Monday, February 18, 2013

Education Service through Societies: A Non Profit Service With Huge Potential Gains for Some !

Today let me use this columns to discuss about an honorable business in India which very eminent personalities use for gaining respect and money very safely and legally under the aegis of what are known as Societies.

Yes, I am referring to the modern education business of India.

Earlier I had written some blogs on the subject, which you may read by clicking the linked title below:

In this blog let us examine how the school education business or for that matter any education system is established in the guise of social service or charity which ultimately provides the scope for gaining money and status legally, but not so much as a charitable service or mindset.

The legal framework for this activity is provided by a law that was enacted more than a century ago by the British Raj through this statute: The Societies Registration Act -1860

Many of the state governments of India had enacted statutes as applicable in those states based on the above said act with some modifications.

Now we should appreciate the fact that the original act of 1860 was enacted to facilitate associations of like minded people to do some charitable non profit activity for the benefit of the people and not for making profits. Mostly the charity work used to be associated with some religious devotion as well and hence the act also recognized the religious aspect of the charitable work that could be managed through a Society formed in accordance with this act.

Therefore the Societies Act has only provisions for its members contributing to a common objective and does not have any provisions for the members to share any profits or money or wealth that the Society may possess in the course of time.

Any Society registered with the Registrar of Societies of the state is a legal entity set up under this statute.

Hundreds and perhaps thousands of Societies got set up in the past by various religious groups and even by various governments which run various institutions especially educational institutions for imparting knowledge. Thousands more are getting registered every year for various purposes especially for setting up educational institutions such as schools and colleges including public schools, engineering colleges, medical colleges and management institutions.

The management of the Socities are carried out by their governing committees or councils based on the bye-laws of the concerned Society. Elections are democratically done to elect the various office bearers such as the President, Secretary, Treasurer, etc. Essentially, it is the President of the Chairman who matters much in the management of a Society because it is this office bearer who has the controlling power in most instances.

Educational Societies have been good platforms for eminent personalities to get associated and get some additional influential and respectful position among the public.

But in the recent years it has become a forum for much unnoticed corruption and money laundering.

For example let us take a typical public school in India run by any such Society which has been in existence for the past few decades.

Typically such a school is likely to have a strength of 5000 students. Assuming that they collect an average fee of Rs 1500 per student per month (in the metros it is much higher !) the school collects something to the tune of Rs.9 Cr in a year as fees.

Typically this school would have nearly 100 teaching staff and another about 30 non-teaching staff.

Evenif the Society that runs the school makes a good payment to the staff it never exceeds an average of Rs 30,000/- per month per staff. That makes a cash outflow of Rs.4.68 Cr towards staff salaries, the major component of expenditure of the school.

Let us also assume that the school is well maintained and the school spends considerably for other such activities. Even when they spend another Rs 2.3 Cr for that, they make a neat Rs.2 Cr as yearly profit.

Since the money is gained by the Society under the Societies Registration Act with an objective of imparting knowledge on a non-profit charitable basis as declared in its objective, the Society is not required to pay any income tax.

The excess amount accumulates in the Society's bank account soon swelling to many crores in a couple of years that make the Society and its management committee powerful with regard to money.

Ofcourse they cannot share the profits as legal dividents as per the existing laws that govern the Societies.

But they can siphon out money by corrupt practices without any enforcement agency ever seriously watching them.

They can spend money for lavish constructions at exhorbitant rates and take huge kickbacks as commissions. They can make deals for purchase of land and other items and again take kickbacks.

And when this happens in the Societies formed by private citizens can we call these as corruption ?

The law is silent !

But in a way it is corruption, because the source of the funds of the Society comes from the fees paid by the general public for educating their children.

If the society had been a non-profit organization as defined in their bye-laws, they should not have charged the parents heavily on fees and other such things if their expenditure is well within their income.

In other words, the fees would have been commensurate with their expenditure which is subtantiated by proper audits and presented to the public.

There are many good schools and school running Societies and most of them have their own websites.

Interestingly, none of the schools publish their income expenditure statements. They are all secrets.

I also doubt whether they file any mandatory returns to the authorities.

Now with this kind of a legal situation, many businessmen are getting attracted to this field of education business.

Considering the fact that only seven individuals are needed to set up a Society, a few family members and relatives can form a Society, invest some money and establish a perennially paying business. Only thing that they should know is how to take back the money for their personal needs. They can appoint themselves as various kinds of officials of the Society and get paid in different ways.

To gain some respect, many such family run charities may have some retired influential government officials in their member list. In reality such members are actually dummy members with out any actual say or decision making powers.

Many Societies in India are cash rich and so they can determine the ways the governments work by various kinds of influences.

It is an area of power, money, influence and status.

Operating smoothly and invisibly.

And shamefully non-charitable !

Proliferation of such Societies, has no doubt, contributed to the rapid growth of private educational institutions in India in the recent past. 

Charity had not motivated many in the past, but the lure of money making in indirect manner through the same law, has now contributed to this growth.

But time has come for the governments to intervene to prevent such money laundering through such charitable Societies and find ways and means to differentiate actual charity work from pseudo charities.

It is time that people know what these Societies are doing with their money ?

It is time that they are made accountable ! 

What do you think ?

[You may also read this in this context : School Education: An Open Suggestion to the Government !

[View the linked list of all Blogs of the Author Here ! ]


  1. No one can blame if business minded people make money by making use of the available legal frame works. In fact the growth we achieved in creating educational infrastructure in the recent past has happened mainly due to the involvement of business men in education. If they are using the Society route, it is because they have no other options.
    But it is indeed disturbing when we find that the elected successers who run many of the old religious educational societies indulge in unfair means for personal gains in the guise of charity. The general educational fee hikes have caused their coffers to swell all of a sudden without them ever investing much to justify such fee hikes. Unfortunately we are now going through an age where even those appearing god-fearing and pious are not above selfishness and greed. They may speak out against such vices often in public but may easily fell prey to those in private !

  2. NICE BLOG!!! Education is the process of bringing desirable change into the behavior of human beings. It can also be defined as the “Process of imparting or acquiring knowledge or habits through instruction or study”. Thanks for sharing a nice information.
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  3. Its very informative and interesting and useful for higher education students.Please add some more details with the posts .If you add some more details it will be useful for research work too in the field of education

  4. Such an interesting post! We all know that there are lots of missing children in our society and I'm happy to know that there are still a charitable institution who finds and rescues our missing children.

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