Key changes introduced by Foreign Contribution (Regulation) Amendment Bill, 2020

The Foreign Contribution (Regulation) Amendment Bill, 2020 (“Bill“) has been passed in the Lok Sabha on September 22, 2020 and the Rajya Sabha on September 23, 2020. The Bill will now be submitted for Presidential assent.

Please see below a summary of the key changes and their implications

1. Prohibition on transfer of foreign contribution to any person: Section 7 of the Foreign Contribution (Regulation) Act, 2010 (“FCRA“) enabled entities who receive foreign contribution to transfer such contribution, provided the transferee is also registered or has permission under FCRA. Any exception to the foregoing was subject to prior approval of the Central Government. Section 7 is now proposed to be substituted with a complete prohibition on transfer of any foreign contribution by the original recipient entity to any other person. This will significantly impact existing grantee and sub-grantee structures in India, as sub-grantees will no longer be permitted to receive foreign contribution from the grantees. Unlike before, there is also no provision to seek Government approval, if one wishes to transfer.

2. Public servants cannot accept foreign contribution: Section 3 (1) (c) of the FCRA prohibits certain persons to accept foreign contribution, such as candidates for election, members of the judiciary, members of Legislature, etc. The scope of this prohibition is now expanded to include ‘public servants’ as defined under section 21 of the Indian Penal Code, 1860. The immediate impact of this change will be that various persons included in the definition of public servants, including persons engaged in the Military, Naval or Air forces, members of Panchayats, any Government officer (administrative, foreign service, revenue officers), persons in charge of conduct and supervision of any examination recognized or approved under any law, will also be subject to this prohibition.  Their involvement in grantee organizations will need to be examined.

3. Cap on administrative expenses is now 20%: Section 8(1) of the FCRA is proposed to be amended to further reduce the cap to use foreign contribution for defraying administrative expenses from 50% to 20%. The description of what qualifies as administrative expenses remains unchanged.

4. All entities who seek registration/permission to maintain FCRA account with SBI, New Delhi: Section 12 and Section 17 of the FCRA are proposed to be amended to make it compulsory for applicants applying for registration or prior permission to open the FCRA account with State Bank of India, New Delhi branch, as may be notified by the Central Government. Such entities can open other FCRA accounts or utilization bank accounts with other scheduled bank of their choice. All such accounts can only receive foreign contributions. Presently, applicants are permitted to receive foreign contribution in any bank account specified in the application.

5. Aadhaar compulsory for registration / permission / renewal: A new Section 12A is proposed to be included in the FCRA, to require all officer bearers, directors, key functionaries (by whatever name called) of FCRA entities submit their Aadhaar details at the time of seeking registration, permission or renewal. Copy of the passport or OCI card is required to be submitted in case of foreigners.

6. Inquiry at the time of renewal: A new Section 16A is proposed to be included in the FCRA to permit the Central Government to conduct an inquiry prior to renewal of a registration certificate, to satisfy itself that such applicant person has fulfilled all conditions specified in Section 12 (4) of the FCRA. These conditions relate to certifying compliance with restrictions imposed under FCRA (including fictitious transactions, misuse of funds, usage of foreign contribution for personal gains, to name a few).

7. Restriction on use or receipt of foreign contribution basis information/report available with Central Government and conduct of summary inquiry: Proviso to Section 11(2) of the FCRA is proposed to be substituted to permit Central Government to restrict a person to utilize the unutilized foreign contribution or receive the remaining portion of foreign contribution without prior approval of the Central Government, if the Central Government has reason to believe, basis any information or report and after holding a summary inquiry that such person who has been granted registration or prior permission has contravened any of the provisions of the FCRA.

8. Surrender certificate: A new Section 14A is proposed to be included in the FCRA to permit entities / persons to surrender the registration certificate, subject to Central Government being satisfied that such person has not contravened any of the FCRA provisions and has adequate authority to initiate the surrender.

9. Suspension of the certificate: Section 13 of the FCRA is proposed to be amended to allow the Central Government to suspend the registration certificate for an additional period of 180 days pending inquiry for cancellation of the said registration certificate. This limit was currently up to a maximum period of 180 days, so now the overall suspension period will be longer.

Authors:

Aprajita Rana, Partner
Shubham Parkhi, Associate

Date: September 25, 2020