Thursday, 14 July 2016

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 

Very recently too has covered the issue ( 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:

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:

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.

  1. There is no clarity regarding applicability of the Act to Section 8 (old section 25 companies).
  2. There is no clarity with regard to who is a ‘Director’ or ‘Manager’.
  3. There appears to be no penal provision under the law for not filing or late filing of return.
  4. No institutional mechanism has been created by the government nor has the Lokpal been appointed by the government as yet.

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