The history of FCRA and the trends in FCRA registration cancellations

• Aprajita Verma

With the recent amendments to the FCRA 2010, the government has made it difficult in terms of compliance for non-profit organizations to access foreign funding. In this story, we look at the major amendments to the FCRA since 1976 and also analyse the trend in cancellation of FCRA registrations.

With the recent amendments to the Foreign Contribution (Regulation) Act, 2010, the government has made it difficult in terms of compliance for non-profit organizations to access foreign funding. In this article, we look at the history of the Foreign Contribution (Regulation) Act (FCRA) since its inception in 1976 and through its various amendments. We also analyse the trend in FCRA registration cancellations of non-profit organisations under the purview of the Act for the period 2011 to 2019.

The Foreign Contribution (Regulation) Act (FCRA) enacted in 1976. The FCRA, enforced by the Ministry of Home Affairs (MHA), regulates the inflow of foreign contributions or aid to the country. The intention behind the Act was to prevent foreign organisations from influencing social, political, economic, and/or religious discussions in the country. For that purpose, the Act prohibits certain individuals and organisations from accepting any foreign contribution, which includes political parties, government employees, print or visual media outlets, and so on. The 1976 Act allowed non-profit organisations to receive foreign donations freely, although they were required to annually report the amount received and spent.

In 1984, the law was amended to make it mandatory for non-profit organisations to register before receiving any foreign donations. They could also not transfer that money to other non-profits who were not registered under the Act. After the changes brought about by the 1984 amendments, the FCRA Act came to be perceived as a law focusing on non-profit organisations with foreign contributions.

In 2010, the 1976 Act was repealed and replaced by Foreign Contribution (Regulation) Act, 2010 along with the Foreign Contribution (Regulation) Rules, 2011. The purpose of the 2010 Act, as its preamble specifies, was to:

• Regulate the acceptance and utilisation of “foreign contribution or foreign hospitality” by certain individuals or associations or companies.
• Prohibit such acceptance and utilisation for any activities detrimental to the national interest.

The parliament approved an amendment in 2018 that modified the definition of the term “foreign source” and made foreign funding to political parties legal retrospectively.

Introduction of the 2010 Act

Broadly, the 2010 Act introduced the following key changes that render the 2010 Act more stringent than the 1976 one:

a) Under the 2010 Act, FCRA registration is valid for five years and must be renewed thereafter, whereas under the 1976 Act it was a permanent registration.

b) Under the 2010 Act, only 50% of the foreign contributions could be utilised for administrative expenses, whereas no such specific restriction existed under the 1976 Act.

Key changes introduced by the recent Amendments under the FCRA Amendment Act, 2020

The Foreign Contribution (Regulation) Amendment Bill, 2020 was introduced in Lok Sabha on 20 September 2020 and after being passed by both houses of the parliament, it came into force on 29 September 2020. The amendment bill broadly redefines terms related to acceptance, transfer, and utilisation of foreign contributions under the Foreign Contribution (Regulation) Act, 2010.

The key changes brought by 2020 Act to the 2010 Act are as follows:

• Prohibition on accepting foreign contribution: Under the 2010 Act, certain ‘persons’ are prohibited to accept any foreign contribution. These include election candidates, editor or publisher of a newspaper, judges, government servants, members of any legislature, and political parties, among others. The 2020 Bill adds public servants to this list. A public servant is defined to include any person who is in service or pay of the government or remunerated by the government for the performance of any public duty.
• Aadhaar for registration: The 2010 Act allowed a person to accept foreign contribution if it has: (i) obtained a certificate of registration, or (ii) not registered, but obtained prior permission from the government. The 2020 Amendments add that for such prior permission, registration, or renewal of registration, the applicant must provide the Aadhaar number of all its office bearers, directors, or key functionaries, as an identification document. In the case of a foreigner, they must provide a copy of the passport or the Overseas Citizen of India card for identification.
• Transfer of foreign contribution: Under the 2010 Act, the foreign contribution could be transferred to another person who is also registered to accept foreign contribution (or has obtained prior permission under the Act to obtain foreign contribution), and to a limited extent and with prior permission, to a person who is not registered under the 2010 Act. However, the 2020 Amendments have changed this position and impose a blanket ban on the transfer of foreign contribution to any other person.
• Reduction on use of foreign contribution for administrative purposes: Under the 2010 Act, a maximum of 50% of the foreign contribution could be used for meeting administrative expenses of the recipient entity. The 2020 Amendments reduce this limit to 20%.
• Designated FCRA account: Under the 2010 Act, foreign contributions had to be deposited in a single branch of a scheduled bank specified by the receiver of such funds, but the funds could be utilised from other accounts. The 2020 Amendments restricts the receipt of funds only in an account designated by the bank as an “FCRA account” in such branch of the State Bank of India, New Delhi, as notified by the Central Government and no other funds can be received or deposited in this account. The person may open another FCRA account in any scheduled bank of their choice for keeping or utilising the received contribution.
• Restriction in utilisation of foreign contribution: Under the 2010 Act, upon a finding of a violation of any provisions of the Act, the unutilised or unreceived foreign contribution may be utilised or received by such person, only with the prior approval of the Central Government. The 2020 amendments clarify that in such a case, the government can also restrict the entity from further receiving any foreign contribution. The Government can also take action based on a summary inquiry and pending any further inquiry.
• Suspension of registration: Under the 2010 Act, the government could suspend the registration of a person for a period not exceeding 180 days. The 2020 Amendments add that such suspension may be extended up to an additional 180 days thereafter.
• Renewal of license: Under the 2010 Act, the renewal of registration was typically procedural in nature and was granted based on information (historical information as well as further information submitted by the FCRA holder periodically). The 2020 Amendments allow the Central Government to initiate a fresh inquiry into the workings of the applicant before renewing the registration. Therefore, essentially the renewal process will be subject to the same level of scrutiny as carried out at the time of obtaining initial registration or approval.
• Surrender of Certificate: The 2020 Amendment adds a provision where any person can voluntarily surrender their FCRA registration certificate. The Government may permit this, post an inquiry, to satisfy itself that the person has not contravened any provision of the Act.

Close to 20,000 FCRA registrations were cancelled in 2012, 2015, 2017 & 2019

As mentioned in the earlier sections, it was with the introduction of the Foreign Contribution (Regulation) Act, 2010 that the registrations came to be valid for a period of 5 years, and must be renewed thereafter, whereas under the 1976 Act it was a permanent registration. Hence, we look at the quantum of FCRA cancellations from 2011 onwards.

With the data available on the FCRA website, we analyse the trend in FCRA certificate cancellations of non-profit organisations under the purview of the Act for the period 2011 to 2019.

The quantum of FCRA cancellations has fluctuated significantly during the period of 2011 to 2019. After the enaction of the 2010 Act, the year 2012 saw the first steep rise in the cancellation of FCRA certifications at 3922 cancellations. For the overall period, the number of FCRA Registered Associations whose registrations were cancelled stands the highest in 2015 as 10,003. In the years 2011, 2013, 2016, and 2018, the number of such cancellations was almost negligible (less than 10 in number). As compared to 2015, the quantum of cancellation has fallen in the subsequent years. More than 99.5% of the cancellations during the 2011-2019 period were in the years 2012, 2015, 2017 & 2019.

Most FCRA registration Cancellations from Tamil Nadu

During 2011 and 2019, the state-wise trends show that the highest number of cancellations were carried out in Tamil Nadu at 2575, closely followed by Andhra Pradesh at 2075, Maharashtra in 2024, Uttar Pradesh at 1848, and Bengal at 1717. The lowest numbers are registered for various UTs, north-eastern states and for states like Jammu & Kashmir at 64, Chhattisgarh at 91, Himachal Pradesh at 97, among others for the period between 2011 and 2019. Consistent with the overall trend, in most states, the cancellations first peaked during 2012 and stand the highest in 2015. However, the trend since 2015 is that of the declining number of cancellations in the subsequent years.

We would look at the quantum of funding for organisations whose registrations were cancelled and other trends in the subsequent story.