Foreign Contributions: NGOs, PM CARES and the Double Standards
By Pooja V
The Foreign Contribution (Regulation) Act, 2010 (hereinafter ‘FCRA’) was enacted to regulate the acceptance and utilisation of foreign contribution by certain individuals and organizations and to prohibit the same from being used for activities that are detrimental to the national interest.
This Act repealed the Foreign Contribution (Regulation) Act, 1976 which was enacted during the emergency period under the Indira Gandhi-led government which had kept the regime restricted to regulation.
FCRA introduced prohibition by making national interest a paramount consideration in the receipt of foreign contributions to India. Even amidst tight regulations imposed by FCRA, there were instances of circumvention which led to the cancellation of FCRA licenses of 20,600 NGOs along with penalising them for their actions.
On 29th September 2020, the Foreign Contribution (Regulation) Amendment Act, 2020 (hereinafter ‘Amendment Act’) came into force, which made some specific changes to the erstwhile FCRA law.
The amendment was deemed necessary for the internal security of the country since several NGOs were failing in disclosing proper funding and furnishing proper audit. It, however, drew widespread criticism from various bodies for tightening the norms a little too much, claiming the assistance of NGOs to be of vital importance.
Now, while the Amendment Act excessively regulates foreign contribution to NGOs, the PM CARES Fund, even without meeting the necessary prerequisites, is exempted from all the provisions of FCRA.
In this article, the author attempts to bring out the contrast in the regulation of foreign funds in India in light of the 2020 Amendment Act, suggesting measures to ensure a progressive collaboration between the government and NGOs.
A Glimpse of the Amendment
The Amendment Act has introduced several provisions which are as follows; first, it has introduced the category of “public servant”, as defined under Section 21 of the Indian Penal Code, 1860, thereby widening the list of persons prohibited from receiving foreign contributions under Section 3(1)© of the FCRA.
Second, by virtue of an amendment to Section 7, any person who is certified or has obtained prior permission under FCRA and receives a foreign contribution, is now restricted from transferring such contribution to any other person.
Third, Section 8 has been amended to restrict the use of foreign contributions for administrative purposes from the earlier 50% to 20%.
Fourth, under the new Section 12A, the government may require any person who seeks permission, registration or renewal under FCRA to provide Aadhaar cards of all of its key functionaries.
Fifth, the amended Section 13 enables the government to suspend the registration certificate for up to 360 days, as opposed to the former period of 180 days.
Lastly, another key feature of the Amendment Act, which came to the spotlight recently, is the requirement of the recipient of foreign contribution to receive such an amount only in an account designated as an “FCRA Account” which is to be opened in the State Bank of India (SBI) under Section 17.
The recipient is also accorded the flexibility to open another FCRA Account in any of the scheduled banks in India for keeping or utilising the foreign contribution received from its “FCRA Account”.
How has the Amendment Affected the NGOs?
While the amendment hopes to ensure greater transparency and effective monitoring of the inflow of foreign funds, it has cast a shadow on the functioning of NGOs. The collaborative working of NGOs is impaired as organizations receiving foreign funds will no longer be able to transfer them to small NGOs working at the grassroot level.
Earlier, NGOs registered under FCRA were permitted to transfer the foreign contribution to any other registered NGO as well as to any other unregistered person, with the prior permission of the Ministry of Home Affairs (hereinafter ‘MHA’). The amended provision negates this possibility. Moreover, the cap on administrative expenses would make the survival and performance of NGOs nearly impossible.
By widening the ambit of Section 3(1)© i.e. persons prohibited from receiving foreign contributions, it has hindered citizens from diverse backgrounds to participate in the country’s development freely as in its current form, public servants cannot rely on foreign contributions. Also, the rationale behind the power for suspension of registration certificate for up to 360 days under Section 13 is unclear.
The NGOs felt especially constrained by the amendment to Section 17 (designated foreign accounts only) and a notice dated 13th October 2020 which fixed the deadline to open the specified account as 31st March 2021.
Together, these present certain problems such as the increase in transaction costs for NGOs. To add to it, SBI was prevented from authorizing an NGO’s account without MHA’s authorization. Earlier, a mere intimation by the NGOs to the Ministry about any change of bank account was sufficient.
Owing to procedural difficulties and delay on part of SBI, coupled with the delay in approvals from MHA, several petitions were filed seeking an extension of the deadline. A petition filed before the Delhi High Court sought an extension of the deadline permitting receipt of foreign contribution by a period of six months.
There are numerous forms to be filled by the NGOs receiving foreign contributions but there is a particular delay in the approval of FC-6C forms required for issuing the FC-6C certificates. The FC-6C form intimates the Central Government regarding change of designated receipt-cum-utilisation bank account for foreign contributions and such an intimation is necessary under the 2011 Rules.
In fact, a petition before the Delhi High Court underscored the delay in approval by MHA for the issue of FC-6C certificates. Only when recognition is granted and a certificate issued, can an NGO accept the foreign contribution in its designated account.
Due to this delay, foreign contributions to NGOs for their sustenance and social outreach programmes came to a standstill lasting months. Considering the difficulties faced by the organizations, the Court directed MHA to consider an extension of the deadline, owing to such difficulties combined with the threat posed by the second wave of the Covid-19 pandemic.
Recently, the MHA issued a public notice and extended the deadline for opening the account to 30th June 2021. Through another notice, it extended the validity of registration certificates for those expiring/ expired during the period between 29th September 2020 and 30th September 2021, up to 30th September 2021.
In the author’s opinion, the moratorium of 40 days is too small. Advocates representing some of the NGOs also expressed a similar view, wanting the ministry to “either simplify the process or give more time for compliance”. While the NGOs are facing a hard time juggling between compliance and providing relief, the exemption of the PM CARES Fund from the provisions of FCRA casts doubts on the government’s intentions.
What is PM CARES and Why is it Exempted from FCRA?
The Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (aka PM CARES Fund) is a public charitable trust, created to provide relief during emergency or distress situations, be it man-made or natural. The Prime Minister is the ex-officio chairman and its ex-officio trustees consist of the Minister of Defense, Minister of Home Affairs and Minister of Finance.
Donations to the PM CARES Fund qualify for 100% exemption under section 80G of the Income Tax Act, 1961. It is to be regarded as a Corporate Social Responsibility (CSR) as any expenditure by a firm towards improving health care, in addition to Disaster management, qualifies as expenditure incurred for CSR activities under Schedule VII of the Companies Act. However, controversy arises due to the following reasons.
At present, the official website of the PM CARES Fund shows a collection of Rs. 3076.62 Crore during 2019–20 alone, which includes contributions from India and overseas. Surprisingly (or not), the fund is exempted from the operation of all provisions of FCRA despite having a dedicated FCRA Account in the main branch of SBI for accepting foreign contributions.
This is where it gets even more interesting. It is to be noted that by exercising the powers conferred under Section 50 of FCRA, the Central Government can issue orders to exempt any organization from the provisions of FCRA in the public interest. Such an order, exempting organizations from the operation of all the provisions of FCRA was passed in January 2020.
However, only those organizations which are constituted or established by Central/State Acts or administrative/executive orders, and wholly-owned by the Government and whose accounts are required to be compulsorily audited by the Comptroller and Auditor General of India (hereinafter ‘CAG’) or any of its agencies were exempted by the aforementioned order.
Now, the PM CARES Fund is neither a body set up through a Central or State Act (it is registered under the Registration Act, 1908) nor is it one whose fund is audited by CAG (its funds are audited by an independent auditor). In fact, a Supreme Court’s decision clarified that “for a public charitable trust, there is no occasion for audit by the CAG.”
Regardless, it has still been granted exemption from FCRA. The government has conveniently avoided engaging by drawing parallels with the Prime Minister’s National Relief Fund. Even an RTI application seeking details and documents on the exemption was not given an adequate response.
A satisfactory justification for the exemption of PM CARES from FCRA, even today, has not been provided, leaving us with the possibility of regarding it as an unjustified act of the Centre.
The government should provide adequate reasons for the exemption of the PM CARES Fund from FCRA and clear the air surrounding the same. It should take note that the January 2020 order is insufficient to exempt the fund and therefore clarify how such an exemption, if still valid, will serve the public interest.
Such a blanket exemption from FCRA, when the PM CARES Fund does not meet the conditions necessary for procuring registration certificate under Section 12 of FCRA, is a gross misuse of power. The government must adhere to the notions of transparency and accountability, especially when the amendment to the FCRA was aimed at strengthening the same.
With regards to NGOs, undeniably, there are instances in the past where they have circumvented the regulations and as the former finance minister P. Chidambaram once observed in the Parliament, even today, there might be instances where the foreign contribution is being tampered with.
However, the work of genuine NGOs should not be hampered in the process of penalizing a few. Grassroot NGOs and those working on issues of public health in remote areas could play a significant role in stemming the spread of the COVID-19 pandemic.
The National Disaster Management Authority, chaired by the Prime Minister, has itself enlisted NGOs to work in close coordination to handle the situation. It realises that civil societies and activists constantly make up for the gaps in government programmes by reaching out to the marginalised. A concerted effort is the need of the hour.
NGOs need support from the government to persist. Currently, the only respite to the NGOs is the May 2021 order of the Delhi High Court directing SBI to make the FCRA accounts operational within ten days of receipt of the FC-6 certificate (approving the intimation of the change of designated bank account or utilisation Account) and the MHA’s affirmation to authorize the operationalization of FCRA accounts of NGOs within seven days of receiving a request. However, operationalising the account is only one part of the problem.
Providing sufficient funds to those entities who are on the frontline is the larger concern. The government should amend Section 7 by fixing a cap on such transfers and modify the amended rule to re-introduce the erstwhile rule 24, which specified a procedure for transferring foreign contribution to another registered person or even an unregistered person.
This would ensure that organizations at the grassroot level are not hampered from providing necessary assistance to the needy. Steady co-operation can be witnessed only if the government does not overstep its limits and takes conscious efforts to ensure a smooth progression to the new FCRA regime.
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(This story has been written by Pooja V. The Author is a student pursuing BA LLB (Hons.) at the National Law Institute University, Bhopal.)