On 28 September 2020, the Ministry of Law and Justice notified the Foreign Contribution (Regulation) Amendment Act 2020 (FCRA Amendment Act) which amends the existing provisions of the Foreign Contribution Regulation Act 2010 (FCRA).
The FCRA provides a compliance/governance framework governing foreign contributions/donations received in India, including, inter alia, norms on registration and prior permission requirements for receiving foreign contribution, filing of financials/undertakings, utilisation of funds and prohibitions applicable on receipt of foreign contribution.
The FCRA Amendment Act brings in a slew of amendments to the FCRA in relation to restrictions on the type of entities receiving foreign contribution, restrictions on transfer and utilisation of funds, additional conditions for obtaining registration/permissions and provisions on renewal/suspension/surrender of certificate of registration under FCRA. A summary of key amendments brought in by the FCRA Amendment Act is provided below.
- Prohibition on receiving Foreign Contribution: 3(1) of the FCRA sets out a list of persons who are prohibited from receiving any kind of foreign contribution, including inter alia, election candidates, correspondent, columnist, cartoonist, editor, owner, or publisher of a registered newspaper, judges, government servants, employees of governmental corporation, members of any legislature and political parties, entities engaged in the production or broadcast of news or current affairs. The FCRA Amendment Act has amended this section and added "public servants" (as defined under Indian Penal Code 1860) in this list1.
Further, the FCRA Amendment Act has amended explanations to existing §3(1) and clarified that employees of government companies (as defined under the Companies Act 2013) are also prohibited from receiving any kind of foreign contribution.
- Transfer of foreign contributions: Previously under §7 of the FCRA, foreign contribution could be transferred only to those persons who were registered or had obtained a prior permission under the FCRA to obtain foreign contribution. The FCRA Amendment Act has amended this section and stipulated a complete prohibition on transfer of foreign contribution received by a person to any other person2.
- Requirement of Aadhaar: Per §12 of the FCRA, a person is permitted to accept foreign contribution if they possess registration, or have obtained prior permission under the FCRA, to accept foreign contribution. The FCRA prescribes the format and manner of application required to be made for registration/prior permission. The FCRA Amendment Act has added a new provision (§12A) which provides that the Central Government may require persons seeking registration/prior permission/renewal to also provide Aadhaar number of all office bearers, directors, key functionaries, or provide copies of passport or the Overseas Citizen of India card, for foreigners3.
- FCRA Account: 17 of the FCRA previously provided that foreign contribution may be received in a single branch of any scheduled bank and more accounts may be opened in other banks for utilisation of the contribution. The FCRA Amendment Act has amended §17 and provided that foreign contribution can only be received in an account designated as "FCRA account", opened with the prescribed branch of the State Bank of India New Delhi. Further, no funds other than foreign contribution can be received or deposited in the FCRA account. Further, other FCRA accounts (in addition to the FCRA account in the State Bank of India's prescribed branch) may be opened in any scheduled bank for keeping or utilising the received foreign contribution4.
- Restriction on utilisation of funds: Previously, 8 of the FCRA stipulated a maximum cap of 50% on the percentage of foreign contribution that may be utilised towards administrative expenses. It is relevant to note that 'administrative expenses' are defined to include salaries, wages, travel expenses, expenses incurred towards hiring of personnel, consumables like water/electricity, telephone charges, postal charges, charges towards rent and repair of premises, costs associated with running of office and vehicles, costs incurred towards legal and professional fees etc5. The FCRA Amendment Act has reduced this limit by amending §8 of the FCRA. The provision now states that spends of foreign contribution towards administrative expenses shall be restricted to an upper limit of 20%6.
Further, previously, per §11 of the FCRA, if a person accepting foreign contribution was found guilty of violating the provisions of the FCRA, the unutilised or unreceived foreign contribution could be utilised or received, only after obtaining the prior approval of the Central Government. The FCRA Amendment Act has amended §11 of the FCRA and further empowered the Central Government to restrict usage of unutilised foreign contribution in such cases, if such person has contravened provisions of the FCRA7.
- Renewal/Suspension of registration: Earlier, the Central Government had the power under §13 of the FCRA to suspend the registration of any person for a period of 180 days. Pursuant to the FCRA Amendment Act, §13 has been amended and the Central Government has been provided with powers to suspend the registration of a person for another period of 180 days, in addition to the existing 180 days8.
The FCRA Amendment Act has also introduced certain new powers for the Central Government, ie, to: a) conduct an enquiry before renewal of registration9; and b) permit a person to surrender their registration10, on being satisfied that such person has not contravened FCRA and has vested the management of foreign contribution and related assets in the prescribed manner.
The FCRA Amendment Act can be seen as another step by the Central Government towards regulating the flow of funds received from non-residents by resident Indians. The FCRA Amendment Act aims at increasing transparency by introducing the requirement to provide Aadhaar, empowering the government to conduct an inquiry into the affairs of the person registered under the FCRA and introducing a requirement of mandatory 'FCRA Account'. However, it is anticipated that market participants may view the FCRA Amendment Act as an attempt to increase regulation of non-profit organisations operating in India, that are receiving funding from abroad.
1 §2 of the FCRA Amendment Act.
2 §3 of the FCRA Amendment Act.
3 §7 of the FCRA Amendment Act.
4 §6 and §12 of the FCRA Amendment Act.
5 Rule 5 of the Foreign Contribution (Regulation) Rules 2011.
6 §4 of the FCRA Amendment Act.
7 §5 of the FCRA Amendment Act.
8 §8 of the FCRA Amendment Act.
9 §11 of the FCRA Amendment Act.
10 §9 of the FCRA Amendment Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.