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Chapter 2
Legal Structure
and organisational form
Legal status of Auroville Foundation
and enterprises
Auroville Foundation was established by an Act of Parliament in 1988, making Auroville a legal entity. The Act states that Auroville as a vision could be of tremendous service to the nation and the world at large. Auroville was considered to be an experiment in human unity and was put under the Education Ministry in 1988. The land was acquired by the Government and transferred to the Foundation, which hence owns all the immovable property and assets of Auroville. There are various trusts operating under the umbrella of Auroville Foundation which are considered as trusts operating in the public interest; for example, there are trusts for handicrafts, construction, foreign collaboration etc. All the enterprises are part of a trust. Large exporting units form a single trust; other various smaller units form part of another trust.
The entrepreneur who has established the unit or enterprise is appointed as the trustee and he/she can act autonomously in taking any decision for the benefit and planning of the enterprise within certain limits. Hence, as one of the entrepreneurs says, the enterprises in Auroville as an entity do not exist in the eyes of Government of India. Any small-scale industry registration or government. registration is not done as everything is the property of Auroville Foundation. The only legal institution is Auroville Foundation.
Organizational types and ownership rights
In order to operate a business unit in Auroville, the unit is put under a trust and the entrepreneur hands over the unit to the trust. The trust has a management contract with the Auroville Foundation and it becomes part and parcel of the Foundation. Then the trust comes under management contract with the entrepreneur and he is re-appointed as trustee In terms of designation, he/she is called an executive. Thus a business unit becomes part of Auroville Foundation and enjoys the same exemptions and other benefits which apply to the Foundation. There can be additional trustees apart from the
executive(s) in a trust. Depending on the scale of operation, a trust may have only one business unit under it or many small business units may collectively operate under it. For example
Auromode, a large hand-painted garment manufacturer and a unit is the sole member of the trust
'Auromode'. There are about 130 different types of business units operating in Auroville and these are under various trusts.
All the executives are trustees but all the trustees are not executives. The trustees can be senior members of Auroville whose function is to be the guardian of the vision.
In certain cases, mature units that are not in Auroville have been handed over to the Auroville Foundation, like that of Mr.
Kalyan, who handed over his successful leather craft unit located in Pondicherry to the Foundation and then moved to Auroville.
The executive of the enterprise enjoys ample freedom in taking decisions regarding expansion and management of the enterprise. However, some decisions have a limited degree of autonomy. These restrictions are regarding immovable property and assets. The land on which the unit stands is given by Auroville and is owned by theAuroville Foundation. Though the executive may have put his/her own capital into the building, the ownership rights remain with the Auroville Foundation and the executive cannot claim immovable assets.
This is true for residential buildings as well. Executives can open bank accounts, can go in for business collaborations and partnerships but cannot pledge as collateral any immovable property and assets within Auroville. They can pledge movable assets like tools, plants, machines etc.
During interviews, various executives expressed different points of view regarding their status. As per Martina of Le Gourmet [the jam-jelly unit], she was the entrepreneur of the unit which was one of the first units of Auroville but now as an executive, she considers herself as caretaker and incharge of the unit. Most of the executives described themselves as manager and planner of the unit and they were happy with their status since one of the aims of Auroville is the 'Joy of possessing
nothing'
Autonomy--Advantages and Disadvantages
The executives of the units enjoy almost complete freedom in running the units. They are practically free to prepare their expansion plans, financial policies, labour policies, marketing policies etc. Hence the working environment and productivity of the enterprise depend a lot on the individual entrepreneur. In general, all the labour employed by Auroville units enjoy certain benefits, but above that a greater variation was found amongst different units. Some units provide housing assistance; some provide free and compulsory education, some provide maternity benefits to the working ladies etc.
Executives usually prepare projects for expansion and have to present them to the Auroville Board of Commerce [ABC] and get them approved. They do not get any help or guidance in arranging the finances and there are restrictions against pledging immovable properties. Usually the funds are arranged with their own savings, friends or collaboration with external agencies for which the executive is solely responsible.
Auroville does not have a single cooperative inspite of being committed to community ideals and cooperation. Every industry is run by an individual who can hold the vision which is also attuned to the philosophy of spiritual yearning to change things from personal consciousness. Other executives shared a common belief that in the Indian context, cooperatives do not work but an individualistic approach meets success by holding the vision. Production by cooperatives has been most successful in cases like the Japanese. They are very effective in collective production. Most of the executives stated that the freedom to take decision for business is good but the fact that burden and risk solely rests on the individual is a bit unfair. If a business unit makes a loss, the executive alone bears the burden of it whereas if one makes a profit, he has to share. However, since no income tax is being paid to the government, it is understood that one shares one's profit with the Foundation. In case of executives leaving Auroville they are free to choose their successor. If not, then Auroville Board of Commerce (ABC) has the right to choose a trustee/executive to run the enterprise. When an executive leaves, he/she can recover upto
Rs. 5 Lakh from movable assets like machinery, tools, transport etc. For a bigger amount, they have to take approval of the Auroville Board of Commerce and this is generally achieved by establishing proof of the investments the executive had to bear in the beginning.
One of the executives has stated that 'the fate and status of a unit depends so much on the entrepreneur that if one is removed from the enterprise, it would become an empty shell in a few months'. This is not good enough for a town like Auroville, which aspires to have a closed economy and be self-sufficient. The common complaint was the lack of a central management pool which would give financial, material and strategic support.
Levies and Contribution
Auroville Foundation is exempt from income tax as per the Act of Parliament. Since all the trusts are part of Auroville Foundation and business units are either part of a trust or a trust itself, no income tax is paid on the profits accrued. Sales tax is also not paid for products which are exported. The only taxes which Auroville unit pays to the Government of India are the sales tax on items which are sold in India. The units do this themselves without the Foundation getting involved in it as the Foundation has given the prerogative to each unit independently. This saves a lot of hassles and paper work for Auroville Foundation. Hence most of the units do not pay tax either to the state or the central government.
The unit pays 33% of the profits it accrues to Auroville Foundation every year. Apart from that, every executive involved in a business has to pay Rs. 750 per month to Auroville Foundation. The idea is that every Aurovilian engaged in business should support an Aurovilian engaged in services. Some of the executives expressed that the burden on industries is high, even though they do not pay any income tax apart from the 33% of the profit which goes to Auroville because they also contribute in kind which is not always taken into accounted when calculating their contribution. For example, most of the units sell their products to Aurovilians in cost price and most of the seconds are given voluntarily to Nandini, the free store in Auroville for the consumption of the community. Apart from this, the infrastructure of the business unit is also used by Auroville like vehicles, weighing machines etc. free of charge.
Auroville Board of Commerce [ABC] encourages that 67% profit remaining with the executive is not invested outside Auroville. Usually all the profits are reinvested into the unit to make new buildings, purchase tools, plants, machinery etc. Some of the executives even manage their own maintenance on personal savings or outside income. For example, an entrepreneur of appliqué work is reinvesting her profits into the unit since it is new. So too is an entrepreneur of appliqués and old furniture as he says that the business has to be nurtured at the beginning till it breaks even. One should have enough savings to support themselves during that period. In a case of altruism, the executive of LOTUS, a hammock and cloth bag manufacturing and export unit, maintains half by working for another firm and invests all the profit from his firm for education and sports of girls, since it is dedicated to the development of girl child.
Auditing of accounts of every trust/business unit is done by a Chartered Accountant (C.A.) and then it is submitted to the Foundation which forwards it to the Comptroller and Auditor General (CAG) of India. Therefore, there is very little probability of scams taking place in the units.
Role of sub-statutory bodies
(Auroville Board of Commerce, Funds and Assets Maintenance Committee)
Auroville Board of Commerce is a convenient business forum of manufacturing units. It is not a statutory body and cannot take any legal decision. ABC is a body which keeps records of all the industries and provide registration to a unit. The core group consists of 8-9 members, consisting of executives of different units, one of whom is selected as the secretary. The running of ABC is through donations from units based on their turnover. Out of 130 odd units operating within Auroville, 80 units have been registered with ABC. A unit is registered under ABC when its gross turnover exceeds Rs. one lakh per annum.
One of the main functions of ABC is to keep track of the finances of the units under it. Individual units, which audit their accounts through a Chartered Accountant, submit them to the ABC for scrutiny and audit twice a year; these are then audited by the Comptroller and Auditor General of India [CAG] every year starting from July. ABC interacts with CAG on behalf of the units and in the case of a discrepancy, the CAG may order a unit to be closed. During the last five years, three or four units have been closed. Last year a major unit of Auroville located in Pondicherry [Aurosarjan] was closed by order of the CAG.
One cannot start a business in Auroville unless and until one has become an Aurovilian, which means that one has spent more than one year in Auroville and has been accepted by the community. Even if one does not fulfill the criteria mentioned above, however, one can start a business under an existing unit with the permission of the executive.
ABC works in close collaboration with Funds and Assets Maintenance Committee (FAMC) to enforce the policies. All the financial policies are monitored by ABC and prepared under the guidance of Auroville Foundation, FAMC and other committees. Since Aurovilians faced difficulty in getting loans, two revolving funds have been constituted. One revolving fund provides short-term loans upto Rs one lakh to help the units with working capital. This has been operating since the last 4 to 5 years and every year around 20 to 30 loans worth from Rs. 10,000 to one lakh each are distributed. Since the last six months, ABC has constituted another revolving fund for a mid-term loans to help enterprises get established. Regarding the size of a unit, an attempt is made to keep the number of workers within 50 and if need arises for more production, usually a subcontract is given to another smaller unit. ABC also ensures that apart from Aurovilians, nobody can commercially exploit the brand name of Auroville. For example, in Madras, a mineral water company wrongfully used the name of Auroville on its label and found itself with a lawsuit filed against it.
ABC also keeps track of the consumption of water and electricity by the units and accordingly levies a charge. It also plays a role in determining the location of new industries with Aurofuture (Town planning department).
In case of disputes, ABC also acts as an arbitrator.
Thus the role of ABC is that of a facilitator, regulator, monitor and arbitrator for the manufacturing units of Auroville.
Role of Auroville Board of Commerce [ABC] in location of industries
Any new industry is located in consultation of ABC and Aurofuture (Town planning department). An elaborate environmental form is filed which contains all the information and requirements of the envisaged unit. At present there is an industrial zone in Kottakarai village, called Auroshilpam. Two agglomerations were identified around two wells fulfilling the requirements of water for these industries. ABC maintains these wells. Since water is a scarce resource in this region, due consideration is given to the remaining capacity of existing wells vis-a-vis the requirements of the new unit. The other agglomeration of industries has been found in Kuilapalayam village. Some industries are scattered and located near communities.
Overall units are decentralized and scattered in the region of Auroville and this is a hindrance in planning for centralized infrastructure. The scattered units have their own supply of water and take electricity from the nearby grid. Most of the entrepreneur's complaints were lack of adequate infrastructure and lack of planning effort.
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