/>iAfter the Foreign Contribution (Regulation) Amendment Act, 2020 (“FCRA 2020”) came into force on September 29, 2020, the Ministry of Home Affairs has notified the Foreign Contribution Regulation (Amendment) Rules 2020 (“New Rules”).1 The New Rules amend the Foreign Contribution (Regulation) Rules 2011 (“2011 Rules”) and further tightens regulatory norms for organizations seeking a certificate of registration under the Foreign Contribution Regulation Act, 2010 (“FCRA”). While it was anticipated that New Rules would provide certain regulatory relaxations to non-profits, it failed to provide any such concessions.
Our hotline on the FCRA 2020 amendments can be accessed here.
Amendments Introduced
The key amendments to the existing provisions of the 2011 Rules are:
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Clarification on ‘organizations of political nature’;
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Requirement of a designated FCRA account for registration, prior permission and renewal;
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Increased criterion for registration and prior permission;
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Clear consequences for non-renewal of certificate;
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Changes made to forms, i.e, provision for voluntary surrender of registration as well as additional disclosure requirements;
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Mandatory furnishing of Aadhar for transactions;
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Additional details required in Form for Annual Returns; and
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Tighter requirements for changes in the governing board;
Further, FCRA 2020 amended Section 172 to mandate receipt of foreign contributions solely into the FC-designated bank account maintained with the State Bank of India branch at New Delhi (“FCRA Account”). In line with this, the New Rules provide that any application seeking registration under the FCRA, which was made before the notification of the New Rules but not disposed of yet, will only be considered after the details of the FCRA Account has been furnished. Again, no clarification has been provided for such a mandate and whether before introducing such restriction, the government had considered how non-profits situated in remote areas would open and operate such FC-designated account in New Delhi.
Summary of Changes
We have highlighted the key amendments along with our analysis in the table below:
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S. No. |
Particulars |
Amendments |
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1. |
Clarification on organizations of political nature |
Rule 33 of the 2011 Rules provides guidelines for declaring an organization, which is not a political party, to be of a ‘political nature’. This has been amended to include organizations (such as organizations of farmers, workers, students, religion etc.) if such organizations “participate in active politics or party politics, as the case may be.”4 This amendment is in line with the ruling of the Supreme Court (“SC”) in Indian Social Action Forum (INSAF) v. Union of India5, where the applicability of the 2011 Rules was restricted by the SC barring organizations of farmers, student, religion, workers etc. from receiving foreign funding only if they engaged in “active politics or party politics”. |
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2. |
FCRA Account |
Similar to the FCRA 2020, the New Rules also provide for a designated FCRA Account with the State Bank of India branch at New Delhi, in contrast with the “exclusive bank account” provided in the 2011 Rules. This account is mandatory for registration, for obtaining prior permission for receiving foreign contributions, or for renewal of registration under the FCRA. |
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3. |
Requirements for registration/prior permission:6 |
Earlier one of the eligibility criteria for registration or obtaining prior permission under the FCRA was that the minimum expenditure on the aim and objects of the association (excluding administrative expenditure) during the last three financial years should be INR Ten Lakh USD 13,500 (approx.). The New Rules has increased this to INR 15 Lakh/USD 20,000 (approx.) (Rupees Fifteen Lakh), which should be the expenditure on “core activities for the benefit of the society”. Further,7 if the amount of contribution on the date of final disposal of the application obtaining prior permission is over INR 10 Million/USD 135,000 (approx.), the Central Government may permit receipt of such foreign contribution in instalments, provided that the second and subsequent instalment will be released after proof of utilization of 75% of the first instalment and enquiry into nature of the usage of the contribution. |
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4. |
Renewal of FCRA registration certificate |
The New Rules provide that:
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5. |
Voluntary surrender of FCRA certificate |
Earlier there was no provision for the surrender of the FCRA certificate. FCRA 2020 and the New Rules allows for voluntary surrender of the FCRA certificate of registration by submitting an application in electronic form in Form FC-7.12 However, as per section 14A of the FCRA 2020,13 the surrender can take place only after the government has approved it after being satisfied that there were no violations of the FCRA provisions. Further, the management of foreign contribution and the assets created from the contributions has to be vested with the prescribed government authority. |
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6. |
Changes made to online forms |
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7. |
Mandatory furnishing of Aadhar (unique identification) for transactions |
Similar to the FCRA 2020, the New Rules also require Aadhar and PAN details to be provided in the Online Forms for registration, prior permission, renewal, changes in key members, etc. |
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8. |
Requirements for changes in the governing board |
Earlier intimation was required to be made to the Government within 30 days if there was a change in more than 50% of the key members. However, under the New Rules, an intimation is required whenever a new key member is appointed, elected, resigns or dies within 15 days of such change.14 Such changes will be effected only after the Government's approval. |
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9. |
Additional details required in the Form for Annual Return |
In the Annual Return Form FC-4, the chief functionary is required to answer the following questionnaire in Yes or No. If the answer to any of the following questions is in affirmative, further details about the same have to be provided. The questions pertain to:
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Conclusion
Upon perusal of the New Rules, it is clear the current government dispensation has further tightened rules for non-profit organizations seeking foreign contributions. The introduction of a fiscal norm which mandates organizations seeking registration to spend at least INR 1.5 million/USD 20000 (approx.) on its core activities may prove to be counterproductive. Many existing non-profits in India are currently under-funded due to the ongoing pandemic and economic downturn, and any economic upsurge in the market is going to take a considerable time. Thus, corporations, in general, will have a relatively lesser budget for philanthropic initiatives including CSR, which is bound to have a cascading effect on non-profits’ fiscal health. In such a scenario, expecting non-profits to have a certain fiscal expenditure norm will only create additional regulatory barriers.
Article 1315 of the UN Declaration on Human Rights Defenders states that everyone has the right, individually and in association with others, to solicit, receive and utilize resources for the express purpose of promoting and protecting human rights and fundamental freedoms, through peaceful means. This, in effect, obliges the State to ensure that its domestic laws, rules and corresponding regulations are designed to be consistent with the task of implementing and complementing human rights instruments. However, the amended provisions of FCRA 2020 and the New Rules seem to substantially deprive non-profits from scaling up and tend to limit them within stringent constructs of FCRA provisions. The true relevance and purpose of FCRA provisions should be to enable an eco-system where foreign contributions are utilized by non-profits in a manner that supplants India’s charitable and social objectives. However, with the recent amendments, it needs to be seen whether non-profit eco-system would be bolstered or face increased operational challenges.
1 Available at https://fcraonline.nic.in/home/PDF_Doc/fc_rules_12112020.pdf, last accessed November 19, 2020.
2 Section 17 of the FCRA 2020 states that “(1) Every person who has been granted certificate or prior permission under section 12 shall receive foreign contribution only in an account designated as "FCRA Account" by the bank, which shall be opened by him for the purpose of remittances of foreign contribution in such branch of the State Bank of India at New Delhi, as the Central Government may, by notification, specify in this behalf”
3 Rule 3 of the 2011 Rules states that “(1) The Central Government may specify any organisation as organisation of political nature on one or more of the following grounds: -
(i) organisation having avowed political objectives in its Memorandum of Association or bylaws;
(ii) any Trade Union whose objectives include activities for promoting political goals;
(iii) any voluntary action group with objectives of a political nature or which participates in political activities;
(iv) front or mass organisations like Students Unions, Workers' Unions, Youth Forums and Women's wing of a political party;
(v) organisation of farmers, workers, students, youth based on caste, community, religion, language or otherwise, which is not directly aligned to any political party, but whose objectives, as stated in the Memorandum of Association, or activities gathered through other material evidence, include steps towards advancement of Political interests of such groups;
(vi) any organisation, by whatever name called, which habitually engages itself in or employs common methods of political action like 'bandh' or 'hartal', 'rasta roko', 'rail roko' or 'jail bharo' in support of public causes.”
4 Rule 3 of the New Rules states that “(2) The organizations specified under clauses (v) and (vi) of sub-rule (1) shall be considered to be of political nature, if they participate in active politics or party politics, as the case may be.”
5 (2020) SCC OnLine 310
6 Rule 9, Foreign Contribution Regulation (Amendment) Rules 2020.
7 Rule 9A, Foreign Contribution Regulation (Amendment) Rules 2020.
8 Rule 12 (5), Foreign Contribution Regulation (Amendment) Rules 2020.
9 Rule 12(2), Foreign Contribution Regulation (Amendment) Rules 2020.
10 Rule 12(6), Foreign Contribution Regulation (Amendment) Rules 2020.
11 Rule 12(6A), Foreign Contribution Regulation (Amendment) Rules 2020
12 Rule 15A, Foreign Contribution Regulation (Amendment) Rules 2020.
13 Section 14A of the FCRA 2020 states that “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.”
14 Rule 17A, Foreign Contribution Regulation (Amendment) Rules 2020.
15 Everyone has the right, individually and in association with others, to solicit, receive and utilize resources for the express purpose of promoting and protecting human rights and fundamental freedoms through peaceful means, in accordance with article 3 of the present Declaration.
