Registration of a Hospital Trust with a Family Supplier
Sri Sai Medical and Charitable Trust applies under Section 15 of the A.P. Charitable and Hindu Religious Institutions and Endowments Act, 1987, for registration as a charitable institution. It runs a 60-bed hospital on 1.2 acres donated by the founder's family. Income is Rs. 2.4 crore from paid wards and pharmacy and Rs. 40 lakh from donations. About 65% of outpatients are treated free, but paid ward patients occupy 40% of beds. The founder is managing trustee; his brother's firm is the sole supplier of medicines at Rs. 1.1 crore a year. The trust has not audited accounts for 2023-24 and 2024-25. The inspector reports that the trust charges Rs. 2,500 for a 'free' cataract surgery kit and that the founder's family occupies two rooms in the hospital rent-free. The trust claims it is charitable because 65% of outpatients are free.
1. Should registration be granted? Apply the test of charitable purpose and public benefit.
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Registration is not automatic. Section 15 requires the institution to be charitable and public in character and to be administered for public benefit, not private profit. The hospital's mixed model-65% free outpatients and 40% paid beds-is not fatal if the dominant purpose is charitable and the surplus is used for the hospital. But the related-party medicine supply, rent-free family rooms, unaudited accounts and charges for a 'free' surgery kit indicate private benefit.
The Assistant Commissioner should hold an inquiry, call for the trust deed, audited accounts, patient records and procurement details. Registration may be refused if the trust is in substance a family business; alternatively, it may be granted with conditions separating charitable and paid services and prohibiting family benefits.
2. If registration is considered, what conditions and inquiries should be imposed?
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Conditions should include: (i) separate accounts for free and paid patients; (ii) reservation of at least the stated percentage of beds for free and destitute patients, with public display of the entitlement; (iii) procurement of medicines through competitive quotations with related-party disclosure and board approval; (iv) no rent-free occupation by trustees or relatives; (v) annual audit by a chartered accountant and submission to the department; (vi) no diversion of trust funds; (vii) a monitoring committee including a district medical officer for free treatment.
The trust should also obtain income-tax registration separately; endowment registration does not confer 80G status. A time-bound compliance report should be required before final registration.
3. What are the consequences of the related-party dealings and the rent-free rooms?
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Related-party dealings are not automatically illegal, but they must be at arm's length, disclosed, and approved by disinterested trustees. The sole-supplier arrangement for Rs. 1.1 crore needs comparative quotations, written justification and a resolution passed without the founder's participation. If prices are above market, the difference is recoverable and may amount to breach of trust. The two rent-free rooms should be converted to a licence at market rent or vacated.
If the inquiry finds dishonest appropriation, the authority can refuse registration, cancel it later, surcharge the trustees and refer the matter for criminal action. The trust must be given a hearing before any adverse order.