India is estimated to have 3.3 million registered not for profit organizations, popularly known as NGOs.[1] The sector’s credibility is often questioned by most stakeholder groups due to lack of information (about existence, performance, finances, output and outcome), absence of performance benchmarks, government licenses and permissions not being sufficient indicators of performance or credibility, media reports usually being centred around stories of what went wrong and the general lack of awareness of the common man about the voluntary sector.[2] One of the major criticisms of international non-governmental organizations (INGOs) and local civil society organizations (CSOs) has been that they are insufficiently accountable.[3] Unlike their counterparts in the private and public sectors, INGOs and CSOs do not have shareholders and are not elected;[4] thereby the stake of the general public in monetary terms is considerably reduced to provide for public accountability.

The governance of NGOs implies the totality of functions that are required to be carried out in relation to the internal functioning and external relations of organizations. The governance of NGOs focuses on issues of policy and identity, rather than the issues of day-today implementation of programmes. Thus, governance implies addressing the issue of NGO vision, mission and strategy; it focuses on future directions and long-term strategic considerations; it addresses the issues of policy in relation to internal programming, staffing and resources; it defines norms and values that are the basis of institutional functioning; it includes obligations entailed in fulfilling statutory requirements applicable to the NGO; and focuses on defining the external positions that are consistent with the overall thrust of the NGO as an institution in civil society. Most importantly, the governance of an NGO is concerned with its effective functioning and performance in society. This is both a legal and a moral obligation. Therefore, governance requires the creation of structures and processes which enable the NGO to monitor performance and remain accountable to its stakeholders.^[5] This article deals with the various aspects dealing with the need of effective governance principles and accountability standards in order to enable NGOs and CSOs to restore themselves as effective means of governance and growth in any developing country.

Non-governmental organizations (NGOs) are increasingly injected into many areas of national and international affairs.^[6]

Although direct NGO involvement is “less frequent in the areas of rule setting and implementation”,^[7] it nevertheless exists and is likely to increase in the future.^[8] There are a number of different functions falling within the broad category of policy formulation relying upon the purpose and representativeness of the NGOs seeking to perform those actions.

Agenda-setting is one of the most important governances functions an organization can perform, as it places items onto the table for discussion and analysis, initiating the possibility of governance changes.^[9] Where NGOs are instrumental in the formulation of the overarching policy framework or where they are incorporated into a state's delegation directly, they may have the ability to set the agenda for discussion. The World Conservation Union (IUCN) is the proto-typical example of this. The IUCN drafted the first version of the Convention of Biological Diversity and then was successful in setting the agenda of the Convention's negotiations.^[10]

Norm and rule formation, or rule-setting, is the most contentious role NGOs play in governance. NGOs are primarily involved as rule setters through incorporation into official delegations, which has occurred in the nuclear non-proliferation treaty regime, for instance.^[11] Amnesty International was crucial in shaping the Convention against Torture and in establishing the International Criminal Court.^[12] Similarly, the International Campaign to Ban Landmines had the right to make statements and table treaty language during negotiations of the Convention on the Prohibition of Anti-Personnel Landmines.^[13] NGOs are also involved in the World Trade Organization and help to shape its outcomes.^[14]

Administrative duties differ from political activities because rule- implementation is the function, rather than rule-setting.

Certification of actors for participation in the regime itself is a powerful role NGOs may play in the administration of international governance. The power to enable participation is significant.[17] For instance, the Framework Convention on Climate Change, under which the Kyoto Protocol on climate change operates, provides the opportunity for NGO participation as a certification body, without significant co-regulation by the regime, though delegation authority is retained by the regime.[18]

NGOs are involved on a somewhat limited basis in actual standard setting in the administrative context. A powerful example of NGO involvement in standard-setting is the International Labour Organization (ILO), designed to protect workers from exploitation and poor working conditions.[19]

NGO involvement in the enforcement of established codes has been characterized as moderate in scope and nature.[20]

Arbitration is a major way international regimes are enforced.[21] The leading international arbitration organization providing for the settlement of these disputes is the International Centre for the Settlement of Investment Disputes (ICSID), which is an “autonomous international organization”, established by the World Bank through an international convention and comprised of World Bank Member States.[22]

In some regimes, NGOs have been provided the authority to act as enforcement agents,[23] where States are believed to have violated international rules.^[24] For instance, under the Montreal Protocol, NGOs may act as enforcement agents by notifying the Secretariat of non-conforming States, who in turn may sanction the non-conforming States.^[25]

NGOs in India are engaged in diverse activities- education, health, family planning, environment, human rights, women and children welfare, population control, development, water conservation, agriculture, natural resources, microfinance, disabilities, housing, emergency relief, etc.[26] Most NGOs rely upon funds received from the government and other foreign sources, like international NGOs, development partners, foreign private organizations, and multinational organizations.[27]

NGOs are required to register with the Income Tax Department under Section 12-A, however the registration is spread across 100+ locations. Moreover, the annual returns of Income Tax filed by NGOs are not subject to public disclosure. NGOs need permission from the Ministry of Home Affairs under the Foreign Contribution Regulation Act (FCRA) to receive any form of foreign contribution. These registrations are centralized and require annual filings, however this covers only a very small number (35,972 NGOs as of September 2008). The scenario described above indicates that the statutory framework does not require NGOs to be accountable directly to the public and in many cases, the administrative authority is not equipped with resources to monitor and penalize those defaulting in making necessary filings.[28]

In India, the state has consistently viewed the role of NGOs to be that of a gap-filler, stepping in where the government has stepped out and serving as a bridge between the state and the people.^[29] Because of the wide variety of functions of NGOs, and the dependence of the overall governance structure on them, it becomes absolutely necessary to provide a sound regulatory framework for the NGOs for them to function effectively fulfilling their goals and objectives.

Charitable purpose includes ‘relief of the poor, education, medical relief and the advancement of any other object of general public utility’.^[34] A purpose that relates exclusively to religious teaching or worship is not considered as charitable. A public charitable purpose has to benefit a sufficiently large section of the public as distinguished from specified individuals.

The main instrument of any public charitable trust is the trust deed, wherein the aims and objects and mode of management (of the trust) should be enshrined. In every trust deed, the minimum and maximum number of trustees has to be specified. The trust deed should clearly spell out the aims and objects of the trust, how the trust should be managed, how other trustees may be appointed or removed, etc.^[35]

The main instrument of any society is the memorandum of association and rules and regulations (no stamp paper required), wherein the aims and objects and mode of management (of the society) should be enshrined. Registration can be done either at the state level (i.e., in the office of the Registrar of Societies) or at the district level (in the office of the District Magistrate or the local office of the Registrar of Societies).^[36]

According to Section 25(1)(a) and (b) of the Indian Companies Act, 1956, a company can be established ‘for promoting commerce, art, science, religion, charity or any other useful object’, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members. The main instrument is a Memorandum and articles of association (no stamp paper required).^[37]

A vibrant NGO sector has a significant economic and political value to a country.^[38] The rapid growth in the number, influence and effectiveness of non-governmental organizations (NGOs) in recent years has produced greater demands for NGO accountability and governance. These demands call for assurance that NGOs are responding to the needs and expectations of their many stakeholders and fulfilling their varying missions and objectives.^[39]

There are many reasons why a country should want to have laws that assure the existence of a strong, vigorous, and independent civic sector. The most important of these is to protect the internationally recognized freedoms of expression, association, and peaceful assembly;^[40] along with encouraging pluralism, promoting respect for the rule of law, supporting democracy, promoting economic efficiency, and addressing “public sector market failure”. A clearly defined operating space allows NGOs to be more ambitious in their work, and promotes good governance, both directly through improvements to the local regulator and to the NGOs, as well as indirectly by improving an NGO sector’s ability to suggest change in governance. ^[41]

A.           Establishment

In order to acquire the status of a legal entity and to have limited liability, legal systems generally require that an organization be formally established.^[42] For a civic organization to become established as a legal entity, the founders ordinarily must hold a founding meeting and adopt the governing documents of the organization.^[43]

The principal documents that should be required for establishment are the governing documents of the organization (e.g., charter or statute, deed of trust, bylaws, articles of incorporation, etc.). Those documents should be updated periodically, state the nature and purpose of the organization; provide an adequate governance structure; identify the founders, board members, and managers; state the location of the headquarters; and identify the general representative(s) of the organization.^[44]

Decision-making authority regarding establishment should be carefully circumscribed so that it is only concerned with meeting legal requirements, and civic organizations should be entitled to appeal adverse decisions.^[45] Refusal to permit establishment should occur during the stated time period and be accompanied by a written explanation and an opportunity to correct any defects in the application.^[46]

The law should ordinarily have a broad list of purposes that constitute public benefit activities and there should be a catchall category so that the law will be flexible.^[47] The law should clearly state which obligations incurred between actual creation and formal establishment will be considered to carry over to the organization once it becomes a legal entity.[48]

There is considerable variety among legal systems in the choice of the responsible state agency that is empowered to establish civic organizations. Civic organizations may seek establishment with a variety or agencies like the ministry responsible for the subject matter of their proposed activity;[49] courts;[50] a single ministry in charge of establishing and supervising civic organizations;[51] or the local branches of a single ministry (e.g., the ministry of justice).[52]

There is no uniformly correct answer to the question of where to place authority for establishment of civic organizations; the system chosen will depend on the legal and political traditions and realities of the country involved. Any of the described arrangements can be made to work well by able people of good will, and any arrangement can also be administered badly or incompetently.

Some of the problems of agency expertise, regulatory capacity, and bias can be solved if supervisory powers over civic organizations are delegated to a specialized agency or commission whose members consist not only of government officials but also of representatives of the public and civic organizations themselves.[53]

The general purposes of such a commission are to establish civic organizations, determine the public benefit status of civic organizations, supervise legal compliance, and provide education and training to ensure compliance, impose sanctions in case of any violations of the law, and develop expertise in a staff whose only function is to deal with civic organizations. The existence of a single agency eliminates all too frequent inter-ministerial conflict and inconsistency, especially if each concerned ministry is represented on the commission. By having independent citizens sitting on the agency or commission, there can be greater public assurance that decisions will be made on principle and with consistency.[54]

It is important that a single national registry[55] of all formal civic organizations be maintained and that the public has access to it. For their own protection, citizens need to be able to check whether a purported civic organization is actually established as a legal person. The public would also benefit from being able to find out what the purposes of the organization are, where its headquarters are, who is on its governing body, who its legal representative is, etc.

Voluntary termination, dissolution, and liquidation of a civic organization should be allowed pursuant to reasonable procedures designed to protect creditors and other stakeholders of the organization. As to involuntary termination and dissolution, in order to assure a vigorous and independent civic sector, the law should provide for intermediate sanctions (e.g., fines) for various types of violations. Termination of legal existence and dissolution of a civic organization should be the last resort.[56]

If a state agency is given the right to terminate establishment administratively, there should be a right of judicial appeal from such a decision; or in all cases the state agency or the state attorney should apply to the court for a judicial termination of the organization.

Upon termination, the assets of an organization should go to another civic organization with a similar purpose pursuant to the terms of the terminating organization’s governing documents or a resolution of the highest governing body, or the state.

The law should stipulate the rights, powers, and limitations for civic organizations. The governing documents should include any limitations imposed by law, such as a prohibition on the distribution of profits.[57] The law should require that the documents state the purpose(s) of the organization and set forth its basic governance structure.

A minimum number of members of a governing body may be defined, although this number should be kept quite small (e.g., three). The basic powers of the highest governing body should be spelled out, together with any restrictions on its power to delegate duties to others.

There are countervailing public interests that favour certain, though limited, regulation of fundraising. Similarly, rules requiring fundraisers to prove to a public agency that they have authority to fundraise from the public for a particular organization may ward off imposters seeking to capitalize on the good name of a particular civic organization.[58]

Organizations raising money from the general public may not only require registering their fundraising campaigns in advance but also to file reports about the monies received and how they are spent. Adopting accounting principles for civic organizations should be a priority. The next step should be to adopt voluntary standards for public disclosure of such key numbers as the amounts paid to fundraisers and the percentage of revenues spent on overhead and fundraising.[59]

If it is discovered that an individual or organization engaged in deceptive fundraising (e.g., fundraising for an organization that does not exist or intentionally misleading prospective donors about the manner in which donations will be used), it should be possible to apply general fraud and criminal laws.

Delegation of detailed financial oversight to a responsible finance committee is permissible. The civic organization law or the accounting law or standards should make such audits mandatory for sizable PBOs.[60] The reporting requirements imposed by donors will be contractual obligations enforceable in court. By imposing appropriate contractual conditions, donors can play a significant role in assuring the health and proper operation of the civic sector.

Tax preferences are sometimes available to all formal civic organizations, but more frequently to only a smaller class of formal civic organizations.[61] Typical sources of revenue for civic organizations include donations, membership dues, fees under government contracts, and interest, dividends, and capital gains on investments; which are generally not subject to tax.[62] Provision should be made for tax reclaim schemes[63] or for tax designation schemes.[64] Such tax preferences are important and useful tools for encouraging NGO-business-government partnerships for social and economic development. Another question that must be dealt with in any scheme of taxation is the limit, if any, to put on the amount of tax benefit that can be achieved.[65] Floors have been used in some countries to avoid the necessity of keeping track of small contributions.[66]

In a country with a developing market economy, it may be appropriate to strike the balance in favour of a “destination of income” test for all profits used or set aside by a civic organization to carry out its purpose-related activities. Unfortunately, it is extremely difficult to distinguish “related” economic activities from “unrelated” economic activities, and hence the related/unrelated rule is very difficult to administer in practice.

In this article, the authors have laid emphasis on the pivotal roles of non- governmental organizations and other civil society organizations in national, international and transnational development, growth, rehabilitation, welfare policy formulation and their role as pressure groups. In the light of such functions, both assumed and delegated, these institutions assume a fundamental role in governance inside as well as outside the nation. In India, it is no different.

Although this article has dealt with many of the structural and administrative reforms required for efficient governance of such institutions, the authors state that there is no hard and fast rule towards providing a means of ensuring accountability and transparency in any organization. At the same time, it is essential that every legal persona (societies, trusts and other organizations) be subjected to some basic guidelines to ensure necessary public accountability and effective fulfilment of its goals. It is these basic principles that are the primary highlight of this paper. In spite of having a sound legislative setup and organizational structure, there is no way of guaranteeing absolutely successful functioning. Any system, however sound, can be put to abuse.

It is of crucial importance that NGOs, their supporters and their donors begin to understand the meaning and significance of effective governance and its contribution to NGO accountability. There is also a need to document, analyze and promote good practice in relation to NGO governance and accountability. Such interventions need to be viewed as part of the fabric of institutional development efforts needed to strengthen an NGO. Strategic planning and capacity-building need to include interventions directed at making its structures and processes of governance more effective. A number of such efforts, studies and manuals developed and used in countries in the North can help to clarify and support this challenge in the South.^[68] Furthermore, it is necessary to understand that improved governance of NGOs will invariably have a positive and affirmative effect on the governance at national and international levels.