Background On September 24, 2024, the Ministry of Corporate Affairs (MCA) introduced the Companies (Accounts) Amendment Rules, 2024 , through G.S.R. 587(E), amending the Companies (Accounts) Rules, 2014. These changes aim to bring greater clarity and streamline reporting requirements for companies, particularly concerning corporate social responsibility (CSR) filings for the financial year 2023-2024. The CSR-2 form was introduced by the Ministry of Corporate Affairs (MCA) through the Companies (Account) Amendment Rules, 2022 . It acts as a reporting tool for companies governed by Section 135(1) of the Companies Act, 2013, which mandates them to engage in Corporate Social Responsibility (CSR) activities. These companies are required to submit annual reports detailing their CSR efforts. The CSR-2 form streamlines reporting process by requiring the documentation of CSR projects, expenditures, and their impact. Key Highlights of the Amendment The amendment adds a new proviso to Rule 12(1B), specifically impacting the Corporate Social Responsibility (CSR) reporting requirements for the financial year 2023-2024. Following this amendment, companies are now required to submit Form CSR-2 separately by December 31, 2024 . This filing is required to be done after the submission of Form AOC-4 , Form AOC-4-NBFC (Ind AS) , or Form AOC-4 XBRL , as applicable, in accordance with the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015. Impact of the Amendment A notification  issues in 2023 established a deadline of March 31, 2024, for CSR-2 filings .  However, the recent amendment now sets the deadline for CSR-2 filings for FY 2023-24 to December 31, 2024 . The extension for filing Form CSR-2 offers companies additional flexibility, particularly given the increased emphasis on CSR compliance in recent years. As CSR activities have become an integral part of corporate governance and transparency, the MCA’s decision to extend the deadline ensures that companies have sufficient time to fulfil their obligations. Actionable Insights for NGOs on CSR Involvement CSR-2 Form serves as a reporting mechanism for companies to disclose their collaborations with NGOs and ensures transparency in how CSR funds are utilized. NGOs, in turn, play a critical role in executing the social initiatives that companies are required to support under the Companies Act, 2013. CSR Fund Transfer and Unspent Amounts Fund Transfer for Unspent CSR Amount: NGOs are required to assess unspent funds from ongoing projects and allocate them to the Schedule VII fund, ensuring transparency by documenting key details such as the transfer amount, date, and any shortfall. They are required to update financial statements and make appropriate disclosures with the CSR donor. Timely transfers and maintaining detailed records of approvals and correspondence are essential for compliance. Additionally, NGOs are required to confirm the undertaking of CSR projects funded by unspent allocations from the last three years, categorizing them as ongoing or new projects, and prepare detailed financial reports on fund utilization for both categories. CSR Compliance and Reporting: Impact Assessment of CSR Projects: For large CSR projects, particularly those with budgets exceeding ₹1 crore, impact assessments are required to be conducted by an independent agency as mandated by Rule 8(3). NGOs involved in such projects are required to cooperate fully, providing necessary data, documentation, and access to project sites to facilitate thorough evaluation NGOs are required to collaborate with companies to submit detailed reports on CSR fund utilization and the impact generated. Implementing Agency Registration: NGOs are required to register as an implementing agency and ensure their CSR number is readily available for filling out details related to ongoing projects and financial amounts. Proper registration is necessary to be considered a valid partner. CSR funding is available only to NGOs that hold certifications such as 80G, 12A, a Non-Governmental Organizations Registration Certificate, and a Foreign Contribution Regulation Act Registration Certificate. CSR Spending and Projects: Spending on Ongoing Projects and CSR Compliance: NGOs are required to carefully monitor the funds spent on ongoing projects during the fiscal year, ensuring transparency on whether these include enduring projects. Additionally, NGOs must verify and document the initiation of any CSR project in the current financial year, specifically focusing on those funded through unspent CSR allocations from the past three financial years. To maintain proper records for ongoing CSR projects, NGOs are required to keep data on the CSR amount paid during the fiscal year, the number of ongoing projects, and include key details such as the project ID, project name, the financial year in which the project began, the amount spent at the start of the year, the amount spent during the current year (in ₹), the cumulative amount spent by the end of the year (in ₹), the project's status (completed/ongoing), and the location, including the state and district of implementation. Administrative Overheads NGO are required to document the amount paid on administrative overheads and maintain clear distinctions between administrative overheads and program costs to ensure transparency in fund usage. Total Spending for the Financial Year NGO are required to compile and document total spending for the financial year. Capital Assets Created or Acquired through CSR Spending: Under Rule 7(4) of the Companies (CSR Policy) Rules, 2014, capital assets created or acquired using CSR funds cannot be owned by the company. These assets are required to be transferred to NGOs, Trusts, or Section 8 Companies, and the responsibility lies with the NGO or implementing agency to ensure the transfer to beneficiaries or public authorities within six months, with a possible 90-day extension if approved by the board. For assets like schools or healthcare centres, NGOs are required to maintain proper documentation, including the asset's location, registration, creation date, CSR amount spent, and beneficiary details, to ensure compliance with CSR guidelines.

The Securities and Exchange Board of India (SEBI) had notified the detailed framework on Social Stock Exchange (SSE) vide its circular SEBI/HO/CFD/PoD-1/P/CIR/2022/120 dated September 19, 2022. As on date  43 organizations have registered on the BSE SSE  and  60 organizations have registered on the NSE SSE .  In December 2023, the SEBI approved several significant changes with the intent to boost fundraising by Not-for-Profit Organizations (NPOs) on the Social Stock Exchange ( Summarised in Pacta's Update 1 on the SSE ): Reduction in Minimum Issue Size : From Rs. 1 Crore to Rs. 50 lakhs for public issuance of Zero Coupon Zero Principal Instruments (ZCZP) by NPOs on SSE.  Reduction in Minimum Application Size : From Rs. 2 lakhs to Rs. 10,000 for wider participation, including retail investors. Nomenclature Change : Renaming “Social Auditor” to “Social Impact Assessor” for a positive outlook. Disclosure of Past Social Impact : Allowing NPOs to disclose past social impact reports in fundraising documents. Expansion of Eligibility : More entities, including those registered under Income Tax Act sections 10(23C) and 10(46), eligible for registration and fundraising on SSE. In April 2024, there have been few more developments. These are detailed below:  1. Disallowing transfers of ZCZP instruments from original subscriber/holder [01 April 2024] [2] ZCZP instruments shall not be transferable from the original subscriber/holder till the expiry of the tenure of the instrument. The date of allotment of ZCZP can be taken as the date of donation for the donor who subscribes to the instrument. Additionally, that requisite details needed under Rule 18AB of the Income Tax Rules, 1962 by the not-for-profit institution to furnish the statement of donation such as name, PAN number, Aadhaar number, passport etc of the donor should be made be available to the not-for-profit institution through the application process. 2. ZCZP instrument to be considered as an eligible donation under 80G of the Income Tax Act, 1961 [10 April 2024] [3] In the letter dated 10th April 2024, the Central Board of Direct Taxes (CBDT) has clarified to SEBI that investment in ZCZP instruments (issued by NPOs on the SSE platform) would be treated as an eligible donation under section 80G of the Income Tax Act, 1961. This would be subject to fulfilment of all provisions under Section 80G. The CBDT also clarified that, subscribers of the ZCZP instrument shall not be eligible for any claim under the Act, other than deduction under section 80G. 3. Introduction of bidding in ZCZP Instrument under e-IPO Module for Social Stock Exchange (SSE) [30 April 2024] [4]   By notification dated 30 April, 2024, the National Stock Exchange has developed a facility for bidding of Zero Coupon Zero Principal (ZCZP) Instrument on its existing web-based e-IPO Platform for SSE. Self-certified syndicate banks (hereafter, SCSB) and Syndicate Members with (3-in-1 Account) registered on e-IPO platform, shall be eligible to participate in bidding of ZCZP instruments. The provisions of this circular shall be applicable for ZCZP instruments on or after May 07, 2024. [2]  SEBI office letter OW-12658/1, dated 01 April 2024, available through F.No .176/3/2023-ITA-I. [3]   F.No .176/3/2023-ITA-I, dated 10 April 2024  https://www.linkedin.com/feed/update/urn:li:activity:7192843948392943616 [4]  NSE Circular No. 06/2024, dated 30 April 2024. https://nsearchives.nseindia.com/content/circulars/IPO61843.pdf

The social sector in India faces certain unique challenges pertaining to compliance of labour laws. One of the challenges is the dominant practice of social-sector hiring in India is hiring (full-time) staff on a contract basis and extending the contract periodically. This  practise mainly stems from long-term funding constraints and tax compliances restricting administrative expenses. However, this poses a risk of such employees/ contract-based workers claiming permanent employment.  Judicial Precedents on Regularisation of Contract Based Workers.  The courts in India have rambled with numerous cases regarding regularization of employees for a long time. The Supreme Court in India in the case of  Jacob M. Puthuparambil and others v. Kerala Water Authority and others (AIR 1990 SC 2228)  held that “ employees who are serving on the establishment for long spells and have the requisite qualifications for the job should not be thrown out but their services should be regularised as far as possible ”.  Two years later, the Supreme Court of India in the case of  Director, Institute of Management Development, UP  v.  Smt. Pushpa Srivastava (AIR 1992 SC 2070)  held that “ where the appointment is purely on ad-hoc basis and is  contractual and by efflux of time , the appointment comes to an end, the person holding such post can have no right to continue in the post .  This is so even when the person is continued from time to time on ad hoc basis for more than a year. He cannot claim regularisation in service on the basis that he was appointed on ad-hoc basis for more than a year. ” However, it may be noted that Supreme Court of India in the instant case directed the management of the company in question to consider whether regularisation of services was possible. More recently, in  Saroj Gupta v. State of Madhya Pradesh 2023 SCC Online MP 1683 , the Supreme Court held that “ claiming regularization on the basis of past performance and long service is not proper because the order of appointment is very specific that the appointment of the petitioner was purely on temporary basis and coterminous with the project ”. NGOs can continue to hire contract employees, particularly, fixed term employees (FTEs) without the risk of facing a regularisation claim. However, in certain cases, the courts in India have directed employers to consider regularization of employment of such FTEs, if the FTEs are utilized over a prolonged period of time by the employer. Guide To NGOs To Minimize Risks Of Temporary workers/ Contractors Claiming Permanency: Employment Contracts Ensure that employment contracts clearly specify the terms of the engagement, including the duration, nature of employment (FTE or project-based) and any conditions related to renewal or termination. Define Scope of Work Clearly define the scope of work and the specific projects or tasks the employee is hired for. This can help in establishing that the employment is tied to a specific and temporary need. Include Relationship/Independent contractor clause This clause is very important to differentiate between regular and non-regular employees. The clause should categorically state that the relationship of the parties does not constitute as employer-employee relationship and that the consultant/FTE will not receive any employee benefits that may be extended to its own employees.  Use Fixed-Term Contracts appropriately Use fixed-term contracts only when there is a genuine temporary need or project. Fixed term contracts should not be used as a camouflage and executed only to avoid providing the benefits available to regular employees as per the law.  Renewal Clauses If the organization anticipate the need for ongoing work but are unsure of the duration, include clear renewal clauses in contracts. However, renewing a contract multiple times may be perceived as an ongoing employment relationship. Therefore, limit the number of contract renewals or extensions to prevent the perception of an ongoing and permanent arrangement.  Payment against Invoices Unlike employees who will be paid salaries, FTEs and contract-based workers are not entitled to salaries. It is important that the contract envisages raising of invoices by the FTEs and contract-based workers, so that the claim that this relationship constitutes as a regular employment does not arise.   Document Decisions Keep records of hiring decisions, terminations, renewals etc. This will serve as evidence in the event of legal disputes.  Not-for-profit organisations are expected to comply with several employment laws, as regards their full-time employees. Several of these laws are invoked if the not-for-profit organisation crosses a particular threshold number of full time employees. Hence it is important to watch out for the total number on the payroll.

The Securities and Exchange Board of India (SEBI) had notified the detailed framework on Social Stock Exchange (SSE) vide its circular SEBI/HO/CFD/PoD-1/P/CIR/2022/120 dated September 19, 2022 (“SSE Framework”). As on date  32 organizations have registered on the BSE SSE  and  44 organizations have registered on the NSE SSE .  Pursuant to the feedback received through public consultation, SEBI has approved certain amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”) and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) vide notification dated December 21, 2023. Further, SEBI has approved certain modifications/additions to the SSE Framework vide its circular SEBI/HO/CFD/PoD-1/P/CIR/2023/196 dated December 28, 2023.  A. Amendments to the SSE Framework The following are the amendments to the  Minimum requirement to be met by a not-for-profit organization (NPO)  for registration with SSE: Registration certificate under Section 12A/12AA/12AB/10(23C)/10(46) to be valid for at least 12 months. To disclose all pending notices or scrutiny cases from all regulatory and statutory authority shall be disclosed at the time of making the application for the registration. Fines or penalties if imposed shall be disclosed as paid or appealed within 7 days.*  Entity to ensure disclosure whether tax deduction is available or not to investors. Details of past social impact as per the existing practice of NPOs. The past social impact should highlight trends in key metrics/ parameters relevant to the NPO (as may be determined by the Exchanges) for which it seeks to raise funds on SSE, number of beneficiary, cost per beneficiary and administrative overheads.** [*Previously, NPOs that had ongoing tax scrutiny or notice proceedings were precluded from registration. ** Disclosure of key metrics of social impact has been a new introduction of the 2023 amendment, indicating the imperative for NPOs to measure their impact.] The following are the  amendments for the Minimum Initial Disclosure  requirement for NPOs raising funds through the issuance of Zero Coupon Zero Principal Instruments:  The NPO through the lead manager(s), should file the draft fund-raising document with the Social Stock Exchange (SSE) where it is registered along with the fees as specified by the SSE and an application seeking in-principal approval for listing of its Zero Coupon Zero Principal Instruments on the SSE, provided that the SSE shall specify the details to be incorporated in the fund-raising document. The draft fund-raising document shall be made available on the website of SSE and the not-for-profit organization for a period of at least 21 days for public comments.  The SSE shall provide its observation on the draft fund-raising document to the NPO within a time period of 30 days from filing of the draft fund-raising document or receipt of clarification, if any, sought by the SSE from the NPO, whichever is later.  The NPO shall incorporate the observations of the SSE in draft fund-raising document and file the final fund-raising document to SSE prior to opening the issue. The draft fund-raising document and final fund-raising document should contain all material disclosures which are true and adequate to enable the applicants to take an informed decision. The draft fund-raising document and the final fund-raising document should contain disclosures as may be specified by SEBI from time to time, provided that the SSE may mandate additional disclosures in respect of the draft fund-raising document and the final fund-raising documents. Other conditions relating to issuance of Zero Coupon Zero Principal Instruments :  Zero Coupon Zero Principal Instruments shall be issued in dematerialized form only.  The Zero Coupon Zero Principal Instruments shall not be transferable from the original subscriber/ holder till the expiry of the tenure of the said instrument.  The minimum issue size shall be Rs. 50,00,000/- (Rupees Fifty Lakhs Only).*  The minimum application size shall be Rs. 10,000/- (Rupees Ten Thousand Only).*  The minimum subscription required to be achieved shall be 75% of the funds proposed to be raised through issuance of Zero Coupon Zero Principal Instruments.  In case of any under subscription, the NPO shall, in the fund-raising document, provide details on the following:  a) manner of raising balance capital in case of such under subscription between 75% and 100%;  b) possible impact on achieving the social objective(s) in case such under subscription is not arranged. Provided that the funds shall be refunded in case the subscription is less than 75% of the issue size  7. The SSE shall maintain the details of the allotment pursuant to issuance of Zero Coupon Zero Principal Instruments by the NPO.  8. The SSE shall specify the additional norms in respect of issue procedure including on agreements with depositories, banks, etc., ASBA related matters, duration for public issuance, allocation methodology and any other ancillary matter related to issue procedure. [* Prior to the amendment, the minimum issue size was Rupees One Crore and minimum application size was Rupees Two Lakhs.] B. Amendments to the LODR Further, the word “Social Auditor” is now substituted with the words “Social Impact Assessor” and the expression “Social Audit Firm” is substituted with the words “assessed by a Social Impact Assessment Firm”). This indicates the shift of approach from an inspection/audit model based on a lack of trust towards an impact informed and trust building direction. C. Amendments to the ICDR Regulation 292A  In clause (f), the word “Auditor” is substituted with the words “Impact Assessor”. In clause (g), the word “Audit” is substituted with the words “Impact Assessment” and the word “Auditors” is substituted with the words “Impact Assessor(s)” Regulation 292C In clause (a), in sub-clause (i), the words “institutional investors and/or non-institutional investors” shall be substituted with the words “eligible investors”.

The Mediation Act 2023 (the Act), received the assent of the President of India on September 15, 2023. It is a comprehensive law that promotes mediation as a viable alternative to traditional litigation. The Act is expected to have a significant impact on non-profit organizations, as it provides them with a more efficient and cost-effective way to resolve disputes. Mediation in India – Background Mediation has a long-standing history in India. Panchayats utilise mediation for community conflict resolution. Further, Indian courts have the power to recommend certain disputes for conciliation (Section 89(1) of the Code of Civil Procedure, 1908). In response, mediation centres – government run and private have been established throughout the country. But until the Mediation Act of 2023 there was no unified legal framework for mediation, causing a deterrence in using mediation as a modus for dispute settlement.  In this article, we will understand the utility of mediation for non-profits.    What is Mediation?   The Act in section 2(h) defines Mediation as a process in which a neutral third party (mediator) helps disputing parties to reach a mutually agreeable settlement. It is a voluntary process, and both parties must agree to participate. Typically, the disputing parties agree to request a mediator to assist them in reaching an amicable settlement. Types of mediation are: Pre-litigation mediation: Mediation that takes place before a lawsuit is filed -parties may choose to resolve the dispute through mediation before filing a lawsuit (section 5).   Online mediation: Mediation that takes place electronically, through video conferencing or other online communication tools. Community mediation: Mediation that is provided by community-based organizations, at the community level. What Kind of Disputes Can Be Mediated (For NGOs)?  The Act applies to all disputes arising in India, including commercial disputes where the government or its agencies are a party, as well as international mediations for resolving commercial disputes where one of the parties is a foreign national/entity. Schedule 1 of the Act carves out a list of exceptions – circumstances under which mediations cannot be conducted. This includes criminal offenses, claims affecting the rights of third parties where such third parties are not party to the mediation.  Thus, disputes pertaining to disputes arising from service agreements, grant agreements, employment agreements can easily be referred to mediation and settled expediently. NGOs can use mediation to resolve disputes within communities, such as land rights,  water disputes, and conflicts between different groups within the community. NGOs can use mediation to help marginalized groups resolve disputes with the government and stakeholders. This can help to protect the rights of marginalized groups and to promote social justice, without pursuing complex litigious processes. Conducting the Mediation Process The Act allows parties to determine the mediation procedure and select their preferred mediator. Parties also have the flexibility to choose to conduct it online or at another location for convenience. The parties can also choose the language of mediation.  The mediation process is expected to be conducted, with the mediator assisting the parties in an independent, neutral, and impartial manner to reach an amicable settlement. The mediator is not bound by the Code of Civil Procedure, 1908, or the Indian Evidence Act, 1872 but shall be guided by the principles of fairness and justice. The mediation process may involve various measures deemed appropriate by the mediator, considering the case's circumstances. This may include meetings with parties or participants, either jointly or separately, as often as necessary to convene and effectively conduct the mediation process while preserving its integrity.  In mediation, recording via audio or video is forbidden to maintain confidentiality. Information discussed in mediation cannot be used as evidence in legal proceedings, similar to the "without prejudice privilege,"encouraging open discussions for amicable settlements. These features make mediation more accessible, affordable, flexible, and efficient.  How long does it take to complete Mediation?  Mediation proceedings begin when the parties receive a notice to start mediation, when the mediator agrees to mediate their dispute, or when the mediation service provider appoints a mediator. Mediation ends when the parties sign a settlement agreement, the mediator signs a non-settlement report, either party opts out of mediation, or the prescribed time limit expires. The prescribed time limit for mediation is 120 days from the date of the first meeting with the mediator. The parties can agree to extend this time limit by another 60 days.  Mediation settlement agreements can be challenged on the limited grounds of fraud, corruption, impersonation, or the mediation conducted on the matters exempted under the Act.  How can NGOs Respond?   The Act is yet to be notified for implementation. In the interim, NGOs can take the following steps to take advantage of mediation as a pragmatic dispute resolution mechanism: Amend the dispute resolution clauses of the existing contracts, agreements, and MOUs with their stakeholders to include mediation possible method of resolving disputes. Incorporating mediation as a method of dispute resolution for all prospective contracts, agreements, and MOUs with their stakeholders. Organizations involved in ongoing litigation can request the court with the consent of the opposite party to refer the matter to mediation.  Where there is no mediation agreement and the organization is anticipating possible litigation, the organization may opt to resolve the dispute through pre-litigation mediation. Sensitize their stakeholders in the field on the benefits of mediation.

From the High Court of Delhi - Students can get EWS reservation in any school that is not necessarily in their neighbourhood, but they may have to spend on transport costs from their own pocket Facts of the Case The EWS reservation in schools has been a heavily litigated topic.  In a recent case before the Delhi High Court on May 31, 2023  Tarun Kumar and Anr. v. The Principal Happy Hours and Ors. The question before the court was whether students who avail EWS/DG reservation in schools could only avail the same in their neighbourhood schools. A school rejected the admission of two students who were allotted EWS seats by the Directorate of Education on the ground that they lived 4 km away. Background In 2019, the 103rd Amendment was made to the Constitution. This Amendment introduced reservation for economically weaker sections of the Indian population in education. Since the introduction of the EWS category,  Section 12 (1) (c)  of the Right to Education Act, 2009 also reaffirmed reservation compelling all schools to reserve 25 percent of seats for financially and socially disadvantaged students. Under Section 2 (e) of the Right to Education Act, 2009, a child is eligible for reservation in schools. under this category if their parent’s income is below the ceiling fixed by the respective State Government. For example, in Karnataka, the parents’ annual income should be less than 3.5 lakh. Judgement Summary In the Tarun Kumar case, the court observed that the EWS or DG category seats in schools are limited and the Directorate of Education might be compelled to allot seats in schools that are slightly farther from the student’s residence. The High Court noted that while the Directorate should endeavour to allot seats in the closest school possible, if it cannot do so, a school cannot reject the student merely because they don’t live in the same neighbourhood. The court also clarified that transportation costs should be borne by the students as the students lived in an area where the school was not providing transportation. Impact of RTE on Private Schools Section 2 (n) of the Right to Education Act, 2009 has defined the term “school” to include private and well as aided and government schools. Despite this, private schools have attempted to circumvent this provision. One such case was before the Delhi High Court on December 16, 2022, Rameshwar Jha v  Principal Richmond global School & Ors. In this case, the High Court came down strongly on schools asking the Directorate of Education to deregister schools that do not comply with the 25 % reservation for EWS/DG. However,  in a case before the Karnataka High Court decided on May 31, 2019, RTE Students and Parents Association v. State of Karnataka & Ors. , the allegations were made against the State Government of Karnataka which through a notification on January 30, 2019 excluded private schools from offering 25% reservations if there were government school and aided schools available within the neighbourhood. Under the RTE Act, the State Government is to reimburse to private schools the cost of students admitted on EWS quota. Reportedly INR 700 crore had been spent on the same for just the academic year 2018-19. To avoid this the Karnataka State Government  issued this notification. The Court ruled in favor of the Government stating that the right to free education is not violated by this notification as students admission in schools under EWS category still remains with only the choice of schools getting reduced. The Court also stated that the functioning of schools established by the government, local authorities and the aided schools would be at stake if the notification was scrapped. This case is now pending before the Supreme Court. Further issues on the 25% reservation in EWS category surfaced when the Supreme Court  was hearing the case Md. Imran Ahmad v. Union of India & Ors during which it was pointed out that several states are yet to implement the 25% reservations under EWS category in private unaided schools . The Supreme Court directed that schools ensure the implementation of the Right To Education Act in letter and spirit, and that no child from the weaker sections are denied their right to education. Supreme Court has recognized the inadequacy in number of Protection Officers under the Domestic Violence Act, 2005 Protection Officers are appointed under Section 8 of the Domestic Violence Act, 2005 (“ Act ”) by the State Governments. They play a vital role in ensuring domestic violence complaints are reported to the Magistrate. They also assist in ensuring the women complainants are medically examined for injuries and make a safe shelter home available for them. Rule 3 of the Domestic Violence Rules ,2006 states that a protection officer shall belong to the Government or to an NGO, preferably be a woman with three years of experience in the social sector. Protection Officers are to hold office for a minimum tenure of three years. On February 24 2023, the Supreme Court while hearing the case of We the Women of India v. Union of India and Ors. found that the number of Protection Officers appointed in the States were grossly inadequate, resulting in the pendency of 4.41 lakh cases. This is just based on data from 801 districts collected by NALSA  in July 2022 indicating that the actual number of pending cases is significantly higher. The Ministry of Women and Child Development was directed by the court to convene a meeting with the Principal Secretaries of all the States and Union Territories to identify how they will ensure a steady supply to the cadre of Protection Officers. The Supreme Court also laid down points to be deliberated in the meeting such as the jurisdiction and the number of protection officers required for each district. Supreme Court has directed the Central Government to frame National Policy on Menstrual Hygiene Products A petition was filed in Jaya Thakur v. Union of India, requesting the Supreme Court to issue directions to the appropriate authorities to provide free sanitary pads to every female child studying in classes 6-12 and separate toilets for women in all government aided and residential schools. On April 10 2023, the Supreme Court directed the respective State/Union Territories governments to submit the steps they will take to ensure that schools/school complexes with female students enrolled in their upper primary, secondary and higher secondary classes have sanitary pad vending machines installed AND institute an appropriate disposal mechanism to discard used pads. The Supreme Court also directed the Centre to prepare standard operating procedures (SOPs) and formulate a national model to be adopted by all the states and Union territories for managing menstrual hygiene for school-going girls. The governments have been given three months to comply and the petition is listed for the next hearing on July 24, 2023.

Context: PMLA Amendment Act, 2003 The Ministry of Finance notified the Prevention of Money Laundering (Maintenance of Records) Amendment Rules, 2023 on March 7, 2023, making regulatory scrutiny under the Prevention of Money Laundering Act, 2002 [“PMLA”] more stringent. The PMLA, passed in line with the Financial Action Task Force recommendations, aims to prevent and penalise money laundering. Besides individuals, the money laundering laws are also applicable to companies (including Section 8 companies), partnership firms, unincorporated organisations, and trusts. Under the Prevention of Money Laundering (Maintenance of Records) Rules 2005 [“Rules”], reporting entities such as banks and financial institutions are required to maintain records of all transactions involving receipts by non-profit organisations [“NPOs”] exceeding ten lakhs or its foreign currency equivalent, and furnish such information to its director designated for this purpose. The new amendments widen the scope of the rules, and among other things, demands stronger reporting requirements from NPOs.  Implications of the new amendments to Non-Profits and Trusts Expansion of the definition of NPOs:  Earlier, “non-profit organisations” as recognised under the Rules only included:  an entity registered as a trust or a society under the Societies Registration Act, 1860, or a company registered under section 8 of the Companies Act, 2013 With the new amendment to the Rules, entities or organisations constituted for religious or charitable purposes referred to in Section 2 (15) of the Income-tax Act, 1961, including trusts, societies and Section 8 companies, have also been brought under the ambit of the money laundering laws.  Reporting entities to register details of NPOs:   Reporting entities are mandated to register the details of NPOs on the DARPAN Portal and maintain registration records for five years after the business relationship between the non profit and the reporting entity has ended or the account has been closed, whichever is later. This means that NPOs which are not yet registered on the DARPAN Portal would need to get themselves registered. Changes to the definition of beneficial owners: The Rules require reporting entities to determine whether the clients, which include NPOs, are acting on behalf of beneficial owners, and to identify and verify the identity of such beneficial owners. Prior to the amendment, beneficial owners referred to person/s, who acting alone or together, held ownership of more than 25% of shares/ capital in case of incorporated companies and 15% of properties/ capital/ profits in case of unincorporated associations. While the threshold for the latter remains unchanged, for incorporated companies, the threshold has been reduced to 15%. This is in line with the existing threshold under the Companies Act, 2013.  For trusts, the beneficial ownership threshold has been lowered from 15% to 10% of beneficiary interest in the trust.  Additional disclosure requirements: The Rules require the clients of reporting entities to submit certified copies of certain documents to them. The amendments have made additions to the list of documents required to be furnished. The below details documents that need to be submitted by NPOs: Type of Entity: Company Certified copies required pre-amendment: (i) certificate of incorporation; (ii) Memorandum and Articles of Association; (iii) Permanent Account Number of the company; (iv) a resolution from the Board of Directors and power of attorney granted to its managers, officers or employees, as the case may be, to transact on its behalf 26[and]; (v) other such documents relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on the company's behalf. Additional requirements under the new amendment: (i) the names of all the partners;  (ii) address of the registered office, of its business, if it is different. Type of Entity: Trust Certified copies required pre-amendment: (i) registration certificate; (ii) trust deed; (iii) Permanent Account Number or Form No. 60 of the trust; (iv) other such documents relating to beneficial owners, managers, officers or employees, as the case may be, holding an attorney to transact on its behalf. Additional requirements under the new amendment : list of trustees and documents as are required for individuals under Rule 9 sub-rule (4) for those discharging their role as trustee and authorised to transact on behalf of the trust. Updating of information : Any update to the documents provided to the reporting entity is now required to be updated to such entity within thirty days.  Thus, NPOs can expect a slew of requests from reporting entities to submit the documentation that the PMLA law makes mandatory for the reporting entities to collect, report and maintain.

Community engagement and programs run by not-for-profit organisations have a deep impact on communities/people/institutions. At times, the programs run by these organisations have the potential to shape the discourse of these communities/people/institutions. To run the programs, organisations often rely on volunteers who offer to engage in these programs. Since these volunteers work closely with the community and influence the impact of programs, governing the engagement between a volunteer and a host organisation becomes salient. To achieve this, organisations must ideally enter into a volunteer agreement with the volunteer to lay down the details of the program and the role of the volunteer, to achieve consistent models of volunteerism. What is a Volunteer Agreement? A volunteer agreement determines the understanding between the volunteer and host organisation regarding the nature of volunteering activities. The agreement specifies the parties, nature of engagement, scope of volunteering activities, roles and responsibilities and other important terms of their engagement. Clearly defining the terms of engagement, a volunteer agreement is a tool to safeguard the interests of the volunteer and the host organisation. To strengthen a volunteer agreement, an agreement shall have the following clauses in addition to the general clauses of an agreement: a. Confidentiality As a part of the programs run by organisations, volunteers have access to private and confidential information of the programs, beneficiaries/clients and organisations. A clause on confidentiality requiring the volunteers to keep the information confidential is necessary to safeguard the interests of the organisations and communities/individuals involved in the programs. b. Intellectual Property Rights During any program, intellectual property in the form of photographs, videos, audios, other media, data, reports, and other documents may be collected/created. It is necessary to govern the use of such intellectual property and determine the manner in which an intellectual property may be used and disseminated. c. Relationship between the Parties A volunteer is not an employee of the organisation even if they are paid a honorarium. Therefore, it shall be explicitly stated in a volunteer agreement, that engagement of a volunteer neither create an employer employee relationship nor a partnership between the parties. It should also be amply clarified that the organisation would not be liable for any harm caused to the volunteer. d. Roles and Responsibilities The roles and responsibilities of the volunteer shall be clearly laid out in the agreement to define the scope of activities that a volunteer is permitted to undertake. Actions of volunteers at the ground level have an impact, therefore, definitive roles and responsibilities shall be defined in the agreement. Roles and responsibilities of the organisation to be included to ascertain the extent of support to be provided by organisation to the volunteer, and necessary steps need to be taken to mitigate risks if any arising out of the contract. e. Compliance with laws and organisational policies Volunteer shall be notified of the applicable organisational policies and the need to comply with such policies. Important Points to Note while structuring a Volunteer Program: Recreating biases through Volunteering While designing a volunteer program, an organisation needs to be sensitive towards the existing structure of a community. When volunteers presume needs of a community and volunteer programs are designed with pre-conceived notions, it might prove to be minacious for the community. Therefore, volunteering programs shall ensure sensitisation and empathetic understanding of the community and the objectives of the program. Volunteers are not Employees; Employees are not Volunteers An organisation shall not structure an employer-employee engagement or consulting engagement in the form of volunteering to avoid the compliances under labour laws. This might result in the organisation being unable to enforce its rights against the purported “volunteer” or cause the “volunteer” to rightfully perform the obligations under the contract. Volunteers are neither a substitute for employees nor a way of evading labour laws. Volunteer agreement shall not become a substitute for employment agreement or consultant agreement. At times, volunteering programs may include monetary stipend/ honorarium/ refund of expenses incurred. Stipend/honorarium should not be at the same scale as employees. Liability for Volunteers Organisation shall oversee the functioning of volunteers, however, shall exonerate itself from any liability for the actions of the volunteers. Volunteers below the age of 18 years If an organisation engages an individual below 18 years of age (a child) as a volunteer, the organisation needs to be mindful of the safety of the child. The organisation will be amenable to the application of Protection of Child from Sexual Offences Act, 2012 and other child protection laws. The Volunteer contract should also be signed by the legal guardian of the minor. Application of Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013 (POSH) The POSH Act is applicable on volunteers as it is applicable to employees. Host organisation shall accord protection to volunteers from any sexual offence during the duration of volunteering. A volunteer agreement confers protection to both the volunteer and host organisation. It shall not confer a higher pedestal to the host organisation and create a system for the host organisation to adversely impact the interests of a volunteer.

Introduction The Ministry of Electronics and Information Technology ("MEITY") has issued a draft of the  Digital Personal Data Protection Bill, 2022  ("the Bill") available for public comment, along with a note that explains each provision and the principles behind them. The bill aims to ensure that digital personal data is handled in a way that protects a person's right to privacy. It regulates digital collection and processing personal data .  This Pulse issue discusses the bill's potential impact on the nonprofit sector once it becomes law and outlines the broad compliances for which the sector must prepare.  Obligations Under the Present Legislation Refer to our earlier issue on Data Protection for Civil Society Organizations  here  to know more about the existing compliances on upholding data privacy. Currently, under Section 43A of the Information Technology Act of 2000, all body corporates are responsible for implementing and maintaining reasonable security measures to ensure that no one suffers an unreasonable loss or benefit as a result of the processing, dealing, or handling of sensitive personal information. Failure to do so may subject you to liability for damages.  All non-profit organizations, including trusts, societies, Section 8 businesses, and any group of people involved in a profession, are covered by this provision.  Application of the Bill The bill will apply to the processing of personal data collected in India in two situations:  (i) when personal data is collected online from data principals, and  (ii) when personal data is collected offline and then transferred to a digital format.  The DPDP Bill will also cover processing personal data outside of India if that processing is related to profiling people in India or offering goods and services to data principals in India.    So, if the bill is passed by the Parliament in its current form, it will apply to all nonprofits and charitable organizations that collect personal information from their stakeholders online or offline and then digitize it.  Important Concepts and Definitions Personal Data:  Any information about a person who can be identified by or in connection with that information. Data Principal:  The individual to whom the personal data belongs, which includes the child's parents or legal guardians if the person is a child. Data Fiduciary:  Any person who, alone or in collaboration with others, determines the purpose and means of processing personal data are referred to as a data fiduciary. Data Processor:   Any person who processes personal data on behalf of a data fiduciary. So, the people who have an interest in the data would be the data principals, and the nonprofits or charities would be the data fiduciaries.  Expected Compliances Here are a few broad features of the bill that are likely to impact the nonprofit sector.  Notice The bill requires the data fiduciary to acquire the data principal's consent before or at the time of processing personal data and to provide detailed notice of the data sets sought to be collected and the purpose of processing. This is usually done through a privacy policy and terms of use. The language of the privacy policy/ terms of use should be simple and clear. Free, specific, informed, and unambiguous consent is necessary.  When a data principal has consented to the processing of her personal data before the commencement of the bill, the data fiduciary must, as soon as reasonably practicable, provide an itemized notice in simple language that describes the personal data collected and the purposes for which those purposes have been processed.  Consent Manager A consent manager is a data fiduciary who gives the data principal an easy-to-use, transparent, and interoperable platform for giving, managing, reviewing, and withdrawing consent.  Deemed Consent In certain circumstances, personal data can be processed by virtue of deemed consent from the data principal wherein the data principal voluntarily provides their personal data and it is reasonably expected that they would provide such personal data. In such cases, the data subject's explicit consent is not required.  Right of the data principal The bill grants the data principal the right to  1) obtain such information from the data fiduciary, including a summary of the personal data that has been processed and the identities of the fiduciaries with whom the data has been shared;  2) correct wrong or incomplete information; and erase their personal data from the data fiduciary, unless the retention is necessary for a legal purpose; 3) register a grievance with the data fiduciary, and if unsatisfied with the response, register a complaint with the data protection board, and  4) Nominate any individual to exercise his rights upon his death or incapacity. Data Fiduciary’s Obligations The data fiduciaries are required under the bill to take reasonable security precautions to prevent personal data breaches and ensure the protection of personal data. Some of the obligations are as follows:  If the personal data is likely to be used by the data fiduciary to make a decision that "affects" the data principal or if the personal information is likely to be shared with another data fiduciary, make reasonable efforts to make sure that the personal information processed by or on behalf of the data fiduciary is accurate and complete; Take reasonable security precautions to prevent a breach of the personal data it has in its possession or under its control; In the event of a personal data breach; notify the Board and each affected data principal; The contact information of a Data Protection Officer ("DPO"), if applicable, or a person who has the authority to communicate on behalf of the data fiduciary, shall be made available in a manner prescribed by the Government.  Failure to take reasonable security safeguards to prevent personal data breaches is punishable by a penalty of up to Rs. 250 crores and the failure to notify the Board in case of a data breach is punishable by a penalty of up to Rs. 200 crores.  Retention of Personal Details It's important to keep in mind that personal data shouldn't be kept if it's no longer necessary for legal or business reasons or if it's no longer being used for the reason it was collected. Cross-Border Transfer Data fiduciaries can transfer data outside of India only to countries and territories that the Central Government may notify in the future. Children’s Data Data fiduciaries have the additional obligation to obtain verifiable parental consent while processing the personal data of a child and refrain from such processing that would cause harm to the child and from tracking, monitoring, and targeted advertising aimed at children. Failure to adhere to this is liable to a penalty of up to Rs. 200 crores. Nonprofit organizations working with children have the additional responsibility to comply with this provision.  Exemptions Depending on the volume and nature of data processed, the Central Government has been vested with the power to exempt certain fiduciaries from issuing notice before consent, ceasing to retain data after the purpose has been served, accuracy, the provision related to children, and the data principal's right to information about his personal data. However, the bill does not indicate what kind of fiduciaries will be granted the benefit of the exemption. Voluntary Undertaking At any time, anyone can give the Board a voluntary undertaking to follow any part of the bill. Such a voluntary undertaking may be publicized. The  explanatory note  published along with the bill considers this provision as a measure to encourage timely admission and rectification of lapses.  The focus of the bill is on enabling and facilitating compliance rather than penalizing non-compliance. So, it is a way for the data fiduciary to fix a data breach at any time after it has happened and keep the Board from taking action against them.   Conclusion The language of the bill has been kept clear and concise to make it accessible to the general public. The bill is drafted in a manner to make it easier for businesses to do business in India. The bill is open for  public consultation  until January 02, 2023, and nonprofit organizations can visit the website and give their  comments  on the provisions of the bill. It is an opportunity for the nonprofit sector to voice their operational concerns through this public consultation.

On 19th October 2022, the Supreme Court of India, in Civil Appeal No. 21762 OF 2017, in the case of Assistant Commissioner of Income Tax (Exemptions) Vs. Ahmedabad Urban Development Authority ruled on the applicability of tax exemption to charitable trusts and institutions engaged in revenue generating/ commercial/ business activities. These commercial/business activities are in the sixth category of “charitable purpose” under section 2(15) of the Income Tax Act 1961 viz “advancement of any other object of general public utility (GPU).” Section 2(15) of the Income Tax 1961 Section 2(15) of the Income-tax Act defines charitable purpose for the purpose of the Act. Accordingly, Charitable purposes includes: Relief of the poor Education Medical relief Preservation of environment (including watersheds, forests and wildlife) Preservation of monuments or places or objects of artistic or historic interest; and Any other object of public utility The Income Tax Act 1961 lays down under Section 2(15) that “the advancement of any other object of general public utility shall not be considered as charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless: a)      such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and b) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year. Prior Jurisprudence The meaning of the expression “ advancement of any other object of general public utility ” was interpreted by the Court in the case of CIT v. Andhra Chamber of Commerce [ ( 1965) 1 SCR 565]. The court considered previous decisions in the cases - Re: Trustees of the Tribune (supra) and All India Spinners Association of Mirzapur v. CIT [ (1944) 12 ITR 482]. The Court specifically focussed in the case of Andhra Chamber of Commerce, and mentioned that ‘GPU’ objects included all objects promoting general public welfare, including taking steps to oppose or urge legislation affecting trade, commerce, etc. Interpretation of Section 2(15) (vi) of the Income Tax 1961 by the Supreme Court The Supreme Court has observed that the true test is to ask for answers to the following questions: (a) Is the object of the assessee (trust, society or section 8 company) one of general public utility? (b) Does the advancement of the object involve activities bringing in moneys? (c) If so, are such activities undertaken: i. for profit or ii. Without profit? Even if (a) and (b) are answered affirmatively, if (c)(I) is answered affirmatively, the claim for exemption collapses. The Court discussed that the activity's nature (profitable or non-profitable) could be determined based on the fundamental nature of the activity. People ordinarily carrying it out for gain and the Constitution of the organisation having an inbuilt prescription against making a profit are the two other ways of testing. The Court held that “It is a weak test to check if there is any profit from the practice venture. The mere fact that a service is rendered is not an answer to charge someone because all income, whether directly or indirectly, is derived by rendering some service or another." Clarification by the Court The Court clarified that an assessee advancing ‘general public utility’ cannot exclusively engage in any trade, commerce or provide service for any consideration (fees/cess/any other reference). However, to achieve the object of ‘general public utility, the trust/society or any other organisation can carry trade/business or provide services for any consideration when the following conditions are met: i. trade, commerce or business activities are connected (“actual carrying out…”) to the achievement of its objects of GPU; and ii. the receipt from such business or commercial activity or service about it does not exceed the quantified limit, as amended over the years (Rs. 10,00,000 w.e.f. 01.04.2009; then Rs. 25,00,000 w.e.f. 01.04.2012; and now twenty per cent of total receipts of the previous year, w.e.f. 01.04.2016) Analysis If a liberal interpretation is given to this judgement, we can gauge that if any fee is charged on a cost-basis or nominally above cost towards advancing ‘general public utility activity’, such income cannot be considered as income from "trade, commerce, or business." This is because “a cess or fee" may not come under the twenty per cent cap. Only when the charges are significantly above the cost incurred by the assessee would they fall within the mischief of "cess, or fee, or any other consideration" towards "trade, commerce or business". The Supreme Court has clarified that neither the judgement precludes any statutory/non-statutory assessees (that advances objects of general public utility) from claiming exemption, nor the taxing authorities deny exemption in the future if the receipts of the relevant year don’t exceed the quantitative limit.