WELCOME TO

THE DISCUSSION ON
FOREIGN CONTRIBUTION
(REGULATION) BILL 2010

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INTRODUCTION

• FCRA was enacted in 1976.

• The main purpose was to curb the use of
foreign funds and hospitality for nefarious
and anti-national purposes.
• FCRA is an internal security legislation and
is not regulated by RBI.
• It is regulated by the Ministry of Home
Affairs, Government of India.
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FOREIGN EXCHANGE MANAGEMENT
ACT, 1999 - FEMA

• An Act to consolidate and amend the law

relating to foreign exchange
• with the objective of facilitating external
trade and payments and
• for promoting the orderly development
and maintenance of foreign exchange
market in India

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Foreign Contribution Regulation Act, 1976

• An act to regulate the acceptance and utilization of

foreign contribution or foreign hospitality by certain
persons or associations,
• with a view to ensuring that parliamentary institutions,
political associations and academic & other voluntary
organizations as well as individuals working in the
important areas of national life
• may function in a manner consistent with the values
of a sovereign democratic republic, and for matters
connected therewith or incidental thereto.

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 Need for Foreign Contribution
Regulation Act

• Regulating Foreign contribution meant for

influencing elections or individuals or
associations working in important areas of
national life.
• Not meant to prohibit receipt of foreign
contribution for genuine purposes.
• Security considerations.

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INTRODUCTION

• In 1985, FCRA was amended and certain

important changes were made:
(a) Funds received by subsequent recipient
were brought under the purview of the act.
(b) Definition of political parties was
enlarged.

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 INTRODUCTION
• (c) Section 6(1) was amended to ensure that
foreign funds were received only after
registration, and only through designated
bank accounts.
• (d) Section 15A was inserted to empower
Central Government to inspect and audit
books of accounts of organisations.
• (e) Section 25A was inserted to ensure that
acceptance of foreign funds was prohibited
for 3 years afterMARK
second conviction.
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INTRODUCTION

• The Foreign Contribution (Regulation) Bill

2010 has been passed by both houses of
the Parliament recently.
• Now it awaits the assent from the
President. .
• We discuss the main amendments and the
implications thereof

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 INTRODUCTION

• The inflow of foreign contribution through

FCRA has increased from Rs. 24 crores in
1968 to Rs. Rs. 9,663.46 crore in 2008.
• The provisions of FCRA extends to the
whole of India including the State of
Jammu and Kashmir.

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Foreign Contribution
• Foreign contribution means the donation, delivery or transfer, made
by any foreign source of any

• a) article, not given to a person as a gift, for personal use, if the

market value in India of such article is not more than such sum as
may be specified form time to time… ( words exceeds one thousand
rupees are replaced)

• b) currency, whether Indian or foreign;

• c) foreign security as defined in clause 2(i) of the Foreign Exchange
Regulation Act, 1973.

• NOTE : Contributions made by a citizen of India living in another country,

from his personal savings, through the normal banking channels, is not
treated as foreign contribution.
• It is advisable to obtain the passport details of the concerned citizen of
India before accepting such contributions.

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 Foreign Source
• Government of foreign country or
any agency of such Government.
• International agencies, not being of
a) United Nations or its specialized
agencies
b) World Bank
c) International Monetary Fund
d) Such other agencies as so notified
by the Central Government.
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Foreign Source

• Foreign company or Corporation incorporated in

foreign country
• Trade Union in a foreign country
• Foreign Trust or Foundation or Society or Club
formed or registered outside India
• Company where more than half of shareholding held
by foreign Govt., foreign citizens, foreign
corporations
• Citizens of foreign countries

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 Foreign Source …Contd
• The existing FCRA 1976 considers Indian
companies, where more than 50% of equity is
held by foreigners, as foreign source.
• For example : companies like ICICI Bank, Infosys
etc. are foreign source and donations can not be
accepted from them without FCRA registration.
• Unfortunately this provision has been retained in
the proposed FCRA 2010, though the stated
intent of the Government was to exclude such
companies. This provision could be a drafting
error and needs to be corrected
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Foreign Source …Contd

• The FCRA 2010 has defined a foreign company under
clause (g) of Section 2, which does not include Indian
Companies.
• This clause is apparently inserted to exclude Indian
companies having more than 50% of Foreign equity
holding.
• However section 2(j) which defines the term „foreign
source‟ includes an Indian company under the category of
foreign source if more than 50% of its equity is held by
foreigners.
• Concern : Section 2(j)(vi) of the FCRA 2010 should have
been amended to exclude Indian Companies.

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BUSINESS / CONSULTANCY INCOME OF AN NGO

• The definition of „foreign contribution‟ includes

all kinds of foreign receipts. It does not
distinguish between a commercial receipt or a
voluntary contribution.
• This definition has largely been retained as per
the existing FCRA 1976.
• However explanation 3 to section 2(h) excludes
income from business, trade or commerce. This
amendment was necessary but it comes with a
lot of potent controversies and trouble for the
NGOs.
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BUSINESS / CONSULTANCY INCOME OF AN NGO

• This section states that any fee or cost against business,
trade or commerce shall not be considered as foreign
contribution.
• In other words, such receipts can be treated as local
income.
• However the problem is that this provision is in
contradiction with the amended section 2(15) of the
Income Tax Act which prohibits trade or business related
receipts beyond Rs.10 lakh.
• Therefore, NGOs should be careful in treating
consultancy income and other receipts as local income
even though it is now permissible under the proposed
Act.
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 Who cannot accept Foreign Contribution

a) Candidate for elections.

b) Correspondents, columnists, cartoonists, editor, owner,

printer.

c) Judge, Government servant or employee of any corporation

d) Member of any Legislature

e) Political party or office-bearer thereof.

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Who cannot accept Foreign Contribution

• it may be noted that the category of persons debarred

from receiving foreign funds have been increased.
• The clause (f), (g) and (h) have been added by the
FCRA 2010.
• (f) Organisation of a political nature.
• (g) Association or company engaged in broadcast of
audio or visual news.
• (h) Correspondent, columnist etc. related with the
company referred in clause (g)
• The above mentioned persons cannot receive foreign
contribution subject to certain exceptions specified in
section 4 which are as under:
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 Who cannot accept Foreign Contribution

• salary, wages or remuneration for services rendered,

• Payment is received as an agent of a foreign source of
organisation in relation to any transaction made by
such foreign organisation with the central or state
government.
• If the payment is received by way of gift or
presentation as a part of any Indian delegation within
the norms of acceptance described by Central
Government.
• From his / her relative.
• By remittance under normal course under FEMA 1999.
• By way of Scholarship, stipend etc.”
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Does FCRA apply to commercial or business

organization?

• Movement of foreign funds in the normal

course of commerce and business is outside
the purview of FCRA.
• Therefore, business organizations are not
covered by FCRA 2010 also.
• However, the provision of Foreign
Exchange Management Act, 1999, which is
a financial legislation, would be applicable.
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 RESTRICTION ON UTILISATION
OF ADMINSTRATIVE EXPENSES
• Section 8 of FCRA 2010 provides that FC funds
cannot be used for speculative business.
• The government will notify the meaning of
speculative business through rules which are yet
to be framed.
• Further section 8 also states that the
administrative expenses shall not exceed 50%
• any expenditure of administrative nature in
excess of 50% shall be defrayed with prior
approval of the central government
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SUBSEQUENT RECEPIENT – TRANSFER OF

FC FUNDS TO NON FC ORGNISATIONS
• Section 7 of FCRA 2010 provides that foreign
contribution can be transferred only to those
organisations which also possess FC registration or
prior permission.
• Hence, it is not possible to transfer FC funds to
non FC organisation.
• However the FCRA 2010 provides a clause wherein
transfer to non FC organisation can be made with
prior approval.
• The rules in this regard are to be framed.

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SUBSEQUENT RECEPIENT – TRANSFER OF
FC FUNDS TO NON FC ORGNISATIONS

• The original idea was to exempt small

CBOs and village level organisations from
the vagaries of FCRA, as one can not
expect small village level organisations to
have FC registration.
• There is an urgent need to exempt CBOs
and other village level organisations up to
a certain limit, without any requirement of
prior approval.
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Types of permission

• An association having a definite cultural, economic,

educational, religious or social programme can
receive foreign contribution .

• After it obtains the prior permission of the

Central Government, or gets itself registered
with the Central Government.

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 Registration
• Means permanent permission to accept foreign contribution from any
foreign source.
• Granted to associations with proven track record having definite cultural,
economic, educational, religious, social programme.
Reasons for rejection of Registration Applications
• Association being in formative stage
• Association formed for personal gain
• Members of Executive Committee involved in illegal/criminal activities
• Sister association prohibited under the act
• Applicant association prohibited
• Association involved in anti-national activities
• Stated objects of the association not being pursued.
• Applicant having close links with another association with doubtful
credentials
• Incomplete application.

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REGISTRATION - RENEWAL EVERY 5 YEARS

• The FCRA 2010 provides for renewal of

registration of NGOs every 5 years.
• However, the Act has provided relief to all the
existing NGOs for the first 5 years from the date
of enactment.
• So, all existing NGOs have to renew their
registration at the end of the period of 5 years
from the date of enactment of FCRA 2010.
• As per Section 16 of the proposed Act, all NGOs
should apply for renewal of the certificate within
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 RENEWAL OF REGISTRATION EVERY 5
YEARS – CONCERN
• This provision will create undue hardship to
genuine NGOs and will perpetuate Inspector Raj,
where every 5 years one has to manage the
renewal.
• The Government probably should have kept only
the defaulting NGOs under this category.
• The organisations which are already under
scrutiny and assessment of the department on
yearly basis and duly comply with the law, should
not be subjected to yet another five yearly ritual.

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TIME LIMIT FOR PROCESSING THE APPLICATION

FOR REGISTRATION
• There was no time limit mentioned under the FCRA 1976
either for granting or rejecting the application.
• FCRA 2010 provides that both regular registration and
prior permission shall be granted or rejected within a
period of 90 days from the date of receipt of application.
• The 90 days time limit is a very positive change.
• However, the Act is silent about the way forward if an
order is not passed within 90 days.
• It is necessary that either a deemed permission or an
redressal/appeal mechanism should be there within the
FCRA Department if the application is not processed
within 90 days.
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 Prior Permission
When required
• Where the association does not have a FCRA registration
• Where the association is placed under prior permission
category
• Where registration is frozen
• Associations of political nature, not being political party

Essentials of prior permission

• Donor specific
• Donee specific
• Amount specific – within overall limits
• Purpose specific

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No deemed Prior Permission

• FCRA 2010 provides that application for „prior
permission‟ shall be granted or rejected within a
period of 90 days from the date of receipt of
application.
• It may be noted that under the FCRA 1976 there is a
provision for deemed prior permission if the
application is not processed within 120 days.
• The new FCRA 2010 does not have any provision of
deemed prior permission.
• In other words, now onwards organisations, can not
receive foreign funds in case of delay in processing
of a „prior permission‟ application.

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 QUESTIONABLE POWERS FOR REJECTING
THE APPLICATION
• The FCRA 2010 has provided sweeping powers
to the authorities for rejecting an application for
prior permission or registration.
• Under Section 12 various strict conditions have
been provided which include that the applicant
should not have been prosecuted or convicted
for indulging in activities aimed at conversion or
creating communal tension.
• It may be noted that the word „prosecuted‟ has
been used which implies that even if there is a
false Court proceeding is pending, then also
FCRA registration could be denied.
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QUESTIONABLE POWERS FOR REJECTING

THE APPLICATION
• The power to deny FC registration or prior
approval merely because some prosecution for
any offence is pending seems very harsh,
arbitrary and unconstitutional.
• Further FCRA 2010 also provides that in case of
rejection the Central Government shall provide
reasons in writing to the applicant.
• The reasons to be provided by the Central
Government shall be restricted to the obligations
as provided under Right to Information Act, 2005.
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 POWER TO PROHIBIT SOURCES FORM
WHICH FC CAN BE ACCEPTED
• The Act provides power to the Central
Government under section 11(3)(iv) to
notify such source(s) from which foreign
contribution shall be accepted with prior
permission only.
• It implies that the Central Govt. may notify
specific donors or countries from which
foreign funds could not be received or shall
be received with prior permission only.
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POWER TO CANCEL REGISTRATION & NIL

RETURNS
• The FCRA Department may cancel the certificate under
Section 14 under various circumstances
• including lack of activity for a period of 2 years.
• now onwards NGOs cannot retain their FC registration just
by filing NIL returns,
• because the registration certificate can be cancelled if
there are no reasonable activities for a period of 2 years.
• The reasons for cancelling the certificate are :

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 POWER TO CANCEL REGISTRATION & NIL
RETURNS
• (i)Providing false information
• (ii) Violating the terms and conditions like filing of
return, etc.
• (iii) Violating the Act or the Rules
• (iv) Acting against public interest
• (v) No reasonable activity for 2 years.
• Any person whose certificate has been cancelled
shall not be eligible for registration or prior
permission for a period of 3 years from the date of
cancellation.
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POWER TO CANCEL REGISTRATION & NIL

RETURNS -CONCERN
• The term “reasonable activity” has not been
defined.
• It may so happen that an NGO may have
activity from local sources.
• Therefore, it should be provided that
reasonable activity whether from FC or local
sources should be there for retaining FC
registration.

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 POWER TO MANGE FC AFTER
CANCELLATION OF CERTIFICATE
• FCRA 2010 provides that after cancellation of
registration certificate all the foreign contribution
and assets thereof shall vest with such authority
as may be prescribed.
• The government authorities shall take charge of
the foreign contribution and the FC assets till the
registration is restored.
• This seems to be a very harsh provision because it
is open ended.
• Hence, FC assets created since the inception of
the organisation can be implicated if the
registration certificate is cancelled.
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POWER TO MANGE FC AFTER

CANCELLATION OF CERTIFICATE -
CONCERN
• The section 15 of the FCRA 2010 should be
supported by appropriate rules so that FC
assets would not come under the purview of
the Govt. authorities
• as it will create needless complications and
controversies.
• The Government managing fixed assets
created since inception will be practically
not possible and would create hardship.
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 MULTIPLE BANK ACCOUNTS
• Section 17 of FCRA 2010 provides that
multiple bank accounts can be opened for
the purposes of utilisation
• Provided only one bank account is
maintained for receiving foreign
contribution.
• This amendment provides a great relief to
all the NGOs which were struggling under
the arbitrary disallowance of multiple bank
accounts under current FCRA.
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DISPOSAL OF FIXED ASSETS

ON DISSOLUTION
• Section 22 of the FCRA 2010 provides that,
in case of dissolution, the Central Govt.
shall have the power to determine the
process of disposal of FC assets.
• The Central Govt. may specify the manner
and procedure in which such asset shall be
disposed off.

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 Must Do’s for the Registered Association
• Designated exclusive Bank account for receipt and utilization of
foreign contribution.
• Submission of annual FC-3 returns.
• Change in members, home, address, objectives of the
association to be reported to Central Government within 30
days.
• Change in the O.B‟s by 50% or more with prior permission only
• Exclusive accounts for utilisation of foreign contribution and
audit by the Chartered Accountant.
• Exclusive accounts for receipt and utilization of foreign
contribution .
• Substantial proportion of foreign contribution to be spent on
welfare activities
• Reduction in Administrative expenses

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Penalties

• Prohibition
• Placing the association in prior permission category
• Fine
• Seizure/confiscation of the foreign contribution
• Imprisonment up to 5 years

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Role of Banks

• Prime source for receipt and utilization

• Can keep a watch over activities of doubtful associations
• Information about foreign contribution
• Not to allow receipt and utilization of foreign contribution
without Registration or prior permission.

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ISSUES IN THE FUNCTIONING

OF NGO‟S
Non-existent regulatory mechanism
Accountability
No perspective planning for NGO SECTOR
Proliferation of paper organisations
No National NGO policy
Comprehensive National Legislation
Required

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STATISTICS
• A total of 34803 associations have been registered
under the Foreign Contribution (Regulation) Act,
1976 up to 31.3.2008.
• During the year 2007-08, 866 associations were
granted registration and 367 associations were
granted prior permission to receive foreign
contribution.
• 18796, associations reported a total receipt of
foreign contribution of an amount of Rs. 9,663.46
crore. This includes Association which received Nil
amount.
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STATISTICS
• Among the States and Union Territories, the highest
receipt of foreign contribution was reported by Delhi
(Rs. 1,716.57 crore), followed by Tamil Nadu (Rs
1,670.93 crore) and Andhra Pradesh (Rs 1,167.21
crore).
• Among the districts, the highest receipt of foreign
contribution was reported by Chennai (Rs 731.22
crore), followed by Bangalore (Rs. 669.76 crore)
and Mumbai (Rs. 469.90 crore).
• The list of donor countries is headed by the USA
(Rs.2,928.30 crore) followed by UK (Rs. 1,268.59
crore) and Germany (Rs. 971.02 crore).

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STATISTICS
• The list of foreign donors is topped by World Vision
International, USA (Rs.578.49 crore) followed by
Gospel For Asia Inc, USA (Rs. 365.37 crore) and
Foundation Vicente Ferrer, Barcelona, Spain (Rs.
248.28 crore).
• Among the associations which reported receipt of foreign
contribution, the highest amount of foreign contribution
was received by World Vision of India, Chennai,
Tamil Nadu (Rs. 211.62 crore), followed by Rural
Development Trust, Ananthapur, A.P. (Rs.124.79
crore) and Believers Church India,
Pathanamthitta, Kerala (Rs. 101.68 crore).

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STATISTICS
• The highest amount of foreign contribution was received
and utilized for
• Establishment Expenses (Rs 3,421.95 crore),
• followed by Rural Development (Rs 1,781.38
crore),
• Relief/Rehabilitation of victims of natural
calamities (Rs 1,689.08 crore),
• Welfare of Children (Rs 1,333.40 crore) and
• Construction and Maintenance of school/college
(Rs 1,206.47 crore).

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 NUMBER OF REGD.
ASSOCIATIONS – 2007-08

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TOP 15 DONOER COUNTRIES -2007-08

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TOP 15 DONOR AGENCIES

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