NGOs and the Foreign Contribution Regulation Act

Date:

Introduction

Foreign Contribution (Regulation) Act was first passed in 1976 and was later amended in 2010. It was enacted in the year 1976 with the prime objective of regulating the acceptance and utilization of foreign contributions by a person or associations.

The main purpose of the Act of 1976 was to ensure that the foreign contribution or funds received by Non-governmental organizations (NGOs) are not utilized by the organizations or persons as mentioned in the act to affect or influence politics, public servants, judges, journalists, news publishers, etc.

An amendment was brought in the year 2010, with an aim of regulating the acceptance and utilization of foreign contributions or foreign hospitality by certain individuals, associations, or an organization and also to prohibit the acceptance of foreign contributions for any activities which are detrimental to the national interest.

The act of 2010 was enacted to bring transparency and accountability to the receipts and the usage of foreign funds received by such associations and voluntary organizations to ensure national security.

All the organizations, which are involved in social, educational, religious, economic, or cultural programs seeking foreign contribution are required to obtain permission or are supposed to get registered under The Foreign Contribution Regulation Act. [1]

GENESIS

NGOs have played a great role in India, since its independence. There has been a long history of NGOs in India. Earlier, the services to the needy and helpless were rendered by people motivated by their religious feelings. The social reforms in the 19th century were the first organized form of voluntary action in the service of society.

During this period, there were many social issues like Child marriages, Casteism, Sati system which was prevalent in Indian society. There were many voluntary organizations that took on the social reform movement at that time. [2]

During the second half of the 19th century, there were many organizations that were established like Friend-in-Need Society (1858), Prathana Samaj (1864), Arya Samaj (1875), etc. Also post-independence, there has been a rise in the establishment of NGOs many it be domestic or foreign.

With the increase in the flow of foreign funds in the country, the need for a mechanism to regulate such funds also arose. Consecutively, the Congress government enacted the Foreign Contribution (Regulation) Act, of 1976, with the view to regularizing these foreign contributions. Later, it was repealed and the Foreign Contribution (Regulation) Act, of 2010 was enacted.

Foreign Contribution (Regulation) Amendment Act, 2020

The Foreign Contribution (Regulation) Amendment Bill, 2020 was introduced in Lok Sabha on September 20 of 2020, and was passed on 21 September 2020. The bill was later, passed in the Rajya Sabha on 23 September 2020.

The bill amends the Foreign Contribution (Regulation) Act, of 2010. After the bill was introduced in the parliament, it received severe backlash from the members of the opposition in the parliament.

OBJECTIVE OF THE BILL

1. To enhance transparency, and compliance mechanism and also to ensure accountability of the receipt and utilization of the foreign contribution.
2. To ensure that proper accounts are kept and organizations do not utilize such funds to affect or disturb national interest or peace.

AMENDMENTS

(1) Inculcation of public servants in section 3. The term “public servant” has been inculcated in section 3(1) sub-clause ‘c’ as in the amendment. The term “public servant” is defined in section 21 of the Indian Penal Code (IPC).

Section 3(1), sub-clause ‘c’ earlier, prohibited Judges, Government, Servants, and employees of Government-owned or controlled corporations or bodies, from receiving foreign contributions.

(2) Transfer of foreign funds is prohibited. Earlier, section 7 of the FCRA, 2010 permitted the transfer of foreign contributions to others, who are registered under the Act or have obtained prior permissions under the FCRA for receiving such contributions.

The Amendment Act prohibits any person who has been registered or obtained a certificate or permission from the government to receive a such foreign contribution, from transferring such contribution received.

The term “Person” has been defined in Section 2(m) of the FCRA, 2010 and it includes:

(1) An individual
(2) A Hindu undivided family
(3) An association
(4) A registered company [3]

(3) Administrative expense cap has been lowered. The administrative expense cap has been reduced from 50% to 20%. Section 8(1) of the FCRA, 2010 provides for the limit for utilization of expenses.

Rule 5 of the Foreign Contribution (Regulations) Rules, 2011 (Hereinafter referred to as FCRR, 2011) defines “Administrative Expenses”.Administrative expenses include salaries, wages, expenses towards hiring of personnel for management activities, electricity expenses, cost of accounting for the administration of the funds, cost of writing, etc. [4]

The main motive of the amendment is to ensure that the contribution received is utilized for the same purpose for which it is received.

(4) Powers given to the Central Government to prohibit a foreign contribution recipient from utilizing or receiving its funds. There is an addition of proviso in Section 11 of the Amendment Act.

The proviso 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 utilize the unutilized 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”.

Earlier section 11, imposed restriction only if a person was found guilty of a contravention. However, the Act does not specify the method used in such summary inquiry. However, the rules attached to such Amendment Act may clarify about the methods and speculations regarding the summary inquiry.

(5) FCRA Bank Account
Section 17 of the Amendment Act, provides that every person who have been granted a certificate or prior permission under Section 12 of the FCRA, shall receive foreign contribution only in an account termed as an “FCRA Account”, the such bank account should be opened in the State Bank of India, New Delhi branch. Earlier, the FCRA account could be opened in any of the scheduled banks.

This amendment has been brought to bring transparency in accounts of the inflow of funds in the country from foreign countries.

(6) Aadhaar card for recognition A new section has been included in the amendment, which is section 12A. It provides for any person who applies for permission or registration under FCRA, 2010 or its renewal, shall provide for the Aadhaar card of all its office bearers, directors, or other key functionaries and in the case of foreigners, a copy of a passport or overseas citizens of India card.

(7) Period of suspension has been increased. Earlier, the period of suspension of the registration certificate was 180 days. The Act has amended section 13. Section 13 of the amendment act reads out: “In section 13 of the principal Act, in sub-section (1), for the words ‘for such period not exceeding one hundred and eighty days as may be specified’, the words’ for a period of one hundred and eighty days, or such further period, not exceeding one hundred and eighty days, as may be specified shall be substituted.” The suspension period has been increased from 180 to 360 days.

Positive and Negative views: The FCRA was enacted to protect the national interest of the country. However, the term national interest is nowhere defined and it broadens the scope of government to consider any activities as affecting the national interest. The act has been used over the years to freeze bank accounts of certain NGOs that it found were affecting the national interest.

The home ministry had canceled the registration of several US-based NGOs, after it was found that they were diverting the money into funding protests at Kudankulam at Tamilnadu, against the nuclear power plant. Also, the funding license of the Islamic Research Foundation (IRF), founded by Zakir Naik was canceled in 2016. [5]

A petition was filed against the changes in the Foreign Contribution Regulation Act. It was filed by Noel Harper of an NGO named “Care & Share” Charitable Trust on 7th September 2021 [6].

The NGO challenged sections 7, 12A, 12(1A), and 17 of the Amendment Act. The Supreme Court while hearing the plea, told the Centre that regulation of foreign funds is “Discouraging NGO activities”. [7]

An affidavit was filed by the National Commission for the Protection of Child Rights (NCPCR), in Vinay Vinayak Joshi v. Union of India [8], which challenged the Ministry of Home Affairs, Government of India notification dated May 18, 2021, which extends the deadline for compliance with specific provisions of FCRA.

The affidavit stated that the NGOs with FCRA registration accept foreign contributions and distribute them to other NGOs that do not have FCRA registration. [9] Indian Social Action Forum (INSAF) is a non-governmental organization based in Delhi.

The main aim of the organization is to ‘resist globalization, combat communalism and defend democracy’. It challenged various provisions of the Foreign Contribution (Regulation) Act, 2010 (‘Act’) that regulates foreign funding to Indian organizations in the case of Indian Social Action Forum Vs.

The Union of India. [10] It was held by the Hon’ble Supreme Court of India, that Section 3(1) of the Foreign Contribution (Regulation) Act, 2010 would restrict only those organizations which have the presence of political intent in the memorandum or the bye-laws of these organizations.

It was stated by Justice Nageshwar Rao, “Those voluntary organizations which have absolutely no connection with either party politics or active politics cannot be denied access to foreign contribution.” It was also held that Section 5 of the FCRA is not vague and is expansive, covering a large set of terms.

The object of the act is to ensure that parliamentary institutions, political associations, and other voluntary organizations as well as individuals working in the important areas of national life should function in a manner consistent with the values of the sovereign democratic republic without being influenced by foreign
contribution. Below is prominent case law that challenged the provision of FCRA

Indian Social Action Forum v. Union of India

Bench: Justice Nageshwar Rao and Justice Hemant Gupta
Citation:  2020 SCC OnLine SC 310
Facts: The petitioner Indian Social Action Forum (INSAF), filed a writ petition for declaring Section 5(1) and 5(4) of the Foreign Contribution (Regulation) Act, 2010 and Rule 3(i), 3(v) and 3(vi) of the Foreign Contribution (Regulation) Rules, 2011 as ultra vires to the Article 14, 19(1) (a), 19(1) (c), and Article 21 of the Constitution of India.

It was argued by the petitioners, that Section 5 of the FCRA uses very vague terms and has very wide umbrella meaning and thus is violative of Article 14.

Criticizing the validity of the Rules, it was contended that the guidelines specified in the Rules are without any checks and balances and confer an arbitrary and wide discretion on the authorities, which can be misused.

It was highlighted that the Rules of 2011, nowhere define “political objective” and any action taken by a democratic institution in a democratic manner is likely to b covered within it and such an act clearly offends the right to protest and right to freedom of expression.

What was the court’s Decision?

It was held that the object sought to be achieved by the Act, is to ensure that Parliamentary institutions, political associations and academics, and other voluntary organizations as well as individuals working in important areas of national life should function in a manner consistent with the values of the sovereign democratic republic without being influenced by foreign contributions.

The legislative intent is to prohibit those organizations which have political nature. The court also held that any organization which supports the cause of a group of citizens agitating for their rights without a political goal or objective cannot be penalized by being declared as an organization of a political nature. The guidelines mentioned in Rule 3 of the Rules are not vague and ambiguous.

Conclusion

The Amendment to the FCRA is an important step to regulate foreign funding. It was also found in 2016 when the government canceled the licenses of several US-based NGOs which were diverting the funds for protests at Kundankulam.

Also, it was found, that registered NGOs receive foreign funds and divert them to the NGOs which are not registered. Regulations are necessary for the Sovereignty and Integrity of India, political interest and freedom, peace, and also, friendly relations with other foreign countries.

1 Sec 11 of the Foreign Contribution (Regulation) Act, 2010.

2 https://www.yourarticlelibrary.com/sociology/sociology-of-development/ngos-and-
development-history-and-role-in-India/30699

3 Section 25 of the Companies Act, 1956.

4 https://www.facraforngos.org/administrative-expenditures

https://timesofindia.indiatimes.com/miscellaneous/Foreign-Contribution-Regulation-Act/articleshow/56221166.cms

6 https://indiankanoon.org/doc/78076826/
7 https://www.ndtv.com/india-news/discouraging-ngo-activities-supreme-court-raps-centre-
on-foreign-fund-law-2591585
8 W.P. (C) No. 634/2021
9 https://asianatimes.com/ngos-misusing-funds/
10 Indian Social Action Forum v. Union of India, 2020 SCC OnLine SC 310

Written By: Krishna Haritwal

SYBBA.LLB University of Mumbai Law Academy

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