Saji Koduvath, Advocate, Kottayam.

Synopsis

• 1.      Introduction
• 2.      Meaning of ‘Purpose’
• 2.      No Alteration of Fundamental Principles and Trust
• 3.      Principles of Trust are Inbuilt in Societies and Clubs
• 4.      Power to Amend the Rules Is Implicit
• 5.      Amendment: Provision Mandatory
• 6.      No Indirect Amendment Allowable
• 7.      Society, and not Court, Determine Validity of Amendment
• 8.      Voting by Proxy
• 9.      Halsbury’s Laws: Alteration must be in Good Faith for the Benefit of the Co.
• 10.    Amendment Comes into Effect before Registration
• 11.    No Power on Registrar to Grant Approval to Amendment
• 12.    Amalgamation
• 13.    Can a Society be Transformed as Trust, by Resolution

Provisions of the Societies Registration Act, 1860:

• 12. Societies enabled to alter, extend or abridge their purposes: 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,
• nor unless such proposition shall have been agreed to by the votes of three-fifths of the members delivered in person or by proxy,
• and confirmed by the votes of three-fifths of the members present at a second special meeting convened by the governing body at an interval of one months after the former meeting.

1. Introduction

Since the right to form an association is a constitutional right, the right to continue the association as per its bye laws is also a constitutional right.[1]

Except the rights with respect to alter, extend or abridge the ‘purposes’, as provided under Section 12, the Societies Registration Act, 1860 does not specifically state anything as to the amendment of Memorandum or Rules and Regulations. The provisions in the bye laws of the society govern the amendment.

2. No Alteration of Fundamental Principles of Foundation and Trust

Any action taken contrary to the bye laws would be ultra vires.[2] Even the entire members of an association, altogether, cannot legally do a thing which is ultra vires. But, they are at liberty to amend their bye laws in accordance with law. Nevertheless the power of amendment is not unlimited – it should not be hit by the doctrines of illegalities and ‘basic principles of foundation’ or ‘basic structure’.

It is held in Inderpal Singh Vs. Avtar Singh:[3]

• “Rule of Law demands and dictates that the people follow the Law. The Constitution, whether of the State or of a Society registered under the Societies Act, is paramount. As people are to follow the Law in a State, so the members of a Society are duty-bound to follow the Constitution of the Society. After all, the Constitution is the soul of the Society. The Society, therefore, cannot function in contravention of its Constitution. .… In case the action of the Sabha is contrary to the tenor and spirit of its Constitution, the said action cannot be sustained by a Court of law. The doctrine of factum valet is applicable to cure the violation of a directory provision or a mere matter of form but does not cure the violation of the fundamental principles or the essence of the transaction.”

In Sri Bhaben Chandra Pegu Vs. The State of Assam[4] the Division Bench considered the relevant statutory Rule under which meeting of the governing body of a college had to be convened and pointed out that acts in violation of the Rules would be void, unlawful and illegal and was liable to be set aside.

It is not open for the majority of the members of an association to alter the fundamental principles upon which it is founded, unless such a power is specifically reserved. This principle laid down in Milligan Vs.  Mitchel,[5] Attorney General Vs. Anderson[6] and Free Church of England Vs. Overtoun[7] is referred to in Prasanna Venkitesa Rao Vs. Srinivasa Rao.[8]

House of Lords in Free Church of England Vs. Overtoun[9] (by a majority of 5-2) found that the minority was entitled to the assets of the Free Church. It was observed that when men subscribe money for a particular object, and leave it behind them for the promotion of that object, their successors have no right to change the object endowed. It was held that, by adopting new standards of doctrine (and particularly by abandoning its commitment to ‘the establishment principle’, which was held to be fundamental to the Free Church), the majority had violated the conditions on which the property of the Free Church was held.

In Noel Frederick Barwell Vs. John Jackson (1948)[10] it was held as under:

• “51. It has been argued by Mr. Pathak on the basis of this decision and the decision of the House of Lords in Hole v. Garnsey (1930) 1930 A.C. 472, already referred to, that the rules of every association may be divided into two classes – the rules relating to fundamentals and the ordinary rules. Learned Counsel went on to urge that the fundamental rules could not be altered even by a unanimous vote of the members, though, if the rules provided for amendments, the other rules could be ant ended. It is not necessary for me to go into this question as the point does not arise in this case, but if I may say so without meaning any disrespect, the cases cited above have entirely been misunderstood. All that their Lordships intended to say was that the rules of any club being framed for the purpose of carrying on the objects of the club, ordinarily any power to amend such rules must be limited to the contemplated scope of the original rules and that under the general powers of amendment the alteration should not affect the foundation of the club or should not be incompatible with its fundamental objects.
• 52. Dealing with this question Lord Han – worth, Master of the Bolls, in Doyle v. White City Stadium Ltd (1935) 1 K.B. 110 said:
• ‘When these rules as altered are still for the purpose of carrying out the original purpose of the society or body of persons, the altered rules are made binding on the plaintiff. If there was an attempt fundamentally to alter the purpose for which the rules had been originally drawn up, the prospective agreement to adhere to-fresh rules, or any alteration in the rules, would not apply. It is quite plain from the decision in Thelluson v. Viscount Valentia (1907) 2 Ch. 1 that if and so long as the rules are akin to the purpose for which a society exists, there is no inherent, objection to an alteration of those rules or to further rules being made for the same purpose’.”

3. Principles of Trust are Inbuilt in Societies and Clubs

Actions of persons in fiduciary position should subserve their position as such. In Church of North India Vs. Lavajibhai Ratanjibhai[11] it was pointed out by our Apex Court that in terms of Section 5 of the Societies Registration Act, only if the property of a society is not vested in trustees the same would be deemed to have been vested for the time being in the governing body of a society.[12]

The trustees or the governing body administer the ‘property of the society’ as per its bye laws so as to fulfill or attain the ‘aim and objects’ the founders viewed.  They acquire and hold the property for and on behalf of the members of the society subject to the trust and obligations imposed by law, the bye laws and the fundamental principles upon which it is founded. These propositions lead to the unerring conclusion that our law brings-in principles of trust in the affairs of the societies and clubs. [13]  

4. Power to Amend the Rules Is Implicit

The Memorandum of Association is a contract amongst the members of the Society. The authority to frame, amend, vary and rescind such rules, undoubtedly, vests in the General Body of the Members of the Society. The power to amend the rules is implicit in the power to frame rules; [14] provided, as shown above, it should not hit the ‘basic principles of foundation’.

Even when there is no specific power to amend the bylaws or Rules, an (unregistered) association can amend the same (without destroying its ‘Basic Structure’), as this power is ‘sui generis‘. In other words, such powers can also be taken to be derived out from inherent authority vest with the club or society, especially since they are voluntary (unregistered) associations function under the fundamental guarantees extended by the Constitution of the Country. Therefore, there may be no scope to explore deep to find out the genesis of this right. But, once the Societies Registration Act or the bye laws provide a particular procedure for amendment of bye laws, the same has to be strictly observed, as shown below.

5. Meaning of ‘Purpose’

Section 1 of the Societies Registration Act refers to ‘purpose’ and Section 2, the ‘object’. The connotations conveyed by these two terms have to be derived from the wordings of these two sections.   

Sections 1 and 2 of the Societies Registration Act reads:

• 1. Societies formed by memorandum of association and registration –   Any seven or more persons associated for any literary, scientific, or charitable purpose, or for any such purpose as is described in section 20 of this Act, may, …..
•   2. Memorandum of association – The memorandum of association shall contain the following things, that is to say, the name of the society; the object of the society; ……..

6. Amendment: Difference between ‘Purpose’ Clause and other Clauses of Bylaws

Subject to the provisions in the Act, if any, applicable and the bye laws, the final authority of every society and club shall vest in the general body[15] of the members in general meeting, summoned in such manner as may be specified in the bye-laws.

The provision for amendment in Sec. 12 is stringent. But, it is confined to object-clause alone. It is mandatory.[16] Once the Societies Registration Act or the bye laws provide a particular procedure for a particular affair (such as amendment of bye laws, election or dissolution), the same has to be carried on as per that procedure. Because, if a thing is prescribed to be done in a particular way, it can be done in only that way, and by no other Way.[17] Now the following questions may arise-

• Is there difference between amendment of ‘object-clause’ and other provisions of Bylaws?
• If there is difference, how other provisions are to be amended?

Answer:

• Prima-facie, it can be seen that thee is difference.
• Other provisions of bylaws are to be amended as provided under the bylaws.
• If no provision in the bylaws, the amendment can be effected by a simple majority in a validly convened general body of the Society or Club. But, no doubt, natural justice would demand prior notice to the members of the society or club as to the amendment.
• If an amendment is effected otherwise than by adopting the procedure laid down in Sec. 12 (complying natural justice as stated above), and a dispute comes as to whether the amendment involved the ‘variation of the purpose’ stated in Sec. 12 or not, it will have to be resolved by a civil court.
• No Indirect Amendment Allowable – It is held in Modern India Ltd. Vs. Belvedere Court Condominium[18] that where a clause in the bye laws must remain un-amendable by virtue of the provisions of the bye laws, no indirect amendment can be allowed. The bye laws constitute a contract between the association and its members, and also between the members inter-se. Hence the members are bound-by the bye laws. The defendants are, therefore, estopped from acting to the contrary.

7. Society, and not the Court, to Determine Validity of Amendment

It is for the members, and not the court, to determine whether or not the alteration of its Rules is for the benefit of the association or company; and the court will not readily interfere with an alteration made in good faith, if the amendment is made after considering all relevant factors. All members are bound by a valid alteration whether they voted for or against it.[19] What is in the interest of the society is primarily for the society alone to decide and it is not for an outside agency to say.[20]

It is observed in In re, Goneshberi Tea Co. P Ltd.[21] as under:

•  “If the shareholders of the company after considering all relevant factors are of opinion that by making contributions to Labour Welfare Funds they would satisfy various aspirations of the workers and ensure smooth running of the company, it would not be proper for the Company Law Board to impose its own view on them.”

In Greenhalgh v. Arderne Cinemas[22] it is held that ‘a share holder has no right to assume that his company’s articles would always remain in a particular form and he cannot object to an alteration as fraudulent provided it was passed bona fide and did not unfairly discriminate.’

But, in Most Rev. PMA Metropolitan Vs. Moran Mar Marthoma Mathews, [23] the Supreme Court observed:

• “Inasmuch as the Malankara Association was vested with control over the religious and communal affairs of the entire Malankara Christian Community, it was held desirable and necessary that the Association must ‘truly and genuinely reflect the Will of the said community’. For ensuring it, it was observed: [24] ‘Its composition must be so structured as to represent the entire spectrum of the community. A powerful body having control over both spiritual and communal affairs of the Malankara Church should be composed in a reasonable and fair manner. ……… It was held that it is necessary to substitute cl. (68) (now cl. (71)) and other relevant clauses of the Constitution to achieve the aforesaid objective which would also affirm the democratic principle, which appears to be one of the basic tenets of this church’.”

8. Voting by Proxy

Proxy is not a common law right. It is the creature of law of agency.[25] Therefore,  proxy shall not be entitled to attend the meetings or to vote in a Company or other Associations unless the enactment concerned or the bye laws applicable specifically provide for the same.

The relationship between the member and his proxy being that of a principal and agent, the rights and obligations, including the matters as to (i) competency, (ii) revocation, (iii) limitations, (iv) entitlement of the agent to compensation, (v) effect of revocation upon third parties, (vi) termination of authority etc., are governed by the law of contract.[26]

9. Halsbury’s Laws of England

Alteration must be in Good Faith for the Benefit of the Company

Subject to the principles of public-policy, any person or group can change their persuasions. The validity of the amendment of the bye laws of a society is tested by Courts, if so required, on the touch-stone of good-faith and doctrine of ultra-vires. Halsbury’s Laws of England[27] reads as to alteration of articles of a company as follows:

• “Any alteration must be made in good faith for the benefit of the company as a whole, that is, of the corporators as a general body. Subject to this, articles may be freely altered. It is for the shareholders and not the court to determine whether or not the alteration is for the benefit of the company and the court will not readily interfere with an alteration made in good faith unless it is of such a character that no reasonable person could have regarded it as made for the benefit of the company. The alteration may affect the rights of the member as between himself and the company by retrospective operation, since the shares are held subject to the statutory power of altering the articles.”

10. Amendment Comes into Effect before Registration

The Societies Registration Act does not require registration of ‘alteration’ in the Rules and Regulations. Therefore, it cannot be held that registration of the amendment is a condition precedent for giving effect to such an alteration.

In Managing Committee, Khalsa Middle School Vs. Mohinder Kaur[28] the Supreme Court drew a distinction between the provisions of the Companies Act, 1956 and the Societies Registration Act and observed:

•        “In the absence of any requirement in the Societies Registration Act that the alteration in the Rules and Regulations must be registered with the Registrar, it cannot be held that registration of the amendment is a condition precedent for such an alteration to come into effect. .. The said amendment should be treated to have come into effect from the date on which the resolution making the said amendment was passed …”

11. No Power Upon the Registrar to Grant Approval to Amendment

There is no provision in the Societies Registration Act expressly conferring power upon the Registrar to grant his approval to the amendments carried out to any bye-laws by a registered society.

12. Amalgamation

Registered societies can be amalgamated only by resorting to the lawful modes for amalgamation in the So. Registration Act.[29] A Society can be merged into another society alone, and not into a Trust.[30] Upon amalgamation one society ceases to exist, and its losses cannot be adjusted against profits of amalgamated society.[31]

13. Can a Society be Transformed as Trust, by Resolution

See Chapter: Dissolution of Societies and Clubs

[1]   Joint Registrar of Co-operative Societies, Kerala Vs. TA Kuttappan: (2000) 6 SCC 127;         Damyanti Naranga Vs. Union of India: AIR 1971 SC 966;         K. Nithyanandam Vs. State of Tamil Nadu : 2006 (1) CTC 1;         Zoroastrian Co -operative Housing Society Vs. District Registrar: AIR 2005 SC 2306.

[2]   Lila Parulekar Vs. Sakal Papers (P) Ltd.: (2005) 11 SCC 73: AIR 2005 SC 4074;          Raja Himanshu Dhar Singh Vs. Addl. Registrar Co-op. Societies: AIR1962 All 439. 

[3]    2007-4 Raj LW 3547

[4]    1998 (1) GLR 38

[5]      40 ER 852

[6]      (1888) 57 LJ Ch 543

[7]      (1904) AC 515:

[8]      AIR 1931 Mad. 12. See also: Inderpal Singh Vs. Avtar Singh: 2007-4 Raj LW 3547;          Allahabad High School Society Vs. State of UP: 2010-5 ADJ 734, 2010-82 All LR 83;         P. Jayader Vs. Thiruneelakanta Nadar Chinnaneela Nadar: ILR  1966-2 Mad 92.

[9]      (1904) AC 515

[10] AIR 1948 All 146

[11]    AIR 2005 SC 2544.         See also:  Vinodkumar M. Malavia Vs. Maganlal Mangaldas: (2013) 15  SCC 394.

[12]    Relied on in Vinodkumar M. Malavia Vs. Maganlal Mangaldas Gameti: (2013) 15 SCC 394. 

[13]    See: Chapter: Incidents of Trust in Clubs and Societies

[14]    Supreme Court Bar Association Vs. BD Kaushik: (2011) 13 SCC 774; AIR 2011  (SCW) 5804

[15]    Supreme Court Bar Association Vs. Registrar of Societies: ILR 2012-22 Del  1031;         Girish Mulchand Mehta Vs. Mahesh S. Mehta. 2010 (1) Bom. C.R 31

[16]    Ram Charan Agarwala Vs. Shridhar Misra: AIR 1962 All 610;         Shridhar Misra Vs. Jaichandra Vidyalankar: AIR 1959 All 598.

[17]    See: Indian National Congress (I) Vs. Institute of Social Welfare: AIR 2002 SC 1258; Supreme Court Bar Association Vs. The Registrar of Societies: ILR 2012-22-Dlh-1031; Patna Improvement Trust Vs. Smt. Lakshmi Devi: 812 SCR [1963] Supp. State of Bihar Vs. J.A.C. Saldanha (1980) 1 SCC 554: AIR 1980 SC 326; Vinodkumar M. MalaviaVs. Maganlal Mangaldas Gameti:  (2013) 15  SCC 394; Nazir Ahmed case: AIR 1936 PC 253.

[18] 2014-4 BCR 790.

[19]    Hari Chandana Yoga Deva v. Hindustan Co-op. Insurance Society: AIR 1925 Cal 690

[20]    State of Maharashtra Vs. Karvanagar Sahakari Griha (2000) 9 SCC 295;         Zoroastrian Co -operative Housing Society Vs. District Registrar AIR  2005 SC 2306.

[21]    (1964) 34 Comp Cases 556, 565 (Cal)

[22]    (1950) 2 All ER 1120 (CA)

[23]    AIR 1996 SC 3121 (Jeevan Reddy and SC Sen JJ.).  Shai, J did not concur with this view.

[24]    Most Rev. PMA Metropolitan Vs. Moran Mar Marthoma Mathews: AIR 1995 SC 2001.

[25]   Nand Prasad Vs. Arjun Prasad: AIR 1959 Pat  293.

[26]   B. Ramachandra Adityan Vs. TN Mercantile Bank Shareholders Assn: 2009-5 CTC 727; SRMST Narayanan Chettiar Vs. Kaleeswarar Mills: AIR 1952 Mad 515

[27]    Para 554 (Vol. 7(1) 4th Edn., Reissue, 1988)

[28] (1993) Supp. 4 SCC 26 ; AIR 1993 SCW 3006.         Sindhi Edn. Society Vs. Chief Secty. Govt of Delhi: AIR 2010 SCW 5393; 2010-8 SCC 49

[29]    Vinodkumar M. Malavia Vs. Maganlal Mangaldas Gameti: (2013) 15 SCC 394.

[30]   Janta Junior High School, Sonhita VS State of UP: 2016-3 LBESR 748: 2016-34 LCD 2722

[31]   Rajasthan R. S. S.  & Ginning Mills Fed.  Ltd.  Vs Dy.  Commissioner of Income Tax, Jaipur: 2014-11 SCC 672.