Foreign Contribution (Regulation) Act
Introduction
The preamble of the Foreign Contribution (Regulation) Act indicated that the Act has been
consolidated with main objective to regulate the acceptance and utilization of Foreign
Contribution by
i)
Certain Individuals or
ii)
Associations or
iii)
Companies and to prohibit acceptance and utilization of foreign contribution for any
activities detrimental to the national interest and for matters connected there with or
incidental there to.
Foreign Contribution: The definition of Foreign Contribution is important and sec. 2(1) (h)
defines foreign contribution as;
Donation
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 article on the date of
such gift is not more than such sum specified by government.
Delivery
Of any currency whether Indian or any foreign
Or
Transfer Of any foreign security – as defined in class h of section – 2 of the
made
by
any Security contracts (regulation) Act and Foreign Exchange Management
foreign source
Act.
made by any foreign source either directly or through one or more persons which shall be
deemed to be foreign contribution.
Foreign Source:
The act has not clearly differentiated what is a foreign source but indicates an inclusive
definition sec.2 (i)(j)
1.
The Government of any foreign country or territory and any agency of such
Government.
2.
any international agency, not being the United Nations or any of its specialized
agencies, the World Bank, International Monetary Fund or such other agency as
the Central Government may, be notification in the official Gazette, specify in this
behalf.
3.
A foreign company
4.
A corporation, not being a foreign company incorporated in a foreign country or
territory.
5.
A multinational corporation referred to sub-class ( IV) of class (g)
6.
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 of more of the following namely:

Government of a foreign country or territory

Citizens of a foreign country or territory

Corporations incorporated in a foreign country or territory

Trust, societies or other associations of individuals, (whether incorporated or
not) formed or registered in a foreign country or territory.
7.
A foreign Company, trade union in any foreign country or territory, whether or not
registered in such foreign country or territory.
8.
A foreign trust, or a foreign foundation by whatever name called, or such trust or
foundation mainly financed by a foreign country or a territory.
9.
A society, club or other association of individuals formed or registered outside
India.
10.
A citizen of a foreign country.
Exemption:
There are certain categories which are exempted and in the following cases foreign
contribution shall be accepted without prior permission (section 4), but subject to provisions
of section 10 of the act:
a)
By way of salary or other remuneration due to him or to any group of persons
working under him from any foreign source or by way of payment in ordinary
course of business transaction in India by such foreign source.
b)
By way of payment in course of international trade or commerce, or in course of
ordinary course of business transaction outside India or
c)
As agent of foreign source in relation to any transaction made by such foreign
source with the central government or state government or
d)
By way of a gift or presentation made to him/her as member of Indian delegation,
provided that such gift or presentation was accepted in accordance with the rules
made by the central government with regard and to the acceptance or and its
retention of such gift or presentation
e)
From his/her relative or
f)
By way of remittance received in the ordinary course of business through any
official channel under foreign exchange management act 1999 or
g)
By way of any scholarship, stipend or any payment of like nature
Prohibition to receive Foreign Contribution:
The act prohibits certain category of persons receiving foreign contribution.
The act in the section 3(1) prohibits the acceptance of foreign contribution by
a. Candidates for election
b. Correspondents, cartoonists, columnists’ editor, owner printer/ Publisher of a
registered news paper.
c. Judges, Government servants or employees of any corporation or any other body
controlled or owned by the government.
d. Member of any legislature
e. Political party or office bearers there of
f. Organisation of political nature as may be specified. Under subsection 1 of section 5
by the central government.
g. Association or company engaged in production of broadcast of audio news or audio
visual news or current affairs program through electronic media, or any other
electronic form as defined.
h. Correspondent or columnist, cartoonist, editor, owner of the association of the
company referred to in clause g.
The central government has powers to notify sources from where foreign contribution
shall be accepted with prior permission only. Section 11(3)(iv) this may mean that
government can be prohibit receiving from certain countries or certain donors.
Registration
The Associations interested in receiving foreign contribution have to send their
application in Form FC-3, for registration under the FC(R) Act, 2010, for acceptance of
foreign contribution. The application can be downloaded from MHA’s website:
http://mha.nic.in/fore.htm Those associations which enclose the verification certificate from
the Collector of the concerned district
or other specified offices will get their registration
certificate or reply faster. Those Associations should wait till the approval from the Ministry
is obtained, and as indicated in the form “the receipt of application for registration is not a
commitment for grant of registration by the Government.
The Associations having a definite programme shall accept Foreign Contribution
after getting permission. ( section 11(3))
The central government may, by notification in the official gazette, specify
1. The person or classes of persons who shall obtain its prior permission before
accepting the foreign contribution or
2. The area or areas in which the foreign contribution shall be accepted and utilized
with the prior permission of the central government or
3. The purpose or purposes for which the foreign contribution shall be utilized with the
prior permission of the central government or
4. The source or sources from which the foreign contribution shall be accepted with the
prior permission of the central government.
Condition for Registration:
The following shall be the conditions for the purposes of sub section 3: namely;
a. The person making an application for registration or grant of prior permission under
sub section – 1
I. It is not fictitious or benami
II. Has not been prosecuted or convicted for indulging in activities aimed at conversion
through inducement or force, either directly or indirectly, from one religious faith
to another
III. He has not been prosecuted or convicted for creating communal tension or
disharmony in any specified district or any part of the country.
IV. Has not been found guilty or diversion or mis-utilisation of its funds
V. Is not engaged or likely to engaged in propagation of sedition or advocate violent
methods to achieve its ends.
VI. Is not likely to use the foreign contribution or personal gains or divert it for
undesirable purposes.
VII.
Has not contravened any of the provisions of this act.
VIII.
Has not been prohibited from accepting foreign contribution.
Renewal once in 5 years:
The certificate granted shall be valid for a period of 5 years and the prior permission shall
be valid for the specific purposes or specific amount. (Section 11). A person implementing
an ongoing multiyear project shall apply for renewal 12 months before the date of the expiry
and others 6 months before in Form FC – 5( Rule – 12), the registration will be invalid if the
organizations fails to apply for renewal within the due date.
Procedure for Receipts:
The Association which has been granted a certificate or given prior permission under
section 12 and in accordance with the rules made may receive the F.C. in a single account
only through the Branch of a bank which is specified in the application form for such
registration.
The persons may open one or more accounts in one or more banks for
utilizing the FC received. It is also essential that no funds other than FC shall be received or
deposited in such accounts. Rule 9 (1)(d) and 9 (1)(e)
Every Association shall maintain an account of F.C. received by it and record as to
the manner to which such contribution has been utilized. Section 19 ( 9)
The rule emphasizes separate cash book and ledger to be maintained on double
entry basis exclusively for foreign contribution received and utilized. A separate bank
account shall be maintained in respect of such contribution.
Annual Returns
The prescribed form under the Act is Form FC-6 for the annual return (year ending
on 31st March),. The following particulars are to be furnished ( section 18(1) and rule 17(1)
The rule 17(i) has given the following format indicating the specific purpose:Purpose(s) for
which foreign contribution has been received and utilized in Rs
Sl.
Purpose
Previous balance
Receipts during the year
Total
Utilized
Balance
Places with
No
I Recipient
II Recipient
Total
In
In kind
In
In kind
In
cash
value
cash
value
cash
kind
In cash
In kind
In
In kind
Addresses of
value
cash
value
specific
activities
1
2
3
4
5
6
7
8
9
10
11
12
13
14
There are 55 purposes indicated. If the purpose does not fall in any of the 55 specific
categories, the Association may indicate under the 56 th activity, other than those mentioned
till 55, but with specific details. It is essential to give specific details like (i) Bank interest; (ii)
sale of assets; (iii) loan / revolving fund etc. under the category 56.Any column has been
introduced to indicate the addresses of the specific activities.
The amended FC-6 includes the donor-wise and country-wise particulars to be
furnished for the year/period
1. Donor-wise Receipts
Sl.
No.
Type of donors
1
2
i)
Institutional donors
ii) Individual donors
above Rs.1 lakh
Name &
address
Purpose
Date and
month of
receipt
Amount
Total
3
4
5
6
7
iii) Individual donors
below Rs.1 lakh
(Columns 4 and 6
need to be filled)
Grand total
2. The following caution has been added in Form F.C.6:
“Caution: Submission of false information or concealment of material facts shall attract the
relevant provisions of the Foreign Contribution (Regulation) Act (42 of 2010), warranting
appropriate action.”
The Form FC-6 should be sent within 9 months of the closure of the accounting year. The
receipts and payments account and income and expenditure account and balance sheet
duly certified by the Chartered Accountants and a copy of bank statement exclusively for
foreign contribution duly singed by the bankers should also be enclosed along with FC.6
return. Rule 17(b) In addition, records in Form FC-7 should be maintained (Rule 17(3),
where the foreign contribution relates only to articles, and in Form FC-8 section 17 (4)
should be maintained where the foreign contribution relates to foreign securities and both
the forms sent to the Ministry of Home Affairs along with the certificates.
The following declaration has to be certified by the chief functionary in FC - 6
DECLARATION
I hereby declare that the above particulars furnished by me are true and correct I also affirm
that the foreign contribution has been utilized for the purpose(s) for which the association
has been granted registration or prior permission by the central government, to the best of
my knowledge. I have not concealed or suppressed any fact.
Place;
Date;
Signature of the Chief functionary
(Name of the Chief functionary in block letter )
Seal of the association
Suspension and Cancellation:
The new act has introduced the power to suspend for a period upto 180 days without giving
an opportunity ( Section – 13). The central government may also cancel the certificate for
providing false information, violating the terms and other conditions ( Section – 14).
Inspection and Punishment:
The Central Government has been given enough power to control the agencies
receiving foreign funds. If the Government suspects that any association receiving foreign
funds has contravened the act, they can authorize the specified officer to inspect any
account or record maintained by the association and they have a right to enter the premises
for inspecting the books at any reasonable hour before sunset and after sunrise (Sec.23).
The authorized officer may also seize such accounts and records and produce them before
the court.
If the organization or association fails to furnish the returns, or if the returns furnished
are not in accordance with law, and if the Government feels that the organization has
contravened the law, the Government may also order its specified officer to audit the books
of accounts (Section 20).
The Government can also seize any article or currency which is received or obtained
in contravention of the Act (Section 25) and shall be liable to confiscation but the
adjudication and confiscation should be made only after giving a reasonable opportunity for
making a representation against such confistication (Sec.30). Any person aggrieved by any
order made may prefer an appeal (Sec.31).
Penalties
The person who contravenes any prohibitory order served under Section 10, pays,
delivers, transfer or otherwise dealt in contravention of such order shall be punished with
imprisonment for a term which may extend to three years or with fine or with both (Sec.34).
The person who accepts or assists in accepting the currency from a foreign source in
contravention of the Act shall be punished with imprisonment for a term which may extend
to five years or with find or both (Sec.35). If at the time of convicting a person for any
offence under this Act, and if the article or currency liable for confiscation is not available for
confiscation, a fine not exceeding five times the value of the article or currency or one
thousand rupees whichever is more may be imposed in addition to any other fine which
may be imposed under this Act (Sec. 36). It is to be noted that whoever convicted of any
offence is against convicted of such offence shall not accept any foreign contribution for a
period of 5 years from the date of the subsequent conviction (Sec.38). If any offence under
this Act has been committed by a company and if it is proved that the offence has been
committed with the consent or connivance of officers, they shall also be deemed to be
proceeded against and punished accordingly (Sec.39).
The sanction of the Central
Government is essential for the court to take cognizance of any offence under this Act
(Sec.40). Even if any loss or damage is caused by anything which is in good faith done,
aggrieved cannot file any suit or other legal proceedings against the Central Government
(Sec.45).
Anomalies
The important anomaly which affects all the associations is the amendment in clause
(ii) of the declaration and undertaking in Form FC-3 which reads as: “To obtain prior
permission for change of members of executive committee / governing council, if, at any
point of time such change causes replacement of 50% of more of such members as were
mentioned in the application number dated for registration under F.C.(R) Act 2010 ( 42 of
2010), and undertakes further not to accept any F.C., except with prior permission, till the
permission to replace the office-bearer(s) has been granted.”
This is contradictory to the normal general rules of the associations which will
indicate that 1/3rd members of the Board will retire by rotation.
But as per the change, if 50% of the members have been replaced, the association
has to send fresh application under Form 3 and should not accept any foreign contribution
except with prior permission till the permission to replace the office bearer(s) had been
granted.
Information about credit:
It is a welcome feature that an organization which receives foreign contribution in
excess of Rs. 1 crore in a financial year shall keep in the public domain the summary data
on receipt and utilization of FC pertaining to the year and one year thereafter ( rule 13).
The central government shall also display the summary of data to the public through its
website. This will make the NGO more transparent in their transactions.
Administrative Expenses:
The act has now introduced a new provision prohibiting incurring administrative
expenses beyond 50% without approval. The main crux is restricting the administrative
expenses shall not exceed 50% of the total contribution ( section 8). The expenses to be
treated as administrative expenses as per rule 5 includes salaries and expenditure to
board members, persons managing activities. The common expenses like running and
maintenance of vehicle; electricity, postage printing and stationery, repair and maintenance
have to be treated as administrative expenses. Similarly foreign contribution should not be
used for speculative business,( rule – 4) including investment in mutual funds or in shares
Political Nature:
The rule – 3 indicates the guidelines for declaration of an organization to be of
political nature not being a political party. As per the new rule the organizations having
wowed political objectives larger socio economic or political interest and organizations
which habitually engages in or itself employs in the common methods of political action like
bandh, harthal, rastharoko, railroko, jail bahro in support of public causes can be classified
as an organization political nature.
Transfer of funds to other unregistered persons:
A new rule 24 has been introduced indicating the procedure for transferring foreign
contribution to other registered or un-registered persons. The person intending to transfer
foreign contribution to unregistered persons may make an application in form FC – 10. This
will facilitate transfer of funds to unregistered organizations and prior permissions should be
obtained and a part of the foreign contribution not exceeding 10% of the total value of
foreign contribution may be transferred after obtaining the permission.
Bankers Obligation;
The bankers have to report to the Department ( Ministry of
Home Affairs) if foreign
contribution is received in excess of Rs. 1 crore during the period of 30 days and also the
cases where foreign contribution is received without registration or prior permission ( Rule
15)
Transfer to Panchayats:
The foreign contribution funds cannot be now transferred to Panchayats, since they have
been included as a part of legislature.
Community Radio;
The foreign contribution funds should not be used for any broadcasting activities including
community radio.
Common Violations:
The Ministry on the basis of the information received and returns received has
published some common violations and accounting errors:
An illustrative list of such common violations of the Act are given below:
1. The receipt and utilization of F.C. without registration or prior permission under
FCRA
2. Receipt and utilization of F.C. by a registered association in any bank account other
than the designated bank account
3. Transfer of Foreign Contribution received by one association for specific purpose to
another association, which is not registered under FCRA or has not obtained prior
permission.
4. Misutilisation/ misappropriation/ diversion of F.C.:
Procurement of assets in the name of functionaries
Spending F.C. on purposes other than for which it was received
Speculative investments
Huge cash transactions without supporting vouchers
5. Non filing of FC-3 returns within the prescribed time or in the prescribed manner by
the associations.
6. Acceptance of F.C. by candidates for election and correspondents
7. Acceptance of F.C. by organizations of political nature without prior permission
8. Failure of candidates for election to intimate the Central Government within 180
days about receipt of Non filing of FC-5 returns by Indian citizen receiving
scholarship/
Stipend or similar payment exceeding Rs.36,000
9. Non maintenance of prescribed records
10. Dealing with F.C. despite prohibitory order under
11.
Accepting or assisting another person or association to accept F.C. in
violation of FCRA.
Common Accounting errors are as follows:
Non maintenance of exclusive books of accounts in respect of F.C. received
and utilised Non submission of FC-3 returns as prescribed under the Act
a) Non reflection of income generated out of F.C. in the FC-3 returns
b) Non reflection of F.C. received as second or subsequent recipient or that received in
kind in FC-3 returns
c) Absence of expenditure vouchers/ bills
d) Non recovery of loans/ advances
e) Non tallying of amounts shown in cash book with the bank accounts. F.C. (Sec.6(2))
The Ministry has specifically indicated that the above list is only an illustrative list
prepared for guidance of the stakeholders to ensure proper and effective compliance with
the provisions of the Law.
Case Study – 1:
Swagatham is a public charitable trust working for development of rural people. The object clause
includes working towards establishing human rights especially for rural women and working towards
women empowerment. Organising people in support of public causes and present their view points
through peaceful methods. Organising women and farmers and channelizing their skills in
propagating organic and other traditional methods of farming and work against chemical fertilizers.
The trust has received approval from the home ministry to receive foreign contribution through A/ C
NO: 0113849, State Bank of India, MG Road, Bengaluru. The trust has been registered under
section 12 ( A) (a) under the income tax act and obtained 80 G approval which expired on 31 St
March 2009. They have applied for extension in October 2009, but not followed. Swagatham is
being managed by the board of trustees consisting of 19 members. The board has appointed 7
members as office bearers and they meet once in 3 months. After 6 years in June 2009, there were
changes in the office bearers, 3 members were injected after the retirement of 3 members. Mr.
Govind relinquished as chairman and became the treasurer, and Mr. Mustash new incumbent
became the chairman. Ms. Mamta has retired.
Roof for Roofless an international donor agency sanctioned an amount of Rs. 40 lakhs for
constructing roofs. The donor has indicated that the beneficiaries should bear the cost upto
foundation level, Swagatham should contribute upto lintal level and the cost of roofs others will be
charged to roof for roofless account. Swagatham entered in to contract with M/s Builders India
Limited, a building construction company and transferred Rs, 10 lakhs from A./ C No: 0113849 for
construction of 40 houses initially, 38 beneficiaries paid Rs. 20,000 each and requested Builders
India ltd itself to construct the building for which Builders India agreed, Swagatham collected the
amount and initially deposited in the Canara Bank Local Fund account. But subsequently
transferred the total amount to foreign account of State Bank if India, since it will be easy to them to
settle through a single cheque to Builders India. Builders India ltd, completed the buildings and
presented the bills for Rs. 38 lakhs, and Swagtham issued another cheque for Rs, 28 lakhs.
Dutch Education Foundation, granted an amount of Rs, 10 lakhs should be transferred to village
education societies for construction of schools and for non-formal education facilities to be provided.
Swagatham transferred Rs. 30,000/- each to 10 VES and constructed 10 school buildings incurring
an expenditure of Rs. 2.80 lakhs. The buildings were capitalized in Swagatham books of accounts
and the board has indicated that the school buildings will be transferred to the VES after 5 years.
The remaining balance was adjusted as administrative over head.
Fact intimated as part of their withdrawl strategy granted an amount of Rs. 30 lakhs as corpus.
Swagatham invested Rs. 10 lakhs in Sundaram equity funds and Rs. 5 laksh in Birla Equity Fund.
The remaining 15 lakhs was transferred to Chamundeeswari Federation. Sapling SHGs at the same
time earning an interest of 15%.
Swagatham entered in to a contract with Mercy Foundation for a new project for a program of “
GREEN” for 7 years from 20th April 2011. This project includes creation of community biogas
centres alternative energy methods, and the
project proposal include 20% collection from the
community towards the project cost and only 80% will be supported by Mercy Foundation. The
proposal included in organizing the community to propagate against the use of chemical fertilizers
and opposing BT Cotton project etc. The agreement includes that the expenses incurred for
mobilising community against such activity is provided in the budget, but peaceful method of
meeting the community to be organized in public interest.
Swagtham received Rs. 4.5 lakhs from Women In Distress London towards helping rural women
and distributed, Rs., 5. 21 lakhs village animators collected the amount and handed over to Ms.
Mamta for forming Womens’ Federation. Mr. Aruldoss accountant verified and as per the receipt
issued, the total amount collected upto 31. 03.2010 was Rs, 3.4lakhs but Ms, Mamta received only
Rs, 2.93 lakhs. Ms. Krishnammal one of the sector officer confirmed that Rs. 32,000 collected in the
sector was used for road formation with the approval of the board. The amount collected by 3
animators, who have left organisaton have not remiittted the collected amount to Ms, Mamta but
issued the receipts to the beneficiaries. Since no formal appointment orders were issued to the
animators the police refused to register case against them. Swagtham wanted to follow very simple
accounting procedure and statements which can be easily understood by members and others.
Their FC budget for the year 2011 – 2012 is prepared on the following basis.
Construction of Roof and others
Rs. 20.00 Lakhs
Support to Educational Activities:
Rs. 8.00 Lakhs
Corpus Fund
Rs. 6.00 Lakhs
Women Empowerment
Rs. 3.00 Lakhs
Administrative Expenses
Rs. 39.00 Lakhs
Total
Rs. 76.00 Lakhs
Swagatham has approached Strategic Aid a foreign funding agency with a new proposal and they
have indicated to Strategic Aid that Swagatham has compiled with all rules and regulations of
Government and one of the law abiding organisation, Strategic Aid has requested your opinion
before funding the project about the compliances status under the law. Please prepare a detailed
note about Swagatham.
Case Study: – 2
Sugam is registered society having its headquarters in Lucknow and branches in Kolkatta Trichy ,
Nagpur and Bhopal. The main objective of sugam is propagating health education. They have been
sanctioned an amount of Rs, 2 crores for Health for AIDS project for the year 2010 – 2011. . The
project contemplated to create awareness on AIDS in 2 villages in 4 states. Sugam created a
network in 2 states and in other 2 states directly distributing the funds for home program Rs. 20,000
each. There were conflict of opinion between the network partners and Sugam, Sugam hence
stopped sending money from July 201o in AIDS which funded by the international organization.
Sugam published a quarterly journal and an expenditure of Rs. 8 lakhs was charged in the FC
account for the four issues and the subscription collected Rs, 2,00,000/- was credited in publication
local account.
Sugam produced a video film on AIDS incurring an expenditure of Rs, 12 lakhs ( including reprint
cost) and distributed and collected Rs., 600 percopy. The amount of Rs, 12,000 received from
network and other partners were credited in local contribution account as donation, and the amount
of Rs, 60,000 received from others were credited in FC account. The balance reprints were lying in
the storeroom, The management has decided to transfer Rs, 1 lakh to corpus funds (Rs. 90,000
from joint account Rs, 10,000 from reprint account) and invested the amount in Birla Midcap Fund,
Sugam purchased tamarind from village clubs and packed it and sold
in the market. Suagm
received Rs. 5. Lakhs from a Swedish agency to help the farmers. Sugam gave this Rs. 5 lakhs to
the tamarind tree owners. Sugam purchased Rs. 8 lakhs worth of tamarind and adjusted Rs. 2.5
laksh and paid only Rs, 5.5 lakhs to the owners. Sugam incurred an expenditure of Rs. 60,000/- for
cleaning and packing the tamarind. It sold about 60% of the tamarind and raised invoice to the value
of Rs. 4.8 lakhs and realized an amount of Rs 3.6 lakhs before 31st March 2011.
Mr. Govind, Chairperson received a honorarium of Rs, 6,000/- for his work as coordinator School
Health Project for the year ending March 2010. Though the project has ended he claimed to get his
remuneration till date. He has also relinquished his chairpersonship but he continued to receive the
amount. Ms. Mamta continued to keep the TATA Sumo ,but she met the fuel charges from her
personal account. Sugam was employing between 32 – 35 staff excluding the animators for the past
5 years. The staff was not given any order but remuneration was paid through cheque. 8 % of
provident fund was deducted and paid in a post office savings account. The vigilance officer from
PF commission visited the office on 15th July 2011
Sugam has got certified the statement of accounts for the year ended March 2010, and filed to the
income tax department, home ministry and the registrar of societies on 15th December 2010. The
network partners were ex-officio general body members of Sugam. The management decided not to
continue the general body in September 2010 and still a settlement has not been reached. The
international donor wants a note from yo about the compliances of Indian Laws by Sugam.
Pleas discuss anomalies;

Int eh account system and procedure adopted.

Under FCTRA.

Under Income Tax

Under any other act. Prepare a note which could be avoided in the future.