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Foreign Funding for NGOs: Regulatory Compliances

By: Ramesh Vaidyanathan and Laxmi Joshi

The Foreign Contribution (Regulation) Act, 2010 and rules framed under it (the “FCRA” or “Act”) regulate the receipt and usage of foreign contribution by non-governmental organisations (“NGOs”) in India. NGOs play an important role in the upliftment of the weaker sections of the society and their overall development. This is especially true in the case of India, where a vast majority of its population continues to remain under the poverty line and have little or no access to even basic facilities provided by the government.

Being non-profit organisations, operations of NGOs are entirely reliant on donations, both domestic and foreign. In recent times, many NGOs have come under the government scanner for alleged contravention of FCRA. As per news reports, as many as 11,000 NGOs have even lost their permit to receive foreign contribution. While, the government claims that the licenses were cancelled due to violation of the act, the NGOs are contending that the government is wrongly using its discretionary powers under the act to suppress voices of dissent, especially those against government policy. Since foreign aid is often paramount for the expansion or sometimes even for the survival of an NGO, it is important for an NGO to have a clear understanding of legal compliances prior to availing and using such funding. With this in mind, we have in this article set out a brief snapshot of the Act and its provisions relevant for an NGO intending to raise foreign aid.

Scope and objective of the Act

The intent of the Act is to prevent use of foreign contribution or foreign hospitality for any activity detrimental to the national interest. It has a very wide scope and is applicable to a natural person, body corporate, all other types of Indian entities (whether incorporated or not) as well as NRIs and overseas branches/subsidiaries of Indian companies and other entities formed or registered in India. It is implemented by the Ministry of Home Affairs, Government of India (the “Authority”).

In order to achieve the above objective, the Act:

  1. Prohibits acceptance and use of foreign contribution or foreign hospitality by a certain specified category of persons such as a candidate for election, judge, journalist, columnist, newspaper publication, cartoonist, et al.

  2. Regulates the inflow to and usage of foreign contribution by NGOs by prescribing a mechanism to accept, use and report usage of the same.

It defines the term ‘foreign contribution’ to include currency, article other than gift for personal use (not exceeding the value of INR 25,000) and securities received from foreign source. While foreign hospitality refers to any offer from a foreign source to provide foreign travel, boarding, lodging, transportation or medical treatment cost.

The term ‘foreign source’ also has an extensive ambit and includes:

  1. Foreign citizens

  2. Foreign companies, corporations and MNCs

  3. Foreign government and their agencies

  4. International agencies other than specified and government notified agencies

  5. Foreign trusts, foundations, trade unions, societies, clubs or any other associations of individuals formed outside India

Acceptance of foreign funds

The Act permits only NGOs having a definite cultural, economic, educational, religious or social programme to accept foreign contribution, that too after such NGOs either obtain a certificate of registration or prior permission under the Act.  Registration and prior approval under FCRA In order to be registered under the FCRA, an NGO must be in existence for at least three years and must have undertaken reasonable activity in its field for which the foreign contribution is proposed to be utilised. Further, it must have spent at least INR 1,000,000 over three years preceding the date of its application on its activities. The registration certificate is valid for a period of five years and must be thereafter renewed in the prescribed manner.

NGOs not eligible for registration can seek prior approval from FCRA for receiving foreign funding. This permission is granted only for a specific amount of foreign funding from a specified foreign source for a specific purpose. It remains valid till receipt and full utilisation of such amount. 

In both of the above cases, the applicant must file the application in a prescribed format with the Authority and submit all the documents as required under the Act. Further, it must have a separate bank account exclusively for the deposit of foreign contribution. No other fund can be credited to this account.

Timelines and eligibility criteria

Within ninety days from the date of receipt of the application for registration or prior approval, the Authority is required to conduct appropriate investigation and if satisfied that the applicant fulfills all the eligibility criteria, grant the registration certificate or prior approval as the case may be. Some of these criteria include:

  1. The applicant must be a bonafide entity.

  2. The applicant must not have been prosecuted or convicted for creating communal tension or disharmony in any specified district or any other part of the country.

  3. The applicant must not have been found guilty of diversion or mis-utilisation of its funds.

  4. Neither the applicant nor any of its office bearers must have any records of conviction under any law or be under prosecution for any offence.

  5. Acceptance of foreign contribution by the applicant must not prejudicially impact the sovereignty and integrity of India.

  6. In case the registration or approval is not granted within ninety days, the Authority is required to record its reason for refusal and intimate the applicant of the same. However, the Authority is not bound by this requirement in cases where there is no obligation to provide information under the Right to Information Act, 2005 (“RTI Act”). Under the RTI Act, certain information is exempt from public disclosure and includes:

  7. Information which may have a prejudicial effect on the security, strategic, scientific or economic interests of the state.

  8. Information which has been expressly forbidden to be published by judiciary.

  9. Information, the disclosure of which would cause a breach of privilege of the legislature.

  10. Information including commercial confidence, trade secrets or intellectual property, the disclosure of which would harm the competitive position of a third party, unless the competent authority is satisfied that larger public interest warrants the disclosure of such information.

Thus, if the reason for refusal to register or grant prior approval under the Act (in the opinion of the Authority) relates to above information, the same will not be disclosed to the applicant NGO.

Use of foreign funding

The Act imposes various conditions on the use of foreign funds and some of them are as follows:

  1. All funds received by a NGO must be used only for the purpose for which they were received. 

  2. Such funds must not used in speculative activities identified under the Act.

  3. Except with the prior approval of the Authority, such funds must not be given or transferred to any entity not registered under the Act or having prior approval under the Act.

  4. Every asset purchased with such fund must be in the name of the NGO and not its office bearers or members.                                                     

Reporting requirement

Every NGO registered or having prior approval under the Act must file an annual report with the Authority in the prescribed form. This report must be accompanied by an income and expenditure statement, receipt and payment account, and balance sheet for the relevant financial year. For financial years where no foreign contribution is received, a ‘NIL’ report must be furnished with the Authority.  Cancellation of registration certificate

Under the Act, the Authority is empowered to cancel the registration certificate of a NGO in the following circumstances:

  1. It has made false statement in any of its applications or submissions under the Act.

  2. It has violated any of the terms and conditions of registration.

  3. Authority is of the view that cancellation of registration is necessary in the public interest.

  4. It has violated any of the provisions of the Act or any order passed under it.

  5. It has been inactive for two consecutive years in its chosen field of service.

The Act follows the principles of natural justice and requires the Authority to provide the person concerned reasonable opportunity of being heard prior to passing any order.  During the pendency of proceeding for cancellation of registration, the Authority can also suspend the registration of the concerned NGO for a period of upto six months. During the suspension period, the concerned NGO is placed under several restrictions including prohibition from receiving any foreign contribution except with the prior approval of the Authority. In case of cancellation of its registration, the NGO concerned would be ineligible for a period of three years to apply for prior approval or registration under the Act.


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