Foreign Funding: Guide to FCRA Regulations

The Foreign Contribution (Regulation) Act (“the Act” or “FCRA”) was first enacted in the year 1976 to regulate the utilisation of foreign contributions or hospitality to maintain strict control over voluntary organisations and political associations that received foreign funding. The Act aims to prevent foreign organisations from influencing electoral politics, social, political, economic, or religious discussions in India for wrong purposes and activities detrimental to the public interest. The Act falls under the purview of the Ministry of Home Affairs (MHA) since it is a law relating to internal security and not under the Reserve Bank of India (RBI) despite it being a financial legislation.

In 1984, an amendment was made to the Act requiring all non-governmental organisations to register themselves with the MHA. In 2010, the Act was repealed, and a new Act was enacted with stricter provisions. The Act was further amended in the year 2020 by the Foreign Contribution (Regulation) Amendment Act, 2020 (“FCRA Amendment Act”).

The FCRA is applicable to the whole of India and its citizens outside India and to the associated branches or subsidiaries outside India of companies or bodies corporate, registered or incorporated in India.

 

Prohibition on Accepting Foreign Contributions

The FCRA prohibits the following persons from accepting any foreign contributions:

  1. Candidate for election;
  2. Correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper;
  3. Public servant, Judge, Government servant or employee of any entity controlled or owned by the Government;
  4. Member of any Legislature;
  5. A political party or office bearers thereof;
  6. Organisations of a political nature as may be prescribed;
  7. Associations or companies engaged in the production or broadcast of audio news or audio-visual news or current affairs programmes, through any electronic mode or form, or any other mode of mass communication;
  8. Correspondent or columnist, cartoonist, editor, owner of the association or company referred to in (g) above.

However, the above-mentioned persons can accept foreign contributions in the following situations:

  1. from their relatives;
  2. by way of salary, wages or other remuneration in the ordinary course of business;
  3. by way of a gift as a member of any Indian delegation, provided the gift was accepted in accordance with relevant rules made by the Central Government in this regard;
  4. by way of any scholarship, stipend or any payment of like nature;
  5. by way of remittance received in the ordinary course of business.

 

Meaning of Foreign Contributions

‘Foreign Contribution’ means the donation, delivery or transfer made by any foreign source of any:

  1. article (not being an article given to a person as a gift for his/her personal use, the market value of which is not more than one lakh rupees);
  2. currency (whether Indian or foreign);
  3. security. 

Contributions made by a citizen of India living in another country (e.g. a Non-Resident Indian (NRI)) from his/her personal savings, through the normal banking channels, will not be treated as foreign contributions. However, it is advisable to obtain the passport details of such an NRI to ascertain that he/she is actually an Indian citizen.

Donations from an Indian-origin person who has acquired foreign citizenship will be treated as a foreign contribution. This will also apply to Person of Indian Origin [PIO]/ Overseas Citizen of India [OCI] cardholders as they are foreigners.

Foreign remittance received from a relative shall not be treated as a foreign contribution. However, any person receiving a foreign contribution in excess of ten lakh rupees or equivalent thereto in a financial year from any of his/her relatives is required to inform the Central Government on Form FC-1 within thirty days from the date of receipt of such contribution.

 

Who can Receive Foreign Contributions?

Any person* can receive foreign contribution provided:

  1. The person has a definite cultural, economic, educational, religious, or social programme;
  2. The person must have obtained FCRA registration/prior permission from the Central Government; and
  3. The person must not be a prohibited person under Section 3 of the FCRA (Persons prohibited are already discussed above).

*Person includes –

  • an individual;
  • a Hindu Undivided Family;
  • an association;
  • a company registered under Section 8 of Companies Act, 2013 (earlier Section 25 of Companies Act, 1956).

There is a prohibition on the transfer of foreign contributions to any other person.

The foreign contribution received has to be utilised only for the purpose for which it has been received and not more than 20% of the foreign contribution received in a financial year can be utilised to defray administrative expenses.

 

Registration/Prior Permission under FCRA

Section 11 of FCRA mandates that unless a person having a definite cultural, economic, educational, religious or social program obtains a certificate of registration [COR] or prior permission from the Central Government, such person cannot accept any foreign contribution.

This means that a person should either obtain a COR or obtain prior permission before accepting any foreign contribution.

 

Eligibility to Obtain Registration 

For grant of registration under FCRA, the association should:

  • be registered either under the Societies Registration Act, 1860 [SRA] or the Indian Trusts Act, 1882 [ITA] or under section 8 of the Companies Act, 2013 [Co. Act] etc,
  • has undertaken reasonable activities in its chosen field for the benefit of society, for which the foreign contribution is proposed to be utilised;
  • normally be in existence for at least three years and has spent a minimum of INR 15 lakhs (excluding administrative expenditure) on its core activities for the benefit of society during the last three financial years;
  • submit audited statement of accounts and activity report for the last three years.

 

COR: Form of Application and Period of Validity

  • An application for COR has to be filed electronically on Form FC-3A.
  • COR is ordinally granted within ninety days from the date of receipt of the application.
  • COR is valid for a period of five years and can be renewed within six months of its expiry.

 

Eligibility for Grant of Prior Permission

An association in its formative stages would not be eligible for COR. Such an association can apply for a grant of prior permission, which may be granted for the receipt of a specific amount from a specific donor, for the carrying out of specific activities/projects.

For this purpose, the association should:

  • be registered under the SRA or the ITA or Section 8 of the Co. Act, etc.;
  • submit a specific commitment letter from the donor indicating the amount of foreign contribution and the purpose for which it is proposed to be given; and
  • have prepared a reasonable project for the benefit of the society for which the foreign contribution is proposed to be utilised.

 

Form of Application and Period of Validity of the Grant of Prior Permission 

  • An application for the grant of PP must be filed electronically in Form FC-3B.
  • Grant of PP is ordinally be granted within ninety days from the date of receipt of application.
  • Its validity shall expire once the foreign contribution is fully utilized, for which the PP was/is granted.

 

Opening an FCRA Account

Every person who makes an application for the grant of COR or PP shall be required to open an ”FCRA Account” in a designated bank account with State Bank of India, – Main Branch, New Delhi [the designated FC account].

 

Conditions for Obtaining a Registration/Grant of PP

The applicant:

  1. should not be fictitious or benami;
  2. should not have been prosecuted or convicted for indulging in activities aimed at conversion through inducement or force, either directly or indirectly, from one religious faith to another;
  3. should not have been prosecuted for or convicted of creating communal tension or disharmony;
  4. should not have been found guilty of diversion or misutilization of funds;
  5. should not be engaged or likely to be engaged in the propagation of sedition or advocate violent methods to achieve its ends;
  6. should/is not likely to use the foreign contribution for personal gains or divert it for undesirable purposes;
  7. should/has not contravened any of the provisions of the FCRA;
  8. should/has not been prohibited from accepting foreign contributions.

 

Maintenance of Accounts

  • Every person who has been granted a COR or given a PP is required to maintain a separate set of accounts and records exclusively for the foreign contribution received and submit an annual return, duly certified by a CA, giving details of the receipt and purpose-wise utilisation of the foreign contribution.
  • The annual return is to be filed for every financial year within a period of nine months from the end of the year i.e., by 31st December each year. It is mandatory to submit a ‘Nil’ return even if there is no receipt/utilization of foreign contribution during the year.
  • The annual return is to be submitted online on Form FC-4, duly accompanied by the balance sheet and statement of receipt and payment, which is certified by a CA.
  • The annual return must be filed on a yearly basis, till the amount of foreign contribution is fully utilised.

 

Recent Update: Noel Harper v. Union of India

The Hon’ble Supreme Court has, in the case of Noel Harper v. Union of India[1] upheld the constitutional validity of the Foreign Contribution (Regulation) Amendment Act, 2020 which had placed restrictions on the way foreign contributions are raised and used by organisations in India. It held that the amendments were intended to remedy the mischief of an endless chain of transfers of the foreign contributions that create a layered trail of money making it difficult to trace the flow and legitimate utilisation thereof. Further, the Hon’ble Delhi High Court in the case of Advantages India[2] had also held that provisions of FCRA do not violate Articles 14 and 21 of the constitution and are not arbitrary, unreasonable and ultra vires.

 

Concluding views

FCRA is an internal security law aimed at ensuring that foreign contributions/organisations do not affect the sovereignty of India and its public interest. The provisions under FCRA are quite strict and it is seen that the government is proactively monitoring the compliance relating to the acceptance and use of foreign contributions. It is therefore important for organisations covered under FCRA to follow the law in its true letter and spirit.

References: 

[1] Writ Petition (Civil) Nos. 566, 634 And 751 Of 2021

[2] Writ Petition (Crl) Nos. 3595 Of 2017

 

 

Image Credits: Photo by Nehal Patel on Unsplash

FCRA is an internal security law aimed at ensuring that foreign contributions / organisations do not affect the sovereignty of India and its public interest. The provisions under FCRA are quite strict and it is seen that the Government is proactively monitoring the compliances relating to the acceptance and use of foreign contributions.

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