Analysis of Foreign Contribution Regulation Act, 2010

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Introduction

The Foreign contribution regulation Act, 2010 (FCRA) was initially enacted with the primary purpose of regulating the inflow of foreign contributions and ensuring that the received foreign contributions are not utilized for purposes other than those specified under the legislation. All charitable organizations in India receiving foreign contributions come under the purview of this Act.

It’s objective is to regulate the acceptance and utilisation of FC/donations or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilisation of FC/donations or foreign hospitality for any activities detrimental to the national interestand matters connected thereto.

FCRA

As mentioned above, FCRA applies to “Foreign Contributions” received from “Foreign Sources”. The definition of “Foreign Source” is a detailed and inclusive definition, with a common thread being that the entity that is the ‘source’ of the funds is established in a foreign territory. Additionally, “Foreign Contribution” is defined by FCRA as a donation, delivery or transfer made by a foreign source of:

any article (unless given to an individual for personal use), the value of which ought not to exceed Rs. 25,000/-;
currency, foreign or Indian, or
foreign securities including all foreign debentures, bonds, shares, stocks and similar instruments of credit. Any income or interest generated from such contributions is also treated as a foreign contribution under the FCRA

Registration

The organizations having a definite cultural, economic, educational, religious or social programme are entitled to accept foreign contributions under the FCRA. Such contributions may be accepted only with the approval of the Government of India, through the Ministry of Home Affairs.

In order to be eligible to receive the foreign contributions, an organization may seek prior approval either each time the entity is to receive contributions or by obtaining a one-time long term registration, which is valid for a period of 5 years. In the latter case, the permission needs to be renewed by applying at least 6 months prior to the date of expiry of the said permission. It may be noted that while not stipulated in the FCRA, it is general practice that in order to be eligible to make a long-term application, the applicant needs to be in existence for a period of 3 years. Therefore, in the interim, it is often seen that organizations apply for the one-time permission, commonly referred to as “Prior Permission”.

Prior to applying for registration, it is important that organizations review the guidelines that are issued by the Ministry of Home Affairs, which often list out the ground for rejection of applications made to them.

Utilization of Funds

Upon obtaining registration/prior permission, the organization is required to open and maintain a bank account exclusively for the receipt and utilization of foreign contributions under FCRA. All transactions related to foreign contributions must be executed only from the aforesaid bank account. In addition, a separate set of accounts and records is required to be maintained, exclusively for foreign contributions received and utilized.

FCRA mandates that foreign contributions should be utilized only for the purpose for which they were received. It also imposes restrictions on the transfer of contributions. A person is prohibited from transferring contributions to any other person, unless such transferee is authorized to receive foreign contributions. Recently, the Ministry of Home Affairs placed Ford Foundation on its’ watch-list for transferring foreign contributions to organizations not registered under FCRA. The Ministry has in fact, suspended registrations granted to organizations and placed several organizations on its’ watch list for violating this norm which is clearly embodied in Section 7 of FCRA.

Reporting Requirements

One of the most important reporting requirements that is often overlooked by organizations, is the submission of annual returns. Every organization is required to submit the annual returns to the Central Government within 9 months from the closure of the relevant financial year. This return has to include the details of the contributions received, source and manner in which it was received, purpose for which it was received and the manner of usage of the contributions.

Given the recent actions taken by the Government against several charitable organizations, it is imperative that all organizations that receive foreign contributions review the FCRA norms and compliance requirements in detail and follow them meticulously to ensure that they do not run foul of the same and come under the scanner of the Government for non-compliance.

Controversies with FCRA 2010

A number of NGOs receiving foreign funding are seen by the India’s central government as involved in anti-development activism and hence posing a negative impact on the economic growth by two to three per cent. An Intelligence Bureau report titled ‘Impact of NGOs on Development,’ claims the NGOs and their international donors are also planning to target many fresh economic development projects.

It was alleged that “US based NGOs are financing the protests against Kundankulam Nuclear Power Plant. India’s Home ministry froze bank accounts of some NGOs after it was found that they were diverting money received from their donors abroad into funding protests at the Kudankulam plant.
The Union Home Ministry cancelled renewal of FCRA licences of Greenpeace India and two NGOs run by activist Teesta Setalvad who is the secretary of Citizens for Justice and Peace (CJP), an organisation formed for fighting for justice for the victims of communal violence in the state of Gujarat in 2002.
In September 2015, MHA cancelled the FCRA registration of Greenpeace India, making impossible any foreign donation to Greenpeace India on the grounds of “prejudicially affecting the public interest and economic interest of the state”.

Conclusion

The FCRA Act, 2010 is an act of the Parliament of India, whose scope is to regulate the acceptance and utilisation of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilisation of foreign contribution or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto.

FCRA 2010 was brought into force from such date as the Central Government (CG) may by notification in the Official Gazette appoint. Different dates may be appointed for bringing into force different provisions of FCRA 2010.

Considering the flow of funds into the country for purposes other than business, the Government has specified that acceptance of FC against national interest would not be permissible, requiring persons accepting FC to be subject to enhanced scrutiny. The measures include prior CG approval for accepting FC, registration and renewal, conditions for end use of FC and for transfer of FC to other persons etc.

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