What Are the Steps to Dissolve an NGO in India?

The non-government organizations (NGOs) are in collaboration with the Indian Government and the business world to contribute considerably to the social, economic, and humanitarian advancement of India. Such bodies function with a non-profit-making principle, with the major objective of contributing to the general well-being.

They serve as a link between the state and the public, ensuring the distribution of resources, awareness, and aid reaches the less privileged and marginalised groups. The significant roles played by these grassroots entities help support and facilitate the growing needs of the country toward a sustainable and inclusive growth process.

Types of NGO

Non-governmental organizations in India are classified on the basis of the legal structure under which the NGO functions or the nature of its activities.

Types of NGOs Depending on the Legal Framework:

1. Trusts: Registered NGOs in the form of a trust are governed either by the India Trust Act 1882 or the State Trust Act. Such organisations are, in most cases, formed for charity, religious purposes, or educational objectives.
2. Societies: Societies are formed under the Societies Registration Act, 1860. Such societies can be termed as membership-based organisations that work under a managing body. These are appropriate for cultural, educational, or social welfare projects.
3. Section 8 Companies: Such NGOs are formed under the Companies Act of 2013. The purpose of forming such organisations has always been to support charitable causes such as education, social welfare, preservation of the environment, and research, with full adherence to tougher standards of compliance.

Types of NGOs Depending upon Their Activities:

1. Charitable NGOs: The NGOs involved in charity activities prioritize alleviating poverty, education development, health services, and disaster management.
2. Advocacy NGOs: The NGOs that come under advocacy work for policy change, the promotion of human rights, sustainability, and social justice.
3. Operational NGOs: These operational NGOs monitor development projects and the welfare programs.
4. Grant-Making NGOs: Such NGOs basically offer funding assistance to other NGOs or social initiatives.

Reasons for Dissolution of an NGO

Dissolution of a Non-Governmental Organisation entails the legal procedures followed in the process of shutting down the organization, bringing it to a terminal point, thereby eradicating it, as well as revoking the registration filed by the said association with the concerned authority. Since Non-Governmental Organizations are created for the purpose of charity, a dissolution is governed by relevant regulations, which ensure proper use of funds as well as legal disposal of assets.

Reasons for dissolution of NGO:

1. Achievement of the stated objectives.
2. Lack of funding to operate the facility.
3. Inadequacy of activities in philanthropic actions.
4. Failure to comply with legal and regulatory requirements results in the cancellation of registration.
5. Disputations among the trustees/members may affect the governance.
6. The misuse or mismanagement of finances may lead to legal or regulatory action.
7. There could be changes in the policies of either the Government or the needs of society, which could make the NGO irrelevant.

Step-by-Step Guide to Dissolving an NGO in India

In an NGO, dissolution can be done voluntarily or compulsorily due to inactivity, defaults, absence of funds, or achieving an objective. Being an NGO, which stands for not-for-profit or for charitable purposes, it has strict legislation for its dissolution to avoid public money or assets misuse. In an NGO in India, dissolution for inactivity or default can be done compulsorily.

1. Establish the Legal Status of the NGO

First of all, there is a need to identify the law that regulates your particular NGO. For instance, there are trust acts like the “Indian Trusts Act, 1882, or the State Trust Acts”; “Societies” that are managed in accordance with the “Societies Registration Act, 1860”; and “Section 8 companies” that come under the “Companies Act, 2013“.

2. Review the Governance Document

The NGO needs to carefully examine its Trust Deeds, MOA, and R&R (in cases of Societies). MOA and AOA (in cases of Section 8 Companies). This typically holds the conditions of dissolution, voting rights, and other related matters of the transfer of assets.

3. Organise a Meeting of the Governing Body/Board

A formal meeting of:

• Trustees (For Trusts)
• Management Committee or General Body (In case of Societies)
• Board of Directors and Members – in case of Section 8

Companies have to be convened to:

• Causes of dissolution
• Approval of the resolution of dissolution
• Decide what to do with assets and liabilities
• A proper notice, quorum, and minutes should be observed.

4. Pass a Special Resolution

In most cases, the following resolution will be required:

• Resolutions are normally adopted by two-thirds or three-fourths majorities.
• Resolutions must contain the following details:
• Dissolution decision
• Date of dissolution
• Liquidator/Authorised Representative appointment

In Section 8 companies, there is a need for shareholders’ consent.

5. Settlement of Liabilities

Before the dissolution of the NGO, any outstanding financial transactions such as debt repayment, payment of statutory dues including taxes, PF, ESI if applicable, determination of employee dues regarding salaries and benefits, and any other pending contracts and agreements, have to be cleared. No NGO can be dissolved unless the outstanding liabilities are paid first.

6. Disposal of Assets

Since NGOs are non-profit entities:

• Assets cannot be distributed among members
• Assets must be transferred to:
• Another NGO with similar objectives
• Government authority, if required by law

For Section 8 companies, prior approval of the Regional Director is mandatory before asset transfer.

7. Notification to Regulatory Authorities

• The NGO is required to notify all concerned departments, such as the Registrar of Trusts and Societies, Registrar of Corporations (ROC) in case of section 8 companies, Income Tax Department, and FCRA Authorities (if registered under FCRA).
• Resolution documents, financial documents, and affidavit documents are required.

8. Obeying Income Tax Laws

• Prior to the dissolution of the company, it is essential to file all overdue returns relating to income tax as well as ensure proper use of funds.
• In the event that the NGO enjoys tax exemptions under Sections 12A/12AB and 80G, the registrations ought to be cancelled.

9. Notice of Publication (if Required)

For the societies and the business entities involved, there might be a need to make a public announcement concerning the dissolution. The notice is often advertised in newspapers.

10. Final Accounts and Audit

Prepare:

• Final accounts of Statement
• Asset & Liabilities statement
• Audit report (if applicable)

These documents prove the legal closing of the finances by the NGO.

11. Application for Deregistration

Apply for deregistration formally with the appropriate governing body:

• Trusts: Registrar/Civil Court
• Societies: Registrar of Societies
• Section 8 Companies: ROC on prescribed forms

After the requirement is fulfilled, the authority delivers a certificate of deregistration.

12. Record Preservation After Dissolution

• All records, account books, and official documents need to be maintained.
• Usually for 8-10 years, as per applicable laws.
• This ensures accountability and transparency.

Challenges in Dissolving an NGO in India

1. Complex Legal Systems: NGOs in India can be formed under the Trust Act, the Societies Act, or Section 8 companies, and they are regulated by different laws. It is very difficult for an NGO to comply with the relevant laws under the governing regulations.
2. Inadequate regulation on dissolution: There are various non-governmental institutions whose dissolution procedures have not been defined in their trust deed and other documents, such as the memorandum and articles. How a trust should be dissolved often leads to conflict among the trustees or members.
3. Approval and delays: The process for dissolution is also subject to the approval of some other persons, such as the Registrar, Income Tax Department, and, in some cases, the Regional Director, as well as some court cases. Such approvals take a significant amount of time for this purpose.
4. Settlement of Liabilities: Handling outstanding liabilities such as statutory requirements, employee benefits, and other debts is a major task. Lack of funds or inadequate financial reporting may also make the situation worse.
5. Disposal of assets: The NGOs will not share their resources with their members. Finding an appropriate organisation similar to their own aims and securing approval for resource transfer will involve a complicated procedure.
6. Tax Compliance Issues: NGOs often fail to file their income tax return statements/files regularly. Default in Section 12A/12AB or Section 80G compliance may cause obstacles in the process of dissolving the NGO.
7. FCRA-related complications: NGOs registered under the Foreign Contribution Regulation Act (FCRA) have to meet more requirements, such as reporting, surrender of registration, and screening of foreign funds before closing down.
8. Internal Conflicts: A possible disagreement among the trustees, members, and directors in relation to the dissolution, distribution, and accountability may cause delays in the process through legal disputes.
9. Public Interest and Creditor Objections: In some instances, there can be challenges from the beneficiaries, donors, or creditors, especially where there are public notifications involved, thereby delaying the dissolution process.
10. Documentation and Record Preservation: Keeping records, audited accounts, and legal filings can prove to be a challenge for inactive NGOs, thereby serving as an obstacle to deregistration.

Conclusion

The approach is characterised by transparency, accountability, and ethical closure in order to prevent the misuse of money or resources. The NGO, therefore, needs to embark on this process of dissolution with very careful planning and adherence to legal standards to ensure a smooth close-out of its charitable activities.

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