Background

The Ministry of Home Affairs (MHA) has suspended the Foreign Contribution (Regulation) Act registration of the Centre of Policy Research (CPR), a Delhi based think tank on 27th February, 2023 in response to the allegations of misappropriation of foreign contributions for purposes outside the scope of its registered objectives.

Further Rule 14 of Foreign Contribution (Regulation) Rules, 2011(FCRR) provides that in case of suspension of certificate of registration, 25% of unspent amount can be utilized for the declared aims and objects for which the foreign contribution has been received.

Application for utilisation of funds in case of suspension:

The CPR made an application to permit it to utilize 25% of the total foreign contribution amount/funds held under section 13(2)(b) of FCRA, 2010 read with rule 14(1) of FCRR.  The CPR is permitted to utilize 25% of foreign contribution amount lying in its custody which was 25% of the contribution held by the petitioner only of the current bank accounts.

Writ petition under Article 226

In response to suspension order issued by the MHA, CPR approached the Delhi High Court (Delhi HC) through a writ petition under article 226 of the Indian constitution, seeking cancellation of suspension order. Additionally, to address the immediate financial challenges pending writ petition, an application for interim relief had been filed by CPR invoking Section 13(2)(b) of FCRA r/w Rule 14(a) of FCRR. 

Contention of CPR

Section 13(2) of FCRA permits utilization of foreign contribution which is in custody of the person whose certificate has been suspended. Sub-Section (2) of Section 13 states as follows:

(2) Every person whose certificate has been suspended shall—

(a) not receive any foreign contribution during the period of suspension of certificate:

Provided that the Central Government, on an application made by such person, if it considers appropriate, allow receipt of any foreign contribution by such person on such terms and conditions as it may specify;

(b) utilise, in the prescribed manner, the foreign contribution in his custody with the prior approval of the Central Government.

The CPR sought definitive interpretation of term ‘in his custody’ as stipulated in Section 13(2)(b) of the FCRA. The Petitioner argued that this provision of the FCRA permitted the utilization of 25% of the entire unutilized amount, including funds held in different deposit accounts/schemes like fixed deposits, government bonds, etc.

Contention of Respondent:

However, the Union of India, who was respondent in such case contented that the FCRA provisions permitted the utilization of 25% of the unutilized amount in the current account of the CPR and argued that the amount kept under different deposit/investment schemes cannot be included in the definition of ‘custody’ under the provisions of S.13(2)(b) of the FCRA. 

Court held:

The Delhi HC examined the term “in his custody” under Section 13(2)(b) of the FCRA and state that there is no occasion to restrict the term “his custody” only to the current account. There is nothing in the said Section which restricts that only the amounts lying in the current account can be permitted to be utilized, this Court is inclined to allow the Petitioner to utilize the 25% of the total FCRA funds held it in fixed deposits, government bonds etc. pending consideration of the cancellation of registration under Section 14 of the FCRR.

Further to avoid misuse or diversion of foreign contribution during suspension period, the Delhi HC imposed specific compliance and obliged to submit a complete statement of the CPR’s FCRA account and the amounts deposited in fixed deposits and government bonds etc. along with expenses incurred from the date of suspension to respondent periodically.

Conclusion:

The Delhi HC has taken practical approach which will bring balance between the regulatory compliance and organizations operation requirements. It will provide greater flexibility in managing unutilized foreign contributions during the FCRA suspension and will get option in addressing financial challenges faced during such period.

This article is written by Ms. Vrushali Bhave – Senior Manager – RND Team – MMJC

Tags:

Author Bio

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Telegram

taxguru on telegram GROUP LINK

Download our App

  

More Under Corporate Law

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

February 2024
M T W T F S S
 1234
567891011
12131415161718
19202122232425
26272829