FCRA Amendments And COVID-19 Aid Drive: An Impact Based Analysis

Introduction

The recent amendments to the Foreign Contribution (Regulation) Act (FCRA Amendments) are proving to be detrimental to India’s fight against COVID-19 as it continues to bar various NGOs from seeking help from abroad. Due to the new technicalities, the NGOs are facing difficulties in collecting and distributing funds to obtain lifesaving equipments. It is thus required to understand what are these amendments and how exactly are they creating problems for these organisations to seek help. The article will also have a cursory look at the relationship between the PM CARES FUND and the FCRA.

The Foreign Contribution (Regulation) Act of 2010 [“FCRA” or “the Act”], regulates the “acceptance” and “utilization” of foreign donations. Enacted in the year of 1976, the act intends to ensure that these contributions are not detrimental to national interest. The act applies to each and every association, group or NGO in the country which intends to receive foreign donations. The FCRA requires all these associations to register themselves under the FCRA which is essentially valid for a period of five years, renewability of which depends on complying with the set norms. The Act under section 2(1)(h) defines foreign contribution as donations, delivery or transfer made by any foreign source, (a) of any article, not being an article given to a person as a gift, for his personal use, if the market value, in India, of such an article on the date of such a gift, is not more than the sum specified by the Central Government from time to time; (b) of any currency, whether Indian or foreign; or (c) of any foreign security defined in clause (o) of Section 2 of the Foreign Management Act, 1999.

The 2020 FCRA Amendment

The Foreign Contribution (Amendment) Regulation Act (“FCARA” or “the Amended Act”) was introduced on September 20, 2020, amending the act of 2010. Major changes introduced are as follows:

  • Regulating transfer of foreign contribution- The Amendment Act restricts the transfer of foreign contributions from one authorized entity to another authorized entity (Section 7 of the act). This means that a registered NGO now cannot transfer its foreign Contribution to another registered NGO or any other person even if the NGO had prior permission of the Ministry of Home Affairs.
  • Opening of bank account in State Bank of India, New Delhi- Earlier under section 17 of Act, the foreign contribution recipient was permitted to receive foreign contribution in an account opened in any of the scheduled banks. The Amendment Act substitutes section 17 of FCRA requiring the recipient of foreign contribution to receive such amount only in an account designated as “FCRA Account” opened in a branch of the State Bank of India (SBI) at New Delhi. However, it provides flexibility to the recipient to also open another FCRA Account in any of the scheduled banks in India for the purpose of keeping or utilising the foreign contribution which has been received from its “FCRA Account” in the branch of SBI at New Delhi. The intent of the amendment appears to be to centralise the inflow and routing of foreign contribution, making it easier for the Government to supervise and monitor the funds received.
  • Lowering administrative expenses- The Amendment Act has made it mandatory for organizations to specifically use the received amount for the exact purpose it was received for. The FCARA amends Section 8 of the Act, lowering the bar of administrative expense from 50% to 20%. Earlier the recipient was allowed to use 50% of the contribution to meet their administrative expenses which included salaries, wages, travel expenses, expenses incurred towards hiring of personnel etc.

Impacts on NGOs during the Second Wave

The amended provisions showcase the government’s intention to make it more cumbersome for the NGOs to function in these testing times. By disallowing, the ‘sub-granting’ of funds from major branches to smaller branches located in the rural areas, the Government curtails the freedom of the NGOs to effectively utilise the funds in the most fruitful manner. Essentially dismantling the established network of the organizations which helps the smaller agencies remain afloat. Without this chain of network, it would virtually be impossible for most of the smaller branches of the NGOs to survive and serve their purpose.

Secondly, bringing down the percentage of administrative expenses to ensure that “the exact purpose of donation is achieved” is perturbing. In the present time when the second wave of COVID-19 in India is killing people more than ever, various NGOs have joined the cause and shifted their attention from usual course of business to aiding people who are suffering with the second wave. Other organizations are involved in making necessities like medicinal oxygen, ventilators, hospital beds and medicines available. This particular amendment certainly didn’t take into its accord the seriousness of the situation.

The current law is also inconsistent with the provisions of the Income Tax Act. For instance, Section 80(G) of the Act exempts charitable institutions like the NGOs who are involved in medical relief from paying taxes to further support their cause. It is also long known that the basic object of the FCRA has been to allow/regulate only that kind of foreign contribution/donation which will contribute to social good and not for self-aggrandisement/personal enrichment of the recipients/donees. The Courts have been very particular with determining the motive of the recipient and have raised strong objections if these are found wanting. In the case of Poondimadha Religious Trust v. Secretary to Government of India, the Hon’ble Madras High Court rejected the plea of the appellant on the ground that the donations were not being utilised for welfare activities but for personal enrichment. Thus, the government instead of making short inquiries in the balance sheets of these organisations have compelled them to rather get caught up in a never-ending procedural labyrinth. These NGOs seeking for lenient procedures for obtaining foreign donations have been involved in welfare activities since decades which can be verified easily by the government agencies. Thus, it is rather preposterous for a responsible State to create obstacles for such Organisations who are voluntarily providing urgent medical help in a raging pandemic.

It can also be argued that these amendments were unnecessary and redundant. There were enough provisions in the FCRA Act, which gave powers to the Central Government to regulate the foreign funds received by these organisations. For instance, Section 23 of the Act allows the Central Government to inspect and search the records of an organisation, if it suspects that any of the provisions of the Act are being contravened by such organisation. In a similar vein, the Government, under Section 9, has also been given the authority to prohibit any person or organisation from receiving funds from abroad, if the impugned funds, prejudicially affect the sovereignty and integrity of India, public interest or harmony between religious, racial, social, linguistic, or regional groups. These provisions, by themselves, ensure that no foreign element ever intervenes in the daily affairs of the country through these donations.

FCRA and the PM Cares Fund

The FCRA provisions are also not applicable to the PM CARES Funds which is supposedly being used for the fight against COVD-19. The Government seeks cover of Section 50 of the Act which allows central government to issue orders exempting any organization (apart from political parties) from the provisions of FCRA if it feels necessary or expedient in the public interest. But the important point here is that organizations that are given exemptions from the provisions of the FCRA must be compulsorily audited by the Comptroller and Auditor General of India (CAG) or any of the agencies of the CAG. However, the Fund is not being audited by CAG, but by an independent auditor because it is a public charitable trust under the Registration Act of 1908. Thus, while the Government seeks to invoke a façade of transparency in the FCRA, it does not apply the same parameters to a fund which has been created for the same purpose which the NGOs are yearning to serve. Recently, the MHA also declined to share information about why the FCRA was amended in the first place, citing Section 8(1)(e) of the RTI Act and stating that the information did not serve any public interest. A serious question then comes to mind that if a publicly funded institution does not serve the larger ‘public interest’ then what really is the purpose of such funds.

Conclusion

Thus, these issues raise serious questions on the accountability of the government and its intentions. Recently, after several petitions were filed in the Delhi HC by the NGOs, the MHA under Section 50, has provisionally renewed the registration certificates of the NGOs and extended the deadline to open a ‘FCRA Account’ in the New Delhi branch of the SBI, till 30th June. However, a step like this in isolation cannot be the panacea of the problem, which India is facing today. Keeping in mind the enormity of the situation, the Government should rethink whether these amendments do any good to the Country and further must take active steps to reduce procedural necessities for obtaining foreign donations for the NGOs.

(This Article is written by Yashovardhan Agarwal and Neelabh Niket. The authors are second year students, at Hidayatullah National Law University, Raipur)

CITE AS: Yashovardhan Agarwal and Neelabh Niket, ‘The FCRA Amendments and COVID-19 Aid Drive: An impact based Analysis’ (The Contemporary Law Forum, 31 May, 2021) <https://tclf.in/2021/06/02/fcra-amendments-and-covid-19-aid> date of access.

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