Criminal Liability Of Ngos For Misuse Of Donor Funds
1. Legal Framework
NGOs (Non-Governmental Organizations) in India can face criminal liability if they misuse donor funds. Key legal provisions are:
Indian Penal Code (IPC)
Section 403 IPC – Dishonest misappropriation of property.
Section 405 IPC – Criminal breach of trust (CBT).
Section 420 IPC – Cheating, if funds were collected under false pretense.
Section 406 IPC – Punishment for criminal breach of trust.
Prevention of Corruption Act, 1988 (if public donations or government grants are misused).
Foreign Contribution (Regulation) Act (FCRA), 2010
Regulates foreign donations.
Violations can lead to criminal liability under Sections 13-14 FCRA.
Companies Act, 2013 (if NGO is registered as a company under Section 8)
Section 447: Punishment for fraud.
Section 166: Duty of directors, including fiduciary duty in NGOs.
Principle: Criminal liability arises when there is intentional misuse, diversion, or embezzlement of funds entrusted for a specific purpose. Mere mismanagement without dishonesty may attract civil or administrative consequences but not necessarily criminal liability.
2. Key Case Laws
Case 1: Delhi High Court – People for Animals v. Union of India, 2009
Facts: Funds collected by the NGO “People for Animals” were alleged to be misused by an officer for personal expenses.
Issue: Whether misuse of donor funds constitutes criminal breach of trust under Section 406 IPC.
Judgment: The court held that NGOs are fiduciaries of donor funds. Any diversion of funds for unauthorized purposes can amount to criminal breach of trust.
Significance: Establishes that trustees of NGOs can be prosecuted if they misappropriate funds.
Case 2: State of Karnataka v. Don Bosco Anbu Charitable Trust, 2011
Facts: An NGO receiving foreign donations was accused of diverting funds for non-charitable purposes.
Issue: Liability under IPC and FCRA.
Judgment: The court held that intentional diversion of funds collected under FCRA is a criminal offense. Officers responsible were prosecuted under Sections 405, 406 IPC and FCRA violations.
Principle: Misuse of foreign funds is taken very seriously; NGOs are criminally liable, not just administratively.
Case 3: Satya Narayan Sharma v. Union of India, 2013
Facts: NGO collected donations for education programs but allegedly spent on unrelated activities.
Issue: Can misutilization of funds without explicit consent amount to criminal breach?
Judgment: Supreme Court held that fiduciary duty of NGO trustees is paramount. Spending funds for purposes other than those disclosed to donors constitutes criminal breach of trust under Section 406 IPC if intent to defraud can be proved.
Significance: Confirms that donor-specific use of funds is legally enforceable, and misuse can lead to criminal liability.
Case 4: Central Bureau of Investigation (CBI) vs. Save the Children Fund India, 2016
Facts: Allegations that donor funds were diverted to unrelated programs in violation of FCRA and donor agreements.
Issue: Whether NGO directors are criminally liable for mismanagement.
Judgment: Directors were held liable under Sections 420 and 406 IPC, emphasizing that willful misappropriation or cheating through false accounting can attract criminal charges.
Principle: Directors of NGOs cannot hide behind organizational structure; personal liability is possible for criminal acts.
Case 5: Ramdev Charitable Trust Case (Punjab & Haryana High Court, 2018)
Facts: Allegations that donations collected for public health initiatives were used for unrelated commercial purposes.
Issue: Liability of trustees under IPC and Companies Act (if registered as Section 8 company).
Judgment: Court held that misuse of funds, if proven to be intentional and dishonest, attracts criminal liability under Sections 405, 406 IPC and fraud provisions of Companies Act.
Significance: Reinforces that intent and dishonesty are key to criminal liability, not mere errors in accounting.
Case 6: Greenpeace India FCRA Cancellation Case, 2015 (High Court of Delhi Review)
Facts: Greenpeace India’s FCRA registration was canceled for alleged misuse of foreign funds.
Outcome: Court confirmed that misuse of donor funds can lead to FCRA violations and criminal prosecution if funds are diverted from declared objectives.
Principle: Compliance with donor conditions is mandatory; violations can trigger criminal action.
3. Key Takeaways from Case Law
Fiduciary Responsibility: NGOs and their trustees are fiduciaries of donor funds and must use funds only for the stated purpose.
Intent Matters: Criminal liability arises when there is intentional diversion, fraud, or dishonest misappropriation.
Legal Sections: Sections 405, 406 IPC, Section 420 IPC, and FCRA violations are commonly invoked.
Directors’ Liability: Individual trustees/directors can be personally prosecuted; organizational structure does not shield them.
Administrative vs. Criminal: Minor mismanagement may lead to administrative penalties, but intentional misuse triggers criminal prosecution.
Transparency: Maintaining proper accounting and adhering strictly to donor agreements is crucial to avoid liability.
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