By K P C Rao.,
LLB., FCS., FICWA
The basic purpose of FCRA 2010 as mentioned in the preamble to the Act is “to consolidate the law 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.”
The earlier Act of 1976 (FCRA 1976) had outlived its utility and needed to be scrapped as it had failed to keep pace with the changing face of India’s economic growth, more particularly after the introduction of the Prevention of Money Laundering Act, 2002. Both these Acts cover the Non-Profit Organisations (NPOs), the organisations having a definite cultural, economic, educational, religious or social programme, and also the persons in sensitive government positions, political parties and persons associated with the news media.
Before proceeding to analyze the provisions of FCRA 2010, it is essential to understand two most important terms viz., 1) ‘Foreign contribution’ and 2) ‘Foreign Source’ used in both the Acts.
a) Foreign contribution
Foreign contribution is defined to mean any donation, delivery or transfer made by a ‘foreign source’ of any article, currency (whether Indian or foreign) or any security. It will be appreciated that the definition is very wide both in terms of coverage and the mode of transfer of the assets covered. It brings within its ambit not only money, but practically any asset transferred from a foreign source. It covers all modes of receipt of foreign contribution, be it transfer, gift or delivery in any manner. Even advance or loan received from a foreign source would be treated as foreign contribution.
The definition is also broad enough to cover any indirect receipt from a foreign source. Even if the money or article is routed through several intermediaries, it will not be cleansed of being treated as foreign source if the original source is foreign.
The only exception is with regard to gifts received for personal use, and that too only if the market value of the article gifted is not more than such sum as may be specified in the rules to be framed by the Central Government. Under FCRA 1976, the monetary limit was set in the Act itself at ` 1,000 which was found grossly inadequate, as it had failed to keep pace with inflation and the consequent depreciation in the value of money.
b) Foreign source
To understand the meaning of the term foreign contribution, one has to understand the term foreign source. This is an inclusive definition, again with a very wide coverage. It covers a foreign government or its agency, any international agencies (other than certain specified agencies such as United Nations, World Bank, etc.), foreign citizen, foreign company, any other foreign entity such as trade unions, trusts, societies, clubs, etc. formed or registered outside India. It also covers multi-national corporations and any company where more than 50% of the share capital is held by foreign government, entity or citizen.
Receipts from foreign citizen are considered as foreign source and hence by implication one could argue that amounts received from Indian citizen would not be treated as foreign source. As such, even foreign currency would be treated as received from Indian source, if it is received from an Indian citizen. The basic principle is to determine the source from which the currency or asset is being received. If the source is Indian, then it does not matter whether the currency is Indian or not. Conversely, if the source is foreign, then even if the receipt is in Indian Rupees, the same would be considered as foreign contribution.
Multi-national company has been defined to mean a corporation incorporated in a foreign country if it has a subsidiary or branch or place of business in two or more countries, or otherwise carries on business or operations in two or more countries. Thus a foreign company having operations in any one or more country besides India would fit into this definition. For example several foreign banks operating in India would fall under this category.
What is most damaging is that even Indian companies where foreign shareholding is more than 50% would be treated as foreign source. With liberalised FDI norms and also liberalisation of permissible foreign investment limits in listed Indian companies, there are several Indian companies where the foreign holding is more than 51%.
Any donations received from such companies or even from branches of foreign companies would be treated as foreign contribution. Such companies cannot give donations to Indian trusts or even place advertisements in souvenirs brought out by such trusts, unless the trusts are either duly registered with the Central Government or have taken prior permission for receiving such donation. The provisions of FCRA 2010 can be broadly classified in the following three categories:
1) Prohibition on certain persons from accepting foreign contribution.
The following persons are prohibited from accepting foreign contribution:
a) Candidate for election;
b) Correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper;
c) Judge, government servant or employee of any entity controlled or owned by the government;
d) Member of any Legislature;
e) Political party or its office bearers;
f) Organisations of a political nature as may be specified;
g) Associations or company engaged in the production or broadcast of audio news or audiovisual news or current affairs programmes through any electronic mode or form or any other mode of mass communication;
h) Correspondent or columnist, cartoonist, editor, owner of the association or company referred to in (g) above.
However, foreign contribution can be accepted by the above-mentioned persons in the following specific situation:
a) By way of remuneration for himself or for any group of persons working under him;
b) By way of payment in the ordinary course of business transacted in or outside India or in the course of international trade or commerce;
c) As agent of a foreign source in relation to any transaction made by such foreign source with the Central or State Government;
d) By way of gift or presentation as a member of any Indian delegation. However, the gift or present should be accepted in accordance with the rules made by the Central Government;
e) From his relative;
f) By way of any scholarship, stipend or any payment of like nature.
It is important to note that barring the above exceptions, there is blanket prohibition on the above-mentioned persons from accepting foreign contribution. The provisions are extremely stringent and are reminiscent of the FERA days where a foreign exchange offence was considered as destroying the economic fabric of the country and hence was to be dealt with as ruthlessly and strictly as a criminal offence.
2) Restriction on certain persons from accepting foreign hospitality
FCRA 1976 as well as FCRA 2010 prohibit members of Legislature, office bearers of a political party, judges and government servants from accepting any foreign hospitality except with the prior permission of the Central Government. It is not necessary to obtain such prior permission in case of medical emergency outside India. However, even in such medical emergency, the person receiving the hospitality is required to intimate the Central Government about the receipt of such hospitality, the source from which and the manner in which the hospitality was received by him within one month.
Foreign hospitality is defined to mean any offer, not being a purely casual one, made in cash or kind by a foreign source for providing a person with the costs of travel to any foreign country or with free boarding, lodging, transport or medical treatment.
3) Regulating the acceptance of foreign contribution by persons having a definite cultural, economic, educational, religious or social programme.
NPOs are directly affected by the provisions of FCRA (both FCRA 1976 and 2010), and the Government closely monitors the inflow of foreign contribution into this sector.
Both under FCRA 1976 and FCRA 2010, any individual or organisation carrying out a definite cultural, economic, educational, religious or social programme is required to be registered with the Central Government or obtain prior permission of the Central Government before accepting any foreign contribution. Such an NPO cannot in turn transfer the foreign contribution received by it to any other person unless such other person is also registered or has obtained prior permission.
The process of registration is stringent and fraught with bureaucratic process. Unless the NPO has a track record of at least three years, as a matter of practice, registration has generally not been granted under FCRA 1976. Under FCRA 2010, the requirement of having a track record is now codified, as the Act specifically provides that before granting registration, the Central Government shall verify whether the NPO has undertaken reasonable activity in its chosen field for the benefit of society. If the NPO is not able to fulfill the requisite conditions for registration, then the only alternative would be to apply for prior permission, which would be valid only for the specific purpose and source for which it is obtained. Even for prior permission the NPO would have to show that it has a reasonable project for the benefit of society for which the foreign contribution is proposed to be utilised.
The Central Government, before granting registration or prior permission, is required to ensure that the person or organisation is in no way working to the detriment of national interest. For example, (and the below-mentioned items are only illustrative) it should not be engaged in:
a) Religious conversion through inducement or force;
b) Creating communal tension or disharmony;
c) Propagation of sedition or advocating violent methods to achieve its ends;
d) Undesirable purposes.
Besides, permission can be denied if the acceptance of foreign contribution is likely to affect prejudicially the sovereignty and integrity of India or is against the security, strategic, scientific or economic interest of the State; or is opposed to public interest.
This clearly brings out that the Central Government has almost absolute powers to deny registration or prior permission. The manner in which some of the above criteria can be interpreted is extremely subjective and fear is that too much power is placed in the hands of the bureaucracy and this may lead to undesirable consequences.
Under FCRA 1976, prior permission was relatively simpler to obtain as compared to registration and was generally granted within 90 days if the paper-work was proper. Under FCRA 2010, it is specified that application for registration or prior permission should, after inquiry, be ordinarily granted within 90 days of the application or the Government should communicate the reasons for not granting the same. No specific consequences are provided for not processing the application within the 90 days and hence the provisions are rightly viewed with a great deal of skepticism, as it is unlikely that the sanctity of the time frame of 90 days will be observed.
What is worst is that the certificate for registration is now valid for a period of five years, after which the registration process will have to be repeated. This is in deviation of the present situation under FCRA 1976 where registration once granted is valid for the lifetime unless specifically revoked. The Central Government has wide powers under specified situations to cancel the certificate of registration, after making such inquiry as it deems fit. For example, the certificate can be cancelled if the NPO has obtained the same by making false statements or has violated any terms and conditions of registration or of FCRA or its rules or it is necessary to do so in public interest. The certificate can also be cancelled if the NPO has not been engaged in any reasonable activity for the benefit of society for two consecutive years. Foreign contribution can be received only in a single designated bank account and it is not permissible to open multiple bank accounts. Often funding agencies demand that separate bank account be opened specifically to manage and monitor the foreign contribution sent to India by them. Unfortunately that is not permitted under FCRA and needs to be clearly explained to the funding agencies.
Often trusts have projects in far-flung and remote places and it is always advisable to open a bank account at the project site. Recognising this need, it is provided that more than one bank account can be opened for actual utilisation of such foreign contribution. Such bank account is popularly referred to as project account and typically, the funds are transferred from the designated account, to the project account for direct spending on the project. No other deposits are allowed to be made in such project account as they are meant only for disbursement of expenses. Such project accounts were permitted under FCRA 1976 also by way of administrative directions, but under FCRA 2010, the same is legitimised by a specific provision in the Act itself.
The NGOs will have to maintain records and accounts in the prescribed manner and intimation will have to be sent to the Central Government reflecting the amount of each contribution received, its source and manner in which the same was utilised. The designated bank also has to report the details of the foreign contributions routed through them directly to the specified authority.
In recent times concerns have been raised that trusts do not spend adequate amounts on their core objects. There isn’t enough transparency in the administration of the trusts, resulting in disproportionately high administrative expenses. Apparently to address these concerns, further controls over trusts are introduced, providing that not more than 50% of the foreign contribution received in a financial year by the trust shall be utilised to meet administrative expenses. Administrative expenses exceeding 50% can be defrayed only with the prior approval of the Central Government, which will prescribe the elements that will be included in the administrative expenses and the manner in which such administrative expenses shall be calculated.
Unregulated NPO activities in the past have known to be the conduits for money laundering for organised crime. Global pressure is also growing on India to act urgently. The Financial Action Task Force (FATF) has in its report identified fund transfers from foreign non-profit organizations (NPOs) as one of the major sources for terrorist financing in the country on par with counterfeiting of currency, drug trafficking and extortion.
At present, India has different laws like the Indian Trusts Act, Bombay Trusts Act, Foreign Contribution Regulation Act, Societies Act, Trusts Acts in various states and the Companies Act for administering the NPO sector, as some of the areas relating to religious trusts and non-profit organisations fall under the State and Concurrent List of the Constitution. Multiple Acts make monitoring of these entities difficult as there is no centralized body to keep a tab on the sector, raising concerns on the source and outflow of funds. Hence, there is a need for a national framework legislation to support the NPO sector and to bring in the transparency & accountability in this voluntary sector on the lines of Uniform Trust Code (As Amended in 2005) of USA.In USA, the Uniform Trust Code (2000) will provide States with precise, comprehensive, and easily accessible guidance on trust law questions and provide a uniform rule. The Code also contains a number of innovative provisions. The United States, Bangladesh and Nepal have centralised agencies for registering and monitoring NPOs.
[ Published in Monthly Magazine of ICWAI
'Circuit' in July, 2011]
 FATF is a global watchdog to monitor illicit flows and terror financing.