Foreign Contribution Regulation Act

Preamble

The Foreign Contribution (Regulation) Act, 1976 (here in after referred as 'FCRA') was passed by the Indian Parliament and received the assent of the President of India on 31st March, 1976. The preamble to the Act reads as follows:

An Act to regulate the acceptance and utilization of foreign contribution or foreign hospitality by certain persons and associations, with a view to ensuring that parliamentary institutions, political associations and academic and other voluntary organisations as well as individuals working in the important areas of national life may function in a manner consistent with the values of a sovereign democratic republic, and for matters connected therewith or incidental thereto.

Genesis

The main purpose behind the enactment of FCRA was to curb the use of foreign funds and hospitality for nefarious and anti-national activities or purposes. The idea was to regulate the acceptance and use of foreign contribution so that the recipient institutions and individuals function in a manner consistent with the values of a sovereign democratic republic. The Ministry of Home Affairs, Government of India was assigned the responsibility of implementing FCRA. The protection of sovereignty, democracy and republican nature of the Indian Government forms the basis of FCRA.

 

The need for having such regulatory law was felt in the late sixties when foreign agencies including CIA were suspected of having links with various trade unions, student bodies, youth organisations, political organisations etc. The then Home Minister in 1969 raised this issue in both the Houses of Parliament and the need to regulate foreign funding was discussed. It was agreed that the government would not allow foreigners or foreign money to dictate or influence the functioning of the Government, Political Parties and Other Institutions of India.

Introduction of FCRA Bill - Finally the Foreign Contribution (Regulation) Bill, 1973 was introduced in Rajya Sabha on 24.12.1973. This bill was forwarded to the joint committee of the Parliament in 19.02.1974. The joint committee consisted of 20 members of Rajyasabha and 40 members of Loksabha with Shri Manubhai Saha as the Chairperson of the committee. The joint committee held 33 meetings at different places. The committee also invited views and opinions from various state governments, bar councils, political parties, trade unions, attorney general, universities etc. The committee presented its report to the Parliament on 6-1-1976. The Bill was passed in the parliament and it came into force vide Notification No. GSR 755(E) dated 5th August 1976.

Amendments in year 1985 - In 1985, the FCRA was amended to remove some inadequacies and practical difficulties in administration of the Act. For instance the fund received by the subsequent recipient were also brought within the purview of the Act. Provisions were also made for prior permission, audit and penal provisions for offence under the Act. The Foreign Contribution (Regulation) (Amendment) Ordinance 1984 was promulgated by the President of India on 20th October 1984 and the following amendments in the act were proposed :

 

i) The definition of "foreign contribution", as contained in the Act, included only the donation, delivery or transfer made by any foreign source. It did not include donation or contribution received by an organisation from another organisation from out of foreign contribution received by the latter organisation. The definition was enlarged to include such contributions also for the purpose of tracing the utilisation of foreign contribution down the line.

ii) The definition of "political party", as contained in the Act, did not include political parties in the State of Jammu and Kashmir and political parties which are not covered by the Election Symbols (Reservation and Allotment) Order, 1968, the Ordinance amended this definition to include such political parties also.

iii) Section 6(1) of FCRA provided that every association having a definite cultural, economic, educational, religious or social programmes, may receive foreign contributions. But it was required to send intimation regarding such receipt to the Central Government within such time and in such manner to be prescribed by the rules made under FCRA. It had been observed that a number of associations had not sent such intimation. In order to effectively monitor the receipt of foreign contribution, this sub-section was amended to provide that associations referred to therein should accept foreign contributions only after they were registered with the Central Government specifically for the purpose and should accept such contributions only through a specified branch of a bank. They would, however, be required to give, within such time and in such manner as may be prescribed, intimation to the Central Government as to the amount of foreign contribution received by them, the source from which and the manner in which such foreign contribution was received by them etc. Where any registered association does not accept foreign contribution through the specified branch of a specified bank or does not submit intimations etc., in time, the Central Government has been empowered to direct that such

 

association shall not accept foreign contribution without the prior permission of the Central Government. A new sub-section (1-A) had also been included in this section to provide that an association not so registered with the Central Government shall obtain prior permission of the Central Government before accepting any foreign contribution and also give intimation to the Central Government as to the amount of contribution received by it.

iv) FCRA only enabled the Central Government to inspect the accounts of certain persons or associations. It did not provide for any power to audit the accounts of any organisation if it was considered necessary to do so. The Ordinance amended FCRA by inserting a new Section 15-A, to take specific power to audit the accounts of certain persons, organisations or associations, if the prescribed returns were not furnished in time by such persons, organisations or associations or the returns so furnished by them were not in accordance with law or their scrutiny gives room for suspicion that the provisions of the Act had been contravened.

v) A new Section 25-A had also been inserted in FCRA to provide that where any person is convicted of an offence relating to the acceptance or utilisation of foreign contribution for a second time, he shall be prohibited from accepting any foreign contribution for a period of three years from the date of the second conviction.

Some noteworthy statistics

In 1968 the foreign funding into India was only Rs. 24 crores and it has risen considerably over the years and in 2004-2005 the total contribution received was Rs. 6,256.68 crores. The total number of organizations registered as on 31st March, 2005 was 30,321 and subsequently during 2004-2005 another 369 organizations were granted prior permission. The following data provide some insight about the foreign funding into India and the functioning of the FCRA :

 

i) 30,321 associations stood registered under the Foreign Contribution (Regulation) Act, 1976 as on 31st March 2005. During the year 369 associations were granted prior permission.

ii) 8,673 associations were reverted to prior permission category to receive foreign contribution during November, 2005; this was on account of their failure to furnish mandatory annual FC-3 returns.

iii) 18,540 associations filed returns for 2004-2005.

iv) The receipt of foreign contribution during 2004-2005 amounted to Rs. 6, 256.68 crores.

v) Among the districts in different States, Chennai (Rs 560.40 crores) reported the highest receipt of foreign contribution, followed by Banglore (Rs. 376.97 crores) and Mumbai (Rs. 321.82).

vi) Among the States and Union Territories, Tamil Nadu reported the largest receipt (Rs. 1,190.64 crores), followed by Delhi (Rs. 1,075.23 crores) and Andhra Pradesh (Rs.913.17crores).

vii) The United States of America (Rs. 1,926.95 crores) heads the list of donor countries, followed by the Germany (Rs.930.92 crores), and UK (Rs.764.13 crores).

viii) The leading donor agency was Foundation Vicent E Ferrer, Spain (Rs.183.31 crores), followed by World Vision International, USA (Rs.123.25crores), and Gospel for Asia, USA (Rs.110.12 crores).

 

ix) The largest recipient of foreign contribution was World Vision of India, Tamil Nadu (Rs. 133.57 crores), followed by Rural Development Trust, Andhra Pradesh (Rs.118.75 crores) and Sri Sathya Sai Central Trust, Andhra Pradesh (Rs. 77.57 crores).

x) Among the purposes, the largest amount was received for Establishment expenses (Rs.948.20 crores) followed by relief/rehabilitation of victims of natural calamities (Rs. 655.65 crores), and Rural Development (Rs. 582.48 crores).

FCRA (Foreign Contribution Regulation Act) – 2010- Good, Bad, Ugly.

The Foreign Contribution Regulation (FCRA) Bill 2010 has been recently passed by both Houses of the Indian Parliament, the 'Good', the 'Bad' and the 'Ugly' aspects of this.

Good

• Charitable organizations will be allowed to maintain multiple bank accounts for management and utilization of FCRA funds provided only one bank account is maintained for receiving all foreign contribution.

• Both, 'Registration' and 'Prior Permission' shall be granted or rejected within a period of 90 days from the date of receipt of application. Currently this time frame is stipulated only for applications for Prior Permission.

• Presently foreign contribution can not be transferred to organizations which are not registered nor have prior permission under FCRA. FCRA 2010 will now allow such transfer with 'Prior Approval'. However, the rules in this regard are yet to be framed.

 

Bad

• Under FCRA 2010, 'Foreign Company' is defined and under the definition given u/s 2(g), Indian companies are not included. However, u/s 2(j) 'foreign source' includes an Indian company if more than 50% of its equity is held by foreigners. This dichotomy is confusing!

• The definition of 'foreign contribution' includes various types of foreign receipts. It does not distinguish between commercial receipts and voluntary contributions. In fact, Explanation 3 to section 2(h) excludes income from business, trade or commerce. This section states that any fee or cost against business, trade or commerce shall not be considered as foreign contribution. In other words, such receipts can be treated as local income. However this provision is in conflict with the amended section 2(15) of the Income Tax Act which prohibits trade or business related receipts above Rs.10 lakhs. NGO are therefore urged to exercise caution.

• Section 3 specifies persons who are ineligible to receive foreign contribution. To the existing list a few more have been added. Of particular concern is the inclusion of, "Organization of a political nature". The term 'Political Nature' has not been defined.

Ugly

• Section 8 states that the administrative expenses shall not exceed 50% and any expenditure of administrative nature in excess of 50% shall be defrayed with prior approval of the Central Government.

• Registration under FCRA will require renewal every 5 years! However, the Act has provided relief to all the existing NGOs for the first 5 years from the date of enactment. In other words, all existing NGOs will be

 

required to renew their registration at the end of the period of 5 years from the date of enactment of FCRA 2010. According to Section 16 of the proposed Act, all NGOs should apply for renewal of the certificate within 6 months prior to the expiry of the 5 years period.

• Sweeping powers have been given to the authorities for rejecting applications for prior permission or registration. Take for example, under Section 12, "the applicant should not have been prosecuted or convicted for indulging in activities aimed at conversion or creating communal tension". Inclusion of the term 'prosecuted' is of tremendous concern since it implies that even if there is a false or frivolous legal proceeding going on registration could be denied.

• FCRA Registration may be cancelled for various reasons including lack of activity for a period of 2 years. Currently NGOs have been enjoying the benefit of keeping their registered status alive by simply filing 'Nil' returns despite not receiving or utilizing foreign funds for many years.

• Also, any organization whose FCRA certificate has been cancelled / revoked shall not be eligible for registration or prior permission for a period of 3 years from the date of cancellation.

• FCRA 2010 further provides that after cancellation of registration certificate, all the foreign contribution and assets thereof (created since the inception of the organization) shall vest with such authority as may be prescribed. The government authorities shall take charge of the foreign contribution and the FC assets till the registration is restored.

 

The Foreign Contribution (Regulation) Act, 1976

Applicability of the Act

The provisions of the FCRA extends to the whole of India including the State of Jammu and Kashmir for which normally separate laws are made according to article 370 of the Constitution of India.

The Act applies to all citizens of India residing in India and also citizens of India who may be outside India. It would also apply to associates, branches or subsidiaries outside India of body corporate or companies incorporated or registered in India. The Act commenced with effect from 5th August 1976 as per the notifications issued by the Central Government vide GSR 755 (E), dated 5th August 1976.

As you may be aware, the Government of India has amended the Foreign Contribution Regulation Act in last year. The Foreign Contribution (Regulation) Act, 2010 has come into effect from May 1, 2011 

Here are few salient from the new FCRA act: 

"Association" means  an  association of  individuals, whether  incorporated or not, having  an office  in  India  and includes  a  society,  whether  registered  under  the  Societies  Registration  Act,  1860,  or  not,  and  any  other organisation, by whatever name called; 

The definition of "person" includes an individual, association and company registered under section 25.

1. Registration under FCRA will require renewal every 5 years! However, the Act has provided relief to all the existing NGOs  for the  first 5 years  from  the date of enactment.  In other words, all existing NGOs will be required to renew their registration at the end of the period of 5 years from the date of enactment of FCRA 

 

2010. According  to Section 16 of  the proposed Act, all NGOs  should apply  for  renewal of  the certificate within 6 months prior to the expiry of the 5 years period.

2. Sweeping  powers  have  been  given  to  the  authorities  for  rejecting  applications  for  prior  permission  or registration.  Take  for  example,  under  Section  12,  "the  applicant  should  not  have  been  prosecuted  or convicted  for  indulging  in activities aimed at conversion or creating communal  tension".  Inclusion of  the term  'prosecuted'  is of tremendous concern since  it  implies that even  if there  is a  false or  frivolous  legal proceeding going on registration could be denied.

3. FCRA Registration may be cancelled  for various  reasons  including  lack of activity  for a period of 2 years. Currently NGOs have been enjoying the benefit of keeping their registered status alive by simply filing 'Nil' returns despite not receiving or utilizing foreign funds for many years.

4. Also,  any  organization  whose  FCRA  certificate  has  been  cancelled  /  revoked  shall  not  be  eligible  for registration or prior permission for a period of 3 years from the date of cancellation.

5. Any  organisation  of  a  political  nature  and  any  association  or  company  engaged  in  the  production  and broadcast of audio or audiovisual news or  current affairs programme have been placed  in  the  category prohibited to accept foreign contribution. (process defined to declare an organisation as political in nature) 

6. Once  you  have  received  foreign  exchange  you  can  not  transfer  to  other  person  unless  that  person  is authorised to receive foreign contribution. 

7. Only 50% of the contribution received can be used for administrative expenses, beyond which you will have to seek prior approval from the Central Government. (administrative expenses defined)

 

8. No other funds can be deposited to FC account, all banks have to report all FC remitted. Have to maintain separate of accounts and records, exclusively, for the foreign contribution received and utilised. 

9. New provisions with regard to inspection of records.

10. No  organisation  can  use  FC  in  any  speculative  activities. Organisations  that  do  shareholder  resolution campaigns have to be careful of this clause.

11. New online process of registration defined.

12. In case you receive FC over one crore INR or equivalent – summery of data on receipts and utilisation of FC pertaining  to  the  year of  receipt  as well  as  for one  year  thereafter  to be placed  in public domain.  The Central Government  shall  also  display  or  upload  the  summary  data  of  such  persons  on  its website  for information of the general public. 

13. In case the certificate of registration is suspended, up to twenty‐five per cent of the unutilised amount may be spent, with the prior approval of the Central Government, for the declared aims and objects for which the foreign contribution was received. 

14. The  remaining  seventy‐five  per  cent  of  the  unutilised  foreign  contribution  shall  be  utilised  only  after revocation of suspension of the certificate of registration. 

15.The amount of foreign contribution lying unutilised in the exclusive foreign contribution bank account of a person whose certificate of registration has been cancelled shall vest with the banking authority concerned till the Central Government issues further directions in the matter. 

 

16. Financial  report  duly  certified  by  a  chartered  accountant,  in  the  prescribed  Form,  accompanied  by  an income and expenditure  statement,  receipt and payment account, and balance  sheet  for every  financial year beginning on the 1st day of April within nine months of the closure of the financial year. All returns shall also be accompanied by a copy of a statement of account from the bank where the exclusive foreign contribution account is maintained by the person, duly certified by an officer of such bank. 

17. The statement of account from bank shall be preserved by the person for a period of six years. 

18. 'NIL' report shall be furnished even if no foreign contribution is received during a financial year.  

REGISTRATION PROCESS UNDER FCRA

Under Section 6 of FCRA, it is clearly provided that any organisation having a definite cultural/ social/ educational/ religious/ economic object

shall only accept foreign contribution after satisfying two conditions :

(i) It must registers itself with the Central Government.

(ii) It must agrees to receive foreign contribution only through one specific bank account.

The statutory provision

Provisions under section 6(1) and 6(1-A) are as under :

“Certain associations and persons receiving foreign contribution to give intimation to the Central Government : (1) No association [other than

an organisation referred to in sub-section (1) of section 5] having a definite cultural, economic, educational, religious or social programme

shall accept foreign contribution unless such association—

(a) registers itself with the Central Government in accordance with the rules made under this Act ; and

 

(b) agrees to receive such foreign contributions only through such one of the branches of a bank as it may specify in its application for such

registration,

and every association so registered shall give, within such time and in such manner as may be prescribed, an intimation to the Central

Government as to the amount of each foreign contribution received by it, the source from which and the manner in which such foreign

contribution was received and the purposes for which and the manner in which such foreign contribution was utilised by it :

Provided that where such association obtains any foreign contribution through any branch other than the branch of the bank through which it

has agreed to receive foreign contribution or fails to give such intimation within the prescribed time or in the prescribed manner, or gives any

intimation which is false, the Central Government may, by notification in the Official Gazette, direct that such association shall not, after the

date of issue of such notification, accept any foreign contribution without the prior permission of the Central Government. (I-A) Every

association referred to in sub-section (1) may, if it is not registered with the Central Government under that sub-section, accept any foreign

contribution only after obtaining the prior permission of the Central Government and shall also give, within such time and in such manner as

may be prescribed, an intimation to the Central Government as to the amount of foreign contribution received by it, the source from which

and the manner in which such foreign contribution was received and the purposes for which and the manner in which such foreign contribution

was utilised by it.”

As per the provisions of Section 6 no association is entitled to receive foreign contribution unless it has either registered itself or has obtained

prior permission.

Organisation must already be registered - Only those organisations are eligible for registration under FCRA, which are registered under Society

Registration Act, 1860, the companies Act, 1956, the Bombay Public Trust Act, 1950 or as a public trust under general law. Though FCRA does

not distinguish between registered and unregistered organisations, but the implications of section 6(1) virtually ensures that only register

organisations would be able to get themselves registered as a legal entity under FCRA. Section 6(1) categorically specifies that organisation

 

having a definite cultural, economic, educational, religious or social programme shall only accept foreign contribution. In the absence of

registration and written documentation, it may not be possible for an organisation to prove definiteness of its aims and objectives.

Specification of bank branch - Sub-section (1)(b) of section 6 of FCRA further specifies that the foreign contribution should only be received

from one of the branches of a bank as specified in the application. It is necessary to open a bank account designated for receipt of foreign

contribution. The account can be opened with Indian funds before applying for registration. It may be noted that, subsequently, this account

should exclusively remain for crediting foreign contribution only. Under no circumstance domestic contribution should be mixed in this

account. This foreign contribution does not necessarily mean foreign currency or exchange, and therefore an organisation may receive foreign

contribution in Indian currency as subsequently receivable or otherwise, within the scope of FCRA

Preventing acceptance of contributions - The proviso to section 6(1) states the circumstances under which the Central Government may

prevent the organisation from accepting foreign contribution without prior permission. The circumstances are :

(i) the organisation receives foreign funds from an account other that the branch of the bank through which it had agreed to receive at the

time of registration.

(ii) the organisation fails to give intimation within the prescribed time or in the prescribed manner.

(iii) the organisation gives any intimation which is false.

If the organisation commits any of the above-mentioned violations, then the Central Government may by notification, direct such organisation

to receive foreign funds only after taking prior permission. It may be noted that the proviso to section 6(1) uses the word “may” thereby

implying it to be a discretionary power in the lands of the Central Government which it has to exercise in a just and fair manner, keeping in

view the facts and circumstances of each case.

Form for registration - Organisations desirous of registering themselves with the FCRA department are required to apply in Form FC-8 along

with various documents.

Checklist of documents to be filed

 

The following documents must be filed for obtaining registration :

i) Form FC-8 duly filled up in triplicate.

ii) Audited statement of accounts of past three years.

iii) Annual Report specifying activities of past 5 years.

iv) Detail of the beneficiaries and detail of the socio-economic factors of the region in which the NGO is working.

v) List and geographical detail of the state, and districts proposed for work.

vi) Certified copy of the Registration Certificate.

vii) Certified copy of the Bye-laws and Memorandum and Article of Association whichever is applicable.

viii) Copy of certificates of exemption or registration issued by the Income Tax Department u/s. 80G and 12A.

ix) Copy of any prior permission granted to the organisation.

x) Copy of resolution of Governing Body of the organisation, authorising the registration under FCRA.

xi) Copy of Power of Attorney or the resolution of Governing Body by which the Chief Functionary is authorised to submit FC-8.

xii) List of present members of the Governing Body of the organisation and the office bearers.

xiii) Copy of any Journal or other publication of the organisation.

xiv) If the association is having any parent or sister or subsidiary organisation, which is registered under the FCRA then the registration number

along with Ministry of Home Affairs file number should be mentioned.

xv) If the association has submitted any application earlier then its reference number should be mentioned.

xvi) If the association has received any foreign contribution with or without the prior approval of the Central Government, then the detail

should be given.

It may be noted that the onus of getting registered under FCRA lies on the association and therefore before accepting foreign contribution, it is

the responsibility of association to ensure all the requisite formalities are complied with and registration is granted before accepting any

foreign exchange.

Time limit for making application for registration

 

No specific time limit has been provided under FCRA for making an application, unlike Income Tax Act, which requires an organisation to apply

within one year from its creation or registration under section 12A. Normally FCRA is granted after 3 years of active existence, therefore, the

application should be made after three years though nothing in the Act prevents from making such application earlier.

Relevance of three years’ audited statement : In the absence of any time limit provided in FCRA, reliance is normally made on clause 7 of Form

FC-8, which provides for submission of past three years audited statement. On the basis of the requirement of form FC-8, it is normally

understood that application for registration under FCRA can only be after 3 years of the creation of the organisation. But, in our opinion, under

FCRA laws, there is no such restriction, which prohibits application before completion of three years.

The requirement of submission of 3 years audited statements under Form FC-8, is only directory in nature and there is no reason to make an

implicit presumption of a 3years waiting period before applying for registration. Incidentally, Form FC- ‘1A’, which is the application form for

seeking, prior permission also requires submission of last 3 years audited statements. Therefore, if this submission of 3 years statements is

assumed to be a mandatory pre-condition, then an organisation cannot even apply for prior permission before completion of three years.

Rule does not specify any time limit - Rule 3A of the Foreign Contribution (Regulation) 1976, provides that an application for registration of an

association under section 6, shall be made in Form FC-8. Rule 3A, does not provides for any period of restriction only after which the

application can be made. It is only the Form FC- ‘1A’ and Form FC-8, which require as a part of enclosures, 3years audited statements and

detail of activities. As far as Form FC- ‘1A’ is concerned it is a foregone conclusion that if 3 years audited statements are not available, lesser

number of years audited statements could be enclosed. But, somehow a confusion in practice as well as understanding seemed to have crept in

that application for registration can only be made after the completion of 3 years.

Supreme court’s view - In this regard, it is pertinent to refer the Supreme Court decision in STO vs. K.I. Abraham [1967] 20 STC 367, where is

was held that the rule making authority had no power to prescribe any time restriction. Infact, the FCRA rules also do not provide any

restrictive time limit. It is only the requirement of Form FC- ‘1A’ as well as Form FC-8, which requires 3 years audited statements and activity

reports. Such requirements are directory and general in nature and therefore, should not be construed as a mandatory requirement of the

FCRA.

 

Application can be filed at any time - Consequently, in our opinion, application for registration under FCRA can be filed any time after the

registration of the organisation. But, the organisation with a considerable past history of activities have a greater chance of convincing the

FCRA authorities with regard to the genuiness and the relevance of their purpose.

Field Enquiry

The FCRA department may ask the intelligence bureau for a report. Some authorities from the intelligence bureau may visit the office and the

project area of the organisation and inspect the books of account and other records available. On the basis of the reports submitted by the

intelligence bureau the FCRA department decides whether to accept or reject the application.

The FCRA department issues a registration certificate and provides a permanent registration number. This registration number is required to be

quoted in all future correspondences and filling of returns and forms.

Time limit for granting registration

There is no time limit mentioned under the FCRA either for granting or rejecting the application. Normally, the application is expected to be

processed within a period of six months but it is found that applications for registration are delayed for even two to three years. The FCRA

guidelines available on the website of the Ministry of Home Affairs, provide that the certificates from recommending activities (District

Collector, etc.) are very important and help in expending the process of registration. In the absence of a prescribed time limit, it is expected

that the authority should dispose of the application within a reasonable time. The duration of such reasonable time will depend upon the

prevailing facts and circumstances.

Undertaking by the Chief Functionary

The application form which is FC-8, was amended vide Foreign Contribution (Regulation) (Amendment) Rules, 1996[GSR 592(E), dt.

27.12.1996]. After the amendment an undertaking has to be given by the Chief Functionary, affirming that the informations are correct and

the organisations would undertake to abide by the following :

 

(i) Inform within 30days regarding change of name, address, objects, etc. with evidence.

(ii) Not to accept any foreign contribution without prior permission, if more that 50% of the office bearers as were mentioned in the

application for registration are changed or replaced.

(iii) Not to change the bank account or branch of the bank without prior permission.

(iv) Not to accept foreign contribution before the registration is granted or with prior permission only.

Text of the undertaking : The text of the undertaking is a follows :

“ The Association named hereinabove affirms that the information furnished above is correct and undertakes :

i) to inform the Central Government (Ministry of Home Affairs) within thirty days, if any, change takes place in regard to the name of the

Association, its address, its registration, its nature, its aims and objects with documentary evidence effecting the change ;

ii) to obtain prior permission for change of office bearer(s), if at any point of time such change causes replacement of 50% or more of the

office bearers as were mentioned in the application for registration under the Foreign Contribution (Regulation) Act, 1976 and undertakes

further not to accept any foreign contribution except with prior permission till the permission to replace the office bearer(s) has been granted.

iii) not to change the bank or branch of the bank without prior permission of the Central Government. The reasons for change of bank or

branch of the bank shall have to be relevant and justifiable ; and

iv) not to accept any foreign contribution unless it has obtained either the registration number, as applied for hereinabove, or prior permission

of the Central Government under sub-section (1-A) of Sec. 6 of the Foreign Contribution (Regulation) Act, 1976.”

Nature and implication of the undertaking : It is important that the nature and implication of this undertaking is properly understood by the

functionaries of the applicant organisation. The following analysis is made in brief :

i) If there is any change in the name, address, the nature of registration, aims and objectives at any time after the submission of the

application, then the FCRA authorities are required to be intimated within a period of 30 days.

 

ii) The office bearers of the association are required to continue in the office and any change which causes more than 50% of the office bearers

as were mentioned in the application for registration, automatically debars the organisation from accepting foreign contribution. So in case

where more than 50% of the office bearers are changed then it is required that the FCRA authorities are informed and due approval is taken.

During the period between the date of change and the approval from FCRA authorities, the FCRA registration will remain suspended and the

association cannot receive any foreign contribution. If it wants to receive foreign contribution it can do with prior permission only. This

provision has been introduced to prevent the misuse and sale of FCRA registered associations.

iii) Under FCRA only one bank account is permissible for the purpose of receiving foreign contribution. Therefore, for the change in bank

account, due information should be given to the FCRA authorities and the change should be effected only after receiving the permission for

same.

50% Change in Board of Organisations who applied prior to 27.12.1996

As discussed above, that after 27.12.1996, all organisations applying or registration are required to give an undertaking which, among other

conditions, specifies that foreign contributions, specifies that foreign contribution should not be accepted if more than 50% of office bearers,

as were mentioned in the application for registration are changed or replaced. But the organisations who had applied before 27.12.1996 and

were registered, are not bound by any such undertaking. The undertaking is a part of Form FC-8 and nothing in this regard has been mentioned

in the FCRA. Therefore, those organisations who are not signatory to such undertaking are legally not bound by the clauses of the

undertaking.The undertaking in the earlier form did not have the clause of change in more than 50% of office bearers. In the absence of any

specific provision in the FCRA, the undertaking given in Form FC-8, does not create any mandatory obligation on the older organisations. But,

the intent of the statute is very clear that it does not appreciate comprehensive changes in the governing structure. Therefore, it is desirable

that, even the organisations who applied and were registered prior to the coming into effect of new Form FC-8 should also inform the FCRA

authorities regarding the changes in excess of 50% of the office bearers. But, the new organisations are bound under a legal obligation and

therefore, should not under any circumstances accept foreign funds without prior permission.

Whether form can provide for a limitation

 

It has been debated in several case laws whether direction by virtue of a Form can create legally mandatory obligation on the assessee. Many

High Courts held that a limitation provided under a Form was beyond the scope of the Act and therefore not tenable. But, recently the

Supreme Court in CIT v. Nagpur Hotel Owners Association (2001)247 ITR 201, discussed this issue in context of filing of Form 10, under Income

Tax Rules for accumulation under section 11(2) of the IT Act. The Court reversed the order of the High Court holding that condition prescribed

in a Form can also be of mandatory and binding in nature, if the purpose and the scheme of the pertaining Act is threatened to be defeated.

Some observations of the Court are as under :

“Therefore, even assuming that there is no valid limitation prescribed under the Act and Rules even then, in our opinion, it is reasonable to

presume that the intimation required under section 11 has to be furnished before the assessing authority completes the concerned assessment

because such requirement is mandatory and without the particulars of this income, the assessing authority cannot entertain the claim of the

assessee under section 11 of the Act, therefore, compliance with the requirement of the Act will have to be any time before the assessment

proceedings. Further, any claim for giving the benefit of section 11 on the basis of information supplied subsequent to the completion of

assessment would mean that the assessment order will have to be reopened. In our opinion, the Act does not contemplate such re-opening of

the assessment. In the case in hand it is evident from the records of the case that the respondent did not furnish the required information till

after the assessments for the relevant years were completed.”

Whether registration under Income Tax Act necessary

The FCRA does not specify registration under Income Tax Act as a pre-condition for getting registration under the FCRA. There are instances

where FCRA registration has been provided without section 12A registration under the Income Tax Act. But, since FCRA registration is normally

provided after satisfying the existence of activities and genuineness of the objectives, which may take sometime and for Income Tax purposes,

the organisation has to apply within one year of its creation. Therefore, it is expected of an NGO to have completed its Income Tax

registrations prior to applying for registration under FCRA.

Foreigners on Board at the time of registration

 

The FCRA does not distinguish between registered and unregistered organisations, but the implications of section 6(1) virtually ensures that

only already registered organisations would be able to get themselves registered under FCRA. Section 6(1), categorically specifies that

organisations having a definite cultural, economic, educational, religious or social programme shall only accept foreign contribution. In the

absence of registration and written documentation, it may not be possible for an organisation to prove definiteness of its aims and objectives.

Therefore only those organisations will be eligible for registration under FCRA, which are registered under Societies Registration Act, 1860, the

Companies Act, 1956, the Bombay Public Trust Act, 1950 or as a public trust under general law.

In the light of the above discussion, under FCRA, an organisation registered in India, having a definite cultural, economic, educational,

religious or social programme is entitled to apply for registration. In India legally valid charitable organisations can be registered as society or

trust with foreigners as board members/trustees. Therefore, there is no legal bar on such organisation in making an application to the FCRA.

FCRA authorities may exercise greater vigil and caution in processing such application. But as a matter of internal practice FCRA is not granting

registration to organisation with foreigners on board. Such registration are given only in exceptional circumstances, very few instances are

available.

NGOs bringing out newspapers/newsletters

NGOs engaged in publishing newspaper registered under the Press Registration of Books Act, 1867 are required to furnish details regarding such

newspaper and also give a declaration in Form X (enclosed in Annex. 3.1). The Government Of India issued a notification in 1987 allowing NGOs

which have publications other than newspaper as defined in section 1(1) of Press and Registration of Books Act, 1867. Further, a certificate is

also required to be obtained from the Registrar of Newspapers of India, that the publication of the NGOs does not form in the category of

newspaper as per section 1(1) and falls in the category B, which is permissible. The text of the notification is as under :

“S.O.760(E), Dated August 3, 1987 [F.No.II/21022/14(5)/87-FCRA-I], published in the Gazette of India.

In exercise of the powers conferred by Section 31 of the Foreign Contribution(Regulation) Act,1976(49 of 1976), the Central Government

hereby exempts from the operation of the provisions of section 4(1)(b) any association(not being a political party), organisation or individual

(not being a candidate for election) whoso printed work is -

 

(i) not a newspaper as defined in section 1(1) of the Press and Registration of Books Act, 1867 (25 of 1867); or

(ii) not required to be registered under Party V-A of the said Act, though it may, in fact, be registered by the Registrar of Newspapers of India

under the Part :

subject to the condition that such Association (not being a political party), organisation or individual (not being a candidate for election)

whosoever claim exemption under this order shall furnish a declaration in the Form annexed here to the Central Government and such

declaration shall subsequently be furnished in each calendar year by 31st January.”

Certificate of Recommendation

Foreign Contribution Amendment Rules, 2000, inserted clause 10A in Form FC-1A, requiring the insertion of a certificate from a competent

authority. This certificate can be given by any one of the following :

(1) Collector of District

(2) Department of the Statement Government

(3) Ministry or Department of the Government of India

In this certificate the competent authority certifies the address and the field of activities in which the organisation is working. It also states

that there are no adverse antecedents of the organisation, the proposed activities will be beneficial to the people living in that area and the

detail of prior permission if taken earlier.

Refusal to grant registration

As far as the rejection or refusal of an application for registration is concerned, section 6 does not state anything clearly. Section 6(1) is

completely silent about the grounds or the reasons on the basis of which an application can be rejected. In the case of MARPU, Hyderabad v.

Union of India, Andhra Pradesh High Court, WP No. 756, dated 1987 it was held that the scope of section 6(1) was confined to registration of an

 

organisation having a definite cultural, economic, educational, religious or social programme. There was no indication in section 6 regarding

the grounds on which an application for registration could be declined. However some indications in this regard are available from section 10

which talks about the power of Central Government to prohibit receipt of foreign contribution if it believes that it may effect the sovereignty

and integrity of India or the public interest.

Any authority possessing the power to register has an implicit power to reject or refuse to register, as well, but the power of refusal should not

be arbitrary, ambiguous and unreasonable and should be in consonance with the purpose and intent of section10 of the Act. If the application

of an association is refused, then the authorities have to communicate the reasons for refusal to the applicant. It is necessary that the order of

rejection must contain the reason on the basis of which the refusal has been made, so that in case of an appeal the court could study the

tenability of such reasons. The principles of “audi alteram partem” are very much applicable during the rejection of an application as basic

principle of natural justice.

Powers of Government to prohibit acceptance of contributions

In the light of the powers conferred on the Central Government under section10, it is abundantly clear that any association applying for

registration may not automatically get registration. Precaution and discretion can be exercised by the Central Government in order to ensure

that the purposes of FCRA are safeguarded. The Central Government may prohibit acceptance of foreign contribution, if it is satisfied that such

acceptance is likely to affect the following :

(i) the sovereignty and integrity of India; or

(ii) the public interest; or

(iii) freedom or fairness of election to any Legislature; or

(iv) friendly relation with any foreign State; or

(v) harmony between religious, racial, linguistic or regional groups, castes or communities.

 

Measures likely to be adopted - In the likelihood of the above mentioned eventualities the Central Government may resort to any of the

following measures :

(i) It may even prohibit persons and association not specifically prohibited under section 4. In other words, it may also prohibit persons and

associations other than specified in section 4, from accepting foreign contribution. The persons prohibited under section 4 are the following :

(a) candidate for election,

(b) correspondent, columnist, editor, owner, printer or publisher of a registered newspaper

(c) [Judge], Government servant or employee of any corporation,

(d) member of any legislature,

(e) political party or office-bearer thereof.

(ii) It may require association specified under section 6 to accept foreign contribution after obtaining prior permission only. In other words,

even the associations which are registered under FCRA, can be asked to accept foreign contribution after taking prior permission.

(iii) It may require persons or associations specified under section 6 to furnish intimation/information regarding foreign contribution received

and utilised by them within such time as may be prescribed by the Central Government.

(iv) It may require persons other than those specified under section 9 not to accept any foreign hospitality without obtaining prior permission.

It may be noted that section9 restricts acceptance of foreign hospitality except with prior permission by

- member of a Legislature

- office, bearer of a political party

- judge

- Government servant or employee of any corporation

while visiting any country or territory outside India, and accepting except with the prior permission of the Central Government, any foreign

 

hospitality.

(v) Further, the Central Government may require any person or class of persons, not specified in section 9 to furnish intimation/information

regarding receipt of any foreign hospitality, within such time as may be prescribed.

Text if satisfactory provision - The provisions of section10 are as under :

“Power of Central Government to prohibit receipt of foreign contribution, etc. in certain cases. - The Central Government may —

(a) prohibit any association, not specified in section 4, or any person, from accepting any foreign contribution;

(b) without prejudice to the provisions of sub-section (1) of section 6, require any association specified in that sub-section, to obtain prior

permission of the Central Government before accepting any foreign contribution;

(c) require any person or class of persons, or any association, not being an association specified in section 6, to furnish intimation within such

time and in such manner as may be prescribed as to the amount of any foreign contribution received by such person or class of persons or

association, as the case may be, and the source from which and the manner in which such contribution was received and the purpose for which

and the manner in which such foreign contribution was utilised;

(d) require any person or class of persons, not specified in section 9, to obtain prior permission of the Central Government before accepting

any foreign hospitality;

(e) require any person or class of persons, not specified in section 9, to furnish intimation, within such time and in such manner as may

prescribed, as to the receipt of any foreign hospitality, the source from which and the manner in which such hospitality was received :

Provided that no such prohibition or requirement shall be made unless the Central Government is satisfied that the acceptance of foreign

contribution by such association or person or class of persons, as the case may be, the acceptance of foreign hospitality by such person, is

likely to affect prejudicially-

(i) the sovereignty and integrity of India ; or

 

(ii) the public interest; or

(iii) freedom or fairness of election to any Legislature ; or

(iv) friendly relations with any foreign state ; or

(v) harmony between religious, racial, linguistic or regional groups, castes or communities.

Appellate remedies

If an application is rejected and the applicant believes that an unjust order was passed against him, then he can appeal to High Court within a

period of sixty days from the date of the order of rejection. The period of sixty days should be counted from the date of the order and not the

date of receipt of the order.

The statutory provision - The provision for appeal is provided as per section 21(2) & (3) which is an under :

(2) Any organisation referred to in section 5, or any person or association referred to in section - 9 or section 10, aggrieved by an order made in

pursuance of the Explanation to sub-section (1) of section 5 or by an order to the Central Government refusing to give permission, or by any

order made by the Central Government, under section 5, or section 9 or section 10, as the case may be, may within sixty days from the date of

such order prefer an appeal against such order to the High Court within the local limits of whose jurisdiction the appellant ordinarily resides or

carries on business or personally works for gain, or, whether the appellant is an organisation or association, the principal office of such

organisation or association is located.

(3) Every appeal preferred under this section shall be deemed to be an appeal from an original decree and the provisions of Order XLI of the

First Schedule to the Code of Civil Procedure, 1908 (5 of 1908), shall, as far as may be, apply thereto as they apply to an appeal from an

original decree.

Appeal against prohibition to receive contribution - It may be noted that by FCR(Amendment) Act, 1985, the scope of section 6 was enlarged

and penalty for non-compliance of certain provisions of section 6 was provided vide the proviso to sub-section (1). It would have been proper if

section 21(2) had also been suitably amended thus allowing the aggrieved organisation to appeal against an order passed under section 6 of

FCRA. However the power to prohibit an organisation from receiving foreign contribution is rejected, therefore, can go for an appeal within 60

 

days from the date of the order to the High Court within the local limit of whose jurisdiction the appellant organisation’s office is located. The

appeal shall be made as per the provisions of Order XLI of the First Schedule to the Code of Civil Procedure, 1908.

Overall Summary

To sum up the discussions :

(i) Under section 6 of FCRA, organisations having a definite cultural/social/educational religious/economic object shall accept foreign

contribution only after registering itself with the Central Government as per the provision of FCRA.

(ii) It should receive foreign contribution only through one designated Bank account.

(iii) Although FCRA does not distinguish between registered and unregistered organisations, normally organisations registered under Society

Registration Act, 1860, the Companies Act, 1956, the Bombay Public Trust Act, 1950 or as a public trust are only eligible for registration.

(iv) It is necessary to open and designate one specific bank account for receipt of foreign contribution. This bank account should be only for

foreign contribution, and domestic contribution should not be mixed into this account.

(v) To apply for registration, Form FC-8 along with enclosures is required to be filed in duplicate to the Secretary, Government of India,

Ministry of Home Affairs, Internal Security Wing-FCRA, 4th Floor, Lok Nayak Bhawan, Near Khan Market, New Delhi-110003.

(vi) The time limit for making an application for registration has not been prescribed in the Act. Therefore, an application for registering under

FCRA can be made any time after the legal constitution of an organisation.

(vii) Form FC-8 and Form FC-‘1A’, requires three years audited statements to be enclosed with the application forms. This is a directory

provision and the organisations can submit the audited statements for lesser number of years as are available.

(viii) It may be difficult for an absolutely new organisation to get FCRA registration because certain past activities and records help the FCRA

authorities to determine the genuineness and relevance of the organisation.

(ix) Form FC- ‘1A’, also requires enclosures of three years audited statements, but, normally even a new organisation having a confirmed

commitment from the donor is entitled to apply for prior permission. And the requirement of three years audited statements is waived

accordingly.

(x) After the application is made, the FCRA department may make field inquiry with the help of Intelligence Bureau. On the basis of the report

 

submitted by the Intelligence Bureau, the application would be processed and accordingly accepted or rejected.

(xi) There is no time limit provided under FCRA for processing of the application. Normally, six months should be taken to process an

application for registration. At times, application are delayed. It is important to ensure that the recommendation certificate of the appropriate

authority under clause 10A in Form FC-8 is enclosed. It will help in expediting the application.

(xii) The Chief functionary is required to give an undertaking regarding the following :

(i) Inform within 30days regarding change of name, address, objects, etc., with evidence.

(ii) Not to accept any foreign contribution without prior permission, if more than 50% of the office bearers as are mentioned in the application

for registration are changed or replaced.

(iii) Not to change the bank account or branch of the bank without prior permission.

(iv) Not to accept foreign contribution before the registration is granted or with prior permission only.

(xiii) The undertaking given by the Chief functionaries was amended vide notification dt.27.12.1996. Therefore, it can be argued that all

organisation registered prior to 27.12.96 are not bound by the undertaking which they have not given. In such circumstances, only those

organisations who applied on or after 27.12.1996 are debarred from accepting foreign contribution, in case of a change of more that 50% of the

Office bearers.

(xiv) It is not necessary for an organisation to possess registration under section 12A of the Income Tax Act before applying for registration

under FCRA. But, it is desirable that 12A registration is availed before applying for FCRA registration.

(xv) Under Indian laws, a valid charitable organisation can be registered with a foreigner on its Board. Therefore, application for registration

can be made by such society having foreigner as its member. The presence of a foreigner may make the FCRA authorities more vigilant and

circumspect while processing the application. FCRA authorities normally do not grant registration in such cases.

(xvi) Charitable organisations engaged in publishing newspaper are not eligible for registration unless the publication falls in category B of

publication under Press Registration of Books Act, 1867.

(xvii) A certificate of recommendations from the following authorities is required to be enclosed :

(a) Collector of District

(b) Department of the State Government

 

(c) Ministry or Department of the Government of India

(xviii) If the application is rejected, an appeal within 60 days from the date of the order can be made to the High Court.

(xix) The reasons for refusal are not explicitly, provided in section 6, but the refusal for registration could be on the basis of any of the reason

specified in section 10 :

(i) the sovereignty and integrity of India; or

(ii) the public interest; or

(iii) freedom or fairness of election to any Legislature; or

(iv) friendly relations with any foreign State; or

(v) harmony between religious, racial, linguistic or regional groups, castes or communities.

Annexure - 3.1

FORM X - Declaration

I, on behalf of the association named hereinafter declare that the printed work/publication of which the association is the

owner/editor/printer/publisher and whose details have been furnished hereafter, is not a ‘Newpaper’ as per definition of Section 1(1) of Press

and Registration of Books Act, 1867 and/or is not required to be registered under part 6(a) of the said Act (a copy of certificate issued by

Registrar of Newspapers for India to the effect that the said printed work falls within the category ‘B’ of publication as per classification made

by Rergistrar of Newpaper for India to be attached).

(i) Name of the Association

(ii) Address of the Association

(iii) (a) Whether required to obtain prior permission, is so, Ministry of Home Affairs Order Number and date.

(b) Whether prohibited from acceptance of any Foreign Contribution, if so, Ministry of Home Affairs Order Number and date.

(iv) Title of publication.

(v) Periodicity of publication.

 

(vi) If registered under the Press and Registration of Books Act, 1867, Registration No.

(vii) Date of first publication.

I further undertake to abide by the following conditions in respect of the above printed work/publication :

(1) That it does not and shall not in future contain any political news, views or comments thereon and will be absolutely non-political.

(2) That it does not and shall not in future contain any article or reference criticising or commenting on any religion, faith, ritual, practice

which may hurt the sentiments of the particular religious group or sect directly or indirectly.

(3) That it does not and shall not in future contain any objectionable material to affect prejudicially :-

(a) the sovereignty and integrity of India, or

(b) the public interest; or

(c) freedom or fairness of election to any Legislature; or

(d) friendly relations with any foreign State; or

(e) harmony between religious, racial, linguistic or regional groups, castes or communities.

(Chief Functionary)

Name :

Place : Seal of the Association

Date :

FCRA - BOOKS OF ACCOUNT & METHOD OF ACCOUNTING

Accounting for foreign contribution received in kind -

 

As per rule 8(1)(a), account has to be maintained for foreign contribution received in kind. Form FC-6 provided the format and the manner in which the receipt as well as the utilisation of contributions received in kind. The entries made in FC-6 should correspond with entries made in Form FC-3.

Maintenance of form FC-6 - An organisation may keep the Form FC-6 in a book form. Form FC-6 requires the following information to be recorded in case of receipt :

(i) Date

(ii) Name and Address of the Donor

(iii) Mode of receipt

(iv) Purpose of receipt

(v) Quantity received

(vi) Approximate value

(vii) Date of intimation send to Central Government

Recording of specified information - With regard to utilisation and disposal of contributions received in kind, Form FC-6 requires the following information to be recorded :

(i) Date

 

(ii) Name and Address of the Donee

(iii) Purpose

(iv) Quantity utilised by the organisation

(v) Quantity sold

(vi) Quantity otherwise transferred

(vii) Quantity, if sold, the amount for which sold

(viii) Reference to entry in FCRA account

(ix) Quantity in stock

It may be noted that it is not necessary to file Form FC-6 with FCRA return in Form FC-3. In case when article is sold and some revenue is generated in Indian currency, such amount should be shown as receipt in Form FC-3 as well as the FCRA cash book.

Approximate value of Contribution received in kind :- Form FC-6 is like a stock register, where the receipt movement and closing balance of all goods received in kinds are maintained in quantitative term. But, column-6, of the Form requires approximate value of the goods to be specified.

 

In this context, it may be further noted that, the approximate or the estimated value of contribution received in kind is required to be reported in Form FC-3, column 6&8. Therefore, for reporting purposes of contribution received in kind, column 6 & 8 of the Form FC-3 are relevant and Form FC-6 is just a format for preparing the books of accounts with regard to contribution received in kind.

Does FCRA prescribe 'Cash Basis' of method of accounting?

There is a commonly prevailing understanding that FCRA prescribes 'Cash Basis' of method of accounting. Such presumption has resulted due to the requirement of furnishing receipt and payment account along with Form FC-3 as per Rule 8(2). But, there is no specific mention of the method of accounting to be followed by the organisation for FCRA purposes. Section 13, talks about the maintenance of accounts, but there is no reference to the method of accounting to be followed by the organisation. The text of section 13 is reproduced as under:

"Recipients of foreign contribution to maintain accounts etc.

Every association, referred to in section 6, shall maintain, in such form and in such manner as may be prescribed,-

(a) an account of any foreign contribution received by it, and

(b) a record as to the manner in which such contribution has been utilised by it.

 

As it is evident from Section 13 that no specific method of accounting has been prescribed. But the intent and requirement of FCRA in this regard are to some extent clarified in Rule 8 of FCR Rules, 1976. The text of Rule 8 is reproduced as under:

"Maintenance of Accounts-

(1) A separate set of accounts and records shall be maintained, exclusively for foreign contribution received and utilised-

(a) In Form FC-6, where the foreign contribution relates only to articles as referred to in item (I) of sub-clause(c) of clause (1) of section 2;

(b) In the cashbook and ledger account on double entry basis, where the foreign contribution relates to currency received and utilised, and a separate bank account shall be maintained in respect of such contribution;

(c) In Form FC-7, where the foreign contribution relates to foreign securities.

(2) Every account specified in sub-rule (1) shall be maintained on an yearly basis, commencing on the 1st day of April each year and every such yearly account, duly certified by a chartered accountant in Form FC-3 along with a Balance Sheet and statement of Receipts and Payments, shall be furnished, in duplicate, to the Secretary to the Government of India, in the Ministry of Home Affairs, New Delhi, within four months of the closure of the year".

From the above, it can be seen that as per Rule 8(1)(b), all organisations are required to maintain separate books of account for foreign contribution received and utilised. The books of accounts required are ledger and cash

 

book maintained on the principles of double entry. Further Rule 8(2), specifies that Balance Sheet and Receipts & Payments Account should be submitted. There is no mention of the specific method of accounting to be followed by the organisation.

Press note issued by Central Government

The Ministry of Home Affairs (FCRA division) issued a press note dated 09.01.98, where some clarification with regard to books of account and annual return are given. Press Note issued by The Ministry of Home Affairs has been annexed in Annexure 10.1. The relevant extract of the press note is as under :

"You must maintain a separate set of accounts and records exclusively meant for the foreign contribution received and utilized by you as indicated below :

(a) in Form FC-6, where the foreign contribution is in the form of an article.

(b) in the cash book and ledger account on double entry basis, receipt and utilization, where the foreign contribution is in the form of currency, (a separate Bank account is also to be maintained in respect of such foreign contribution); and

(c) in Form-7, where the foreign contribution is in the form of foreign securities.

Every account, as indicated above, must be maintained on an yearly basis, commencing on the 1st day of April each year. Every yearly account, duly certified by a Chartered Accountant, in Form FC-3, along with a balance sheet and a statement of receipt and payment, must be furnished, in duplicate, to the Secretary to the Govt. of

 

India, in the Ministry of Home Affairs, FCRA Division, Lok Nayak Bhavan, New Delhi-110003 by 31st July of the succeeding year."

In the light of Section 13, Rule 8 and press note dated 09.01.98, it seems that FCRA require maintenance of separate cash book and ledger on double entry basis for the receipt and utilisation of foreign funds. None of the above three legislations specify the method of accounting to be followed.

Should one shift from 'Accrual' to 'Cash Basis' after FCRA registration

It has to be appreciated that books of account and method of accounting is not a post FCRA registration phenomenon. An organisation applying for FCRA registration is expected to have domestic transaction. And it is also expected to maintain books of account on the basis of permissible methods of accounting. Suppose an organisation prior to FCRA registration is following 'Accrual Basis' of accounting, will FCRA registration imply shift to 'Cash Basis' of accounting specifically for FCRA purpose? In our opinion, there is nothing in FCR Act or Rules to suggest that an organisation has to maintain books of account for Cash Basis Only. The FCRA is completely non-interfering in this regard. But as far as reporting requirements are concerned FCRA is very clear about submission of receipt and payment account and Form FC-3. The Form FC-3 should be on the basis of actual receipt and utilisation thereof. It is very clear that the FCR Act and Rules require detailed submission of FC receipt and payment during the year, irrespective of the method of accounting. Therefore, organisation following Accrual Basis of accounting can continue with the same method of accounting

The legal intent of FCRA could not have been against Accrual Basis of accounting. The very fact that the FCR Rules require the submission of the Receipts & Payments Account, itself signifies that both the method of

 

accounting are permissible. Because specific mention of Receipts & Payments Account becomes relevant only when an organisation follows Accrual Basis of accounting otherwise for an organisation following Cash Basis of accounting, even the Income & Expenditure Account is like a Receipts & Payments Account, particularly incase of NGOs were capital expenditure are also advisable.

Does FC-3 necessitate 'Cash Basis' of accounting?

From the reporting requirement of FCRA, it is evident that the authorities are interested in the actual receipts and utilisation of FCRA funds. If we see the Form FC-3, we find that the reporting is to be made for the receipts and utilisation of FC. FCRA also requires submission of receipt and payment account along with FC-3 return. The intent of FCRA is very clear that it wants the organisation to report all the FC transactions on cash basis. In other words, the organisation should report the actual receipt and payment of foreign funds during the previous year irrespective of the method of accounting followed. The organisation which are following accrual basis of accounting should not prepare the FC-3 statement on the basis of their income and expenditure account. The FC-3 return should be based on the receipt and payment account. As long as the organisation is complying with the reporting requirements of FCRA, it does not seem necessary to change the method of accounting only for the purposes of FCRA.

Conclusion-

In the light of the above discussions, we believe that there is no necessity to deviate from normal method of accounting for FCRA purposes. Only care which should be taken is that, separate books of accounts for FC should be maintained and the organisation should be in a position to provide the details of all the FC and the utilisation

 

of such FC during the previous year. Further, the organisation should also produce a receipt and payment account. The remaining statements such as income and expenditure account, Balance Sheet, may be prepared both for FC and domestic purposes separately on the basis of method of accounting followed by that organisation. The FC-3 return should be based on the receipt and payment account, in other words, for reporting purposes the computation of FC receipts and utilisation should be done on cash basis only.

Summary

(i) All associations, which have received foreign contributions are required to maintain separate books of accounts

(ii) FCRA specifies that the books of account should be maintained on the principles of double-entry book keeping on yearly basis from 1st April to 31st March of the year.

(iii) Every year Balance Sheet and Receipts and Payments accounts are required to be prepared and certified by a Chartered Accountant

(iv) Record of contribution received in kind is required to maintained as per Proforma provided in FC-6

(v) Where organisation has received foreign securities, Form FC-7 is required to be followed to maintain the records of such securities

(vi) It may be noted that separate books of accounts specifically for foreign contribution are required to be maintained.

 

(vii) Under no circumstances, domestic contributions should be mixed up with foreign contributions

(viii) In case of contributions received in kind, the approximate value is required to be mentioned in Form 6 and is also required to be reported in Form FC-3

(ix) FCRA does not specifically prescribe any method of accounting. Therefore, an organisation should continue to maintain its account on the method of accounting it has been following prior to FCRA registration

(x) The FC-3 statement should be prepared on cash basis, based upon the receipt and payment account.

Annexure -

Press note, dated 09.01.1998

issued by Government of India, Ministry of Home Affairs,

Foreign Contribution and (Regulation) Act, 1976 and Rules Framed there under

1. Associations registered/permitted to accept foreign contribution.

2. Chartered Accountants.

1. All associations registered / permitted to accept foreign contribution are reminded that they are required to submit an annual return in the revised Form FC-3. This includes details of the amount of foreign contribution

 

received by them during the year, its source, the manner of its receipt, its purpose and the manner in which it was utilized by them. The annual returns for the year 1997-98 must be submitted by 31-07-1998. Please note that if even no foreign contribution was received by you during the year, it is mandatory to file a 'Nil' return.

2. You must maintain a separate set of accounts and records exclusively meant for the foreign contribution received and utilized by you as indicated below :

(a) in Form FC-6, where the foreign contribution is in the form of an article.

(b) in the cash book and ledger account on double entry basis, receipt and utilization, where the foreign contribution is in the form of currency, (a separate Bank account is also to be maintained in respect of such foreign contribution); and

(c) in Form-7, where the foreign contribution is in the form of foreign securities.

Every account, as indicated above, must be maintained on an yearly basis, commencing on the 1st day of April each year. Every yearly account, duly certified by a Chartered Accountant, in Form FC-3, along with a balance sheet and a statement of receipt and payment, must be furnished, in duplicate, to the Secretary to the Govt. of India, in the Ministry of Home Affairs, FCRA Division, Lok Nayak Bhavan, New Delhi-110003 by 31st July of the succeeding year.

 

3. Chartered Accountants, before certifying the accounts in Form FC-3, must ensure that these have been prepared in accordance with the provisions contained in the Foreign Contribution (Regulation) Act, 1976 and the Rules framed there under.

4. Non-submission of the return in time; furnishing of false information; mis-utilisation or diversion of foreign contribution for purposes other than those for which such contribution was received; transfer of contribution to any other organisation who have not been permitted to receive foreign contribution either by way of registration or prior permission, constitute a violation of the provisions of the Act and attract penal action.

FCRA AUDIT & FILING OF RETURN

Audit by Chartered Accountant

Every organisation which receives foreign contributions is required to furnish a certificate from a chartered accountant. The proforma of the certificate to be given by the chartered accountant is provided in Form FC-3. Along with this certificate, audited balance sheet and the statement of receipt and payment account should also be submitted. On the basis of the relevant books and vouchers, the chartered accountant is required to certify the following:

(i) the brought forward balance of the foreign contribution at the beginning of the year.

(ii) the foreign contribution received during the year.

(iii) the unutilised balance of foreign contribution at the end of the year

 

(iv) certify that the association has maintained the account of foreign contribution and records relating thereto in the manner specified in section 13 of the Foreign Contribution (Regulation) Act, 1976, read with sub-rule(1) of rule 8 of the Foreign Contribution (Regulation) Rules, 1976.

(v) the information furnished in the certificate and in the enclosed balance sheet and statement of receipt and payment are correct.

Filing of Annual Returns

Every organisation which receives foreign contributions shall file an annual return in Form FC-3 under rule 8(2) within 120 days of the closure of the year. The following should be submitted in duplicate duly signed by the chief functionary and certified by the chartered accountant :

i) Form FC-3,

ii) Balance Sheet and statement of Receipt and Payment exclusively for foreign contribution received and utilised during the year.

The FC-3 form was amended in the year 2001. In the new form, in addition to the total contribution received during the year and the interest earned on foreign contributions, details of the purposes for which such fund were received and utilised is also required to be given. The Form specifies 55 different kinds of purposes for which foreign contribution might have been received. Details regarding Corpus Fund, purchase of land, constructions etc. are also required to be given. The details such as name, address, purpose, amount etc. are

 

required to be given of all institutional donors and individual donors above Rs. one lakh. Details of country wise receipt of foreign funds is also required to be specified in FC-3.

It may further be noted that Balance Sheet and Statement of Receipt and Payment Account, are also required to be submitted along with the annual return in Form FC-3. For the purposes of FCRA, the receipt and payment account and the balance sheet should be separately prepared, it is not necessary to submit the general receipt and payment account and the general balance sheet to the FCRA department. Both the statement should reflect the movement and treatment of foreign contribution only. Preparation of a FCRA balance sheet may create some confusion, for instance, if an organisation has invested Rs. 10lakhs in creation of some asset out of which only 6 lakhs has been spent out of foreign contribution and the remaining 4 lakhs has been met out of domestic contributions and loans. Under such circumstances, the FCRA balance sheet should only reflect Rs. 6,00,000 and not the entire cost of the asset. The entire cost can be shown in the consolidated balance sheet of the organisation. The consolidated balance sheet is not required to be submitted along with Form FC-3.

The main purpose behind preparation of FCRA balance sheet seems to regulate the acquisition and disposal of capital assets created out of foreign contribution.

Filing of Nil Return

If an organisation having FCRA Registration does not receive any foreign contribution, even then it should file nil returns. It is mandatory to file for FC-3 every year as long as the organisation wants to validly retain its registration. The Ministry of Home Affairs (FCRA division) in its press note dated 09.01.1998 has specifically clarified that even if no foreign contribution is received, filing of nil return is mandatory. In the same press note

 

it has been clarified that non-submission of return in time or furnishing of false submission would constitute violation of the provision of the Act and attract penal consequences. Press note, dt.09.01.1998 issued by The Ministry of Home Affairs has been annexed in Annex. 10.1

Declaration and authentication

The FC-3 form is required to be signed by the Chief Functionary of the organisation and a certificate is also required to be given by a Chartered Accountant giving a brief summary of the FCRA funds movement and the opening & closing balances of FCRA Funds.

The Term "Chief Functionary" has not been defined in the FCRA Act or Rules. Normally the head of the organisation should be construed as the Chief Functionary. The organisation may also designate any office bearer as the Chief Functionary through a General Body/Governing Body resolution, for the purposes of filing the FCRA returns, Forms etc.

Delay in Filing FC-3

FCRA is silent about consequences for delay in filing FC-3. It can be constructed that an NGO would stand the risk of losing the FCRA registration if it does not file returns properly but whenever an NGO is not able to file FC-3 by 31st December, it should write a letter to the FCRA office explaining the circumstances causing the delay. Normally FCRA authorities condone such delay in filing of returns.

Audit by Central Government

 

The Central government has a right to appoint a "Group A" gazetted officer to audit the accounts of an association or organisation. The relevant sections in this regard is reproduced as under —

" Section 15 - A : Audit of account : Where any organisation or association fails to furnish any returns under this Act within the time specified therefore or the returns so furnished are not in accordance with law or if, after inspection of such returns, the Central Government has any reasonable cause to believe that any provision of this Act has been, or is being contravened, that Government may, by general or special order authorise such gazetted officer, holding a group A post, as it may think fit, to audit any books of account kept or maintained by such organisation or association, as the case may be, and thereupon every such officer shall have the right to enter in or upon any premises at any reasonable hour, before sunset and after sunrise, for the purpose of auditing the said books of account :

Provided that any information obtained from such audit shall be kept confidential and shall not be disclosed except for the purposes of this Act."

The relevant circumstances - This provision was not there in the original Act, it was inserted vide Section 8 of FCR (Amendment) Act, 1985 with effect from 20-10.1984. The Central Government has the power to initiate such audit under the following circumstances:

i) if the organisation or the association fails to file any returns within the time limit specified.

ii) the returns submitted by the organisation are not in accordance with the law.

 

iii) if during the inspection/scrutiny of the returns submitted the Central Government comes across any evidence or information which provides reasonable cause to believe that any provisions of the Act has been violated.

11.6-2 Power is discretionary - The powers conferred to the Central Government under Section 15A are discretionary in nature and therefore, it is important that are exercised in a just and transparent manner. Any capricious or arbitrary order under this section without any authentic reason would defeat the purpose of the Section.

Time schedule for audit - Further under section 14 the audit of any books of account has to be carried during reasonable hours. The authorised officer shall not have authority to enter into the premises during odd hours i.e. after sunset and before sunrise. The provisions of section 14 are reproduced below:

"Section - 14 : Inspection of accounts or records : If the Central Government has, for any reason, to be recorded in writing, any ground to suspect that any provision of this Act has been, or is being, contravened by —

a) any political party, or

b) any person, or

c) any organisation, or

d) any association,

 

it may, by general or special order, authorise such gazetted officer, holding a (Group A post) as it may think fit (hereinafter referred to as the authorised officer), to inspect any account or record maintained by such political party, person, organisation or association, as the case may be, and thereupon every such authorised officer shall have the right to enter in or upon any premises at any reasonable hour, before sunset and after sunrise, for the purpose of inspecting the said account or record :

Provided that no gazetted officer shall be authorised to inspect the account or record maintained by a political party, unless he has been holding a in connection with the affairs of the Union, or a State, for not less than ten years.

Seizure of Documents - During the cause of inspection of books of accounts, if the authorised officer has reasons to believe that violation of FCRA has been done, than he has the authority to seize such accounts and records and issue a seizure memo in the presence of two independent witnesses. Whenever records and accounts are seized, they are required to be produced before the court within six months. After seizure if no proceedings are brought within six months of the seizure, then the authorised officer shall return such accounts and records to the organisation from which it was seized. It is the responsibility of the authorised officer to ensure that all the information obtained during such audit are kept secret and confidential and are not disclosed to anybody except for the purposes of this Act.

Summary

 

(i) Form FC-3 is required to be filed by 31st December every year. Along with Form FC-3 certified Balance Sheet and statement of Receipts & Payment accounts exclusively pertaining to foreign contributions received and utilised during the year is required to be enclosed.

(ii) A certificate as per the Performa provided in Form FC-3 also required to be given by a Chartered Accountant.

(iii) The Central Government has the power to initiates audit under the following circumstances:

(a) if the organisation or the association or the association fails to file any returns within the time limit specified.

(b) the returns submitted by the organisation are not in accordance with the law.

(c) if during the inspection/scrutiny of the returns submitted, the Central Government comes across any evidence or information which provides reasonable cause to believe that any provisions of the Act has been violated.

(iv) During the course of audit and inspection of books of accounts, the authorised officer also has the power to seize the accounts and records in the presence of two independent witnesses.

(v) Whenever accounts are seized, they have to be produced before the court within six months. If not the accounts and records are to be returned to the organisation from which it was seized.

 

(vii) If an organisation having FCRA Registration does not receive any foreign contribution, even then it should file nil returns. It is mandatory to file for FC-3 every year as long as the organisation wants to validly retain its registration.

(viii) The FC-3 form is required to be signed by the Chief Functionary of the organisation and a certificate is also required to be given by a Chartered Accountants giving a brief summary of the FCRA funds movement and the opening and closing balances of FCRA Funds.

(ix) FCRA is silent regarding the consequences for delay in filing FC-3. Therefore, it can be constructed that an NGO would stand the risk of losing the FCRA registration if it does not file returns properly but whenever an NGO is not able to file FC-3 by 31st December, it should write a letter to the FCRA office to the FCRA office explaining the circumstances causing the delay.

 

OFFENCES & PENALTIES UNDER FCRA

Common offences subject to severe penalty

NGO's receiving foreign contributions should guard against violating the provisions of FCRA. The following are a few common offences, which are subject to severe penalty and punishment:

 

(i) NGO's accepting foreign contribution without registration or prior permission.

(ii) NGO's having FCRA registration but receiving foreign contribution in different bank accounts.

(iii) NGO's having FCRA registration and not filing annual return in FC-3 Form.

(iv) NGO's having FCRA registration filing false information in the annual return.

(v) NGO's with FCRA registration or prior permission not maintaining the required books of account.

(vi) NGO's receiving foreign contribution on behalf of other NGO's not having FCRA registration.

(vii) Not filing nil return in the year when foreign contribution is received.

(viii) Diversion of funds for the purposes other than for which they were received.

Press note dated 09.01.1998 issued by Ministry of Home Affairs : Ministry of Home Affairs (FCRA division) in its press note dated 09.01.1998 [refer Annex. 44.1] has clarify that the above mentioned offences would be treated as violation of FCRA attracting severe penalties. The relevant extract of the press note is as under:

"Non-submission of the return in time; furnishing of false information; mis-utilisation or diversion of foreign contribution for purposes other than those for which such contribution was received; transfer of contribution to any other organisation who have not been permitted to receive foreign contribution either by way of registration or prior permission, constitute a violation of the provisions of the Act and attract penal action".

 

Seizure and confiscation

Under FCRA the Central Government has the power of seizing and confiscating articles and currency if held in contravention.

The statutory provisions : The relevant sections are as under :

"Section 16 : Seizure of article or currency received in contravention of the Act : If any gazetted officer, authorised in this behalf by the Central Government, by general or special order, has any reason to believe that any person has in his possession or control any article exceeding rupees one thousand in value, or currency, whether Indian or foreign, in relation to which any provision of this Act has been, or is being contravened, he may seize such article or currency.

Section 17 : Seizure to be made in accordance with the Code of Criminal Procedure, 1973 : Every seizure made under this Act shall be made in accordance with the provision of section 100 of the Code of Criminal Procedure, 1973 (2 of 1974).

Section 18 : Confiscation of article or currency obtained in contravention of the Act : Any article or currency which is seized under section 16 shall be liable to confiscation if such article or currency has been adjudged under section 19 to have been received or obtained in contravention of this Act.

Section 19 : Adjudication of confiscation : Any confiscation referred to in section 18 may by adjudged :

(a) without limit, by the Court of Session within the local limits of whose jurisdiction the seizure was made; and

 

(b) subject to such limit as may be prescribed, by such officer not below the rank of an Assistant Sessions Judge, as the Central Governments may, by notification in the Official Gazette, specify in this behalf.

Section 20 : Opportunity to be given before adjudication of confiscation : No order of adjudication of confiscation shall be made unless a reasonable opportunity of making a representation against such confiscation has been given to the person fro whom any article or currency has been seized."

Seizure during audit inspection - Normally officers appointed by the Central Government to carryout inspection of accounts and record under section 14 are also authorised with the powers under section 16. Therefore while inspecting records under section 14, an authorised officer may make seizure of currency or article if he has reasonable cause to believe that the organisation/person is in possession of currency/article in contravention of FCRA. For instance if an organisation receives foreign contribution without having registration or prior permission, then even if the amount is kept in bank, it will be deemed to be in the possession of the organisation and consequently seizure can be made.

Procedure for seizure - The provisions of section 17 require that the seizure has to be made in accordance with section 100 of the Code of Criminal Procedure where extensive powers have been provided to the authorised officer including the power of searching a premises, carrying out physical search, if required, break open any door or window etc. All searches have to be made in presence of two or more local inhabitants and two independent witnesses should also be there as signatories to the seizure list.

Confiscation of seized articles - The articles or currency seized is liable to be confiscated if it is adjudged to have been received in contravention of FCRA by the Court of Session within the local limit of whose jurisdiction the

 

seizure was made. There is no monetary limit set to the powers of the court of session under section 19. The confiscation proceedings are criminal proceedings by nature. However by virtue of section 20 the accused organisation/person in entitled to a reasonable opportunity of being heard before any order against it is made. In case of confiscation of seized article under section 19, the organisation can appeal within one month of receiving the confiscation order, in the Court of Session within the local limits under whose jurisdiction such order of adjudication of confiscation was made or to the High Court.

Persons liable for punishments under FCRA

The following persons may be liable to penalties and punishments depending on the nature of the offences:

- NGO

- Chief Functionary

- Governing body members

- Other officers

- Other persons who indulge.

Penalties and punishments

12.4 Under FCRA laws, severe penalties and punishments are specified which can be invoked depending on the nature and quantum of the offence and the persons involved.

 

The following are the possible penalties under FCRA:

(i) seizure and confiscation of foreign contribution receipts.

(ii) find up to 5 times the value of the foreign contribution spent.

(iii) inspection and seizure of accounts and records.

(iv) compulsory prior permission requirement even if the NGO is registered under FCRA.