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Regulating the foreign contribution: Changing regime

14 十月 2020

by Sudish Sharma Shikha Thakkar

The Foreign Contribution (Regulation) Act, 2010 (‘FCRA’) was enacted to regulate the acceptance and utilization of foreign contribution. Foreign contribution refers to the donation, delivery or transfer of any article, currency or security by any foreign source.

The annual inflow of foreign contribution has doubled between the years 2010 and 2019, but it was observed that this foreign contribution was not utilized corresponding to the purpose for which they were registered or granted prior permission. With an objective to streamline the provisions under FCRA by enhancing transparency and accountability in the receipt and utilization of foreign contributions, the Foreign Contribution (Regulation) Amendment Bill, 2020 (‘Amendment Bill’) was passed by the Lok Sabha and Rajya Sabha on 21-09-2020 and 23-09-2020, respectively.

The key changes proposed by the Amendment Bill are as follows:

  • Prohibition to accept foreign contribution:

The Amendment Bill has widened the list of persons prohibited to accept foreign contributions by inclusion of ‘public servant, Judge, Government servant or employee of any corporation or any other body controlled or owned by the Government’. This amendment is aimed towards preventing any influence on the decision-making of aforesaid persons from discharging public duty.

  • Prohibition to transfer foreign contribution:

While under the FCRA, foreign contribution could be transferred to persons who have been registered and granted certificate or obtained prior permission under FCRA, the Amendment Bill has altogether restricted transfer of foreign contributions to any person. This amendment will impact many organizations collaborating for execution of projects and programmes. This is a step aimed at keeping a watch on the utilization of foreign contribution by the recipient organization itself.

  • Capping administrative expenditure[1]:

The Amendment Bill has reduced the limit of foreign contribution that can be utilized for meeting administrative expenditure from 50% to 20% (of the amount of contribution) thereby ensuring that maximum foreign contribution is utilized towards the purpose for which it is received. While on one hand this amendment will address the issue relating to misuse of foreign contribution, on the other hand, it will impact the ability of organizations to effectively meet administrative expenses such as payment of salaries, travel and other expenditure.

  • Opening of a FCRA account:
  • With a view to generate greater transparency and centralize the flow of foreign contribution, the Amendment Bill makes it mandatory to receive foreign contribution only in an account designated as ‘FCRA Account’ by the bank, which shall be opened in such branch of the State Bank of India (‘SBI’) at New Delhi, as the Central Government may, by notification, specify in this behalf.
  • However, for ease of fund flow, flexibility is also given to such person to 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 the above designated ‘FCRA Account’ with SBI.
  • Consequences of contravention:

The Amendment Bill empowers the Central Government to direct any person who has been granted prior permission and has contravened any of the provisions of FCRA to not utilize the unutilized foreign contribution or receive the remaining portion of foreign contribution which has not been received or any additional foreign contribution, as the case may be, without prior approval of the Central Government. In other words, the Central Government may freeze the FCRA account in case of contravention of the provisions of the FCRA.

  • Submission of information while making application:

The Amendment Bill requires that an application for (i) registration or (ii) renewal of such registration or (iii) prior permission for receiving foreign contribution must be accompanied with (a) Aadhaar number of all its office bearers, directors or key functionaries, as an identification document; and (b) in case of a foreigner, a copy of the passport or the Overseas Citizen of India card for identification.  This amendment will assist the Government in maintaining a central database of individuals receiving or controlling the organizations which receive foreign contribution.

  • Surrender of certificate:

While FCRA does not stipulate any provision for surrender of certificate, however, in order to provide an easy exit to the genuine person, the Amendment Bill proposes to introduce a new provision for surrender of certificate if the Government is satisfied that such person has not contravened any provisions of the FCRA.

Conclusion

In order to curb malpractices and increase transparency and accountability in relation to foreign contribution, the Government has taken various steps which forms part of the Amendment Bill. Structural changes such as reducing the administrative expenditure and restricting the transferability of the amount, would go a long way in administering the NGOs/ organizations with FCRA registration. It appears that the measures will enhance the compliance requirements of the organizations.

[The authors are Executive Partner and Associate, respectively, in Corporate & M&A practice at Lakshmikumaran & Sridharan Attorneys, Gurugram]

 

[1] The term ‘administrative expenses’, inter alia, includes all expenses towards hiring of personnel for management of the activities of the person and salaries, wages or any kind of remuneration paid to such personnel, cost of accounting and administering funds, all expenses related to consumables like electricity and water charges, etc.

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