Infosys Foundation’s FCRA licence cancelled

Context:

The Ministry of Home Affairs (MHA) has cancelled the FCRA licence of Infosys Foundation after a request was made by the not-for-profit initiative of the IT major.

About:

What prompted Infosys Foundation to push for de-registration?

• The Foundation was registered under the FCRA Act in January 2016. In May 2016, the Government amended the FCRA Act in the Finance Bill with retrospective effect from 2010 as a result of which the Foundation no longer fell under the purview of the FCRA Act.
• The Foundation thereafter applied for its de-registration from FCRA with an additional request to cancel the FCRA registration in June 2016, and received acknowledgement from the FCRA wing in the same month.
• The Home Ministry in 2018 served show cause notice on 1,755 NGOs, including Infosys Foundation, for failing to submit annual income and expenditure statements on foreign funding electronically on the Ministry’s portal even though they received “nil” contributions.
• But the Infosys Foundation claimed that it had requested the Home Ministry to cancel the registration in June 2016.
• The Foundation has submitted its annual returns for FY16, FY17 and FY18, though it did not fall under the purview of Act following its amendment.
• Additionally, the Foundation has also submitted necessary paperwork to the Government in July 2018, to showcase that the Foundation has not received any foreign funding.

Stand of Ministry of Home Affairs

• The federal MHA is the nodal agency responsible for monitoring and implementing the FCRA rules.
• The MHA has cited various compliance failings, including the inability to meet reporting requirements and failure to file financial returns over long periods.

Background
Foreign Contribution Regulation Act (FCRA)

• FCRA, 2010 seeks to regulate the foreign contributions or donations to organizations and individuals in India and to curb those contributions which might be detrimental to the national interest.
• Foreign Contribution includes currency, articles other than gifts for personal use and securities received from foreign source.
• It was brought in 1976 to check that foreigners are not affecting India’s electoral politics, public servants, judges, journalists, NGOs etc. for wrong purposes.
• The FCRA, 2010, the FCRA Rules, 2011, and FCRA Amendment Rules, 2015 were respectively enacted to regulate the inflow of foreign funds received by NGOs.
• The FCRA, 2010 replaces the erstwhile Foreign Contribution (Regulation) Act of 1976.
• It enables an association or an NGO to receive foreign funds, and they have to mandatorily register under it to receive such funds.
• The term 'foreign source' also has an extensive ambit and includes:
• Foreign citizens
• Foreign companies, corporations and MNCs
• Foreign government and their agencies
• International agencies other than specified and government notified agencies
• Foreign trusts, foundations, trade unions, societies, clubs or any other associations of individuals formed outside India
• According to terms stipulated in the FCRA, an organisation cannot receive foreign funding unless it is registered under the 2010 Act, except when it gets government approval for a specific project.
• One of the main requirements under the FCRA is that organisations have to submit their annual return to the government within nine months from the closure of the previous financial year.
• It narrowed the scope and purpose for foreign financing and increased the frequency of reporting it to every three months. But to foster a culture of compliance; the NGO sector was one of the first to feel the brunt of anti-corruption campaign.

Controversies around FCRA

• Despite being a law related to financial regulation, FCRA does not fall within the purview of the RBI but under the Home Ministry as it is internal security legislation.
• FCRA registration under the earlier law was permanent, but under the new one, it expired after five years, and had to be renewed afresh.
• The new law put a restriction (50 per cent) on the proportion of foreign funds that could be used for administrative expenses.
• The 1976 law was primarily aimed at political parties, the new law set the stage for shifting the focus to “organisations of a political nature”. The FCRA Rules, 2010, framed by the United Progressive Alliance government, has served the NDA well as a manual on how to target inconvenient NGOs, especially those working on governance accountability.

United Nation’ views on FCRA, 2010

• FCRA provisions “are not in conformity with international law, principles and standards”.
• The right to freedom of association is incorporated under the International Covenant on Civil and Political Rights, to which India is a party.
• Access to resources, particularly foreign funding, is part of the right to freedom of association.
• Restrictions in the name of “public interest” and “economic interest” as invoked under the FCRA rules fail the test of “legitimate restrictions”.
• The terms are too vague and give the state excessive discretionary powers to apply the provision in an arbitrary manner.
• Besides, given that the right to freedom of association is part of the Universal Declaration of Human Rights (article 20), a violation of this right also constitutes a human rights violation.

The Role of NGO in our society

• NGO act as service contractors, able to work more efficiently and effectively than government agencies thereby playing an important role in the socio-economic transformation.
• It brings in accountability and transparency to governance. It acts as a human rights watchdog in the society.
• NGOs act as channels for donors to provide international development funds to low-income countries or developing countries.
• FCRA regulates the inflow to and usage of foreign contribution by NGOs by prescribing a mechanism to accept, uses and report usage of the same. This move helped Companies to ease the CSR (Corporate Social Responsibility) spending as the repetitive consent from the Home Ministry is no longer required for the disbursement of funds by the foreign companies.
• NGOs have got access to foreign funds more easily than before except for the prior permission category NGOs.

Need to govern NGOs

• The major issues with rogue NGOs include lack of accountability, stalling the development projects, threat to internal security etc. According to CBI only 10 % of existing NGOs file return.
• In some state the laws do not require NGO to be transparent. FCRA act seek to address this by registration.
• Few NGOs are used by vested interest to halt developmental project in India as reported by Intelligence Bureau. This was witnessed in Kudankulam protest.
• Thirdly, funds flowing to NGOs can be used for anti-national activity such as economic security. Hence regulation of NGO receiving fund is necessary.
• There are instances where NGOs has violated FCRA but escaped penalty under the pretext of FEMA act which falls under finance ministry. FCRA seek to monitor fund which is not a capital but under FEMA fund is being accorded the status of capital.

Way Forward:

• FCRA remind us about the draconian features of the colonial laws, which empowers state to repress its critic. Government should repeal these acts so that it can't use the loopholes in the system to exercise authority which ultimately destroys our social fabric.
• Foreign funding should always be monitored carefully to prevent misuse, but opting to put a blanket ban, undermines the democratic ethos and freedom of speech in India. Efforts should be made to bridge the trust deficit between government and civil society.
• If Infosys gets fail, it can be prosecuted, while those that received foreign contributions into multiple bank accounts should also be liable for censure.
• There is no easy way out for Infosys. Given the demanding regulatory environment, and the government’s interest in enforcing its difficult regulations, foreign financed NGOs can no longer afford to take compliance lightly.

Practice Question:

Q1. Do you think that the Foreign Contribution Act (FCRA), passed in 1976 and amended in 2010, gives excessive discretionary powers to state? Examine.

Q2. Some critics say that FCRA violates the universal declaration of human rights, where right to freedom of association is a part of it. Elaborate it.