THE FOREIGN CONTRIBUTION (REGULATION) AMENDMENT ACT, 2020

An NGO is registered under the FCRA Act, 2010 or granted Prior Permission by Central government for receiving and utilising foreign funds/contribution. It can receive and utilize foreign funds/ contribution for a definite cultural, economic, educational, religious or social programme as provided under Section 11 of the Act.

The Act came into force on May 1, 2011 and has been amended twice. The first amendment was made by section 236 of the Finance Act, 2016 and the second by section 220 of the Finance Act, 2018.

Inflow of foreign contributions

A first-ever exercise conducted has revealed that India has at least 31 lakh registered NGOs — more than double the number of schools in the country, 250 times the number of government hospitals, and represent one NGO for 400 people as against one policeman for 709 people.

An amount of over Rs 58,000 crore foreign funds were received by NGOs registered under the FCRA between 2016-17 and 2018-19. The annual inflow of foreign contribution has almost doubled between years 2010 and 2019 but many NGOs/associations have not utilised the funds for the declared or approved purposes, as per their statement of objects.

Many of these were found wanting in ensuring basic statutory compliances such as submission of annual returns. As a result, the Govt. of India cancelled the FCRA certificates of over 19,000 organisations between 2011 and 2019. Besides, criminal investigation were also conducted against dozens of NGOs which indulged in outright misappropriation or misutilisation of foreign contribution.

Key Changes in the Act made now:

Prohibit public servants to receive foreign funds

The amendment bill prohibit ‘public servants’ from receiving any foreign funding. The competent authority, every arbitrator and every officer empowered by the Central Government or the competent authority, while exercising any power or performing any duty under this Act, shall be deemed to be a public servant within the meaning of section 21 of the Indian Penal Code (45 of 1860).  This include a person holding a government office or job by election or appointment; person in public service.

No-sub-granting or transfer of funds

Section 7 of the principal Act stand amended as:

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.

This means an institution registered or having prior permission under FCRA cannot make sub-grant/s to any other intuition from foreign contributions received in its designated FCRA Bank account even if the second recipient or sub-grantee has registration or prior permission under FCRA.  

This amendment will be a major blow to NGOs working collaboratively on projects and programs.

This may also place ‘foreign funding agencies’ or ‘foreign grant-making organizations’ registered under FCRA in difficulty.

Cap on Administrative expenditure

As per Section 8 of the principal Act, in sub-section (1), at present the institutions are allowed to spend up to fifty per cent of foreign funds received during the fiscal year on admin expenditure. The Act now reduce it to twenty percent (max).

This amendment will cause a major blow to the organisations in terms of payment of salaries, professional fees, utility bills, travel and other such expenditure.

Declaring the Bank Account

In section 12 of the principal Act, after sub-section (1), the following sub-section shall be inserted, namely:  “(1A), Every person who makes an application under sub-section (1) shall be required to open FCRA Account in the manner specified in section 17 and mention details of such account in his application.”

Aadhaar of Board Members & Copy of passport and OCI card

The bill provides for the insertion of a new section 12A empowering the Central government to require Aadhaar number, etc. as an identification document.

Section 12(A) to read as : Person/Organisations applying for registration, prior permission or renewal of FCRA registration shall be required to “provide as identification document, the Aadhaar number of all its office bearers or Directors or other key functionaries, by whatever name called, issued under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016, or a copy of the Passport or Overseas Citizen of India Card, in case of a foreigner.

Suspension in case of contravention

If the Ministry of Home Affairs “on the basis of any information or report, and after holding a summary inquiry, has reason to believe that a person (person includes an association) 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 (or association) shall not utilize the unutilized 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.”

As such, MHA will have the power to freeze the FCRA Bank account in case of any contravention of the FCRA law.

Suspension of registration

Currently the FCRA registration of an organization which violates the provisions of FCRA may be suspended for “such period not exceeding one hundred and eighty days as may be specified”.

Section 13 to read as: The Bill proposes to amend this to “one hundred and eighty days, or such further period, not exceeding one hundred and eighty days, as may be specified”.

This amendment will empower MHA to suspend FCRA registration of an organization for more than six months.

Voluntary surrendering FCRA registration

Under current law there is no provision for an organization to voluntarily surrender its FCRA registration. Section 14(A) of the Act now proposes that on a request being made in this behalf by the organization, MHA may permit any organization to surrender the certificate granted under this Act, if, after making such inquiry as it deems fit, MHA is satisfied that such organization has not contravened any of the provisions of FCRA, and the management of foreign contribution and asset, if any, created out of such contribution has been vested in the competent authority as provided in Section 15(1).

While this amendment will prove to be a boon for organisations no longer interested in receipt of foreign funds, it will be a bane for organisations which may have created assets (e.g. schools, hospitals, vocational training centers) out of foreign funds.

On surrendering FCRA registration, assets created out of foreign contributions may also have to be surrendered to the competent government authority.

Inquiry before renewal of FCRA

Generally, renewal of FCRA registration has been relatively easy for organisations who have been compliant with requirements under FCRA such as filing annual returns in online Form FC-4, quarterly intimation etc.

However, it is stipulated now that MHA, before renewing the certificate, shall make such inquiry, as it deems fit, to satisfy itself that such organization has fulfilled all conditions specified under Section 12(4) of FCRA 2010.

FCRA Bank Account with State Bank of India

Currently person/organisations are required to open their designated FCRA Bank account with any Core Banking Compliant Bank integrated with the Public Financial Management Systems (PFMS).

In Section 17 of the principal Act, the following section shall be substituted, as: —

Sec. 17. (1) Every person who has been granted certificate or prior permission under section 12 shall receive foreign contribution only in an account designated as “FCRA Account” by the bank, which shall be opened by him for the purpose of remittances of foreign contribution in such branch of the State Bank of India at New Delhi, as the Central Government may, by notification, specify in this behalf:

Provided that such person may also open another FCRA Account in any of the scheduled bank of his choice for the purpose of keeping or utilising the foreign contribution which has been received from his FCRA Account in the specified branch of State Bank of India at New Delhi:

Provided further that such person may also open one or more accounts in one or more scheduled banks of his choice to which he may transfer for utilising any foreign contribution received by him in his FCRA account in the specified branch of the State Bank of India at New Delhi or kept by him in another FCRA Account in a scheduled bank of his choice:

(1) Provided also that no funds other than foreign contribution shall be received or deposited in any such account.

(2) The specified branch of the State Bank of India at New Delhi or the branch of the scheduled bank where the person referred to in sub-section (1) has opened his foreign contribution account or the authorised person in foreign exchange, shall report to such authority as may be specified,—

  • the prescribed amount of foreign remittance;
  • the source and manner in which the foreign remittance was received; and
  • other particulars,

in such form and manner as may be prescribed.”

The Bill now proposes that organisations granted registration or prior permission under FCRA shall receive foreign contribution only in an account designated as “FCRA Account” by the bank, which shall be opened by him for the purpose of remittances of foreign contribution in such branch of the State Bank of India at New Delhi, as the Central Government may, by notification, specify in this behalf, provided that such organization may also open another FCRA Account in any other scheduled bank of their choice for the purpose of keeping or utilizing the foreign contribution which has been received from the FCRA Account in the specified branch of State Bank of India at New Delhi.

Thus, from the requirement of having designated FCRA Bank account with any Core Banking Compliant Bank integrated with the Public Financial Management Systems (PFMS) it has now been narrowed down to such branch of the State Bank of India at New Delhi.

The Bill also makes it incumbent on the specified branch of the State Bank of India at New Delhi or the branch of the scheduled bank where the organization has opened the foreign contribution account to report to the government of India, the prescribed amount of foreign remittance; the source and manner in which the foreign remittance was received; and other particulars, in such form and manner as may be prescribed.’.

Rationale for Amendment

The Government of India’s rationale for these draconian and cumbersome amendments can be found in the ‘Statement of Objects and Reasons’. The statement avers:

  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 said Act.
  2. Many of them were also found wanting in ensuring basic statutory compliances such as submission of annual returns and maintenance of proper accounts. This has led to a situation where the Central Government had to cancel certificates of registration of more than 19,000 recipient organisations, including non-Governmental organisations, during the period between 2011 and 2019.
  3. Criminal investigations also had to be initiated against dozens of such non-Governmental organisations which indulged in outright misappropriation or misutilization of foreign contribution.

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