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Amendment of Foreign Contribution (Regulation) Act, 2010 (FCRA)

Foreign Contribution (Regulation) Amendment Act, 2020 (Amendment) was notified by the Government of India on 29.09.2020, for amending specific provisions of the Foreign Contribution (Regulation) Act, 2010 (FCRA).
Highlights of the Amendment:
1. Addition of “public servant” to prohibition clause i.e., Section 3 of the Act.
EarlierNew
Section 3 (1) (c)
“Judge, Government servant or employee of ay corporation or any other body controlled or owned by the Government;”;
“(c) public servant, Judge, Government servant or employee of any corporation or any other body controlled or owned by the Government;";
Explanation to Section 3 (1)
“Explanation – in clause (c) and section 6, the expression “corporation” means a corporation owned or controlled by the Government and includes a Government company as defined in section 617 of the Companies Act, 1956.”
“Explanation 1.—For the purpose of clause (c), "public servant" means a public servant as defined in section 21 of the Indian Penal Code. Explanation 2.—In clause (c) and section 6, the expression "corporation" means a corporation owned or controlled by the Government and includes a Government company as defined in clause (45) of section 2 of the Companies Act, 2013.'”
The intent has been to widen the ambit of Section 3 of the FCRA and to add to it the category of “public servants” as defined in Section 21 of the Indian Penal Code, 1860. This addition will expressly prohibit persons who are paid or renumerated by the Government from receiving foreign contributions.
2. Complete prohibition on transfer of foreign contribution
EarlierNew
Section 7
No person who-
(a) is registered and granted a certificate or has obtained prior permission under this Act; and
(b) receives any foreign contribution,
shall transfer such foreign contribution to any other person unless such other person is also registered and had been granted the certificate or obtained the prior permission under this Act:
Provided that such person may transfer, with the prior approval of the Central Government, a part of such foreign contribution to any other person who has not been granted a certificate or obtained permission under this Act in accordance with the rules made by the Central Government.
7. No person who—
(a) is registered and granted a certificate or has obtained prior permission under this Act; and
(b) receives any foreign contribution,
shall transfer such foreign contribution to any other person.".
The earlier wording of Section 7 allowed NGO’s to work with ground level partner organizations located across India in implementing and delivering their projects. The Amendment now completely removes the possibility of transfer of foreign contribution in any way to any person. The intent here seems to be to ensure genuine utilization of foreign contribution for the purpose that it was set up for instead of simply channelizing funds to other NGOs. This undoubtedly necessitates current NGO’s to restructure operations, plans and personnel for completion of committed and future projects.
3. Resetting the cap for administrative expenses
Section 8 (1)
(1) Every person, who is registered and granted a certificate or given prior permission under this Act and receives any foreign contribution,-
Section 8 (1)
(1) Every person, who is registered and granted a certificate or given prior permission under this Act and receives any foreign contribution,-
(a) shall utilise such contribution for the purposes for which the contribution has been received:
Provided that any foreign contribution or any income arising out of it shall not be used for speculative business: Provided further that the Central Government shall, by rules, specify the activities or business which shall be construed as speculative business for the purpose of this section;
(b) shall not defray as far as possible such sum, not exceeding fifty per cent. of such contribution, received in a financial year, to meet administrative expenses:
Provided that administrative expenses exceeding fifty per cent. of such contribution may be defrayed with prior approval of the Central Government.
(a) shall utilise such contribution for the purposes for which the contribution has been received:
Provided that any foreign contribution or any income arising out of it shall not be used for speculative business: Provided further that the Central Government shall, by rules, specify the activities or business which shall be construed as speculative business for the purpose of this section;
(b) shall not defray as far as possible such sum, not exceeding twenty per cent. of such contribution, received in a financial year, to meet administrative expenses:
Provided that administrative expenses exceeding twenty per cent. of such contribution may be defrayed with prior approval of the Central Government.
Administrative expenses are normally expenses incurred by NGO’s towards managing and implementation of their social projects, a large chunk of which normally be attributable towards personnel expenses / employees etc. The intent of the amendment here has been to ensure maximum utilization of funds towards the object for which they were received / raised by the organizations. For comparison, it is important to note the under the CSR rules under Companies Act, 2013, companies are permitted to make their 2% CSR expenditures through certain NGO’s. But the boards are directed to ensure that the administrative overheads shall not exceed 5% of total CSR expenditure of the company for the financial year. NGOs will have to rethink and strategize to ensure that implementation of current projects are modified to fall in line with the new requirements, this might require re-budgeting and re-planning with respective donors.
4. Power to prohibit person from utilizing foreign contribution.
ExistingNew
Section 11 (2)
(2) Every person referred to in sub-section (1) may, if it is not registered with the Central Government under that sub-section, accept any foreign contribution only after obtaining the prior permission of the Central Government and such prior permission shall be valid for the specific purpose for which it is obtained and from the specific source: Provided that if the person referred to in sub-sections (1) and (2) has been found guilty of violation of any of the provisions of this Act or the Foreign Contribution (Regulation) Act, 1976 (49 of 1976), the unutilised or unreceived amount of foreign contribution shall not be utilised or received, as the case may be, without the prior approval of the Central Government.
(2) Every person referred to in sub-section (1) may, if it is not registered with the Central Government under that sub-section, accept any foreign contribution only after obtaining the prior permission of the Central Government and such prior permission shall be valid for the specific purpose for which it is obtained and from the specific source:
Provided that the Central Government, on the basis of any information or report, and after holding a summary inquiry, has reason to believe that a person who has been granted prior permission has contravened any of the provisions of this Act, it may, pending any further inquiry, direct that such person shall not utilise the unutilised foreign contribution or receive the remaining portion of foreign contribution which has not been received or, as the case may be, any additional foreign contribution, without prior approval of the Central Government: Provided further that if the person referred to in sub-section (1) or in this sub-section has been found guilty of violation of any of the provisions of this Act or the Foreign Contribution (Regulation) Act, 1976 (49 of 1976), the unutilised or unreceived amount of foreign contribution shall not be utilised or received, as the case may be, without the prior approval of the Central Government.
The new proviso to Section 11 now enables the Government basis a summary inquiry to restrict the usage of unutilized foreign contribution.
5. New identification requirements
New section 12A
"12A. Notwithstanding anything contained in this Act, the Central Government may require that any person who seeks prior permission or prior approval under section 11, or makes an application for grant of certificate under section 12, or, as the case may be, for renewal of certificate under section 16, shall provide as identification document, the Aadhaar number of all its office bearers or Directors or other key functionaries, by whatever name called, issued under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016, or a copy of the Passport or Overseas Citizen of India Card, in case of a foreigner.".
Anyone applying for a certificate under FCRA or applying for a renewal of certificate under FCRA will now be required to provide Aadhaar number of all its office bearers or key functionaries or directors, or in case of foreigners, a copy of passport or OCI card.
6. Increase in period of suspension.
ExistingNew
Section 13 (1)
(1) Where the Central Government, for reasons to be recorded in writing, is satisfied that pending consideration of the question of cancelling the certificate on any of the grounds mentioned in sub-section (1) of section 14, it is necessary so to do, it may, by order in writing, suspend the certificate for such period not exceeding one hundred and eighty days as may be specified in the order.
Section 13 (1)
(1) Where the Central Government, for reasons to be recorded in writing, is satisfied that pending consideration of the question of cancelling the certificate on any of the grounds mentioned in sub-section (1) of section 14, it is necessary so to do, it may, by order in writing, suspend the certificate for such period not exceeding one hundred and eighty days, or such further period, not exceeding one hundred and eighty days, as may be specified in the order.
This amendment permits the Government to increase the suspension period to a total of 360 days, while looking into the matter of cancellation of certificate under Section 14(1) of FCRA. This change allows the government more time to investigate and gather facts, data and hear representations if needed to aid it to come to a conclusion regarding cancellation of certificate.
7. Addition of voluntary surrender of certificate
New Section 14(A)
14A. On a request being made in this behalf, the Central Government may permit any person to surrender the certificate granted under this Act, if, after making such inquiry as it deems fit, it is satisfied that such person has not contravened any of the provisions of this Act, and the management of foreign contribution and asset, if any, created out of such contribution has been vested in the authority as provided in sub-section (1) of section 15.
This amendment allows existing certificate holders to voluntarily surrender their certificates. The voluntary surrender will be subject to the government being satisfied that no contravention of any provision of FCRA has taken place and that the remainder of the foreign contribution (or related assets) has been vested in an authority prescribed by the government as per Section 15(1) of FCRA.
8. SBI to be only banker for receiving foreign contribution.
Section 17 has been modified to ensure that State Bank of India, New Delhi holds “FCRA Account” or every authorized person permitted to receive foreign contribution. Permitted organizations are allowed to open and maintain bank accounts in other scheduled banks, for transferring of received foreign contributions from their SBI held FCRA Account. This amendment has been brought in to enable the government to easily monitor the inflow and outflow of foreign contribution into the country.
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