In a recent judgement, the Hon’ble High Court of Delhi (“DHC”), in the matter titled ‘Center for Policy Research v. The Union of India’ has interpreted certain provisions of the Foreign Contribution (Regulation) Act, 2010 (“FCRA”); and the Foreign Contribution (Regulation) Rules, 2011 (“FCRR”) issued thereunder; in relation to utilization of foreign funds lying “in the custody” of a non-profit organization during the period of suspension of their certificate of registration granted under the FCRA (“FCRA Registration”).

Background  

• The present judgment has been passed by the DHC during the pendency of an ongoing writ petition filed by the petitioner i.e., Centre for Policy Research (the “Petitioner”), challenging an order of the respondent, i.e., Union of India (the “Respondent”), which had suspended the Petitioner’s FCRA Registration.
• As per the provisions of the FCRA, suspension of an FCRA Registration triggers an evaluation period of 180 days (which can be extended by an additional period of 180 days), during which time the Ministry of Home Affairs (“Central Government”) evaluates the matter before proceeding towards cancellation of an entity’s FCRA Registration if it so deems fit (“Suspension Period”).
• During such Suspension Period, the Petitioner had sought permission from the Respondent to utilize 25% of the total foreign contribution amount/ funds lying in the custody of the Petitioner, as per the relevant provision of the FCRA read with the FCRR. In response, the Respondent permitted the Petitioner to utilize 25% of the amount lying in the current account of the Petitioner (“Designated FCRA Account”).
• The Petitioner argued that the Respondent had only considered the amount available in their Designated FCRA Account and not the other unutilized amounts received as foreign contribution that were is lying in different deposit accounts/ schemes like fixed deposits (“FD”), Government bonds etc. which also ought to be considered as utilizable proceeds.
• Consequently, the Petitioner approached the DHC praying for a direction permitting utilization of 25% of the total funds lying in the custody of the Petitioner and not merely the amount lying in their Designated FCRA Account.

Submission of the Petitioner

• The Petitioner submitted that Section 13(2)(b) of the FCRA read with Rule 14(1)(a) of the FCRR permits the utilization of 25% of the total amount of foreign contribution which is “in his custody” to meet the expenses of its day-to-day activities during the period of suspension of the Petitioner’s FCRA Registration. Hence, the Petitioner should be permitted to utilize 25% of the entire unutilized foreign contribution that is lying in fixed deposits, Government bonds and other different deposit accounts/ schemes, in addition to those funds available in the Designated FCRA Account of the Petitioner.

Submission of the Central Government

• The Respondent in its submissions to the DHC contended that only the funds lying in the Designated FCRA Account of the Petitioner can be taken into consideration for the purpose of the aforesaid provisions of the FCRA and FCRR.

Observations and decisions of the DHC

• Considering the submissions of both the parties, the DHC held that Section 13 of the FCRA read with Rule 14 of the FCRR does not prescribe that only the amounts lying in the Designated FCRA Account of a person (whose certificate of registration has been suspended) can be utilized in connection with the aforesaid provisions.
• Resultantly, the DHC permitted the Petitioner to utilize 25% of the total FCRA funds received by the Petitioner as foreign contribution and held in its Designated FCRA Account, FDs, Government bonds etc. pending consideration of the cancellation of the Petitioner’s FCRA Registration, for the purpose of carrying out the day-to-day activities (and for no other expenses).
• The DHC also ruled that a complete statement of the Petitioner’s Designated FCRA Account and the amounts deposited in FDs and Government bonds etc., along with expenses incurred from the date of suspension of the Petitioner’s FCRA Registration shall be submitted to the Respondent periodically (no specific cadence of such submission was provided).

Impact:

• This decision comes at a time when the Central Government has seemingly adopted a stringent approach in scrutinizing FCRA – covered entities which has also led to the suspension and/or even cancellation of the FCRA Registrations of several FCRA – covered entities.
• Hence, this decision will help support the ongoing activities and expenses of an FCRA – covered entity that is undergoing a period of suspension for any reason, by enabling them to access a wider pool of funds available at its disposal. Given that FCRA – covered entities are not permitted to accept any foreign contribution during the period of suspension, this clarification will help avert disruption in their day-to-day operations to some extent.