SC: Entity Won’t Lose Public Trust Character by Mere Registration Under Societies Registration Act

The Supreme Court has held that a society registered under the Societies Registration Act, 1860 can still be treated as a public trust for the purposes of Section 92 of the Code of Civil Procedure, 1908 (CPC) — if it qualifies as a constructive trust.

The Court clarified that mere registration as a society, after the entity has already acquired the attributes of a public trust, does not alter the trust nature of its properties. However, such registration does not automatically make a society a trust — the determination depends on its structure, funding, and objectives.

Case Background

The dispute arose between the co-founders of a medical service-oriented society — Respondent No. 1, Dr. Shelly Batra and Respondent No. 3, Mr. Sandeep Ahuja.

Dr. Batra was removed as President and board member in 2020. Alleging large-scale mismanagement, financial irregularities, and violations of the society’s bye-laws, she filed a representative suit under Section 92 CPC, seeking judicial intervention.
The society challenged the maintainability of the suit, but both the Single Judge and the Division Bench of the High Court held that the society qualified as a constructive trust.

The reasoning: grants, donations, and gifts to the society were intended for medical care in furtherance of its charitable objectives, making these assets "entrusted property."

Supreme Court’s Findings

A Bench of Justices JB Pardiwala and R Mahadevan upheld the High Court’s decision, noting that:

• A society can be considered a constructive trust if its funds, structure, and objectives align with charitable purposes.
• The character of trust properties is not lost merely because the entity later registers as a society.
• Public trust status can be inferred from the circumstances surrounding the creation and functioning of the entity, such as:
• 1. How property was acquired and whether it was dedicated for public benefit.
• 2. Any conditions on the use of grants or donations.
• 3. Whether the public has rights over the institution’s property.
• 4. How profits are applied towards its objectives.

The Court relied on the Kerala High Court’s Full Bench ruling in Kesava Panicker v. Damodara Panicker (1974), which established that existing public trust properties retain their trust nature despite subsequent registration as a society.

Decision

The Supreme Court dismissed the appeal, confirming that:

• The appellant society functioned as a constructive trust.
• All properties, grants, and donations vested in its Executive Committee for charitable objectives.
• Personal profit-making was prohibited under its governing documents.

Legalspace Take

This ruling is significant for NGO governance, public trust litigation, and compliance:

• For litigators: It expands the applicability of Section 92 CPC to societies that effectively function as public trusts.
• For NGOs and charities: Structural compliance, funding transparency, and adherence to charitable objectives are crucial to avoid disputes.
• For donors: Contributions to societies with charitable functions will likely be treated as trust property, ensuring they are used for intended purposes.

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