Introduction
Under the Maharashtra Public Trusts Act, 1950, a public trust is permitted to borrow money; however, the law imposes strict regulatory oversight to protect trust property and ensure that loans are taken only for the benefit of the trust’s charitable or religious objects.
- Power to Borrow – Source
The power to borrow may arise from:
- The Trust Deed, if it expressly authorises borrowing.
- Statutory provisions under the MPTA.
- Orders of the Charity Commissioner.
If the trust deed is silent, trustees cannot assume unrestricted borrowing powers.
- Mandatory Prior Sanction
According to Section 36A(3) of the Act, no trustee is allowed to borrow money—whether through a mortgage or any other method—on behalf of the trust without the previous sanction of the Charity Commissioner. When granting this permission, the Charity Commissioner may impose specific conditions or limitations designed to protect the interests of the trust.
- Expedited Approval for Bank Loans
To facilitate the administrative needs of trusts, the law provides a fast-track process for loans from recognized financial entities. If a Bank or Financial Institution has already provisionally sanctioned a loan to the trust, the Charity Commissioner (or Joint Charity Commissioner) is required to decide on the application for permission within fifteen days.
- “Ex-Post-Facto” Sanction in Emergencies
While prior permission is the standard rule, Section 36A(3A) allows for flexibility in “exceptional and extraordinary situations”. If failing to get prior sanction would cause significant hardship to the trust, its beneficiaries, or a third party, the Charity Commissioner has the power to grant ex-post-facto sanction (approval after the fact) for loans taken from nationalized or scheduled banks.
- Strict Prohibitions on Personal Use
A fundamental fiduciary rule under the Act is that a trustee is strictly prohibited from borrowing money for their own personal use from any property belonging to the public trust. However, a trustee is not considered to have “borrowed for personal use” if they make a gift of debentures or deposits in their own business or industry to the trust.
- Application Fees
When applying for the authority to borrow money, trustees must pay a court-fee stamp as prescribed in Schedule B. The fee is scaled based on the loan amount.
- Consequences of Unauthorized Borrowing
Failing to comply with the directions or orders of the Charity Commissioner regarding borrowing can be treated as an offense. Under Section 67, any person who fails to comply with such directions without reasonable cause can be punished with a fine of up to Rs. 10,000. Furthermore, auditors are specifically required to report any irregular or improper financial dealings during the annual audit.
Conclusion
A public trust can take loans, but:
- It must be authorised,
- It must be for trust objects,
- It must comply with Section 36
- It must satisfy Income-tax conditions to retain exemption.
Thanks for Reading!