The Foreign Contribution (Regulation) Amendment Act, 2020 :- An Act (wef 29.09.2020) to further amend the Foreign Contribution (Regulation) Act, 2010 (Act)

-Introduced in Lok Sabha on 20.09.2020

-Passed by Lok Sabha on 21.09.2020

-Passed by Rajya Sabha on 23.09.2020

-President’s Ascent on 28.09.2020

-Effective date on which provisions have come into force: 29.09.2020

The Foreign Contribution (Regulation) Amendment Bill, 2020 was introduced in Lok Sabha on September 20, 2020.  The Bill amends the Foreign Contribution (Regulation) Act, 2010.  The Act regulates the acceptance and utilization of foreign contribution by individuals, associations and companies.  Foreign contribution is the donation or transfer of any currency, security or article (beyond a specified value) by a foreign source.

We discuss hereinunder in detail the amendments made by the amendment Act:

Amendment 1:

In section 3 of the Foreign Contribution (Regulation) Act, 2010 (hereinafter referred to as the principal Act), in sub-section (1),—

♦ for clause (c), the following clause shall be substituted, namely: —

“(c) public servant, Judge, Government servant or employee of any corporation or any other body controlled or owned by the Government;”;

♦  for the Explanation, the following Explanations shall be substituted, namely: —

‘Explanation 1.—For the purpose of clause (c), “public servant” means a public servant as defined in section 21 of the Indian Penal Code.

Explanation 2.—In clause (c) and section 6, the expression “corporation” means a corporation owned or controlled by the Government and includes a Government company as defined in clause (45) of section 2 of the Companies Act, 2013.’.

Analysis:

Under the Act, certain persons are prohibited to accept any foreign contribution.  These include: election candidates, editor or publisher of a newspaper, judges, government servants, members of any legislature, and political parties, among others.  The Act adds public servants (as defined under the Indian Penal Code) to this list.

Prima facie reading of the section gives the understanding that

  • if an organization is primarily controlled and run by a public servant, it most definitely cannot accept foreign contributions
  • if an organization has a public servant on board / governing body of the organization, such organization may not continue to have such public servant on board as such a position indicates a degree of control over the functioning of the organization
  • if an organization has a public servant on deputation attached with the organization, this should not be affected by the above amendment. Section 3(1)(c) of the Act lists persons barred from receiving foreign contribution / foreign hospitality. This prohibition is on individuals. It should not apply to the organizations who have such persons on deputation.

The definition of Public Servant is vast in the IPC. In addition to government employees it also includes employees of local authorities, examiners of universities and education bodies- among others

However, basis the explanations given during deliberation in both the houses during presentation of the amendment Bill, it seems as if there can be no direct nexus between an FCRA registered organization and a public servant.

Therefore, this remains a grey area requiring more clarity from the government.

Amendment 2: (Substitution of section 7)

For section 7 of the principal Act, the following section shall be substituted, namely:—

“7. 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:

Under the Act, foreign contribution cannot be transferred to any other person unless such person is also registered under said Act enabling them to accept foreign donations (or has obtained prior permission under the Act to obtain foreign contribution).  The Act amends this to prohibit the transfer of foreign contribution to any other person.  The term ‘person’ under the Act includes an individual, an association, or a registered company. Organizations now must build their own delivery capacity and not rely on implementation partners. This can have a major impact as a lot of smaller NGO’s rely on their larger counterparts for downstream funding which they receive as Implementing partners while the bigger NGO’s depended on smaller units working on the ground level for implementing the projects, thus leveraging the spirit of collaboration that is typical of civil society.

Amendment 3:

In section 8 of the principal Act, in sub-section (1), for the words “fifty per cent.”, at both the places where they occur, the words “twenty per cent.” shall be substituted.

Analysis:

A person registered under the Act and who receives foreign contribution must use it only for the purpose for which the contribution is received.  Further, administrative expense could account for only 50% of the contribution received.  The Act reduces this limit to 20%.

RULE 5 of Foreign Contribution (Regulation) Rules, 2011 defines what is construed as administrative expense

  • Salaries, wages, travel expenses or any remuneration realized by the Members of the Executive Committee or Governing Council of the organization and all the expenses towards hiring of personnel for management of the activities of the person of the organization along with the salaries, wages or any kind of remuneration paid, including cost of travel, to such personnel shall come in the category of administrative expenses.
  • Expenditure related to consumables like electricity and water charges, telephone charges, postal charges, repairs to premise(s) from where the organization or Association is functioning, stationery and printing charges, transport and travel charges by the Members of the Executive Committee or Governing Council and expenditure on office equipment will be counted as administrative expenses.
  • Cost of accounting for and administering funds;
  • Expenses towards running and maintenance of vehicles;
  • Cost of writing and filing reports;
  • Legal and professional charges; and
  • Rent of premises, repairs to premises and expenses on other utilities

If expenditure is incurred in furtherance of the purpose of organization, it shall not be counted as administrative expense. However, the organization cannot claim that the payment towards maintenance of infrastructure or accounting and other office tasks are not in the category of administrative expenses and are in furtherance of organization’s objective as it is clearly excluded and specified as administrative expenses under the regulation.

The logic given behind this amendment is that the government can be kept in the blind about upto 50% of the expenditure being incurred using foreign contributions by expending the same on administrative costs. However, such a change can deeply impact the functioning of organizations, especially those operating on a smaller scale as their administrative cost will be higher due to lesser economies of scale. It will particularly be more difficult for NGOs whose work revolves around advocacy rather than projects.

Amendment 4:

In section 11 of the principal Act, in sub-section (2), in the proviso, for the words “Provided that if the person referred to in sub-sections (1) and (2) has been found guilty”, the following shall be substituted, namely:—

“Provided that the Central Government, 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 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:

Provided further that if the person referred to in sub-section (1) or in this sub-section has been found guilty.”.

Analysis:

As per the already existing provisions of the Act, if a person accepting foreign contribution is found guilty of violating any provisions of the Act or the Foreign Contribution (Regulation) Act, 1976, the unutilized or unreceived foreign contribution may be utilized or received, only with the prior approval of the Central Government.  The Act now adds that the government may also restrict usage of unutilized foreign contribution for persons who have been granted prior permission to receive such contribution.  This may be done if, based on a summary inquiry, and pending any further inquiry, the government believes that such person has contravened provisions of the Act. For persons registered under prior-permission, the Act has now empowered the government to stop the fund utilization on the basis of information available.

Amendment 5:

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.”.

Analysis:

For any new registration application, the designated FC bank account shall be opened with SBI New Delhi branch or specified bank account as may be specified by the Government. Presently, only SBI New Delhi branch has been specified. Refer Amendment 11

Amendment 6: (Insertion of new section)

After section 12 of the principal Act, the following section shall be inserted, namely:—

“12A. Notwithstanding anything contained in this Act, the Central Government may require that any person who seeks prior permission or prior approval under section 11, or makes an application for grant of certificate under section 12, or, as the case may be, for renewal of certificate under section 16, shall 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.”

Analysis:

The Act states that a person may accept foreign contribution if they have:

  • obtained a certificate of registration from central government, or
  • not registered, but obtained prior permission from the government to accept foreign contribution.

Any person seeking registration (or renewal of such registration) or prior permission for receiving foreign contribution must make an application to the Central Government in the prescribed manner.  The Act adds that any person seeking prior permission, registration or renewal of registration must provide the Aadhaar number of all its office bearers, directors or key functionaries, as an identification document.  In case of a foreigner, they must provide a copy of the passport or the Overseas Citizen of India card for identification.

Amendment 7:

In section 13 of the principal Act, in sub-section (1), for the words “for such period not exceeding one hundred and eighty days as may be specified”, the words “for a period of one hundred and eighty days, or such further period, not exceeding one hundred and eighty days, as may be specified” shall be substituted.

Analysis:

Under the Act, the government may suspend the registration of a person for a period not exceeding 180 days.  The Act adds that such suspension may be extended up to an additional 180 days. Effectively, now the registration certificate can be suspended for up to 360 days instead of the current period of 180 days.

Amendment 8: (Insertion of new section)

After section 14 of the principal Act, the following section shall be inserted, namely:—

“14A. On a request being made in this behalf, the Central Government may permit any person to surrender the certificate granted under this Act, if, after making such inquiry as it deems fit, it is satisfied that such person has not contravened any of the provisions of this Act, and the management of foreign contribution and asset, if any, created out of such contribution has been vested in the authority as provided in sub-section (1) of section 15.”.

Analysis:

An option to surrender FCRA certificate has now been made available. Previously there was no option to surrender the certificate. The Act adds a provision allowing the central government to permit a person to surrender their registration certificate.  The government may do so if, post an inquiry, it is satisfied that such person has not contravened any provisions of the Act, and the management of its foreign contribution (and related assets) has been vested in an authority prescribed by the government.

Amendment 9:

In section 15 of the principal Act,—

(i) in the marginal heading, after the word “cancelled”, the words “or surrendered” shall be inserted;

(ii) in sub-section (1), after the word and figures “section 14”, the words, figures and letter “or surrendered under section 14A” shall be inserted.

Analysis:

Section 15 of the Act talks about management of foreign contribution of persons whose certificate has been cancelled. The amendment implies that disposal of FC asset in case of Surrender of certificate shall be done in the same way as that of “cancelled’ organization. Amendment is pursuant to insertion of Section 14A providing option to surrender the registration certificate.

Amendment 10:

In section 16 of the principal Act, in sub-section (1), the following proviso shall be inserted, namely:—

“Provided that the Central Government may, before renewing the certificate, make such inquiry, as it deems fit, to satisfy itself that such person has fulfilled all conditions specified in sub-section (4) of section 12.”.

Analysis:

Under the Act, every person who has been given a certificate of registration must renew the certificate before six months of expiry of said certificate and the Central Government shall ordinarily renew the registration within 90 days from the date of receipt of application for renewal or communicate to the applicant its reasons for non-renewal.  The Act now provides that the government may conduct an inquiry before renewing the certificate to ensure that the person making the application:

  • is not fictitious or benami;
  • has not been prosecuted or convicted for indulging in activities aimed at conversion through inducement or force, either directly or indirectly, from one religious faith to another;
  • has not been prosecuted or convicted for creating communal tension or indulging in activities aimed at religious conversion;
  • has not been found guilty of diversion or misutilization of funds;
  • is not engaged or likely to engage in propagation of sedition or advocate violent methods to achieve its ends;
  • is not likely to use the foreign contribution for personal gains or divert it for undesirable purposes;
  • has not contravened any of the provisions of this Act, and
  • has not been prohibited from accepting foreign contribution, among other conditions.

Amendment 11: (Substitution of section 17)

For section 17 of the principal Act, the following section shall be substituted, namely: —

’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 utilizing 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 utilizing 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:

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 authorized person in foreign exchange, shall report to such authority as may be specified,—

(a) the prescribed amount of foreign remittance;

(b) the source and manner in which the foreign remittance was received; and

(c) other particulars, in such form and manner as may be prescribed.’.

Analysis:

It will now be mandatory to open the main designated FC account in SBI, New Delhi. Presently, no other banks / branches have been specified by the Government. However, logically, and as confirmed by Mr. Arun Singh in Rajya Sabha as well, the account can be opened from any nearest SBI branch and the organization does not have to come to the specified branch to open the account. Further, it can be linked to one or more utilization accounts in any preferred bank.

Under the Act, a registered person must accept foreign contribution only in a single branch of a scheduled bank specified by them.  However, they may open more accounts in other banks for utilization of the contribution.  The Act amends this to state that foreign contribution must be received only in an account designated by the bank as “FCRA account” in such branch of the State Bank of India, New Delhi, as notified by the central government.  No funds other than the foreign contribution should be received or deposited in this account.  The person may open another FCRA account in any scheduled bank of their choice for keeping or utilizing the received contribution.

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2 Comments

  1. Gramin Vikas Samiti says:

    Dear Team,

    We have read your analysis report context to FCRA amendment Act 2020 so I am writing on the above subject that we are Gramin VIkas Samiti, Damoh (MP), registered under the nature as social and our FCRA Registration Number is 063210018, currently we have been receiving grants in our FCRA account designated branch of Central Bank of India but after notifying the FCRA amendment Act 2020.
    We have a question pertaining to receiving a sanctioned grant in our current FCRA account; can we receive the sanctioned grant in the meantime before getting any notification of the amendment rules under the Act, to specify inter alia designation of the branch of State Bank of India and procedures for opening a special account?

    We hope that you will get back to us very soon.

    1. BharatBhuwania says:

      Pursuant to notification issued dtd. 13.10.2020 by FCRA Wing of MHA, you can continue receiving foreign contribution in your existing designated account upto 31.03.2021 or date of opening designated account in SBI, whichever is earlier.

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