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 PRESENTED AND CONSIDERED 1) Whether rejection of registration could be sustained on the ground of prior receipt (and alleged transfer) of foreign contribution when the prior receipt had been formally compounded, and the alleged transfer was introduced for the first time in the rejection order without prior notice or particulars. 2) Whether rejection on the ground that the applicant 'appears to be religious' satisfied the statutory standard requiring a definite conclusion as to the nature of the applicant's programme/activities, and whether the authority failed to consider relevant material bearing on the applicant's character. 3) Whether the writ petition was maintainable despite availability of a statutory appeal, in view of the Court's findings of fundamental breach of natural justice and other vitiating defects in the impugned order. ISSUE-WISE DETAILED ANALYSIS 1) Effect of compounding and legality of relying on unnotified/vague allegations of transfer of foreign contribution Legal framework: The Court examined the statutory scheme concerning compounding of offences and the eligibility condition that an applicant should not have contravened the Act, and treated compounding as a relevant statutory event that must be considered while deciding registration. Interpretation and reasoning: The authority's clarification initially concerned only receipt of foreign contribution without permission. The applicant admitted the lapse, was offered compounding, paid the amount, and a formal compounding order was passed. The Court held that once an offence is compounded, the contravention cannot be used adversely against the applicant for registration; otherwise, it would be disproportionate, particularly where the violation was technical, had no larger implication, and stood compounded. The Court further held that the authority failed to consider this relevant material, vitiating the decision. Natural justice/vagueness: The rejection order additionally alleged transfer of foreign contribution to another organisation, a case never put to the applicant earlier. The applicant was not put on notice, and the order gave no particulars (no identification of the recipient, time, or details), rendering the ground vague and violative of principles of natural justice. Conclusion: The first ground of rejection (contravention/transfer) was held unsustainable due to (i) compounding wiping the adverse effect of the technical contravention for registration purposes, (ii) failure to consider the compounding as relevant material, and (iii) breach of natural justice and vagueness regarding the alleged transfer. 2) Sustainability of rejection based on the applicant 'appearing' to be religious and failure to consider relevant material Legal framework: The Court examined the statutory requirement governing registration for persons having a definite programme including a religious programme, and held that the statutory text requires a clear, categorical conclusion founded on material. Interpretation and reasoning: The Court held that the authority's conclusion that the applicant 'appears to be religious' was tentative and did not meet the statutory standard implied by the word definite. The Court reasoned that if the authority intended to reject on this ground, it had to reach a definite conclusion based on materials, not a speculative or non-committal inference. The Court further treated the existing recognition of the applicant under another statutory regime as relevant material: the applicant had been found to be a charitable organisation under the applicable income-tax registration, and the authority's failure to consider this was held to reflect non-application of mind. The Court also relied on the principle that the Act operates 'in addition to' other laws and does not override them, and therefore the charitable character accepted under another law remained a relevant consideration while assessing the applicant under this regime. Conclusion: The second ground of rejection was held infirm because the authority did not record a definite, material-based conclusion about the applicant's nature and failed to consider relevant material bearing on its status/character, thereby vitiating the decision-making process. 3) Maintainability of writ jurisdiction despite statutory appeal Legal framework: The Court considered the existence of a statutory appellate remedy to the High Court and applied the principle that writ jurisdiction may still be invoked where there is violation of natural justice, while noting that when the designated alternative forum is also the High Court, entertaining a writ should be exceptional and subject to a higher threshold. Interpretation and reasoning: The Court held that the writ petition was maintainable because the impugned order suffered from fundamental breach of natural justice (new, unnotified and vague allegation of transfer), disproportionality in treating a compounded technical contravention as disqualifying, and other defects including failure to consider relevant materials. These vitiating factors satisfied the higher threshold for entertaining a writ despite the appellate remedy. Conclusion: The writ petition was held maintainable on the facts due to serious procedural and decisional infirmities. Result / Operative directions (as decided) The Court set aside the rejection order and remitted the matter for fresh decision. The authority was directed to consider relevant materials identified by the Court, and to issue a fresh, non-vague notice (based on relevant material) specifically on the alleged transfer issue, obtain the applicant's response, and pass a fresh order within three months.