Charity Inquiry: Hindu Community Society

The charity

Hindu Community Society (‘the charity’) was registered on 24 June 2010. It was an unincorporated charity governed by a trust deed dated 9 June 2010, as amended by a resolution dated 1 January 2013.

The charity’s objects were to promote any charitable purpose for the benefit of the Tamil community living in Coventry and the surrounding area, in particular:

• the advancement of the Hindu religion
• the advancement of education particularly in Hindu culture
• the relief of poverty, distress, and sickness

The charity was removed from the Register on 1 November 2021 and is recorded as a removed charity.

Background and issues under investigation

On 2 March 2017 the charity became part of the Commission’s ‘Double Defaulters’ class inquiry, which examines charities which have defaulted on their statutory filing obligations with the Commission on two or more occasions in the last 5 years. The charity had failed to submit accounts and returns for the financial years ending (‘FYE’) 30 June 2014 and 30 June 2015. The charity was removed from the class inquiry on 27 April 2017 following compliance by the trustees with their legal duties in submitting the missing accounting information.

On 30 April 2017 the deadline for the charity to submit its accounts for the FYE 30 June 2016 fell due. Despite a number of reminders the trustees failed to submit the accounting records and were therefore again in breach of their statutory duties.

The trustees’ failure to submit accounting information so soon after exiting the Commission’s class inquiry was a serious regulatory concern and on 2 March 2017 the Commission opened a statutory inquiry (‘the Inquiry’) into the charity under section 46 of the Charities Act 2011 (‘the Act’).

The Inquiry examined the following regulatory issues:

• the extent to which the trustees were complying with their legal duties in respect of their administration, governance, and management of the charity and in particular:
  • their compliance with legal obligations for the preparation and filing of the charity’s accounts and other information or returns
  • the extent to which the trustees complied with previously issued regulatory guidance
• the extent to which a properly appointed board of trustees was exercising proper and adequate oversight of the charity’s affairs, in particular:
  • if the trustees had avoided or adequately managed potential conflicts of interest
  • if there had been any direct or indirect private benefit
• the trustees decision making with regards to expenditure on property leased/formally leased by the charity

The Inquiry closed with the publication of this report.

The trustees’ dates in office

The charity had a number of trustees from its formation in 2010 until it was placed into the inquiry in 2017. The following sets out the trustees who were in office for the relevant period of time:

• Mr Nathan Rahulan ^{[footnote 1]} (“Mr Rahulan”) from 24 June 2010 to 24 March 2020
• Mrs Padma Rahulan (“Mrs Rahulan”) from 24 June 2010 to 3 March 2021
• Trustee A from 7 February 2020 to 1 November 2021
• Trustee B from 7 February 2020 to 1 November 2021

Following the opening of the Inquiry it was found that Mr Rahulan had been declared bankrupt in August 2016, and a bankruptcy Order had been issued for 12 months. Mr Rahulan continued to act as a trustee during this 12-month period in contravention of section 178(1) of the Act, which states that a person is disqualified from being a charity trustee or trustee for a charity if they are an undischarged bankrupt.

Findings

Trustees’ compliance with legal obligations for the preparation and filing of the charity’s accounts and other information or returns

The Inquiry found that despite being subject to a statutory inquiry for failing to submit accounting information the trustees in post at that time had again failed to comply with their statutory duty to file annual reports and accounts with the Commission, for the FYE 30 June 2016, 30 June 2017 and 30 June 2018 within 10 months of the year end.

A section 84 Order was issued on 3 May 2019 which directed the trustees at the time to submit the outstanding trustee reports and financial statements by 26 May 2019. The trustees failed to submit the documents by this date and were therefore in breach of the terms of the section 84 Order.

On 7 February 2020 two further trustees were appointed, Trustee A and Trustee B. On 6 March 2020 the Inquiry also issued the section 84 Order directing Trustee A and B to submit the outstanding accounts for the FYE 30 June 2016, 30 June 2017 and 30 June 2018 by the deadline of 20 March 2020. The accounts were submitted after the deadline on, 27 March 2020, 14 April 2020 and 14 April 2020 respectively.

A failure to comply in full and within the deadline with any Order or Direction of the Commission is misconduct and/or mismanagement in the administration of a charity under section 76(1) of the Act.

The trustees decision making with regards to expenditure on property leased/formally leased by the charity

The Inquiry found that in 2012 Mr Rahulan purchased a property on behalf of the charity for £160,000. The property was to be used as the base for a temple. The trustees explained during a meeting with the Inquiry on 3 June 2019 that the funds were raised via loans and donations from the local Community and a bridging loan of £100,000 from a commercial finance company.

The charity’s trust deed stipulates that the trustees must hold at least 6 meetings a year, and “every issue may be determined by a simple majority of the votes cast at a meeting of the Trustees”. In the same meeting with the Commission, Mr Rahulan confirmed that the decision to take out the bridging loan was made by him alone and was not a decision made in conjunction with the other trustees at the time. Mr Rahulan confirmed no professional financial advice was taken prior to purchasing the property, nor before taking out the bridging loan.

Mrs Rahulan confirmed that she was aware of the loan at the time it was entered into, although there is no evidence to show that Mrs Rahulan consulted with the other trustees or sought any professional financial advice either prior to the purchase of the property or subsequent to the loan being taken out.

The interest for the bridging loan was £5,000 per month. The inquiry found that after 6 months the liability was £209,000 and the bridging loan company demanded immediate payment. The charity was unable to afford the repayment and defaulted on the loan. The property was repossessed, resulting in a loss not only of the money used to purchase the property but also charity funds which were spent on constructing and furnishing the Temple. In a serious incident report submitted to the Commission by Mr Rahulan on 12 July 2018, following the repossession, he stated the charity had spent approximately £500,000 of public donations on constructing the Temple.

Following the repossession, Mr Rahulan took legal advice in regard to reclaiming the property. At the meeting with the Commission, Mr Rahulan stated he spent £46,000 of the charity’s funds on this advice but failed to regain ownership of the property. The Inquiry found there was no evidence of any trustee meeting to discuss this use of charity funds.

During the Inquiry there were concerns that two other properties purchased by Mr Rahulan, for use as accommodation for priests working at the Temple, were assets of the charity and were at risk. Enquiries with the Land Registry confirmed that the title deeds of the properties were in the name of Mr Rahulan and did not reflect that they were held on trust for the charity, despite Mr and Mrs Rahulan informing the Inquiry to this effect. The Commission issued two Orders under section 76(3)(c) of the Act on 23 January 2020 to vest the properties with the Official Custodian for Charities (‘the OC’) in order to protect them.

Following further investigation with the Land Registry, the Inquiry found that the properties had been vested with the Crown following Mr Rahulan’s bankruptcy and were in fact not assets of the charity. As such the Orders vesting the properties with the OC were discharged on 5 July 2021.

Trustee failure to comply with their legal obligations

In addition to the failures referenced above, Mr and Mrs Rahulan also failed to comply with a section 84 Order which directed them to complete a number of actions, including submitting a weekly report to the Commission identifying the income received in the preceding week, and evidencing that the funds had been deposited into the charity’s bank account.

The extent of the misconduct and or mismanagement which the Inquiry identified, and which was attributable to Mr and Mrs Rahulan resulted in the Commission exercising its powers to remove them under section 76(4) of the Act on 24 March 2020 and 3 March 2021 respectively.

Financial viability of the charity

Following the removal of Mr Rahulan, the Inquiry requested the remaining trustees provide details of their strategy to bring the charity’s finances into order and their thoughts on the future viability of the charity; given that it had outstanding liabilities. Their response confirmed the charity’s bank account had been closed but did not provide any details on how the trustees planned to deal with the financial issues within the charity.

Between 19 May 2020 to 11 August 2021 the Inquiry made multiple attempts to engage with the trustees but received no substantive response.

On 12 August 2021, the Inquiry requested a meeting with Trustee A and B, and in response they notified the Inquiry that they had resigned from the charity as they did not have the funds to operate the charity without the support of the community.

Conclusions

The Commission concluded that there was misconduct and/or mismanagement in the charity’s administration. This ultimately caused the charity to suffer significant financial losses, both in terms of the loss of a property and the funds subsequently spent trying to regain it. The charity was unable to recover financially, and the Commission found that it had not been operating since circa March 2020. Under section 34(1)(b) of the Act, the Commission have a duty to remove from the Register any organisation that has ceased to exist or does not operate. Therefore the Commission removed the charity from the register on 1 November 2021.

The Commission further concluded that the actions of Mr and Mrs Rahulan in particular were significantly below that expected from trustees and they were both removed as trustees of the charity. Mr Rahulan had overcommitted the charity by taking out a bridging loan that the charity would be unable to repay, without consulting the other trustees nor obtaining any professional financial advice prior to this investment and there is a lack of documents detailing the rationale for entering into the loan. The loan was secured against the property thereby exposing the charity to significant risk to its asset. Mrs Rahulan had been aware of these events but had not acted to bring this matter to the attention of her fellow trustees or intervene to safeguard the charity’s asset which was ultimately lost.

Regulatory Action Taken

The Inquiry exercised the Commission’s regulatory powers under sections 47 of the Act on multiple occasions to obtain further information and copy documents, including from the trustees and the charity’s banks.

The Inquiry provided the charity’s trustees with regulatory advice and guidance pursuant to section 15(2) of the 2011 Act.

On 26 June 2019 the Inquiry made an Order under section 84 of the Act, directing Mr and Mrs Rahulan to submit the outstanding accounts. These Orders were later amended on 17 July 2019 under section 336(7) to vary the deadline for the submission of the accounts.

On 4 October 2019 the Inquiry made an Order under section 84 of the Act, directing Mr and Mrs Rahulan to submit details on the charity’s financial transactions to Commission.

On 7 February 2020, the Inquiry made an Order under section 76(3)(a) of the Act to suspend Mr Rahulan and on the same day notice of intention to remove him as trustee was also issued. A further Order under section 76(4) of the Act was issued on 24 March 2020 to remove Mr Rahulan as a trustee of the charity.

On 6 March 2020 the Inquiry made an Order under section 84 of the Act, directing Trustee A and Trustee B to submit the outstanding accounts.

On 6 January 2021, the Inquiry made an Order under section 76(3)(a) of the Act to suspend Mrs Rahulan and on the same day notice of intention to remove her as trustee was also issued. In taking this action the Commission also took into consideration Mrs Rahulan’s conduct at another charity which had also been the subject of a statutory inquiry under section 46 of the Act due to failures to comply with the legal obligation to file accounting information and accompanying documents within the statutory deadline. The Commission is satisfied that Mrs Rahulan was at least jointly responsible for the misconduct and mismanagement within that other charity. A further Order under section 76(4) of the Act was issued on 3 March 2021 to remove Mrs Rahulan as a trustee of the charity.

On 23 January 2020 the Inquiry made two Orders under section 76(3)(c) of the Act to vest properties with the Official Custodian for Charities. These Orders were discharged on 5 July 2021 under section 377(6) of the Act.

Issues for the wider sector

The purpose of this section is to highlight the broader issues arising from the Inquiry that may have relevance for other charities. It is not intended as further comment on the charity in addition to the findings and conclusions set out in the earlier sections of this report but is included because of their wider applicability and interest to the charity sector.

Trustees of charities are under a legal duty as charity trustees to submit annual updates, returns, annual reports and accounting documents to the Commission as the regulator of charities depending upon the level of the charity’s income. Failure to submit accounts and accompanying documents to the Commission is a criminal offence. The Commission also regards it as mismanagement and misconduct in the administration of a charity.

Charity trustees must comply with Orders and Direction of the Commission. In some circumstances it may be a criminal offence (or contempt of court) for a charity or a trustee to not comply with an Order or direction of the Commission.

Charity trustees have a general duty to manage their charity’s resources responsibly, reasonably, and honestly. This means not exposing their charity’s assets, beneficiaries, or reputation to undue risk. It is about exercising sound judgement and then taking decisions that a reasonable body of trustees would do.

Trustees are collectively responsible for their charity and ultimately accountable for everything done by the charity and those representing the charity. Trustees must actively understand the risks to their charity and make sure those risks are properly managed; the higher the risk, the greater the expectation and the more oversight is needed.

When considering high risk decisions particularly those involving significant sums of money, it is difficult to see how trustees could discharge their legal duties without taking and properly considering independent professional advice as they would be exposing the charity and its property to significant risk by failing to do so. Donors and beneficiaries have a right to expect trustees to take appropriate steps to protect property of the charity.

The Commission has produced guidance to assist trustees in implementing robust internal financial controls that are appropriate to their charity. Internal Financial Controls for Charities (CC8) is available on GOV.UK.