2026 (1) TMI 212 - HC - FEMA

FCRA registration rejected over foreign contribution receipt/transfer claims; compounding and lack of notice led to reconsideration ordered

Rejection of an application for registration under the FCRA was challenged on the grounds of alleged receipt and transfer of foreign contribution (FC). ... Rejection of application seeking grant of registration - petitioner had received foreign contribution funds without prior permission and there has been transfer of FC fund as donation to another organization - nature of the petitioner-organisation appears to be religious - HELD THAT:- The ground that the petitioner had received foreign contribution funds without prior permission is not sustainable. This is for more than one reason. In the queries raised in April 2025, the authority had only raised the issue of receipt of foreign funds without proper permission. In their reply dated 28.04.2025, the petitioner admitted their fault. On 24.07.2025, the authority once again drew the petitioner's attention to the very same receipt of funds and gave them an option of compounding the same. Availing the said option, the petitioner compounded the offence by paying Rs.3,70,500/-. On 01.08.2025, the Ministry of Home Affairs passed an order formally compounding the offence committed by the petitioner. It is relevant to note that the 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. While so, 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. That apart, the order does not mention the name of the organisation to which the transfer has been made. The details are blissfully absent. It does not state when the transfer was 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. The concept of legitimate expectation though evolved in a different context, can also be invoked in this case. The writ petitioner had applied to the respondents for registration way back in the year 2021 itself. The application remained unconsidered. The process of consideration picked up steam only from October 2024. A fresh application was submitted in January 2025. Queries were raised in April and in the very same month, reply was submitted. In this background, even while the application for registration is under consideration, the authority gave an option of compounding the offence to the applicant on 24.07.2025 - Even in criminal law, as soon as an accused is arrested, the police administer what is known as “Miranda warning”. If confession is taken without giving such a warning, the confession is inadmissible. 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 had not done so in this case. The writ petitioner had acted with all bonafides. Petitioner appears to be a religious organization or not - HELD 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. This order of the Tribunal and the certificate issued in favour of the petitioner is holding good. FCRA, 2010 does not contain any overriding provision. On the other hand, Section 52 of the Act reads that the provisions of the Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force. Provisions analogous to Section 52 of the Act can be found in other statutes also - The effect of the provision such as Section 52 is that the Act does not have the effect of overriding other enactments with reference to matter dealt with in the Act. The Section only provides that it will be open to any person to claim the benefits of this Act and also avail himself of the provisions of other enactments if there is no inconsistency or conflict and if he is not barred otherwise by any other principle of law like estoppel or election. When according to the Income Tax Department, the petitioner is a charitable organization, it cannot cease to be one under FCRA regime. That is the true import of Section 52 of the Act. The certificate issued in favour of the petitioner under Section 12A of the I.T Act is definitely a relevant material and failure to consider the same indicates non-application of mind. 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 - the petitioner is entitled to discretionary relief at the hands of this Court. The impugned order is set aside. The matter is remitted to the file of the second respondent. The second respondent will 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 - Petition allowed by way of remand. Issues: (i) Whether the rejection of the petitioner’s application for registration under the FCRA on account of prior contravention (receipt of foreign contribution) was sustainable where the contravention had been compounded; (ii) Whether the second respondent validly concluded that the petitioner 'appears to be' a religious organisation and thereby rejected the application; (iii) Whether the writ petition was maintainable before the High Court notwithstanding the existence of a statutory appeal remedy.Issue (i): Whether the impugned rejection could be sustained on the ground of prior contravention after the offence had been compounded.Analysis: The Court examined the compounding under Section 41 of the FCRA and the sequence of correspondence and compounding by the petitioner, noting that the authority had given option to compound and the petitioner had paid the compounding amount and the Ministry of Home Affairs had passed a compounding order. The Court held that once an offence is validly compounded under Section 41, it removes the adverse consequence of the contravention for purposes of disqualification and that an administrative authority must take such relevant materials into account before rejecting an application.Conclusion: The impugned rejection on the ground of prior contravention is unsustainable because the contravention had been validly compounded and the authority failed to take that material into account in a proportionate manner; this conclusion is in favour of the petitioner.Issue (ii): Whether the authority validly rejected the application by holding that the petitioner 'appears to be' a religious organisation.Analysis: The Court analysed Section 11(1) of the FCRA requiring that a person having a definite cultural, economic, educational, religious or social programme must obtain registration, and emphasised that the authority must form a definite, material-based conclusion about the character of activities rather than a tentative finding that an organisation merely 'appears to be' religious. The Court considered materials including the trust deed, prior Income-tax recognition under Section 12A and relevant jurisprudence concerning Vedanta, Bhagavad Gita and Yoga, and held that the authority’s tentative characterization was inadequate and that failure to consider the Section 12A certificate amounted to non-application of mind.Conclusion: The finding that the petitioner 'appears to be' a religious organisation is insufficient and unsustainable; this conclusion is in favour of the petitioner.Issue (iii): Whether the writ petition is maintainable despite the availability of a statutory appeal under the FCRA.Analysis: The Court reviewed precedent and principles that a writ petition may be entertained notwithstanding an alternative statutory remedy where there is a fundamental breach of principles of natural justice or other exceptional circumstances. The Court found that the impugned order suffered from fundamental defects including breach of natural justice, vagueness and disproportionality, thereby justifying invocation of writ jurisdiction despite the statutory appeal remedy.Conclusion: The writ petition is maintainable and this conclusion favours the petitioner.Final Conclusion: The impugned order rejecting the petitioner’s application for registration under the FCRA is set aside and the matter is remitted to the second respondent for fresh consideration after issuing a specific, material-based notice and taking into account the compounding order, the Section 12A recognition and other relevant materials; the Court granted relief to the petitioner by ordering reconsideration within three months.Ratio Decidendi: A valid compounding of an FCRA contravention under Section 41 removes the adverse consequence of that contravention for purposes of registration eligibility, and an administrative authority must base any adverse decision on definite, material-supported findings and take into account all relevant materials, failing which the decision will be vitiated for non-application of mind or breach of natural justice.