Foreign Contribution – Key Amendments

The Foreign Contribution (Regulation) Amendment Act, 2020 has been notified on September 29, 2020. The purpose for these amendments is ‘to streamline the provisions of the Foreign Contribution (Regulation) Act, 2010 by strengthening the compliance mechanism, enhancing transparency and accountability in the receipt and utilisation of foreign contribution and facilitating genuine non-Governmental organisations or associations who are working for the welfare of society’. The key amendments to the Foreign Contribution (Regulation) Act, 2010 are summarised below.

Prohibition to Accept Foreign Contribution

The Foreign Contribution (Regulation) Amendment Act, 2020 (‘FCR Amendment Act’) adds public servants[1] to the list of persons prohibited from accepting foreign contributions. The list inter-alia already covers election candidates, editors or publishers of newspapers, judges, Government servants, members of any legislature, and political parties.

Prohibition to Transfer Foreign Contribution

The FCR Amendment Act prohibits the recipient of foreign contribution from transferring such contribution to any other person[2], even if such transferee is registered under the Foreign Contribution (Regulation) Act, 2010 (‘FCRA’) or has prior permission to receive foreign contribution. Previously, the FCRA prohibited the transfer of foreign contribution to any person unless such transferee was also registered to accept foreign contribution or had obtained prior permission to obtain foreign contribution.

Aadhaar of Key Persons for Registration

Any person seeking prior permission, registration or renewal of registration under FCRA must now provide the Aadhaar number of all its office bearers, directors or key functionaries, as an identification document, or provide a copy of the passport or the Overseas Citizen of India card for identification in case of foreigner. This is in addition to other applicable requirements.

FCRA Account

Foreign contribution can now only be received in an account designated by the bank as ‘FCRA account’ in such branch of the State Bank of India (‘SBI’), New Delhi, as notified by the Central Government. The Government by way of its notification dated October 7, 2020, has specified that such FCRA Account must be maintained at SBI’s New Delhi Main Branch situated at 11, Sansad Marg, New Delhi-110001. No funds other than the foreign contribution should be received or deposited in this account. A FCRA registered entity may open another FCRA account in any scheduled bank of their choice for keeping or utilising the contribution so received.

By way of a notification dated October 13, 2020, the Central Government has permitted existing FCRA registered entities to open this FCRA Account by March 31, 2021. The FCRA registered entities will be able to receive fresh foreign contribution strictly in the FCRA Account either from April 1, 2021 or from the date of opening of the new account, whichever is earlier. FCRA-registered entities may approach the nearest SBI branch (or any other branch of their choice) to open the FCRA Account instead of visiting SBI’s main branch at New Delhi. The FCRA registered entities also have the option to retain their existing bank accounts. However, this option does not dilute the requirement of opening a FCRA Account as prescribed by the FCR Amendment Act and any fresh applicants for registration or prior permission under the FCRA are required to first open the FCRA Account with SBI’s main branch at New Delhi to receive foreign contribution, if they are granted the certificate of registration of prior permission by the Central Government.

The above-referred notification dated October 13, 2020 also states that the Central Government will soon issue procedural guidelines for opening and operating the new accounts with SBI.

Restriction to Utilise Foreign Contribution

The FCR Amendment Act empowers the Government to restrict usage of unutilised foreign contribution for persons who have been granted prior permission to receive such contribution if, based on a summary inquiry, and pending any further inquiry, the Government believes that such person has contravened provisions of the FCRA.

Additional Checks for Renewal of Certificate

The Government may conduct an inquiry before renewing the certificate granted under the FCRA, in relation to whether the criteria set forth in Section 12(4) of the FCRA (which are to be satisfied for grant of certificate of registration or prior permission) are satisfied. These criteria include that the person making the application: (a) is not fictitious or benami; (b) has not been prosecuted or convicted for creating communal tension or disharmony or for indulging in activities aimed at religious conversion through inducement or force, directly or indirectly; and (c) has not been found guilty of diversion or misutilisation of funds, among others conditions.

Reduction in Use of Foreign Contribution for Administrative Purposes

The permitted use of foreign contribution for administrative purposes has been reduced from 50% to 20% of such contribution.

Surrender of Certificate

The Central Government now has the power 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 FCRA, and the management of its foreign contribution (and related assets) has been vested in an authority prescribed by the Government.

Suspension of Registration

The Government is now empowered to suspend the registration under FCRA for a period not exceeding 180 days or such further period not exceeding an additional 180  days i.e. a total of 360 days. The Government may exercise this power, when it is satisfied (for reasons to be recorded in writing) pending consideration of the question of cancelling the certificate.

Way Forward

The FCR Amendment Act has introduced additional compliance requirements, reduced leeway to meet administrative expenses and prohibited transfer of foreign contributions received. Going forward, it is going to be extremely important for FCRA registered entities to ensure that they go the extra mile to comply with the provisions of the amended FCRA to be able to continue their operations in an uninterrupted manner.

 

[1] Defined under Section 21 of the Indian Penal Code to include persons engaged in the Military, Naval or Air forces, members of Panchayats, any Government Officer (administrative, foreign services, revenue officers), persons in charge of conduct and supervision of any examination recognised or approved under any law.

[2] The FCRA defines ‘person’ to include an individual, an association, or a registered company.

Date: November 3, 2020