TaxTMI 
TaxTMI 
TaxTMI 
The Foreign Contribution (Regulation) Act (‘Act’ for short) is regulating foreign funding to individuals, associations, and companies to prevent it from harming national interests, requiring registration/permission for foreign funds, and setting rules on acceptance and use, with the 2010 Act and its 2020 amendments focusing on stricter compliance, limiting administrative spending, and clarifying rules for relatives' contributions. This Act Applies to individuals, associations, and companies receiving foreign contributions or hospitality. Such organizations must obtain a certificate of registration or prior permission from the Central Government (Ministry of Home Affairs) to receive foreign funds. The Act ensures transparency and accountability for foreign funds in India, ensuring they align with national priorities, replacing the older 1976 Act to tighten controls.
Without observing the principles of Natural Justice the registration certificate cannot be rejected as confirmed by the Madras High Court, Madurai Bench, in Arsha Vidya Parampara Trust Versus Union of India and The Director, FCRA Wing, New Delhi - 2026 (1) TMI 212 - MADRAS HIGH COURT. In the said case, the petitioner is a public charitable trust, registered under Trusts Act, 1882, situated at Coimbatore and established on 08.06.2017. The main purpose of the trust is to spread the knowledge of Vedanta along with Sanskrit language. They are also teaching hatha yoga and yoga philosophy and also digitizing and preserving ancient manuscripts.
The petitioner applied for registration under the Act. The same was not done for more than three years. The Department raised certain queries during the year 2024. The clarification sought by the Department was answered by the petitioner. It was alleged that the petitioner received donation as Foreign Contribution of Rs. 9 Lakh from Jitendranath V (Trustee) who is a US national and holds OCI Card. The petitioner has received the foreign contribution without valid permission of Government of India. Further the object of the trust is for education. But the trust deed mentioned that Bhagavat Gita, Upanishads and Sanskrit language which shows religious matter. No such type of religious activities shall be carried out. Therefore, the Department directed the petitioner to amend the trust deed and upload all the required documents within 14 days.
The petitioner submitted reply to the department on 28.04.2025. On 27.01.2025, the petitioner filed form FC-3A again with the department for registration of the trust. Despite the reply given by the petitioner for the objections raised by the Department, the Department rejected the application of the petitioner for registration under the Act on 08.09.2025. The petitioner, against the said rejection, filed a writ petition before the High Court.
The petitioner prayed for quashing of the rejection order. The Department vehemently opposed the petition. The Department submitted the following before the Court-
- The order is a well-reasoned order.
- Since the petitioner contravened the provisions of the Act the registration is rejected.
- The registration under the Act is not a matter of right.
- When an application fall sought of the high threshold, it is liable to be rejected.
The Department prayed for the dismissal of the order.
The High Court considered the submissions of both the parties. The High Court observed that the petitioner was registered under the Trust Act and also under Section 12A of the Income Tax Act, 1961. The Department sought clarifications from the petitioner and the petitioner filed reply to the notice.
The High Court considered the contentions of the Department that the petitioner had received foreign contribution funds without prior permission and there has been transfer of FC fund as donation to another organization. The High Court held that the said contention is not sustainable. The petitioner admitted their fault in their reply. But the Department once again drew the petitioner's attention to the very same receipt of funds and gave them an option of compounding the same. The petitioner compounded the offence by paying Rs.3,70,500/- on 01.08.2025. The source of the said donation was not of any suspect origin. It was from the author of the Trust who is based in USA.
The impugned order not only refers to the improper receipt of foreign fund but also to a transfer by the petitioner to another organisation. The authorities had never come up with such a case of transfer. For the first time, in the impugned order, such an allegation is found. The petitioner was never put on notice in this regard. This is a clear violation of the principles of natural justice. Further, the impugned order does not mention the name of the organisation to which the transfer has been made. The impugned order suffers from the vice of vagueness in this regard. The petitioner in their affidavit had clearly stated that the fund received from the author of the trust was utilised for the trust activities and that it was not transferred to any other organisation.
Then the High Court analysed the provisions of Section 41 of the Act which deals with the compounding of offences. Once the offence has been compounded, the contravention can never be an adverse ground which can be cited against the applicant. Section 12(4)(a)(vii) of the Act sets out the conditions that an applicant must fulfil so as to make him or it eligible for grant of certificate.
The High Court observed that the Department alleged that the petitioner obtained the fund from its trustee who is in USA which is a contravention of the provisions of the Act. A technical violation such as the one committed in this case ought not to disqualify an applicant forever. There is no provision in the Act that non-fulfilment of the conditions in sub-section should lead to automatic rejection of the application. If the violation is purely technical and there is no larger implication and the offence has also been compounded, then, the lapse committed by the applicant ought not to be put against them.
The High Court further observed that the authority gave an option of compounding the offence to the applicant on 24.07.2025. On the very next day, the compounding fee indicated by the authority was remitted by the petitioner. If the authority had intended to reject the petitioner's application on the ground of contravention of the provisions of the Act, then, the authority even while giving an option of compounding should have made it clear that compounding will only shield them from prosecution and that it would amount to acceptance of guilt leading to disqualification under Section 12(4)(a)(vii) of the Act. The Authority did not do so and the petitioner had acted with all bonafides.
The High Court, then considered the second ground of rejection of the application for registration is the purpose of the trust is religious. For this purpose, the High Court analysed the provisions of Section 11 of the Act. The said section provides that a religious trust also can receive foreign fund, after getting a certificate of registration under the Act. The provision reads that no person having ‘a definite cultural, economic, educational, religious or social programme’ shall accept foreign contribution unless such person obtains a certificate of registration from the Central Government. the second respondent had concluded that the petitioner-association ‘appears to be religious’. By holding that the applicant appears to be a religious organisation, the authority had not met the standard set out in the provision.
The High Court observed that the petitioner-trust has been registered under Section 12A of the Income Tax Act, 1961. The Income Tax Appellate Tribunal after considering the terms of the trust deed, gave a finding that the petitioner is a charitable organization. Therefore, when according to the Income Tax Department, the petitioner is a charitable organization, it cannot cease to be one under FCRA regime. It is well settled that writ petition will be maintainable even though there is an alternative statutory remedy if there is violation of principles of natural justice. In this case, there has been a fundamental breach of the principles of natural justice. The impugned order suffers from the vice of disproportionality. Other defects characterizing the impugned order have also been catalogued. Therefore, the High Court held that the petitioner is entitled to discretionary relief.
The High Court set aside the impugned order. The High Court remitted the matter to the second respondent. The High Court directed the second respondent to take into account all the relevant materials mentioned above. A fresh notice shall be issued to the petitioner seeking their response as to whether the transfer of FC fund was made. But such a notice has to be based on relevant materials. It cannot be vague. After obtaining the response of the petitioner, an order afresh shall be passed after taking note of the observations made in this order.