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Philanthropy and Law in Bangladesh

SUMAIYA KHAIR AND SAIRA RAHMAN KHAN

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The Legal Context for Philanthropy and Law in Bangladesh

The concept of philanthropy in Bangladesh is rooted in custom, traditionand religion. Philanthropy in Bangladesh has transcended generations andspanned communities. Influenced by an amalgam of cultures derived fromHinduism, Buddhism, Christianity and Islam, Bangladesh has a rich andtraditional heritage manifest in its diverse customs, art, literature, musicand people’s way of life. Throughout Bangladesh’s history, the practice ofgiving to others without expecting any return and helping the distressedoften began at home and formed a crucial part of the socialisation processin which family values and traditions were instilled in young people. Theseactivities had both voluntary and religious dimensions.

Religion has traditionally been one of the principal factors that motivatedindividuals to undertake philanthropic work, both in Bangladesh and else-where. Religious endowments were thus made not only in the hope of liv-ing a good life on earth but in order to ensure a heavenly existence in the

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life hereafter. Bangladesh’s history reveals how kings and zamindars1 estab-lished mosques, churches, temples, schools and medical dispensaries anddonated great amounts of money towards charity in the hope of acquiringname, fame and eternal bliss. The spirit of doing for collective good alsoprevailed among social leaders, doctors, teachers and preachers, whoworked together to assist people in crises like epidemics, famines, floodsand cyclones. As natural calamities were a regular feature of this part of theglobe, recourse to community support was an inevitable choice for thegeneral populace.

Colonial rule in the Indian subcontinent influenced philanthropic activi-ties considerably. Christian missionaries engaged in philanthropic workacross the region, often choosing remote and impoverished communitiesto establish hospitals, schools and orphanages. Chambers of commerce, lit-erary societies, trade unions, and associations of youth and students suchas the Boy Scouts and Girl Guides also began to emerge. In the twentiethcentury the voluntary sector also played a leading role in the political andsocial movements of Bangladesh. Social organisations like drama clubswere galvanised into taking a political stand vis-à-vis the struggle for inde-pendence, and that struggle also resulted in the emergence of new organi-sations. What ensued was a whole range of social organisations caught upin the independence movement — some changed by it, some reinvigorat-ed, some continuing into the future.2

People in the predominantly Muslim society of Bangladesh have longassisted the less fortunate through financial contributions such as zakat,sadaqa and fitra.3 As these were seldom institutionalised, some believedthat they did not necessarily lead to significant social and economic devel-opment; while this individual attitude was certainly positive, it was alsointermittent and did not induce any sustained change.4 What was neededwas an institutional basis to charity. With the passage of time, the spiritand the practice of giving to others has not changed, but the mechanismof providing services to people without profit has undergone transforma-tion. Thus changing social structures and the resultant shifts in beliefs,

1 Zamindars were wealthy estate holders who had large land holdings.

2 Richard Holloway, Supporting Citizens' Initiative: Bangladesh's NGOs and Society (Dhaka: UPL, 1998), p. 84.

3 Zakat is the giving of alms and sadaqa is contribution to charity as penitence for sins.4 Mohiuddin Ahmad, An Introduction to the Non-Profit Sector in Bangladesh (Dhaka: Bangladesh Freedom Foundation,

2002), p. 58.


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customs and practices have had a tremendous impact upon people’s spiritof voluntarism.

Over time, individuals and groups in Bangladesh undertaking philan-thropic initiatives have worked to incorporate professionalism and expert-ise through organisational and management structures to make their workmore sustainable. Therefore, what started out as a purely humanitarianeffort has evolved into concrete mechanisms for providing services to thepublic. To this end societies, trusts, clubs, associations, foundations andother entities were established with the primary objective of renderingsocial services.

The sustainability of these institutions largely depends on the flow offunds and the manner in which the funds are managed. Operating withina regulatory framework these organisations rely on the government, for-eign donors, domestic donors, or generation of surplus through their activ-ities for financial sustainability.5 Thus in Bangladesh we have witnessed ashift in philanthropic activities, moving beyond ordinary works of charityto encompass a broader array of social and economic development and ofgiving.6 Inseparable from those developments is the advent of donor-aidedcorporate NGOs following the independence of Bangladesh from Pakistanin 1971, which both disrupted and enhanced patterns of social giving asthese organisations undertook multi-sectoral initiatives targeting thesocially vulnerable and disadvantaged.

Tasneem Siddiqui traces the development of NGOs in Bangladesh overthree distinct phases. The first phase began after the war of liberation in1971, when NGOs undertook activities to reduce the suffering of war-torn people by providing food, medicine and housing for the destitute.During this phase NGOs managed to create an enabling environment thatfacilitated their work at the grassroots level. So instead of concentrating onrelief work alone NGOs strove to involve beneficiaries in utilising theirresources in productive ways.

5 Muzaffer Ahmad and Roushan Jahan, Investing in Ourselves: Giving and Fund Raising in Asia (Manila: APPC and

Asian Development Bank et al., 2002), p. 3.

6 Ibid., p. 6.



The second phase saw some NGOs evolve into catalysts of social transfor-mation, challenging existing power structures in rural society in anattempt to reduce the dependence of the poor on the rural elite.Participation in social action became part of the voluntary sector’s widerdevelopment objectives. In the third phase NGOs started to provide spe-cific services to their target groups as well as the wider community, includ-ing health care, family planning, legal aid, non-formal primary educationand micro-credit. At the same time NGOs devoted more attention to poli-cy advocacy and lobbying with the government.7

A study sponsored by the Asian Development Bank (ADB) revealed thatalmost 59 percent of NGOs in Bangladesh implement programmes thathave a major focus on “social welfare.”8 According to another study thenumber of nonprofit voluntary organisations in Bangladesh stands at near-ly 50,000. The primary activities include culture, sports, education, recre-ation, health care, women’s development, social welfare, orphanages andreligious undertakings, among other fields.9 The list of activities demon-strates how NGOs have moved from relief and rehabilitation work toaddressing issues that range from social development and poverty eradica-tion to human rights.

More recently, the Bangladeshi business community has also been engagedin social welfare activities. Well-established corporate bodies have engagedin nonprofit welfare activities ranging from job creation to providing edu-cation and medical care. The Ispahani Group for example, a prominentbusiness house, is well known for its charitable activities and specifically aneye hospital. Corporate donors and employers associations have also estab-lished schools to train child labourers following U.S. pressure on the childlabor industries.10 Yet while there is a great deal of potential for corporatephilanthropy activities, contributions from business enterprises to charita-ble activities remain negligible.

7 Tasneem Siddiqui, NGOs in Bangladesh: Challenges on the Threshold of the New Millennium, in Chowdhury and Alam

(eds.), Bangladesh: On the Threshold of the 21st Century (Dhaka: Asiatic Society of Bangladesh, 2002), pp. 411-432.

8 Quoted in Mohiuddin Ahmad, Background Paper: Bangladesh, International Conference on Strengthening

Philanthropy in the Asia Pacific: An Agenda for Action (Asia Pacific Philanthropy Consortium (APPC), Bali, Indonesia,

July 2001), p. 5.

9 Ahmad and Jahan, supra note 5, pp. 22-23.

10 Ahmad and Jahan, supra note 5, p. 49.


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The prevalence of philanthropy in Bangladesh is illustrated by the plethoraof legislative enactments since the British colonial period. The diversity ofthe existing laws indicates the significance attached to philanthropic activi-ties by the authorities. The legal and regulatory framework governing phil-anthropic activities has its roots in the English common law, supplementedby Muslim and Hindu personal laws in specific areas.

There are two distinct sets of laws in Bangladesh that pertain to nonprofitorganisations. One set of laws lays down parameters whereby organisationsmay acquire legal status to the extent that they can sue and be sued intheir own names. Another set of laws spells out regulatory measures underwhich the organisations must operate. As such, the legal regime governingnonprofit organisations involves, on the one hand, laws for formation, andon the other, laws for regulating the activities of these organisations.

Laws for Formation

Nonprofit organisations in Bangladesh are usually established under thefollowing acts:

• The Societies Registration Act 1860 (Act XXI of 1860)• The Trusts Act 1882 (Act II of 1882)• Voluntary Social Welfare Agencies (Registration and Control)

Ordinance 1961 (Ordinance XLVI of 1961) • The Companies Act 1994 (Act XVIII of 1994)

The Societies Registration Act 1860Of the various legal enactments governing philanthropic activities inBangladesh, the most commonly used is the Societies Registration Act of 1860, adopted during the colonial period by the central governmentalong the lines of the Literary and Scientific Institutions Act 1854. TheAct lays down the parameters for the formation, management and controlof societies.



The Trusts Act 1882The Trusts Act provides legitimacy to charities evolving from private actswithout disturbing the existing religious charitable trusts prevalent underdifferent religions.11 A charitable trust creates an obligation for trustees tomanage the trust fund or property for the fulfillment of the objects speci-fied in the trust deed. Trusts may be set up for the benefit of children, forpublic good, or for religious purposes.

The Waqf Ordinance 1962Analogous to the English concept of trust is the Islamic institution ofwaqf, under which an owner is allowed to settle his property for the use ofbeneficiaries in perpetuity. A property becomes a waqf upon a declarationto that effect by the owner, known as the waqif. While waqf property mustbe dedicated to a charitable use, this purpose may be ultimate rather thanimmediate, so that the waqif may reserve the income for his children andtheir descendants in perpetuity with a provision that upon extinction ofhis descendants, the income shall be used for some charitable purpose.12 Awaqf is administered by a trustee (who is known as a mutawalli) in accor-dance with the conditions of the waqf instrument.

The Voluntary Social Welfare Agencies (Registration and Control)Ordinance 1961This ordinance was promulgated during the Pakistani martial law regimeto compel mandatory registration of a rapidly growing voluntary sector.Social welfare associations may register under the ordinance (or under theSocieties Act). Their resources are generally generated from public sub-scriptions, donations or government funds.

The Companies Act 1994 Although the Companies Act was essentially enacted to enable privatetrading companies to become legal entities, it contains provisions that also

11 There are several legal enactments governing charitable trusts by members of different religions. In Bangladesh reli-

gious charitable trusts amongst the Muslim community are governed by The Wakf Ordinance of 1962 while the

Hindu, Christian and Buddhist religious trusts are regulated by the Hindu Religious Welfare Trust Ordinance 1983,

Christian Religious Welfare Trust Ordinance 1983 and Buddhist Religious Welfare Trust Ordinance 1983 respectively.

The Charitable and Religious Trust Act of 1920 also facilitates obtaining of information relating to trusts created for

public charitable or religious purposes.

12 Majid Khadduri and Herbert Liebesny, Herbert (eds.), Law in the Middle East: Vol. I, Origin and Development of Islamic

Law (Washington: The Middle East Institute, 1955), p. 201.


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permit registration of nonprofit companies provided that they conform tothe rules and regulations of a company with limited liability.

Other ActsNonprofit or voluntary social welfare and charitable organisations may alsobe formed under the Charitable Endowments Act 1890, which allowedendowments to be formed with the purpose of advancing objects of charityand public good with the income generated from donations. Cooperativesmay be formed under the Cooperative Societies Ordinance 1984(Ordinance I of 1985) with the objective of producing and/or disposing of goods as collective property and performing services for cooperativemembers. Cooperatives are not discussed at length in this study.

Laws for Regulation

Certain laws have been enacted to regulate and control the functions oforganisations irrespective of their legal status. These various laws have adirect bearing upon the relationship between nonprofits and the govern-ment as well as the regulation and control of foreign funds. They include:

• The Voluntary Social Welfare Agencies (Registration and Control)Ordinance 1961 (Ordinance XLVI of 1961)

• The Foreign Donations (Voluntary Activities) Regulation Ordinance1978 (as amended by Ordinance XXXII of 1982)

• The Foreign Contributions (Regulation) Ordinance 1982 (OrdinanceXXXI of 1982)

The Voluntary Social Welfare Agencies (Registration and Control)Ordinance 1961This ordinance was promulgated in 1961 during the Martial Law Regimeof what was then Pakistan. The ordinance requires the mandatory registra-tion of voluntary associations. The ordinance also facilitates the activitiesof the government in the social sector by providing institutional support todisadvantaged groups.



The Foreign Donations (Voluntary Activities) RegulationOrdinance 1978 (amended in 1982)Following independence from Pakistan, a large number of voluntaryorganisations emerged in Bangladesh, primarily focused on providing reliefand rehabilitation. Most of these organisations received foreign funding.The martial law regime at the time passed this ordinance in an attempt tocontrol the flow of foreign funds to the voluntary sector. The ordinancerequires all organisations to get approval to operate and receive foreignfunds from the Ministry of Home Affairs as well as the ministry responsi-ble for the field of work.

According to the ordinance, no person or organisation shall be allowed toundertake any voluntary activity or accept or receive any foreign donationwithout prior approval of the government. Receipt of foreign donationsfor voluntary activities requires registration with the government.13 And,unless exempt, all persons or organisations receiving foreign funds for car-rying out voluntary activities must declare such receipt to the government.Under the ordinance, the government may cancel the registration andcease the activities of persons or organisations that do not comply. Severefines or imprisonment may be ordered as well.14

The Foreign Contributions (Regulation) Ordinance 1982In 1982 the then-military government amended the Foreign DonationsRegulation Ordinance of 1978. The scope of the new ordinance wasexpanded to cover all kinds of contributions from abroad. Greaterapproval restrictions were imposed on NGOs.

Under the 1982 ordinance, no Bangladeshi citizen or organisation canreceive any foreign contribution without prior approval from the govern-ment. Similarly, no government, organisation or citizen of a foreign stateshall make any donation, grant, or assistance — in cash or in kind — toany citizen or organisation in Bangladesh without prior permission of thegovernment.15 Severe fines or imprisonment may be imposed.16

13 Foreign Donations (Voluntary Activities) Regulation Ordinance 1978, sec. 3.

14 Ibid., sec. 6.

15 Foreign Contributions (Regulation) Ordinance 1982, sec. 4.

16 Ibid., sec. 5.


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Because martial law governments promulgated these ordinances, there wasno scope for Parliamentary debates on them. These ordinances and othersof the time derived legitimacy from the Martial Law Proclamation Orders,which were reinforced by Constitutional amendments in 1979 and 1986.17

Under one interpretation of these ordinances, the martial law governmentof the time mandated this mechanism to effectively monitor, control andregulate the flow of foreign aid to growing local nongovernmental organi-sations. But there are some who believe that the ordinances actually had apolitical dimension rather than (or in addition to) an attempt to controlforeign funds. In this view, the purpose of these promulgations was to reg-ulate and control funds channeled through specific political groups forpolitical destabilization, rather than to regulate and control funds going toNGOs for relief work.18

The NGO Affairs Bureau (NGOAB)

The government formed an agency to regulate the affairs of nongovern-mental organisations within the Ministry of Establishment in 1990. Thegovernment requires all NGOs seeking or receiving foreign funds to registerwith the NGO Affairs Bureau (NGOAB) under the Foreign Contributions(Regulation) Ordinance of 1982 and to renew that registration every five years.

The responsibilities of the NGO Affairs Bureau include arranging forNGO registration; processing and approving project proposals of NGOsand releasing funds accordingly; approving appointments and terms ofservice of expatriate experts/consultants; scrutinising and evaluating state-ments and reports submitted by NGOs; coordinating, monitoring,inspecting and assessing NGO programmes; auditing NGO incomes andexpenditure accounts with the assistance of enlisted chartered accountants;collecting necessary fees and charges fixed by the government; examiningNGO programmes at the field level and their accounts of expenditure;

17 Mahmudul Islam, Constitutional Law of Bangladesh (Dhaka: Bangladesh Institute of Law and International Affairs,

1995), p. 617.

18 Pursuing Common Goals Strengthening Relations between Government and Development NGOs in Bangladesh

(Dhaka: University Press Limited, 1996), p. 24.



taking appropriate action on the basis of reports on NGO programmesand performance; approving receipt of ‘one-off ’ contributions by NGOs;and liaising with relevant government ministries and agencies in order toexchange views/information on NGO operations.19

An NGO seeking to register must have approval from the Ministry ofHome Affairs, assurance of external funding from a donor, and a five-yearproject proposal commensurate with the areas of priority in the govern-ment’s five-year plan. Each NGO must receive all its funding through asingle specific bank account; banks submit reports to the central bank,which then reports to the NGOAB and the External Resources Division(ERD) of the government. Each NGO must also submit its annual auditreport to the NGO Affairs Bureau. The auditors must be appointed fromthe panel of auditors approved by the bureau.20

Although the establishment of the NGO Affairs Bureau has considerablycut down on the bureaucratic complexities that plagued registration seek-ers in the past, the process of seeking approval is still arduous. The processinvolves a great deal of paperwork and can be quite laborious. For exam-ple, the NGOAB requires applicants to furnish documents in nine dupli-cates. The procedure of receiving clearance from the Home Ministry islengthy and may take three to six months, depending upon how well regis-tration seekers can utilise their personal contacts with officials in top posi-tions in and outside the bureau. The most unsettling aspect of the systemis that the NGOAB reserves the right to reject applications if it is not satis-fied with the organisation’s papers or plans. The concerned NGO then hasno right of appeal. Moreover, the bureau reserves the authority to termi-nate the registration of any organisation before it can plead its case.

Analysis and Recommendations

Various forms of voluntary activity and voluntary organisations have beenoperating in Bangladesh for generations, drawing around them a rich web

19 Rules of the NGO Affairs Bureau.

20 Mokbul Morshed Ahmad, Non-governmental Organisations in Bangladesh. An Assessment of their Legal Status, Third

World Planning Review, 22:4, 2000, pp. 379-394.


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of regulatory control. Yet (and partly because of this regulatory web), therestill remains a great deal to be done within the legal context to improvethe functioning and role of nonprofit organisations. The laws and ordi-nances promulgated at different times are plagued by administrative andprocedural bottlenecks that require repair. Procedures for registering andreceiving foreign funds are cumbersome and require substantial improve-ment.

Most of the laws are archaic, and the mechanism for their implementationis similarly in need of serious improvement. Even where the letter of thelaw is clear, the slackness and lethargy of implementing authorities makeprocesses convoluted and time-consuming. Officials take advantage oftheir positions and harass registration seekers in various ways. Haplessapplicants who fall prey to the corrupt manipulations of these officialsstrive to extricate themselves from these situations by offering bribes, incash or kind, and thus these processes become expensive as well as tedious.

Moreover, although the regulatory frameworks were ostensibly adopted tofacilitate NGO operations, in effect they impede financial disbursementsin ways that hinder activities and restrict the scope of work. For example,an NGO receiving foreign funds is compelled to go through successivestages of approval. The first stage requires approval to receive foreignfunds, the second demands prior permission for every project undertakenwith foreign funds, and the third requires permission in order to disbursefunds. It is clear that procedures must be streamlined and ambiguitiesremoved so that formalities regarding incorporation, registration and man-agement of nonprofit organisations may be effectively completed within areasonably short time and without undue problems or interference. Theaccountability of officials must be ensured and action taken in the event ofany digression from their official responsibilities or corruption. The legalcontext should provide a platform in which nonprofit organisations mayoperate freely and without inhibitions. In other words, the legal frame-work that regulates the nonprofit sector should be geared to facilitateactivities for public good rather than cause unnecessary hindrance.



The Legal Regime

Status and Registration

Philanthropy in Bangladesh, as mentioned earlier, takes different forms.Nonprofit organisations may operate to benefit their own members, or for the welfare of the public at large, or both. Organisations that focus pri-marily on public good may be established as societies, trusts, foundationsor nonprofit companies. This section examines the ways in which organi-sations can be established and registered. It also identifies difficulties thathave encumbered these processes and suggests some ways to improve thesituation.

Registering as a Society

Section 20 of the Societies Registration Act 1860 specifies the wide rangeof societies that may be formed and registered. They include charitablesocieties and societies established for the promotion of science, literatureor fine arts; societies for the foundation or maintenance of libraries, publicmuseums and collections of natural history, mechanical and philosophicalinventions. A great majority of nonprofit organisations in Bangladesh areformed and registered under this act because of its wide scope and flexibil-ity to permit a range of activities.

To form a society, seven or more persons associated for any literary, scien-tific or charitable purpose or any other purpose under Section 20 mayapply to the Registrar of Joint Stock Companies to form a society by sub-scribing to its memorandum of association, accompanied by the society’srules and regulations.21

Once the documentation is complete the applicant submits it togetherwith the application to the registrar. In the meantime, the applicant has

21 Societies Registration Act, 1860, secs. 1, 2.


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little to do but wait, often for a very long time, with occasional visits tothe registrar’s office. If the application is found to be in order, arrange-ments shall be made for site inspections in order to confirm whether theoffice of the society is in place and operational. If satisfied with the inspec-tion results the registrar shall certify that the society is duly registered andissue a certificate to that effect under his sign and seal. Once a society isregistered under the Societies Registration Act it acquires the status of alegal entity and can accordingly enforce its rules against its members, holdbank accounts, and sue and be sued in legal proceedings.

Registering as a Trust or Foundation

In Bangladesh many nonprofit organisations prefer to establish under theTrusts Act 1882 because it affords relatively greater flexibility in terms ofstatus, registration and management. In the absence of a specific law onpublic charitable trusts it is usual for organisations to draw up a trust deedspecifying the intention of the author of the trust to create the trust, itspurpose, its beneficiary and the property that is to be held in trust.22

Certainty of words indicating intention, subject matter and object arerequired for the creation of a valid trust. Normally, the procedure for regis-tration under the Trusts Act does not require lengthy time, as it onlyentails registration of the deed containing the declaration of intent ratherthan the trust or foundation as such.

Enrolling as a Waqf

The Waqfs Ordinance 1962 requires all waqfs to be enrolled at the office ofthe Administrator of Waqf through an application filed by the mutawallior trustee of the waqf property. That application must include (a) adescription of the waqf properties; (b) the gross annual income from such

22 Trusts Act 1882, sec. 6.



properties; (c) the amount of rents, rates and taxes annually payable inrespect of the waqf; (d) an estimate of the expenses annually incurred inthe realization of waqf income; and (e) the amount set apart under thewaqf for the mutawalli’s salary, allowances to individuals, purely religiouspurposes, charitable purposes and any other purposes.

On receipt of the application the Administrator of Waqfs shall proceed toenroll the waqf property. But before doing so, the Administrator notifies arelevant deputy commissioner about the application in order to ascertainwhether the property belongs to the government as khas property. If theproperty is found to belong to the government, the application is rejectedaccordingly unless the applicant can rebut the finding of governmentproperty by producing a decision of the Civil Court. The final decision isfor the Administrator. After enrolment of the waqf, the Administratormaintains detailed information about it in his register, including the deeds,the name of the mutawalli, and the rules of succession to the office ofmutawalli.23

Registering as a Voluntary Social Welfare Agency

An organisation, association or undertaking established for the purpose ofrendering welfare services and depending on public subscriptions for itsresources, donations or government aid are regarded as voluntary socialwelfare agencies. Such organisations seeking government support andengaged in permitted activities may be registered under the VoluntarySocial Welfare Agencies (Registration and Control) Ordinance 1961.Registration under the Ordinance confers legal status on the agencies andfacilitates grants from the Government.

The registration authority for voluntary social welfare agencies is theMinistry of Social Welfare. Reasons for rejections of registration must be recorded, and applicants may appeal to the government for reconsid-eration.24

23 The Waqfs Ordinance 1962, sec. 48.

24 Voluntary Social Welfare Agencies (Registration and Control) Ordinance 1961, secs. 4, 6.


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Applicants approach either the Ministry of Social Welfare directly or con-tact social welfare officers in their respective localities. Information regard-ing registration requirements may be easily had from these social welfareofficers, particularly departmental clerks who are seemingly betterinformed than most officials, and often helpful in the detailed but notoverly difficult application process. Applications must include the aimsand objectives of the agency; area and plans for work; proposed modes offinancing; information on founder members; and banks in which fundswill be kept.25 The costs associated in the preparation of all these docu-ments are not too high.

Once an application has been duly made the applicant must wait until theconcerned authority peruses the documents. This may take quite a while,although officials may also be helpful in correcting errors or problems inapplications. Site inspections are carried out where deemed necessary.26

Registering as a Nonprofit Company

Nonprofit companies may be incorporated after licensure from the govern-ment under Section 28 of the Companies Act, where the government issatisfied that an association will promote commerce, art, science, religion,charity or any other useful objectives; and applies or intends to apply itsprofits or income to promoting its objects without paying any dividend toits members. Since these types of companies are welfare oriented they maybe more conveniently incorporated as companies limited by guarantee.27

The approval authority for nonprofit companies is the Ministry ofCommerce, whose officials can be helpful, particularly because there arenot written guidelines on the application process. An association wishingto register under the Companies Act seeks approval from the Registrar of

25 Fida M. Kamal, Legal Options for Indigenization of Foreign NGO Projects (Dhaka: CDL in collaboration with PACT-

Bangladesh/PRIP, 1993), pp. 19-20.

26 Ibid., p.21.

27 Section 29 of the Companies Act 1994 permits the incorporation of a company by limiting the liability of sharehold-

ers by guarantee. A company limited by guarantee is distinct from a company limited by shares in that members of

companies limited by guarantee are not required to pay for any capital before wind up of the company. When a com-

pany limited by guarantee is wound up without adequate funds to discharge its liabilities a member at the com-

mencement of the winding up is primarily liable to pay an amount prescribed in the Memorandum of Association.

See M. Zahir, Companies and Securities Laws (Dhaka: UPL, 2000), p. 27.



Joint Stock Companies. The documentation process under this act israther complicated and may require several consultations with officials.

Forming a nonprofit company under the Companies Act requires prepara-tion of the Memorandum of Association and the Articles of Association.28

The Memorandum of Association contains conditions that essentially limitthe activities of the company, and generally may not be altered withoutHigh Court approval. The Articles of Association provide the rules for reg-ulating the affairs of the company.29

Once the documentation is completed the application is submitted to theregistrar and the applicant waits for a considerable period of time, oftenextending to six months, even when the documents are in order. This isdespite a legal requirement that the Registrar register the company withinthirty days of the receipt of documents if he is satisfied that the require-ments of the Act have been complied with. If the Registrar refuses registra-tion, he must communicate the grounds of refusal to the company, andthe applicant may appeal to the government, whose decision is final.30

A nonprofit organisation registered as a company is a corporate body andis governed by the Companies Act, but it is distinguished from an ordi-nary commercial company as a philanthropic body committed to nonprof-it works of charity and accordingly enjoys certain privileges, includingthose of limited companies. It may hold property, enter into contracts, andsue and be sued.

Analysis

The legal regime offers a wide choice of laws for the formation of nonprofitorganisations. The most frequently used is the Societies Registration Act1860, as discussed above. Organisations registered under the SocietiesRegistration Act have their own rules and regulations for the managementof their affairs, which, if tailored carefully, should not be too difficult to

28 Companies Act 1994, sec. 22.

29 Companies Act, 1994, sec. 17.

30 Ibid., secs. 23 (1), (2), (4).


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implement. Societies therefore are less rigid and offer greater flexibility interms of implementation than certain other forms.

The Companies Act 1994 is also often used. Depending upon the objectsan organisation may be registered as a nonprofit company in which casethe Memorandum of Association and the Articles of Association togetherwith the provisions of the Companies Act 1994 provide the legal frame-work within which the company’s activities may be carried out. Nonprofitorganisations often prefer to combine the provisions of the Societies Actand the Companies Act to register as a society.

The creation of a trust is yet another option often utilised by nonprofitorganisations. But registration as a trust does not confer the same type oflegal status as a company and the trust is not a separate and distinct legalentity like a company or even a registered society, which has quasi-legalstatus.

Organisations nowadays avoid seeking registration under the VoluntarySocial Welfare Agencies (Registration and Control) Ordinance 1961because it involves the government’s Ministry of Social Welfare. Like everyother governmental organ, this ministry is prone to prolonged and bureau-cratic hassles that discourage people from seeking any kind of affiliationwith it. The process is tedious and often unrewarding and organisationsare thus increasingly avoiding the use of this mechanism for registration.

While it is not mandatory for all nonprofit organisations to be registered,it is nevertheless common for the majority of such organisations to formal-ly register under relevant laws. Those not formally registered operate with-in the framework of their own constitutions. This happens more often inthe case of smaller organisations. It is, however, necessary for organisationsto register formally in order to acquire legal status, and registration is alsomandatory where organisations receive foreign donations for their work orif they seek tax-exempt status.Although the procedures for registration and incorporation are fairly sim-



ple and easily available to those who seek them, the process is made some-what complicated by the formalities involved. The language of the law inmany of these enactments is beyond the comprehension of the ordinaryperson. Consequently, people have to rely on the advice of registrationofficials, who are prone to taking advantage of the ignorance of ordinarypeople. This results in protracted procedures, which are essentially more ofa strategy adopted to extract money from registration seekers. Althoughexisting laws and procedures seek to protect the public from abuse, regis-tration officials exploit their positions to take advantage of certain provi-sions of the laws.

For example, NGOs seeking registration need clearance from the HomeMinistry, which requires that the Special Branch and the National SecurityIntelligence of the government examine the registration applications andconduct investigations as to anti-state or anti-social activities. There is noindication whatsoever as to what constitutes such activities. This gives riseto ambiguities that may well misguide the registering authority and pro-vide opportunities for corruption. Instances are common where theseinvestigative bodies willfully withhold reports and “sit on the files” untilsome payment, in cash or kind, is proffered. Powerful NGOs are knownto manipulate relevant ministries into passing their applications withoutobjection.

Therefore, although the text of the law is clear on the requirements forregistration, the implementing agencies manipulate the provisions by usingtheir discretionary powers to suit their mercenary needs. These problemsare compounded by the fact that the registration procedure involves a greatdeal of paper work. The exercise can be tedious and frustrating and caninvolve repeated attempts.


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Recommendations

HarmonisationThere have been suggestions that all existing laws and regulations inBangladesh regarding incorporation and registration of nonprofit organisa-tions should be harmonised to produce a single uniform law. There aretwo streams of thoughts on this.

Some believe that obsolete laws should be repealed, and that the legalforms should be streamlined to produce a uniform standard where thescope and limits of nonprofit activities would be clearly defined. Theyargue that harmonisation of all such laws would actually facilitate thefunctions of nonprofit organisations, and they believe that since the com-mon goal of nonprofit organisations is to work for public good, there islittle justification in utilising a host of laws for setting themselves up.Harmonisation would not only reduce bureaucratic wrangles but at thesame time cut down on corrupt practices by different implementingauthorities. The proponents of harmonisation also believe that the currentpractice of incorporating under different laws albeit for similar purposesand with similar objectives actually encourages organisations to takeadvantage of the diverse legal arrangements available, and engage in non-transparent operations.

The opponents to harmonisation contend that harmonisation wouldessentially place a constraint on nonprofit formation, as it would entailgreater governmental control on activities by nonprofit organisations. Intheir view, harmonisation of laws could lead to greater concentration ofpower and broader discretionary power. They instead offer the option of avoluntary compliance law, which may be considered along with the optionof continuing under the previous legal regime.

An umbrella (harmonised) law would not likely function in a vacuum.The common view is that such a law would essentially be premised on apolicy evolving from dialogues and consultations with relevant stakeholders.



Ideally any law that has its roots in a sound policy has more likelihood ofsuccess in terms of implementation rather than a hasty enactment that isnot preceded or supported by a policy.

Role of the NGO Affairs BureauThe NGO Affairs Bureau (NGOAB) should be equipped to provide one-stop service. Instead, the current system enables bureau officials to engagein lengthy and often unnecessary scrutiny of project proposals. NGOABofficials tend to be rigid about approving projects that do not fall withintraditional NGO activities such as income generation and health servicedelivery. This conservative approach fails to acknowledge the innovativeprogrammes that NGOs are increasingly engaged in.

There have been occasions when project proposals were refused simplybecause the conventional project components such as microcredit, familyplanning and education were absent.31 This compels organisations totinker with their original purposes and objectives in order to procure aspeedy approval.

Organisations should have a right of appeal in a court of law in the eventregistration is refused by NGOAB. Although some of the other formationlaws have provisions for appeal if registration is refused, there is no scopefor appeal if the NGOAB refuses registration. Since a great majority ofnonprofits operate on foreign funds and therefore, have to go through theNGOAB, the absence of appeal provisions is a great disadvantage. There isthus an immediate need to change this system.

Broader ObstaclesThe greatest obstacle to effective law reforms is the mindset of both thegovernment agencies and nonprofit organisations. The legal forms current-ly available offer both parties opportunities to acquire personal benefitsthat would be adversely affected if there were any change in the system.The existing process facilitates corruption across the board and offers verylittle scope for redress.

31 Pursuing Common Goals, op. cit., p.31.


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Existing laws and ordinances regulating NGOs are for the most partrestrictive in their approach and give the government a great deal of power.It is necessary to recognise the potential of the nonprofit sector in promot-ing growth as important partners in development. Accordingly, regulationsthat hinder the development of the private nonprofit sector need to betrimmed down or removed.

An enabling legislative framework is therefore imperative to facilitate theactivities of the nonprofit sector. Such legislations must however providesafeguards to adequately protect the rights of concerned stakeholders andensure strict compliance with the laws.

Purposes (Required and Limited/Prohibited) Nonprofit organisations are generally established on the basis of certainpurposes and objectives. While some of these purposes may be quite spe-cific in terms of meaning and application, there are others that are widerin scope. It follows therefore, that organisations form themselves underparticular laws that accommodate the purposes for which they are formed.

Purposes of a SocietyIn order for a society to be registered under the Societies Registration Actof 1860 it is essential that it must be a established for charitable purposes;promotion of literature or fine arts; instruction and diffusion of usefulknowledge; diffusion of political knowledge; foundation or maintenance oflibraries or reading rooms for general use of the members or the public;public museums, galleries of paintings or other works of art; collections ofnatural history; or mechanical and philosophical inventions, instrumentsand designs.32 Societies may also engage in multi-dimensional activitiesunder the Preamble to the Act.

Societies established under the Societies Registration Act acquire legal status.Thus they may sue or be sued in the name of the key officers or a personappointed by the governing body (or his successor).33 Judgments in a suitagainst a society are enforceable against the property of the society.34

32 Section 20 of the Societies Registration Act, 1860.

33 Section 6 and 7, ibid.

34 Section 8, ibid.



A society’s members are barred under the Act from gaining pecuniary benefit for personal gain from the society. Any member of the society whosteals or embezzles money or other property of the society; or willfully ormaliciously destroys or injures property or forges any bond, security, deedor any other instrument that may cause financial loss to the society shall be subject to prosecution and conviction in the same manner as anon-member.35

Purpose of a Trust or FoundationA foundation or trust may be created for any lawful purpose. A lawfulpurpose of a trust is that which is not prohibited by law or does not defeatthe provision of any law or is not fraudulent or does not injure person or property of another or is not considered by any court as immoral oropposed to public policy.36 A trust created for unlawful purposes is void.Where a trust has two purposes, one lawful and the other unlawful, the whole shall be void to the extent that the two purposes cannot beisolated.37

The Trusts Act 1882 provides legal cover for private acts of public charityand affords creators or authors considerable flexibility in the operation ofthe trust. A trust may be set up for public welfare, naming several trusteeswho will administer the trust in conformity with the trust instrument.Such public charitable trusts may be established for the advancement ofreligion, knowledge, health and safety of the public, or promotion of otheractivities beneficial to the public. In addition, a public charitable trustrequires an author of the trust; a trustee or a board of trustees who shalladminister the trust; some trust property, whether in cash, assets, land orbuildings; and that the beneficiaries must be the public at large or somesection of it.

Trustees may not function in a conflict of interest situation, or deal withtrust property for his or her own profit or for any other purpose uncon-

35 Section 11, ibid.

36 Section 4 of the Trusts Act 1882.

37 For example, if A bequeaths property to B in trust to employ it in carrying on a smuggling business and distributes

the profits thereof to support A's children, the trust would be void.


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nected with the trust.38 A trustee is not entitled to remuneration in theabsence of express directions in the trust deed or the consent of the benefi-ciary or the order of a court.39

Purposes of a WaqfA waqf may be created for pious, religious and charitable purposes. Notransfer may be made by a mutawalli of any immoveable property of a waqf by way of sale, gift, mortgage or exchange or by way of leaseexceeding five years without the previous sanction of the Administrator of Waqfs.40

No debt incurred by a mutawalli shall be binding on a waqf propertyunless it is for the benefit of the waqf and previous written permission hasbeen obtained from the administrator authorising the incurring of suchdebt. No mutawalli shall compromise, compound, abandon, submit toarbitration or otherwise settle any debt, account or claim relating to a waqfor for any of these purposes enter into and execute any agreement orinstrument of compromise or arrangement without the prior permission ofthe Administrator.41

Purposes of a Voluntary Social Welfare AgencyIn order for a voluntary social welfare agency to be established under theVoluntary Social Welfare Agencies (Registration and Control) Ordinance1961 it must be established for the purpose of rendering social services.42

Social services are defined by the act to include child welfare; youth wel-

38 Section 51, ibid. The rules here are specific: Where the trustee is under a duty to sell trust property, he may not,

either directly or indirectly, buy that property or any interest therein on his own account or as agent for a third per-

son. No trustee and no person who has recently ceased to be a trustee may, unless permitted by the civil court of

original jurisdiction, buy or become mortgagee or lessee of the trust property or any part thereof. No trustee, who is

duty bound to buy, lease or obtain a mortgage on a property for the beneficiary, may engage in any such transaction

for himself. Similarly, where a trustee is empowered to invest trust money on mortgage or personal security must

not do so for his own benefit.

39 Sections 40-42, ibid.


41 The sanction of the Administrator shall not however, validate any transfer, which is in contravention of any other law

for the time being in force or is otherwise invalid. Any transfer in contravention of the aforesaid provision shall be

deemed to be an act of malfeasance and a breach of trust. Where a mutawalli transfers a waqf property in contra-

vention of the aforesaid provision and afterwards himself becomes owner of the property, the mutawalli must upon

direction of the Administrator, reconvey the property to the waqf. Section 56(1),(5) and (4) of The Waqfs Ordinance,

1962.

42 Section 2 (f), Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961.



fare; women’s welfare; welfare of the physically and mentally handicapped;family planning; recreational programmes intended to keep people awayfrom anti-social activities; social education; education aimed at developingcivic responsibility; welfare and rehabilitation of released prisoners, juve-nile delinquents, socially handicapped, beggars and destitutes; welfare ofthe aged and the infirm; training in social work; and coordination of socialwelfare agencies.43 The ordinance was promulgated specifically to providefor the registration and control of voluntary social welfare agencies thatdepend on public subscriptions, donations or government aid.

Purposes of a Nonprofit CompanyAn association may be incorporated as a nonprofit company with limitedliability under Section 28 of the Companies Act 1994 provided it isformed to advance commerce, arts, science, religion, charity or any otheruseful object; it uses its income in promoting its objects; and it prohibitsthe payment of any dividend to its members.

The government may in issuing the license direct that the association beregistered as a company with limited liability, without adding the word‘limited’ to its name. The license may be granted subject to such condi-tions and restrictions that the government may deem fit and shall be bind-ing on the association.44

Analysis

There is a large collection of laws, rules and regulations that apply to non-profit organisations. The purposes for and limitations on activities of non-profit organisations are clearly spelt out in relevant enactments. Whilethe main thrust of nonprofit organisations in the past was social welfare,their engagement in mainstream development activities have gainedprominence to the extent that NGOs have now emerged as active partnersin development.

43 Schedule to the Voluntary Social Welfare Agencies (Registration and Control Ordinance, 1961.

44 Section 28(2) of the Companies Act, 1994.


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Recognising this potential of the NGO sector, international donors haveincreasingly channeled funds for development activities to and throughthem. Thus the voluntary sector has now shifted from purely charitablework and is instead making inroads into multi-sectoral initiatives thatfocus on service delivery — including counseling, facilitation in marketingof products, policy advocacy and lobbying, good governance and informa-tion dissemination for raising public awareness. Consequently, the purpos-es for which organisations may be formed have also become broad basedand varied.

It is common for organisations to function according to the stated purpos-es and subject to the limitations. Deviations from the required purposeentail punitive action. As long as organisations remain within the ambit ofthe designated purposes they may engage in any legal activity.

There have been cases where organisations have acquired registration bystating one particular purpose, whereas in reality they are operating withan altogether different purpose. For example, it is relatively simple fororganisations to acquire registration by showing that their principal aim isto provide microcredit. Accordingly, many organisations declare microcre-dit as the main purpose of their operations although in reality they plan toengage in other activities. Once registered, these organisations may carryon activities that may never involve microcredit. Some NGOs also alleged-ly raise money on false promises of employment and credit only to misap-propriate it. While these NGOs essentially develop their own infrastruc-ture, the needs of their target beneficiaries often receive nominal attention.

Organisations also often derive advantage from loopholes in the law. Theability to register and engage in multiple purposes thus enables someNGOs to operate simultaneously as service-oriented organisations and asprofit-oriented business organisations. For example, the Voluntary SocialWelfare Agencies (Registration and Control) Ordinance of 1961 allows themaking of profit to create job opportunities. Consequently, NGOs areescaping the tax net despite their involvement in profit-generating activi-



ties. A number of large Bangladeshi NGOs, according to governmentreports, have made significant investments in transport, press, garment,video library and software businesses, indicating that service-orientedNGOs are increasingly becoming market-oriented with the objective ofearning profits through capital investment.45

In recent years the Bangladeshi judiciary has taken a rather broad view ofwhat constitutes nonprofit activity. BRAC, one of Bangladesh’s largest andmost powerful NGOs, is well known for commercial ventures that parallelits development activities. It derives considerable profit from its cold stor-age, press, marketing organisation, real estate company, university andrestaurant. Some time ago it also received state approval for opening acommercial bank.46 That approval and BRAC’s status as a nonprofit organ-isation were challenged in the High Court Division of the Supreme Courtof Bangladesh. The High Court judges held that investment by BRAC inBRAC Bank is a commercial activity, which was unlawful under theSocieties Registration Act of 1860 under which BRAC was registered. Thejudges noted that an organisation registered under the act could investmoney in a commercial enterprise so long the profits are wholly devoted tocharitable purposes.

The decision of the High Court Division was overruled on appeal. TheAppellate Division of the Supreme Court held that a charitable society caninvest money in order to obtain more funds to spend in charity, and thatneither the Societies Registration Act nor its memorandum of associationprohibit such actions. Nor did the commercial banking investment ofBRAC violate the Foreign Donations (Voluntary Activities) RegulationOrdinance of 1978, for the judges held that the ordinance did not barinvestment of foreign donations in income-generating activities if the prof-its were to be spent in charities. This case demonstrates the inclination onthe part of the judiciary to expand the realm of authorized activities andpurposes that the nonprofit sector may carry out.47

45 See Mokbul Morshed Ahmad, The State, Laws and Non-Governmental Organisations (NGOs) in Bangladesh.

46 bid.

47 BRAC vs Professor Muzaffer Ahmed and Others, 22 BLD (AD) 2002, 41. See also Mark Sidel, States, Markets and

the Nonprofit Sector in South Asia: Judiciaries and the Struggle for Capital in Comparative Perspective, 78 Tulane

Law Review 1611 (2004).


Bangladesh • 75

Recommendations

The language of the law should be clear as to the purposes for which anorganisation may be set up. In view of the rapidly transforming socialstructures, such purposes should be compatible with the current situation.Similarly, global definition of target groups/beneficiaries should be avoidedand instead local realities in designating target groups/beneficiaries shouldbe taken into account.

Strict conformity to the stated prohibitions/limitations of purposes forwhich an organisation may be set up should be ensured. In this regardthere should be a specific measure for monitoring whether organisationsactually operate in accordance with the specific purposes for which theyhave been set up. In the event that there is digression from the stated pur-poses it should be feasible to take appropriate punitive measures and sanc-tions should be imposed on the errant organisation.

Termination, Dissolution and Management Takeover

The procedures by which an organisation may be dissolved, terminated, ortaken over depends upon the particular legislation under which it has beenincorporated.

SocietyA society registered under the Societies Registration Act may be dissolvedby a vote of at least three-fifths of the members of the society. Where thegovernment is an interested party, either by membership or contribution,such society shall require the consent of the government in order to be dissolved.48

Measures for the disposal and settlement of the property of the society andits claims and liabilities shall be handled in accordance with the rules ofthe society or, if no rules exist, as the governing body deems expedient. A

48 Section 13, The Societies Registration Act, 1860.



court in the society’s district of residence irons out disputes in the disposalof property and other dissolution issues.49 If any property remains afterpayment of debts and liabilities, it shall not be paid to or distributedamongst the members of the society but shall be given to some other soci-ety. The recipient of such funds is determined by the votes of not less thanthree-fifths of the members, or, failing such a decision, by a court.50

Trust or FoundationA trust or foundation created under the Trusts Act 1882 may be extin-guished when its purpose is completely fulfilled; when its purpose becomesunlawful; when the fulfillment of its purpose becomes impossible onaccount of the destruction of the trust property or otherwise; or a revoca-ble trust is expressly revoked.51

WaqfSince a waqf involves permanent dedication of moveable or immoveableproperty, the issue of dissolution or termination of a waqf does not arise,and the Ordinance is accordingly silent on the matter.

In an extreme situation, such as where the objectives of the waqf are notbeing carried out properly, a court may intervene at the instance of thewaqif or the Administrator. The Ordinance also allows the WaqfAdministrator to take over and assume the administration, control andmanagement of any waqf property by notification in the Gazette (andwithout requiring court sanction).

If the mutawalli fails to comply with the Administrator’s directive to turnover papers and property, the administrator may apply to a senior govern-ment official to evict the mutawalli and turn over the possession of thewaqf property to him. The Administrator may appoint a manager for theproperty, and whoever is appointed to manage the property shall frame ascheme for the administration of the waqf as nearly as possible in con-formity with the wishes of the waqif and the terms of the waqf. When themanagement of a waqf property is so taken over the Administrator shall be

49 Ibid.

50 This clause however, does not apply to any society, which is set up by the contributions of shareholders in the nature

of Joint Stock Companies Section 14, The Societies Registration Act, 1860.

51 Section 77 of the Trusts Act 1882.


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responsible for maintaining all documents and accounts of expenditure.52

Voluntary Social Welfare AgencyA voluntary social welfare agency may be dissolved if at any time the rele-vant registration authority has reason to believe that the agency is acting incontravention of its constitution, contrary to the ordinance or rules underwhich it is registered, or in a manner prejudicial to public interest. Undersuch circumstances the registration authority, after giving the agency anopportunity to be heard, reports the matter to the government. If the gov-ernment is satisfied with the report it may order that the agency stand dis-solved from the date specified in the order.53

Although the governing board or its members cannot dissolve a registeredagency, application to dissolve it may be made to the government by notless than three-fifths of its members. If the government is satisfied with theproposal it may dissolve the agency, effective from the date on which itconsiders it proper to do so.54

Where an agency is dissolved under the provisions of the Voluntary SocialWelfare Agencies (Registration and Control), the government may order abank or person who holds money, securities or other assets on behalf ofthe agency not to part with it without the permission of the government;appoint a competent person to institute and defend suits on behalf of theagency and to make such orders and take such action as may be necessary;and order the payment of any money, securities and assets remaining aftersatisfaction of all debts and liabilities of the agency or transferal of suchresources to another agency with similar objectives.

Nonprofit CompanyIn the case of nonprofit companies established under the Companies Act1994, the government may at any time cancel the license granted to non-profit organisations, upon which the registrar shall enter the word `limit-ed’ at the end of the name of the association in the register. The associa-tion shall thereupon cease to enjoy the exemptions and privileges granted

52 Section 34 of The Waqfs Ordinance 1962.

53 Section 10 of the Voluntary Social Welfare Agencies Ordinance 1961.




under Section 28 of the Companies Act. However, before a license is cancelled, the government shall notify the association of its intention inwriting along with the grounds for such decision. This affords the associa-tion an opportunity to submit a representation opposing the cancellation.55

Apart from cancellation of the license, nonprofit companies registeredunder the Companies Act may be wound up either by the court or volun-tarily without the intervention of the court or voluntarily subject to thesupervision of the court.56 Winding up is the process whereby a companyformed under the Companies Act comes to an end. In such an event, theassets of the company are realized by converting them into money, and usedto settle the company’s debts. The balance is returned to the shareholdersonly after the creditors have been satisfied. In the case of a company beingwound up, every present member and every past member shall, subject tocertain qualifications, be liable to contribute to the assets of the company tothe extent sufficient to repay its debts and pay for the costs of winding up.57

There may be several grounds on which the court may wind up a compa-ny. They include inter alia the inability of the company to pay its debts,default in filing the statutory report, or a special resolution that the com-pany would be wound up by the court.58

A company may choose to wind up voluntarily without the aid of a courtif the period for which the company was formed expires or somethingoccurs that makes it necessary to dissolve the company and a resolution tothat effect is passed in the general meeting. It may also be dissolved whena special resolution is passed calling for dissolution of the company. Onthe other hand, if for some reason the company is unable to continue itsbusiness it may by extraordinary resolution dissolve it.59 Where there is anextraordinary resolution to wind up a company, notice must be given inthe official gazette as well as in the newspaper.60 Voluntary winding upmay be initiated either by the members61 or by creditors.62

55 Section 28(4), The Companies Act 1994.









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Where the company has by special or extraordinary resolution resolved tovoluntarily wind up, the court may make an order that such winding upshall be carried out subject to the supervision of the court and on suchterms as the court thinks fit.63 The effect of an order to wind under super-vision is the same as that of compulsory winding up except that the liq-uidator may, subject to such restrictions that may be imposed by the court,exercise all his powers without the intervention of the court as though thecompany was winding up voluntarily on its own.64

Analysis

The measures for dissolution, termination and management takeover arelaid out in relevant laws regulating nonprofit organisations. Generalgrounds for dissolution may range from improper use of funds, activitiesoutside the objectives, and inability to settle debts; to the violation ofterms and conditions.

For example, Gano Shahajyo Shangstha (GSS), a well-established NGO,was dissolved following allegations of misuse of funds, gender discrimina-tion and nepotism. Investigations by the government and donors revealedthat rural female field workers of GSS were compelled to go on maternityleave without pay. There were also allegations of sexual harassment ofwomen employees. GSS had also purchased expensive land to build its head-quarters in Dhaka. These findings prompted donors to stop funding GSS.65

Court intervention is usually required where disputes arise regarding disso-lution or management takeover. There are no instances where governmentdecisions to terminate or dissolve an organisation have been reviewed.Interested parties may however, ask the government to show just cause.Where organisations are terminated, the remaining assets are taken over bythe government but there is very little evidence of how they are used ordisbursed later. The decision is discretionary to a large extent and the gov-ernment is not accountable for its actions.



65 Mokbul Morshed Ahmad, op. cit., fns. 20, 45.



Recommendations

• The language of the law should be revised to include more specificson the grounds and procedures for dissolution of an organisation

• Remaining assets of an organisation that is terminated or dissolvedshould be distributed to other organisations having similar goals,which are in need of financial assistance. Transparency in disbursingthe remaining assets by the government needs to be ensured.

• The discretionary power of the government should be restricted bothin terms of termination and as well as distribution of assets followingdissolution of an organisation. Moreover, the circumstances in whichthe government may intervene in the internal affairs of an organisa-tion should be articulated clearly and placed in context.

The Fiscal Regime

Tax Exemption

The National Board of Revenue of the Government of Bangladesh leviestaxes, custom duties, value-added tax and other similar charges under theIncome Tax Ordinance of 1984, the Customs Act of 1969 and the ValueAdded Tax Act of 1996. The board decides upon tax exemption under theprovisions of the Income Tax Ordinance of 1984.

Under a December 1980 Notification of the Board, the income of educa-tional institutions (that exist solely for an educational purpose and not forpurposes of profit) as well as academic scholarships are exempt from tax.Under a 1992 Board decision, customs duty, value-added tax and supple-mentary duties may be waived for certain categories of importers, includ-ing NGOs. The importing NGO must apply to the board, indicating thatthe imported goods will only be used for relief and rehabilitation purposesand distributed to beneficiaries free of cost.


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The Income Tax Ordinance of 1984 sought to simplify and rearrangeexisting income tax laws without impairing their effectiveness. TheFinance Act of 1992 introduced some changes to the Ordinance of 1984— primarily in the area of collection of direct taxes. But, according to onecommentator, “none of these Acts and Ordinances identify NGOs as aspecial category for assessments.”66

According to the Income Tax Manual of the Income Tax Ordinance, anyincome derived from property held under trust or other legal obligationwholly for religious or charitable purposes is exempt from tax payment.67

And this accommodation is also granted to philanthropic organisations,including cooperatives, banks or small industries and microcreditschemes.68

One commentary notes these principles and a recent development:“[F]unds used for charitable purposes are exempt from taxes. The govern-ment’s donations to associations require dispensation by the NationalBoard of Revenue to be tax exempt. Until recently, the business income of societies/associations were considered tax exempt but in the fiscal year 2001, the government imposed a tax rate of 25% on representationtrade bodies.”69

If a nonprofit organisation can prove that it has been established solely forcharitable purposes and that any transaction that occurs does so amongmembers of the organisation, it can apply for tax-exempt status. Completingthe procedure takes at least four weeks. If the National Board of Revenueor any other government organisation abuses its discretionary powers anddenies a tax exemption, a writ petition may be filed against the authorityby the organisation in the High Court Division of the Supreme Court.

According to the Income Tax Manual,70 the following income received by

66 Bangladesh - Pursuing Common Goals (World Bank 1996).

67 Sections 45, 46 and 47 of the Income Tax Manual.

68 The manual states that tax shall not be payable by a cooperative society, including a cooperative society carrying on

the business of banking in respect of the amount of income derived from the sale of goods; the lending of money;

the leasing of land and buildings for the personal use of its members; agricultural or rural credit; cottage industry;

marketing of agricultural produce of its members; purchase of agricultural implements, seeds, livestock, etc

69 Ahmed and Jahan, op. cit, p. 12.

70 Part A of the Sixth Schedule of the Income Tax Manual.



nonprofit organisations are exempt from tax: Income derived from prop-erty held under trust or any other legal obligation wholly for religious orcharitable purposes; income applied or set apart for application to main-tain the above property; and income of a religious or charitable institutionderived from voluntary contributions and applicable solely to religious orcharitable purposes.

Given that some organisations also have credit schemes and work as coop-erative societies, such societies have tax-exempt status with respect toincome derived from the sale of goods to its members or the lending ofmoney to them, or the lease of buildings and land for personal use by itsmembers; or all income derived from engagement in rural or agriculturalcredit schemes, cottage industry, marketing of agricultural produce by itsmembers, or purchases of agricultural implements or seeds or livestock(without use of electricity); any income from interests and dividendsderived from investments with any other cooperative society; any incomederived from the leasing of warehouses or storage units for the purpose ofstorage, processing or facilitating the marketing commodities belonging toor meant for sale to its members.

A nonprofit organisation need not re-qualify for its tax exemption due topassage of time or other events. But the Government may withdraw orrevoke the exemption. In such a case the organisation may file a writ peti-tion against the government in the High Court Division of the SupremeCourt (or appeal to the Tax Tribunal) seeking reasons for revocation andrestitution or another remedy.

Thus in theory, all nonprofit organisations are exempt from corporatetaxes. However, since 1989-90, a number of large NGOs have been issuedwith income tax assessment notices. They refused to pay and appealed tothe Tax Tribunal. The main point of contention related to the transfer ofsurplus (profit) from the nonprofits’ commercial ventures (either registeredseparately from the NGO or operated as a project within the core programof the NGO) to the audited accounts. The government was not convinced


Bangladesh • 83

that such income and expenditure arrangements were allowable to charita-ble organisations.71 The NGOs maintained that their profits went to chari-table purposes and denied that tax officials could identify which part ofthe income had not been used for charitable purposes. Unfortunately, due to the unclear nature of the tax laws in relation to NGO activity, acomplicated scenario has emerged with the diversification of NGO operations into business for profit to finance their development activitiesand projects.

One example involves the Grameen Bank, established in 1983, which hasintroduced housing loans and loans for credit schemes for the poor andlandless in rural Bangladesh. The government has always granted exemp-tion to the Grameen Bank, most recently from 1997 to the end of 2000.But in April 2000, the tax authorities imposed a significant assessment onGrameen, despite its tax-exempt status, and declined to change or with-draw that assessment. Grameen appealed, and the Commissioner of Taxesset aside the assessment order in early 2001. The tax authority thenappealed to the Appellate Tribunal, which restored the earlier assessmentorder on the grounds that Grameen had not transferred taxable funds toits rehabilitation fund to claim tax exemption. In turn Grameen filed apetition in the High Court Division of the Supreme Court arguing thatthe government had no power to impose conditions on the exemption andexemption period. The case is pending before the High Court.

Due to the nature of the unitary system of government, there is no sepa-rate provision for levying tax at the local government or sub-national level.

The personal income tax of NGO employees is generally handled institu-tionally. As a matter of practice, many NGOs deduct taxes from employ-ees’ salaries at the source and submit the payment to the Tax Departmenton their behalf.

71 World Bank 1996, op. cit., at p. 50.




Fiscal policies of the government influence the financial stability of NGOs,particularly the local mobilization of funds. The policy approach towardsthe NGO sector needs to be consistent with reform measures chalked outand implemented by the government for the private sector.

• Rules and procedures regarding tax exemptions for nonprofit organisa-tions are not very clear and the language of the law is somewhat con-fusing. Taxation and tax exemption for nonprofit organisations andphilanthropic institutions are not clearly marked in a separate chapteror section of the law.

• The Income Tax Manual of the Income Tax Ordinance is available forpublic consumption at an affordable price. More information can beobtained from lawyers specializing in this field on a fee basis. Thereare no separate pamphlets or publications condensing information for public use. Furthermore, the law, as it is written, is somewhat con-fusing.

• On a more positive side, tax exemption requirements are not difficultto meet nor are they unduly burdensome. The law (Income TaxOrdinance of 1984) provides for adequate protection for the publicfrom abuse or fraud on the part of nonprofit organisations.

• The discretionary powers of tax officials have been significantlyreduced under various government orders. Even so, if any nonprofitorganisation feels aggrieved by any decision of the tax officials, thatorganisation can appeal to the higher authorities.

• Laws need to be amended so that NGOs are neither subjected to spe-cific fiscal constraints nor accorded special fiscal concessions. In thisway they will be able to operate on an even keel with the state andprivate-sector organisations.

• Abuse of discretionary powers by the government or tax officials (as inthe cases discussed above) must be stopped.

• The language of the law should be simplified so that every person canunderstand basic tax law without having to depend on lawyers forexplanations of basic issues.


Bangladesh • 85

• The Income Tax Ordinance and the manual should be translated intoBangla for wider consumption.

• Commercial activities of organisations should be duly taxed.• It is necessary to separately compile all the rules and regulations relat-

ed to taxation and tax exemption for nonprofit organisations, for theuse and convenience of nonprofits, government officials, and others.

• The existing institutional bottlenecks deterring the NGOs from tak-ing advantage of existing import and export incentives (i.e., unscrupu-lous port and customs officials) should be dealt with immediately.

• Since much of the NGO-fiscal policy interface is a gray area, the rele-vant government office should publish a book with guidelines andexplanations regarding the current fiscal regimes for NGOs, highlight-ing tax obligations for NGOs and areas of tax exemption.

• There is a marked lack of interest in legal reform. Even obsolete lawsare yet to be repealed.

Tax Deductions or Credits for Contributors

At one time, the Income Tax Act provided for 100 percent deduction ofdonations for charitable purposes by corporate bodies from their taxableincome. However, during fiscal year 1992-93, the government withdrewthis practice, claiming that businesses and industries were taking advantageof the provision and transferring funds to spurious organisations for pri-vate gain. Thus NGOs have lost an important source of funds for develop-ment activities. This further indicates, in the words of one commentator,that “philanthropy in Bangladesh, while well developed for religious andwelfare activities, … is not yet developed for the kind of developmentactivities pursued by NGOs.”72

In Bangladesh, only contributions made by individual or corporate con-tributors to the Aga Khan Foundation and the National SportsOrganisation enjoy tax deductions. In other cases a deduction is not grant-ed for individual contributions to nonprofit organisations.

72 World Bank 1996, op.cit, at p. 51.



The tax benefit to donors does not differ depending on the type of proper-ty contributed. The benefit is related to the total income of the donor. It isusual for the nonprofit donee to give the donor a written receipt in orderto allow the latter to take the applicable tax benefit.73

If any nonprofit organisation donee or a donor to such an institution feelsaggrieved by any decision of the tax officials, that donee organisation orindividual or corporate donor can bring an appeal to the higher authorities.


• The rules and procedures regarding tax exemptions, deductions andcredits are clear, but because they are contained in various parts of theIncome Tax Manual of the Income Tax Ordinance 1984, they are also difficult to locate. There are no separate booklets or leaflets for easyconsumption for those seeking such information. Furthermore, thelaws are in English, adding to the difficulty of obtaining informationfor many. And, regardless of language, the language of the law shouldbe simplified.

• Abuse of discretionary powers by the government and tax officials inthe tax realm continues and must be stopped.

• The Income Tax Ordinance and the Manual should be translated intoBangla for wider consumption.

• The scope and application of the provisions for tax credit and taxdeduction for donors to nonprofit donee organisations must be com-piled separately and placed in an individual chapter of the Income TaxOrdinance. Even a separate law on taxation pertaining to nonprofitorganisations and donors of individual and corporate nature may bedrafted to facilitate consistency and a better understanding and application of law.

73 Schedule 6, Part B of the Income Tax Ordinance 1984.


Bangladesh • 87

Resource Mobilisation and Capital Formation

In general, for the Bangladeshi nonprofit sector, “[t]he laws, except thoserelated to nonprofit companies, do not require a capital structure andincentive for capital accumulation. The societies and associations underprudent management accumulate capital through receipt or funds orincome generating incidental activities. The trusts are required to protectbasic property and augment it….”74 There is no provision in the IncomeTax Ordinance to compel a nonprofit organisation to spend or distribute aminimum percentage of its income.

There are laws, rules and government orders (issued by the NGO AffairsBureau) that restrict foreign funding of nongovernment organisations.Special approval is required from the NGO Affairs Bureau to enable anonprofit to receive foreign funding for its activities. The nonprofit isrequired to submit application forms (FD [Foreign Donation] 2 and FD6) which inform the NGOAB as to the objectives of the organisation, tar-get groups and source of funds.75 The forms are submitted to the NGOAffairs Bureau, which then sends them to the Ministry of Home Affairsfor final approval or rejection.

Interest income cannot be generated through the use of foreign funds —although construction facilities and the procurement of material andequipment for use in activities contracted by the foreign donor and theorganisation, and vetted by the NGO Affairs Bureau, are permitted.

There are no rules on domestic fundraising. Many Bangladeshis donate toorphanages, mosques, charities and schools in rural areas. Most mosquesand some orphanages in Bangladesh have donation boxes. Concerts andother fundraising events are also held around the country, with the pro-ceeds going to charities and to help victims such as those benefited by theAcid Survivors Foundation.

74 Ahmed and Jahan, op.cit, 2002, p. 12.

75 NGO Affairs Bureau Manual.




The sparse rules, procedures and government orders on capital formationand resource mobilisation are reasonably transparent, but they are also verysimple and easily abused. There is no general dissatisfaction in the non-profit sector with these provisions. But nonprofits do note that seekingpermission from the NGO Affairs Bureau to receive foreign donations is often very time consuming (sometimes taking four months or more),thereby hindering project implementation. There are continuing com-plaints about corruption in the Bureau, in which officials seek paymentin exchange for sending applications on to the Ministry of Home Affairsor giving a seal of approval to the project and allowing acceptance of foreign funds.

• Laws regarding resource mobilisation and capital formation for non-profit organisations need to be separately included in a law coveringall the rules and regulations pertaining to such organisations.

• Loopholes in the laws must be identified and amended to end abusesof authority in the NGO Affairs Bureau. Furthermore, those personsabusing their office must be identified and judicial action takenagainst them.

Governance and Accountability

Legally Mandated Internal Governance Requirements and Practices

Every society or organisation is governed and managed by specific measureslaid down in relevant legislation as well as required internal documentation.

SocietyEach society is required to have a minimum of seven members.76 For everysociety registered under the Societies Registration Act there must be a for-

76 Section 1 of the Societies Registration Act 1860.


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mal governing body constituted under law. This governing body is respon-sible for the management of the affairs of the society, in accordance withthe rules and regulations of the concerned society.77

Societies must hold annual general meetings except where their rules allowotherwise, in which case a list containing the names, addresses and occu-pations of the members of the governing body shall be filed with theRegistrar of Joint Stock Companies in the month of January.78 Specialmeetings may be convened to consider changes in a society’s purpose.These changes require a three-fifths vote.79 The Registrar of Societies mustbe informed of other important changes in the governance of a society.80

Trust or FoundationIn the case of a trust or foundation set up under the Trusts Act 1882,management is undertaken by a Board of Trustees. The trust instrumentand trust deed define the composition and functions of the board.81 Anyperson capable of holding property may be a trustee. A trustee who hasaccepted the trust cannot afterwards renounce it except with the permis-sion of the civil court with original jurisdiction, with the consent of thebeneficiary, or by virtue of a special power in the trust instrument.82

A trustee is bound to fulfill the purpose of the trust and to obey the direc-tions of the author of the trust given at the time the trust was created.However, a trustee shall not be obliged to obey any direction that wouldbe impract

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