In this letter to Mukunda dasa, Srila Prabhupada answers many relevant questions about the qualifications of a bona fide spiritual master.
My Dear Mukunda,
Please accept my blessings. I thank you very much for your letter of June 3, 1969, and I have noted the contents carefully.
…The answer to your Istagosthi questions are as follows: Unless one is a resident of Krishna Loka, one cannot be a Spiritual Master. That is the first proposition. A layman cannot be a Spiritual Master, and if he becomes so then he will simply create disturbance. And who is a liberated person? One who knows Krishna.
…Your next question, whether the Spiritual Master was formerly a conditioned soul, actually a bona fide Spiritual Master is never a conditioned soul. There are three kinds of liberated persons. They are called 1) sadhan siddha, 2) kripa siddha, and 3) nitya siddha. Sadhan siddha means one who has attained perfection by executing the regulative principles of devotional service. Kripa siddha means one who has attained perfection by the special mercy of Krishna and the Spiritual Master, and nitya siddha means one who was never contaminated. The symptoms of nitya siddha is that from the beginning of his life he is attached to Krishna, and he is never tired of rendering service to Krishna. So we have to know what is what by these symptoms.
…You are correct when you say that when the Spiritual Master speaks it should be taken that Krishna is speaking. That is a fact. A Spiritual Master must be liberated. It does not matter if he has come from Krishna Loka or he is liberated from here. But he must be liberated. The science of how one is liberated is explained above, but when one is liberated, there is no need of distinction whether he has come directly from Krishna Loka or from the material world. But in the broader sense everyone comes from Krishna Loka. When one forgets Krishna he is conditioned, when one remembers Krishna he is liberated. I hope this will clear up these points. I hope this will meet you in good health.
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