The Foreign Contribution Management and Control Bill, 2005 An Analysis

1
The Foreign Contribution (Management and Control)
Bill, 2005 An Analysis

• By
• K.Shivakumar,
• Chartered Accountant,
• Gandhigram.

2
Introduction

• Annual Foreign Contribution (F.C.) received by
  voluntary sector more than Rs.5,000 crores per
  annum
• The intention is that the new law on the subject
  should facilitate rather than obstruct receipt
  and utilisation of foreign funds Home Minister
• As on 7th August, 2001 only 12 NGOs lost FCRA due
  to misuse of funds or anti-national activities
  out of 22,924 registered associations (2000-2001)

3
Foreign Contribution Receipts/ Organisation

• Foreign Contribution Receipts/Organisation
• Year Registered Associations Amount of foreign
• (as on 3st March of F.Y.) contribution received
• (in crores rupees)
• 1993-94 15,039 1865
• 1994-95 15,723 1892
• 1995-96 16,740 2168
• 1996-97 17,723 2571
• 1997-98 18,489 2864
• 1998-99 19,834 3402
• 1999-00 21,244 3924
• 2000-01 22,924 4535
• 2001-02 24,563 4872
• 2002-03 26,404 5047
• Source Home Ministry.
• Though 30,000 organisations registered 16,000
  organisations accounted for 5000 crores. An equal
  amount must be going unreported. Finance
  Minister.

4
Amount-wise break-up of foreign contribution
received byreporting associations

• Year Below Between Between
  Above
• Rs.1 cr. Rs.1-5 cr. Rs.5-10 cr.
  Rs.10 cr
• 2000-01 13815 669 62 52
• 2001-02 14761 721 77 59
• 2002-03 15650 798 76 66
• Issues in the Functioning of NGOs
• Non-existent regulatory mechanism
• Accountability
• No perspective planning for NGO Sector
• Proliferation of paper organisations
• No national NGO policy
• Comprehensive National Legislation Required
• Source Home Ministry

5
Background

• VANI has been emphasising that many of the
  provisions of FCRA, 1976 are cumbersome,
  non-transparent and even source of harassment
• A sub-committee set up by CAPART unanimously
  recommends replacement of FCRA with inclusion of
  certain provisions under FEMA, which is endorsed
  by a 13 member task force constituted by the
  Planning Commission

6
Case Laws

• Honorable 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
  for rejection of application for FCRA
  registration. The Court also held that sufficient
  opportunity should be given to the applicant
  before rejecting registration requests
• Honorable Delhi High Court in Association of
  Voluntary Agencies for Rural Development Vs.
  Union of India (1990) held that Section 10 of
  FCRA, 1976 is not merely a violation or an injury
  of a civil right, but an adverse predicament for
  the functioning of any voluntary agency. The
  Court also held that the assertion that Section
  10(b) does not require any reason as untenable.

7
Salient Features of FCMC Bill

• Preamble
• Registration under the proposed Act even for
  already registered associations First proviso
  to S.11(1)
• Registration valid for five years S.12(7)
• Restriction on Administrative expenses
  S.8(1)(b)
• Assets Disposal manner, procedure S.22
• Appeals S.12(5)(Refusal of registration/prior
  permission to Central Government),
  S.14(4)(Cancellation of certificate to Central
  Govt.), S.31(High Court)
• Revision S.32
• Banks to submit returns of F.C. S.17
• Power of Central Govt. to call for information
  from any person to know if theres contravention
  of Act and examine any person acquainted with the
  facts of case-S.41

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Provisions beneficial to the NPO sector

• Second Bank account maybe opened for utilsing the
  F.C.-First proviso to S.17(2)
• Delegation of powers-S.46
• F.C. does not include certain items (Fee,
  subscription, amount for in lieu of
  services-Explanation 2 and 3 to S.2(1)(f)
• Association does not include Government Companies
  and society owned or controlled by Central/
  StateGovt.-S.2(1)(a)
• Appeals and Revision
• Reason for non registration to be communicated to
  applicant-S.12(4)

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Provisions affecting NPO Sector Re-registration
of already registered associations S.11(1)

• Delay in getting registration
• Status of F.C. funds received under FCRA
• Status of Prior permission got under FCRA
• Interim period Mode of receipt of F.C.
• Organistions of political nature, not being a
  political party, etc. under FCRA are to be
  continued under FCMC S.53. But, different
  yardstick for registration.

10
Provisions affecting NPO Sector Registration
S.12

• Valid for five years Will affect donors long
  term agreement
• Fee to be paid with application
• Many conditions given for the Registering
  authority to enquire into before granting
  registration such as
• if the person has undertaken meaningful activity
  for people living in the district
• if meaningful project has been prepared
• if such person has indulged in activities aimed
  at conversion
• if the person has contravened the act, if the
  persons certificate was suspended or cancelled
• If Directors or office bearers have been
  convicted under any law or if any prosecution for
  any offence pending against them, etc.

11
Provisions affecting NPO Sector Prior
permission category S.11(2)

• No 90 days/120 days limit as was given under FCRA
• The Central Government can specify the following
  under prior permission category
• Person or persons
• Areas in which F.C. shall be received
• Purposes for which F.C. shall be received
• Sources from which F.C. shall be received
• Same conditions as applicable for registration
  like meaningful activity, meaningful project, non
  cancellation of certificate, non contravention of
  Act, Non conviction of office bearers, etc.
• Compulsory previous Work in the District
  S.12(3)(a)(ii)

12
Provisions affecting NPO Sector Organisation of
a political nature S.3(1)(f)

• Shifted from prior permission category under FCRA
  to prohibition category under FCMC
• Rules to be notified specifying grounds on which
  organisation can be specified as of political
  nature

13
Provisions affecting NPO Sector Cancellation of
Certificate of Registration S.14

• It can be suspended for a period less than 90
  days No appeal S.13
• Cancellation of certificate can be done if
• The holder has made wrong statements in
  application
• The holder has violated any terms and conditions
  of certificate of renewal, provisions of act
• In public interest
• No order of cancellation to be passed unless the
  person concerned has been given reasonable
  opportunity of being heard
• Registration for a period of three years not
  possible, if cancelled under this section

14
Provisions affecting NPO Sector Operational
issues

• Administration expenses restricted upto 30 of
  F.C.
• Central Government to specify such assets which
  shall be disposed of and in the manner determined
  by it after following the procedure prescribed by
  it S.22
• Prohibition to transfer F.C. to another person
  who is not registered under FCMC S.7 Micro
  Finance activities take a hit.

15
Provisions affecting NPO Sector Accounting
issues

• Income derived from F.C. deemed to be F.C. -
  Explanation 2 to S.2(1)(f) - Accounting problems
  will arise when an IGP includes both F.C. and
  L.C. and when asset is financed by F.C. but
  revenue expenses met from L.C.
• Apportionment of Cost between programme expenses
  and administration expenses in respect of common
  expenses for calculation of 30 administration
  expenses limit - S.8(1)(b)
• No mention about Accounting Standards issued by
  ICAI
• AS - 1 requires NPOs to prepare accounts on
  accrual basis and FCMC requires accounts on cash
  basis

16
Provisions affecting NPO sector - Procedural
issues

• Central Government can give directions to
  prescribed authority regarding execution of
  provisions of Act as to the manner in which F.C.
  shall be received and purpose for which it shall
  be utilised by any person - S.45
• Any officer referred in S. 23 during inspection
  can call for information from any person to know
  if there is any contravention of Act, examine any
  person acquainted with the facts of case - S.41
• The F.C. of person, whose certificate is
  cancelled under S. 14 shall vest in such
  authority as maybe prescribed and the authority
  shall manage the F.C.- S.15
• No appeal for suspension
• Revision on his own by Registering authority - If
  order is prejudicial to person, opportunity to
  be given to person before passing order - S.32
• Making of false statement, declaration or
  delivering false accounts, etc. - Imprisonment
  upto five years - S.33
• Appeal to H.C. right to be extented to all
  persons S.31(2)

17
Rules - Following changes needed

• Certificate from Collector/ Department should not
  be insisted with registration application,
  especially as application should be sent once in
  five years
• Prior permission for change of 50 or more of
  office bearers - declaration to be removed
• Bank account change - to be made easier for all
• FC-3 to be made simple with removal of
  overlapping objectives

18
Common demands of NPO sector

• Due date for filing FC-3 returns should be
  changed to October 31
• Discontinuance of filing of Form X (Regarding
  newsletter)
• Investments under F.C. - Provision needed

19
Controversies

• FC Loan to LC - ICAI opinion
• Persons who did not renew registration - Whether
  FC-3 to be filed
• Foreign branches of Indian NPOs
• Though amount in lieu of services excluded from
  F.C., consultancy not mentioned
• No mention about export sales proceeds of goods
  of NPOs like exemption given in S.4 for business
  activities of certain persons

20
FEMA and FCMC - A Comparison

• Preamble of FEMA, 1999 mentions about
  facilitating external trade and promoting orderly
  development of Foreign exchange market.
• Notifications are being issued to relax conditions

• Preamble of FCMC mentions about prohibiting
  acceptance and utilisation of F.C. for
  Anti-National activities and for incidental
  matters
• FCMC Bill contains many stringent provisions

21
Important issues to be taken up with the
Government

• Re- registering under FCMC
• Renewal provision
• Ceiling on Administration expenses upto 30 of
  F.C. received
• Cancellation of certificate
• Registration/ prior permission - Additional
  provisions
• Time limit for Registration/ prior permission

22
Future Strategy

• Regional Meetings
• Preparation of Detailed Memorandum and
  presentation to Home-Minister
• Media
• Better if law related to NPOs are referred to
  advisory committee consisting of sectors members
  as done in the case of Companies Act (Irani
  committee for Companies Act)

23

Thank you