REGISTRATION OF NPOs UNDER THE FOREIGN CONTRIBUTION (REGULATION) ACT, 2010
By K P C Rao.,
LLB., FCS., FICWA
Practicing Company Secretary
kpcrao.india@gmail.com
In India a non-profit organization (NPO) can be set up as a (a) ‘Trust’ under the state trust acts such as Bombay Trusts Act, 1950 and Indian Trusts Act,1882 (b) ‘Society’under the Society Registration Act,1860 (c) ‘Section 25 Company’ under the Companies Act 1956 .
These NPOs are required to register with Income-tax Department for Income-tax Exemption and with Home Ministry under the foreign contributions Regulations Act, 2010 and with States to comply with various State laws. Similarly, a foreign NPO setting up an office in India and wanting staff from abroad will need permission from the RBI and also a NOC from External Affairs Ministry.
The Foreign Contribution (Regulation) Act, 2010 [FCRA] has been enacted by the Parliament to replace Foreign Contribution (Regulation) Act, 1976 [FCRA 1976] to:
1) regulate the acceptance and utilization of ‘foreign contribution’ [FC] or foreign hospitality by specified persons and
2) prohibit acceptance and utilization of FC or foreign hospitality for any activities detrimental to national interest.
FCRA 2010 came into force on 26-09-2010 by the ‘Central Government’ (CG) vide notification in the Official Gazette.
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.
A) Salient Features of the Act
i) Foreign contribution –Modification of definition
FC would also inter alia include donation, delivery or transfer made by any foreign source of:
1) any security as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956
2) interest accrued on FC deposited in bank, any other income derived from FC or interest thereon.
ii) Prohibition to accept FC
Following persons have been prohibited from accepting FC:
(i) Association or company 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
(ii) Correspondent or columnist, cartoonist, editor, owner of the association or company referred in (i) above.
(iii) Organization of political nature not being a political party, which may be specified by the CG, would be banned from accepting FC as against earlier provision of obtaining prior approval of CG for accepting FC.
iii) Non applicability of FCRA 2010 to certain FC
FCRA 2010 will not apply to FC accepted
1) from a relative (under FCRA 1976 prior approval of CG is required for receipt of FC in excess of Rs. 8000 p.a.)
2) by way of any scholarship, stipend or any payment of like nature
iv) Prohibition to transfer FC to other Person
a) Person who is granted certificate of registration or has obtained prior permission under FCRA 2010 and receives any FC is prohibited from transferring such FC to any other person unless that other person is also granted certificate of registration or obtained prior permission under FCRA 2010.
b) A part of FC can be transferred to any other person with prior approval of CG.
v) Restriction on utilization of FC
FCRA 2010 restricts utilization of –
a) FC and any income arising from FC for speculative businesses
b) FC for payment in excess of 50% of FC towards administrative purpose in one financial year
vi) Registration with CG
Any person having definite cultural, economic, educational, religious or social programme can accept FC only after obtaining
a) certificate of registration from CG; or
b) prior permission from CG
Certificate of registration would be valid for 5 years (under FCRA 1976 no end date of validity of registration is specified) and prior permission would be valid for the specific purpose or specific amount of FC proposed to be received. Any registration / permission granted under FCRA 1976 would be valid for 5 years from the effective date.
CG shall within 90 days of receiving application grant the certificate of registration / permission or communicate reasons for not granting such registration / permission (under FCRA 1976 no timeframe is mentioned for disposal of application).
While granting registration / permission, CG would inter alia consider various factors including
a) Whether applicant is fictitious or benami,
b) Whether applicant has been prosecuted / convicted for creating communal tension or disharmony has been found guilty of diversion / mis-utilization of its funds etc.
c) Acceptance of FC is not likely to affect prejudicially sovereignty and integrity of India, public interest, freedom or fairness of election to any Legislature, friendly relation with any foreign State, harmony between religious, racial, social, linguistic, regional groups, castes or communities etc.
d) Acceptance of FC shall not lead to incitement of an offence or endanger the life or physical safety of any person etc.
e) In case the person being an individual, such individual has been convicted under any law or prosecution for any offence is pending against him
f) In case the person other than an individual, any of its directors or office bearers has been convicted under any law or prosecution for any offence is pending against him
a) Information in the application / renewal thereof is incorrect or false
b) Holder of certificate has violated terms of the certificate
c) Public interest
d) Holder of certificate has violated any provisions of FCRA 2010
e) Holder of certificate has not been engaged in any reasonable activity in its chosen field for the benefit of the society for 2 consecutive years or has become defunct
vii)Bank Account
FC shall be received only in a single bank account. However, multiple bank accounts can be opened for utilization of FC.
viii) Others
CG empowered to issue notification with regard to:
a) person or class of persons who shall obtain prior permission of CG before accepting FC;
b) area in which FC shall be accepted and utilized with prior permission of CG
c) purpose for which FC shall be utilized with prior permission of CG
d) source from which FC shall be accepted with prior permission of CG
B) Registration of NGO for receiving Funds from Abroad (Section 6)
Foreign contribution is one of the major areas that have to be regulated by the government. Any society, trust or charitable company, carrying on educational, charitable, religious, economic, cultural or social welfare activities, and desirous of receiving any foreign contribution from a foreign source, is required to obtain registration under Section 6(1) of the Act. Any such association which is not registered or which has been denied registration, can receive foreign contribution only after obtaining prior permission from the Central Government under Section 6(1A) of the Act. According to section 5(2) (a) “Except with the prior permission of the Central Government, no person, resident in India, and no citizen of India, resident outside India, shall accept any foreign contribution, or acquire or agree to acquire any foreign currency, on behalf of an organisation referred to in sub-section (1).”
i) Eligibility
Although FCRA does not distinguish between registered and unregistered organisations, normally organisations registered under Society Registration Act, 1860, the Companies Act, 1956, the Bombay Public Trust Act, 1950 or as a public trust are only eligible for registration. It may be difficult for an absolutely new organisation to get FCRA registration because certain past activities and records help the FCRA authorities to determine the genuineness and relevance of the organisation.
ii) Separate Bank Account
It is necessary to every organization willing to receive foreign contribution to open and designate one specific bank account for receipt of foreign contribution. This bank account should be only for foreign contribution, and domestic contribution should not be mixed into this account. The foreign contribution received from abroad shall be deposited in this account only and this account shall be exclusively maintained for the purpose of foreign contributions.
iii) Application
Organization seeking registration under FCRA has to apply in Form FC-8 along with the following enclosures be filed in duplicate to the Secretary, Government of India, Ministry of Home Affairs, Internal Security Wing-FCRA, 4th Floor, Lok Nayak Bhawan, Near Khan Market, New Delhi-110003:
1) Completely filled Form, FC-8 in triplicate.
2) Certificate from concerned District Collector/ Department of State Government/ Ministry or Department of Central Government.
3) Activity report for past three years (or annual reports for three years)
4) Audited Statements of Account for past three years (Balance Sheet, Income & Expenditure, Receipts & Payments Account along with audit report)
5) List of states or districts you will be working in
6) Note on socio-economic background of the beneficiaries and of the region to be covered.
7) Detail of the beneficiaries and detail of the socio-economic factors of the region in which the NGO is working.
8) Certified copy of the Bye-laws and Memorandum and Article of Association whichever is applicable.
9) Copy of certificates of exemption or registration issued by the Income Tax Department u/s. 80G and 12A
10) Copy of any prior permission granted to the organization
11) Copy of resolution of Governing Body of the organisation, authorising the registration under FCRA
12) Copy of Power of Attorney or the resolution of Governing Body by which the Chief Functionary is authorised to submit FC-8.
13) Details of separate bank account maintained only for receiving foreign contributions.
14) An undertaking by the chief functionary with regard to the following:
a) Inform within 30days regarding change of name, address, objects, etc., with evidence.
b) Not to accept any foreign contribution without prior permission, if more than 50% of the office bearers as are mentioned in the application for registration are changed or replaced.
c) Not to change the bank account or branch of the bank without prior permission.
d) Not to accept foreign contribution before the registration is granted or with prior permission only.
15) If NGO is a society, then also attach:
a) Certified copy of Registration Certificate issued by the Registrar of Societies
b) Certified copy of Registration Certificate issued by the Charity Commissioner (in Gujarat and Maharashtra)
16) If NGO is a Trust, then also attach:
a) Certified copy of registered Trust Deed
b) Certified copy of Registration Certificate issued by the Charity Commissioner (in Gujarat and Maharashtra)
17) If NGO is a non-profit company, then also attach:
a) Certified copy of Memorandum and Articles of Association
b) Certified copy of the registration certificate issued by the Registrar of Companies.
c) Certified copy of the section 25 license issued by the Regional Director, Department of Company Affairs.
18) If NGO is bringing out a ‘registered newspaper’ (meaning that you have registered your newsletter as a ‘newspaper’), then also attach:
‘Category B’ certificate issued by the Registrar of Newspapers
iv) Time Limit for Application:
The time limit for making an application for registration has not been prescribed in the Act. Therefore, an application for registering under FCRA can be made any time after the legal constitution of an organization.
v) Granting of Registration and Refusal
After the application is made, the FCRA department may make field inquiry with the help of Intelligence Bureau. On the basis of the report submitted by the Intelligence Bureau, the application would be processed and accordingly accepted or rejected. There is no time limit provided under FCRA for processing of the application. Normally, six months should be taken to process an application for registration. And if the Government satisfies that the organization is complying all the requirements as required under FCRA, it may allot the registration number to the concerned applicant. But the government can also refuse to register under section 6 of the concerned act. The reasons for refusal are not explicitly, provided in section 6, but the refusal for registration could be on the basis of any of the reason specified in section 10:
a) The sovereignty and integrity of India; or
b) The public interest; or
c) Freedom or fairness of election to any Legislature; or
d) Friendly relations with any foreign State; or
e) Harmony between religious, racial, linguistic or regional groups, castes or communities.
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)[1] 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 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.
Philanthropy is ingrained in the Indian psyche and a vast number of organisations do yeoman work, they serve the most basic problems of the neediest of the needy, where government machinery has woefully failed. Such organisations need to be encouraged and provided with a framework where they can function efficiently and effectively.
[ Published in Monthly Magazine 'Corporate Secretary' of
ICSI in August, 2011]
No comments:
Post a Comment