Explained | How will the foreign funding for charity issue be resolved?

Under the amended Foreign Contribution (Regulation) Act, what are the rules? What lies ahead for NGOs like Missionaries of Charity?

The story so far: On December 25, the Ministry of Home Affairs declined to renew the registration of Missionaries of Charity under the Foreign Contribution (Regulation) Act. The Ministry stated that the FCRA registration of Missionaries of Charity, a Catholic religious congregation set up by Nobel laureate Mother Teresa, was not renewed as it did not meet eligibility conditions after “some adverse inputs” were received. It also mentioned audit irregularities.

The registration under FCRA was valid up to October 31, 2021, but had been extended till December 31, 2021. In a statement, the MHA also said that it did not freeze any account of the Missionaries of Charity but that the State Bank of India (SBI) had informed it that the organisation itself sent a request to the bank to freeze its accounts, which the Missionaries of Charity too confirmed in a statement. The MHA is the controlling authority of FCRA and it conducts inspections and audits of NGOs to establish if their books are in order.

What is the FCRA?

The Foreign Contribution (Regulation) Act, 2010 regulates foreign donations and ensures that such contributions do not adversely affect internal security. First enacted in 1976, it was amended in 2010 when a slew of new measures were adopted to regulate foreign donations. The FCRA is applicable to all associations, groups and NGOs which intend to receive foreign donations. It is mandatory for all such NGOs to register under the FCRA, initially valid for five years that can be renewed subsequently if it complies with all norms.

Registered associations can receive foreign contribution for social, educational, religious, economic and cultural purposes. Filing of annual returns, on the lines of Income Tax, is compulsory. In 2015, the MHA notified new rules, which required NGOs to give an undertaking that the acceptance of foreign funds is not likely to prejudicially affect the sovereignty and integrity of India or impact friendly relations with any foreign state and does not disrupt communal harmony. It also said all such NGOs would have to operate accounts in either nationalised or private banks which have core banking facilities to allow security agencies access on a real time basis.

What is the December 31 deadline?

The registration of thousands of NGOs is due for renewal in 2020-2021. Due to the COVID-19 pandemic and the amendments to the FCRA Act in 2020 that introduced other compliance measures, many NGOs could not complete the process.

The MHA had given a relief up to September 30, 2021 to NGOs whose registration was expiring between September 29, 2020-September 30, 2021 to apply for a renewal. The MHA extended the deadline till December 31. According to Section 16 of the Act, the certificate of registration should be renewed within six months of its expiry.

What are the added compliance requirements for NGOs?

The FCRA amended in September 2020 inserted a new provision that makes it mandatory for all NGOs to receive foreign funds in a designated bank account at SBI’s New Delhi branch and the accounts were to be opened by March 31. Any other bank account can be linked to the main account but all foreign donations should be received in the SBI account. The Act also made Aadhaar a mandatory identification document for all the office-bearers, directors and other key functionaries of an NGO and capped the administrative expenses at 20% of the total foreign funds received – earlier, the upper limit was 50%. The amendment also barred sub-granting by NGOs to smaller NGOs who work at the grass roots level. The changes implied that every renewal process is as good as a fresh registration.

Why did Missionaries of Charity state that it had directed its centres not to operate any foreign contribution accounts until the matter is resolved?

The MHA had earlier informed NGOs that it cannot receive or utilise foreign contribution if the certificate of registration has lapsed and not renewed. “Do not receive or utilise the foreign contribution in the FCRA Account or utilisation FC account if the certificate of registration is ceased and is not renewed,” the MHA had said. The NGO registered in Kolkata has more than 250 bank accounts across the country to utilise foreign funds.

According to the 2020-21 annual financial returns filed by the Missionaries of Charity on December 13, it had received over ₹75 crore worth of donations from 347 foreign individuals and 59 institutional donors. It had a balance of ₹27.3 crore in its FCRA account carried forward from the previous year and the total balance stood at ₹103.76 crore.

Who cannot receive foreign donations?

Members of legislatures, political parties, government officials, judges, media persons are prohibited from receiving any foreign contribution. However, in 2017 the MHA through the Finance Bill route amended the 1976-repealed FCRA law paving the way for political parties to receive funds from the Indian subsidiary of a foreign company or a foreign company where an Indian holds 50% or more shares.

How else can one receive foreign funding?

The other way to receive foreign contributions is by applying for prior permission. It is granted for receipt of a specific amount from a specific donor for carrying out specific activities or projects. But the association should be registered under statutes such as the Societies Registration Act, 1860, Indian Trusts Act, 1882 or Section 25 of the Companies Act, 1956 etc. A letter of commitment from the foreign donor specifying the amount and purpose is also required.

When is a registration suspended or cancelled?

The MHA on inspection of accounts and upon receiving any adverse input against the functioning of an association can suspend the FCRA registration initially for a period of 180 days. Till the time any decision is taken, the association cannot receive any fresh donation and cannot utilise more than 25% of the amount available in the designated bank account without permission of the MHA. The MHA can cancel the registration of an organisation which will not be eligible for registration or grant of ‘prior permission’ for three years from the date of cancellation.

Have there been suspensions in the past?

According to MHA data, since 2011 when the Act was overhauled, the registration of 20,664 associations was cancelled for violations such as misutilisation of foreign contribution, non-submission of mandatory annual returns and for diverting foreign funds for other purposes. There are 22,762 FCRA-registered NGOs.

What about international donors?

The government has also cracked down on foreign donors such as U.S. based Compassion International, Ford Foundation, World Movement for Democracy, Open Society Foundation and National Endowment for Democracy. The donors have been placed under a “watch list” or ‘prior permission’ category, barring them from sending money to associations without the MHA’s clearance. Earlier this year, at least 10 international NGOS, including the European Climate Foundation, Omidyar Network and Walk Free Foundation, were placed on the Prior Reference Category (PRC).

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