Alienation of Property Presentation by: CS Girish G Paralikar Sunday, 27 th November, 2011

Alienation of Property Alienation – Meaning separation, estrangement or disaffection. Where property belonging to a Trust is disposed of by any ways prescribed under the Law.

Alienation of Property This is an obligation caste on the Trustees to ensure that they take decisions that are most advantageous to the Public Trust for which they are Trustees. This is a fiduciary duty caste upon them and it is expected that they do act in the interests of the Trust.

Alienation of Property The Section applicable in these matters are 36 and 36 A of the Bombay Public Trusts Act, It applies to all the Public Trusts and the Societies registered under the Societies Registration Act, 1860 in Maharashtra carrying on Charitable activities. It applies for all the Immovable Properties.

Alienation of Property Section 36 says “Notwithstanding anything contained in the Instrument of Trust”, thus, it does override the provisions of the Trust Deed and overpowers the powers vested in the Trustees.

Alienation of Property Alienation can be by way of sale, exchange or gift of any immovable property. Or by way of lease for a period exceeding 10 years in case of Agricultural Land or for three years in other Lands and Buildings belonging to the Trust.

Alienation of Property Alienations as specified above shall be valid ONLY with a PREVIOUS sanction of the Charity Commissioner. While giving the sanction, the CC may put such conditions as he may think fit in the interest / benefit / protection of the Trust

Alienation of Property Invariably, now a days, a Public Notice is required to be published to bring in more transparency in the transaction and make enable the public at large to benefit from the same.

Alienation of Property The CC MAY, on application made, authorise any Trustee and also may revoke the sanction if it was obtained by fraud / misrepresentation or by concealing the facts material to the deal. If sanction is revoked, he may ask for recovery of the property within prescribed time period and if such recovery is not possible, the ask the Trustee to make good to the Trust any advantage derived by him.

Alienation of Property Typically, the application should contain the type of alienation sought, the necessity, valuation report, utilisation of the proceeds, clarification as to how the proposal is in the interest of the Trust, the title deeds and the Schedule I entries of the property, details of the powers vested in the Trustees by the Trust Deed, Resolutions passed by the Trustees.

Alienation of Property Generally, the Trustees can not make such transactions with themselves, they being in a fiduciary capacity towards the Trust. However, if it can be established that the said alienation is in the interest of the Trust, the CC may grant the permission with conditions as he may impose. Generally, it takes any time between three to six months to get such an approval.

Alienation of Property The previous approval is not necessary when the alienation is by Court itself or by operation of Law. Immovable property here shall mean, inter-alia, the property such as Land, Buildings, any property embedded in the earth or permanently fastened to any thing embedded in the earth.

Alienation of Property Similar provisions apply for alienation of property by way of its mortgage of while availing any Loan from any Bank / financial institution on its security. In this case also previous approval of the CC is required before availing the Loan. In addition to the documents and supporting details, this application also requires projected repayment schedule, cash flow statement, DSCR calculation, project report and details of loans availed earlier, their repayment schedules and NoC from the existing lenders.

Alienation of Property What the CA should look: Whether there is any alienation / loans availed during the previous year If yes, whether previous approval is taken by the Trust for the said deal The Minutes of the Meetings of the Trustee Meeting The consideration / loan received and its utilisation towards stated objectives of the deal Adherance to the repayment schedule and the ability of the Trust to repay the debt.

Alienation of Property Opportunities to the CA: Audit of the Accounts of the Trust in a very professional manner Preparation of Project Reports for the Trust Advising the Trust as to whether they will benefit from the Transaction or not, Issue of Taxation especially when there is a sale of property, Related party transactions and applicability of Section 13 of the Income Tax Act.

Vote of Thanks Thanks for a patient hearing.