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Business News/ Politics / Policy/  SC pulls up Centre for no mechanism to monitor NGO funds
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SC pulls up Centre for no mechanism to monitor NGO funds

Supreme Court pulls up Centre for not putting in place a regulatory mechanism to monitor the funds, their utilization by NGOs, societies and voluntary organizations

The court asked the government officials to inform it whether CAG audit of NGOs post 2009 was carried out or not. Photo: MintPremium
The court asked the government officials to inform it whether CAG audit of NGOs post 2009 was carried out or not. Photo: Mint

New Delhi: In a bid to crackdown on the misuse of public funds in the not-for-profit sector, the Supreme Court on Tuesday directed the federal government and government agency Council for Advancement of People’s Action and Rural Technology (CAPART) to complete the audit of 3.3 million such non-profit organizations and submit a report to the court by 31 March.

A bench headed by Chief Justice of India, J.S.Khehar held that criminal action should be initiated against those organizations found to be at fault after the audit process was completed. Under the current mechanism, defaulting organizations are merely blacklisted.

The order was passed in a case by advocate M.L Sharma against the government of Maharashtra at the peak of the anti-corruption movement in 2011. Sharma had then sought a probe by the Central Bureau of Investigation (CBI) on anti-corruption activist Anna Hazare and his organization Hind Swaraj Trust, alleging financial irregularities. Over the years, under the directive of the apex court, the ambit of the petition has expanded to include all entities registered as not-for-profits; the respondent list too has grown and now includes the government and CAPART.

ALSO READ: Home ministry cancels FCRA licences of 20,000 NGOs

The court has held that since there was no doubt that funds released by the Centre and CAPART to the non-profit organizations were public funds there should be a proper mechanism in place to monitor their usage.

In agreement with advocate Rakesh Dwivedi, amicus curiae in the case, the court asked the central government to devise guidelines laying down rules for accrediting not-for-profit organizations, manner of audit, maintenance of accounts, and procedure for recovery and initiating criminal action.

“It’s your money and you don’t have records for it? Why don’t you see what is happening with the money that you have released?" the court asked the central government. It also repeatedly asked the government to explain and present records of how such funds were being utilized. After the government failed to, the court summoned the director of CAPART to be present with records of funds and address queries related to utilization of such funds.

The court realised that CAPART and other departments were unaware of audit compliance meant for such voluntary organizations and had failed to comply with the General Financial Rules, 2005 governing dispersal and utilization of such funds.

The CBI also pointed out in an affidavit that out of existing 3 million not-for-profit organizations, only 300,000 were filing audited balance sheets.

ALSO READ: NGOs aren’t really the problem

The not-for-profit sector is divided regarding the impact and implications of the court’s order. Largely welcoming of the proposed mechanism to monitor funds, the sector is keen that the government distinguish between different entities registered as not-for-profits.

As per the existing laws, not-for-profit organizations can be registered under three main laws in India: The Societies Registration Act, 1860, as charitable trusts (under common law or Trust Act which is available only in some states such as Maharashtra and Gujarat) and section 8 of the Companies Act 2013, explained Sanjay Agarwal, chartered accountant and principal of an auditing and accounting firm for the not-for-profit sector.

Agarwal said that currently resident welfare associations, card-playing clubs, hospitals, religious organizations such as temples and even educational institutes are often registered as not-for-profit entities under one of the above mentioned Acts.

He added that, “it is important to differentiate between the types and kinds of not-for-profit entities in order to be able to develop an effective monitoring and auditing system."

Mathew Cherian, CEO of one of the oldest not-for-profit organizations in the country HelpAge India questioned the 3.3 million number of registered not-for-profits. “Civil society organizations have been demanding a separate definition since 2007. And in consultation with the government under the aegis of the erstwhile Planning Commission in 2009 a draft law for the monitoring of such organizations was also submitted to the government... But it has not been heard of since," he added.

The matter will be heard next on 5 April.

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Published: 10 Jan 2017, 02:58 PM IST
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