The Foreign Contribution (Regulation) Act, 2010 (“FCRA“) was enacted with the mandate of regulating the acceptance and utilisation of foreign contribution and prohibiting acceptance of the same for any activities detrimental to the national interest1. The FCRA is primarily utilised to aid the activities of Non-Governmental Organisations (NGOs). However, in recent years, it has been argued that the provisions of the FCRA were not stringent enough to curb the misuse of such foreign contributions by certain organisations. Therefore, in a bid to bring greater transparency to the use of foreign contributions, the Government enacted the Foreign Contribution (Regulation) Amendment Act, 2020 (“Amendment Act“) which gained presidential assent on September 28, 2020 and was notified on September 29, 20202.
Shedding light on the intent behind the Amendment Act, the Minister for Home Affairs, Nityanand Rai, said that the Amendment Act was necessary in the context of internal security of the country, as in the past there had been instances where certain NGOs neither disclosed foreign funding nor furnished proper audits of their expenditure. During the debate on the same, it has also been made clear that the Amendment Act seeks to streamline foreign funds received by NGOs and ensure that such funds are used for their purported objective3. Some of the key changes introduced by the Amendment Act have been discussed hereunder:
The Amendment Act has extended the ambit of Section 3 of the Amendment Act to include ‘public servants', as defined under Section 21 of the Indian penal Code, 1860. By way of this amendment, public servants are now amongst the class of persons who are prohibited to receive foreign contributions. Therefore, any person in the service or the pay of the Government or remunerated by the Government for public duty is now ineligible to receive foreign funding as per the Amendment Act.
Another fundamental modification set forth in the Amendment Act is the newly imposed bar on transferring foreign funds to another entity. Earlier, Section 7 of the FCRA permitted persons authorised receive foreign contribution to transfer such foreign contribution, or part thereof, to (i) a person also registered and in receipt of the certificate under the FCRA; or (ii) a person not registered under the FCRA, with prior permission of the Central Government. However, as stated above, the Amendment Act has put in place a catch-all prohibition on the transfer of foreign contribution and so, going forward, foreign funding can only be utilised by the organisation which has received the foreign contribution in question. While it is evident that such amendment has been brought about to ensure that the foreign contribution is used towards the mission of the organisation and not as a method of funnelling sums, it is important to note the potential detriment to which the small NGOs will now be subject, as they frequently used to rely on the larger NGOs to channel money into their organisations for achieving their aims.
Further, the Amendment Act has also reduced the limit of foreign funding that can be defrayed as administrative expenses from 50% (fifty percent) to 20% (twenty percent)4. The enactment of this provision will ensure that a larger amount of the funding is directed towards meeting the objectives of the organisation since the earlier cap meant that a significant amount of the funds could easily be earmarked for merely administrative expenses.
Under the older regime, if any person was found to be guilty of violation of the provisions of the FCRA, the unutilised or unreceived funds amount of foreign contribution was not to be utilised or received without the prior approval of the Central Government5. The Amendment Act has altered the above to entitle the Central Government to restrict the utilisation of or receive the remaining portion of the fund on the basis of any information or report, and after a summary inquiry which gives the Central Government cause to believe that such person has contravened the provisions of the FCRA and the Amendment Act6. Thus, the Amendment Act has handed the Government the means to prevent the misuse of funds on a prima-facie basis.
Additionally, the total number of days for which the Government may suspend the certificate for a violation of the provisions of FCRA has been increased to a maximum of 360 (three hundred and sixty) days, with a minimum of 180 (one hundred and eighty) days7, from the earlier cap of a maximum of 180 (one hundred and eighty) days8.
In line with the objective of streamlining the flow of foreign contributions, the Amendment Act has stipulated that each person who has been granted a certificate or prior permission under the FCRA, shall receive the foreign contribution only in an account specifically designated for this purpose (“FCRA Account“). The FCRA Account is to be mandatorily opened with the State Bank of India branch located at Sansad Marg, New Delhi9.
The Amendment Act has also added a section 14A to provide for the Government to permit any person to surrender the certificate granted to it under the FCRA if the Government is satisfied that such person has not contravened the provisions of the FCRA10.
The amendments which have been brought about by the Amendment Act do seem to adhere to the overarching objective of promoting efficiency and transparency in the utilisation of foreign contribution, however it has been noted that such strict regulations may cause compliance and operational issues for smaller non-profit outfits.
4 Section 4, Amendment Act, which can be located at https://fcraonline.nic.in/home/PDF_Doc/fc_amend_07102020_1.pdf
5 Section 11, FCRA, which can be located at https://fcraonline.nic.in/home/PDF_Doc/FC-RegulationAct-2010-C.pdf
6 Section 5, Amendment Act
7 Section 8, Amendment Act
8 Section 13(1), FCRA
9 Section 12, Amendment Act
10 Section 9, Amendment Act
Originally Published by Obhan & Associates, November 2020
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