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This article is written by Gitika Jain who is pursuing a Certificate Course in Banking & Finance Practice: Contracts, Disputes and Recovery from LawSikho. 

Introduction

The Government of India under the provisions of the Foreign Contribution Regulation Act, 2010 regulates and monitors foreign contribution in India. The Act provides for the way in which the acceptance and utilization of foreign contribution of foreign hospitality are made by individuals associations and companies that exist in India. There were some reasons for which the government felt the need to make changes or amendments in the FCRA Act, 2010 like compliance mechanism strengthening, misuse of funds, strengthening of national security, enhancing transparency and accountability in the hands of the recipient of foreign contribution. Therefore, the Government of India introduced FCRA Bill, 2020 which upon the receipt of the asset of Rajya Sabha on 21st September, 2020 and Lok Sabha on 23rd September, 2020, faced some concerns in the nongovernment organizations. 

After introducing the Foreign Contribution Regulation Amendment Bill, 2020 in the Parliament by the Ministry of Home Affairs, Government of India, the Bill met with stern opposition from the members of opposition in the parliament and from civil society in general. Even after being opposed by the opposition parties, the Bill was passed in both the Houses of Parliament and sent to the President for his assent. After his assent, the bill thereby became a law.

With respect to restrictions on the type of entities receiving foreign contribution, restriction on transfer and utilization of foreign funds, any additional conditions for obtaining registration and the provisions on suspension or surrender of certificate of registration, the amended Act brought a slew of amendments to FCRA.

Prohibition to accept foreign contribution

Analysis

The FCR Amendment Act added to the list of persons, public servants, who were prohibited from accepting foreign contributions. Section 3(1)(c) of the FCRA prohibited some persons from accepting contributions from foreign such as members of the judiciary, members of legislature, candidates for election, etc. 

Section 21 of Indian Penal Code describes the term public servant.

Prohibition to transfer foreign contribution

Section 7 of the FCRA, 2010

“No person who(a) is registered and granted a certificate or has obtained prior permission under this Act; and (b) receives any foreign contribution, shall transfer such foreign contribution to any other person unless such other person is also registered and had been granted the certificate or obtained the prior permission under this Act: Provided that such person may transfer, with the prior approval of the Central Government, a part of such foreign contribution to any other person who has not been granted a certificate or obtained permission under this Act in accordance with the rules made by the Central Government.”

FCRA Amendment Act

“No person who(a) is registered and granted a certificate or has obtained prior permission under this Act; and (b) receives any foreign contribution, shall transfer such foreign contribution to any other person.”

Analysis

In the original Act of 2010 a person who received any kind of foreign contribution was not allowed to transfer it to any other person unless such person is also registered to receive foreign contribution for that person has been permitted from the central bank to obtain such contributions from the foreign entities. The amended act changes this and restricts the transfer of foreign contribution to any person it respective whether the person receiving it has been registered under the Act or has sought permission from the central government prior hand.

According to FCRA Act, 2010, a person has been defined as a person that includes an individual registered company or an association. After the amendment the government has also restricted NGOs from acting as an intermediator by way of which foreign contributions are received and then transferred to smaller NGOs for some social projects. These NGOs largely depend upon or other NGOs that grant them foreign contribution but after the amendment they will have serious consequences and not only this they will have wide impact on the present contracts based on which the NGOs have received the foreign funds.

Aadhaar of key persons for registration

A new section which is Section 12A has been inserted by way of amendment in the FCRA. The section provides additional compliance that the person who wants prior permission, registration or renewal of registration has to provide Aadhaar number of its directors, key functionaries or its office bearers so that it serves as an identification document or a copy of passport for identification purposes.

Restriction to utilize foreign contributions

As per FCRA, Section 11(2) provided that “if a person referred to in subsection 1 and 2 has been found guilty.”

As per the substituted provision, provided that the central government it on the basis of any information or report, and after holding a summary inquiry, has reason to believe that a person who has been granted prior permission has contravened any of the provisions of this Act, it may, pending any further inquiry, direct that such person shall not utilise the unutilised foreign contribution or receive the remaining portion of foreign contribution which has not been received or, as the case may be, any additional foreign contribution, without prior approval of the Central Government: Provided further that if the person referred to in subsection (1) or in this sub-section has been found guilty.”

Analysis

The amended act included that the government can also restrict the persons on the usage of unutilized foreign contribution have been permitted to receive such contribution based on any for the enquiry only if the government is of the opinion that the person has contravention to any of the provisions of the act. However, the method which the government will use with regard to search and utilization of foreign contribution by persons who have been proven guilty is not included in the amended act. But the rules attached to the amendment can help further to clarify in relation to such mechanisms. 

Additional checks for renewal of certificate

The amended act provides for the government to conduct an enquiry before renewing the certificate related to whether the criteria provided in Section 12(4) of the Act have been satisfied. The criteria include that the person is making an application is not fictitious or has not been convicted for creating any tension or disharmony or have been interest in such activities through inducement directly or indirectly or has not been found guilty for misutilisation of the funds in any matter whatsoever.

Reduction in use of foreign contribution for administrative purposes

Rule 5 of FCRA Rules, 2011 provided for a limit of utilisation of administrative expense that was 50%. However, that revised limit provided for 20%.

Analysis

Production of limits from 50 % to 20% in administrative expenditure may turn out to be a challenge for many private sector organisations as administrative expense according to Rule 5 of FCRA Rules, 2011 includes cost of accounting, cost of writing, filing reports, payment of salaries and wages of members. The only objective of capping administrative expenditure from 50 % to 20% was to ensure that the funds from foreign contributions are utilised only for the purpose of the main objective and nothing else.

FCRA Account

In this table substitution of an already existing section which is Section 17 which provided that if any foreign contribution is received it must be received only e in an account which is designated by the bank as an FCRA account in the State Bank of India New Delhi branch has been notified by the central government. The funds received other than foreign contribution in this account will not be accepted.

Analysis

In order to bring more transparency for the receipt of foreign contribution and utilisation of it in India, Section 17 was introduced by the government.

The inflow of funds to designated bank account in a Central Bank of India branch New Delhi will help the government to be in a position to keep an eye on the movement of funds. Even though the centralisation of funds has advantages but it also has to face many challenges such as practically difficult to open a bank account in a particular State(Delhi) to receive all the foreign contributions belonging to other states.

Suspension of registration

There was an amendment in Section 13 of the Act which earlier stated 180 days period but the revised period is additional 180 days.

Surrender of certificate

There was an insertion of a new section which is Section 14(a) which provided that if any request exist then the central government may give permission to a person to surrender their registration certificate and such permission can only be granted if after an enquiry the central government is satisfied that the person has not contravene any of the provisions of the act and the management of the assets and foreign contribution has been given in the manner prescribed by the government.

Conclusion

With the introduction of the FCRA Amendment Act, there is a hope that the Government of India will soon bring changes in the FCRA rules as well so that it can tackle the observations that have been highlighted by many industries and reduce the level of difficulties in the implementation of FCRA Amendment Act, 2020.

References

  1. https://www.mondaq.com/india/government-contracts-procurement-ppp/1017466/key-insights-on-the-fcra-amendment-act-2020#:~:text=The%20Government%20of%20India%20thereafter,government%20organisations%20receiving%20foreign%20contribution
  2. https://www.internationallawoffice.com/Newsletters/Corporate-Commercial/India/Clasis-Law/Key-changes-under-Foreign-Contribution-Regulation-Amendment-Act
  3. https://www.mondaq.com/india/government-contracts-procurement-ppp/994272/recent-amendments-in-the-foreign-contribution-regulation-act
  4. https://www.azbpartners.com/bank/key-changes-introduced-by-foreign-contribution-regulation-amendment-bill-2020/
  5. https://www.azbpartners.com/bank/foreign-contributions-key-amendments/

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