In the recent past the Ministry of Home Affairs (“MHA”) has placed one of the leading Foundations in the ‘prior permission’ list i.e. it can make contributions in India only with prior approval, while it has served suspensions or cancellation orders to few Indian Non- Governmental Organisations (NGOs)or other outfits from receiving funding/ donations from foreign sources.

With the intention to further tighten the watch around the activities of the NGO’s that are receiving funding from ‘foreign sources’ and the ‘foreign contributions’ coming into India, the Central Government has proposed to amend the Foreign Contributions (Regulation) Rules, 2011 (“Rules”) issued pursuant to the Foreign Contribution (Regulation) Act, 2010.

The Foreign Contribution (Regulation) Act, 2010 (“Act”), which replaced the Foreign Contribution (Regulation) Act, 1976, governs foreign contributions received by a person in India. ‘Foreign Contribution’ has been defined to mean a donation, delivery or transfer made by any foreign source amongst others of any currency, whether Indian or foreign, where foreign source has been widely defined to include any and all sources of foreign money such as a government of a foreign country, foreign company, multi-national corporations, foreign citizens, foreign trust or foreign foundations by whatever name called and further to control indirect foreign funding, a foreign owned Indian company i.e. an Indian company where 50% of the paid up share capital of such Indian company is held by a foreign entity, is also included within the definition of a ‘foreign source’. Also, a recipient of foreign contribution for the purpose of this Act can include an individual, an association (which is further defined to mean any association of persons registered or not or any other organisation, which it makes it amply clear that a company, partnership firm, NGO, LLP, trust, society can also be recipients of foreign contributions), HUF and a company registered under Section 8 of the Companies Act, 2013 (earlier it was section 25 of the Companies Act, 1956). Thus, with the above it is clear that the Government has brought within the ambit of the FCRA any foreign funding by way of a donation, delivery or transfer received by any person or entity in India.

Some of the key compliances required under the Act include that any person having a definite cultural, economic, educational, religious or social programme can receive ‘Foreign Contributions’, only if such person has obtained a certificate of registration or has obtained the prior approval from the MHA. Since the terms ‘definite cultural, economic, educational, religious or social programme’ are not defined in the Act and due to lack of judicial precedents in this regard, there is still ambiguity in terms of what is sought to be brought within its ambit. ‘Foreign Contributions’ have to be received in a single designated bank account through the same branch as mentioned in the application for registration and no other funds other than ‘Foreign Contributions’ can be received in the same account where ‘Foreign Contribution’ are received. ‘Foreign Contributions’ are required to be utilised for the purpose received and cannot be utilised for speculative purposes and not more than 50% of the funds can be utilised towards administrative expenses. Further, there are restrictions on transfer of ‘Foreign Contributions’, may be with a view to ensure that ‘Foreign Contributions’ upon receipt are not diverted towards other purposes by transferring it to another entity or is transferred to entities which otherwise would need to obtain registration under the Act and therefore ‘Foreign Contributions’ received can be transferred to only a -FCRA registered entity or a person holding prior approval of the MHA, except otherwise with the approval of the MHA. Further, in case of receipt of ‘Foreign Contribution’ in excess of Rs. 1 crore in a financial year, the recipient is required to place details of the funds received and its utilisation pertaining to the year of receipts and for 1 year thereafter, in the public domain. There is also an obligation imposed on banks receiving ‘Foreign Contributions’ in accounts with them, that such banks are required to report to the MHA within 30 days of receipt of any ‘Foreign Contribution’ by entities that do not hold a certificate of registration or prior permission, and further banks are also required to report to the MHA receipt of any ‘Foreign Contribution’ in excess of 1 crore in a single or multiple transactions, within a period of 30 days. As a part of compliances, a recipient of ‘Foreign Contribution’ is required to file annual report (Form FC-6) providing details of the amounts received, foreign source, purpose, etc., accompanied by the prescribed documents such as the balance sheet, bank statements, income-expenditure statement, within 9 months of closure of the financial year. Apart from the above, there are several other compliances required to be undertaken by the recipient of ‘Foreign Contributions’ in terms of intimations and the filings with the MHA.

Only between March, 2015 to April, 2015, approximately 9,000 NGO’s/ associations have been issued notices suspending/ cancelling their registration under FCRA for noncompliances of the provisions with the FCRA especially due to failure to submit annual reports in form FC-6 with the MHA. The Rules require that even if a FCRA registered entity does not receive any ‘Foreign Contribution’ during a particular year, then such an entity is required to file ‘Nil’ returns.

By introducing the 1976 Act by replacing the Act, the Central Government amongst other changes and amendments, increased the level of disclosures and reportings required to be made by the recipient in order to provide access to the Government to additional details in respect of the ‘Foreign Contributions’ received including without limitationon the donor of funds, the purposes and the details of the utilisation of such foreign contributions, etc. Now with the proposed amendments to the Foreign Contribution (Regulation) Rules, 2011, it appears that the Central Government is proposing to further increase the disclosures required from the recipient of ‘Foreign Contributions’ and introduce stricter and stringent timelines for the compliances.

Some of the key amendments to the Rules proposed vide the Foreign Contribution (Regulation) Amendment Rules, 2015, include doing away with the threshold of ₹1 crore for putting up of details relating to the ‘Foreign Contributions’ by the recipient in the public domain. Therefore, as per the proposed amendment, a recipient of any ‘Foreign Contribution’, irrespective of the amount, whether below or above ₹1 crore, will be required to put up details on its official website or website prescribed by MHA. Further, now a timeline of 7 days is proposed to be included for the recipient to put up the details on its official website or the website prescribed in this regard. All recipients of ‘Foreign Contributions’ holding FCRA or prior permission from MHA, will be required to post audited FCRA accounts on their websites, by December 31st of each year, regarding income, expenditure, receipts, payment and balance sheets of foreign contributions.Further, the period of 30 days for banks to intimate the MHA of receipt of ‘Foreign Contributions’, is proposed to be reduced to 48 hours, irrespective of whether the recipient holds a certificate of registration or not and irrespective of the amount of the ‘Foreign Contributions’ received.

In line with the much talked about objective of the current Government to simplify procedures, many of the forms have been combined for e.g. Form FC-4 for application for registration under the Act and Form FC-5 for renewal of registration, has been combined into Form FC-3 and also Form FC-7 and FC-8 have been combined into Form FC-5. Also, the requirement of submitting a hard copy of the application for registration or prior approval is proposed to be removed and an online submission of the application will be sufficient and also a mechanism for online payment of fees is proposed to be introduced. However, the amount of details and disclosures required to be furnished to the MHA by the recipient is proposed to be increased for e.g., in the application for registration under the Act, the recipient is required to provide, details such as names and addresses of the board members, chief patrons, chief functionaries, and office bearers along with their email address, twitter handle, facebook page, landline and mobile number, if any of the chief patrons, chief functionary ormembers of the executive committee/ governing council is a foreigner, then name of the father, spouse, date and place of birth, passport number, permanent address in the foreign country, OCI/PIO Card (in case of Indian origin), and if such a person is residing in India, then details of such residence, along with the details of any positions held in any other NGO, further whether the recipient is a unit, branch or associate of an organization already having FCRA registration or prior permission, details of designated accounts, details of foreign sources from which foreign contribution is proposed to be received, etc.

So, while the objectives of the new legislation and, or, the stringent measures of the Government are to ensure that ‘Foreign Contributions’ are made for bona fide purposes and are getting utilized towards legitimate objectives as per the stipulated purposes and there are compliances with the Indian laws in this regard, the few others engaged in philanthropic and other good causes will face hardship or elimination owing to technical non compliances.