Revised FCRA regime in India

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Revised FCRA regime in India

Introduction

The Government of India has recently, through a gazette notification dated 28 September 2020 and another notification numbered G.S.R. 695(E) dated 10 November 2020, undertaken an overhaul of the law relating to receipt of foreign contributions, by making changes to the Foreign Contribution Regulation Act, 2010 (‘FCRA’) and the Foreign Contribution (Regulation) Rules, 2011 (‘FC Rules’).

In this legal update, we have set out some of the key changes that have been made to the FCRA and the FC Rules through the Foreign Contribution (Regulation) Amendment Act, 2020 (‘Amendment Act’) and the Foreign Contribution Regulation (Amendment) Rules 2020 (‘Amendment Rules’).

Background

The FCRA was enacted with a view to regulating the receipt and use of contributions/ amounts received from foreign entities in certain specific sectors, such as political organizations, nongovernmental organizations, social and religious organizations.

After its enactment in 2010, the FCRA has been amended for the first time through the Amendment Act, which was passed by the parliament on 23 September 2020 and received the President’s assent on 28 September 2020. Subsequently, the Ministry of Home Affairs, Government of India (‘MHA’), through a notification dated 10 November 2020, notified the Amendment Rules which brought about changes to FC Rules.

Key Changes in the FCRA and FC Rules

The key changes brought about in the FCRA by the Amendment Act and FC Rules by the Amendment Rules are set out below:

Public servant as a person prohibited from receiving foreign contributions:

The Amendment Act has amended Section 3(1)(c) of the FCRA to expand the list of persons who cannot accept any foreign contribution to include a ‘public servant’

The Amendment Act inserts an explanation to the provision stating that a ‘public servant’ shall be a public servant under the Indian Penal Code, 1890.

Requirement of AADHAAR:

The Amendment Act introduces a new section to the FCRA being Section 12A. Section 12A prescribes that any organization/ person seeking registration, re-registration or approval for receiving foreign contribution under the FCRA will be required to provide the Aadhaar number of all its office bearers or Directors or other key functionaries issued under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 as the identification document. In the case of foreginers who may not have an Aadhaar, Section 12A provides that the passport or the overseas citizen of India card may be used as the identity document. FC Rules have also been amended by the Amendment Rules to provide for this in the relevant forms.

Opening of specified account:

In order to increase control and supervision over the inflow of foreign contribution, the Amendment Act amends Section 17 of the FCRA and prescribes that all foreign contributions being received by any organization must be received in an account specifically opened for this purpose with the prescribed branch of the State Bank of India (‘SBI’). Through a notification dated 7 October 2020, the MHA specified the main SBI branch at Sansad Marg, New Delhi to be the branch for this purpose. FC Rules have also been amended by the Amendment Rules to provide for this in the relevant forms.

Prior to the amendment, foreign contribution could be received in an account opened for this purpose with any scheduled bank.

Reduction in permitted Administrative Costs:

Prior to the enforcement of the Amendment Act, the cap prescribed for administrative costs on organizations receiving foreign contributions was 50% (fifty percent) of the foreign contribution received. This threshold prescribed under Section 8 of the FCRA has been revised by the Amendment Act to be 20% (twenty percent). This means that the bulk of foreign contribution received by an organization is required to be used for the core activity of that organization.

Renewal of registration

The Amendment Act has inserted a provisio to Section 16(1) which empowers the central government to conduct any inquiry as it deems fit to satisfy itself that a person seeking renewal of the certificate of registration under the FCRA is in compliance with all the conditions required for registration as prescribed under Section 12(4) of the FCRA.

Suspension of registration

The maximum period of suspension of registration under Section 13 of the FCRA has been revised from 180 days to a total of 360 days through the Amendment Act. This means that in case of a violation of the FCRA, an organization’s FCRA registration can be suspended for a period of almost a year.

Surrender of registration

The Amendment Act introduces Section 14A in the FCRA which allows for a person to surrender the certificate of registration granted under the FCRA. Section 14A prescribes that the central government may allow for the surrender of a certificate obtained under the FCRA after satisfying itself that no contravention of the FCRA has occurred and the foreign contribution or asset created out of the foreign contribution received has vested in the government authority.

Conclusion

As mentioned in this alert, there are a number of changes that have been introduced to the foreign contribution regime.

These changes may have the effect of a double edged sword – while they certainly aim to increase transparency and give the government greater powers in regulating foreign funding, some of the changes may starve non-government organizations of funds. This is especially important in light of the ongoing pandemic, where many vulnerable sections are at a greater disadvantage because of economic uncertainty.

The effects of these changes on nongovernmental organisations will need to be assessed with the passage of time.