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Whether a Charitable Trust can be a Resolution Applicant?

The question which this article tries to explore is whether a charitable trust can submit a resolution application in accordance with the provisions of the code and regulations for ‘acquiring a commercial venture’ whereas the main object of a charitable trust is to do charitable activities within the meaning of its charter documents. Whether the ‘act of acquiring’ can be placed under the purview of ‘Charitable purpose’.

Hon’ble Supreme Court of India, in Sole Trustee Loka Shikshana Trust v. Commissioner of Income Tax, reported in 1976 1 SCC at Page 254, wherein it is observed that ``The difficult question, however, still remains: what is the meaning of "charitable purpose", which is only indicated but not defined by Section 2(15) of the Act? It seems to me that a common concept or element of "charity" is shared by each of the four different categories of charity. It is true that charity does not necessarily exclude carrying on an activity which yields profit, provided that profit has to be used up for what is recognised as charity. The very concept of charity denotes altruistic thought and action. Its object must necessarily be to benefit others rather than one's self. Its essence is selflessness. In a truly charitable activity, any possible benefit to the person who does the charitable act is merely incidental or even accidental and immaterial. The action which flows from charitable thinking is not directed towards benefitting one's self. It is always directed at benefitting others. It is this direction of thought and effort and not the result of what is done in terms of financially measurable gain, which determines that it is charitable. This direction must be evident and obligatory upon the trustee from the terms of a deed of trust before it can be held to be really charitable.’

As per Section 5(26) of the Code, a Resolution Applicant means a person who, individually or jointly with any other person, submits a resolution plan to the resolution professional pursuant to an invitation made. Any person can submit a resolution plan if not disqualified under section 29A of the Code. To understand the scope of section 5(26), it is ideal to see the definition of the person as defined under section 3(23) of the Code. As per the said section, the definition of the person is given inclusive definition, which includes (a) an individual, (b) A Hindu undivided family, (c) a company, (d) a trust, (e) a partnership (f) an LLP and (g) any other entity established under a statute and includes a person resident outside India.

Hon’ble NCLAT, while deciding on the issue in the matter of M/s. Aswathi Agencies Vs. Bijoy Prabhakaran Pulipra, RP PVS Memorial Hospital Pvt. Ltd. 2022) 977 NCLAT, had held that ‘to put it precisely, the word `Person’, is defined as per Section 3 (23) (d) of the I & B Code, 2016, which includes a `Trust’, therefore, there is no `Fetter’ / `Embargo’ or a `Legal Impediment’, for a `Trust’, to be a `Resolution Applicant’, in submitting a `Resolution Plan’ (in the present case), the candid fact, is that the `Successful Resolution Applicant’ / `Lessie Medical Institutions’, being a `Registered Charitable Trust’, under the `Indian Trust Act, 1882’), in `Corporate Insolvency Resolution Process’, in the cocksure earnest opinion of this `Tribunal’. Looking at it from that perspective, the contra plea taken on behalf of the `Appellant’ is not acceded to by this `Tribunal’.

From the above, it can be concluded that a Charitable Trust, a person, as per section 3(23) of the Code, can submit a Resolution Plan if it is not disqualified under section 29A of the Code.

Bijoy P Pulipra LL.M, FCS, IP,RV Advocate

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