Wednesday, 18 July 2018

Director’s KYC in DIR-3

  • With a view to update its registry, Ministry of Corporate Affairs (MCA) will be conducting Know Your Customer (KYC) of all Directors of all companies (including Section 8 companies) annually through e-form DIR-3.
  • If you are a Director on the Board of a Company, including a not-for-profit company registered under section 8 of the Indian Companies Act 2013 (earlier Section 25 of the Indian Companies Act 1956) you are required to complete your Director’s KYC before 31st August, 2018 or face penalty of INR 5,000/-

Who should comply?
Every Director who has been allotted DIN on or before 31st March, 2018 and whose DIN is in ‘Approved’ status would be compulsorily required to file form DIR-3 KYC on or before 31st August, 2018.

Provisions of the law
e-Form DIR-3-KYC is required to be filed pursuant to Rule 12A and Rule 11(2) and (3) of The Companies (Appointment and Qualification of Directors) Rules, 2014 as amended by Companies (Appointment and Qualification of Directors) fourth Amendment Rules, 2018.

Rule 12A:
Every individual who has been allotted a Director Identification Number (DIN) as on 31st March of a financial year as per these rules shall submit e-form DIR-3-KYC to the Central Government on or before 30th April of immediate next financial year.
Provided that every individual who has already been allotted a Director Identification Number (DIN) as at 31st March, 2018 shall submit e-form DIR-3-KYC on or before 31st August, 2018.

Rule 11(2):
The Central Government or Regional Director (Northern Region), or any officer authorized by the Central Government or Regional Director (Northern Region) shall, deactivate the Director Identification Number (DIN), of an individual who does not intimate his particulars in e-form DIR-3-KYC within stipulated time in accordance with rule 12A.

Rule 11(3):
The de-activated DIN shall be re-activated only after e-form DIR-3-KYC is filed along with fee as prescribed under Companies (Registration Offices and Fees) Rules, 2014 as amended by Companies (Registration Offices and Fees) Third Amendment Rules, 2018.

What is required for filing e-form DIR-3-KYC?
1. Valid Mobile No. and email address for OTP verification
2. Digital Signature (DSC) of Director
3. Self-attested PAN card;
4. Self-attested Aadhar card with updated Mobile number with UIDAI;
5. Self-attested Passport or other valid address proof

Please note:
1. Filing of DIR-3 KYC would be mandatory for Disqualified Directors as well.
2. After expiry of the due date by which the KYC form is to be filed, the MCA-21 system will mark all approved DINs (allotted on or before 31st March 2018) against which DIR-3 KYC form has not been filed as ‘Deactivated’ with reason as ‘Non-filing of DIR-3 KYC’.
3. The form should be filed by every Director using his own DSC and should be duly certified by a practicing professional (CA/CS/CMA).
4. No fee shall be chargeable till the 31st August, 2018.
5. After the due date filing of DIR-3 KYC in respect of such deactivated DINs shall be allowed only upon payment of a late fee/ penalty of Rs. 5000/-.

Sunday, 15 July 2018

Relaxation under GST RCM

  • Forty-six amendments are proposed under the GST law. 
  • Amendment on Reverse Charge Mechanism (RCM) would be of consequence to NGO.
  • As per Section 9(4) of CGST Act 2017, any supply of goods or service from an Unregistered Supplier to a Registered Supplier requires the Registered Supplier to Pay GST to the Government in the form of RCM. 
  • Section 9(4) which has been deferred till 30-09-2018 is likely to be repealed and substituted by the new section 9(4) as: The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of taxable goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.”

RCM is sought to be applied only to “class of registered persons” and not all the registered persons.

The class of registered persons may be:
a) persons receiving goods or services falling under specific headings
b) persons engaged in specified outward supplies
c) Persons having inward supplies more than specified percentage

  • Don’t worry about payment of GST under Reverse Charge Mechanism till end of September
  • Hope and pray charitable institutions will not fall under “class of registered persons”

Monday, 9 July 2018

NGOs asked to remove ‘Human Rights’ or ‘Corruption’ from registered name

Maharashtra State Charity Commissioner Shiv kumar Dige has issued an order directing around 400 NGOs and trusts registered in the state to remove the words “corruption” and “human rights” from their names or risk suspension under the Maharashtra Public Trusts Act 1950.
Earlier the charity commissioner’s office in Pune had taken similar action against 16 NGOs with the word “corruption” in their names, including Anna Hazare’s Bhrashtachar Virodhi Jan Andolan, which has been suspended. The NGO’s case to regain its registration is pending in court.
According to press reports, the State Charity Commissioner is of the view that the government has the machinery to prevent corruption and protect human rights. “There were complaints that a few organisations were misusing these words and cheating people”, Mr. Dige is reported to have told the press. He also told the press: “eradicating corruption is the government’s duty and the government authorities have those rights. However, a few organisations are misusing the word ‘corruption’ and targeting an individual or some officials. But, they do not have the right to do this. This is misleading for the common people. Also, according to a high court judgment, the eradication of corruption cannot be the social objective of an organisation”.

Objecting to the use of the word “human rights” by organisations, Mr. Dige reportedly said the state Human Rights Commission can take care of issues of violation. “Many organisations use the words ‘human rights’ in their names. But, the state Human Rights Commission has written to us to take action against these organisations. Only government authorities can deal with human rights violations, and not private institutions. Therefore, I have issued the order to remove the words from these organizations’ names,” Mr. Dige told the press.

According to press reports, the charity commissioner’s office will issue notices to organisations to remove the words from their names. “If they do not follow the order, we will have to suspend the trustees of the organisation,” the Charity Commissioner has said.

Article 19(1) (c) of the Constitution of India guarantees to all its citizens the right “to form associations, or unions or Co- Operative Societies.” Under clause (4) of the Article 19, however, the State may by law impose reasonable restrictions on this right in the interest of public order or morality or the sovereignty and integrity of India.

The right to form association includes the right to form companies, societies, trusts, partnerships, trade union and political parties. The right guaranteed is not merely the right to form association but also to continue with the association as such. The freedom to form association implies also the freedom to form or not to form, to join or not to join, an association or union.

Several NGOs have objected to the State’s move, arguing that the charity commissioner’s office should have raised objections while registering their organisations. All India Anti-Corruption Committee which has two million members and has been working against corruption for 20 years has said that it will challenge the order in court!

Tuesday, 12 June 2018

CAP’s CEO takes a bow at ICNL

On Saturday, 9th June 2018 CAP’s chief executive Noshir Dadrawala completed his two terms of office as Director of the Board of the International Centre for Nonprofit Law (ICNL). He was appointed in June 2012. 
As per ICNL’s charter, no Director is allowed to continue beyond two terms of three years each. However, he will continue as member of ICNL’s Advisory Board.

ICNL works in over a hundred countries worldwide and its mission is to promote an enabling environment for civil society, philanthropy, and civic participation around the world.

Noshir has actively worked with ICNL on several research programs, the most recent being “The Philanthropy Law Reports” supported by the Bill & Melinda Gates Foundation. Noshir’s Report can be read online at:

He has also contributed his expertise for the “Civic Freedom Monitor” and his Report on India can be read online at:

Through ICNL, Noshir has also been contributing for the last several years to the Council on Foundation’s country codes and laws which are intended to assist grant-makers and their advisers when undertaking equivalency determinations for foreign grantees under IRS Revenue Procedure. 
Noshir’s country note can be read online at: 

ICNL’s Chairperson, Dr. Oonagh B. Breen, who is also Professor of Law at the Sutherland School of Law, University College Dublin (where she teaches and researches on NGO Law, Governance, and Social Change) while giving Noshir a formal farewell referred to him as a “reliable Indian knowledge source”. 

ICNL’s President and CEO, Prof. Douglas Rutzen, who also teaches at Georgetown University Law Center and serves on the Advisory Board of the United Nations Democracy Fund said: “You are an inspiration to me.  You’ve worked on issues of philanthropy and civil society for many years and despite challenges, you’ve retained your optimism, dedication, and constructive engagement.  It’s an honor working with you”.


Sunday, 10 June 2018

Penalties for FCRA offences – Is there cause for Worry? Simply remember the Nine Commandments of FCRA!

This is further to our Blog post of 7th June 2018 titled “New Penalties to compound FCRA offences”. 
We have received a number of calls and messages from individuals who are naturally feeling very concerned regarding potential offences like: “what if a foreign donor accidentally credits funds into our local account” or “what if an Indian donor accidentally credits funds into our FCRA account”? 
“Does this mean penalty of minimum INR 100,000 will be imposed if an Indian donor accidentally sends INR 500 to our FCRA account? 
The Irish lawyer and politician John Philpot Curran in a speech in Dublin on July 10, 1790, had said: “The condition upon which God hath given liberty to man is eternal vigilance.” In the Indian context one could rephrase this as: “The condition upon which Ministry of Home Affairs (MHA) hath given FCRA registration or prior permission to NGOs is eternal vigilance.”. 
Exercise vigilance and due diligence everyday and at all times … there is no other way!

Let’s look at the potential offences once again and how best one can avoid penalties.

One may call these the Nine Commandments of FCRA 2010!

Commandment No. 1: If Thou art a politician, bureaucrat, judge etc., thou shalt not accept any ‘foreign hospitality’ without prior permission of MHA.

Thus, if you are a politician or bureaucrat and accidentally or knowingly relish foreign hospitality without prior permission of MHA, there will be a penalty of INR 10,000!

As NGOs let’s not concern ourselves much with this commandment, except wonder why this is the only offence with a penalty of just INR 10,000 while all other offences attract a minimum penalty of INR 100,000!

Commandment No. 2: Thou shall pass on or transfer your foreign contribution funds only to NGOs having FCRA registration or prior permission.

In other words, if you are the primary recipient of foreign funds and are routing foreign contributions to other program partners (NGOs) make sure the second recipient/s also has/have FCRA registration or prior permission to receive these funds and that too only in their FCRA Bank account, even though the second recipient/s will be receiving the funds in India, from an Indian NPO in Indian Rupees. 

The Banks here need to be given all the necessary details regarding why these funds need to go into the FCRA account.

Failure to comply with this regulation will be treated as an offence attracting penalty of INR 100,00 or 10% of the funds transferred to the second recipient, whichever is higher. 

In other words, even if the first recipient transfers INR 10,000 from its FCRA account to an NGO not having FCRA registration or prior permission, the penalty would be INR 100,000!

Commandment No. 3: Thou shalt not incur more than 50% of your foreign funds received during any financial year on administrative expenses.

As per Rule 5 of Foreign Contribution Regulation Rules 2011 under "Administrative expenses". - The following shall constitute administrative expenses: -

  • salaries, wages, travel expenses or any remuneration realised by Members of the Executive Committee or Governing Council;
  • all expenses towards hiring of personnel for management of activities and salaries, wages or any kind of remuneration paid, including cost of travel, to such personnel;
  • all expenses related to consumables like electricity and water charges, telephone charges, postal charges, repairs to premise(s) from where the organization or Association is functioning, stationery and printing charges, transport and travel charges by the Members of the Executive Committee or Governing Council and expenditure on office equipment;
  • cost of accounting for and administering funds;
  • expenses towards running and maintenance of vehicles;
  • cost of writing and filing reports;
  • legal and professional charges;
  • rent of premises, repairs to premises and expenses on other utilities;

Provided that the 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 shall not be counted towards administrative expenses:

Provided further that the expenses incurred directly in furtherance of the stated objectives of the welfare-oriented organisation shall be excluded from the administrative expenses such as salaries to doctors of hospital, salaries to teachers of school etc.

This ‘offence’ can be compounded by coughing up penalty of INR 100,000 or 5% of such foreign contribution so defrayed beyond the permissible limit, whichever is higher.

Commandment No. 4: Thou shalt not receive any funds from any ‘foreign source’ unless you have FCRA registration or prior permission.

NGOs not having FCRA registration or prior permission should be ultra-careful if they have a payment gateway on their own website or receive funds from other payment gateways, (e.g. crowd funding platforms) which invite funds from both local and international donors.

If your NGO is not registered under FCRA, please let your crowdfunding service provider know this and instruct them to receive funds on your behalf only from local sources, though even here there is scope for potential offence if an overseas citizen of India (OCI) is contributing. 

Hence, where ‘retail fundraising’ from unknown individuals is concerned, one must ascertain their Nationality first, failing which, if an OCI transfers a sum of just INR 1,000 to your account and you do not have FCRA registration or prior permission under FCRA, this would be an offence attracting penalty of INR 100,000.

Commandment No. 5: Even if your NGO has FCRA registration please ensure that foreign funds are received only in your FCRA Bank account specified in your registration or prior permission certificate issued by MHA.

If your NGO maintains FCRA utilisation accounts please ensure that funds from foreign sources are first deposited in your specified main FCRA account and then to your specified FCRA utilisation account.

Any change in FCRA specified bank account or specified utilisation account must be immediately intimated to MHA in online form FC 6.

But, now what if the foreign donor accidentally credits funds to your utilisation account or your local account? 

Well, first of all, one hopes your Bank is vigilant enough and will block the payment till you clarify. 

However, if this does not happen, it would be best for your NGO to instruct the Bank in writing that the funds have inadvertently been credited to the wrong bank account and that the bank should immediately transfer funds to the right bank account or simply return the funds to the donor with instructions from your NGO and/or your bank to re-transfer funds to the correct specified FCRA Bank account.

Any, lapse in this regard would attract penalty of INR 100,000 or 5% of the amount credited to the wrong bank account.

Moral: Check your bank statements regularly or daily or face large penalty!

Commandment No. 6: Thou shalt not deposit local funds in your specified FCRA Bank account.

As stated in our response to Commandment No. 5, if such an inadvertent mistake occurs, one would hope that your Bank would be vigilant. However, if not, please request the bank to immediately correct the mistake or return the money to the donor with a request to re-transfer to the correct Bank account.

This offence can set your NGO back by INR 100,000 or 2% of the amount which was meant to go in your FCRA Bank account but, inadvertently got credited to your specified FCRA Bank account.

Commandment No. 7: If thou art a bank or an ‘authorised person’, thou shalt report or provide intimation to MHA regarding the prescribed amount of foreign remittance and the source and manner of such remittance.

The onus of compliance is mainly on your Bank, but, don’t forget to upload intimation of quarterly receipts of foreign contribution, preferably on MHA’s (FCRA) online portal.

Commandment No. 8: Thou shalt file your FCRA annual returns online before 31st December.

Most NGOs file their tax returns by 30th September but, it’s strange why so many wait, till December to file their FCRA returns. 

Be diligent. Filing your annual return is mandatory even during the year or years that you do not receive any foreign contribution.

Filing your return in FC 4, even during the year or years that you do not receive any foreign contribution is indicative to MHA that you wish to keep your registration alive. 

If you miss the due date, be prepared to shell out a minimum penalty of INR 100,000.

Commandment No. 9: Thou shalt maintain proper books of account (or proper company account or cost centre in your accounting software like Tally) and records of foreign contribution received and manner of its utilisation.

Non-compliance would attract penalty of INR 100,000 or 5% of the foreign contribution received during the relevant period of not maintaining accounts, whichever is higher.

End Note
Remember, managing compliance takes resources, but, it’s nowhere near as expensive as the costs associated with a breach!

Noshir H. Dadrawala