Foreign Contribution to NGOs

8/6/2019 Foreign Contribution to NGOs

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The Chartered Accountant 1725June 2006

Theme

Foreign Contribution to NGOs

Anon governmental organisation (NGO)

is any association having a denite cul-

tural, economic, educational, religious

or social cause or any non-prot voluntary citi-

zens group which is organised around specicissues, such as education, environmental con-

servation, social welare, rural development,

sanitation, healthcare or human rights, on a lo-

cal, national or international level.

Definition of NGOs by World Bank

The World Bank denes NGOs as private

organisations that pursue activities to relieve

suering, promote the interests o the poor,

protect the environment, provide basic socialservices, or undertake community develop-

ment. NGOs include an array o groups and in-

stitutions that are entirely or largely independ-

ent o government, and characterised primarily

by humanitarian or cooperative, rather than

commercial objectives (Operational Directive

14.70). A World Bank key document, Working

with NGOs adds: In wider usage, the term NGO

can be applied to any non-prot organisation,which is entirely or largely independent rom

government and exists to serve humanitarian,

social or cultural interests, either o their mem-

berships or o society as a whole. NGOs are typi-

cally value-based organisations, which depend,

wholly or in part, on charitable donations and

voluntary service. Although the NGO sector has

become increasingly proessionalised over the

last two decades, principles o altruism and vol-

untarism remain key dening characteristics.

Classification of NGOs by World Bank

The World Bank classies NGOs into two

main categories: (i) Operations NGOswhose

primary purpose is the design and implemen-

tation o development-related projects, and: (ii)

Advocacy NGOswhose primary purpose is to

deend or promote a specic cause and who

seek to inuence the policies and practices o

the World Bank. The World Bank classies opera-

tions NGOs into three main groups: (a) commu-

nity-based organisations (CBOs), which serve

a specic population in a narrow geographic

area; (b) national organisations which operate

in individual developing countries, and; (c) in-

ternational organisations, which are typically

headquartered in developed countries and car-

ry out operations in more than one developing

More and more NGOs have started adopt-

ing a professional approach over the last

few years to achieve their respective tar-

gets. It is estimated that more than Rs.

5,000 crore go to Indian NGOs every year

as foreign contribution and there has been

increasing danger of some unscrupulous

NGOs utilising such foreign funds for anti-national activities. This article highlights

regulatory aspects of such contributions

and other related issues.

(The author is a member of the Tamil

Nadu State Treasuries and Accounts

Service. He can be reached at ksmuthu-

[email protected])

K.S. Muthupandian


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Companies Act, 1956, i more than one-hal

o the nominal value o its share capital is

held, either singly or in the aggregate, by

one or more o the ollowing, namely:

(a) Government o a oreign country orterritory,

(b) Citizens o a oreign country or territory,

(c) Corporations incorporated in a oreign

country or territory,

(d) Trusts, societies or other associations

o individuals (whether incorporated or

not), ormed or registered in a oreign

country or territory,

vii. A trade union in any oreign country or ter-

ritory, whether or not registered in such or-

eign country or territory,

viii. A oreign trust by whatever name called, or

a oreign oundation, which is either in the

nature o the trust or is mainly nanced by

a oreign country or territory.

ix. A society, club or other association o indi-

viduals ormed or registered outside India,

x. A citizen o a oreign country, but does not

include any oreign institution, which hasbeen permitted by the Central Govern-

ment by notication in the Ofcial Gazette,

to carry on its activities in India;

When FCRA Permission is Not Needed

Prior permission rom the FCRA is not re-

quired or receiving amounts in the ollowing

orms:-

(a) Salary, wages or other remuneration either

to individual or payment or business pur-poses.

(b) Payment or international trade or or busi-

ness transacted outside India.

(c) By way o a git or presentation received as

member o any Indian delegation.

(d) Git not exceeding Rs. 8,000/- per annum.

Forms Prescribed

The Foreign Contribution (Regulation) Rules

1976 contain the various orms prescribed or

the FCRA (See table A or a list o orms).

Registration

The FCRA requires all Indian NGOs that re-

ceive oreign contributions to receive clearancerom the Ministry o Home Aairs, in the orm

o either regular FCRA registration or prior per-

mission on a case-to-case basis.

The procedure or registration rom the FCRA

is as ollows:

1. Apply in Prescribed Form:

Applicant to le the prescribed orm (Form

FC-8 or regular registration or FC-1A or

prior permission) along with required doc-uments (See tables B & C or a list o docu-

ments)

2. Field Inquiry

An ofcial rom the Intelligence Bureau will

then visit the main ofce and may inspect

accounts, ask questions, can also visit the

eld area, and inquire at the local police

station. Thereater he prepares a conden-

tial report to FCRA Department.

3. FCRA Permission

Within 90 days thereater, the FCRA Depart-

ment sends a registered letter either grant-

ing the permission or stating rejection or

request.

4. Appeal Against Rejection

The NGO can re-apply ater ascertaining

and rectiying objections on le. The NGO

can also le an appeal in the High Court

within 60 days o the date o the letter.5. Applying Again

One party can apply or prior permission

more than once i needed considering

that projects are varied and/or are under

dierent agencies.

Designated Bank Account

An NGO is required to open a separate, new

bank account (savings or current) with Indian


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1728 The Chartered Accountant June 2006

unds exclusively or oreign contributions

(resh or recycled). An association granted prior

permission or registration under the Act can re-

ceive the oreign contribution and subsequent-

ly utilise it using a single designated bank ac-count, as intimated in the application orm.

Filing of Returns

An association permitted to accept oreign

contribution is required to submit an annual

return, duly certied by a Chartered Account-

ant, giving details o the receipt and purpose-

wise utilisation o the oreign contribution. The

return isalong with Form FC-3to be led

every year (1st April to 31st March) within a pe-riod o our months rom the closure o the year

i.e. by 31st July o each year. This return is to be

accompanied with the balance sheet and state-

ment o receipt and payment, duly certied by

a Chartered Accountant, in duplicate. On the

basis o the relevant books and vouchers, the

Chartered Accountant is required to certiy the

ollowing:

(i) The brought orward balance o the oreign

contribution at the beginning o the year.

(ii) The oreign contribution received during

the year.

(iii) The unutilised balance o oreign contribu-

tion at the end o the year

(iv) That the association has maintained the ac-

count o oreign contribution and records

relating thereto in the manner specied in

section 13 o the FCRA, read with sub rule

(1) o rule 8 o the Foreign Contribution(Regulation) Rules, 1976.

(v) That the inormation urnished in the cer-

ticate and in the enclosed balance sheet

and statement o receipt and payment is

correct.

Legal Decisions

In an appeal petition, the Supreme Court o

India delivered a landmark judgement on the

FCRA [State Represented by Central Bureau of In-

vestigation vs. M Kurian Chief Functionary of the

CROSS, Hyderabad (2001)]

The facts of the case are: The respondent-so-

ciety, submitted an application in the prescribedorm or registration under Section 6 o the FCRA

or receiving oreign contribution. It was indicat-

ed therein that the oreign contribution will be

received only through the main branch o the

State Bank o India, Hyderabad, and a separate

bank account was opened or the purpose. The

society was allotted a registration number by

the Central Government in accordance with Sec-

tion 6(1)(a) o the FCRA. The said society entered

into an agreement with M/s HEKS, Switzerland

and the latter agreed to nance the project o

teaching aid non-ormal education. The said

M/s HEKS issued instructions to the Canara

Bank, Cantonment Branch, Bangalore, pursuant

to which two bank drats were issued amount-

ing to Rs. 2 lacs and Rs. 1.65 lacs, in avour o the

respondent-society by the Canara Bank, Banga-

lore. The respondent society instead o depos-

iting the same in the main branch o the StateBank o India, Hyderabad, in accordance with

the terms o the agreement, deposited the same

into the account o Canara Bank, M.G Road, Se-

cunderabad. It was urther alleged that the re-

spondent society even ailed to intimate the

Central Government about the receipt o the

contribution made by M/s HEKS, as required un-

der Section 6(1)(b) o the FCRA. The Central Gov-

ernment in exercise o its power under Section

10(b) o the FCRA, issued a notication, requir-

ing the society to have prior permission o the

Government beore accepting any contribution.

But that notication was quashed by the High

Court on a writ petition being led. The Central

Government, thereater had the accounts o

the respondent society inspected by the Assist-

ant Director, appointed under the FCRA, in the

MHA and on the basis o the reports submitted


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by the Assistant Director, two First Inormation

Reports were lodged against the society. The

investigating agency ater inspecting the allega-

tions, submitted a charge sheet under Section 6

read with Section 20(3) and it is at this stage thatthe respondent led the petition under Section

482 o the Code o Criminal Procedure or quash-

ing o the criminal proceedings. The Delhi High

Court in exercise o its power under Section 482

o the Code o Criminal Procedure, has come to

hold that a breach o the undertaking given by

an Association under Section 6(1)(b) o the FCRA

would amount to contravention o the provi-

sions o the FCRA within the meaning o Section

23 o the FCRA and as such quashed the criminal

proceedings arising out o the two FIRs, the Cen-

tral Bureau o Investigation made appeals to the

Supreme Court o India.

It held: Reading the aoresaid provisions

together and giving the literal meaning to the

expressions contained in the aoresaid provi-

sions, the conclusion is irresistible that receipt

o contribution and depositing the same in a

bank other than the bank indicated in the ap-plication orm FC-1, would be a violation o the

provisions o Section 6(1)(b) itsel, in as much

as no association is entitled to accept oreign

contribution, unless the association agrees to

receive the oreign contribution only through

one o the branches o the bank as it may

speciy in its application o registration. The

violation being a violation o the provisions

o the Section 6(1)(b), would constitute an o-

ence under Section 23 and, thereore, the High

Court, in our opinion, committed serious error

in quashing the criminal proceedings on a nd-

ing that it does not tantamount to violation o

any provisions o the Act. Needless to mention

that i associations and political parties would

be allowed to receive oreign contribution and

would deposit the same in any bank they like

notwithstanding their declaration with the Cen-

tral Government at the time o registration, then

the very purpose o conerring power on the

Central Government to regulate, would be rus-

trated and all other provisions or inspections

and auditing conerring power on the CentralGovernment would be utile. In the aoresaid

premises, we have no hesitation to come to the

conclusion that the High Court committed seri-

ous error by quashing the criminal proceedings

in the impugned judgement on an erroneous

interpretation o the provisions o the Act and

the Rules made thereunder, as stated above,

and we accordingly set aside the same.

The Madras High Court in Usmania Trust,

Coimbatore (Registered) vs. Union of India (1991)

held that Central Government does not have

any power to pass orders without assigning

reasons or rejection o application or FCRA

registration. The Court also held that sufcient

opportunity should be given to the applicant

beore rejecting registration requests.

The Delhi High Court in Association of Volun-

tary Agencies for Rural Development Vs. Union of

India (1990) held that Section 10 o FCRA, 1976

is not merely a violation or an injury o a civil

right, but an adverse predicament or the unc-

tioning o any voluntary agency. The Court also

held that the assertion that Section 10(b) does

not require any reason as untenable.

Foreign Contribution (Management andControl) Bill, 2005

In 2005, the Government o India has intro-

duced a new bill namely Foreign Contribution

(Management and Control) Bill, 2005. This bill is

eventually expected to replace FCRA.

The salient eatures o the bill are:

1. Declaration o the administrative structure.

2. The registration is valid or ve years.

3. Restriction on administrative expenses is

up to 30% o the oreign contribution.

4. Banks to submit returns.


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5. Power o Central Government to call or in-

ormation rom any person to know i there

is contravention o the Act.

6. Second or multiple bank accounts may be

opened to disburse the unds received romabroad.

7. Re-registration o already registered asso-

ciations within two years.

8. Fee to be paid with application.

9. Provisions such as the suspension and can-

cellation o registration certicate.

10. Prohibition to transer oreign contribution

to other persons.

Conclusion

The increase of number of NGOs and

amount of foreign contribution receivedover the years changed the Governments

role from Regulator to Controller. The pro-

posed legislation will facilitate better compli-

ance by NGOs by utilising the foreign contri-

bution only for genuine and developmental

activities.

TABLE A

Forms Prescribed under the FCRA

Form Description

FC-1 Application or seeking prior permission to accept oreign contribution by or on

behal o an organisation o political nature not being a political party

FC-1A Application or seeking prior permission to accept oreign contribution by an as-

sociation having a denite cultural, economic education, religious or social pro-

gramme.FC-2 Application or seeking prior permission o the Central Government to accept or-

eign hospitality

FC-3 Yearly account o oreign contribution received and utilised

FC-4 Intimation to the Central Government o receipt o oreign contribution by a candi-

date or elections

FC-5 Intimation to the Central Government o receipt o scholarship, stipend or any pay-

ment o a like nature rom a oreign source.

FC-6 Application or Foreign Contribution (Articles) Account

FC-7 Foreign Contribution (Securities) Accounts

FC-8 Application or seeking registration to accept oreign contribution

Correction

Form

Intimation o change in address and bank details o registered associations


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TABLE - B

Documents to be attached with Form FC-8 (Regular Registration)

1. Certicate rom the concerned District Collector/ Department o State Government/

Ministry or Department o Central Government;2. Audited statements o account or the last three years.

3. Annual Report speciying activities o the last ve years.

4. List and geographical detail o the state or districts o ocus o work.

5. Note on socio-economic background o the beneciaries and o the regions to be cov-

ered.

6. Certied copy o the registration certicate issued by the Registrar o Societies (i the

NGO is a society).7. Certied copy o registered Trust Deed (i the NGO is a Trust).

8. Certied copies o the registration certicate issued by the Registrar o Companies and

Section 25 license issued by the Regional Director, Department o Company Aairs (i

the NGO is a not-or-prot company).

9. Certied copy o the byelaws and the Memorandum and Article o Association which-

ever is applicable.

10. Copy o certicates o exemption on registration issued by the Income Tax Department

u/s 80G and 12A.11. Copy o any prior permission granted to the organisation.

12. Copy o resolution o the governing body o the organisation, authorising the registra-

tion under FCRA.

13. Copy o the Power o Attorney or the resolution o the governing body by which the

chie unctionary is authorised to submit FC-8.

14. List o present members o the governing body o the organisation and the ofce

bearers.

15. Copy o any journal or other publication o the organisation.

16. I the association has any parent or sister or subsidiary organisation, which is registered

under the FCRA then the registration number along with Ministry o Home Aairs le

number should be mentioned.

17. I the association has submitted any application earlier then its reerence number should

be mentioned.

18. I the association has received any oreign contribution with or without the prior ap-

proval o the Central Government, then those details should be given.


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TABLE - C

Documents to be attached with Form FC-1A (Prior Permission)

1. Certicate rom the concerned District Collector/Department o the State Government/

Ministry or Department o the Central Government.

2. Activity report or the past three years.

3. Audited statement o accounts or the last three years.

4. Details o the beneciaries and details o the project or which the oreign contribution is

expected. The details should include narrative as well as nancial details.

5. Letter o commitment rom the oreign donor agreeing in principle to provide unds. List

o states or districts o the ocus o work.

6. Note on socio-economic background o the beneciaries and o the region to be cov-

ered.

7. Certied copy o registration certicate issued by the Registrar o Societies (i the NGO is

a society).

8. Certied copy o registered Trust Deed (i the NGO is a Trust).

9.Certied copies o registration certicate issued by the Registrar o Companies and Sec-

tion 25 license issued by the Regional Director, Department o Company Aairs (i theNGO is a non-prot company).

10. Certied copy o the byelaws and memorandum and Article o Association, whichever

is applicable.

11. Copy o certicates o exemption on registration issued by the Income Tax Department

u/s 80G and 12A.

12. Copy o any prior permission granted to the organisation.

13. Copy o resolution o the governing body o the oganisation, authorising the registrationunder FCRA.

14. Copy o the Power o Attorney or the resolution o the governing body by which the

chie unctionary is authorised to submit FC-1A.

15. List or present members o the governing body o the organisation and the ofce

bearers.

16. Copy o any journal or other publication o the organisation.

Foreign Contribution to NGOs

Documents

Transcript of Foreign Contribution to NGOs