The Foreign Contribution (Regulation) Act (FCRA), 2010 (Act) regulates the acceptance and utilisation of foreign contribution by individuals, associations and companies. The Parliament has recently passed the Foreign Contribution Regulation Amendment Act, 2020, which is now in force since 29.08.2020. The amendments have been brought about to strengthen the compliance mechanism, enhance the transparency and accountability in the receipt and utilisation of foreign contribution and facilitate genuine non-governmental organisations working for the welfare of the society. Further the Central Government has, vide notification dated 10.11.2020 brought into force the Foreign Contribution Regulation (Amended) Rules of 2020 (Amended Rules 2020) amending the Foreign Contribution Regulation Rules, 2011.
Among the many changes brought in to force, the key changes introduced in the Act is as follows-
Restriction on accepting foreign contribution-
Section 3(1)(c) of the Act prohibits the acceptance of foreign contribution by a judge, government servant or employee of any corporation or any other body controlled or owned by the Government has now been amended to include within its ambit ‘public servants’ as defined under Section 21 of the IPC.
In addition to the same, the explanation 2 added to the said sub-clause defines corporation to mean a corporation owned and controlled by Government. This inclusion, in my opinion, is a welcome move in ensuring the autonomy of persons involved in discharge of public functions despite not being employees of the Government.
Cap on utilization of Funds for administrative purposes
Section 8(1)(b) of the Act has been amended to restrict the utilization of foreign contribution towards administrative expenses to 20% from the previous cap of 50%.
Liberty to Surrender One’s Certificate
Now, FCRA registered persons can surrender their FCRA Certificate by making a request to the Central Government, provided the government is satisfied that the provisions of the FCRA have not been contravened in any manner by such Applicant.
Expanded scope of governmental control
1. Restriction on utilization funds pending governmental inquiry
Earlier a person held guilty under the Act was restrained from utilising/receiving foreign contribution. Now, the government can restrict utilization/receipt of funds if it has reasons to believe that a person who has been granted prior permission to accept foreign contributions has contravened the provisions of the Act, on the basis of any information or report and after holding a summary inquiry.
2. Enquiry before renewal of FCRA certificate-Now the Central Government can make an enquiry to satisfy itself that the person who is getting certificate renewed, has fulfilled all conditions specified in the Act even while renewing the registration.
3. Submission of Identification Details– Office bearers, directors or key functionaries of the registered body have to submit their Aadhar Card (for citizens) and passport / Overseas Citizen of India (OCI) Card details (for Foreigners) even for renewal of their Certificate of Registration.
4. Increased suspension period-. Now FCRA certificate can suspended for a further period of 180 days, in addition to the existing period of 180 days.[1]
Centralised FCRA Account– Section 17 has been amended to make it mandatory to open a “main FCRA Account” with only the designated branch of the New Delhi Main Branch (NDMB) of the State Bank of India (SBI)[2], at New Delhi and receive Foreign Contribution only in the main FCRA account in the said NDMB Branch of SBI. FCRA registered persons can retain their existing FCRA Account as “another FCRA account” and can link the same account with the main FCRA account in NDMB SBI Branch. As per the MHA Notification, FCRA registered entities have been given time till 31.03.2021 to comply with the same.
Restriction on transfer of foreign contribution
The most controversial of all changes, would be the amendment made to section 7. Earlier, the foreign contribution could be transferred to any FCRA registered person, and also to an unregistered person by taking prior permission of the Government. Now, Foreign Contribution (“FC”) received by any person cannot be transferred to any other person, even if it is permitted/registered under FCRA. This amendment has been facing brick-bats from various non-profit civil society organizations, as it may adversely impact grass-roots level small NGO’s who do not have the wherewithal to attract large donations and depend on collaboration with large NGO’s with fund raising capabilities. The amendment, along with the capping of expenditure at 20% will also affect collaborations for policy research, as foreign donors will not be able to engage institutions and policy think tanks to undertake research projects requiring multi-layered/tiered networking with various other small grass-roots level NGOs’.
Service Contracts as the way out?
It is pertinent to mention that explanation 3 to Section 2(h) which defines foreign contribution exempts any amount received by any person from any foreign source in India, or from an agent of a foreign source by way of fee or towards cost in lieu of goods or services rendered in the ordinary course of business, trade or commerce from the definition of foreign contribution.
One of the ways being pitched forward for institutional research is to rework their collaborative/ contractual arrangement and redraft it as a service agreement. Research agreements with industry collaborators are a common feature for premier educational institutions in the country since they have the knowledge pool and resources to conduct innovative research in their respective field of study.
It needs to be stated that profits received by such institutions are not considered as commercial activity for the purpose of taxation, and continue to remain exempt under tax provisions as being an extension of the charitable/educational objects of the institutions.
Therefore, given the fact that law considers the overall nature of activity engaged in by a person to categorise their income as being charitable or commercial in nature for the purpose of taxation, the same ‘fee’ or ‘payments’ received from such ‘service’ agreements entered into by non-profits ‘in the course of their business, trade or commerce’ (in order to be exempted from the definition of foreign contribution), may not withstand the scrutiny of the law. It is a cardinal principle in law that what cannot be done directly can also not be done indirectly.
As a way ahead, NGOs may need to explore innovative fund-raising techniques such as crowd funding through domestic sources as well as collaborate with corporates on their CSR projects. Similarly, foreign donors may take steps to engage and transact directly with NGO’s who do the actual work at ground level. Expenditure incurred on salaries or remuneration of personnel engaged in training or for collection or analysis of field data of an association primarily engaged in research or training would not be counted as administrative expenses. Similarly, expenses incurred directly in furtherance of the stated objectives of the welfare oriented organization are excluded from the administrative expenses.
Notes:-
[1] Section 13
[2] As per Ministry of Home Affairs Notice dated 13.10.2020
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