The foreign contribution regulation act-2010

The foreign contribution regulation act-2010

The foreign contribution regulation act-2010

The foreign contribution regulation act
You can download CS Executive All subject notes of new syllabus as well as old syllabus from below links.

THE FOREIGN CONTRIBUTION (REGULATION) ACT, 2010

Purpose/Preamble of the Act
An act to consolidate the law to

  • regulate the acceptance and utilization of FC or foreign hospitality by certain individuals or associations or companies and
  • prohibit acceptance and utilization of FC or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto.

Scope of the Act

According to Section 1, this Act extends to the whole of India, and it shall also apply to—

  1. citizens of India outside India; and
  2. associate branches or subsidiaries, outside India, of companies or bodies corporate, registered or incorporated in India.

CERTAIN IMPORTANT DEFINITIONS

Company shall have the meaning assigned to it under section 2(17) of the Income-tax Act, 1961;

Foreign company means any company or AOP or BOI incorporated outside India and includes—

  1. a foreign company within the meaning of section 591 of the Companies Act, 1956;
  2. a company which is a subsidiary of a foreign company
  3. the registered office or principal place of business of a foreign company or company referred above
  4. a multi-national corporation

Multi-national Corporation

A corporation incorporated in a foreign country or territory shall be deemed to be a multi-national corporation if such corporation, —

  1. has a subsidiary or a branch or a place of business in two or more countries or territories; or
  2. carries on business, or otherwise operates, in two or more countries or territories;

Foreign contribution means the donation, delivery or transfer made by any foreign source,—

  1. of any article;
  2. of any currency, whether Indian or foreign;
  3. of any security as defined in SCRA, 1956 and includes any foreign security as defined in section 2 of` the FEMA, 1999.

Note:

  • A donation, delivery or transfer of any article, currency or foreign security by any person who has received it from any foreign source, either directly or through one or more persons, shall also be deemed to be FC.(Suppose Mr. A received the FC from a foreign source. Thereafter Mr. A donated or delivered or transferred such FC to Mr. B. Thus, although Mr. B is not getting the FC directly from foreign source, still such article, currency or security shall be considered as FC in the hands of Mr. B.)
  • The interest accrued on the FC deposited in the bank or any other income derived from the FC shall also be deemed to be FC.

Not a FC

  • Any article

    • not being an article given to a person as a gift for his personal use,
    • if the market value, in India, of such article, on the date of such gift, is not more than such sum as may be specified by the Central Government

    shall not be considered as FC. (Prescribed value is Rs. 25000 – Rule 6A)

    1. Any amount
    • received, by any person from any foreign source in India,
    • by way of
      • fee ( including fees charged by an educational institution in India from foreign student) or
      • towards cost in lieu of goods or services rendered by such person in the ordinary course of his business, trade or commerce

shall be excluded from the definition of FC;

Foreign hospitality means

  • any offer (not being a purely casual one)
  • made in cash or kind by a foreign source
  • for providing a person with the costs of travel to any foreign country or with free boarding, lodging, transport or medical treatment;

Foreign source includes, —

  1. the Government of any foreign country and any agency of such Government;
  2. any international agency (not being the United Nations, the World Bank, IMF or such other agency as the Central Government may specify)
  3. a foreign company;
  4. a foreign corporation, (not being a foreign company)
  5. a multi-national corporation
  6. a company whose more than one-half of the nominal value of share capital is held, either singly or in the aggregate, by one or more of the following, namely:—
    1. the Government of a foreign country;
    2. the citizens of a foreign country;
    3. corporations incorporated in a foreign country;
    4. foreign trusts, societies or other associations of individuals (whether incorporated or not);
    5. foreign company;
  7. a trade union in any foreign country (whether registered or not);
  8. a foreign trust or a foreign foundation or such trust or foundation mainly financed by a foreign country or territory;
  9. a society, club or other association of individuals formed or registered outside India;
  10. a citizen of a foreign country

REGULATION OF FOREIGN CONTRIBUTION AND FOREIGN HOSPITALITY

Prohibition to accept FC (Section 3)

General Prohibition on acceptance of FC by certain persons

  1. No FC shall be accepted by any—
      1. candidate for election;
      2. correspondent, cartoonist, editor, owner, printer or publisher of a newspaper;
      3. Judge, Government servant or employee of any government corporation;
      4. member of any Legislature;
      5. political party or office-bearer thereof;
      6. organisation of a political nature as may be specified by CG under section 5;
      7. association or company engaged in the production or broadcast of audio news or audio visual news or current affairs programmes through any electronic mode etc.
      8. correspondent, cartoonist, editor, owner of the association or company referred to in clause (g).

    Prohibition on acceptance or acquisition of any currency from FS by “Resident in India” and “citizen of India resident outside India”

2(a) No person resident in India, and no citizen of India resident outside India, shall

  • accept any FC, or
  • acquire or agree to acquire any currency from a foreign source,

on behalf of any political party, or any person referred above in sub-section (1), or both.

Prohibition on delivery of any currency accepted from FS by any person

(3) No person receiving any currency (whether Indian or foreign)

  • from a foreign source on behalf of any person or class of persons, referred to in section 9, shall deliver such currency —
  • to any person other than a person for which it was received, or
  • to any other person, if he knows or has reasonable cause to believe that
    • such other person intends, or is likely, to deliver such currency to a person other than the person for which such currency was received.

Exemption from the provisions of Section 3 (Section 4)

If FC is accepted by a person—

  1. from his relative; or
  2. by way of any scholarship, stipend or any payment of like nature; or
  3. by way of salary, wages or other remuneration from any foreign source; or
  4. by way of payment in the ordinary course of business
    • transacted by foreign source in India; or
    • transacted by that person outside India
  5. by way of payment, in the course of international trade or commerce; or
  6. by way of remittance received, in the ordinary course of business through any official channel, post office, or any authorised person in foreign exchange under the FEMA, 1999; or
  7. by way of a gift or presentation made to him as a member of any Indian delegation, (in accordance with the rules made by the CG in this regard); or
  8. as an agent of a foreign source in relation to any transaction made by such foreign source with the CG or SG

Restriction on acceptance of foreign hospitality (means where prior permission of the CG is required) (Section 6, rule 7)

No

  • member of a Legislature or office-bearer of a political party or
  • Judge or Government servant or
  • employee of any Government corporation or Government Body

shall,

  • while visiting any country or territory outside India,

accept any foreign hospitality

  • except with the prior permission of the Central Government (application shall be made in Form FC-2 at least two weeks before the proposed date of onward journey)

Exemptions from restriction u/s 6 in case of emergent medical aid

  • It shall not be necessary to obtain any permission from CG for an emergent medical aid needed on account of sudden illness contracted during a visit outside India

But, where such foreign hospitality has been received, the person receiving such hospitality shall give, within 1 month (within sixty days according to rules) from the date of receipt of such hospitality an intimation to the CG as to the receipt of such hospitality, and the source from which, and the manner in which, such hospitality was received by him.

Note:

No such intimation is required, if the value of such hospitality in emergent medical aid is upto one lakh rupees or equivalent thereto.

Prohibition to transfer FC to other person (Section 7)

No person who —

  1. is registered and granted a certificate or has obtained prior permission under this Act; and
  2. receives any FC,

shall transfer such FC to any other person unless such other person is also registered and had been granted the certificate or obtained the prior permission under this Act.

Such person may transfer, with the prior approval of the Central Government (in Form FC-10), a part of such FC (not exceeding 10%) to any other person who has not been granted a certificate or obtained permission under this Act in accordance with the rules made by the Central Government.

Restriction to utilise FC for administrative purpose (Section 8)

Every person, who is registered and granted a certificate or given prior permission under this Act and receives any FC,—

  1. shall utilise such contribution for the purposes for which the contribution has been received:
  2. shall not defray as far as possible such sum, not exceeding 50% of such contribution, received in a financial year, to meet administrative expenses (except with prior approval of the CG)

As per Rule 5 of FC (Regulation) Rules, 2011, following expenses shall not be considered as administrative expenses:

  • expenditure incurred on salaries or remuneration of personnel engaged in training or for collection or analysis of field data of an association primarily engaged in research or training
  • expenses incurred directly in furtherance of the stated objectives of the welfare oriented organization (such as salaries to doctors of hospital, salaries to teachers of school etc.)

Any FC or any income arising out of it shall not be used for speculative business

As per Rule 4 of FC (Regulation) Rules, 2011, following activities shall be treated as speculative activities:-

  1. any activity or investment that has an element of risk of appreciation or depreciation of the original investment, linked to market forces, including investment in mutual funds or in shares;
  2. participation in any scheme that promises high returns not directly linked to the declared aims and objectives of the organisation or association (like investment in land etc.)

Note: A debt-based secure investment shall not be treated as speculative investment.

Power of Central Government to prohibit receipt of FC etc. by any person (Section 9)

The Central Government may—

  1. prohibit any person or organisation not specified in section 3, from accepting any FC;
  2. require any person or class of persons, not specified in section 6, to obtain prior permission of the Central Government before accepting any foreign hospitality;
  3. require any person not specified in section 11, to furnish intimation as to the amount of any FC received by such person and the source from which and the manner in which such contribution was received;
  4. require any person specified in section 11(1) to obtain prior permission of the CG before accepting any FC;
  5. require any person, not specified in section 6, to furnish intimation, within such time and in such manner as may be prescribed, as to the receipt of any foreign hospitality, the source from which and the manner in which such hospitality was received.

No such prohibition or requirement shall be made unless the Central Government is satisfied that the acceptance of FC by such person or class of persons, as the case may be, or the acceptance of foreign hospitality by such person, is likely to affect prejudicially —

  1. the sovereignty and integrity of India; or
  2. public interest; or
  3. freedom or fairness of election to any Legislature; or
  4. friendly relations with any foreign State; or
  5. harmony between religious, racial, social, linguistic or regional groups, castes or communities.

Power to prohibit payment of currency received in contravention of the Act (Section 10)

Where the Central Government is satisfied that

  • any person has in his custody or control any article or currency or security, whether Indian or foreign,
    • which has been accepted by such person in contravention of any of the provisions of this Act,

it may, by order in writing, prohibit such person from paying, delivering, transferring or otherwise dealing with such article or currency or security save in accordance with the written orders of the Central Government.

Registration of certain persons with Central Government (Section 11)

(1) Save as otherwise provided in this Act,

  • no person having a definite cultural, economic, educational, religious or social programme shall accept foreign contribution unless such person obtains a certificate of registration from the Central Government:

Prior permission of the Central Government

(2) Every person who require registration from the Central Government referred to in sub-section (1) may,

  • if it is not registered with the Central Government under that sub-section,
  • accept any foreign contribution only after obtaining the prior permission of the Central Government and
    • such prior permission shall be valid for the specific purpose for which it is obtained and from the specific source.

(3) Notwithstanding anything contained in this Act, the Central Government may, by notification in the Official Gazette, specify—

  1. the person or class of persons who shall obtain its prior permission before accepting the foreign contribution; or
  2. the area or areas in which the foreign contribution shall be accepted and utilised with the prior permission of the Central Government; or
  3. the purpose or purposes for which the foreign contribution shall be utilized with the prior permission of the Central Government; or
  4. the source or sources from which the foreign contribution shall be accepted with the prior permission of the Central Government.

Procedure for grant of certificate of registration (Section 12)

Section 12 of the Act and Rule 9 of the Rules deal with the application for obtaining ‘registration’ or ‘prior permission’ to receive foreign contribution.

Application u/s 11(1) for registration or u/s for prior permission

Any application under section 11(1) or section 11(2) for obtaining registration or prior permission for receiving foreign contribution shall be made electronically on-line in Form FC-3 and Form FC-4 respectively, and the hard copy of the on-line application shall also be forwarded to CG.

Such hard copy of the on-line application shall reach the Central Government within 30 days of the submission of the on-line application, failing which the request of the person shall be deemed to have ceased.

Any person whose request was ceased (due to late forwarding of hard copy) may prefer a fresh on-line application with the Central Government only after 6 months from the date of cessation of the previous application.

A person seeking registration or prior permission shall be required to open an exclusive bank account for receipt of foreign contribution. For the purpose of utilising the foreign contribution, more than one accounts may be opened in one or more banks.

Any application made for the grant of prior permission shall be accompanied by a fee of Rs. 1000 and an application made for the grant of the registration shall be accompanied by a fee of Rs. 2000.

Every certificate of registration granted to a person under the Act shall be valid for a period of five years from the date of its issue.

For renewal of certificate every person shall apply to the Central Government in Form FC-5, 6 months before the date of expiry of the certificate and such application shall be accompanied by a fee of Rs. 500 only.

Conditions for the grant of registration or prior permission

The following shall be the conditions for the purposes of grant of registration or prior permission, namely:—

    1. the person making an application for registration or grant of prior permission,—
      1. is not ficitious or benami;
      2. has not been prosecuted or convicted for indulging in activities aimed at conversion through force from one religious faith to another;
      3. has not been prosecuted or convicted for creating communal tension or disharmony in any part of the country;
      4. has not been found guilty of diversion or mis-utilisation of its funds;
      5. is not likely to use the foreign contribution for personal gains or divert it for undesirable purposes;
      6. has not contravened any of the provisions of this Act;
      7. has not been prohibited from accepting foreign contribution;
    2. the person making an application for registration has undertaken reasonable activity in its chosen filed for the benefit of the society for which the foreign contribution is proposed to be utilised;
    3. the person making an application for giving prior permission has prepared a reasonable project for the benefit of the society for which the foreign contribution is proposed to be utilised;
    4. in case the person being an individual, such individual has neither been convicted under any law for the time being in force nor any prosecution for any offence pending against him;
    5. in case the person being other than an individual, any of its directors or office bearers has neither been convicted under any law for the time being in force nor any prosecution for any offence is pending against him;
    6. the acceptance of foreign contribution by the person seeking registration is not likely to affect prejudicially—
      1. the sovereignty and integrity of India; or
      2. the security, strategic, scientific or economic interest of the State; or
      3. the public interest; or
      4. freedom or fairness of election to any Legislature; or
      5. friendly relation with any foreign State; or
      6. harmony between religious, racial, social, linguistic, regional groups, castes or communities;
    7. the acceptance of foreign contribution by the person seeking registration,—
      1. shall not lead to incitement of an offence;
      2. shall not endanger the life or physical safety of any person.

Grant of Certificate or Prior Permission

If on receipt of an application for grant of certificate or giving prior permission and after making such inquiry as the Central Government deems fit, it is of the opinion that the conditions specified in sub-section (4) are satisfied, it may, ordinarily within 90 days from the date of receipt of application, register such person and grant him a certificate or give him prior permission, as the case may be, subject to such terms and conditions as may be prescribed.

Refusal the grant of certificate or prior permission

Where the Central Government refuses the grant of certificate or does not give prior permission, it shall record in its order the reasons therefor and furnish a copy thereof to the applicant:

The Central Government may not communicate the reasons for refusal for grant of certificate or for not giving prior permission to the applicant in cases where there is no obligation to give any information or documents or records or papers under the Right to Information Act, 2005.

Cancellation of certificate (Section 14)

The Central Government may, if it is satisfied after making such inquiry as it may deem fit, by an order, cancel the certificate if —

    1. the holder of the certificate has made an incorrect or false statement in, or in relation to, the application for the grant of registration or renewal thereof; or
    2. the holder of the certificate has violated any of the terms and conditions of the certificate or renewal thereof; or
    3. in the opinion of the Central Government, it is necessary in the public interest to cancel the certificate; or
    4. the holder of certificate has violated any of the provisions of this Act or rules or order made thereunder; or
    5. if the holder of the certificate has not been engaged in any reasonable activity in its chosen field for the benefit of the society for 2 consecutive years or has become defunct.

No order of cancellation of certificate under this section shall be made unless the person concerned has been given a reasonable opportunity of being heard.

Any person whose certificate has been cancelled under this section shall not be eligible for registration or grant of prior permission for a period of three years from the date of cancellation of such certificate.

Suspension of certificate (Section 13)

Where the Central Government is satisfied that pending consideration of the question of cancelling the certificate on any of the grounds mentioned in section 14, it is necessary so to do, it may, by order in writing, suspend the certificate for such period not exceeding 180 days as may be specified in the order.

Every person whose certificate has been suspended shall —

  1. not receive any foreign contribution during the period of suspension of certificate:
    The Central Government, on an application made by such person, if it considers appropriate, allow receipt of any foreign contribution by such person on such terms and conditions as it may specify;
  2. utilise, upto 25% of unutilised amount, the foreign contribution in his custody with the prior approval of the Central Government .

Intimation of foreign contribution by the recipient (Section 18 etc)

  1. Every person who receives foreign contribution under the Act shall submit a report in Form FC-6 accompanied by an income and expenditure statement, receipt and payment account and balance sheet for every financial year beginning on the 1st day of April within 9 months of the closure of the financial year, to the Secretary to the Government of India, Ministry of Home Affairs, New Delhi.
  2. If the foreign contribution relates only to articles, the intimation shall be submitted in Form FC-7.
  3. If the foreign contribution relates to foreign securities, the intimation shall be submitted in Form FC-8.
  4. Every report shall be duly certified by a chartered accountant.
  5. A ‘NIL’ report shall be furnished even if no foreign contribution is received during a financial year.
  6. Any person receiving foreign contribution in excess of 1 lakh rupees or equivalent thereto in a financial year from any of his relatives shall inform the Central Government in Form FC-1 within 30 days from the date of receipt of such contribution.
  7. Foreign contribution received by a candidate for election, shall be furnished in Form FC-9 within 45 days from the date on which he is duly nominated as a candidate for election.

In the event of receipt of foreign contribution in excess of one crore rupees in a financial year

Any person to whom certificate of registration or prior permission has been granted receives foreign contribution in excess of one crore rupees or equivalent thereto in a financial year, shall keep in the public domain the summary data on receipts and utilisation of foreign contribution pertaining to the year of receipt as well as for one year thereafter and the Central Government shall also display or upload the summary data of such persons with the public through its website.

INSPECTION, SEARCH AND SEIZURE

Inspection of accounts or records (Section 23)

If the Central Government has any ground to suspect that any provision of this Act has been or is being, contravened by—

  1. any political party; or
  2. any person; or
  3. any organisation; or
  4. any association,

it may authorise inspecting officer, to inspect any account or record maintained by such political party, person, organisation or association.

Seizure of accounts or records (Section 24)

If, after inspection of an account or record, the inspecting officer has any reasonable cause to believe that any provision of this Act or of any other law relating to foreign exchange has been, or is being, contravened, he may seize such account or record and produce the same before the court, authority or tribunal in which any proceeding is brought for such contravention.

Note: Authorised officer shall return such account or record to the person from whom it was seized if no proceeding is brought within six months from the date of such seizure for the contravention disclosed by such account or record.

Seizure of article or currency or security received in contravention of the Act (Section 25)

If any gazetted officer, authorised in this behalf by the Central Government, has any reason to believe that any person has in his possession or control any article or currency or security whether Indian or foreign, in relation to which any provision of this Act has been or is being, contravened, he may seize such article or currency or security.

ADJUDICATION

Confiscation of article or currency or security obtained in contravention of the Act (Section 28)

Any article or currency or security which is seized under section 25 shall be liable to confiscation if such article or currency or security has been adjudged under section 29 to have been received or obtained in contravention of this Act.

Adjudication of confiscation (Section 29)

Any confiscation referred to in section 28 may be adjudged—

  1. without limit, by the Court of Session within the local limits of whose jurisdiction the seizure was made; and
  2. subject to such limits as may be prescribed, by such officer, not below the rank of an Assistant Sessions Judge, as the Central Government may specify in this behalf (value of such article or the amount of such currency seized does not exceed Rs.10, 000,000/-(Ten Lakh only) – Rule 19).

 APPEAL AND REVISION

Appeal (Section 31)

(1) Any person aggrieved by any order made under section 29 may prefer an appeal,—

    1. where the order has been made by the Court of Session, to the High Court to which such Court is subordinate; or
    2. where the order has been made by any officer, to the Court of Session within the local limits of whose jurisdiction such order of adjudication of confiscation was made,
      within one month from the date of communication to such person of the order

Extension of time of appeal

The appellate court may, if it is satisfied that the appellant was prevented by sufficient cause from preferring the appeal within the said period of one month, allow such appeal to be preferred within a further period of one month, but not thereafter.

(2) Any

    • organisation referred to in section 3(1)(f) (organization of political nature), or
    • any person or association referred to in section 6 or section 9,

aggrieved

    • by an order made in pursuance of section 5 or
    • by an order of the Central Government refusing to give permission under this Act, or
    • by any order made by the Central Government under section 12, or section 14, as the case may be,

may, within sixty days from the date of such order, prefer an appeal against such order to the High Court.

  OFFENCES AND PENALTIES

Making of false statement, declaration or delivering false accounts (Section 33)

Any person, subject to this Act, who knowingly, —

    1. gives false intimation under sub-section (c) of section 9 or section 18; or
    2. seeks prior permission or registration by means of fraud, false representation or concealment of material fact,

shall, on conviction by a court, be liable to imprisonment for a term

    • which may extend to six months or
    • with fine or
    • with both.

Penalty for article or currency or security obtained in contravention of Section 10 (Section 34)

If any person, on whom any prohibitory order has been served under section 10, pays, delivers, transfers or otherwise deals with, in any manner whatsoever, any article or currency or security, whether Indian or foreign, in contravention of such prohibitory order, he shall be punished with imprisonment for a term

    • which may extend to three years, or
    • with fine, or
    • with both;

and notwithstanding anything contained in the Code of Criminal Procedure, 1973, the court trying such contravention may also impose on the person convicted an additional fine

    • equivalent to the market value of the article or the amount of the currency or security in respect of which the prohibitory order has been contravened by him or such part thereof as the court may deem fit.
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