Proposed Changes in definition of Foreign Source

Proposed Changes in definition of Foreign Source
Comments invited by 20^th January 2016

Comments being asked for changes in definition of Foreign Source, which would take out all those companies registered in India with more than 50% share capital held by sources listed as foreign sources in definition of Foreign Source (S2(j)(vi)).

It is now being proposed that such companies would not be treated as foreign source, as long as their share of nominal capital is within the limit prescribed under FDI. While this will certainly bring a lot of relief to many NGOs as well as companies who after this change would no longer need to have FCRA permission to transfer CSR funds to NGOs.

But wonder what is the real intent for bringing this amendment. Do not know how many of us remember that that the Delhi High Court took a decision that Vedanta subsidiaries (Sesa & Sterlite) funding BJP & Congress, was against provisions of FCRA. While the two political parties argued that since Anil Aggarwal & his family held more than 50% shares in subsidiaries of Vedanta, these were not foreign companies but Delhi HC has taken a call deciding that these two companies did indeed fell under the definition of foreign companies and hence BJP & Congress have violated the Act. So the major beneficiaries of this change are the political parties and it is not a sop for NGOs or companies ‘per se’.

It may be noted that even Election Commission has asked Ministry of Home Affairs to take action against these political parties. Perhaps this is the action ‘finding a way to let them off the hook’.

The Govt has moved cleverly, since the amendment provides some succor to NGOs, who now need not worry about FCRA when receiving funds from several such Indian registered companies, it would also provide major relief to political parties. However the Sector perhaps could ask that the amendment should be prospective rather than being retrospective.

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