Registered societies under the Society Registration Act, 1860 have a major impact on India's social service sector, including many aspects of the socio-educational-charitable-nonprofit ecosystem. From educational institutions through many thousands of non-profit organizations, to cultural organizations and welfare organizations, registered societies are trusted vehicles for collective action and for doing good in society. The public's continued confidence in registered societies will be maintained as long as they operate under the rule of law, as well as their own governing documents. A registered society operates according to its own Memorandum of Association and Articles of Association or governing rules. These documents are not simply procedural forms that are submitted to accomplish registration; they are authoritative governing instruments governing internal governance of the society, member rights, governing body powers, financial management and dispute resolution. If a society fails to operate according to its own governing documents, there can be serious legal, governance and reputational ramifications. Members can suffer the deprivation of their rights; society decisions can become invalid, and ultimately a society can be challenged. This article discusses what should be done when a society fails to operate according to its governing documents pursuant to the Society Registration Act and the remedies available to affected members in accordance with applicable laws.
Understanding the Articles of Association in a Society
Articles of Association (AoA) are an essential element of how a society is governed. They are required to be submitted when applying for a Society Registration Certificate (SRC), and the Registrar of Societies must approve them before a society can be registered. The Articles generally include:
• The eligibility criteria and rights associated with membership
• The duties and powers associated with being an office bearer
• The times, methods and procedures for holding meetings (e.g. Annual General Meetings, Executive Committee meetings, etc.)
• The election methods by which members will become office bearers
• How the society will manage its finances and ensure financial accountability
• How to resolve disputes within the society
By complying with the Articles of Association, a society provides its members with fair treatment, creates transparency in its decision-making and allows it to operate in accordance with its stated objectives. If there are any breaches of the Articles, this will result in internal conflict, and the society may face legal proceedings.
The Role of Articles of Association in a Society
The backbone of every registered association still is its Articles of Association or AOA. The AOA establishes the internal rules, authority, and responsibilities of the Association's members and Officers. The following information contained in an Association's AOA is essential:
• Eligibility and rights of membership
• Appointment of Officers, Removal of Officers and authority assigned to Officers
• Method of conducting meetings and making decisions
• Financial management and Audit requirements
• Mechanism to resolve disputes
Complying with the AOA assures that there will be no interruption to the operational efficiency of the Association and that all information regarding the Association’s operations will be made available to the public with full accountability. Failure to comply will result in, conflict, legal issues and the loss of public confidence in the Association.
Common Instances Where Societies Violate Their Own Articles
Articles of Association are the governing documents for societies, and failure to comply with them can occur in numerous ways either intentionally or unintentionally. Some of the more common forms of non-compliance are described below.
1. Improper appointment/removal of office bearers - By disregarding proper election procedures, extending the term of office bearers without the necessary approval of the organization, or improperly removing an individual from their position of authority.
2. Misappropriation of funds - Using funds belonging to the society for purposes not listed in the Objects Clause, or without the authority to do so.
3. Non-compliance with the requirement to hold meetings - Not conducting the Annual General Meeting (AGM) and/or Special Meeting as per the rules.
4. Restriction of members' rights - Denying members the right to vote, inspect their records, or participate in the governance of the society.
5. Amending articles unilaterally - Changing the Articles of Association without following the procedure set out for amendment.
6. Acting outside of the objects - Undertaking commercial or political activities for profit in the name of the society when the organization is registered for charitable or educational purposes.
The above acts of non-compliance have the potential to significantly damage the credibility, legality, and ongoing viability of the society.
Consequences of Not Following the Articles of Association
A failure of compliance with the Articles of Association can lead to numerous problems for not only the Society itself but the members within it. Some impacts of non-compliance are:
1.Internal Conflict and Issues of Members
A society that does not comply with its Articles of Association typically results in a dissatisfaction from its members, which can range from, for example:
• A society arbitrarily changing the manner in which it elects office bearers
• The misappropriation of funds
• A failure to adhere to policies regarding how meetings are held
• A lack of fairness in the distribution of membership rights
These types of behaviors can lead to a breakdown of trust and ultimately will create discord amongst members, which would then, in turn, deter members from participating in Society-related activities. In fact, members may feel that their voice is not being respected, which could ultimately affect the Society's ability to operate in an effective manner and have its credibility within the community.
2. Legal Consequences
The failure to comply with the Articles of Association is considered to be a breach of the Society Registration Act of 1860 and as a result, can create several potential legal implications for the Society Member(s), which may include:
• The Voidable Decisions: Any decision made by the Society's governing body that is made in violation of the Articles could be challenged in a Court of Law. The Courts can make an Order stating that any action taken in violation of the Articles is null and void and as such is of no value.
• Director's Liability: Any office bearer, who acts outside the authority given to them under the Articles may be liable to civil action through the Courts to recover any funds mismanaged, and breach of Fiduciary duties owed to the Society.
• Penalty for Non-Compliance: Repeated failures of compliance could result in the Registrar of Societies intervening through the suspension or revocation of the Society's Society Registration Certificate.
3. Financial Consequences
The improper handling of society funds or straying from prescribed financial processes can lead to:
• Legal action against members for misappropriating or mismanaging (the misused) funds
• The collection of government grants/donations being forfeited if there is no compliance with the prescribed rules and regulations of the donor
• Financial taxation consequences for the society, since the society may lose its recognized status under the Income Tax Act due to governance failure
4. Damage to Reputation
A society's reputation is based upon its credibility through trust, transparency and adherence to governing laws. When an organization (society) fails to follow its own Articles of Association, it creates a poor reputation (in the eyes of the public), which makes it challenging for the organization (society) to attract new members, volunteers or donations. Re-establishing the credibility of the organization after going through a legal process and/or member disappointment can take a long time and effort.
Remedies Available to Members
Society's members are not relegated to being powerless when a governing body deviates from the Society's Articles of Association. The various types of remedies available under Indian Law include:
1.Internal Remedies
When the governing body deviates from the Articles of Association, the members should first try to obtain an internal resolution. The members have the following rights:
• Call for a General Body Meeting (GBM) following the procedure provided for in the Articles
• Propose a resolution to remove or make accountable those who have been elected as office bearers
• Request mediation from an Internal Dispute Resolution mechanism provided for in the Articles.
The use of Internal Remedies is often quicker, cheaper and preserves the relationships between the Society's Members.
2. Appeal to the Registrar of Societies
If, after exhausting all avenues of Internal Remedies, the Members are unable to resolve their issues, they may appeal to the Registrar of Societies in accordance with the provisions of the Society Registration Act, 1860. The Registrar of Societies is authorized to do the following:
• Inspect the Society's Records and Accounts,
• Provide advice to the Society regarding the process to rectify the deviations from their Articles of Association,
• Initiate action against the Office Bearers who are guilty of any misconduct, or violations of the Rules,
• Suspend or cancel the Society Registration Certificate in extreme cases.
3. Legal Action in Civil Courts
If you have exhausted all your Internal Administrative Remedies, Members can go to Civil Courts for Justice. Some of the types of actions that members may take include:
• Bringing a Legal Action seeking Declaration and Injunctions to prevent the society from exceeding its Powers and Authoritys.
• Bringing a Writ Petition seeking Judicial Review or Intervention in situations where the Members’ Fundamental Rights have been Violated.
• Bringing a Legal Action against the Society for Damages resulting from Mismanagement and/or Arbitrary Actions.
It is advisable to always seek out the advice of an Attorney that specializes in Society Law and Compliance when pursuing any legal remedy.
4.Amendments to Articles of Association
It is fairly common for a member or Members to become involved in Confrontational and Legislative Actions with regards to inconsistently written or Outdated Articles of Association. This can lead to conflict, Lits or Disputes between Members. In this case, all of the Members may come together to propose and adopt Amendments to the Articles of Association according to the procedure set forth in the Articles and the Society Registration Act. This will protect the Members from future disputes. The Amendments should ensure:
• An alignment between Governance and the Society's Current Objectives.
• A clear definition of the roles and responsibilities of the Office Bearers/Board of Directors.
• Legal protection from future disputes.
Preventive Measures for Societies
Prevention is preferable to remediation, even if there may be ways of providing relief. Some ways that societies can try to prevent these types of issues from taking place include:
• Regular Audits - Conduct periodic internal and external audits to improve transparency in administrative and financial matters for your society.
• Strict Compliance with the Articles - Whenever you have a meeting, election or manage funds, make sure to periodically review the Articles and comply with their provisions.
• Educate Members - Make all members aware of their rights and obligations under the Articles of Association.
• Third-Party Registration Services - Use third-party registration services to keep up-to-date on recordkeeping, maintain compliance, and manage any legally required records associated with your society.
• Regular Communication - Communicate with all members regularly on decisions made by the Society, on financial records and changes coming in the near future.
Importance of Society Registration in India
The first step to establishing a legally recognized and credible Society is the issuance of a Society Registration Certificate through the Society Registration process in India, which includes:
1. Preparation of the Memorandum of Association and the Articles of Association
2. Submitting the completed application to the State’s Registrar of Societies
3. Receiving the approval and registration certificate from the Registrar.
Once an applicant receives his or her Society Registration Certificate, benefits include:
1. Legal recognition and the ability to sue and be sued.
2. Eligibility for receiving grants, donations and Tax Exemptions.
3. Protection of all Society’s office bearers and members under Indian Laws.
The Society Registration benefits mentioned above will not apply to a Society that deviates from its Articles of Association, as it will be subject to Administrative and/or Legal Actions.
Rights of Members When Articles Are Violated
All members of a registered society have rights and can take action against any wrongdoing committed by the management. These members are not helpless. The law grants members various options for addressing issues related to the society's governance and business practices.
As a member, you are entitled to:
• Require that the governing body adhere to the articles of association
• Request access to records, accounts, minutes of meetings
• Attend meetings and vote in elections
• Challenge illegal actions taken by the governing body
• Obtain both legal and administrative remedies
When a member's rights have been violated, these rights serve to provide a basis for corrective measures.
Impact on Members and Stakeholders
Additionally, if the governing body fails to comply with the articles of association, it can cause problems for both members and other stakeholders:
• Members may become distrustful of management
• Internal conflicts and factionalism among members can develop
• The society may acquire a poor reputation
• Beneficiaries may not receive services
For those societies that are engaged in providing public welfare services, these types of consequences could greatly hinder their ability to fulfill their mission.
Importance of Periodic Legal Review and Amendments
Societies evolve over time, and outdated rules may lead to unintentional violations. Regular legal reviews help ensure that:
This proactive approach safeguards the society’s legal standing and operational efficiency.
Conclusion
A society registered under Society Registration Act 1860 can only be maintained by all members following its Articles of Association, which outline how the society will operate in every aspect. If the society does not follow its Articles of Association there is potential for a number of bad things to happen to the Society including internal disputes, legal issues, financial problems or harm to the reputation of the society; this may adversely affect all of the Society members as well as harm the credibility of the Society as a whole. All Members have various ways of addressing such situations including internally resolving conflicts with one another, appeals to the Registrar and/or actions filed in the Courts. The Society should put in place preventive measures such as conducting Periodic Audits, Clear Communication, Professional Guidance and Regular Updating of their articles to ensure continued transparent and lawful operations of the Society. Compliance will protect the Members of the Society and will improve the Society's reputation as a credible and effective institution under the Society Registration in India thus allowing the Society to have maximum impact on Society and achieve its Mission.
FAQ
Q1. Can members remove office bearers who violate the Articles of Association? Yes, members can call a General Body Meeting and pass a resolution to remove office bearers if the Articles provide for such action. Legal remedies are also available if internal resolution fails.
Q2. What happens if a society consistently ignores its Articles of Association? Consistent violations can lead to intervention by the Registrar of Societies, nullification of decisions, penalties, or even cancellation of the Society Registration Certificate.
Q3. Can amendments to Articles of Association prevent disputes? Yes, updating Articles to reflect current objectives and clarify member and office bearer roles helps prevent conflicts and ensures smoother governance.
Q4. Are there professional services available to help societies maintain compliance? Yes, professional Society Registration services provide assistance with compliance, documentation, audits, amendments, and legal advice to prevent violations.
Q5. Is a society still protected under law if it violates its Articles? While a society remains legally recognized after registration, violations of its Articles can lead to court actions, member disputes, and intervention from the Registrar, potentially undermining its credibility and operations.
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