In View of CSR would foreign controlled Indian companies still be treated as foreign source?

Dear Sir,

Many companies in India have foreign shareholding more than 50% due to liberalization of FDI policy. These would be “foreign source” as per section 2(1)(vi) of FCRA. Receipt of donation/contribution by NGO (not registered under FCRA) directly or indirectly by these Indian subsidiaries of Foreign Companies are presently violation of FCRA. Sec. 52 of FCRA states that applicability of FCRA is in addition to any other law in force for the time being.

Clause (iv) of circular No.21/2014 dated 18-6-2014 issued by MCA indicates that Expenditure incurred by Foreign Holding Company for CSR activities in India will qualify as CSR spend of the Indian subsidiary if, the CSR expenses are routed through Indian Subsidiaries and if the Indian Subsidiary is required to do so as per Section 135 of the Companies Act.

In this changed scenario, can one interpret that NGO (without FCRA registration) can receive donation/contributions from Indian Subsidiary of a Foreign Company, without any prior permission from Ministry of Home Affairs?

Looking forward to your considered opinion in this regard.

Thanks & regards,

Rajakumar K

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9 Responses to In View of CSR would foreign controlled Indian companies still be treated as foreign source?

  1. C Udayashankar says:

    Dear Friends,
    Does ” Clause (iv) of circular No.21/2014 dated 18-6-2014 issued by MCA” mean 50% condition can be ignored if the Indian subsidiary gives CSR funds to any NGO with or without FCRA and such funds can be shown under local account?
    Confusion worse confounded!

  2. Subhash Mittal says:

    The question raised brings out the kind of inconsistencies that FCRA Act has created. I generally agree with the comments expressed that any corporate which is registered in India, but which has more than 50% foreign shareholding falls under the definition of ‘Foreign Source’. Under FCRA once a source has been identified as foreign source, any funds rec’d from it would become foreign contribution, irrespective of the colour of the money.

    Avineesh Matta has raised an interesting point, which possibly needs a bit more consideration. S. 52 of the FCRA Act states, that the provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force. In other words provisions of this Act are in addition to that Act. Thus whether not allowing to give CSR funds to an NGO, is it derogation of Clause 135 or is it just an additional precaution which FCRA provides for. I think one would need to look into how derogation has been interpreted by courts. But for the time being I agree with Avineesh and would suggest precaution in accepting CSR funds from companies having more than 50% foreign shareholding. By the way many well known Indian Brands, such as HDFC, ICICI, etc. have more than 50% shareholding.

    I hope best course would be for FCRA to realise the kind of difficulties this provision is creating in implementation of CSR provision and relax the definition under FCRA provision. Perhaps NGOs alongwith industry should take up the issue with the MoH.

    subhash mittal

    • Avineesh Matta says:

      Since the issue has larger ramification on NGO sector vis-a-vis Corporate CSR implementation, it is strongly expected that a clarification and/or amendment in FCRA may follow.

  3. V.B.Chandrasekaran says:

    In any case, it is a condonable error.

  4. Udayashankar says:

    Dear Friends,

    If the funds are received from a Corporate registered in India and if the funds are received in Rupees from a Bank registered in India, why should such funds be treated as foreign contribution, simply because the Donor is having foreign participation?


  5. Anup Khosla says:

    Yes. To receive funds a FCRA Registration will be required.

    Anup Khosla
    Sent from my iPhone

  6. Avineesh Matta says:

    In view of Section 52 of FCRA, 2010, which makes abundantly clear that the provisions of FCRA shall be applicable in addition to and not in derogation of any other law in force, it is advisable not to go overboard and accept CSR Contributions u/s 135.

    However, it must also be noted that Section 4 of FCRA takes away from its ambit payments accepted on account of transactions specified therein and entered into, in the ordinary course of business of the “Foreign Source”.

  7. V.B.Chandrasekaran says:

    Law is logic. We are humans and in making laws there are bound to be ambiguities. Logically, CSR funds of Companies are generated within India. The companies have fundamental right to give their CSR funds to any organisation and cause they deem to their heart. Government can give clarification to remove the ambiguity. In other words, it makes no sense if only FCRA registered organisations can get these funds because Foreign Funds are there in most companies that have substantial CSR funds. FCRA Organisations cannot mopolise these funds.

  8. Anil Baranwal says:

    A company which is a subsidiary of a foreign company is also covered under definition of foreign source [sec 2 (1)(g)(ii)], therefore, an NGO which is not registered under FCRA can not receive any funds from an Indian subsidiary of a foreign company under CSR.

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