India: Erring NGOs Granted One Time Exemption To File Annual Returns Under FCRA

Background

The Foreign Contribution (Regulation) Act, 2010 (Act), and the Foreign Contribution (Regulation) Rules, 2011 (Regulations) were enacted in place of the erstwhile Foreign Contribution (Regulation) Act, 1976 (1976 Act), primarily to ensure that foreign contributions were utilised for bona fide charitable activities without compromising on national security. Accordingly, in terms of the Act, an organisation cannot receive foreign contribution from a foreign source, unless it is validly registered under the Act, or has obtained a onetime prior approval for a specific project. In addition, such registered organisations are also required to comply with various post registration requirements, from time to time, as per the provisions of the Act and the Regulations.

The Ministry of Home Affairs (MHA) is the nodal agency dealing with the implementation and monitoring of the Act. Accordingly, in order to encourage compliance with the Act and the Regulations, the Foreigners Divisions (FCRA Wing) of the MHA has issued notice No II/21022/36(0207)/2015-FCRA-II dated 12 May 2017 (Public Notice), granting a one‑time exemption to those organisations who are seeking renewal of their registration, and have not uploaded their annual returns from Financial Year 2010-11 to 2014-15, as required under the Act, to submit such missing Annual Returns along with the requisite documents within a period of 30 days starting from 15 May 2017 to 14 June 2017.

Provisions of FCRA and FCRR in relation to renewal of FCRA registration

Unlike the provisions of 1976 Act, which did not prescribe any expiry date in relation to the registration granted under 1976 Act, the registration certificate granted to organisations under the Act is valid only for a period of 5 years from the date of receipt of registration certificate (as provided in section 12(6) of the Act). In addition, as per the proviso to section 11 of the Act,  the registration obtained by organisations under the 1976 Act would remain valid for a period of 5 years from the date on which this section came into force i.e. 1 May 2011.

However, section 16 of the Act read with rule 12 of the Regulations permits renewal of the certificate of registration issued to such organisation after the expiry of 5 years from the date of its issue, by way of filing Form FC-3 online (at https://fcraonline.nic.in) and on payment of requisite fees to the MHA.

The said Form FC-3 (as amended by the Foreign Contribution (Regulation) Amendment Rules, 2015), which is to be filed for registration/ prior permission / renewal under section 11(1) & (2) / section 16 of the Act requires the applicant seeking renewal to inter alia mention:

  1. The registration number issued under the Act;
  2. Details of key functionaries;
  3. Details of past violations, which may have been compounded/condoned by the MHA; and
  4. Undertaking that the receipt of foreign contribution and its utilization shall not be in violation  of any of the provisions of the Act, rules, notifications and orders issued there under from time to time.

In addition to the said details, Form FC-3 is required to be submitted along with audited statement of accounts and activity report of the organisation for the last 3 years.

In terms of the second proviso to section 16(3) of the FCRA, the MHA may refuse to renew the registration under the Act, in case the applicant has violated any of the provisions of the Act or the Regulations.

Therefore, in case annual reports have not been uploaded in Form FC-4 (along with scanned copies of income and expenditure statement, receipt and payment account and balance sheet for every financial year) online, at https://fcraonline.nic.in, by the applicant having a valid registration within 9 months of the closure of financial year, as required under rule 17 of the Regulations, the MHA may treat the same to be a contravention of the Regulations and may refuse to grant renewal of registration to such applicant.

Exemption granted by the MHA vide the Public Notice

By virtue of the Public Notice, a final opportunity has been given to all such associations/organizations:

  1. who have applied for renewal of their registration under the Act; and
  2. who have not uploaded their Annual Returns from FY 2010-11 to 2014-15,

to upload their missing Annual Returns in Form FC-4 along with the requisite documents (at https://fcraonline.nic.in) within a period of 30 days starting from 15 May 2017 to 14 June 2017.

As an additional incentive, the Public Notice mentions that the compounding fees (as mandated vide Notification dated 16 June 2016 [S.O.2133(E)]), which would otherwise be applicable in case of non-filing of such annual reports, will not be imposed on such associations/organizations for late filing of Annual Returns during the period from 15 May 2017 to 14 June 2017.

Khaitan Comment

The Act is much more stringent in its enforcement than the 1976 Act, and prescribes severe penalties in case of its contravention. A major reason behind such strict enforcement can be inferred from the observation made by the MHA in the FCRA Annual Report (2009-10), i.e. "the NGO sector in India is vulnerable to the risks of money laundering and terrorist financing". The MHA has accordingly cracked down heavily on NGOs which do not comply with the provisions of the Act and the Regulations. However, in the process, NGOs which bonafidely carry on charitable activities, and may not be well versed with the requirements of the Act and the Regulations have been adversely affected.

The initiative of the MHA in issuing the Public Notice is therefore a welcome step, as it provides a much-needed breather to such erring NGOs who had not filed their annual reports in a timely manner. Many NGOs who were ready to do a delayed filing but were deterred due to the substantial compounding fees, would find this a good opportunity to get their compliances in order. However, in our opinion, the MHA should have also permitted organisations who are not seeking renewal of their registrations but have not filed their annual reports timely, to avail of such one-time exemption.  Additionally, the Public Notice should also have provided exemption for cases wherein annual reports have not been filed for FY 2015-16.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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