JUDICIAL STANDARDS AND ACCOUNTABILITY

THE JUDICIAL STANDARDS AND ACCOUNTABILITY BILL, 2010

-A CRITIQUE

By Dr T Padma,

LLM., Ph D (Law)

LLD Scholar (A P Law University)

kethepadma@gmail.com

“If the Indian Constitution is our heritage bequeathed to us by our founding fathers, no less are we, the people of India, the trustee and custodians of the values which pulsate within its provisions! A constitution is not a parchment of paper, it is a way of life and has to be lived up to. Eternal vigilance is the price of liberty and in the final analysis, its only keepers are the people. Imbecility of men, history teaches us, always invites the impudence of power.”[1]

- Justice H.R. Khanna

Background

The recent years have witnessed a vigorous debate about the working of our judiciary, including the higher judiciary. At one level, serious charges of corruption, nepotism and acquisition of assets disproportionate to known sources of income have been levelled against some members of the judiciary, raising concerns about the integrity and impartiality of our judicial system and processes. While these have undoubtedly damaged the high regard in which the judiciary is usually held, there is simultaneous appreciation that the judiciary is not only the last bastion for the citizen against state excess, arbitrary behaviour and apathy but also the ultimate guarantor and upholder of the Constitution and democracy.

During Indira Gandhi’s rule, there was political stability in the country and the Congress enjoyed a majority in Parliament. Days after the historic Kesavananda Bharati case verdict [2] in April 1973, in which Supreme Court propounded the theory of basic structure, four senior SC judges were superseded and Justice AN Ray was appointed the CJI.  As a result, four senior-most judges resigned. Later, Justice HR Khanna too was superseded. During the Emergency, several judges became victims of punitive transfers as they were transferred without the consent of the CJI.

Since the 1989 general elections, no individual political party has got a majority in the Lok Sabha. With political instability and coalitions being the norm of the day, the fear of the power of the political establishment in the mind of the judiciary seems to have vanished.

Under Article 124(2) and Article 217(1) of the Constitution, a judge of the Supreme Court (SC) and that of a high court respectively have to be appointed by the President after ‘consultation’ with the Chief Justice of India (CJI).  However, via a judgement in 1993, the SC effectively took over the executive’s power to appoint judges to the higher judiciary and started what has come to be known as the ‘Collegium System [3] ’. A nine-judge Constitution Bench in 1998 further ruled that primacy has to be given to the collegium’s view over that of the President.

The Collegium System, has tilted the balance of power between the judiciary and the executive envisaged under the Constitution in favour of the former in appointment of judges. This makes India the only country in the world where judges appoint judges through a procedure wrapped in complete secrecy.

It is not a coincidence that during the phase of political instability, the country witnessed ‘judicial activism’ and the judiciary steadily asserted its powers in various spheres, including judicial appointments. Many recent judgements of both the High Courts and the Supreme Court have enhanced the regard of the judiciary, paving the way for citizen-friendly legislation and protection of human rights. It is increasingly realized that the fearlessness of these judicial pronouncements is predicated on the constitutionally mandated judicial independence from the executive, which should in no instance be undermined.

Judicial Standards - Need for a Statutory Mechanism

The need for a statutory mechanism to address complaints of the public in this regard has been felt to bring greater transparency in the judiciary. The Judges (Inquiry) Act, 1968 which ‘The Judicial Standards and Accountability Bill, 2010’ seeks to replace lay down a procedure for removal, for proved misbehaviour or incapacity, of Judges of the High Courts and the Supreme Court by way of address of the Houses of Parliament to the President. The Act does not require proceedings of investigation to be conducted behind closed doors. There is, however, no legal provision at present for dealing with complaints filed by the   public against Judges of the High Courts and the Supreme Court.

Restatement of Values of Judicial Life

However, the Full Court meeting of Supreme Court of India on 7 May, 1997 had adopted "the Restatement of Values of Judicial Life". The above Restatement lays down certain judicial standards which are to be followed by the Judges of the Supreme Court and the High Courts. However, this Restatement of Values of Judicial Life does not have any legal authority and cannot be enforced. Therefore, it is felt that the judicial standards also be made a part of the statute to give it the requisite legal sanction. This measure is also likely to increase public confidence in the judiciary considerably as the Judges would be required to follow the prescribed judicial standards.

Declaration of Assets & Liabilities of Judges

There is also no legal provision at present that requires Judges of the Supreme Court and High Courts to declare their assets and liabilities. The Resolution adopted at the Full Court meeting of the Supreme Court of India on 7 May, 1997 requires every Judge to declare his assets within a reasonable time of assuming office and thereafter whenever acquisition of substantial nature is made. The Second Administrative Reforms commission, in its fourth Report on Ethics in Governance, endorsed the above resolution after noting that independence of Judiciary by the citizens and, therefore, the conduct of a judge should be above reproach. In the Writ Petition (C) No. 288/09 filed on behalf of the Hon'ble Supreme Court in the Delhi High Court challenging the order date 6^th January, 2009 passed by the Central Information Commission under the Right to Information Act, 2005, it has been asserted on behalf of the Supreme Court that the Judiciary has no objection to the disclosure of assets of Judges provided this is done in a formal manner by an Act of Parliament with adequate safeguards [4].

In this backdrop, it is considered necessary to enact a law in this regard to meet with the larger public interest as well as ensuring and maintaining the independence of the judiciary.

The Judicial Standards and Accountability Bill, 2010

The Judicial Standards and Accountability Bill, 2010 as introduced in the Parliament   seeks to (a) lay down judicial standards, (b) provide for the accountability of judges, and (c) establish mechanisms for investigating individual complaints for misbehaviour or incapacity of a judge of the Supreme Court or High Courts. It also provides to regulate the procedure for such investigation; and for the presentation of an address by parliament to the president in relation to proceeding for removal of a judge and for matters connected with such matters.

The Bill was introduced in the Lok Sabha 1^st December, 2010 and was then sent to the parliamentary standing committee on personnel, law and justice, which made a crucial recommendation that seeks to "restrain" judges from making "unwarranted comments" against other constitutional bodies or persons. Thereafter, the Bill was passed by the Lok Sabha on 29^th March, 2012 and will be taken up for debate in the Upper House.

Significant points of the Bill

(1)    The Judicial Standards and Accountability Bill, 2010 requires judges to declare their assets, lays down judicial standards, and establishes processes for removal of judges of the Supreme Court and High Courts. 
(2)     Judges will be required to declare their assets and liabilities, and also that of their spouse and children.
(3)     The Bill establishes the National Judicial Oversight Committee, the Complaints Scrutiny Panel and an investigation committee.  Any person can make a complaint against a judge to the Oversight Committee on grounds of ‘misbehaviour’.
(4)     A motion for removal of a judge on grounds of misbehaviour can also be moved in Parliament.  Such a motion will be referred for further inquiry to the Oversight Committee.(5)    Complaints and inquiries against judges will be confidential and frivolous complaints will be penalised.
(6)    The Oversight Committee may issue advisories or warnings to judges, and also recommend their removal to the President.

Critical Issues

(a)     The main issue is whether the balance between independence and accountability is maintained by the proposed mechanism in the Bill.  The Oversight Committee has non-judicial members which might impinge on the independence of the judiciary.
(b)     The Scrutiny Panel has judges from the same High Court.  This is different from the in-house procedure of the Supreme Court.
(c)     The Bill does not mention whether a judge has the right to appeal to the Supreme Court against an order of removal issued by the President after Parliament finds him guilty of ‘misbehaviour’. 
(d)     The Oversight Committee has non-judicial members.  The procedure of the Committee is not an in-house procedure of the judiciary.  It is not clear whether the power of the Oversight Committee to impose minor measures is constitutionally valid.
(e)     The Bill penalises anyone who breaches the confidentiality of complaints.  It is questionable whether a penalty is needed for a frivolous complaint that remains confidential.

Analysis of the Bill

Without changing the present reference procedure for the removal of corrupt judges, the Bill seeks to empower the common man to lodge complaints against corrupt judges and proposes to set up a mechanism to deal with such complaints.  It also seeks to make unwarranted comments by judges against other constitutional functionaries a judicial misconduct.

The Bill which was passed by the Lok Sabha on 29^th March, 2012 in just 15 minutes has missed out some important points.

(1)    Restatement of Values of Judicial Life

The Bill lays down standards of conduct for the members of the higher judiciary and requires judges to practise universally accepted values of judicial life. These include a prohibition on: (a) close association with individual members of the Bar who practise in the same court as the judge, (b) allowing family members who are members of the Bar to use the judge’s residence for professional work, (c) hearing or deciding matters in which a member of the judge’s family or relative or friend is concerned, (d) entering into public debate on political matters or matters which the judge is likely to decide, and (e) engaging in trade or business and speculation in securities.

However Article 124(5) of the Constitution empowers Parliament to make laws only to regulate the procedure for:

a)        The presentation of an address to the President seeking the removal of a judge; and

b)        The investigation and proof of misbehaviour or incapacity of a judge.

The Constitution is silent on the issue as to who is competent to define standards of behaviour for members of the higher judiciary. Given this grey area it is important for any legislative proposal for dealing with complaints of misbehaviour to be in accordance with the principle of the independence of the judiciary.

Further, the Bill does not provide for any code of behaviour that applies to a judge after retirement. Therefore, it is also necessary to lay down a code of conduct for judges post-retirement in order to prevent situations where a Government may lure them with plum postings after they have demitted office. A cooling off period of one year may be stipulated in the law.

2)     Declaration of Assets & Liabilities of Judges

The Bill seeks to make it mandatory for judges to declare their assets and liabilities as well as those of his/her spouse and dependent children.

Such declaration has to take place within 30 days of the judge taking his oath to enter his office. Every judge will also have to file an annual report of his assets and liabilities. The assets and liabilities of the judge will be displayed on the website of the court to which he belongs.

3)    Investigation mechanism

The Bill establishes two authorities to investigate complaints against judges. The two authorities are:

a)     National Judicial Oversight Committee; and

b)    Scrutiny Panel.

Initial complaints will be made to the Oversight Committee, and they will be referred to the Scrutiny Panel.

A Scrutiny Panel will be constituted in the Supreme Court and every High Court. It shall consist of a former Chief Justice and two sitting judges of that court. If the Scrutiny Panel feels there are sufficient grounds for proceeding against the judge, it shall report on its findings to the Oversight Committee. If it finds that the complaint is frivolous, or that there not sufficient grounds for inquiring against into the complaint, it shall submit a report to the Oversight Committee giving its findings for not proceeding with the complaint.

As contemplated in the 195th Report of the Law Commission on the Judges’ (Inquiry) Bill 2005, an inquiry into any complaint made under this Act must be taken to its logical conclusion. If the findings establish that the complaint was not proved or disproved there will be no consequences for the judge concerned. However retirement or demitting office should not be a ground for stopping the inquiry. The truth must be discovered and if the Judge is found guilty he or she must face some consequence for the misbehaviour. This can include stoppage or reduction of pension and ensuring that the person is not appointed to any public office in future. The recommendation of the Judicial Oversight Committee should be binding on the Central Government.

4)     Frivolous or vexatious complaints

The Oversight Committee will consist a retired Chief Justice of India as the Chairperson, a judge of the Supreme Court nominated by the sitting Chief Justice of India, a Chief Justice of the High Court, the Attorney General for India, and an eminent person appointed by the President.

If the Scrutiny Panel recommends investigation into a complaint against a judge, the Oversight Committee will constitute an investigation committee to investigate into the complaint. The inquiry committee will consist of not more than three members. It will have some powers of a civil court and also the power to seize documents and keep them in its custody.

The investigation committee will frame definite charges against the judge and shall communicate the same to the judge. The judge shall be given an opportunity to present his case, but if he/ she chooses not be heard, the proceedings may be heard without him present.

If the charges against a judge are proved, the Oversight Committee may recommend that judicial work shall not be assigned to the judge. It may also issue advisories and warnings if it feels that the charges proved do not warrant the removal of the judge. If the Committee feels that the charges proved merit the removal of the judge, it shall (a) request the judge to resign voluntarily, and if he fails to do so, (b) advise the president to proceed with the removal of the judge. In such a case, the President shall refer the matter to Parliament.

The punishment should be imposed only when the allegations against a judge are disproved and it can be shown that the allegations were made with malicious intent. The terms “vexatious” and “frivolous” are impossible to objectively define.

5)     Removal of a Judge

A motion for removal of a judge can also be introduced in Parliament by members of Parliament. In such a case, the Speaker or the Chairman can either admit the notice, or refuse to admit it. If the notice is admitted, the matter shall be referred to the Oversight Committee for inquiry.

So what is more important is whether the removal of corrupt judges? Or the appointment of honest ones? The basic problem relates to the appointment of judges and not their removal. If only honest and deserving people make it to the higher judiciary, the occasion for their removal would never arise. Unfortunately, there is no transparency in the present appointment system.

6)     Exemption under Right to Information Act, 2005

The Bill exempts documents and records of proceedings related to a complaint from the purview of the Right to Information Act, 2005.

The reports of the investigation committee and the order of the Oversight Committee shall be made public.

Conclusion

If a fair system for judges’ selection has to be put in place and the balance of power between the judiciary and the executive envisaged under the Constitution in matters of appointments of judges is to be restored, it would require a constitutional amendment. We need a political consensus on setting up a broad-based National Judicial Commission comprising of a woman of outstanding stature in public or judicial affairs, a representative of the Scheduled Castes or the Scheduled Tribes, and care should be taken to ensure that there is broad representation from the north, south, east and west of the country. Not an oligarchic club with a class bias, but a democratic instrument with a high vision, so that, We, the People of India must not be alienated or are out of bounds vis-à-vis the Judicial Commission’s functional ambit. The Commission so constituted, with powers to appoint, transfer and remove SC and HC judges on the lines of similar bodies in other democracies and without giving the veto power to either the executive or the judiciary, has thus become the need of the hour.  

Since the Lok Sabha has already passed the Bill, it will now be debated in the Rajya Sabha, where the ruling alliance does not have a majority. Let’s hope that the Upper House will discuss it threadbare and suggest the much needed measures for course correction and to increase public confidence in the Indian judiciary.

[ Published in Supreme Court Journal (weekly law journal), Part -13,  2012 during March, (2012(3) SCJ]

Source:

1)      Forty Seventh Report on the Judicial Standards and Accountability Bill, 2010. Presented to the Rajya Sabha on 30th August, 2011 & Laid on the Table of the Lok Sabha on 30^th August, 2011.

2)      195^th Report of the Law Commission of India on the Judges (Inquiry) Bill, 2005 submitted during 2006.

3)      214^th Report of the Law Commission of India on ‘Proposal for Reconsideration of Judges cases I, II and III’ submitted during 2008.

[This material is put online to further the educational goals of ‘Study in Law’. This material may be used freely for educational and academic purposes. It may not be used in any way for profit.]

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[1]Extract from ‘Making of India’s Constitution’ by Justice H.R.Khanna (1981)

[2] Kesavananda Bharati v. The State of Kerala and Others;AIR 1973 SC 1461

[3]It is a system under which appointments and transfers of judges are decided by a forum of the Chief Justice of India and the four senior-most judges of the Supreme Court. It has no place in the Indian Constitution.

 

  Article 124 deals with the appointment of Supreme Court judges. It says the appointment should be made by the President after consultation with such judges of the High Courts and the Supreme Court as the President may deem necessary. The CJI is to be consulted in all appointments, except his or her own. Article 217 deals with the appointment of High Court judges. It says a judge should be appointed by the President after consultation with the CJI and the Governor of the state. The Chief Justice of the High Court concerned too should be consulted.

 

  The collegium system has its genesis in a series of three judgments that is now clubbed together as the “Three Judges Cases”. The S P Gupta case [AIR 1982 SC 149] (December 30, 1981) is called the “First Judges Case”. It declared that the “primacy” of the CJI’s recommendation to the President can be refused for “cogent reasons”. This brought a paradigm shift in favour of the executive having primacy over the judiciary in judicial appointments for the next 12 years.

  On October 6, 1993, came a nine-judge bench decision in the Supreme Court Advocates-on Record Association vs Union of India case [1993 (4) SCC 441] — the “Second Judges Case”. This was what ushered in the Collegium System. The majority verdict written by Justice J S Verma said “justiciability” and “primacy” required that the CJI be given the “primal” role in such appointments. It overturned the S P Gupta judgment, saying “the role of the CJI is primal in nature because this being a topic within the judicial family, the executive cannot have an equal say in the matter.

[4] The Statement of Objects and Reasons, appended to the Judicial Standards and Accountability Bill, 2010

WHO GUARDS THE GUARDIANS OF SOCIETY?

WHO GUARDS THE GUARDIANS OF SOCIETY?

By Dr T Padma., LLM., Ph D (Law)

kethepadma@gmail.com

Background

The NGO sector plays a crucial role in the growth of a nation. The Indian voluntary sector (or the NGO sector) is emerging to be a credible force in catalyzing the nation’s social and economic growth, particularly for the masses at the ‘bottom of the economic pyramid’. The potential for this is well apparent from the experience of other developed and developing economies. If India is to achieve, as is predicted, the living standards of the developed world by 2050, then the NGO sector would need to play a critical role, and must  grow at a pace much higher than that required of the overall Indian economy.

Governance standards of organisations are recognized as critical in maintaining the transparency and accountability on the whole. This is as true for the NGOs as for the corporate and the government. That the governance standards play a significant role in creating operational efficiencies and risk mitigation, particularly those of the long-term nature, is increasingly evident from recent global trends and research. The corporate world in general, and also the government sector, has in recent years increasingly recognized this correlation, as is reflected in the emphasis on the ‘corporate governance best practices’ and ‘the regulatory frameworks’ that have emerged. But while the corporate sector in India and elsewhere has somewhat succeeded in institutionalizing effective governance policies and regulations, the NGO sector is yet to reach anywhere near that level. This is dragging down the NGO sector from performing the role that it must for the overall growth of the nation and its economy

.

Unsurprisingly, within India there are about 3.2 million registered NGOs, of which an estimated 1.5 million are active. Some of India's religious trusts are among the richest in the world. During 2010-11, Tirumala temple, managed by Tirumala Tirupati Devasthanams (TTD), collected the "Hundi" collections touching `650 crores. The proposed TTD budget estimates for the fiscal year 2011-12 will be about ` 1,641.76 crores and  the interest on investments of cash and gold deposits made at several Nationalised Banks is estimated to earn  about `  431.73 crore[1].

A team entrusted with the task of making a list of the contents stored in the secret underground cellars of Lord Anantha Padmanabha Swamy Temple at Thiruvananthapuram by the Supreme Court have found to their surprise,  that the cellars contain gold ornaments, jewels, emeralds, gold and silver utensils, and other valuables estimated to be worth over `50,000 crores. With this,  Sree Padmanabha Swami Temple has emerged as the richest shrine in the country. [2]

Ever since news of Sathya Sai Baba being critical in hospital emerged, many have wondered who would manage the Sathya Sai Central Trust in the time to come. Even before the mortal remains of Baba can be laid to rest, a quest is on for control over the Trust. While the assets with Trust are officially assumed to be ` 40,000 crore, an unofficial estimation runs to over ` 1.4 lakh crore. Sathya Sai Central Trust is the Administrative Body running health and educational institutions, and the Baba was supreme as authorised signatory of bank accounts. With no heir apparent, many are vying to become the Trust's president.[3]

Existing Legal Framework

The right of all citizens to form associations or unions is guaranteed under Article 19(1) (c) of the Constitution of India. Charitable organizations usually take the legal status in the form of a Trust, Society, or non-profit company (also called not-for-profit organisations or NGOs), and are regulated by a variety of State and Central Government Agencies, Laws and Authorities.

The Federal and State laws (Many states also have their own Public Trusts Acts) which are applicable to charitable organizations and NGOs operating in India include:

a)     Indian Trusts Act of 1882

This Act applies only to private trusts throughout India except the state of Jammu and Kashmir and the Andaman and Nicobar Islands.

b)     Bombay Public Trusts Act 1950

This legislation deals with charitable trusts in the states of Maharashtra and Gujarat.

c)     Charitable and Religious Trusts Act 1920

 This law extends to the whole of India except the State of Jammu and Kashmir. The Central Government can extend its coverage to Jammu and Kashmir by notification in the Official Gazette,

d)     Societies Registration Act 1860

This is a federal Act and is applicable generally to all states. However some regions had already enacted their own laws, others have made amendments or modifications to the Act, and other states have passed completely new laws to regulate societies leading to considerable variation across states.

e)     Companies Act 1956

Section 25 of the Companies Act 1956 deals with non-profit  companies. This Act is a federal Act and applies to non-profit companies operating in any state.

f)       The Wakf Act 1995

This Act is applicable to all Wakfs whether created before or after the commencement of the Wakf Act, 1995.

g)     The Income Tax Act 1961

This is a federal Act which applies in all states, and governs tax exemption of not-for-profit organizations operating in India.

h)     The Foreign Contribution (Regulation) Act, 2010 [FCRA]

The Foreign Contribution (Regulation) Act, 2010 [FCRA] has been enacted by the Parliament to replace Foreign Contribution (Regulation) Act, 1976 [FCRA 1976].  The Foreign Contribution (Regulation) Act, 2010 (FCRA 2010) came into force on 26-09-2010. The basic purpose of FCRA 2010 as mentioned in the preamble to the Act is “to consolidate the law to regulate the acceptance and utilisation of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilisation of foreign contribution or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto.”

Present Reporting Requirements

a)     The Societies Registration Act 1860 provides that each society has to submit an annual report and list details of its managing body every year to its local Registrar of Societies. The requirement to file accounts differs between states.

b)     All trusts registered under the Bombay Public Trusts Act have to file annual reports. In addition, trusts with an income above `15,000 per annum have to submit audited accounts, and those with an annual income below `15,000 have to submit income and expenditure statements within 6 months of closing of accounts to the Charity Commissioner’s office.

c)     All section 25 companies have to file:

Ø  audited accounts;

Ø  an annual report; 

Ø  an annual return with the Registrar of Companies; and

Ø  important resolutions.

Additional requirements for all directors and significant shareholders are laid out       in the Companies Act 1956.

d)     The Foreign Contribution (Regulation) Act, 2010

Considering the flow of funds into the country for purposes other than business, the Government has specified that acceptance of FC against national interest would not be permissible, requiring persons accepting FC to be subject to enhanced scrutiny. The measures include prior CG approval for accepting FC, registration and renewal, conditions for end use of FC and for transfer of FC to other persons etc.

The earlier Act of 1976 (FCRA 1976) had outlived its utility and needed to be scrapped as it had failed to keep pace with the changing face of India’s economic growth, more particularly after the introduction of the Prevention of Money Laundering Act, 2002. Both these Acts cover the Non-Profit Organisations (NPOs), the organisations having a definite cultural, economic, educational, religious or social programme, and also the persons in sensitive government positions, political parties and persons associated with the news media.

The provisions of  FCRA 2010 applicable  for  regulating the acceptance of foreign contribution by persons having a definite cultural, economic, educational, religious or social programmes  are as follows:

NPOs are directly affected by the provisions of FCRA (both FCRA 1976 and 2010), and the Government closely monitors the inflow of foreign contribution into this sector.

Both under FCRA 1976 and FCRA 2010, any individual or organisation carrying out a definite cultural, economic, educational, religious or social programme is required to be registered with the Central Government or obtain prior permission of the Central Government before accepting any foreign contribution. Such an NPO cannot in turn transfer the foreign contribution received by it to any other person unless such other person is also registered or has obtained prior permission.

The process of registration is stringent and fraught with bureaucratic process. Unless the NPO has a track record of at least three years, as a matter of practice, registration has generally not been granted under FCRA 1976. Under FCRA 2010, the requirement of having a track record is now codified, as the Act specifically provides that before granting registration, the Central Government shall verify whether the NPO has undertaken reasonable activity in its chosen field for the benefit of society. If the NPO is not able to fulfill the requisite conditions for registration, then the only alternative would be to apply for prior permission, which would be valid only for the specific purpose and source for which it is obtained. Even for prior permission the NPO would have to show that it has a reasonable project for the benefit of society for which the foreign contribution is proposed to be utilised.

The Central Government, before granting registration or prior permission, is required to ensure that the person or organisation is in no way working to the detriment of national interest. For example, (and the below-mentioned items are only illustrative) it should not be engaged in:

a)  Religious conversion through inducement or force;

b)  Creating communal tension or disharmony;

c)  Propagation of sedition or advocating violent methods to achieve its ends;

d)  Undesirable purposes.

Besides, permission can be denied if the acceptance of foreign contribution is likely to affect prejudicially the sovereignty and integrity of India or is against the security, strategic, scientific or economic interest of the State; or is opposed to public interest.

This clearly brings out that the Central Government has almost absolute powers to deny registration or prior permission. The manner in which some of the above criteria can be interpreted is extremely subjective and fear is that too much power is placed in the hands of the bureaucracy and this may lead to undesirable consequences.

Under FCRA 1976, prior permission was relatively simpler to obtain as compared to registration and was generally granted within 90 days if the paper-work was proper. Under FCRA 2010, it is specified that application for registration or prior permission should, after inquiry, be ordinarily granted within 90 days of the application or the Government should communicate the reasons for not granting the same. No specific consequences are provided for not processing the application within the 90 days and hence the provisions are rightly viewed with a great deal of skepticism, as it is unlikely that the sanctity of the time frame of 90 days will be observed.

Under the Amended Act a ‘certificate of  registration’ is now valid for a period of five years, after which the registration process will have to be repeated. This is in deviation of the present situation under FCRA 1976 where registration once granted is valid for the lifetime unless specifically revoked. The Central Government has wide powers under specified situations to cancel the certificate of registration, after making such inquiry as it deems fit. For example, the certificate can be cancelled if the NPO has obtained the same by making false statements or has violated any terms and conditions of registration or of FCRA or its rules or it is necessary to do so in public interest. The certificate can also be cancelled if the NPO has not been engaged in any reasonable activity for the benefit of society for two consecutive years. Foreign contribution can be received only in a single designated bank account and it is not permissible to open multiple bank accounts. Often funding agencies demand that separate bank account be opened specifically to manage and monitor the foreign contribution sent to India by them. Unfortunately that is not permitted under FCRA and needs to be clearly explained to the funding agencies.

Often trusts have projects in far-flung and remote places and it is always advisable to open a bank account at the project site. Recognising this need, it is provided that more than one bank account can be opened for actual utilisation of such foreign contribution. Such bank account is popularly referred to as project account and typically, the funds are transferred from the designated account, to the project account for direct spending on the project. No other deposits are allowed to be made in such project account as they are meant only for disbursement of expenses. Such project accounts were permitted under FCRA 1976 also by way of administrative directions, but under FCRA 2010, the same is legitimised by a specific provision in the Act itself.

The NGOs will have to maintain records and accounts in the prescribed manner and intimation will have to be sent to the Central Government reflecting the amount of each contribution received, its source and manner in which the same was utilised. The designated bank also has to report the details of the foreign contributions routed through them directly to the specified authority.

          NGO Sector - Drawbacks in the Present Set-up

By its nature the voluntary sector has an extremely philanthropic side to it, thus making it difficult for corporate-like professionalism or profit driven accountability-standards to take precedence over its core functions. However, like the other key sectors of India, the voluntary sector is also faced with imposing evolutionary and ‘market’ challenges. Hence, issues of internal control mechanisms, professionalism, accountability, transparency and financial management must be given impetus. The challenge is manifold, and compounded by the ‘unorganised’ nature of the sector, lack of regulatory frameworks and the fact that India boasts of more than a million NGOs comprising different roles, structures and sizes.

Evidently, there is both a need for a pertinent shift in the manner of how the voluntary sector in India views governance and the associated regulatory frameworks. Equally important is to create competencies for better risk management through operational means and management procedures for risk monitoring and risk mitigation. In case of the NGOs, more so than for the Corporates, the risks often take the shape of vulnerability to influences and risk dynamics ranging across:

1)     Lack of or limited access to professional management expertise

2)     Financial inefficiencies and malpractices

3)     Vested organised crime and political interests

4)     Extremism and terrorism

The changing social dynamics and security environment have added to the exposure of the voluntary sector to various risks, especially those operating in extremely remote or underdeveloped regions (where incidentally the need and the contribution of the NGOs is most critical). In particular, the NGO sector has become vulnerable to the vested interests of partial political interests, organised crime and extremist organizations in such regions.

The Indian government has been blacklisting several NGOs (sometimes, the numbers running into hundreds) for primarily fund misappropriation and relationships with extremist groups. As many as 833 NGOs and voluntary organisations have been blacklisted by an autonomous body[4] under rural development ministry after they were found indulging in misappropriation of funds. Of the 833 NGOs and voluntary organisations which were blacklisted, 192 were from Andhra Pradesh, 125 from Bihar, 83 from Tamil Nadu, 75 from Karnataka, 72 from Uttar Pradesh, 42 from Rajasthan and 35 from Kerala[5].

In the incidents of the past several years, the sector has been often unlawfully exploited in that several NGOs (both national and global), especially those that receive foreign contributions, have been used as conduits for money laundering and sponsoring terrorist/extremist activities. This trend is not unique to India. The world over extremist and terrorist organisations are known to operate through ‘front’ NGOs as also extensively use NGOs as vehicles for generating funds and gaining influence and respectability amongst the local communities.

Such security considerations have further brought to fore the rising criticality of improving the governance practices in the Indian NGOs and exercising better regulatory mechanisms, disclosure norms, and management processes including financial management and budgeting systems as well. Moreover, in the larger interest going beyond the security considerations, the impetus has to be on inculcating a culture of including performance goals, conducting financial and performance audits, and reforms for increasing the operational accountability and transparency in the eyes of the public, volunteers, donors and other stakeholders.

As of now, there are no specific laws or regulations to regulate volunteerism in India. A task force, constituted to examine the issues related to the evolution of an independent, national level, self-regulatory agency for the voluntary organisations and develop accreditation methodologies by the Planning Commission, has suggested the creation of a statutory body, the National Accreditation Council of India (NACI), on the lines of the Bar Council and the Press Council of India.  The NACI would develop, upgrade and promote norms and practices for the accreditation of voluntary organisations of various sizes and competencies, and assiduously remain on guard against all efforts and developments that might compromise the autonomy of a voluntary organisations.[6]

Need for Good Governance Practices

Therefore, the policy makers should give top priority to regulate this NGO sector by introducing the needed Regulatory Framework to bring in the transparency & accountability in this voluntary sector. Some of the areas where the immediate governance based interventions needed are furnished below:

a)     Financial Prudence

Like every other sector, one of the major drivers of efficiency is the manner of utilization of the capital and the funds that the NGO sector accumulates through various sources for carrying out its work. If statistics are to be taken into consideration, out of more than 1.5 million NGOs operating in India, only 3% are being able to carry out constructive grass-root level work (ICONGO, 2002 survey). Furthermore, NGO establishments typically tend to have high administrative costs of nearly 60% and above. Indicatively (based on limited statistics that are available for India), only 10-20% of the funds are utilized for effective developmental work. More stringent management norms and regulatory oversight will contribute to more effective spending by NGOs.

For instance, NGOs operating in under-developed nations receive more than $15 billion as funding from international financial institutions and government agencies – this is approximately the same amount of money that World Bank spends on development in these countries. The important question is whether the voluntary sector is being successful in delivering a comparable amount of development in the regions?

b)     Internal Controls Mechanisms

A  study conducted  by the McKinsey Global Institute (MGI) during 2007 elucidates “that if India continues its recent growth, average household incomes will triple over the next two decades and it will become the world’s 5th-largest consumer economy by 2025, up from 12th (during 2007).” This also means more funds for the Indian NGO sector if it is able to create a greater degree of trust and professionalism in its operations. The NGO sector is beset by the problem of ‘lack of transparency’ in their functioning for gaining the trust of people and the donors for fund raising activities.

Transparency in operations is a major challenge. A large numbers of NGOs are prone to exploitation by vested political interests, extremist outfits and criminals for a variety of reasons owing to their clean, philanthropic image and their direct-connect with the masses (which both the corporates and the government tend to lack). This characteristic strength of an NGO often becomes its weakness since such vested interests misuse the public trust and the image enjoyed by the NGOs. This is further aggravated by the fact that NGOs have substantial access to international and national funds, again generally devoid of intensive scrutiny or audit trails.

c)     Management  Efficiencies

The NGO sector in India is largely in the form of what can be termed as an ‘unorganised sector’, with a preponderance of small outfits that have been floated by either individuals or small groups of people. The NGOs are generally founded by people passionate about a ‘cause’, which often results in an organisational infrastructure that is focused on operations rather than efficiencies and management processes. One result of this is the wastage of resources. Limited statistics that are available indicate that on an average 70 percent of the funds are utilized for the administrative purposes of the NGOs.

The philanthropic and the humanitarian angle of the NGOs often override the need for management efficiencies and systematic planning to achieve the ‘cause’ based objectives. The fact that is amiss from the vision of the voluntary sector in India is that better management processes and professionalism can only accelerate the success of developmental and welfare programs in a seamless manner. There also exist numerous NGOs spending disproportionate amount in advertising and salaries often robs the sector of the trust and the faith among the general public.

In addition, the disproportionate focus on the operations versus management efficiencies and planning results in people with inadequate management competencies to hold senior positions. This exposes the sector to higher degree of risk from corruption and frauds, both intentional and consequential.

d)     Prone to Money Laundering Transactions

The operational risk that emanates from unmonitored funding to NGOs is that it exposes the sector to money laundering and terrorism financing risks. This is further complicated by the fact that many NGOs have an international presence in strife-affected regions, and their operations are directed to vulnerable communities, which also tend to be the communities which extremist organisations target for support, propaganda, fund-raising and recruitment activities. This makes the NGOs to be more prone to money laundering activities.

e)     Internal Control Checks  in the Operations of NGOs

There are numerous NGOs working in remote and challenging regions of India. Many of the well-funded organisations have large geographically spread-out set-ups with regional branches in such areas. Consequently, such set-ups in the remote regions have inadequate means for internal control, further exposing to the risk of inadequate functional and financial monitoring.

Internal control mechanisms form an integral part of any organisation since it is essential that the ‘child’ outfits work in tandem with the parent organisations. It will be less beneficial if the parent organisation (often, set up in a large city) adheres to regulations and internal policies/controls but the branches do not.

Another impediment is that the regional branches often have limited autonomy and funds to manage the developmental activities at the grass-root level. This creates a huge disparity in the vision and the mission of the parent and the regional branches, leading to ineffectual realisation of the organisational goals.

Furthermore, the lack of internal controls over the smaller, regional branches (often established in vulnerable regions) exposes them to the various risks – from security to misuse of their infrastructure and programs by interested parties such as local politicians and crime syndicates, and even extremists. Much of the government welfare schemes in such regions too are exposed to similar risks.

Applying a pervasive ‘corporate style’ governance structure may not provide the full answer to the above challenges. However, without doubt the management of the NGOs needs to have a greater focus on ensuring how internal control mechanisms would work in a decentralised environment of geographically spread out regional branches and sub-branches. Earmarking funds and resources for such controls and monitoring is a necessity, some of which must be mandated by regulation to that effect. This will further enhance the quality of developmental work carried out by the sector on the whole, also imparting integrity and respect to the work at the same time.

f)    Misuse of the Image of NGOs leads to  Mistrust

Many NGOs have respectable brand equity and are associated with high work ethics. They also often exercise significant level of influence amongst ‘vulnerable communities’. These very aspects are exploited by anti social elements to perpetrate crime and extremism using NGO fronts.

Weak governance policies and internal control systems lead to fraudulent and corrupt practices. The domino effect: mistrust in the voluntary sector further leading to reduction in donations and assistance, thus hampering the overall goal of the sector. For the NGO sector, reputation management and transparency are the primary ambassadors of building an appropriate relationship with its stakeholders – most importantly, the public and the volunteers.

g)     Bridging the gap between the Top-most Management and the Grass-Root level Volunteers

NGOs as organisations tend to be founder-centric and are expected to run according to a preset cause. Since the decisions are mainly taken by the founders who also constitute the management, there is often a separation of the organisation’s vision and the working of the field staff. Founders hesitate to delegate decision-making and to empower lower level leadership. Incidentally, our research shows that most often the stakeholders, particularly the public and the communities, support the cause and not necessarily the NGO brand. Hence, it is pivotal that there is no professional and visionary lacuna among the top management of the NGO and its volunteers at the grass-root level. This creates disparity in the vision, which translates into operational inefficiency at the end. Also, such disintegration in the vision and mission between the top management and the ground staff opens up avenues for corruption and indulgence in unlawful activities.

h)     Strategic Leadership to provide  Holistic Guidance

Strategic leadership is of utmost importance to NGOs since they are established with a clear humanitarian goal driven by a specific cause. Unlike businesses, where a major part of strategic leadership effort goes in assessing and deciding strategy for factors such as competitive forces and changing market dynamics, there is a consistency and less unpredictability with respect to strategy. On the other hand, the leadership of NGOs is required to play a much greater role in building reputation and brand-equity, which would attract donors and volunteers. In effect, it becomes pivotal for an NGO to put forth a robust and focused vision and mission centred on its strategic leadership. This, in turn, obviously must be supported by good planning and consistent monitoring by the organization’s management to ensure that the proposed philanthropic development and its objectives are being carried out.

Such measures can only enthuse a strong culture of professionalism in the voluntary segment of India. After all, how well the voluntary organization is equipped to deal with its deliverables will only translate into operationally achieving the developmental activities. The core requirement of strategic leadership is to provide a holistic guidance to the organisation with an impetus on strategisation, reputation building, performance, monitoring and improvisation.

The implementation of a strategic framework is essentially important in the management of an NGO. The endorsement of such a framework brings in professionalism and internal control mechanisms, which further makes the organization’s performance more effective. Developing strategies also include establishing a mechanism of consistent monitoring of whether they are being implemented and linking the results to the organisation’s goals.

Conclusion

In recent times concerns have been raised that trusts do not spend adequate amounts on their core objects. There isn’t enough transparency in the administration of the trusts, resulting in disproportionately high administrative expenses. Apparently to address these concerns, further controls over trusts are introduced, providing that not more than 50% of the foreign contribution received in a financial year by the trust shall be utilised to meet administrative expenses. Administrative expenses exceeding 50% can be defrayed only with the prior approval of the Central Government, which will prescribe the elements that will be included in the administrative expenses and the manner in which such administrative expenses shall be calculated.

Unregulated NPO activities in the past have known to be the conduits for money laundering for organised crime. Global pressure is also growing on India to act urgently. The Financial Action Task Force (FATF)[7] has in its report identified fund transfers from foreign non-profit organizations (NPOs) as one of the major sources for terrorist financing in the country on par with counterfeiting of currency, drug trafficking and extortion.

In particular, the Indian voluntary sector urgently needs ‘Self-Regulatory Guidelines’ and transparency mechanisms to increase the trust and awareness as to how the philanthropic funds are being utilised. This is a critical challenge that creates a barrier to raising funds and capital for the sector. The general lack of transparency in the functioning of a large proportion of NGOs leads to aversion in donating funds for charitable causes since the general public is largely cynical about the ‘genuineness’ of the non-profit spirit of the sector.

Inevitably, stringent governance standards of an NGO will facilitate the effective management and increase the accountability to its stakeholders including donors, the government and the community. It is in the self-interest of the NGOs to realize the fact that it is equally important for them to implement a structure of ‘Corporate Governance Principles’ so that it is able to provide real value to the stakeholders. Also, this would enable to track the dubious sources of funding coming in for the voluntary sector – an aspect which has gained impetus in the wake of the increased number of terror attacks and extremist activities.

At present, India has different laws for administering the NPO sector, as some of the areas relating to religious trusts and non-profit organisations fall under the State and Concurrent List of the Constitution.  Multiple Acts make monitoring of these entities difficult as there is no centralized body to keep a tab on the sector, raising concerns on the source and outflow of funds. Hence, there is a need for a ‘National Framework Legislation’ to support the NPO sector and to bring in the ‘Transparency & Accountability’ in this voluntary sector on the lines of Uniform Trust Code of USA. In USA, the Uniform Trust Code (2000) will provide States with precise, comprehensive, and easily accessible guidance on trust law questions and provide a uniform rule. The Code also contains a number of innovative provisions. The United States, Bangladesh and Nepal have centralised agencies for registering and monitoring NPOs.

Philanthropy is ingrained in the Indian psyche and a vast number of organisations do yeoman work, they serve the most basic problems of the neediest of the needy, where government machinery has woefully failed. Such organisations need to be encouraged and provided with a framework where they can function efficiently and effectively.     

         [Published in Supreme Court Journal  / Weekly

 June, 2011; Part – 26]       

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[1] The Economic Times Dated 11/02/2011

[2] Ram Krishna Pillai, AIR news, Thiruvananthpuram, dated 02/07/2011

[3] NDTV Dated  26/04/2011

[4] Council for Advancement of People's Action and Rural Technology (CAPART), an Autonomous Body functioning    under Rural Development Ministry.

[5] Times of India dated 20/12/2009

[6] The HINDU, NEW DELHI, February 13, 2011

[7] FATF is a global watchdog to monitor illicit flows and terror financing.