10/17/13

Legal Issues for NGOs

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Formation of a Society
A Society can be defined as a company or association of persons united together by mutual consent to deliberate, determine and act jointly for some common purpose. (Gliner v s. Stone) In 1 854 in England, to acknowledge the separate ex istence of a society from its members an act called the The Literary and Scientific Institution Act was passed. In the same line an act was also passed in India in 1 860 i.e. The Societies Registration Act (Act XXI of 1 860) In India, an institution of non commercial nature for promotion of charitable activ ities like education, art, religion, culture etc. has to register itself : as a public charitable trust, or under Societies Registration Act,1 860, or under Section 25 of the Companies Act ,1 956 The Societies Registration Act, 1 860 is an act for the registration of literary , scientific and charitable societies. The object of the Act as stated in the preamble is to make prov ision for improv ing the legal conditions of Societies established for promotion of literature, science, fine arts, for diffusion of useful knowledge or for charitable purposes. Such an association has to be registered since it giv es the society a legal status and is also essential for: opening bank accounts obtaining registration and approv als under Income tax act lawful v esting of properties of societies recognition to the society at all forums and before all authorities The Act is applicable to all societies formed either prior to commencement of the Act or formed after commencement of the Act so as to prov ide them with a legal status for carry ing out the purpose for which they hav e been formed.

Who can form a society?

As per the Act, a society can be formed by Any Sev en or more persons associated for any literary , scientific or charitable purpose, or for any such purpose as described in Section 20 of this Act, may , by subscribing their names to a memorandum of association, and filing the same with registrar of joint stock companies (or as amended by respectiv e state acts) form themselv es into a society under this Act.
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Eligibility
Besides indiv iduals the following persons are eligible for subscribing to the memorandum of the society : Foreigners: The Act does not bar foreigners from subscribing to the memorandum of the society therefore, in effect foreigners can subscribe to the memorandum of the society . Partnership firm : The position of Partnership firm regarding its eligibility to subscribe to the memorandum of the society is not clear from prov isions of the Partnership Act 1 932, Societies Registration Act 1 860 or any other judicial decision. Howev er simple analogy can be drawn by keeping in v iew the prov isions of Sec 25(4) of Companies Act, 1 956 which permits a partnership firm to become a member of a Section 25 company and prov ides that the firm may be a member of any association or company registered under the prov isions of the Companies Act 1 956. Howev er on dissolution of the firm, the membership of the firm to such an association or company will lapse. Therefore drawing a parallel from the abov e, we may deduce that a partnership firm may subscribe to the memorandum of society . Lim ited com pany : Company can subscribe to the memorandum of society Registered society : A registered society can subscribe to memorandum of association of proposed society . V arious state gov ernments by their amendments hav e ex panded the prov isions in the Act for formation of the societies.

Purpose for which a society can be formed

Section 20 of the act specifies the following purpose for which the society may be registered: Grant of charitable assistance Creation of military orphan funds Societies established at the general presidencies of India Promotion of science, literature, fine arts, instructions or diffusion of useful knowledge, diffusion of political education, foundation or maintenance of libraries, public museum and galleries of paintings, works of art, collection of natural history, mechanical and philosophical inventions, instruments , designs

Registration of Society
A registered society implies that the society has a legal entity which binds the members to a certain ex tent. The society enjoy s a legal status separate from its members and can acquire and hold property and can sue and be sued. The registration of the society is to be done under the act wherev er obtaining and not in the state where the benefit is claimed (Radhaswami Satsang Sabha,Day al Bagh V s. Hanskumar Kishan Chand)
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Sec 3 (2) of the Act means that the society which seeks registration should not hav e a name identical with that of another society which was prev iously registered and whose registration is subsisting. All the subscribers (minimum 7 ) should sign the memorandum of association and the signatures should be attested by an Oath Commissioner, Notary Public, Gazetted Officer, Adv ocate, Chartered Accountant or magistrate 1 st Class with their rubber/official stamp and complete address. Howev er persons desirous of forming a society should also become members of the first Gov erning Body . The Rules and regulations of the Society should be signed by atleast 3 members of the Gov erning Body . The following documents are required to be filed with the registrar (or respectiv e registering authority of the respectiv e state): Covering letter requesting for registration The memorandum of association in duplicate along with a certified copy. The memorandum should be typed with serially numbered pages. Duplicate copy of the rules and regulations of the society duly signed Where there is a reference to any particular existing places of worship, sufficient documentary proof establishing legal competence and control of applicant society over such place should be filed. Affidavit on non-judicial stamp paper of appropriate value sworn by the president or secretary of the society stating relationship with the subscribers duly attested. Documentary proof such as House Tax receipt, rent receipt in respect of premises shown as registered office of the society or no objection certificate from the owner of the premises. The society can be registered with a nominal fee of Rs.50/- which is payable in cash or demand draft After verification of the documents and ensuring the compliance of provisions the registrar certifies the registration of the society. It should be noted that it cannot be presumed that the society is duly registered under the Act by just obtaining the certificate of registration from the Registrar, but it is presumed to be registered by the copies of the Rules and regulations and memorandum being certified under Sec 19 the Act However, once the society becomes registered and obtains its legal entity, the activities and the members become bound by the objects of the memorandum. An unregistered society does not enjoy the legal status and therefore exists in fact and not under the law.

Memorandum of Association
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Memorandum is the charter of the society. It is the document depicting and describing the objects of its existence and its operations. The memorandum as per the Principal Act (Section 2) and Acts passed by various state governments should contain the : Name of the Society The objects of the Society The names, addresses and occupation of the members of the governing body The place of the registered office of the Society The memorandum should be a neatly typed document on good quality durable paper with serially numbered pages since these documents are to be kept as permanent records. Also, there should be a one and a half margin on left side of each sheet of paper while typing and it should be typed on one side only. The memorandum should also contain the names, addresses and full signatures of the seven and more persons subscribing their name to the memorandum of association. The signatures should be duly witnessed and attested. Along with the memorandum of association, a certified true copy of the Rules and Regulations of the Society signed by atleast three of the members of the first governing body should be filed.

Rules and Regulations

The rules and regulations of the society are framed to guide the members of the governing body or the persons entrusted with management of the society to regulate the functions of the society and for its internal management. These rules and regulations help in achieving the objects of the society and are binding on its members. A copy of the rules and regulations certified to be correct by not less than three members are required to be filed with the registrar along with the other documents at the time of the registration of the society. The rules and regulations also lay down the rules for the meetings. The rules should normally contain guidelines for meetings, quorum, proxy, minutes, and resolutions. It cannot be presumed that a society is duly registered under the Act by just obtaining the certificate of registration from the registrar, but it is presumed to be registered by the copies of the Rules and Regulations and the Memorandum of Association being certified under Section 19 of the Act.

Member(s) in the memorandum shall be a person(s) who has been admitted according to the rules and regulations of the society and should have paid the subscription and signed the list of members. No person shall be entitled to vote or be counted as a
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member in any of the proceedings of the society whose subscription has been in arrears for a period exceeding three months. The rights and duties of these members are: Right Right to receive notices Right to vote Right to receive copies of the bye laws Right to receive statement of accounts Right to attend general meetings Duties and Liabilities To work towards attainment of the objectives of the society To attend the meetings regularly and exercise their democratic right as and when necessary. A society may act against the members for: - recovery of arrears of membership subscription - recovery of any retained property or damages to the property caused by the members - for mis-utilisation / mis-appropriation of funds of the society - forging any deed, document, money receipt etc. causing loss of fund or loss of credibility of the society. Governing Body Governing Body under the Act can be said to be consisting of the Governors council, Committee, trustees or some other body by whatever name called to whom or to which by the rules and regulations of the society the management of its affairs is entrusted. Property belonging to the society registered under the Act is deemed to be vested in the Governing Body of the society if not vested in trustees. General Body General Body comprises of all the members who have subscribed to the memorandum of the society In certain NGOs there is no distinction between the General Body and the Governing Body. It is permissible to have common members among both the General Body and the Governing Body. However for good governance, sometimes there are more members in the general body from which the Governing Body is elected in the Annual General Meeting Meetings General Meetings: Annual General Meeting (AGM) is a meeting of the general body i.e. of all the members who have subscribed to the memorandum of the society normally held once in a year to discuss and approve the important matters like review of yearly activities, approval of audited accounts, and appointment of auditor. The AGM is to be conducted within six months of the end of the financial year since the annual activities and accounts are adopted in this meeting. Other general meetings can also be called during the year to discuss certain matters of importance if required. Such meetings are
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called the Extraordinary General Meeting (EGM). All members of the society have a right to participate in the meeting. Board Meetings / Governing Body Meetings: The meetings of the Governing Body are held to take administrative decisions for the organisation. These meetings are held as per the time interval specified in the rules and regulations of the society. They can also be held more frequently if need arises for them. Generally the meetings should be held at atleast in an interval of three months if the time interval for holding the governing body meetings is not specified in the rules and regulations. These meetings are important for an organisation since these meetings the matters related to management of the organisation is taken in collective manner. Notice: A notice for every meeting should be given to all the members according to the time limit as mentioned in the bye laws and the time limit for issue of the notice for any meeting should be provided in the bye laws. The notice for the meetings has to be given in writing. Generally a 21 days notice should be given for a general meeting and 7 days notice for a governing body meeting. Agenda: Along with the notice for the meeting, the Agenda for the meeting should be enclosed which provides the details regarding the relevant items to be discussed during the meeting. Quorum: The bye laws of the organisation should also specify the quorum required for different meetings. Quorum implies the minimum number of members who must be present in the meeting to make the proceedings of the meeting valid. If the required quorum is not present then the meeting is generally adjourned to the same day of the next week, at the same time and the same place. In case the quorum is still not present in the adjourned meeting then the meeting can be taken as a valid meeting. However proxies are not considered as part of the quorum. Proxy: A member entitled to attend and vote in a meeting can appoint a proxy on his behalf who can attend and vote in the meeting who is referred to as the Proxy .A proxy form has to be filled up and submitted at least 2 days before the date of the meeting of the society. Minutes: It is important to record the minutes of the meetings since they are the formal record of the proceedings of the meetings. The minutes can be recorded on loose sheets chronologically prepared and bound together or a bound register. The pages of the minutes should be serially numbered. The minutes of the previous meeting are to be read and confirmed at the beginning of a meeting. Thereafter the minutes are signed by the chairman and subsequently they cannot be altered or corrected. The members are required to sign the attendance register during the meeting. In case of a combined general body and governing body meeting, care should be taken to write separate minutes for the General Body meeting and the Governing Body meeting. Also care should be taken to maintain the required quorum as required for the type of meeting being conducted Resolutions: For any decisions taken at the meetings by the members, to formally apply the decisions a resolution stating the decision taken has to be passed in writing. It is required for the organisation to mention the decision taken during the meeting in
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the shape of a resolution along with the number of votes in favour and against the decision While framing the rules and regulations the number of members required to pass a resolution is to be mentioned in the rules and regulations.

A society after its registration may require at any time to change its name, or to alter, abridge or amend its objects and /or the rules and regulations at any time. A society may be required to change or alter its objects, rules and regulations at any time for any reasons or if the Government requires it.

Alteration/ Amendment of Memorandum of Association The memorandum of a society contains the aims and objectives of the society within which the society has to operate. Any activity undertaken beyond the aims and objectives specified in the memorandum shall make the activity invalid. Section 12 of the Societies Registration Act 1860 gives the procedure for alteration, amendment or abridgement of the aims and objectives .The Act gives a specific procedure which is very systematic and the steps mentioned has to be adopted as given the Act. The Section 12 in the Act is given as: Whenever it shall appear to the governing body of any society registered under this Act, which has been established for any particular purpose or purposes, that it is advisable to alter, extend, or abridge such purpose to or for other purposes within the meaning of this Act, or to amalgamate such society either wholly or partially with any other society, such governing body may submit the proposition to the members of the society in a written or printed report, and may convene a special meeting for the consideration thereof according to the regulations of the society; but no such proposition shall be carried into effect unless such report shall have been delivered or sent by post to every member of the society ten days previous to the special meeting convened by the governing body for the consideration thereof, not unless such proposition shall have been agreed to by the votes of threefifths of the members delivered in person or by proxy, and confirmed by the votes or three-fifths of the members present at a second special meeting convened by the governing body at an interval of one month after the former meeting. The procedure given in the Act is mandatory and not optional. In a decision of Allahabad High Court, Shridhar Mishra vs. Jaichander Vidyalankar AIR 1959, it has been stated that: It is impossible to accept the suggestion that a society is not bound by the Societies Registration Act .A private institution need not get itself registered under the Societies Registration Act. But if an institution chooses to get itself registered under the Act, the institution is bound by the provisions of the Act, whether the procedure laid down in Sec.12 of the Act is directory or mandatory is another question. But a society registered under the Act cannot altogether ignore Sec.12 of the Act. The proposal for alteration or extension of the purposes of the society has to be passed at the special meeting convened by a special majority of members. Section 12 of the Societies Registration Act 1860 has laid down the following steps for alteration, extension or abridgement of the aims and objectives of a society which have to be followed: Submission of the proposal by the governing body to the members of the society
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10 days notice to members about holding of a special meeting, convening a special meeting for the consideration of the proposal, Approval of the proposal by 3/5th of members, Convening second special meeting after a month, and Confirmation by 3/5th of members present at the second special meeting Certain State Acts have more provisions regarding the alteration of the objects clause. Some of these provisions are: Section 9 of the Karnataka Societies Registration Act states that the changes should be filed with the Registrar within 30 days along with a fee of Rs. 20.The order of Registrar refusing to register amendment is appealable in the court of law. Section 11 of Madhya Pradesh Act states the circumstances in which the Registrar may order amendment of objects clause. Section 9 of the West Bengal Societies registration Act states that the resolution should be passed by 3/5th majority. The amendments should be filed with the registrar within 30days. Section 9 of the Telangana Area Societies Registration Act states that the resolution for the alteration is required to be voted by 2/3rd majority of members present. Alteration/ Amendment of Rules and Regulations of the Society The society during the course of its working may find the need to alter its rules and regulations according to the change in working of the management of the society or due to other needs felt by the management and the members. The Societies Registration Act however does not contain any provision as to the change in the rules and regulations, but it is always beneficial for the Society to follow Section 12 guidelines of the Societies Registration Act, 1860. Certain State Acts have specific provisions in their respective State Societies Registration Act for alteration of the rules and regulations of the society. Some of the provisions specifically given in these state acts are: Section 4 A of the Bihar Societies Registration Act states that a corrected copy of the rules and regulations certified by at least three members of the governing body should be sent to the inspector general of Registration Section 4A of the Gujarat (Amendment) Societies Registration Act and U.P. Societies Registration (Amendment) Act states that the corrected and certified copy of the rules should be sent to the registrar within 30 days of alteration. Section 4A of the Orissa Societies Registration(Amendment) Act states that a certified and corrected copy of the rules should be sent to the registrar within 2 months of the alteration Section 4A(6) of Pondicherry Societies Registration(Amendment) Act states that a certified and corrected copy of the rules should be sent to the registrar within 15 days of the alteration Section 10 of the Karnataka Societies Registration act states that resolution is to be passed for the amendment by 3/5th of the majority. The corrected and certified copy of the rules should be sent to the registrar within 30 days of alteration with a fee of Rs.10 along with it. Section 4A of the Gujarat(Amendment) Societies Registration Act and Section 8(3) of West Bengal Societies Registration Act states that the corrected and certified copy of the rules should be sent to the registrar within 30
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days of alteration Section 4A of the Assam (Amendment) Societies Registration Act states that a corrected copy of the rules and regulations certified by at least three members of the governing body should be sent to the registrar Section 11 & 15 of the Madhya Pradesh Societies Registration Act states that the alteration should be registered with the registrar and gives the circumstances under which amendment can be ordered by the registrar. Change of name of the Society During the course of its working the members of the society might feel a need to change the name of their society, however, the Societies Registration Act 1860 does not specify any specific procedure for change of the name of the society. For the change of the name, the society has to follow the same procedure which has been laid down in the Act under Section 12.However certain State Governments have inserted amendments in the Societies Registration Act giving procedure for change of name, specifying how the society can change the name by passing a resolution in the General meeting with consent of appropriate majority of its members. In general, various state acts under section 12,12A,12B give the following procedure for change of the name of the society: Convene a general meeting for the purpose of the change of the name A resolution should be passed by a majority The notice in writing of the change of name, which has to be signed by the Secretary of the society along with seven members(as in case of the registration of the memorandum of association), should be submitted to the registrar. The name of the society if accepted by the registrar is registered and the change of name is effected from the date of the registration. However the registrar may refuse to register the change of name in case the name proposed is identical to some other society or for reasons that the name may be deceiving to the public or the name suggests patronage of Government or connection with any body constituted by the Government or any other authority. The change of name does not affect any legal proceedings which are already present for the society. Various State Governments have provisions related to change of name inserted in the Societies registration Act like: Section 12 of Delhi (Amendment) Act, Goa, Diu and Daman(Amendment)Act, Himachal Pradesh (Amendment)Act state that the resolution should be adopted by 3/5th of the majority. Section 12A 12B, 12C of Bihar (Amendment) Act, Gujarat (Amendment) Act, Maharashtra (Amendment) Act, Pondicherry (Amendment) Act, Orissa (Amendment) Act state that the resolution should be passed by 3/5th majority. Gujarat (Amendment) Act, Maharashtra (Amendment)Act, Orissa (Amendment) Act also specify that the resolution after being adopted by 3/5th of majority should be confirmed at a subsequent meeting and a certified copy of change in name should be obtained from the registrar on payment of fees of Re.1. Section 12,12A 12B,12C of Assam (Amendment)Act, Nagaland(Amendment)Act, U.P. Amendment Act, M.P. Act, Rajasthan Act state that the resolution should be adopted by 2/3rd of the majority. TamilNadu Act states that the resolution should be adopted by 3/4th of the majority.
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Every society registered under the Act may sue and be sued in the name of the President, Chairman or principal secretary or trustees as determined by the rules and regulations of the society.

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