Broadly speaking, whenever a question arises of transfer of any article by a foreigner where India is even remotely connected, the first thing that comes to our mind is the rigour of Foreign Contribution (Regulation) Act, 2010 (“FCRA”).
The FCRA came into force on May 01, 2011, by replacing earlier Act of 1976. The basic purpose of FCRA is “to consolidate the law to regulate the acceptance and utilization of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilization of foreign contribution or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto.”
FCRA extends to the whole of India, and is applicable to the organizations outside India under certain circumstances.
In order to analyse – whether a foreigner can form a private trust in India for upkeeping of its property by transferring such property to the trust? – it becomes imperative to analyse certain provisions of FCRA.
LEGAL PROVISIONS UNDER FCRA
As per Section 2(1)(j) of FCRA, a “foreign source” includes a citizen of a foreign country. Thus a “foreigner” will fall within the definition of a “Foreign Source”.
Having ascertained that, it becomes pertinent to analyse if an Indian property can be said to fall within the definition of a “Foreign Contribution” as provided in FCRA. The definition of Foreign Contribution as provided in Section 2(1)(h) of FCRA is as follows:
“foreign contribution” means the donation, delivery or transfer made by any foreign source ─
(i) of 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 from time to time by the Central Government by the rules made by it in this behalf;
(ii) of any currency, whether Indian or foreign;
(iii)of any security as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 and includes any foreign security as defined in clause (o) of Section 2 of the Foreign Exchange Management Act, 1999.
We know for a fact that an Indian property cannot fall within the term “any currency, whether Indian or foreign” or “of any security” as defined in clause (h) of section 2 of the Securities Contracts (regulation) Act, 1956 and includes any foreign security as defined in clause (o) of section 2 of the Foreign Exchange Management Act, 1999. Hence, what needs to be analysed is whether a property would come within the ambit of the term “article” as used in Section 2(1)(h) of FCRA. It is interesting enough that the term “article” is not defined anywhere in FCRA or any other applicable statute or Indian case laws.
The Indian legal dictionary (borrowing from English cases) defines an “article” to mean a material thing or a tangible object, a thing of value. Since a property can be said to be a tangible object (i.e., something which is easily identifiable) and a thing of value, therefore, a property can be said to fall within the ambit of the term “article”.
Hence, transfer of a property (an article) situated in India by a Foreigner (Foreign Source) to a trust shall constitute a “Foreign Contribution” within the meaning of FCRA.
Having established that, it becomes important to highlight that Section 11, Sub-section (1) of FCRA which provides that-
“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.”
The said Section 11, Sub-section (2) further provides that –
“Every person referred to in this sub-section (1) may, if it is not registered with the Central Government under that sub-section, can 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.”
Thus, from a reading of the above section, the following position emerges out:
No person having a definite cultural, economic, educational, religious or social programme shall accept foreign contribution unless:
- It obtains a certificate of registration from Government of India (“GOI”); or
- It obtains prior permission from GOI.
Moreover, other terms of FCRA, shows that the term “Person” used in this Section 11 is defined under Section 2(1)(m) of FCRA and it includes an association. The term “Association” is defined under Section 2(1)(a) of FCRA and in turn includes an “organization of any nature”. Hence, the term “Person” shall include a trust in question, since it includes organization of any nature.
OPEN FOR INTERPRETATIONS
The trust in question being a private trust, would be a Person as used in Section 11 of FCRA, however, without any definite cultural, economic, educational, religious or social programme.
Does this then mean that such Person (private trust in the instant case) does not need to obtain registration certificate or prior permission from GOI for receiving Foreign Contribution? Unfortunately, clarifications issued by Ministry of Home Affairs, GOI and judicial precedents of Indian courts are completely silent on this aspect.
In response to one of the Frequently Asked Questions, the Ministry of Home Affairs has clarified that in order for a Person to receive Foreign Contribution, the Person must fulfil the following conditions:
- It must have a definite cultural, economic, educational, religious or social programme.
- It must obtain the FCRA registration/ prior permission from the Central Government.
- It must not be prohibited under Section 3 of FCRA, 2010.
Can we then say that a Person who is not eligible for obtaining a registration certificate or prior approval from GOI for not having a definite cultural, economic, educational, religious or social programme (like a private trust) is outside the ambit of FCRA? Hence, it can receive foreign contribution without any checks and balances? Or would it be too liberal an interpretation of a significant statute like the FCRA?
The Ministry of Home Affairs published an order in the Official Gazette vide number S.O. 459(E), dated 30th January, 2020, which in the interest of the general public exempts from the operations of FCRA any organisations (not being a political party), constituted or established by or under a Central Act or a State Act or by any administrative or executive order of the Central Government or any State Government and wholly owned by the respective Government and required to have their accounts compulsorily audited by the Comptroller and Auditor General of India (“CAG”) or any of the agencies of the CAG.
It is pertinent to note that even this clarification does not talk anything about an organisation which qualifies as a Person under FCRA, however, a Person who does not have a definite cultural, economic, educational, religious or social programme.
Since, there are no judicial precedents or clarifications issued in this regard, this appears to is a grey area. Unless a clarification is used by the relevant authority or this question is analysed by the Indian courts, this aspect remains open to a wide range of interpretations by the legal fraternity.
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