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TMI Blog1998 (11) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. NOVIB is a non-governmental organisation based in Netherlands and has been funding and supporting various non-governmental organisations (NGOs) in developing countries including India which are engaged in the task of development. The NOVIB is part of a four member consortium which has been supporting and funding development organisations and activities in India for last more than a decade. From 1988 till 1993 NOVIB along with other donors in the consortium have given to AWARE grants in excess of Rs. 50 crores which includes NOVIB's contribution of approximately Rs. 25 crores AWARE has been reporting to NOVIB that it has been utilising almost the entire grant and funds given to it in the previous years for the projects for which the funds are granted. NOVIB received complaints in 1993 against AWARE that it has been furnishing false state-ment of accounts to NOVIB. AWARE is guilty of having committed fraud, misappropriation of public funds, falsification of accounts and has commit-ted various other offences under IPC, Foreign Contribution (Regulation) Act, 1976 ('FCRA') and the Income-tax Act, 1961. 3. NOVIB says that AWARE by falsification of accounts has apparently siphone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, expenditure, assets and balances; ( iii )AWARE has requested additional funds from the donors as recent-ly as April, 1994, claiming that they were facing a shortage of funds; ( iv )For the financial year 1990-91, AWARE has produced two differ-ent sets of accounts, both purporting to bear the signature of Natraja Iyer Co; ( v )AWARE has failed to co-operate with the inquiry set up by the donors under the terms of agreements with AWARE." 4. According to accounts for 1992-93 audited by Natraja Iyer Co. and sent to Ministry, AWARE had cash, bank deposits and other investment accumulations of approximately Rs. 43 crores as on 31-3-1993. According to accounts sent to the donors, which AWARE claims also to have been sent to Home Ministry, certified by G. Ramakrishna Associates, the cash and bank deposit accumulations were approximately Rs. 7.08 crores. The variations in the figures of foreign contribution (utilised, unutilised, brought forward and received) between the accounts sent by G. Ramakrishna Associates and Nataraja Iyer Co. relating to foreign contribution are as under : Description and period Natraja Iyer Co. Accounts G. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the writ petition filed by AWARE and, in particular, from the report of KPMG relied upon by AWARE, NOVIB had learnt that a large part of the funds amounting to approxi-mately Rs. 12.13 crores which had been given by it to AWARE for rural development had been misappropriated and diverted to another compa- ny under section 25 of the Companies Act, 1956 ('the Act') which had been formed and controlled by AWARE and its Chairman. According to the report of KPMG, it was alleged, that the manner in which the funds given by NOVIB to AWARE had been diverted to AIF was as follows ( A )The funds given by the petitioner to respondent No. 3 were shown as loans to Tribals and Harijans by Respondent No. 3 and their repay-ments to Respondent No. 3 were placed in a fund known as "Revolv-ing Fund" (See Para 9.5.1 of the KPMG report). ( B )AIF was incorporated in November 1994 as a company (Para 9.5.11 of KPMG). ( C )AIF is not independent of AWARE as its operations are "ultimately controlled by AWARE" (Para 9.5.14 - Page 95 of the report). In Para 1.12.3 of Page 8 of the executive summary, KPMG says that three of AIF's five directors are common to AWARE. Thus, AIF according to KPMG is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that registration of AWARE under FCRA should be cancelled, audit of AWARE accounts be ordered under section 15A of FCRA and action should be initiated under section 25 of the Act. Further submission is that action shall also be taken against AWARE for prosecution under the provisions of Income-tax Act and under IPC for various offences, i.e., cheating, fraud, criminal breach of trust etc. NOVIB says that full investigation into the affairs of AWARE and its officers including Chairman deserves to be conducted by a proper and indepen- dent investigating agency. Reference has been made to documents placed on record in support of the plea that it is a fit case where independent investigation deserves to be ordered. It has also been submitted that pending such investigation, the registration of AWARE under FCRA deserves to be cancelled as also its exemption granted under the provi- sions of the Income-tax Act. 12. The petition has been strenuously opposed by AWARE. AWARE has also placed on record certain documents in support of the contention that the prayer for investigation or prosecution deserves to be rejected and the petition merits summary dismissal. It has also pleaded tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red on the basis that the amounts were earmarked for the projects which were in the process of implementation may be treated as deemed expenditure and taken into account as such in preparing the statement of account since these amounts were reserved for the project and were to be spent in implementation of those projects only. These two statements of accounts prepared by G. Ramakrishna Co., therefore, showed deemed expenditure as expenditure and that is how the balance of unutilized foreign grant as on 31-3-1993 showed a figure of approximately Rs. 82 lakhs instead of actual balance of about Rs. 20 crores which naturally appeared in the closing balance in the balance sheet prepared by Natraja Iyer Co. It was, therefore, submitted that the second statement of account was not prepared with a view to siphon off the funds as alleged. Regarding the transfer of amounts lying at central office it was submitted that the amount so lying to the credit of Vyasa Bank Ltd. were held in the name of Chairman, AWARE, which is the official account and the said amounts were debited to the said account and pay orders obtained in the name of Chairman, AWARE or Zonal/Regional Coordinator as Project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeps are not taken, then those NGOs who are doing commendable job may also suffer a bad name and reputation. Therefore, a close look on the activities of such NGOs would be in public interest. On the other hand, if the complaint is found to be false and motivated, appropriate stern action can also be taken against complainant. 16. Reverting now to the facts of the present case, from the material on record, there does not seem to be any doubt that two different set of accounts for the same period were sent by AWARE, one to NOVIB and the other to the Income-tax Department. The difference in the amount of unutilised foreign grant as shown in the two accounts is of crores of rupees. In the accounts sent to NOVIB, it is submitted on behalf of AWARE that deemed expenditure was shown as expenditure and that is how the balance of unutilised foreign contribution as on 31-3-1993 was shown as about Rs. 82 lakhs instead of actual balance of about Rs. 20 crores. It has been further claimed that the two statements of accounts were prepared by two different firm of Chartered Accountants. The fact that two separate firm of Chartered Accountants prepared two statement of accounts by itself dese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy of accounts and the end use of the amounts. 18. The matter relating to pledge of FDR by the AWARE for loan by Bank to an individual will also have to be thoroughly probed bearing in mind as well the manner of return and deposit of the loan amount with interest total amounting to Rs. 14 lakhs in cash. It may be over simplification at this stage to term all these aspects as irregularities. Many of these aspects are attributed by AWARE to their ex-employees Vimal Kumar or even to one of the Chartered Accountant and Babu Reddy. At this stage it is difficult to accept such an explanation without further indepth enquiry. If the AWARE is innocent and victim of complaints made by Vimal Kumar and others and had no ulterior motive, it may be in their own interest to get their name cleared which is possible only after thorough independent enquiry. 19. The Income-tax Department has ropened the assessments and is conducting enquiries. It is also stated to have initiated action and issued a show-cause notice for withdrawal of approval given under sections 12A and 80G of the Income-tax Act, on the basis of the complaints received. As per the affidavit filed on behalf of the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined. It may be useful to notice that AIF has no indepen-dent existence. That is also the report of KPMG. The answer to some of these legal questions can be properly given after at least prima facie knowing factual matters by getting accounts examined by an indepen- dent person. 22. We have perused the file of Foreign Contributions Division of Ministry of Home which speaks volumes as to the main reasons for closing the case. For the present, we say no more till such time we receive the report on examination of accounts in terms of this order. However, it deserves to be emphasised that the public interest demands that the working of such NGOs inspires the public confidence. The examination of the accounts of such organisations has to be critical. A duty is cast on the authorities under FCRA to ensure that the violators are punished according to law though not permitting witch hunting by donor or anyone else. During the enquiry it may also become necessary to examine how the amounts were spent by AIF. The AIF is not registered under FCRA. The President of AIF was Mr. G. Ramakrishna, Chartered Accountant. It is claimed that he is no more the President. That may be so but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts. The question as to whether it is a case of siphoning off the funds, cheating and fraudulent transactions and whether prima facie offences of cheating etc. were committed or not can also be appropriately gone into on detailed examination of the accounts. We feel that it is only thereafter it would be appropriate for this court to consider whether direction for registration of a case for commission of various offences deserves to be issued and investigation conducted by an investigating agency - Crime Branch or CBI or any other similar agency. 26. We have no doubt that an independent indepth enquiry into the accounts of AWARE and AIF, in the facts and circumstances of the case, would be necessary. Thus, having considered the matter and rival submis-sions, we refrain from referring the matter, at this stage, for registration of the case and investigation by CBI or any other investigating agency. Further, we are of the view that pending receipt of the report on accounts it is not presently necessary to issue directions for cancellation of registra-tion of AWARE under FCRA or cancellation of exemption under the provisions of Income-tax Act. We, however, direct the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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