The Tax PublishersForeign Contribution Regulation Bill, 2006--An Overview1. Introduction

The Foreign Contribution (Regulation) Bill, 2006 was introduced in Rajya Sabha or 18-12-2006. It seeks to replace the Foreign Contribution (Regulation) Act, 1976 (FCRA). It seeks to regulate the acceptance and utilization of all foreign funds through donations, gifts or grants.

While the 1976 Act lists a number of organisations and individuals that are prohibited from accepting foreign contribution, the Bill adds organisations of a political nature and electronic media organisations to the list.

2. Salient features of the Bills

The salient features of the Bill are as follows :

(i) Under the Bill, all persons with a definite cultural, economic, educational, religious or societal programme and required to register under FCRA to accept foreign contribution.

(ii) Registration would expire every five years, and would be renewed with six months before the expiry of the certificate.

(iii) New Bill prohibits all organisations of a political nature from receiving any foreign contribution. It gives the Central Government powers to classify any organisation in this category but does not provide any guidelines to define organisations of a political nature.

(iv) The preamble has been reworded to prohibit acceptance and utilization of foreign contribution or foreign hospitality for any activities detrimental to the national interest.

(v) Any amount received by any person from any foreign source by way of fee, payment in lieu of certain services rendered, etc. will be excluded from the definition of foreign contribution.

(vi) Association or company engaged in the production or broadcast of audio news or audio visual news or current affairs programmes through any electronic mode or any other mode of mass communication and correspondent or columnist, cartoonist, editor, owner of such Association or company will also be placed in prohibited category for accepting foreign contribution.

(vii) The limit of administrative expenses have been kept at fifty percent of the foreign contribution and any such expenses beyond that limit may be incurred only with the prior approval of the Central Government.

(viii) Reasons for rejection of registration/prior permission will be conveyed to the applications to ensure greater transparency and accountability. This will be in conformity with the provisions laid down under the Right to Information Act, 2005.

(ix) Provisions have been made for cancellation of registration after giving reasonable opportunity for hearing. Registration certificate can be suspended for a maximum period of 180 days.

(x) Foreign contribution will have to be received through a single band account. However, unlike the present Act, the recipient organization would be permitted to open one or more account in one or more Scheduled Banks to utilize the foreign contribution.

(xi) Countrywide information/database about receipt of foreign remittances more than a specific amount, or suspicious transactions received by a person/association through banking channels shall be created, for keeping a watch over receipt and utilization of such foreign contributions.

(xii) Registration received by fraud, misrepresentation or false documents would be punishable with imprisonment up to 5 years.

(xiii) Provision has been made for disposal of assets created out of foreign contribution of defunct/inoperative organizations as per the prescribed procedure.

(xiv) Provision has been made for compounding of certain offences under the Bill.

It is expected that the new law and its effective implementation thorough utilization of tools of information and communication technology (ICT) will put in place a more efficient system to regulate the acceptance, utilization and accounting of foreign contribution in the country by ensuring greater accountability, transparency and simplification.

3. Objectives of the Bill

As stated in the preamble, FCR Bill, 2006 contains the following objectives :

(i) To consolidate the law to regulate acceptance and utilization of foreign contribution/foreign hospitality, etc.

(ii) To prohibit organization of political nature, not being political parties from receiving contribution.

(iii) To prohibit the use of foreign contribution for any speculative business.

(iv) To exclude foreign funds received from relatives abroad.

(v) To make provisions for compounding of certain offences.

(vi) To bring associations engaged in production/broadcast of audio news/ audio-visual news or current affairs through any electronic mode under the purview of the Bill.

4. Foreign contribution--Defined

Section 2(h) of the Bill defines foreign contribution to include donation, delivery and transfer of contribution made by any foreign source of --

(i) 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 article on the date of such gift, is not more than such sum as may be specified from time to time, by the Central Government by the rules made by it in this behalf;

(ii) of any currency, whether Indian or foreign;

(iii) of any security as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 and includes any foreign security as defined in clause (o) of section 2 of the FEMA, 1999.

Within the meaning of this clause the following shall also be deemed to be foreign contribution :

(a) A donation, delivery or transfer of any article, currency or foreign security by any person who has recived it from any foreign source, either directly or indirectly or through one or more persons,

(b) the interest accrued on the foreign contribution deposited in any bank referred to in sub-section (1) of section 17 or any other income derived from the foreign contribution or interest thereon.

However, following shall not form part of foreign/contribution. Any amount received, by any other person from any foreign source in India, by way of fee (including fee charged by an educational institution in India from foreign student) or towards cost in lieu of goods or services rendered by such person in the ordinary course of his business, trade or commerce whether within India or outside India or any contribution received from an agent of a foreign source towards such fee or cost.

After perusing the above definition of foreign contribution, nothing is clear about the expression any other income derived from foreign contribution. This vague version would tend to create new problems in arriving at the decision about income to be included in FC. For example, if any association opens a training centre, incurs expenses in and earns income from the said training centre, what would be position if income exceeds the expenses. Would the excess be treated as foreign contribution?

5. Foreign source--Defined

In terms of section 2(j), the foreign source includes :

(i) the government of any foreign country or territory and any agency of such government;

(ii) any international agency, not being the United Nations or any of its specialised agencies, the World Bank, International Monetary Fund or such other agency as the Central Government may, by notification, specify in this behalf;

(iii) a foreign company;

(iv) a corporation, not being a foreign company, incorporated in a foreign country or territory;

(v) a multi-national corporation referred to in sub-clause (iv) of clause (g);

(vi) a company within the meaning of the Companies Act, 1956, and more than one-half of the nominal value of its share capital is held, either singly or in the aggregate, by one or more of the following, namely :

(a) the government of a foreign country or territory;

(b) the citizens of a foreign country or territory;

(c) corporations incorporated in a foreign country or territory;

(d) trusts, societies or other associations of individuals (whether incorporated or not), formed or registered in a foreign country or territory;

(e) foreign company;

(vii) a trade union in any foreign country or territory, whether or not registered in such foreign country or territory;

(viii) a foreign trust or a foreign foundation, by whatever name called, or such trust or foundation mainly financed by a foreign country or territory;

(ix) a society, club or other association of individuals formed or registered outside India;

(x) a citizen of a foreign country.

6. Foreign contribution acceptance

Section 4 of the Bill states that in the following circumstances, the person shall be deemed to have accepted the foreign contribution, if he receives :

(a) salary, wages or other remuneration due to him or to any group of persons working under him, from any source or by way of payment in the ordinary course of business transacted in India by such foreign source; or

(b) any payment, in the course of international trade or commerce, or in the ordinary course of business transacted by him outside India; or

(c) any payment as an agent in relation to transaction made by such foreign source with the Central Government or State Government; or

(d) any gift or presentation made to him as a member of any Indian delegation, provided that such gift or present was accepted in accordance with the rules made by the Central Government with regard to acceptance or retention of such gift or presentation; or

(e) any payment from his relative; or

(f) any remittance, in the ordinary course of business through any official channel, post office, or any authorized person in foreign exchange under FEMA, 1999.

7. Excepted categories of persons

Section 3 of the Bill provides that the following categories of persons shall not accept any foreign contribution :

(a) candidate for election;

(b) correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered news paper;

(c) judge, Government servant or employee of any corporation or any other body controlled or owned by government;

(d) member of any legislature;

(e) political party or office bearer thereof;

(f) organisation of a political nature as may be specified under sub-section (1) of section 5 by the Central Government;

(g) association or company engaged in the production or broadcast of audio news or audio-visual news or current affairs programmes through any electronic mode, or any other electronic form as defined in clause (r) of sub-section (1) of section 2 of Information Technology Act, 2000 or any other mode of mass-communication;

(h) correspondent or columnist or cartoonist, editor or owner of the association or company, referred to in clause (g).

Explanations : (i) Expression corporation means a corporation owned or controlled by government and includes a government company as defined in section 617 of the Companies Act, 1956.--Vide Clause (c) of section 6 of the Bill.

(ii) The Bill includes the organisation of political nature in the category of prohibited organisations. The political nature means the activities involving the issues to be taken with government with regards the safeguarding of human rights.

8. Registration(i) Procedure for registration

No person eligible to accept foreign contribution shall accept such foreign contribution unless he/she gets himself/herself registered and obtains a certificate of registration. The association has to apply for grant of certificate or for prior permission of the Central Government. Even for existing organisations/ associations who have received permission to accept foreign contribution under section 6 of the Bill, the registration certificate shall be valid for five years from the effective date of the provision of the Act/registration or permission whichever is the latter date. The Central Government after receipt of application for registration or prior permission will approve and after making proper enquiries shall satisfy itself that --

(i) the person making an application under sub-section (1) --

(a) is not fictitious or benami;

(b) is not guilty of involvement in activities aimed at conversion through inducement or force, either directly or indirectly, from one religious faith to another;

(c) is not guilty of creating communal tension or disharmony in any specified area or in any other part of the country;

(d) is not guilty of diversion or misutilisation of its funds; or

(e) is not guilty of engaging or likely to engage to promote or propagate & edition or advocate violent methods in order to achieve its ends;

(f) is not guilty of or is not likely to use the foreign contribution for personal or for undesirable purposes;

(g) is not guilty of having contravened any provisions of the Act;

(h) has not been prohibited from accepting foreign contribution;

(i) his certificate has not been suspended for any reasons and the suspension still continues;

(j) was previously granted certificate which stands cancelled before three years from the date of application for grant of registration certificate;

(k) has undertaken meaningful activity in its chosen field for the benefit of the people for which the foreign contribution is proposed to be utilized; or

(l) has prepared a meaningful project for the benefit of the people for which the foreign contribution is proposed to be utilized;

(m) as an individual applicant has neither been convicted under any law for the time being in force nor any prosecution for any offence is pending against him;

(n) any of its directors or office bearers (in case the applicant is other than individual) has neither been convicted under any law for the time being in force nor any prosecution for any offence is pending against him.

(ii) The Central Government will also enquire and satisfy itself before granting permission/certificate/registration that the acceptance of foreign contribution by the person referred to in sub-section (1) is not likely to affect prejudicially :

(a) the sovereignty, solidarity and integrity of India; or

(b) the public interest; or

(c) the harmony between religious, racial, social, linguistic, regional groups, castes or communities; or

(d) friendly relation with any foreign state; or

(e) the security, strategic, scientific or economic interest of the State; or

(f) freedom or fairness of election to any legislature.

It is important to note from the provisions regarding refusal of registration under the Bill if 'any prosecution is pending for an offence against the applicant' is not convincing. Every body knows that many cases are pending against the persons who have been (or are still working) with adivasis, dalits and human rights activities associations. The condition imposed does not seem to be reasonable and genuine, but reflects true draconian spirit. It seems that the government does not have sufficient information that out of Rs. 6,256.68 crores in 2004-05 or out of the amount received during earlier periods the FC has been utilized for anti-national activities. Whether the government has taken action against those organizations is not known to any body. In this context the provision embodying refusal to applicants on the ground that any prosecution is pending does not seem to be reasonably genuine. This argument would prove true on perusal of the briefing paper of South Asia Human Rights Documentation Centre :

'It would be worthwhile for the present administration, as well as those who support the FCMC to remember that Mahatma Gandhi himself was in prison for a little over seven years on a variety of charges not only in India, but in South Africa as well. The spirit of voluntarism inspired by Gandhi, who set-up numerous voluntary organizations such as the Sarva Seva Sangh and the Hind Kusht Nivaran Sangh, is indisputable. It may sound incredible but clearly, if he were alive today, neither he, nor Jawaharlal Nehru, nor any other political prisoner in India would have been allowed to apply for FCMC registration.'

Therefore, it would be feasible on the part of the government to reconsider its decision and let the existing Acts to continue and take action against the erring organizations. It would be more appropriate for the government to record the reasons for such refusal and furnish a copy specifying the reasons for refusal to the applicant to enable him to present his defence. As the clause providing that the government may not communicate the reasons for refusal for grant of certificate or for not giving prior permission to the application under the provision of the Bill is not sound. Such provision being against natural justice under Right of Information Act, 2005 needs to be reconsidered.

(ii) Renewal of certificate

In the light of section 16(1) the registration certificate under section 12 of the Bill is to be renewed within 6 months before the expiry of the period of the certificate. The section requires that renewal application is to be made to the Central Government in such a form and in a manner which will be prescribed by the certificate, accompanied by a requisite amount of fee. The Central Government has a prerogative to accept or reject the request for renewal. This is quite prejudicial to the interest of the registrant as it is likely to kill the sustainability of his project. Further the aggrieved person within 30 days may appeal to the Central Government with such fees and decision of the Central Government on such appeal would be final. The NGOs are not satisfied. They are of the opinion that the prerogatives with the Central Government are not justified. They opine that such provisions are not in line with the existing FCR Act and the said Act is better, as there is no provision in the Act to get the certificate renewed once in every five years.

(iii) Suspension of certificate

Unlike the provisions contained in FCR Act, the new FCR Bill provides that the certificate of registration may be suspended for the reasons to be assigned in the suspension order. During the suspension period the persons shall not receive any foreign contribution and shall not be allowed to utilize the foreign contribution without the prior approval of the registering authority.

(iv) Cancellation of certificate

There is no provision in the existing FCR Act for cancellation of certificate of registration. However in the FCR Bill, section 13, provides for cancellation of the certificate in any of the grounds mentioned in sub-section (1) of section 14. Section 14 empowers the Central Government to cancel the certificate after making enquiry if it is found that :

(i) the holder of the certificate has obtained the certificate or got it renewed by giving false statement; or

(ii) the holder of the certificate has violated any of the terms and conditions of the certificate or renewal thereof; or

(iii) the Central Government feels that it is necessary in the public interest to cancel the certificate; or

(iv) the holder of certificate has violated any of the provisions of the Act or rules made thereunder;

The Central Government before cancelling the certificate would provide an opportunity to the certificate holder to be heard. However, on cancellation, the person shall not be eligible for registration for a period of three years from the date of cancellation of certificate. The aggrieved person within 30 days may appeal to the Central Government alongwith fees to be prescribed by the Central Government. Like suspension provisions, cancellation provisions are not available in the existing FCR Act. The Bill has proposed to use them as control tools.

9. Receipt of Foreign Contribution only through a single bank account

Clause 17 of the Bill provides that the recipient of the foreign contribution can receive the foreign contribution in a single bank account only through any one or more branches of a scheduled bank. The account number, banks name will have to be mentioned by the person in the original application submitted for seeking certificate of registration or permission to accept foreign contribution. However, such person may be allowed to open one or more bank accounts in one or more banks for utilizing the foreign contribution received by him. In such bank account/accounts, no money other than foreign contribution will be under transaction. Meaning thereby that no funds other than foreign contribution shall be received in or deposited in such bank account(s). Periodical statements containing the following information shall be required to be submitted to the prescribed authority --

(i) The amount received as FC during the period under reference;

(ii) The source of receipt of such FC and the manner/mode in which it was received;

(iii) How the foreign contribution has been utilized;

(iv) Other relevant particulars in such form or manner as may be prescribed.

10. Audit of account and books

The person after obtaining certificate, if fails to maintain the accounts of foreign contribution received by him and the record as to the manner in which such contributions have been received and utilized by him and further, if the person fails to furnish the required information within the time limit, his accounts and relevant books shall be subject to audit under clause 19 of the Bill. Similarly, if the government is of the opinion that provisions of law have been contravened by the person or association, the government shall be authorised to audit the books of account maintained by such person/association under clause 20 of the Bill.

11. Disposal of assets of defunct association/persons

In case the persons/associations after obtaining the certificate cease to exist and become defunct, their assets created out of foreign contribution would be disposed of by the Central Government in a manner as to be decided by the Central Government. This provision embodied in clause 22 is also unpleasant and seeks interference into the private affairs of the persons/associations by empowering the government to dispose of the assets of the defunct person or association.

12. Inspection, search and seizure

In the light of clause 23 of the Bill, the Central Government is empowered to conduct inspection of the books of accounts/records and search the premises where such accounts/records are maintained in respect of foreign contribution as required under section 24 of the Bill and may also seize accounts/records if it believes that any of the provisions relating to acceptance and utilization of foreign exchange and of any other Act have been contravened by --

(i) any political party; or

(ii) any person; or

(iii) any organisation, or

(iv) any association.

The Central Government has the power under section 25 to seize any article or currency and dispose of the same as per provisions discussed above.

Besides, section 20 also empowers the Central Government to order inspection or audit to be conducted by its specified officer, in case the organization/ association or the person, as the case may be, fails to furnish the returns, or if the returns so furnished are not in accordance with law and the government feels that the organisation/association/person has contravened the provision of any law. The Bill enlists the provisions for punishing the erring incumbent for offences and prescribes penalties and prosecution.

13. Ceiling on administrative expenses

Section 8 of the Bill provides that the association receiving foreign contribution may spend not more than 50 per cent of such contribution to meet the administrative expenses. However, it has also been provided that the Central Government may permit any association to incur more than 50 per cent of FC on administrative expenses. For this purpose, the association has to obtain prior approval of the Central Government. Which expenses shall constitute the administrative expenses and the manner in which the administrative expenses have to be calculated shall be decided by the Central Government.

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