India: Utilization Of Unspent Foreign Contribution During Suspension Period

In the absence of any challenge to the aforesaid order of DHC, the said order sets a signifi precedent and brings clarity in respect of applications under Section 13(2) of FCRA read w Rule 14 of FCRR regarding permissibility of utilization of the unutilized foreign contributio amount. Watch this space as we continue tracking developments in this sector.

The Government has been introducing a series of amendments and changes to the Foreign Contribution (Regulation) Act, 2010 ("FCRA") and other legislations impacting non-governmental and charitable organizations ("NGOs"), and very recently, the Government introduced, amongst others, amendments to the Prevention of Money-laundering (Maintenance of Records) Rules, 2005. We have discussed and analyzed in detail some of the amendments in our earlier articles on our AZB website which can be accessed on the AZB portal. We are, in this article, analyzing another development in this space pursuant to a recent order of the Hon'ble Delhi High Court ("DHC"), pertaining to the utilization of foreign contributions/ grants by NGOs being suspended in terms of Section 13(1) of FCRA, during the pendency of investigations/proceedings regarding cancellation of registration of such NGOs ("Suspended NGOs").

(Regulation) Rules, 2011 ("FCRR") provides limited permission to Suspended NGOs to utilize up to 25% (twenty five percent) of the unutilized foreign contribution amount towards the declared aims and objectives, after receiving prior approval of the Central Government in this regard. The availability of these funds become critical for Suspended NGOs, as the same provides limited scope for said Suspended NGOs to continue to work towards their objectives during the suspension period and avoid any abrupt halt to their activities and projects owing to the suspension. Also, the aforesaid provision is critical to ensure that Suspended NGOs, against whom cancellation proceedings are eventually withdrawn, are not materially prejudiced due to the suspension of their registration.

Recently, the DHC while hearing an application filed by Centre of Policy Research ("CPR") in the matter titled Centre for Policy Research Vs. Union of India (W.P.(C) 11139/ 2023) ("Writ Petition"), examined and interpreted the extent and nature of the unutilized foreign contribution amount that should be considered for computing the amount permitted to be utilized in terms of Section 13(2)(b) of FCRA read with Rule 14 of FCRR.

A Writ Petition was filed by CPR to challenge the order of the Government of India under Section 13(1) of FCRA for suspending its registration certificate under FCRA owing to certain allegations regarding misutilization of foreign grants by CPR. During pendency of the Writ Petition, CPR applied to the Government to permit it to utilize 25% (twenty five percent) of the unutilized foreign contribution amount in terms of Section 13(2)(b) of FCRA read with Rule 14 of FCRR, and also filed an application before DHC to direct the Government to grant such permission.

In response to the aforesaid application of CPR, the Government allowed CPR to utilize 25% (twenty five percent) of the unutilized foreign contribution amount in its custody. The permission granted by the Government only considered the amount lying in the current bank accounts of CPR as the amount of unutilized foreign contribution and did not consider the remaining unutilized amount in the form of fixed deposits, government bonds etc., thereby limiting the amount that could be utilized by CPR during suspension of its registration. The aforesaid limited interpretation of the unutilized foreign contribution for the purposes of granting permission in terms of Section 13(2)(b) of FCRA read with Rule 14 of FCRR was challenged by CPR before DHC.

Agreeing with argument of CPR, that it shall be permitted to utilize 25% (twenty five percent) of the entire unutilized foreign contribution amount in its custody to meet its expenditure and overcome severe cash crunch being faced by it due to the suspension of its registration, DHC held in the context of Section 13(2) of FCRA, inter alia, that "There is no occasion to restrict the term "his custody" only to the current account" and the amounts held in fixed deposits, government bonds etc. would also constitute unutilized foreign contribution amount for the purposes of any permission under Section 13(2) of FCRA.

In the absence of any challenge to the aforesaid order of DHC, the said order sets a significant precedent and brings clarity in respect of applications under Section 13(2) of FCRA read with Rule 14 of FCRR regarding permissibility of utilization of the unutilized foreign contribution amount. Watch this space as we continue tracking developments in this sector.