person after its registration.

Can a society acquire a Trust?

After going through the relevant Sections of both these Acts i.e. Indian Trusts Act, 1882 and the Co-operative Societies Act, 1912, there are certain facts that have come to light. The first question that comes to mind is whether a registered society is a person or not (in this case a juristic person)? As per Section 18 of the Co-operative Societies Act, 1912, a society becomes a corporate body after its registration just like a company becomes a corporate body after its incorporation under the Companies Act, 1956. The characteristic features of a corporate body enable the company to function as a juristic person allowing it to sue or be sued in its name, to hold property, to have a common seal, etc. Same is the case for a society. Once a society is registered under the Co-operative Societies Act, 1912, it becomes a corporate body which enables it to function like a juristic person and sue or be sued in its name, hold property, have a common seal, etc. Hence, we have established that a society is a juristic person.

The second question that we need to understand is whether a society can create a trust?  Section 7 of the Indian Trusts Act, 1882 clearly mentions that any person competent to contract can create a trust. Since we have already established that a society is a juristic person and is competent to be a party to a contract, it will not be wrong to state that it (the society) can create a trust.

Thirdly we have to determine if a society can be a trustee, a beneficiary, either or both? Section 9 of the Indian Trusts Act, 1882 says that ‘every person capable of holding property may be a beneficiary; likewise section 10 states that ‘every person capable of holding property may be a trustee’. By now it is clear that even a juristic person is capable of holding property. This means that a society can be a trustee as well as a beneficiary.

The word ‘acquire’ means “to buy, obtain or take possession of for oneself’. As a beneficiary, a society has no need to acquire a trust property. Once the purpose of the trust is fulfilled, the trustee transfers the property to the beneficiary and the beneficiary becomes the owner of the trust property. At this point the property does not remain a trust anymore. The role of a trustee is to take care of the trust property on behalf of the beneficiary. Only the possessory rights of the property are vested in the trustee. He is not the owner of the property. So as a trustee, a society will only be vested with the possessory rights to the property. These rights bind the trustee (in this case a society) with some duties and responsibilities which it has to follow to successfully execute the trust deed. It cannot keep the property for itself as its personal property [Chapter 3 of Indian Trusts Act, 1882]. Thus, a society cannot obtain for its own self a trust property, either as a trustee or as a beneficiary.

After thorough research and careful reading of the two Acts, i.e. the Indian Trust Act, 1882 and the Co-operative Societies Act, 1912 it can be concluded that a society cannot acquire a trust property. It can however acquire a property for itself which will count as an asset or the personal property of the society, in which case the full ownership rights of the property will be vested in the society.