Authored by: Shuchi Sejwar


INTRODUCTION

The Foreign Contribution (Regulation) Amendment Act 2020 (hereinafter referred to as the Amendment Act) has been notified by the Central Government on 29th September 2020 to amend certain provisions of the Foreign Contribution (Regulation) Act 2010 (Act). The Amendment Act came into effect in the midst of the different conditions wherein the associations had neglected to confirm to the essential legal compliances, for example, maintenance of proper accounts and submission of returns and the same prompted a circumstance wherein the Government needed to drop the certifications of different associations.

The Amendment Act seeks to make specific changes to the FCRA law, first introduced in 2010 by the UPA government and whose rules were amended in 2012, 2015 and 2019. The law provides the framework under which organizations in India can receive and utilize grants from foreign sources. This primarily affects the non-profit sector in India, comprising a wide range of organizations – NGOs that implement development projects, research organizations, civil society activists, etc.

KEY AMENDMENTS

I. Prohibitions on ‘Public Servant’ to accept Foreign Contribution: Section 3

The Amendment Act has widened Section 3 of the Act to add the category of “public servants“, as defined in Section 21 of the Indian Penal Code, 1860, to the list of certain persons that are prohibited from receiving foreign contribution. This will prohibit persons in the service or pay of the Government or remunerated by fees or commission for the performance of any public duty by the Government, from receiving foreign contributions. It appears the reason for inclusion of “public servant” is to prevent those discharging public duty from being influenced through foreign funding and avoid any conflict of interest. However, this would preclude a section of altruistic individuals who fall within the definition of “public servant” from organizing finances for undertaking activities that are intended for public welfare.

II. Prohibition on transfer of foreign contribution: Section 7

The Amendment Act substitutes Section 7 of the Act to prohibit persons authorized to receive foreign contributions under the Act from transferring such foreign contributions to any person. Earlier, non-government organizations (NGOs) registered under Act were permitted to transfer the foreign contribution received by such NGO to:

(i) any other registered NGO; and

(ii) any other unregistered person, with prior permission of the Ministry of Home Affairs (MHA).

III. Opening of bank account in State Bank of India, Delhi: Section 17

Earlier under this Act, a registered organization was required to accept the foreign contribution in a designated FCRA Bank account in a single branch of a scheduled bank and more accounts could be opened in other banks for the utilization of the contribution. The Amendment Act however envisages that the contribution must be received in a designated “FCRA Account” in such branch of the State Bank of India, New Delhi, as notified by the central government. Additionally, no funds other than the foreign contributions can be deposited in this account but for the purpose of utilizing the received contribution, the organization can open another FCRA account in any scheduled bank of their choice.

IV. Lowering the cap on administrative expenses: Section 8

The Amendment Act has amended Section 8 of the Act to decrease the cap on using the foreign contribution for administrative expenses from 50% to 20%. The amendment seems to promote utilization of such funds towards the objective of the grant.

V. Identification requirements: Section 12 A

The Amendment Act has introduced a new Section 12 A which provides that any organization seeking registration, prior permission or renewal under the Act shall have to provide Aadhaar card to all its office bearers or directors or other key functionaries. In case of a foreigner, they must provide a copy of the passport of the Overseas Citizen of India card for identification.

VI. Voluntary Surrender of Certificate: Section 14 A

Under the present act, there had been no such provision for any organization to voluntarily surrender its FCRA registration. The Amendment Act has now added Section 14A allowing the Government to permit a person to voluntarily surrender their registration certificate, if it is satisfied that such person has not contravened any provisions of the Act and the management of its foreign contribution (and related assets) has been vested in an authority prescribed by the Government.

VII. Increase in the maximum limit for the period of suspension

Under the Act, the Government could suspend the registration of a person for a period not exceeding 180 days. The Amendment Act has now amended Section 13 of the Act to give the Government the power to suspend the registration certificate of a person for up to 360 days. The rationale for this change, especially when the emphasis is on making timelines shorter in other legislations, is unclear. This will provide a tool to the Government to keep the registration certificates under suspension for almost a year when it may not have solid grounds to finally cancel the registration.

VIII. Renewal of license:

Under the Act, every person who has been given a certificate of registration must renew the certificate within six months of expiration.  The Bill provides that the government may conduct an inquiry before renewing the certificate to ensure that the person making the application: (i) is not fictitious or Benami, (ii) has not been prosecuted or convicted for creating communal tension or indulging in activities aimed at religious conversion, and (iii) has not been found guilty of diversion or miss utilization of funds, among others conditions.

PURPOSE FOR AMENDMENT

The reasons promulgated by the Government of India behind enacting Foreign Contribution (Regulation) Amendment Act 2020 can be ascertained from the ‘Statement of Objects and Reasons’ that have been attached to the legislation itself. The same have been enunciated below:

  1. The annual inflow of foreign contribution has almost doubled between the years 2010 and 2019, but many recipients of foreign contribution have not utilized the same for the purpose for which they were registered or granted prior permission under the FCRA 2010.
  2. Many persons have also failed to adhere to the basic statutory compliances such as submission of annual returns and maintenance of proper accounts.
  3. During the period between 2011 and 2019, the registration certificates of more than 19,000 recipient organizations, including non-Governmental organizations had been annulled by the Central Government because of the aforementioned reasons.

CONCLUSION:

The Amendment Act hopes to ensure greater transparency and effective monitoring of the inflow of foreign funds and the utilization for the activities set out in their registration. Certain aspects of the Amendment Act require further clarity. While the Amendment Act was notified on 29 September 2020, NGOs will have to wait for notification of the amendment rules under the Act, to specify inter alia designation of the branch of State Bank of India and procedures for opening a special account, before they can fully understand and comply to the new regulatory expectations. In the meantime, however, NGOs can continue to function as usual and operate their designated accounts.


The author is Principal Associate at Hammurabi & Solomon Partners.


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