Policy Analysis

Foreign Contribution Regulation (Amendment) Act, 2020

Foreign Contribution Regulation (Amendment) Act, 2020

Author: Mrunalini Vengurlekar, student at NALSAR University of Law.

Introduction

The Foreign Contribution Regulation Act was first enacted in 1976 and enforced by the Ministry of Home Affairs to regulate the inflow of foreign contributions or aid to the citizens and other legal entities of the country. The object of the act was to prevent foreign organisations from influencing the social, political, religious or other such discussions in the country. To meet such an object, the act prohibits certain types of organisations and individuals from receiving any foreign contributions. The reason for such an act, as discussed in the parliament, was the threat of neo-colonialism and the threat of more developed countries being able to exercise control over the programs and activities taking place in a third world country like India and the weapon of influence they carry in their armour. To create a mechanism to regulate the acceptance and utilisation of foreign contribution or hospitality in India, the act was enacted. The Foreign Contribution and Regulation Act aims to mainly regulate the activities of NGOs that receive contributions, donations and other such funds from abroad. The first amendment to the act came in 1984, when it was made mandatory for NPOs to register under the same to receive any foreign donations; they were also disallowed from transferring such funds to any other NPO. The 1976 act was repealed in 2010 and replaced by the Foreign Contribution (Regulation) Act, 2010 whose object was to:

  1. Regulate the acceptance and utilisation of “foreign contribution or foreign hospitality” by certain individuals or associations or companies.
  2.  Prohibit such acceptance and utilisation for any activities detrimental to the national interest. In 2018, the definition of “foreign source” was amended and foreign funding to political parties was made legal retrospectively.

The next amendment to the act was made in 2020, the specifics and ramifications of which will be explored in this paper. This amendment was made to bring more transparency in the system and strengthen the compliance mechanism for entities listed in the act.

Analysis of the Amendments

  • “Public Servant” added to the list of persons barred from accepting foreign contributions:

Section 3 of FCRA[1] lists out people who are prohibited from taking foreign contributions. It includes, among others: election candidates, editors and owners of registered newspapers, judges, MLAs, and political parties. The FCRA, 2020 makes an addition to this section. It adds “public servant” to this list as defined in Section 21 of the Indian Penal Code[2]. The definition is as follows:

“The competent authority, every arbitrator and every officer empowered by the Central Government or the competent authority, while exercising any power or performing any duty under this Act, shall be deemed to be a public servant within the meaning of section 21 of the Indian Penal Code.”

The addition of “public servant” in section 7 of the act comes after the FCRA Violation FIR against Indira Jaising and her husband Anand Grover’s NGO, Lawyer’s Collective, as filed by another NGO, Lawyers Voice.[3] The Central Bureau of Investigation, who registered it, recorded claims of discrepancies in foreign contributions stated by the Lawyers Collective in its returns filed with the Ministry of Home Affairs. Consequently, their FCRA licence was cancelled and suspended, to which Indira Jaising said that they were being targeted for speaking up in defence of secularism. In the case, the government argued that Indira Jaising was the Additional Solicitor General then, which made her a government servant. However, the Lawyer’s Collective opposed that by saying that she was in fact a “public servant” as defined in the Indian Penal Code. Thus, the gap is being plugged through this amendment, which would include “public servant” in the list of persons prohibited from accepting foreign contributions. Although this change was made to keep officials discharging their public duties from being influenced by foreign contributions, it will also keep government officials who fall under this definition from starting non-profits for public welfare that require foreign contributions.

  • Prohibition on transfer of foreign contribution

The act earlier barred transfer of foreign funds to any other person unless they’re registered to accept such a contribution under the act. However, the FCRA, 2020 amends section 7[4] of this act by prohibiting such a transfer to ANY other person. (“person” being inclusive of a registered company, an individual, or association). The prohibition on transfer of foreign contribution will give the government greater control and accessibility to oversee the ends that these contributions would achieve, however, it’s a step back for the many NGOs and workers who have a licence themselves, but find it easier to receive such contributions through larger NGOs that have a wider network and better reach. These organisations and workers that don’t have the infrastructure or networking to raise foreign contributions for themselves but do work on the grassroots level will be completely shut off from receiving such monetary relief from the bigger NGOs and will fail to achieve their cause. Another disadvantage will be that it will affect the already established channels of networking of the smaller NGOs with big NGOs and keep them from making more in the future. Small NGOs that work in small sectors or rural areas that are likely to be presently isolated will have their options for networking and expanding shut off. A far more practical option would have been to log and report all activities for which the funds were used.

Aadhar for registration

The Foreign Contribution (Regulation) Act states that a person may accept foreign contribution if they have:

(i) obtained a certificate of registration from central government, or

(ii) not registered, but obtained prior permission from the government to accept foreign contributions.

Any person seeking registration (or renewal of such registration) or prior permission for receiving foreign contribution must make an application to the central government in the prescribed manner. The amendment bill introduces an additional identification requirement, namely the Aadhar. Any prior permission or registration or even renewal of licence under the act requires the submission of Aadhar cards of all the office bearers or directors or key functionaries (in case of a foreigner a copy of passport or overseas citizen of India card).

  • FCRA account accessibility of creation

The FCRA states that a registered person can accept foreign contributions only in a single branch of a scheduled bank specified by such a person and leaves the option of opening more accounts in other banks for utilisation of such funds available. The amendment changes this requirement to make it obligatory for there to be only ONE account that receives such a contribution that is designated by the bank as an FCRA account” in a branch of the State Bank of India, New Delhi as notified by the Central Government. The option to open another account in another bank for utilisation of the funds remains unchanged and available. The purpose of this amendment was to streamline and systematize the receipt of foreign contributions while enabling better supervision and surveillance by the government. However, what it will definitely result in, would be inaccessibility for the smaller NGOs that work in other parts of the country. Logistical concerns and added travelling expenses will make it harder for such NGOs to carry out their activities towards their aim. Most NGOs are based in rural areas, and the amendment is completely blind to the dire consequences that small NGOs will face due to the same.

Restriction in utilisation of foreign contribution

Under the FCRA, if a person registered under the act is caught violating any of its provisions, the unutilized or unreceived funds can only be utilized or received on prior permission by the central government. The amendment changes this provision and makes a distinction between the threshold for registered and unregistered persons.  In case of unregistered persons, prior approval is required if the central government has reason to believe that they have contravened the provisions of the Act pursuant to a summary inquiry, and in case of registered persons, prior approval is necessitated only when they are found guilty of violating the provisions of the Act. The amendment also allows the central government to prohibit the utilisation of receipt of further foreign contribution even before the unregistered person is found guilty of violation of the provisions of the act. The rationale behind this amendment is to pre-emptively put an end to transactions that prima facie violate the FCRA.

Extension of suspension period

Section 13 of the FCRA has been amended to increase the maximum period of suspension to 360 days from the previous 180. Suspended entities cannot receive or utilize foreign contributions during the period that they’re suspended. The extension of the maximum period of suspension might be a better deterrent for NGOs in violating the provisions of the act by misappropriating or misusing funds. Although it is unclear how this rationale will actually be achieved. This amendment could easily be misused by the government to suspend registration certificates for almost a year if the organisation doesn’t meet any of the requirements to merit cancellation of their certificate. A suspension for a year would mean a likely shut down of an organisation without the need for proving that the said organisation has warranted a cancellation of registration certificate under the provisions of the act. There seems to be hollow and malevolent (if any) rationale behind such an extension. Having said that, the mere possibility of abuse of power is not a ground for declaring a law unconstitutional. In Advantages India and Ors. Vs. Union of India and Ors.[5], it was said that laws are not to be declared unconstitutional on the theory that power would be exercised in an unrealistic fashion. But it is to be seen whether there really is any solid rationale behind such an amendment in that there exists proof that     suspension periods right now fail to or are inadequate in achieving the objective of deterring the violation of the provisions of the act and the extension of such a period will actually yield better compliance.

Surrender of Certificate

The amendment adds a mechanism to surrender registration under the act, by adding section 14A. The central government may allow the surrender of a certificate provided that the person applying for such a procedure has not contravene any provisions of the act and the management of the foreign contribution received by them and such assets has been vested in an authority prescribed by the government.

Renewal of Certificate

The FCRA makes the renewal of licence mandatory every six months, and failure to do so will lead to the expiry of the licence. The amendment makes the satisfaction of the criteria under 12(4) mandatory even at the time of renewal, as opposed to only at the time of registration as was earlier.

Administrative Expenses Cap lowered

The Bill amends Section 8 of FCRA to decrease the cap on administrative expenses through foreign contributions from 50% to 20%. Until the amendment, the persons receiving foreign contributions could use up to 50% of such funds to cover administrative expenses like water, electricity bills, travel expenses, rents and repairs, postal charges, etc. This amendment aims to refocus the attention of NGOs to their main objective instead of using up funds in secondary activities. However, this ignores the NGOs whose activities might be of the nature that requires them to allocate more financial resources to cover administrative expenses. It could also adversely affect the workers of these NGOs who, given the nature of their occupation are already underpaid. This amendment unnecessarily tries to fix what’s not broken in that NGOs that receive foreign contribution receive it on the basis of their credibility with the supplier of such funds, and if the donor feels that their funds aren’t being used for the cause that there are supplying it for, they are free to withdraw their support subject to any obligations they might have entered into with the NGO. One fails to understand why there was a need for government intervention and regulation in this aspect when there was a natural system already in place that was keeping the problem in check.

Conclusion

It is a definite possibility that the amendments listed will indeed achieve the objectives of the act and make the process of receipt of foreign funds more transparent. But it is also pertinent to note that while this may help, NGOs will financially suffer as a result. NGOs are necessary for the working of our country and they often prove most useful to bridge the gaps of government policy or implementation of the same. As demonstrated during the migrant workers’ crisis and more recently, the second wave of COVID-19, NGOs were tirelessly working to make resources available to the underprivileged. Not only this, other NGOs work all year round in rural areas or unorganised sectors of urban employment to extend support and improve the working and living conditions of the community that’s deprived of a voice in society. It is not irrelevant to note that the government made such a move after international organisations like Amnesty International and Reporters Without Borders have published its failures and brought COVID-19 related blunders into limelight. The environmental damage, religious bias and arguably authoritative ways have gotten international attention, and this amendment to the FCRA might likely be a move to put an end to this. This financial disability leaves them vulnerable for further harassment through legislation and executive actions. As Suvojit Chattopadhyay in his piece for The Wire[6] said, this may not be a drastic change, but signals a worsening trend for India’s non-profit sector.

Additionally, despite this over the top and more often than not unnecessary bits of change that the government has made to the FCRA, they have grandly failed to address some of the problems that were observed in the act. For instance, one case of non-compliance that was cited by the government in their justification of the need for amendments was failure of NGOs to file annual returns and maintain proper accounts of their funds. However, none of the amendments address this concern directly, and such an important area that was in desperate need to tighten the reins over was paid no heed to. At a time when the mishandling of the second wave was taking thousands of lives across the country, international donations and aid was critical, this amendment proved to be cumbersome on donors and discouraged foreign contributions.


References 

[1] Prohibition to accept foreign contribution

(1) No foreign contribution shall be accepted by any

(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 corporation or any other body controlled or owned by the Government;

(d) member of any Legislature;

(e) political party or office-bearer thereof;

(f) organisation of a political nature as may be specified under sub-section (1) of section 5 by the Central Government;

(g) 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 any other electronic form as defined in clause (r) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000) or any other mode of mass communication;

(h) correspondent or columnist, cartoonist, editor, owner of the association or company referred to in clause (g).

(2) (a) 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 currency from a foreign source, on behalf of any political party, or any person referred to in sub-section (1), or both.

(b) No person, resident in India, shall deliver any currency, whether Indian or foreign, which has been accepted from any foreign source, to any person if he knows or has reasonable cause to believe that such other person intends, or is likely, to deliver such currency to any political party or any person referred to in sub-section (1), or both.

(c) No citizen of India resident outside India shall deliver any currency, whether Indian or foreign, which has been accepted from any foreign source, to

(i) any political party or any person referred to in sub-section (1), or both; or

(ii) any other person, if he knows or has reasonable cause to believe that such other person intends, or is likely, to deliver such currency to a political party or to any person referred to in sub-section (1), or both.

(3) No person receiving any currency, whether Indian or foreign, from a foreign source on behalf of any person or class of persons, referred to in section 9, shall deliver such currency

(a) to any person other than a person for which it was received, or

(b) to any other person, if he knows or has reasonable cause to believe that such other person intends, or is likely, to deliver such currency to a person other than the person for which such currency was received.

[2] Indian Penal Code 1860 § 21.

[3]Debayan Roy, The FCRA violation case behind CBI raids on Indira Jaising, Anand Grover and their NGO, the print, 11th July, 2019,  https://theprint.in/india/the-fcra-violation-case-behind-cbi-raids-on-indira-jaising-anand-grover-and-their-ngo/261792/ .

[4] 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.

[5] Advantages India and Ors. Vs. Union of India and Ors., (2019), W.P.(CRL) 3595/2017.

[6] Suvojit Chattopadhyay, The Proposed FCRA Amendment Will Deal Another Blow to India’s Non-Profit Sector, the wire, 21st September 2020, https://thewire.in/government/foreign-contribution-regulation-amendment-bill-2020 .

 

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