The Ministry of Home Affairs, Government of India (Government) introduced the Foreign Contribution (Regulation) Amendment Bill, 2020 (Bill) in the Parliament to amend the provisions of the Foreign Contribution Regulation Act, 2010 (FCRA). The introduction of the Bill was met with stern opposition from members of the opposition in the Parliament and from the civil society. However, despite the opposition, the Bill has been passed in both the houses of the Parliament and will now be sent to the President for his assent. The Bill will become law once the President gives his assent.
The stated object of the Bill is to "strengthen the compliance mechanism, enhance transparency and accountability in the receipt and utilisation of foreign contribution. and facilitating genuine non-governmental organisations or associations who are working for the welfare of the society". In this article we analyse whether the Bill achieves its stated objectives or is this only a case of the Government trying to stifle the non-governmental organisations (NGO) sector by increasing regulatory control.
- Need for regulation
The need to regulate foreign contributions coming into India was felt soon after independence when foreign funded NGOs began mushrooming in India. It was felt that foreign contribution which was motivated by political or religious objectives needed to be curbed.
Shri Khurshed Alam Khan in his speech1 on the floor of Rajya Sabha on March 9, 1976 summarized the circumstances that necessitated the regulation of foreign contributions in India. He said:
"The nation is today poised for a take-off and we are determined to reshape our destiny and our economy. Nourished by the new economic programme, which has received spontaneous and overwhelming support, the nation has acquired a new purpose and a new reality.
Sir, there was a time when territorial domination and spheres of influence of the imperialist powers and big powers were the order of the day. But now money seems to be the best way of interference in the domestic affairs of the country. But it is now a well-known and universally accepted fact that neo- colonialism is a clever substitute for the old type of crude colonialism. This is usually backed by the generous foreign contributions in various shapes, foreign hospitality. The foreign exchange deficits and requirements of developing countries and poor countries that particularly do not have oil resources these days have added to the dimension of this problem. Even our trade unions are not spared by the people who are interested in financing their activities in other countries..."
The Congress government enacted the Foreign Contribution (Regulation) Act in 1976 to create a mechanism to regulate the acceptance and utilisation of foreign contribution or hospitality in India. Due to some deficiencies in the working of the 1976 Act, it was repealed and FCRA was enacted in 2010 by the UPA government.
- Role played by not-for-profits/ NGO sector in India
Ever since independence, the NGOs have played a vital role in India. They have reached out to the marginalised communities and far off areas in India in multiple ways. Each time a crisis has hit India, be it a health crisis, an economic crisis or even a natural disaster, the NGOs have been on the forefront of relief efforts. In fact, during the ongoing COVID-19 pandemic, the relief work done by the NGOs was lauded by none other than the Prime Minister of India, Narendra Modi.
However, despite the obvious benefits of this sector, it has been on the scanner for successive governments in India.
As per the current Government, the annual inflow of foreign contribution has increased over the last 10 years and many recipients of foreign contribution have diverted funds for purposes other than those mandated by their respective FCRA registrations/permissions and the certificates of registration of more than 19,000 recipient organisations, including NGOs have been cancelled. The current Government has been criticized for the cancellation of such registrations/ permissions on the basis that the cancellation is a coloured move.
However, this is not the first Government to have acted against the NGOs. In 2012, the then UPA government had come down heavily on NGOs protesting against the Kudankulum nuclear power project. It dismissed the NGO activism as being motivated by foreign countries which were not supportive of developing nations like India wanting to increase its nuclear capabilities. At that time as well, registrations of NGOs voicing environmental and health concerns were cancelled2.
Even the current change in FCRA comes in the backdrop of cancellation of FCRA registrations of 4 (four) Christian NGOs3 working in India earlier this month.
- Key changes to the FCRA introduced by the Bill
- Prohibition on "public servant" from receiving foreign contribution
The Bill amends Section 3 of FCRA to expand the list of persons who are prohibited from receiving foreign contribution. It adds "public servant" as defined in Section 21 of the Indian Penal Code, 1860 to this list. Section 3 of FCRA already prohibited judges, Government servants and employees of Government owned or controlled corporations or bodies from receiving foreign contribution. The addition of "public servant" in the list will, amongst others, also prohibit from receiving foreign contributions the persons in the service or pay of the Government or remunerated by fees or commission for the performance of any public duty by the Government.
The amendment is believed to have been introduced in light of cancellation of the FCRA registration of Lawyers Collective, an NGO run by lawyers Indira Jaisingh and Anand Grover. During the court proceedings, it was argued on behalf of the Government that Indira Jaisingh who was an Additional Solicitor General of the Government at the time was prohibited from receiving any foreign contribution by virtue of being a government servant covered under Section 3 of FCRA. This was opposed on behalf of Lawyers Collective and it was contended that Indira Jaisingh was in fact a "public servant" as defined in Section 21 of the Indian Penal Code, 1860 and not a government servant covered under Section 3 of FCRA. The Government has thus attempted to plug this gap by adding "public servant" as defined in Section 21 of the Indian Penal Code, 1860 to the list of persons prohibited from receiving foreign contributions.
It appears the reason for inclusion of "public servant" as defined in Section 21 of the Indian Penal Code, 1860 is to prevent decision-making of those discharging public duty or being remunerated by Government from being influenced through foreign funding or misusing the functions entrusted upon them to further the objectives of foreign funders. However, the criticism of the change is that this would exclude a large section of public-spirited individuals (who fall within the definition of "public servant") from continuing their activities which are intended for public-welfare and require foreign contributions.
- Prohibition on transfer of foreign contribution
The Bill substitutes Section 7 of FCRA to prohibit persons authorized under FCRA to receive foreign contributions from transferring such foreign contributions to any person.
The existing Section 7 of FCRA permits transfer of foreign contributions to others registered under FCRA or who have obtained prior permissions under FCRA for receiving foreign contributions. Also, under the current rules4 foreign contribution recipient can, with the prior approval of the Government, transfer a part of such foreign contribution to any other person who does not have a registration or permission under FCRA.
Given that the transfer of foreign contributions was already restricted, the rationale for providing a complete prohibition on transfer of foreign contributions is unclear. If an NGO is authorized to receive foreign contributions directly (pursuant to a registration or permission under FCRA) why should it not be permitted to receive it indirectly from other recipients? If the transfer of foreign contribution to persons who are not registered or have permission under FCRA already required a Government approval, why was there a need to introduce a prohibition and why couldn't any illegal/ inappropriate transfers not be controlled through the prior Government approval mechanism? How does this new prohibition achieve the objects of the Bill?
Many smaller NGOs and social workers who are eligible to receive foreign contributions themselves i.e. have a FCRA registration or prior permission, find it easier to receive such foreign contributions through the larger NGOs who have a better network, reach and infrastructure. The amendment would leave such downstream recipient NGOs and social workers in a lurch. At the grassroot level, it is these small NGOs/social workers that are doing the work however they do not have the wherewithal to raise foreign contributions (and comply with reporting and other obligations towards international grantors) directly. There is collaboration between small NGOs/ social workers and the large NGOs and the amendment will adversely affect this collaboration and networking. The amendment will also adversely affect collaboration between large NGOs and effectively push NGOs to work in isolation from each other and not benefit from such collaboration and networking.
- Lowering of the administrative expense cap
The Bill amends Section 8 of FCRA to decrease the cap on administrative expenses through foreign contributions to 20% from the existing 50%. Until now, recipients of foreign contribution could use 50% of the foreign contribution to defray administrative expenses like payment of salaries, travel expenses, consumables like water/electricity, telephone charges, postal charges, rent and repairs to premise(s), costs associated with running an office, etc.
While on one hand the amendment seems to address the misuse of foreign contributions by some NGOs and to promote utilisation of such funds towards the objective of the grant, on the other hand it could make it difficult for the certain NGOs which because of the nature of their activity have high administrative expenses to continue to function in India. The amendment could also adversely affect livelihood of many grassroot level social workers, activists, researchers, and other professionals in the social sector who are already underpaid. There is no clarity on why the Government considered a 50% cap too high and a 20% cap on administrative expenses as appropriate and whether their one-size-fits-all approach would do more harm than benefit to the social sector in India. Also, if there was misutilization of funds that the Government sought to address, then why that could not have been addressed by utilizing the existing mechanisms available to them under the FCRA and under the Income Tax Act, 1961.
- Power to prohibit a foreign contribution recipient from utilising/receiving its funds
The Bill amends Section 11 of FCRA to add a proviso which states 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". In other words, it empowers the Government to prohibit a person who had received permission under FCRA to utilize/ receive foreign contribution without Government approval if the Government, based on a summary inquiry, believes that such person has contravened the FCRA. Such a restriction can be imposed by the Government pending further inquiry and before a person is found guilty of such contravention. The existing Section 11 of FCRA imposes such a restriction only when such a person is found guilty of an FCRA contravention.
This amendment appears to be preventive in nature and seems to enable the Government to prevent illegal receipt and utilisation of foreign contributions when the Government finds prima-facie that the recipient is already contravening FCRA. The amendment also brings the power of the Government with respect to persons who have been granted permission at par with the power of the Government with respect to persons who have been granted registration under FCRA. This is because Section 13 of FCRA already permitted the Government to suspend the registration certificate (which meant that foreign contribution cannot be received/ utilised) pending inquiry for contravention of FCRA by the registered person. However, there was no similar power with the Government with respect to persons who have been granted permission under FCRA. The amendment is being criticized as providing a tool in the hands of the Government to unduly harass certain NGOs/ social workers who are seen unfavourably by the ruling dispensation.
- Mandatory opening of FCRA bank account in State Bank of India, Delhi
The Bill amends Section 17 of FCRA requiring the recipient of foreign contribution to receive such amount only in an account designated as "FCRA Account" opened in a branch of the State Bank of India at New Delhi. However, it provides flexibility to the recipient to also open another FCRA Account in any of the scheduled banks in India for the purpose of keeping or utilising the foreign contribution which has been received from its "FCRA Account" in the branch of State Bank of India at New Delhi. Under the existing Section 17 of FCRA, the foreign contribution recipient is permitted to receive foreign contribution in an FCRA account opened in any of the scheduled banks.
The objective of the amendment appears to be to centralise the inflow of foreign contribution into one bank making it easier for the Government to monitor and track the funds received under FCRA. However, this could also create logistical difficulties and hurdles and increase costs for NGOs spread across India, many of whom are based in remote areas.
- Mandatory identification requirements
The Bill introduces a new provision in FCRA enabling the Government to require any person who applies for a permission or registration under FCRA (or its renewal) to provide Aadhaar cards of all its office bearers or directors or other key functionaries or, in case of foreigners, a copy of passport or overseas citizen of India card. The purpose of this amendment appears to be two-fold, one for the Government to have a database of who are the persons in control of organizations receiving foreign contributions and second to further promote the popularity and usage of the Aadhaar card.
- Increase in the maximum limit for the period of suspension
The Bill amends Section 13 of FCRA to give the Government the power to suspend the registration certificate (which means that foreign contribution cannot be received/ utilised) of a person for up to 360 days (which currently is 180 days) pending an inquiry for cancellation of FCRA registration.
The rationale for this change (especially at a time when Government is imposing aggressive timelines for completion of court/ other proceedings in other legislations) is unclear. What could prevent the Government to finally decide on the cancellation of FCRA registration within the 180 days period that the Government wishes to extend the suspension pending cancellation to 360 days? Also, it is not clear how this provision achieves the stated objective of the Bill. The criticism of this change is that it provides a tool to the Government to keep the FCRA registration certificate under suspension/ in abeyance for almost a year when it may not have grounds to finally cancel the registration.
There could be little disagreement with the Government's stated object of the Bill to strengthen compliance mechanism, enhance transparency and accountability and facilitate genuine NGOs. However, it is not clear how the Bill will achieve that object. For example, one of the Bill's object is stated to be to deal with non-compliances. One such non-compliance cited by the Government is non-filing of annual returns and non-maintenance of proper accounts. However, none of the amendments seem to address this concern. On the other hand, as discussed above, several of the amendment seem to have no connection with the Bill's objects.
The NGO sector is already heavily regulated and international donors find it difficult to make grants in India. Going forward, this will become more cumbersome because of the amendments. In the current times when foreign funds are most needed for Covid 19 related relief activities, these changes could prove to be counter-productive.
4. Rule 24 of the Foreign Contribution (Regulation) Rules, 2011
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.