Update on the Lokpal & Lokayukta Act 2013

Ever since we,
at CAP, wrote about the Lokpal and
Lokayuktas Act of 2013 on our Blog and also inspired Business
Standard to write
about it 

(http://www.businessstandard.com/article/economy-policy/public-servant-tag-worriesngosector-workers-116070700023_1.html) our
phones at the office have not stopped buzzing.

Very
recently scroll.in too has covered the issue
(http://scroll.in/article/811436/indian-government-is-targetting-ngos-yet-again-claim-non-profit-workers) and
several voices from with the sector have raised their anguish and
concern.

No
Rationale!

One can
understand and even accept to an extent, key functionaries of an NGO
which is substantially funded by the government to be deemed as
‘public servant’. But, by
what stretch of imagination does the Board of a charitable
organization working in a fiduciary capacity without any remuneration
or benefit become ‘public servant’, merely because the
organization receives funds from a foreign source in excess of one
million rupees in any financial year?
There appears to be no logic or rationale behind this.

We are
not against transparency!

No one is
against the principle of transparency and accountability. In fact,
organisations receiving foreign contributions are not just required
to file detailed annual returns with the Ministry of Home Affairs
(MHA), but, they are also required to upload information each quarter
on their own website or that of MHA, regarding contributions
received, details of the donor and purpose for which it is received.

But, now, as
if all this was not enough, under this new law, “Any
person who is or has been a Director, Manager, Secretary or other
Officer of every other Society, or Association of Persons or Trust
(whether registered under any law for the time being in force or not)
will be deemed a ‘public servant’ and will be required to file
a disclosure followed by annual returns of immovable properties and
moveable assets with the MHA and the disclosure should include
details of assets held by his/her spouse and dependent children.

Ambiguities
under the law

In our view,
there are several drafting ambiguities and lapses.

To begin
with, not-for-profit Section 8 companies (earlier Section 25) have
not been specifically referred to under Section 14(1)(h).

Under Section 14(1)(h): “Any
person who is or has been a Director, Manager, Secretary or other
Officer of every other Society, or Association of Persons or Trust
(whether registered under any law for the time being in force or not)
in receipt of any donation from any foreign source under the Foreign
Contribution (Regulation) Act, 2010 in excess of Ten lakhs Rupees in
a year or such higher amount as the Central Government may, by
notification, specify.

The Explanation under Section
14(1) adds: “For the purpose of clauses (f) and (g), it is hereby
clarified that any entity or institution, by whatever name called,
corporate, society, trust, association of persons, partnership, sole
proprietorship, limited liability partnership (whether registered
under any law for the time being in force or not), shall be the
entities covered in those clauses”

In other words since Section
14(1)(h) does not include Section 8 companies and the Explanation to
Section 14(1) refers to clause (f) and (g) but not to clause (h), a
Section 8 company is not a entity covered under Section 14(1).

Thus, in effect the law would
apply to various charitable trusts and societies receiving funds in
excess of Rs. 10,00,000/- from ‘foreign source’ but not to
Section 8 Companies such as Centre for
Advancement of Philanthropy, Dasra, Magic Bus etc.

Also, designations like ‘Director,
Manager, Secretary or other Officer’ are not defined under the Act.
Director is generally a designation used in companies. The term
‘Manager’ too is broad and ambiguous. Under the Bombay Public
Trusts Act 1950, “trustee includes a manager”. But, in most
organisations there are ‘project managers’, ‘program managers’,
‘finance managers’ and ‘admin managers’. Are all these
personnel (many of whom work voluntarily or at very low remuneration)
to be treated as ‘public servant’, merely because the
organization receives foreign funds?

Why
target only charities?

To
reiterate, nobody is against transparency,
but board members of NGOs are afraid they would be vulnerable to
extortionists if they disclose their personal assets online. Most see
this as violation of the privacy of private wealth.

Also, far larger sums of money
flow into the country through the FDI and FII route. So why only
charitable institutions receiving funds under FCRA 2010 are targeted?

Is resignation a solution?

Unfortunately, our answer would be
an emphatic NO!

Resignation is not a solution,
because Section 14(1)(h) states: “Any person
who is or has been
a Director, Manager, Secretary or other Officer ….” In other
words, even after resigning the person would be treated as ‘public
servant’ and could be investigated for a past offence.

What’s more, the returns under
section 44 should be filed by the public servant till all the foreign
donations received by the NGO are used up.

Further, the Act applies to public
servants whether in India or outside and hence a non-resident board
member of an Indian NGO must also file the annual return. A PIO or
OCI living abroad, and serving as an honorary member on the board of
a charitable institution receiving more than one million India Rupees
by way of foreign contribution must file the return of his/her global
assets annually with the MHA.

Legislative suggestions

The government had introduced a
Bill to amend this Act. It did not seek to amend Section 14, hence,
NGOs receiving FCRA or government funding above the stipulated
thresholds would continue to remain affected. The Bill suggested
minor amendments to section 44, but continued to require all public
servants to disclose their assets. The only change proposed was
regarding the Competent Authority (MHA in our case) not being
required to post information on its website, but, publish “in such
manner as may be prescribed” by regulations. This continues to
remain mysterious and ambiguous.

To view the Bill:

http://www.prsindia.org/uploads/media/Lokpal/Lokpal%20and%20Lokayuktas%20(A)%202014.pdf.

The Bill was examined by the
Standing Committee on Personnel, Public Grievances and Law and
Justice. It made some recommendations regarding Section 44
(disclosure of assets). In particular, it recommended that the
disclosure should be shared by the Competent Authority with the
Lokpal in a fiduciary capacity and should not be disclosed to the
public. It also recommended that assets of the spouse or dependent
children need not be disclosed if they are sourced from their income
or sources independent from that of the public servant.

Report is available at:

http://www.prsindia.org/uploads/media/Lokpal/SCR%20Lokpal%20and%20Lokayuktas%20bill,%202014.pdf.

What
should be done as of now?

Stay aware
and alert. But, be in no haste. One may rightly ask why an
organization such as CAP whose tag line is ‘Compliance Complete’,
suggesting a ‘wait and watch’ stance.

Reasons:

Government officers
for whom this law is primarily meant have been postponing compliance
since the year 2014 and therefore why are Board Members and Officers
of charitable organisations being put under pressure despite the
organisations where they serve diligently filing their returns with
not just MHA but also Income tax and state authorities like the
charity commissioner and Registrar of Societies?

Noshir H.
Dadrawala

CEO –
Centre for Advancement of Philanthropy