Indian companies with a majority foreign shareholding will not get relief from the stringent norms that govern their contributions and donations within the country. A Parliamentary Standing Committee on Home Affairs had recommended relaxing the rules that prohibited Indian companies with more than 50 per cent foreign shareholding from donating money or providing hospitality overseas (like paying for travel, boarding, transport and medical treatment abroad) to individuals and companies within the country.

The proposal to relax these rules was proposed following a review of the Foreign Contribution (Regulation) Bill 2006, which was introduced in the Rajya Sabha in 2006. The Bill seeks to consolidate the law to regulate the acceptance and utilisation of foreign contribution or foreign hospitality by individuals and companies, if they are detrimental to national interest.

The relaxation would have meant that Indian companies with majority foreign shareholding would not be treated as “foreign sources”. In other words, the bar ordinarily imposed on donations by such companies to various entities would have been removed.

Last month, the ministry of home affairs rejected the proposal to relax the relevant rules on the ground that the department of industrial policy and promotion has held that companies with majority foreign shareholding should be treated as “foreign sources”.

Based on the home affairs ministry’s view, a cabinet note on changes in the Foreign Contribution (Regulation) Bill has rejected the parliamentary standing committee’s proposal to exclude Indian companies, with foreign shareholding of  more than 50 per cent from the definition of “foreign source” .

The amendments to the Bill will now go to the cabinet for clearance. The relaxation, if it had been accepted, would have helped many companies incorporated in India in telecom, banking, ISPs, airport infrastructure, atomic minerals, satellite operations (where foreign direct investment of up to 74 per cent is allowed), among others, to get out of the purview of the legislation.

The Foreign Contribution (Regulation) Act, to which amendments are being made, lays down the rules and regulations for accepting “foreign contributions” by companies, associations and individuals as well as accepting foreign hospitality by individuals.

Under this law, candidates fighting elections, government employees, members of any legislature, judges, office-bearers of political parties, owners, printers and publishers of  newspapers as well as correspondents, organisations of political nature, and companies producing audio, news and current affairs programmes for the electronic media are prohibited from accepting foreign contributions ( which means a donation, transfer of an article or foreign currency) from “foreign sources”.

A foreign source is defined to include foreign governments, international agencies, a corporation incorporated abroad, multinationals, foreign individuals, foreign trade unions, foreign trusts  amongst others.

However the prohibition is not applicable to foreign contributions by way of salary, payment for international trade and remittances from relatives among others. Also companies in India which want to accept “foreign contribution” have to be registered under the law and seek prior permission from the Central Government.

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June 2021