Foreign Funding: Regulatory Compliances

The Foreign Contribution Regulation Act (“FCRA”), 2010 was enacted for regulating the inflow of foreign contribution by individuals, associations or companies and to prohibit acceptance and utilisation of foreign contribution for any activities detrimental to the national interest. FCRA is implemented by the Ministry of Home Affairs which keeps a check on any unwarranted foreign contribution.

The main objective of the FCRA is to prohibit foreign players to prejudicially affect the sovereignty of India, fairness to the election process and harmony between various religious, social and regional groups. The presumption is that foreign contribution must not be utilized to affect elections, judges, policy decisions, public servants and the media for wrong purposes.

To receive foreign funds, the organization must have registered itself with the Central Government. The Central Government grants a registration certificate for accepting foreign contribution for a period of five years.  In case, the organization is not registered under the FCRA, it can still receive foreign funds for specific activities, for a specific purpose and from a specific source after seeking project based prior permission from the Ministry of Home Affairs.

Requirements under the FCRA

Upon obtaining registration/prior permission, the organization is required to open and maintain a bank account exclusively for the receipt and utilization of foreign contributions under the FCRA. All transactions related to foreign contributions must be executed only from the aforesaid bank account. In addition, a separate set of accounts and records is required to be maintained, exclusively for foreign contributions received and utilized.

Along with this, every organization is also required to submit the annual returns to the Central Government within nine (9) months from the closure of the relevant financial year. This return has to include the details of the contributions received, source and manner in which it was received, purpose for which it was received and the manner of usage of the contributions. Even the banks are required to report to the Central Government within forty-eight (48) hours of any transaction in respect of any foreign contribution by any person, irrespective of whether or not such person is registered or granted prior permission under the FCRA.

Non-compliance

In case of non-compliance or violation of any rule under the FCRA, the government may seize or confiscate foreign receipts, seize all accounts and records, and/or seize any assets of the violating individual or body. It may impose fines of up to five times the value of foreign contribution spent or imprison violators for a period of up to five (5) years and/or both. The government can also cancel the registration of the organisations which have defaulted in complying with the provisions of the FCRA.

Instance of strict regulatory action by the government

On 14 September 2017, the Centre barred several top universities, education institutions and prominent non-governmental organisations (NGOs) from receiving foreign funds for failing to file their returns for five consecutive years, 2010-11 to 2014-15, despite being served repeated notices. The registration and permission of these institutions stands cancelled as of now, until corrective actions are taken by these organisations. The list constituting 18,871 names includes institutions such as Jawaharlal Nehru University, Delhi University, Indira Gandhi National Open University, IIT-Delhi, Mumbai University, Pune University, Panjab University, Indian Council of Agricultural Research, and Lady Irwin College in the national capital.