Context: Recently, a bill has been introduced in the Lok Sabha to make provisions of the Foreign Contribution Regulation Act (FCRA), 2011 more stringent.

• The government has said there is a need to streamline the provisions of the said Act by strengthening the compliance mechanism, enhancing transparency and accountability in the receipt and utilisation of foreign contribution.

Background

• Over the last few years, the licences of 20,664 NGOs or associations registered under the FCRA have been cancelled for violations such as mis-utilisation of foreign contribution, non-submission of mandatory annual returns and diversion of foreign funds for other purposes.
• The government has also cracked down on foreign donors such as the U.S.-based Compassion International, Ford Foundation etc and has placed them on a ‘watch list’ or in the ‘prior permission’ category.

About Foreign Contribution (Regulation) Act (FCRA)

• The Foreign Contribution (Regulation) Act was first enacted in 1976 and it was further amended in 2010.
• The FCRA regulates foreign donations and ensures that such contributions do not adversely affect internal security.

Ambit of the FCRA

• The FCRA is applicable to all associations, groups and NGOs which intend to receive foreign donations.
• It is mandatory for such organizations to register themselves under the FCRA.

Exceptions

• The Home Ministry has the power to exempt any association or organization, not being a political party, from provisions on receiving contributions under the FCRA.
• Under these powers, the Prime Minister’s National Relief Fund (PMNRF), Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) and six other organisations, including the Overseas India Development Foundation and Bharat Ke Veer, have been exempted from all FCRA provisions.
• The Central government has also exempted all such entities which are created by a Central Act or a State Act or orders or are “fully controlled and owned” by the Central or State governments and are also compulsorily audited by CAG [Comptroller &Auditor General] from all provisions of the FCRA.

Registration for the FCRA

• The registration with FCRA is initially valid for five years and it can be renewed subsequently if they comply with all norms.

Regulations

• Registered associations can receive foreign contribution for social, educational, religious, economic and cultural purposes.
• Filing of annual returns, on the lines of Income Tax, is compulsory.
• Under the newly notified rules of 2015, NGOs are required to give an undertaking that the acceptance of foreign funds is not likely to prejudicially affect the sovereignty and integrity of India or impact friendly relations with any foreign state and does not disrupt communal harmony.
• Foreign funding organizations would have to operate accounts in either nationalised or private banks which have core banking facilities. This would allow security agencies to assess their transactions on a real time basis.

Suspension or cancellation of registration:

• The MHA on inspection of accounts and on receiving any adverse input against the functioning of an association can suspend the FCRA registration initially for 180 days.
• Until a decision is taken, the association cannot receive any fresh donation and cannot utilise more than 25% of the amount available in the designated bank account without permission of the MHA.
• The MHA can cancel the registration of an organisation which will not be eligible for registration or grant of ‘prior permission’ for three years from the date of cancellation.

Aspects related to foreign donations for political parties

• Under the original act, members of the legislature and political parties, government officials, judges and media persons are prohibited from receiving any foreign contribution.
• In 2017 an amendment allowed the political parties to receive funds from the Indian subsidiary of a foreign company or a foreign company in which an Indian holds 50% or more shares.

Other methods to receive foreign funding

• Apart from the registration route under FCRA to receive foreign funding, another way to receive foreign contributions is by applying for prior permission.
• Under such a route, the association should be registered under statutes such as the Societies Registration Act, 1860, the Indian Trusts Act, 1882, or Section 25 of the Companies Act, 1956.
• Prior permission is granted for receipt of a specific amount from a specific donor for carrying out specific activities or projects.

Need for amendment

• The FCRA Bill, 2020, says the need to strengthen the Act has arisen due to several organisations “misutilising or misappropriating” the funds leading to the government cancelling 19,000 such registrations in the past few years.
• The annual inflow of foreign contribution has almost doubled between the years 2010 and 2019, but many recipients of foreign contribution have not utilised the same for the purpose for which they were registered or granted prior permission under the said Act.
• Many of the recipients were also found wanting in ensuring basic statutory compliances such as submission of annual returns and maintenance of proper accounts, leading to a situation where the Central Government had to cancel certificates of registration.
• Criminal investigations also had to be initiated against dozens of such non-governmental organisations which indulged in outright misappropriation or mis-utilisation of foreign contribution.

Provisions of the FCRA Bill 2020

• It is a bill that proposes to include public servants in the prohibited category to provide that no foreign contribution shall be accepted by them.
• Earlier, it was restricted to legislators, election candidates, journalists, print and broadcast media, judges, government servants or employees of any corporation or any other body controlled or owned by the Government.
• It has also sought to prohibit any transfer of foreign contribution to any other association or person.
• It proposes to decrease administrative expenses through foreign funds by an organisation to 20% from 50% earlier.
• It seeks to make Aadhaar mandatory for registration.
• The amendment seeks to give the government powers to stop utilisation of foreign funds by an organisation through a summary enquiry.
• Earlier it was supposed to be done only after the person or association had been “found guilty” of violation of the Act.

What are the news Amendments?
Prohibition to accept foreign contribution:

• Under the Act, certain persons are prohibited to accept any foreign contribution.
• These include election candidates, editor or publisher of a newspaper, judges, government servants, members of any legislature, and political parties, among others.
• The Bill adds public servants (as defined under the Indian Penal Code) to this list.
• Public servants include any person who is in service or pay of the government or remunerated by the government for the performance of any public duty.

Transfer of foreign contribution:

• Under the Act, foreign contribution cannot be transferred to any other person unless such person is also registered to accept foreign contribution (or has obtained prior permission under the Act to obtain foreign contribution).
• The Bill amends this to prohibit the transfer of foreign contribution to any other person. The term ‘person’ under the Act includes an individual, an association, or a registered company.

Aadhaar for registration:

• The 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 contribution.
• Any person seeking registration (or renewal of such registration) or prior permission for receiving the foreign contribution must make an application to the central government in the prescribed manner.
• The Bill adds that any person seeking prior permission, registration or renewal of registration must provide the Aadhaar number of all its office bearers, directors or key functionaries, as an identification document.
• In case of a foreigner, they must provide a copy of the passport or the Overseas Citizen of India card for identification.

FCRA account

• Under the Act, a registered person must accept foreign contribution only in a single branch of a scheduled bank specified by them.
• However, they may open more accounts in other banks for utilization of the contribution.
• The Bill amends this to state that foreign contribution must be received only in an account designated by the bank as “FCRA account” in such branch of the State Bank of India, New Delhi, as notified by the central government.
• No funds other than the foreign contribution should be received or deposited in this account.

Restriction in the utilization of foreign contribution:

• Under the Act, if a person accepting foreign contribution is found guilty of violating any provisions of the Act or the unutilized or unreceived foreign contribution may be utilized or received, only with the prior approval of the central government.
• The Bill adds that the government may also restrict usage of unutilized foreign contribution for persons who have been granted prior permission to receive such contribution.
• This may be done if, based on a summary inquiry, and pending any further inquiry, the government believes that such a person has contravened provisions of the Act.

Renewal of license:

• Under the Act, every person who has been given a certificate of registration must renew the certificate within six months of expiration.
• The Bill provides that the government may conduct an inquiry before renewing the certificate to ensure that the person making the application: (i) is not fictitious or benami, (ii) has not been prosecuted or convicted for creating communal tension and (iii) has not been found guilty of diversion or misutilisation of funds, among others conditions.

Reduction in use of foreign contribution for administrative purposes:

• Under the Act, a person who receives foreign contribution must use it only for the purpose for which the contribution is received.
• Further, they must not use more than 50% of the contribution to meeting administrative expenses. The Bill reduces this limit to 20%.

Surrender of certificate:

• The Bill adds a provision allowing the central government to permit a person to surrender their registration certificate.
• The government may do so if, post an inquiry, it is satisfied that such person has not contravened any provisions of the Act, and the management of its foreign contribution (and related assets) has been vested in an authority prescribed by the government.

Suspension of registration:

• Under the Act, the government may suspend the registration of a person for a period not exceeding 180 days.
• The Bill adds that such suspension may be extended up to an additional 180 days.

Controversial Provisions

• To allow for the central government to hold a summary inquiry to direct bodies with FCRA approval to “not utilise the unutilised foreign contribution or receive the remaining portion of foreign contribution”.
• To limit the use of foreign funds for administrative purposes. This would impact research and advocacy organisations which use the funding to meet their administrative costs.

Main Criticisms

• The Bill will enhance government power and restrict foreign-funded civil society work in India.
• It can be used as a means to “target those who speak against the government”.
• It will curtail the ease of doing business for civil society organisations.
• Affects Fundamental Rights: The FCRA restrictions have serious consequences on both the rights to free speech and freedom of association under Articles 19(1)(a) and 19(1)(c) of the Constitution.
• Democratic Functioning: NGOs perform vital role of interest aggregation and interest articulation in Democratic process. Disproportionately restricting their functioning will hamper Democracy in long run.
• Liable to misuse due to Vagueness in law: The Act gave the government the power to frame rules whereby an organisation can be declared to have political objectives — without defining what a ‘political objective’ is.

Road Ahead

• Regulation of NGOs is very much required but it should be ‘light’ and consistent with the fundamental rights, so as to give effect to the objects for which voluntarism is being promoted.
• The government should send the bill to a select committee of the Rajya Sabha.  NGOs are a necessary component of civil society and this bill needs greater public debate and scrutiny.