What Happens When Trustees Resign or Die–Legal and Practical Issues

The resignation or death of a trustee can significantly impact the functioning of a trust or NGO, raising legal and practical challenges that must be addressed to ensure continuity and compliance.

Legal Provisions and Bare Act Analysis

Under the IndianTrusts Act, 1882, Section 71 stipulates that a trustee may resign with the consent of the beneficiaries or by applying to a competent court if th trust deed does not specify a resignation procedure. Section 73 addresses the vacancy caused by a trustee’s death, stating that a new trustee maybe appointed as per the trust deed or, in its absence, by the remaining trustees, beneficiaries, or a court order.

For societies registered under the Societies Registration Act, 1860, the governing body’s rules or bylaws typically outline the process for replacing a trustee or board member. If no such provision exists, Section 21 of the Act allows the governing body to fill vacancies, subject to compliance with the organization’s memorandum.

State-specific public trust acts, such as the Bombay Public Trusts Act, 1950, re quire NGOs to notify the Charity Commissioner of any change in trusteeship with in a stipulated period (typically 90 days under Section 22). Failure to comply may result in penalties or legal disputes

Judicial Interpretations and Case Law

In Ramchandra v. Shalini (2015), the Bombay High Court ruled that the resignation of a trustee does not take effect until formally accepted by the remaining trustees or acourt, emphasizing the need for a clear process outlined in the trust deed. The court highlighted that premature resignation without proper documentation could disrupt trust operations.

InRe: Shri Ram Charitable Trust (2018), the Delhi High Court addressed the death of a trustee in a public charitable trust. The court directed the remaining trustees to appoint a new trustee within 60 days as per the trust deed, failing which the Charity Commissioner could intervene. This case underscored the importance of proactive succession planning.

Practical Implications and Examples

When a trustee resigns, the trust must ensure a smooth transition to maintain operational continuity. For example, consider a trust running an orphanage, “Hope for Children.” If a trustee resigns due to personal reasons, the trust deed may require a board meeting to accept the resignation and appoint a replacement. The trust must notify the Charity Commissioner and update records with banks and regulatory authorities, such as the FCRA wing if the trust receives foreign contributions.

In the case of a trustee’s death, delays in appointing a replacement can disrupt decision-making. In 2020, a Kerala-based educational trust faced a governance crisis when its managing trustee died unexpectedly, and the trust deed lacked a clear succession plan. The Charity Commissioner intervened, appointing an interim trustee, which delayed operations by six months.

Advantages of Compliance

Proper handling of trustee resignation or death:

• Ensures Continuity: Prevents disruptions in trust operations and decision making.
• Legal Compliance: Avoids penalties or legal disputes with regulatory authorities.
• Enhances Credibility: Demonstrates robust governance to donors and stake holders.

Professional Advice

Trusts and NGOs should:

• Include clear provisions for resignation and succession in the trust deed or bylaws.
• Maintain updated records with the Charity Commissioner and other authorities.
• Establish a succession plan to address unexpected vacancies.
• Engage legal counsel to navigate complex cases, such as court approvals for resignation.

Additional Points: Challenges and Best Practices

A key challenge is the lack of clarity in trust deeds regarding resignation or succession, leading to disputes amongtrustees or beneficiaries. Recent trends show increased regulatory scrutiny, with Charity Commissioners requiring detailed documentation for trustee changes. Best practices include conducting annual governance reviews and maintaining a pool of potential trustees to fill vacancies promptly.