This article is written by Shraileen Kaur, a student of ICFAI University, Dehradun. In this article, the author discusses about the Foreign Contribution Regulation Act, its history, scope, significance, concerns, limitations, as well as, recommendations regarding cognizable offences.

Introduction

The foreign contributions in India are governed and supervised by the Indian government in accordance with the Foreign Contribution (Regulation) Act, 2010. The Foreign Contribution Regulation Act of 2010 outlines the conditions under which individuals, groups, and businesses in India may receive and use foreign contributions. The authorities saw the necessity to make some changes to the Foreign Contribution Regulation Act, 2010 in order to avoid illegitimate use of financial resources, to strengthen national integrity and regulatory mechanisms. 

The Foreign Contribution Regulation (Amendment) Bill, 2020, was subsequently introduced by the Indian government, and the Parliament approved it.

The Foreign Contribution Regulation (Amendment) Act, 2020, brought several changes to the Foreign Contribution Regulations Act, 2010. Some of these changes include limitations on the kinds of institutions that may receive foreign contributions, restrictions on the transfer and utilisation of foreign resources, additional requirements for obtaining registration, and clauses relating to the revocation or surrendering of a registration certificate.

However, there have been growing apprehensions regarding the Foreign Contribution Regulation (Amendment) Act, 2020 among the non-governmental organisations and other institutions in India that receive international aid.

Foreign Contribution Regulations Act : an overview

All Indian charitable organisations have recently been under official scrutiny for the flow of foreign funds. In April 2015, it was revealed that the Ministry of Home Affairs had withdrawn licences for more than 8,000 charitable organisations because they had not complied with the legal requirements for disclosure of foreign funds. In some instances, the authorities have also revoked registrations granted in conformity with the Foreign Contribution Regulation Act, 2010, passed by Greenpeace India. Numerous reports claim that the government has thoroughly examined the adherence level followed by several institutions with respect to the regulations under the Foreign Contribution Regulations Act. The Foreign Contribution Regulations Act was originally implemented to manage the flow of international funds and verify that these funds are only employed for purposes authorised by law.

All Indian charities that accept donations from abroad must abide by the rules outlined in this Act. Moreover, it is crucial to consider both the key aspects of the Foreign Contribution Regulations Act and the effects of violating statutory obligations.

History of the Foreign Contribution Regulations Act

The Foreign Contribution Regulations Act was initially enacted in 1976 following a debate over the potential use of foreign funds in general elections. The original rule permitted non-governmental organisations to independently accept foreign contributions. However, all the non-governmental organisations had to publicly report how much they accepted and spent annually. They are currently required to register themselves before taking any foreign funding. Moreover, they are unable to transfer the funds to unlicensed charitable organisations. The government believed that most of these organisations were being used as a backdoor gateway for foreign entities to donate money to political groups, which led to the implementation of these laws.

Nearly two decades later, the government started to redraft the Foreign Contribution Regulations Act in order to fill up certain loopholes in the original legislation. The Foreign Contribution (Regulation) Act, 2010 was passed in May 2011. There are certain new regulations and obligations in the 2010 Act. For instance, the Foreign Contribution (Regulation) Act, 1976, only provided protection for newspapers when it came to media institutions that transmitted content. However, the Foreign Contribution Regulation Act, 2010, includes contemporary media forms, like television and the internet. Additionally, it forbids funding more than 50% of an institution’s operational expenses with contributions from abroad.

The Foreign Contribution Regulation Act, 2010

History and rationale behind the introduction of the Foreign Contribution (Regulation) Act, 2010

The Foreign Contribution Regulations Act, 1976 was replaced by the Foreign Contribution Regulations Act, 2010. Policymakers and non-profit voluntary groups that sought and utilised foreign donations engaged in a protracted discussion on numerous problems that led to the introduction of this Act. The legislation serves as an exclusive legal channel for the inflow of foreign charity, which is significant and has changed over time. It plays the role of a facilitator in the operation of socially sound non-profit organisations. Foreign philanthropists depend on the government’s certification of qualified funds that non-profit organisations get and are exempted from paying tax for their donations in the legislation because there is no system for NPVO accreditation or systematic self-regulation as there is in the West. Despite the hassle of registration as well as other regulatory procedures, it protects against abuse, fosters confidence and trust, and supports the legitimacy of non-profit organisations and their contributors. It creates connections between the domestic laws protecting the privacy of beneficiaries and the various charities of contributors all over the world. With the new statute’s implementation, some aspects related to the Foreign Contribution Regulations Act of 1976’s policy, administrative procedures, and court rulings also needed to be addressed. The Foreign Contribution Regulation Act, 1976 failed to control foreign funding properly, and it was not enforced in cases when the amount went beyond what was permitted. Therefore, it is without a doubt that the Foreign Contribution Regulations Act required a significant revision in 1976 to accommodate the shifting nature of India’s economic growth.

By enacting the Foreign Contribution Regulation Act of 2010, it is hoped to regulate funding or donations made by foreign sources to Indian groups. The Act also aims to prevent foreign contributions that could harm the national interest.

This Act’s main goal was to prevent foreign assets from having an impact on India’s decision-making. Any organisation that wishes to obtain funds from a foreign source must register with the Indian Ministry of Home Affairs, submit an annual assessment of its financial records, and provide full disclosure of any individual contributions.

This Act is also supposed to prevent foreigners from using their influence to harm India’s national interest through corrupt public officials or the electoral process. According to Section 35 of the Foreign Contribution Regulation Act, 2010 if a person violates any of the Act’s provisions, the concerned person shall be awarded imprisonment of 5 years. 

Although the Act has financial regulation and internal security as the primary emphasis, despite this, it falls under the ambit of the Ministry of Home Affairs rather than the Reserve Bank of India.

Significant provisions under the Foreign Contribution (Regulation) Act, 2010

According to Section 2(1)(h) of the Foreign Contribution (Regulation) Act, 2010, any donation, delivery, or transfer that comes from a foreign entity is considered to be a foreign contribution. This also includes –

1. Any item that isn’t being given as a gift for domestic consumption. 
2. Any currency, domestic or foreign, also comes within the ambit of foreign contributions.
3. Any foreign security that fits into the definition outlined in Clause 2(o) of the Foreign Exchange Management Act, 1999.

Funds from international entities may be accepted and used by any institution or agency that is recognised by the Ministry of Home Affairs. Such institutions or agencies must work for specific traditional, commercial, socioeconomic, religious, or environmental reasons. However, it is required to keep track of all contributions it has received from abroad in a separate account.

Every year, the Ministry of Home Affairs must get an audited copy of this information from a registered chartered accountant.

However, some individuals and organisations, including judges of the court of law, candidates for government positions, specifically politicians, editorial staff and publishing houses of certified newspapers, employees of the government, members of the national assembly, and political parties, are prohibited from receiving and using any foreign contributions.

This Act permits the termination of the registration of a non-governmental institution if the Ministry of Home Affairs thinks the institution is politically influenced rather than impartial. In most cases, non-governmental organisations receive a certificate of registration with a five-year expiration date.

According to the requirements of this Act, any person whose estate has been dissolved must dispose of their assets in a manner specified by the government. The organisations where the donations obtained from international entities are deposited are required to maintain a separate bank account. It should be noted that only foreign donations may be entered into that account; all other funds are not eligible to be deposited in a separate bank account.

Each and every bank is required to disclose to the prescribed authorities the amount of foreign contributions received as well as other relevant information.

The Foreign Contribution Regulation (Amendment) Act, 2020

The Foreign Contribution Regulation (Amendment) Act, 2020, amends certain provisions of the Foreign Contribution Regulation Act, 2010. The government claims that the objective of the legislation is to enhance enforcement, increase transparency and integrity in the acceptance and utilisation of foreign contributions, and facilitate legitimate non-governmental organisations or other organisations that serve society. The Foreign Contribution Regulation (Amendment) Act, 2020 went into effect on September 29, 2020. The introduced legislation would have a significant impact on Indian communities and other social organisations. The calculated effect of the legislation includes the following – 

1. Charities that have less monetary value would be either restricted or shut down.
2. Front-line jobs would be lost.
3. The progress of the nation towards achieving sustainable development goals is already hampered by the consequences of COVID-19. The Act would adversely impact the ongoing scenario. 

A decrease in international financing for non-profit organisations in India will also compound the consequences of reduced corporate assistance in the form of the mandatory 2 percent charity.

Key priorities of the Foreign Contribution Regulation Act (Amendment), 2020

The key priorities of the Foreign Contribution Regulation Act (Amendment) 2020 are as follows – 

1. To forbid any foreign grants from going to organisations that employ ‘public servants’, or, 
2. To prevent the foreign contributions from going to any organisation that the government ‘controls or owns’;
3. To forbid the transfer of funds obtained under the Foreign Contribution Regulations Act to some other individual or group;
4. To reduce the maximum amount of overhead expenditures that can be paid for using funding under the Foreign Contribution Regulations Act from 50% to 20%;
5. To give the Ministry of Home Affairs more authority to revoke a licence under the Foreign Contribution Regulations Act for a period longer than 180 days;
6. To make Aadhaar a requirement for those who manage beneficiary organisations, and
7. To put a restriction stating that only the State Bank of India in New Delhi may accept foreign donations.

Notable provisions of the Foreign Contribution Regulation Act (Amendment), 2020

Some of the notable provisions that were amended by this Act are as follows:

Limitations placed on public servants for the acceptance of foreign donations

Public servants are those who work for the government and receive payments from it in exchange for carrying out their assigned duties. This amendment was made in an effort to shield public servants from the influence of foreign resources on any of their decisions. In accordance with the Foreign Contribution Regulation Act, 2010, a number of people were prohibited from receiving any foreign contributions, including those running government offices, editorial staff or publishers of authorised newspapers, judges, employees of the government, and political parties, including members of the legislature. Nevertheless, public employees were also included on this list as a result of the amendment in the Act. 

Restriction on the transfer of foreign funds

According to the Foreign Contribution Regulation Act, 2010, no foreign contribution may be transferred to an individual unless that individual has qualified for the authorisation of a foreign contribution or has secured previous authorisation to receive such a foreign contribution. The Foreign Contribution Regulation (Amendment) Act, 2020, however, changed this clause to limit the transfer of foreign donations to other citizens. Now, as per this Act, a ‘person’ is defined as any organisation, entity, or registered business.

Introduction of mandatory identification criteria for registration

The foreign contribution can be accepted – 

1. If a person has a certificate of registration issued by the central government, and
2. If they are not registered but previous authorisation to accept the foreign contribution has been secured by them. 

According to the Foreign Contribution Regulation Act, 2020, the government specifies the procedure through which a person can apply for registration, its renewal, or prior approval for collecting foreign donations. Aadhaar numbers must be provided as a form of identity for all directors, office holders, or key functionaries who are requesting prior approval for membership or the renewal of registration. The purpose of this amendment is to encourage the use of Aadhaar Cards. In accordance with this amendment, the government has access to all the information regarding the non-governmental organisations that receive foreign donations. A copy of the person’s passport or an overseas citizen of India card must also be issued if they are a foreigner for identification purposes.

Compulsory opening of the FCRA account

A beneficiary of a foreign contribution was allowed to receive foreign contributions in an account that can be opened at any of the scheduled banks, in accordance with Section 17 of the Foreign Contribution Regulation Act, 2010. However, Section 17 has been changed by the Foreign Contribution Regulation (Amendment) Act, 2020. Now, it requires that a registered institution or any other recipient of the foreign contribution must acknowledge the funds obtained from foreign entities in a branch of a scheduled commercial bank that has been designated by the Central Government. In this case, the State Bank of India, New Delhi, has been authorised for the purpose of depositing the foreign contributions and acknowledging the same. Under the State Bank of India, New Delhi, an account that receives foreign contributions is labelled as an ‘FCRA Account’. This branch’s account is specifically designed to receive contributions from abroad; no other deposits are permitted. However, accounts can also be formed in other banks to utilise the contribution. Through the centralisation of the inflow of donations into a single bank, the amendment aims to make monitoring and regulating the funds simpler than before. 

Limitations on the utilisation of foreign contributions

A new provision was added along with a change to Section 11 of the Foreign Contribution Regulation Act, 2010 by the Amendment Act. It should be highlighted that any unused foreign contributions may only be accepted or used with the prior approval of the government. 

Suppose the government determines, after conducting a summary investigation, that a person has violated the Act’s provisions. In that case, even if that person has been granted permission under the Foreign Contribution Regulations Act to accept and use foreign charitable donations without government approval, the government may prohibit that person from doing so. According to the amended Act, the government has the authority to prevent a beneficiary of a foreign contribution that has previously been permitted to do so from using the unutilised foreign contribution. The government may use such a remedy if, following a short investigation, there are good reasons to believe that the beneficiary has engaged in any action that violates the Act’s requirements. 

The 2010 Act made changes to the preceding Act, such as limiting the ability to restrict a beneficiary solely in the case of a breach of the Act’s rules. However, a beneficiary can also be restricted for preventive reasons under the 2020 amendment.

Renewal of registration

Prior to the amendment, all individuals who had received certificates of registration under the Act and were registered under its provisions had to renew them within six months. However, with the Foreign Contribution Regulation (Amendment) Act of 2020, specific guidelines were established, leaving it up to the government to decide whether to renew the certificate or not. It is done after conducting an investigation to make sure the applicant is not a fictitious person, has not been charged or convicted of inciting communal violence or engaging in activities related to religious conversion, and has not been found guilty of misusing funds.

Reducing the criteria for using foreign contributions for administrative purposes

According to the Act, recipients are allowed to use funds for the intended purpose. The contributions must not be used by the recipient for any other purpose. The 2020 Act modifies Section 8 of the Foreign Contribution Regulations Act, 2010, in a specific way. Previously, there was a 50% ceiling on how much of the funds collected might be used for administrative purposes. There is now a 20% cap. This clause aims to make it more difficult for non-governmental organisations to use the money for reasons other than those for which it was intended and to encourage them to use it to accomplish the desired goal.

Renunciation of the certificate of registration

After the modification, anyone who wishes to renounce their certificate can do so if they are given a nod from the central government. Suppose the government has a solid reason to ascertain that the person in question has not violated any of the Act’s provisions and designated government authority has already been given the power to handle the person’s funds. In that case, the government may initiate such a process of renunciation of the certificate of registration.

Suspension of the certificate of registration 

In this context, the word ‘Suspension’ means that a registered individual is not permitted to receive or use the funds. The 2020 Act modified Section 13 of the Foreign Contribution Regulations Act of 2010. The timeframe of 180 days that the government may have previously used to suspend a person’s registration certificate during an investigation has now been extended to 360 days as a result of the modification. This clause, however, is criticised since it gives the legislature the authority to keep the FCRA registration certificates suspended if the registration cannot be cancelled.

Criticism and concerns regarding the Foreign Contribution Regulation (Amendment) Act, 2020

In particular, for those defending the rights to freedom of association, freedom of assembly, freedom of expression, and the right to participate in political affairs, the Foreign Contribution Regulations Act is criticised for not conforming to international laws or standards. 

In the words of the United Nations High Commissioner for Human Rights, “It is being used to deter or punish non-governmental organisations for civil liberties reporting and advocacy.” It puts human rights advocates and activists at serious risk while placing disproportionate restrictions as well as burdens on their lawful activities. In India, those who express controversial opinions about the government are most at risk, including people and organisations.

Concerns of the UNHRC with regards to the Foreign Contribution Regulations (Amendment) Act, 2020

The Indian legislature has been given the ability to limit the use of foreign contributions under the Foreign Contribution Regulations Act, 2020. Indian authorities have taken measures to limit the amount of foreign financing that Indian non-governmental organisations can receive. By this modification, the Ministry of Home Affairs has been given broad authority to revoke the status of any group or non-governmental organisation and to refuse to renew the registration of such institutions.

Michelle Bachelet, the United Nations High Commissioner for Human Rights, expressed concern over this, as well as the activists who were detained in India. The Foreign Contribution Regulations Act, 2020, which prevents non-governmental organisations from receiving foreign funds, was suggested to be repealed by the Indian legislature by three experts from the UN Human Rights Council.

According to the UN Human Rights Council, the Foreign Contribution Regulations Act, 2020 is allegedly out of compliance with the Human Rights Council’s standards. These experts took the stance that non-governmental organisations and those who fight for human rights must be given the freedom to carry out their vital roles without being subjected to undue restrictions on receiving foreign funds.

Concerns raised by non-governmental organisations

Both small and big non-governmental organisations were concerned about the law. The non-governmental organisations thought that the public’s perception of them was being distorted by the legislation, making them appear to be evil. Also, the recent amendments have created certain circumstances in which large businesses cannot transfer funds to smaller ones due to the stringent restrictions placed on their operational expenses.

For a period of six months, the Indian government revoked NGO Lawyers Collective’s registration. Indira Jaising and Anand Grover, the organisation’s founders and human rights lawyers, were accused of misusing the foreign contribution and breaking the Foreign Contribution Regulations Act’s rules by using it for something other than what it was intended.

The NGO produced documentation to support the claim that all of its expenditures were made in accordance with the Act’s guidelines, but the suspension was nonetheless implemented. The Lawyers Collective’s registration was allegedly terminated for political reasons, according to the experts at the United Nations Human Rights Council, in order to stifle their criticism of the government’s actions.

Teesta Setalvad, a distinguished name in human rights, was the founder of both Citizens for Justice and Peace and Sabrang Trust, which were both suspended by the Indian government in September 2015 in accordance with the Foreign Contribution Regulations Act. The authorities criticised the founding members of the lawyers’ collective because they helped Teesta Setalvad with her legal issues.

The country’s government also temporarily halted Greenpeace India’s registration in April 2015 for a period of six months. Earlier, the UNHRC expressed alarm to the administration about this.

Viewpoints of some notable people on recent amendments

The viewpoint of the executive director of the Population Foundation of India

During a webinar, Poonam Muttreja, executive director of the Population Foundation of India, spoke about the problems brought on by the most recent amendments. She claimed that non-governmental organisations are now in the shadow of scepticism. The commitment-oriented civil societies will suffer as a result of the modified legislation, which paints non-governmental organisations as evil in the eyes of the public.

The non-governmental organisations are acting out of compassion rather than in search of financial reward. She questioned whether non-governmental organisations are afraid of the government since they speak up and speak out about the most underrepresented topics for which the government has no statistics. This posed a threat to the government authorities.

She has also drawn attention to the fact that the law declares all non-governmental organisations to be of the same character rather than identifying specific non-governmental organisations that are not adhering to the statutory rules. Criminal investigations against the organisations that had misappropriated the funds have occasionally been carried out in the past, so doing so now would not be difficult.

The viewpoint of the director of the Institute for Social Impact and Philanthropy

Ingrid Srinath, the director of the Institute for Social Impact and Philanthropy, condemned the fact that, despite accusations that non-governmental organisations were concealing or failing to disclose the identities of their members during debates on the Amendment Bill, no proof was provided. Despite the fact that foreign direct investment is more than fifteen times more than foreign contributions, she also questioned the targeting of only foreign contributions and not foreign direct investment. In addition, she said that out of the 21,490 entities with licences, only about 4,000 had received sub-grants. Only 1,803 organisations have been documented to have used 20% of the foreign contributions when it comes to administrative costs.

Nityanand Rai, the minister of state for housing, stated that the purpose of the amendments is to increase accountability and stop the improper use of money from international funds. 

However, the issue also pertains to the Rs 9,600 crore flowing to the PM-CARES Fund, which is sponsored by foreign sources but continues to be exempted under the Foreign Contribution Regulations Act. It also includes the Rs 6,000 crore coming through electoral boards and even from overseas sources that are entirely invisible.

The viewpoint of the chief executive officer of VANI

There are numerous non-governmental organisations that operate in remote and rural regions without access to any foreign funding, according to Harsh Jaitli, chief executive officer of VANI, the peak body of Indian voluntary development organisations. As a result, many small and large groups collaborate in order to ensure funding and growth. The new amendment act will have an impact on these groups.

Non-governmental organisations play a significant role whenever there are floods or other urgent situations, such as the current COVID-19 issue. All local groups collaborate with non-governmental organisations in such circumstances.

Even if we focus on recent events, for instance, the Assam floods, local groups collaborated with non-governmental organisations to assist the flood victims and address the problems created by the flood. Both the Prime Minister and the Niti Aayog expressed their admiration for the non-governmental organisations’ work. In contrast, none of these non-governmental organisations was consulted prior to the most recent Foreign Contribution Regulations Act revisions.

The viewpoint of the director of the Concept Society in Madhya Pradesh

Hemal Kamat, the director of the Concept Society in Madhya Pradesh, claimed that her group has been assisting Dalit and Adivasi women for more than 15 years. However, the most recent amendments have made it more difficult for non-governmental organisations to survive. She referred to it as ‘absurd’ to declare on the one hand that women should be made self-reliant through the creation of organisations, or “Atma Nirbhar,” and on the other hand, to make amendments that are at odds with both the self-reliance of women and the survival of non-governmental organisations. She argued that many employees in these organisations make very little money despite having a significant impact on people’s lives. As a result of the new amendments, which lower the cap on administrative expenditures from 50% to 20%, it would be highly challenging to compensate these employees. 

The viewpoint of the founder and managing director of LEADS Trust

The small non-governmental organisations that operate in the backward states are the ones who would be most affected by the latest amendments. The non-governmental organisations have received multiple calls from the grassroots workers working at different non-governmental organisations concerned that the most recent changes would make it impossible for them to support their families. A.K. Singh, the founder and managing director of LEADS Trust, had been collaborating closely with small non-governmental organisations in states like Jharkhand, Odisha, and Chattisgarh. 

He argued that it is quite devastating to see an amendment come in this way at a time like COVID-19 when non-governmental organisations and government authorities are working hard to collaborate in order to enhance the lives of the people. He further explained that not all organisations have the ability to generate money. He said that large organisations raise money on behalf of small non-governmental organisations that deal with tribal people and other backward segments of society in order to link them with developmental efforts.

Response by the Government of India to these concerns and criticism

The Indian lawmakers defended themselves by pointing out that the amount of money coming into the nation from abroad increased between 2010 and 2019. However, the issue is that the money is not being used for what it was initially intended for or the one for which permission had been granted. In order to clarify its position, the Indian government stated that the Foreign Contribution Regulations Act, 2010 amendment was introduced in order to streamline the entry of foreign currency. 

However, the Foreign Contribution Regulations Act 2010 failed to ensure the legitimate utilisation of foreign funds. As a result, the legislature suggested an amendment to the Foreign Contribution Regulations Act of 2010 in order to limit the influx of such unregulated foreign contributions into India and also to prevent the use of these foreign donations for immoral and illegal purposes, as these things threaten India’s internal security. Thus, this amendment has raised the level of accountability and openness for foreign contributions.

Stance of the Indian courts

The stance of the courts of law in India has been illustrated through numerous judgements. 

Indian Social Action Forum v. Union of India (2020)

Facts of the case

Initially, in this case, the writ suit was dismissed by the Delhi High Court. Later, the Indian Social Action Forum appealed to the Supreme Court, claiming that the clause relating to groups that are deemed to be of a ‘political nature’ breaches a number of rights guaranteed by the Constitution. These include the rights to life and liberty, the right to form an association, the right to equality, as well as the fundamental freedoms of speech and expression. 

Issues involved in the case

Whether clauses of ‘political nature” breach fundamental rights or not.

Judgement of the Court

In this case, the Supreme Court ruled that certain non-governmental organisations cannot be denied access to foreign funds because they are not involved in party politics or active politics and that the definition of ‘political nature’ cannot be extended to ‘active politics’ and ‘party politics’. 

In order to justify this decision, the Court reasoned that the phrase ‘political interests’ illustrated under Rule 3(v) of the Foreign Contribution Regulations Amendment Rules, 2011 was overly ‘vague’ and ‘susceptible to misuse’. Additionally, it was recognised that lawful political action methods, such as strikes and protests enshrined under Rule 3(vi), are protected and that the Foreign Contribution Regulations Act should not be utilised to deny an organisation its legal right to accept foreign contributions.

The Apex Court further stated that the Delhi High Court’s ruling that the Foreign Contribution Regulations Act 2010 provision’s language was comprehensive but neither ambiguous nor imprecise, which was affirmed by the Supreme Court in the appeal. Although the word political interests used in Rule 3(v) of the Foreign Contribution Regulations Rules is not inherently illegal. It is vague and susceptible to misuse and must be defined extremely carefully.

The Supreme Court acknowledged that lawful political actions such as strikes and protests are legal and that the Foreign Contribution Regulations Rules should not be used to deny an organisation its right to receive foreign contributions. The Court ruled that certain non-profit organisations that are not involved in active politics or party politics should not be denied access to foreign donations and that the definition of ‘political interests’ or ‘political action’ cannot be expanded to include activities that are not part of active politics or party politics.

Association for Democratic Reforms v. Union of India (2000)

Facts of the case

It is an ongoing case before the Supreme Court. In this case, the petitioner claimed that the amendment to the Foreign Contribution Regulations Act 2010 opened channels for foreign funding of Indian political parties. 

Issues involved in the case

Whether amendments in the Foreign Contribution Regulations Act 2010 have been intended towards providing foreign funding to political parties in India?

Judgement of the Court

In the affidavit, the Indian Election Commission acknowledged that the amendment “would permit unrestricted foreign funding of political parties in India, which may result in foreign firms influencing Indian policies.”

On the other hand, the Supreme Court claimed that it requires an ‘in depth hearing’, which hasn’t been scheduled for the past 2.5 years.

Noel Harper and Co. v. the Union of India (2022)

Facts of the case

In this case, the question was raised regarding the amendments made in the Foreign Contribution (Regulation) Act, 2010. The petitioner claimed that the amendment was violative of the constitutional rights guaranteed by the constitution of India as well as that they were arbitrary in nature. 

Issues involved in the case

Whether the changes made to Sections 7, 12(1A), 12A, and 17(1) of the Foreign Contribution (Regulation) Act, 2010 are arbitrary, irrational, and violative of the constitutional rights guaranteed by Articles 14, 19, and 21 of the Constitution of India?

Judgement of the Court

The Supreme Court ruled that Sections 7, 12(1A), 12A, and 17 of the 2010 Act, which was changed by the Foreign Contribution (Regulation) Amendment Act, 2020, are in violation of the Constitution. The Court further stated that regarding Section 12A, the primary functionaries/office bearers of the applicant (associations/non-governmental organisations) who are Indian nationals are expected to provide an Indian passport for the purpose of their identification. The requirement in Section 12A regarding identification shall be deemed to have been substantially complied with in every case.

Recommendations provided by the International Commission of Jurists

The International Commission of Jurists has advised the Indian government to take the following actions: 

1. The Indian Parliament should establish an independent committee to review the Foreign Contribution Regulations Act, 2020 to ensure that it complies with India’s constitutional provisions and international human rights obligations, particularly those which guarantee freedom of association, freedom of assembly, freedom of speech, and expression, and the right to participate in political affairs of the nation. 
2. As per the review done by the International Commission of Jurists, at least six statutory provisions and related rules should be repealed or modified. 
3. Section 5 of the Foreign Contribution Regulations Act 2010 and Rule 3 of the Foreign Contribution Regulations Rules 2011 should be deleted or altered to only apply to provisions connected with ‘active politics’ or ‘party politics’, with precise definitions of these terms. These prohibitions should not be used to deny access to foreign funds to organisations because they are not involved in active politics or party politics. 
4. There is a need to repeal or alter Sections 9 and Section 12 of the Foreign Contribution Regulations Act, 2010 in order to define “prejudicial” impact on “public interest” in a precise and limited manner. Additionally, there is a need to amend Sections 9 and 12 of the Foreign Contribution Regulations Act 2010 to change other classification terms that are used in the provisions, such as having a negative effect on India’s sovereignty and integrity, freedom or fairness in the election to any legislature, friendly relations with any foreign state, and harmony between religious, racial, social, linguistic, or regional groups, castes, or communities. 
5. There is a recommendation to repeal Section 2 of the Foreign Contribution Regulations Act 2020, which, in its current form, includes a classification that affects many people. Also, there should be an amendment in Section 3 of the Foreign Contribution Regulations Act 2010 restricting access to foreign money for public employees.
6. There is a need to repeal Section 3 of the Foreign Contribution Regulations Act 2020, which amends Section 7 of the Foreign Contribution Regulations Act 2010 and forbids registered organisations from giving foreign funding to other associations and organisations.  
7. Repeal Section 12 of the Foreign Contribution Regulations Act 2020 and replace it with Section 17 of the Foreign Contribution Regulations Act 2010, which mandates that anyone applying for the Foreign Contribution Regulations Act certificate must open a “Foreign Contribution Regulations Act Account” at the State Bank of India in New Delhi. 
8. The government of India should also consider repealing Section 4 of the Foreign Contribution Regulations Act 2020, which modifies Section 8 of the Foreign Contribution Regulations Act 2010 and lowers the maximum percentage of foreign money that can be used to pay administrative costs from 50 to 20 percent.

Conclusion

The Act aims to control how people, associations, and businesses can accept and use funding from foreign sources while also keeping an eye on any potential transfers of cash to other parties. Additionally, the maximum amount that can be used to pay for administrative costs from foreign contributions has been reduced from 50% to 20%. By expanding the existing 180-day window to include more time, the legislation also gives the ability to revoke Foreign Contribution Regulations Act certificates. Many people think that the amendment would inhibit research and hinder the efforts of non-governmental organisations in the nation. Additionally, it will affect employment as non-governmental organisations will no longer be a lucrative employment option.

Nowadays, non-governmental organisations receive a larger portion of foreign donations. The number of non-governmental organisations in the nation has also grown, and as a result, there have been many cases where the money has been used for reasons other than those for which it was intended. Therefore, it was necessary for the government to limit such practices.

The Foreign Contribution Regulations Act, 2020 is the legislation that will aid the government in making sure that the money obtained from foreign sources is only used for legitimate purposes and to help non-governmental organisations in the nation meet their goals in the best possible manner.

Frequently Asked Questions (FAQs)

What effects will the amendments have on non-governmental organisations that are not FCRA-registered? 

Previously, non-FCRA registered non-governmental organisations were permitted to receive a percentage of FCRA funds from FCRA registered non-governmental organisations with the government’s prior approval. Such funds shall not exceed 10 percent of the foreign contribution received by the FCRA registered non-governmental organisations. After the amendment act, collaborations within the non-governmental ecosystem will be impacted. Service agreements for particular services rendered to an FCRA-registered firm are unaffected by the application of the 18% GST. The revenue generated by the supply of such services shall not exceed 20% of the overall revenue made by the non-governmental organisations. 

Also, as the amendments are in effect, the requisites for FCRA registration have changed. The requisite eligibility requirements and paperwork needed for such registration include Aadhaar, affidavits to be signed either by office bearers or chief functionaries, as well as the ban on having public officials on the board.

What impact will these amendments have on CSR agencies that can only support NGO partners that are FCRA-registered? 

• CSR funders are required to verify through due diligence or by requesting an assurance from their non-profit partners that their governing boards are free of any “public servants.” 
• CSR funders must incorporate the necessary restrictions in terms of participation with non-profit partners in order to prevent the recipient entity from using their funds for additional purposes. 
• CSR funders should also make sure that the combined budget and purpose of utilisation of funds by non-profit organisations are appropriately followed. 
• In order to prevent projects from getting stuck in the middle of execution owing to a delay in the process of renewing the FCRA certificate, CSR agencies would also need to be informed of the date of expiry of the FCRA registration of their non-profit organisations.

Will this Act have an effect on the services that an individual offers to non-governmental organisations that are registered with the Foreign Contribution Regulations Act? 

The definition of a foreign contribution does not apply to any payments that an individual receives in lieu of services provided in the ordinary course of business. These amendments may have an impact only if the FCRA-registered non-profit counts the service fees as part of its administrative costs, which are now capped at 20% of the total foreign donation. If the services are related to managing or operating the business, the non-profit organisation may classify the service fees as “administrative costs” depending on the type of services provided. The fees can also be classified as “professional charges” in certain situations.

References

1. https://www.icj.org/wp-content/uploads/2020/12/India-FCRA-Briefing-Paper-2020-ENG.pdf
2. https://www.jetir.org/papers/JETIR2101242.pdf
3. https://fcraonline.nic.in/home/PDF_Doc/annual/ar2011-12.pdf

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