NGO under the scanner of Lokpal Act - Interesting update!

Lokpal Act Amended | Deadline For NGO Office Bearers To Declare Assets Deferred

Khaitan & Co

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India August 1 2016

The Lokpal and Lokayuktas Act, 2013 (Act) which required public servants to declare their assets and liabilities by 31 July 2016 has been amended. Indian industry was taken aback when the definition of ‘public servant’ covered officers of entities receiving government funds and not-for-profit entities receiving foreign contribution exceeding INR 1,000,000 within its scope. After several representations made by numerous non-governmental organisations (NGOs), the government has deferred the deadline for such disclosure until the rules regarding form and manner of the declaration are notified by the central government.

Background
Prior to the notification of the Lokpal and Lokayuktas (Amendment) Act, 2016 (Amendment Act), the Act required a ‘public servant’ to make a declaration of his assets and liabilities along with similar disclosures for his spouse and dependents as on 1 August 2014 and for each subsequent financial year. The details of the assets and liabilities disclosed are also required to be published by the competent authority on its website, making it public information.

Scope of the Act
The Act, primarily enacted to establish a mechanism for enquiry into allegations of corruption against public functionaries, also seeks to regulate private entities. In addition to certain central government executives (such as Union Ministers and Members of Parliament) and specified government employees, the Act also applies to any person who is or has been:

1. a chairperson, member, officer or employee in any body, board, corporation, authority, company, society, trust or autonomous body (by whatever name called) established by an act of parliament or wholly or partly financed by the central government or controlled by it;
2. a director, manager, secretary or other officer of every other society, association of persons or trust (whether registered or not) by whatever name called, wholly or partly financed by the government and the annual income of which exceeds INR 10,000,000; and
3. a director, manager, secretary or other officer of every other society, association of persons or trust (whether registered or not) in receipt of any donation in excess of INR 1,000,000 in a year from any foreign source under Foreign Contribution (Regulation) Act, 2010 (FCRA).

Challenges
There are several ambiguities in the interpretation of the Act to determine the applicability of the legislation on private non-governmental organisations, for instance:

1. The notification dated 20 June 2016 issued by the Department of Personnel and Training, Ministry of Personnel, Public Grievances and Training, Government of India¹ (June Notification) prescribed the monetary threshold of INR 10,000,000 for the annual income of entities financed by the government to come within the ambit of the Act. However, the June Notification further clarified that only grants or financial assistance given by the central government may be taken into consideration for determining the annual income. Therefore, it is unclear whether the Act applies to state government funded NGOs, whose annual income exceeds INR 10,000,000;
2. Since the provision regulating FCRA-regulated entities does not include companies registered under Section 8 of the Companies Act, 2013 (Section 25 of the Companies Act, 1956), a literal interpretation would suggest that even if such companies satisfy the monetary threshold of being in receipt of foreign contribution exceeding INR 1,000,000, the Act would not apply to them. However, the intention of the legislature is unclear;
3. While a general interpretation of the Act suggests that it regulates persons discharging executive functions of the aforementioned entities, it is unclear whether the applicability of the Act extends to honorary members or members of advisory committees of such not-for-profit societies or trust.

If a public servant fails to make the requisite declarations or in the event of a misrepresentation, the assets of such persons are deemed to have been acquired by corrupt means granting Lokpal the power to initiate an inquiry in respect of such assets. The dire consequences of any non-compliance are coupled with concerns around sensitive personal information of office bearers of private entities becoming public information. In a majority of instances, eminent persons associate and are given honorary positions with NGOs to lend credibility to the institution without having any powers or executive functions. Exposing such personnel to potential high public scrutiny may prove counter-productive and deter such non-executive personnel from associating or accepting any positions with the NGOs.

It is expected that the deferment of the declaration deadline is aimed at removing the ambiguities in the Act and to address other concerns raised by stakeholders by a consultative process.

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