FCRA Amendment Act, 2020 – A Nightmare for NGOs?

INTRODUCTION:

Foreign Contribution (Regulation) Act 2010 (“FCRA 2010“or “Act”) came in effect from 01-05-2011 by replacing Foreign Contribution (Regulation) Act, 1976. Erstwhile Act of 1976 was repealed due to limitations[1] and lenient provisions which had shortcomings to detriment the national interest. FCRA 2010, regulates the acceptance and utilisation of foreign contribution or foreign hospitality in India to prohibit acceptance and utilisation of foreign contribution/foreign hospitality for any activities which are detrimental to the national/social interest.

With an objective of enforcing stringent FCRA regulations and to bring more transparency, control and accountability, certain amendments has been introduced in FCRA law vide Foreign Contribution (Regulation) Amendment Act, 2020 (“FCRA 2020”) effective from 29-09-2020.

Government believes that such changes were necessary as it observed certain NGOs receiving foreign funding, were indulged in inappropriate and misutilization of foreign contribution.

It is quite astonishing that FCRA, 2020 has been made effective amidst COVID-19 situation when so many NGOs are putting hands together to serve the needy, arising awareness to fight COVID-19 and support various weaker section of society to the best extent possible.

The amendments being made under FCRA law had eventually created a chaos among NGO sector as it had not only clipped the wings of NGOs but also circumference the sky.

Key changes introduced in FCRA 2020 are discussed in following paragraph.

AMENDMENTS ANALYSIS:

1. Widened the ambit of persons prohibited from acceptance of foreign contribution.[2]

1.1 FCRA, 2010 prohibits certain persons to accept any foreign contribution like election candidates, editor/owner/publisher of a newspaper, judges, members of any legislature, political parties, employees of corporation controlled by government etc.

1.2 FCRA 2020 has extended such prohibition to “public servants” as defined under the Indian Penal Code, 1860.

1.3 This amendment has been introduced having connection to landmark case against Indira Jaising, Anand Grover and their NGO – Lawyers Collective (“LC”) related to violation of FCRA law. Indira Jaising is senior lawyers who runs a NGO called Lawyers Collective with her husband Anand Grover. In May, 2016, MHA suspended the FCRA registration of LC and denied its renewal, followed by cancellation of registration in November, 2016. It was alleged that the foreign funds received by it was being used to support rallies/dharnas for draft legislation meetings which was connected to “political purposes”. Indira Jaising received foreign funds when she was the additional solicitor general of India, and receiving foreign funds is not permitted for a government servant under the FCRA law. However, to defend the same, it was argued by by/on behalf of IC that Indira Jaising was in fact a “public servant” which was not prohibited in the erstwhile provisions.

1.4 Hence in order to curb this limitation, prohibition on accepting foreign contribution has been extended on public servants as well.

1.5 Also, FCRA, 2020 had widened the meaning of corporation which are restricted from accepting foreign contributions to include Government company as defined in section 2(45) [3] of the Companies Act, 2013.

2. Prohibition on transfer/sub-grant of foreign contribution to any other organisation.[4]

2.1 Under erstwhile provisions, foreign contribution could be transferred to another person who was registered under the FCRA law/obtained prior permission and even to an unregistered person, after taking approval of Central Government.

2.2 However, FCRA, 2020 had strictly imposed prohibition on transfer of foreign contribution to any other person.

2.3 FCRA, 2010 had already imposed various approval mechanism for sub-grant of funds to unregistered organisations and the strict reporting requirements under FCRA law seems to be sufficient enough to help the government to monitor and track the utilisation of the foreign funds and hence need to completely ban the transfer of funds to other organisations has been held as unreasonable and unjust by various NGOs in India.

2.4 There are various small NGOs who work in collaboration with large NGO groups who has the ability to raise FCRA funds from abroad. Small NGOs generally doesn’t possess the skill sets and framework to impress foreign donors for direct grants and therefore, big FCRA registered organisations used to handhold such small entities for effective and focused utilisation of foreign funding.

2.5 However, FCRA, 2020 amendment had permanently tampered this model which may hamper the social relief and support to poor and weaker section of the society.

2.6 Indian branch offices of International NGOs that were established primarily to collaborate and distribute the foreign contributions shall not be able to do so any more.

3. Constringed the cap on administration expenses [5]

3.1 FCRA, 2020 restricted administrative expenses to 20% from 50%. Administration expenses are elaborated in rule 5 [6] of Foreign Contribution (Regulation) Rules, 2011

3.2 Amendment was made to curtail the mis-utilisation of foreign contributions to promote effective utilisation of funds towards the objectives. Though majority of organisations may not be in favour of the same as it would lead to complexities in managing the affairs and functions in India.

4. Enhanced powers to prohibit utilisation/receipt of foreign contribution [7]

4.1 Under old provisions, a person was prohibited to utilise/receive foreign contribution only if such person was guilty under FCRA law.

4.2 However, considering the long-time frame under Indian judicial system, FCRA, 2020 empowered the Government to prohibit a person to utilize/ receive foreign contribution even if the Government, based on preliminary inquiry, has a reason to believes that such person has contravened the FCRA law.

4.3 Such amendment is preventive in nature to avoid any damage that can be caused by the organisation where the government has a reason to believe that activities of such organisations can be detrimental to the interest of the nation.

5. Mandated that FCRA account should be opened in the prescribed branch of SBI, New Delhi [8]

5.1 FCRA, 2020 mandates the recipient of foreign contribution to receive foreign contribution only in an account designated as “FCRA Account” opened in a branch [9] of the State Bank of India at New Delhi.

5.2 Relaxation has been provided to open another FCRA Account in any of the scheduled banks in India (at the option of the recipient), for the purpose of keeping or utilising the foreign contribution which has been received in the branch of State Bank of India at New Delhi.

5.3 Such amendment shall enable the government to supervise and administer all the foreign contribution from a centralised location. The government shall not be dependent on the disclosures being made by recipient but can suo-moto keep a check on all foreign contribution receipts and its utilisations.

6. Identification of all office bearers or directors or other key functionaries [10]

6.1 A new section has been inserted wherein any person who applies for a permission or registration/renewal under FCRA shall need to provide Aadhaar cards of all its office bearers or directors or other key functionaries.

6.2 In case of foreigners, a copy of passport or overseas citizen of India card shall need to be submitted.

6.3 The purpose of this amendment is primarily to link the natural persons with the organisations who ultimately manage the affairs of organizations and enhance transparency.

7. Extended the duration of suspension period of registration [11]

7.1 Under FCRA, 2010, the government could suspend the registration of a person for a period up to 180 days.

7.2 FCRA, 2020 provides that such suspension can be extended to an additional 180 days i.e. up to 360 days.

8. Introduced the formal process of surrender of registration[12]

8.1 FCRA 2020 provides that a person can voluntarily surrender the FCRA registration provided that government is satisfied that the person has not contravened any provision of the Act.

8.2 Post surrender, the management of the foreign contribution and related assets will then vest with the prescribed authority.

9. Change in procedure at the time of renewal of registration[13]

9.1 As per the erstwhile provisions, every person to whom FCRA registration was granted, was required to get his registration renewed within 6 months before the expiry of the registration certificate.

9.2 FCRA 2020, had enabled Central Government that before renewing any certificate, it may conduct any enquiry it may deem fit to satisfy that such person is not: –

– Fictitious or benami

– prosecuted or convicted for indulging in activities aimed at conversion through inducement or force from one religious faith to another or for creating communal tension in India.

– has not been found guilty or diversion or mis-utilisation of its funds or been prohibited from accepting foreign contribution.

– 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.

IMPACT OF SUCH AMENDMENTS:

a. Various small NGOs which work on the format of collaborations for funding, shall get a big blow as by putting restrictions on sub-grants, their funding shall get seriously affected which may also lead a threat to their going concern.

b. Threat to survival of NGOs/reduction in funding shall also impact the employment of various workers and staff working in such organisations as it would be difficult for such NGOs to undertake new projects that were earlier supported through such sub-grants.

c. Various NGOs used to support and drive self-reliant move in weaker section of the society however scarcity of funds to these NGOs may also impact `Atmanirbhar’ movement.

d. Cap on administrative expenses shall also create lot of obstacles for NPOs to perform and achieve their objectives.

e. Increase in administrative hassle such as new bank accounts, mandating Adhaar, enquiry while renewal of FCRA registration renewal shall discourage the sentiments of NGOs.

CONCLUSION

Government intends to bring FCRA reforms for better accountability and transparency, however various NGOs believe that such reforms has been introduced furtively with a motive to supress the voice that demonstrates true picture of Indian economy and further accentuated the transparency of PM-CARES Fund.

Though, it is a never-ending argument that whether there was a need to bring such drastic reforms in spite of the fact that foreign contributions were under already under strict regulatory controls, however surely such changes will have far-reaching consequences in the fields of education, health, people’s livelihoods, gender justice and indeed democracy in India.

Note

[1] Various limitations that FCRA 2010 curbed were like stopple to permanent registration. For keeping a re-check mechanism over the activities performed, restrictions on expedition of funds over administrative expenses to ensure purposeful utilisation of foreign contribution and widening the ambit and reporting obligations.

[2] Clause (c) of section 3(1) substituted.

[3] “Government company” means any company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company;

[4] Section 7 substituted

[5] Amendment made in section 8

[6] Administration expenses primarily includes salaries, travel expenses, remuneration of the Executive Committee, expenses towards hiring of personnel for management of the activities of the person, electricity and water charges, telephone charges, postal charges, repairs to premise, transport and travel charges by the Members of the Executive Committee or Governing Council, cost of accounting for and administering funds, legal and professional charges, rent and repairs to premises.

[7] Amendment in proviso to section 11(2) of the Act.

[8] New sub-section 1(A) inserted in section 12. Also, section 17 substituted.

[9] Such branch shall be notified by Central Government.

[10] New section 12A in the Act inserted

[11] Amendment in section 13(1)

[12] New section 14A in the Act inserted

[13] Inserted proviso to section 16