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CHURCH OF SOUTH INDIA: CORPORATE GOVERNANCE AND NON-PROFIT COMPANIES -- Part 1

CHURCH OF SOUTH INDIA: CORPORATE GOVERNANCE AND NON-PROFIT COMPANIES -- Part 1

A Proposal for Piercing the Corporate Veil as a Remedy for the Church of South India Trust Association - 2019

Author: Joseph Gnanaseelan Muthuraj
Publisher: Globethics.net, Geneva, Switzerland

AN ABSTRACT

India has a large Non-Profit sector and there are reportedly 2 million Non-Profit Organisations in India employing 19.2 million people. In India, a non-profit organisation can be registered as Trust either by executing a Trust deed or as a Society under the Registrar of Societies, or as a private/public limited non-profit company under Section 8 of the Indian Companies Act, 2013. The Church of South India (CSITA) is not a religious non-profit organisation such as the ones registered under the Charitable and Religious Trusts Act, 1920. It is not a Religious Trust like the Hindu Munnani, Vishwavani, or Dharmapuram Adheenam or Jesus Redeems Ministries. It does not function under the religious Acts like the Wakf Act, 1923. Neither does the Public Trust Act of 1950 guide the CSITA as it is not registered as a Trust, nor does the Societies Registration Act of 1860 control its activities as it is not a registered Society.

How do we understand the Church of South India Trust Association (CSITA) as a non-profit organisation? The CSITA is an incorporated body under Sec. 8 of the INDIAN COMPANIES ACT, 2013. Section 8 under the heading "Formation of companies with charitable objects, etc." has the following statutory clauses.
"Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company:

1) has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object

2) intends to apply its profits, if any, or other income in promoting its objects; and

3) intends to prohibit the payment of any dividend to its members,

4) the company registered under this section shall enjoy all the privileges and be subject to all the obligations of limited companies."
2

The book explores the nature and function of the non-profit company the Church of South India Trust Association situated in Chennai, South India and analyses the precarious situation the organisation finds itself in with regard to the financial and property (mis)management; after a detailed study this leads the author to make a major remedial proposal, namely, to lift its corporate veil to expose the true affairs of the company for reproof and restoration.

The Church of South India Trust Association's Corporate Identification Number (CIN) is U93090TN1947NPL000346, and the Registration Number is 000346. Its Registration/Incorporation date is 26 September 1947. It is a public non-governmental and non-profit company and a Company Limited by Guarantee. The office of the CSITA is at 5, Whites Road, Royapettah, Chennai 600014, India, where is also located the Secretariat of the Church of South India.

Through the CSITA, "the Church (i.e. the CSI) continues to serve the public at large in rural, sub-urban and urban areas irrespective of caste, creed and religion and they are summarized as follows:- The Medical needs of the masses are being attended to by Hospitals and Health Centres numbering about 50. The number of educational institutions within the CSITA -- 94 Colleges, 578 Secondary Schools, 1,467 Elementary & Nursery Schools, 47 Technical Institutions, 24 Para Medical Institutions, Others 44 -- continue to cater for the educational needs. The Boarding Homes, Hostels and Day Care Centres cater to the needs of Children who are orphaned, poor, deserted and differently abled. The provision of drinking water facilities and other amenities are extended to the under privileged communities. Professional Training Schools both formal and non-formal continue to provide skills to men and women. Assistance in Community Development, environmental concern and self-employment schemes are also being carried out." (Financial Statement of CSITA 2015-16, p. 11). We combine these statistics, compiled at a time when the CSI had 21 dioceses, their members were reckoned 3.8 million in number and 14,000 congregations (stakeholder groups including, for historical reasons, one diocese in northern Sri Lanka). It now has 24 dioceses, and employed ministers are estimated at 1,421 and the chief ministers (the bishops) at 24.

The Fixed Assets of the CSITA according to the Financial Statement 2015-16 are worth ₹17,208,857,452 (250 million USD) the total indebtedness ₹139,26,39,210 (20 million USD) and the net worth is ₹24,385,622,281 (347 million USD). A non-profit company of the magnitude of the CSITA must be subject to the measures applied to listed companies, given that its total Annual Revenue is above ₹2,000 crores [about 300 million USD, which is about 100 crores (about 15 million USD) more than the previous year] and the excess of income over expenditure is over ₹173 crores (about 25 million USD) and the total net worth is 3

more than ₹2,400 crores (about 360 million USD) if we can trust the CSITA balance-sheet of 2015-16 on its face-value. These numbers on paper appear impressive, but the question is how a ten-member Board of Directors without professional/managerial personnel are managing this vast company in financial and property matters in accordance with the Indian Companies Act. Complaints from local stakeholders are aplenty over the mismanagement of those institutions with alleged corrupt practices and fraudulent activities.

There is a growing awareness among the rank-and-file Christians to pick up cases of illegal and fraudulent activities with regard to the illegal sale of the lands and properties of the CSITA and file complaints to the Police or launch cases in the courts. In all these cases invariably bishops and their family members are under charge. Bishop Dyvasirvadam, the ex-Chairman of the CSITA and the former Moderator of the CSI, was arrested and sent to jail on 11 December 2018 on account of a 500-crores-of-rupees scam (USD 154,000 amounts to 1 crore rupees) over the illegal sale of assets of the CSITA. Although he is out on conditional bail after 42 days in judicial custody, the threat of further arrests are in the air. If he is convicted on all the corruption charges, he will end up serving a long-term jail sentence.

Corruption has a broader footing in the Church, and people are groomed through pietistic teaching to live with it without ever complaining. The Church administration must centre on the principles of Corporate Governance. It is important that best practices in corporate governance standards are introduced into the management of the CSITA as it is usually many of the non-profit entities wherein corporate governance standards are found to be wanting.

We are deeply concerned about the current crisis in the CSITA as it is subjected to investigation after investigation by regulatory bodies such as the Serious Fraud Investigation Office (SFIO), and we are now seeking a remedy in the form of the piercing of its corporate veil to see the real face of the CSITA and to assess the state of its affairs. The main concern is that the wrongdoers cannot be allowed to shroud themselves behind the cover of the corporate veil and continue exploiting it for their interests. To prevent the abuses of the corporate structure, piercing the corporate veil along with other measures is a right remedy. Courts do not easily disregard the corporate form, and only where there is a grave abuse of corporate form will they lift the corporate veil. The suspected grounds for piercing the Corporate Veil of the CSITA are the following:

Commingling: The members/directors use company assets (whether money, bank accounts, facilities, inventory, employees or resources) as their own. 4

Absence or inaccuracy of corporate records: The failure to keep proper corporate records or bookkeeping may also lead to a presumption of a failure to follow corporate formalities
Separate identity of the company from the directors is blurred: A corporate entity is not simply a legal shell used to inequitably protect the abuses of its members/directors.
Non-observance of corporate formalities Failure to observe corporate formalities in terms of behaviour and documentation.
Manipulation of assets or liabilities to concentrate the assets or liabilities: There have been charges and allegations of the illegal sale of properties and selling the assets below the market value.
Non-functioning corporate officers and/or directors: The CEO of the CSITA once admitted in 2012 before the Company Law Board, Southern Regional Branch in the matter of compounding of offence under section 621A of the Companies Act, 1956.
Siphoning of corporate funds by dominant member(s): Siphoning away of corporate assets by the dominant shareholders; the unauthorized diversion of corporate funds or assets to other than corporate uses; siphoning money from the company to pay for personal gains.
The alter ego theory: The "alter ego theory" is often used when it appears that the corporation is being used as a facade for the dominant owner's personal dealings: the use of a corporation as a mere shell, instrumentality, or conduit for a single venture or the business of an individual or another organisation. This theory, also called the instrumentality theory, is implicated where one entity acts through another without maintaining proper separation. If the directors use the corporation as an instrumentality to do their own personal business or to achieve any wrongful gain they may be held personally responsible for the acts done under the shield of corporate veil by applying the doctrine of alter ego.

The book has seven chapters. It is stressed in the second chapter that the reality of the church as a corporate body ought to be taken seriously by the theological educators and that they should follow the foot-steps of E. Said, M. Borg, Karl Marx, Mahatma Gandhi, S. Radhakrishnan and Martin Luther King Jr. in formulating their criticism and designing the modes of approach to address the present condition of the church where corruption has a broad footing. The third chapter traces the history and formation of the CSITA and draws on the historical records of the past 71 years to demonstrate how the CSI has been using the CSITA as a mere instrument to hold the properties of the church by suppressing its 5

separate corporate entity which ought to be primarily defined by and bound to corporate laws. Chapter four examines the power and influence of the CSI over the CSITA and discusses the corporate features of the CSITA which are different from a Trust Company and a Corporation Sole. Chapter five outlines various definitions of corporate governance and attempts to construct a Corporate Governance Code for the CSITA, a non-profit entity, from various national and international Codes. The sixth chapter examines the Memorandum and Articles of Association section by section by evaluating them from the perspectives of the norms and standards of incorporation. The MoA and the AoA make up the necessary ingredients of good corporate governance. The final Epilogue chapter summarises the discussion and findings by underlining the need for changes and other important remedial measures necessary for revamping the CSITA.

In the case of a company, its activities can be brought under several law-enforcing agencies of the Government such as the Ministry of Corporate Affairs, Regional Director, Registrar of Companies, National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) and National Financial Reporting Authority (NFRA) etc. A company has better monitoring and enforcement authorities than a Society or a Trust.

Despite the fact that the CSITA is managed by a minority community called Christians, this does not mean that Corporate Law can place it in a position of favour and privilege. Since the CSITA authorities are projecting it as a Charitable and a religious minority institution, the Government officials tend to show respect which in most occasions results in special treatment. The leaders of the Church of South India are using the minority card to their benefit to delay or prevent Government investigations over the performance of the company.

The CSITA is treated as one of the many committees under the administrative wings of the CSI which acts as a big brother giving instructions to the Managing Committee of the CSITA. Since the ex-officio members of the CSITA are also the leaders of the church they consider the CSITA and the CSI as one and the same. The CSI has therefore created its own norms and regulations in the form of Guidelines for the Church of South India Trust Association (1988), a document to conduct the affairs of the CSITA to suit the wishes of the power-holders in the church.

The sense of 'company' has not infiltrated into the mores of the CSITA/CSI administrative culture. The CSI takes the CSITA merely as a hired servant who should act in accordance with its directions and decisions. The CSITA is a chronic defaulter in complying with the mandatory requirements of the provisions of the Companies Act. The Trust mind-set still prevails, and the CSI is in a confused 6

state of mind. It ignores and disrespects the corporate personality of the CSITA. At all relevant times, the corporation was influenced, dominated and controlled by the CSI so that the individuality and separateness of the CSI as a church and the CSITA as the corporation ceased. Hence it is time for lifting the corporate veil to see the real affairs of the company. We have seen in a detailed manner on the basis of the Synod document (the Guidelines for the CSITA) how the CSI has been the dominant force in domesticating the CSITA, a corporate entity. The CSI Synod with its 'proprietor-mentality' has been treating the Trust Association as a bare trust merely as a depository of the lands and properties.

Corporate Governance is defined as referring to the rules, regulations, policies and standards for sustaining accountability, transparency and general corporate integrity. We are not looking at corporate governance in terms of mere management science. The ensuing volume, i.e. Part II, will deal with the financial disclosure, accounting and the relationship between the Board of Directors and the Members of the company from a governance perspective. But now we look at the sources of power for achieving and maintaining corporate governance.

The Companies Act 2013 puts emphasis on the two important documents, namely the Memorandum and Articles of Association. They are regarded as a company's constitution. It is to these that we are giving close consideration as they are the pillars of good corporate governance. The CSITA has 4 pages of Memorandum and 8 pages of Articles of Association. 90% of the contents of both documents are drawn from earlier documents of the South India United Church Trust Association (SIUCTA) formed in 1923. It is expected therefore that the contents are somewhat antiquated, coming from the turn of the twentieth century and originally emerging from a different context where corporate thought was not much developed. They were approved under the Act of 1913 and survived through the period of the Companies Act of 1956, and now they have to be read in the light of the new Companies Act of 2013 to see if there are conflicting elements.

The major drawback in the MoA is that some of the clauses in the original document of 1947 are irrelevant to the present time and they are still preserved. It should be cast in a company framework and not in Trust form. No in-depth, careful and meticulous revision process was ever undertaken since the union such as would make the MoA and AoA more relevant to the CSI of the 21st century and also to be in tune with the Indian Companies Act of 2013.

It is also argued in this book that the exemptions awarded to Sec. 8 Companies will undercut the quality of Corporate Governance. The Central Government is requested to keep the privileges and exemptions away from the CSITA or keep them to a very minimum so that the essentials of corporate obligations are not 7

compromised with. The following exemptions notified by the Government provide the escape-routes for the CSITA to excuse itself from maintaining a good corporate governance; the exemptions announced will prove detrimental to the efficiency of the non-profits: i) a Section 8 company need not have to comply with the Secretarial Standard with respect to general and Board meetings; ii) Section 8 companies need not have a nomination and remuneration committee nor a stakeholders' relationship committee; iii) the Audit Committee of a Section 8 company shall not require independent directors as its members; iv) a Section 8 company need not appoint an independent director; v) a Section 8 company need not appoint a qualified professional as its company secretary. It leaves the CSITA with no one to guide the company in matters of applications of and compliance with Company Law. These exemptions will dilute the commitment of the non-profits to comply with the rules and provisions of the Companies Act. The preparation and recording of detailed minutes with fair and correct summary of the meetings held is essential for all classes of companies, but it is exempted for the Sec. 8 companies.

To summarise, the CSI Synod and its Committees rule over the CSITA matters. They hold the decision-making powers and the CSITA committee of management is kept as a 'mere puppet'. The CSITA and its role are distorted in the CSI official website. The Guidelines of 1988 are putting the CSITA Management off-track and do not reflect the letter and spirit of the Indian Companies Act 2013. A newly written MoA and AoA for the present context of the Church of South India from the modern corporate perspective is the need of the hour. The outmoded MoA and AoA of the CSITA were born out of Anglo-American tradition of 'Trusts' and 'Trustees'. The MoA has no proper 'Objects Clause' for the company. Moreover, the AoA contradicts the MoA. Adopting a 'Stake-holder Approach' in re-constructing the MoA and AoA is absolutely necessary.

The other danger is that the CSITA is prepared, as per its MoA and AoA, to decentralise its existence to join hands with other unrecognised bodies and to break-up into formations of state-level branches for the sake of fulfilling the needs and the objects of the CSI. It is like cutting the leg to fit the size of the shoe!

The approved codes and recommendations from the national and international bodies are indeed welcome; they are expected to elevate corporate church to a strong position with regards to corporate governance, liberating it from corporate failures and from an inadequate and improper internal governance mechanism.

Dr. Joseph Muthuraj is a Biblical scholar and VOL's India correspondent

END

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