Few Indian statutes are argued about in terms as strong as the terms applied to the Foreign Contribution (Regulation) Act, 2010, and few arguments proceed with as little reference to what the Act says. One body of opinion treats the statute as the ordinary housekeeping of a sovereign State that is entitled to know whose money enters its territory and for what ends. Another treats it as an instrument that has narrowed the space in which voluntary organisations work, by tightening the conditions on which money from abroad may be received, held and spent. Both descriptions attach themselves to the same text, and the text is where any useful account has to begin. The Act is Act 42 of 2010. It received the assent of the President on 26 September 2010, it was brought into force on 1 May 2011 by notification S.O. 909(E), and on its commencement it repealed the Foreign Contribution (Regulation) Act, 1976. Its long title states its business in two movements: to consolidate the law to regulate the acceptance and utilisation of foreign contribution or foreign hospitality by certain individuals or associations or companies, and to prohibit acceptance and utilisation of foreign contribution or foreign hospitality for any activities detrimental to the national interest. Regulation for the permitted, prohibition for the detrimental: the whole architecture of the statute is contained in that pairing, and the disputes the statute generates are disputes about where the line between the two movements falls in a given case.

This article is a statute pillar, and it proceeds as the series proceeds with such pillars. It sets out what the Act regulates and whom it binds, the categories of person who may never accept foreign contribution at all, the permission regime of registration and prior permission through which everyone else must pass, the banking channel the Act prescribes, and the amendment of 2020 that rearranged the operating rules of the sector and was then upheld, with one provision read down, by the Supreme Court in Noel Harper v Union of India in 2022. It gives the strongest version of the case for the regime and the strongest version of the case against it, in the voices of those who make each, and it adjudicates neither, because the questions in dispute are questions of policy on which reasonable legislatures differ and on which the constitutional challenge has been decided. It names no organisation as an example of anything. Where figures on registrations and cancellations appear, they are attributed to the judgment or the ministry that published them and to the period they cover, because the series counts carefully in territory where numbers are often carried without their sources. An organisation that receives foreign funding, or is deciding whether to seek it, should finish this article knowing what registration requires, what the amendment of 2020 changed, and what the Supreme Court held about that amendment. A donor or an adviser should finish knowing what has to be verified before money moves. A researcher should finish knowing which propositions in the public debate are text, which are judgment, and which are assertion.

What the FCRA regulates

The Act extends to the whole of India, and it also applies to citizens of India outside India and to associate branches or subsidiaries outside India of companies or bodies corporate registered or incorporated in India. Its reach is therefore not confined to money arriving at an Indian address. A contribution made to an Indian citizen abroad, or to the foreign branch of an Indian body, can fall within the statute, and the compliance analysis for an organisation with operations in more than one country begins with that breadth. The Act is administered by the Ministry of Home Affairs, and its operative machinery, the applications, the certificates, the returns and the account requirements, runs through that ministry and through the banks that are made reporting instruments of the regime.

Four defined terms do most of the work. The first is foreign contribution, defined in Section 2(1)(h) as the donation, delivery or transfer made by any foreign source of any article, not being a gift for personal use whose market value does not exceed the amount the Central Government specifies, of any currency whether Indian or foreign, and of any security. Three features of that definition matter in practice. The subject matter is wide: an article, currency and securities are all caught, and a contribution in kind is as much a foreign contribution as a wire transfer. The route is indifferent: donation, delivery and transfer are all named, so the legal character of the movement does not save it. And the definition reaches one step down the chain, because an amount received from a person who has in turn received it from a foreign source is within the scheme of the definition, which is how the Act has always addressed the routing of funds through intermediaries. Two exclusions are equally important. A fee received for goods or services rendered in the ordinary course of business, trade or commerce, including fees charged by an educational institution to a foreign student, is not a foreign contribution. And the personal gift exception takes small articles given for personal use outside the definition altogether, up to the value the Central Government specifies.

How does the Act treat a contribution routed through an Indian intermediary?

A contribution does not lose its character by passing through Indian hands. The definition of foreign contribution covers a donation, delivery or transfer made by a foreign source, and the Act treats an amount received from a person who received it from a foreign source as foreign contribution in the hands of the second recipient as well.

The chain is traced by the definition itself, so an organisation cannot convert foreign money into domestic money by interposing a recipient, and a recipient who takes funds from an Indian donor must still ask where those funds began.

The tracing rule explains a great deal of the Act’s later development. A statute that follows money through one pair of hands has an obvious interest in every further pair of hands, and the transfer prohibition of 2020, examined below, is best understood as the point at which Parliament decided that tracing was no longer enough and the chain itself had to be cut at the first recipient. The definition also explains why interest earned on foreign contribution held in a bank account is treated as foreign contribution: the interest is an accretion to money that began with a foreign source, and the returns regime requires it to be reported and applied as such. An organisation that treats interest on its designated account as free domestic income misunderstands the instrument under which the principal is held.

Contributions in kind test the definition in a different way. A foreign source may give no money at all and yet make a contribution of the first importance: vehicles, equipment, medicines, books, software, or securities. The definition meets the case by naming the article and the security alongside currency, and the Rules meet it by requiring valuation and reporting, so that a gift in kind enters the recipient’s FCRA accounts at a value, is reported in the annual return, and is subject to the same utilisation discipline as cash. Two practical consequences follow. The recipient cannot treat donated equipment as outside the regime because no bank was involved; the receipt is a contribution, the registration or permission must cover it, and its later transfer is within Section 7. And the donor’s valuation is not the recipient’s valuation as a matter of course: the accounts must state the value on the basis the Rules prescribe, and a discrepancy between the donor’s figure and the figure the return can support is a discrepancy the recipient owns. Securities raise the further question of realisation, since a contribution of shares or bonds must be converted into programme money through a sale that itself has to be accounted for within the same accounts. The definition’s width, article, currency and security in a single breath, is the reason these cases are governed rather than arguable.

What separates a fee for services from a foreign contribution?

Consideration is the dividing line. Money that a person receives from a foreign source as a fee, or towards cost, in lieu of goods or services rendered in the ordinary course of that person’s business, trade or commerce is excluded from the definition of foreign contribution, whether the goods or services were supplied within India or outside it.

A consultancy that invoices a foreign client for work done is earning income, not receiving a contribution. A donation carries no such consideration: nothing is owed in return, and it is the gratuitous character of the transfer that brings it within the Act.

The distinction is easy to state and harder to police, because the same foreign payer can stand in both relations to the same Indian recipient, and because a payment described as a fee for services that were never rendered, or rendered at a value unrelated to the payment, invites the regulator to look through the label. The Act’s answer is structural rather than verbal. It does not attempt a fuller definition of the boundary; it places the recipient under a regime of accounts, audit and annual return in which the character of each receipt has to be shown, and it arms the Central Government with powers of inspection and inquiry that allow a receipt to be tested against the activity it supposedly paid for. Organisations that earn genuine fee income from foreign clients alongside grant income therefore keep the two streams visibly separate, in different accounts and under different documentation, not because the Act names that practice but because the burden of demonstrating the exclusion rests on the person who claims it.

The second defined term is foreign source, in Section 2(1)(j), and it is the definition on which the political parties controversy turned. A foreign source includes the government of a foreign country and its agencies, an international agency other than the United Nations and its specialised agencies, the World Bank and the International Monetary Fund and any agency the Central Government specifies, a foreign company, a foreign trust, society or association, a foreign citizen, and a company incorporated in India whose share capital is held by foreign interests beyond the threshold the definition prescribes. The inclusion of the Indian-incorporated company with majority foreign shareholding is the limb that mattered when the Delhi High Court examined donations made to two national parties by Indian subsidiaries of a foreign group, and the later amendment of this definition through finance legislation is treated in its own section below. The third term is foreign hospitality, which the Act regulates separately from contribution: hospitality offered by a foreign source, in the form of travel, board, lodging, transport or medical treatment and the like, engages the permission machinery of Section 6 for the classes of person named there, even though no money changes hands in India at all. The fourth term, person, is defined widely enough to cover individuals, Hindu undivided families, associations, and companies registered under the companies legislation, which is why the obligations of the Act fall on the small society and the large foundation through the same sections.

One further feature of the definitional scheme should be fixed before the prohibitions are read, because it determines who carries the Act’s obligations in the cases that arise most. The Act binds persons, and its definition of person is deliberately ordinary: an individual, a Hindu undivided family, an association, and a company within the meaning of the companies legislation. The voluntary sector’s legal forms all fall inside it: the society registered under a societies Act, the public charitable trust, the company licensed for charitable objects under the companies law, and the unregistered association of persons that has never adopted a form at all. The last case is the trap. An informal collective that receives a foreign grant into a member’s account has not avoided the Act by its informality; the member has accepted foreign contribution as a person, the collective is an association for the purposes of the definition, and neither holds the registration that Section 11 requires because registration presupposes an applicant capable of being described, audited and renewed. The sector’s advisers therefore treat legal form as the first FCRA question, anterior to funding: form is what makes a recipient describable to the regime, and the regime admits no other kind of recipient.

The Act’s treatment of companies runs on the same logic in both directions. A company is a person who may be registered and may receive, and a company is also a potential foreign source when its shareholding answers the definition, and may be within Section 3 itself when its business is the production or broadcast of news. The same juristic person can thus appear in the Act in three characters, as recipient, as source and as barred person, and the character is determined afresh for each transaction by the definitions and the prohibitions together. Compliance systems that classify a counterparty once and rely on the classification thereafter misunderstand the instrument: the question is never what an entity is, in the round, but what it is in relation to this contribution, this source and this purpose.

From 1976 to 2010: the inheritance

The 2010 Act is a consolidation and replacement, not a beginning. Its predecessor, the Foreign Contribution (Regulation) Act, 1976, Act 49 of 1976, was enacted during the period of the Emergency, and it commenced on 5 August 1976, a date that acquired a second life when finance legislation in 2018 made a definitional amendment operate from it. The 1976 Act already contained the skeleton that the 2010 Act retains: a prohibition on acceptance by named categories of person, a permission regime for others, a concern with foreign hospitality, and penalties for contravention. What changed between the two statutes is instructive. The stated object of the earlier law was framed in the interests of the security of the State. The 2010 Act restates the object as regulating acceptance and utilisation and prohibiting acceptance and utilisation for activities detrimental to the national interest, and it builds, on the inherited skeleton, a considerably more elaborate administrative machine: registration of five years’ validity rather than an indefinite permission culture, a designated bank account, annual returns in prescribed form, powers of suspension and cancellation expressed in sequence, and a surrender provision added later still. Reading the 2010 Act as a wholly new departure misreads it. It is the Emergency-era decision, that foreign money entering Indian public life is a fit subject for a permission regime, restated in the administrative idiom of a later period.

Why did Parliament legislate on foreign contribution in 1976?

The 1976 Act was passed during the Emergency, in a period when the governing concern, stated in the statute’s own objects, was the security of the State and the insulation of Indian political and public life from foreign money. Its architecture followed from that concern.

Named categories of person connected with elections, legislatures, the press and public office were barred from accepting foreign contribution altogether, and everyone else required the permission of the Central Government. The 2010 Act kept that architecture and changed the stated object to the national interest.

The continuity matters for interpretation. When the Supreme Court in Noel Harper examined the 2020 amendment, it adverted to the legislative history culminating in the 2010 Act and recorded that serious concern about the impact of widespread inflow of foreign contribution on the values of a sovereign democratic republic had been expressed repeatedly, including in Parliament, across that history. Critics of the regime read the same history in the opposite direction: a statute born in a period when democratic checks were suspended, they argue, carries a suspicion of voluntary association in its foundations, and each successive tightening should be tested against that inheritance. Both readings are available on the record. What neither reading can do is alter the text, and the text of the 2010 Act, with its five-year certificates, its renewal machinery and its judicially supervised prohibitions, is a more procedural instrument than the one it replaced, whatever view is taken of its origins.

The 2010 Act also settled a question of coverage that the earlier regime had left untidy, by applying expressly to Indian citizens abroad and to the foreign branches and subsidiaries of Indian bodies. And it arrived with subordinate legislation of real weight: the Foreign Contribution (Regulation) Rules, 2011, notified as G.S.R. 349(E) and brought into force with the Act on 1 May 2011, which prescribe the forms of application, the form of the annual return, the guidelines for specifying an organisation as one of a political nature, and much of the detail that compliance actually consists of. A reader who confines attention to the parent Act will miss the layer at which most obligations are specified, and most breaches occur.

The reader who has followed the argument to this point holds the whole scheme in view, and it is worth pausing on the scheme’s internal proportion before the prohibitions are examined in detail. The Act regulates a flow it does not seek to stop: foreign contribution continued to arrive in large and growing volume throughout the life of the 2010 Act, on the figures the Supreme Court recorded, and the regime’s premise is that the flow is legitimate for the purposes and persons it licenses. Its prohibitions are placed at the points of political and public sensitivity, its permissions are given for a term and under supervision, and its sanctions are graduated from the direction and the suspension to cancellation and prosecution. Proportion in that sense, between the flow permitted and the controls imposed, is the ground on which the debate about the Act is conducted, and the sections that follow take the scheme piece by piece so that the ground can be judged on the text rather than on the reputations the text has acquired.

The differences between the two statutes at the level of machinery explain the different textures of compliance under each. Under the 1976 Act, registration once granted had no fixed term, and the regime’s grip on a registered organisation between grant and any prosecution was comparatively loose; the permission culture was front-loaded, concentrated at entry. The 2010 Act converted registration into a term status. The five-year certificate, the renewal inquiry, the annual return in a prescribed form placed in the public domain, the designated account and the suspension power together moved the regime’s centre from entry to continuation: the State’s question is no longer only who may begin to receive, but who may go on receiving, answered afresh at every renewal on the evidence of the intervening years. That conversion is the deepest change the 2010 Act made, deeper than any single prohibition it restated, and the 2020 amendment is intelligible only as its continuation, a further migration of the same kind, from policing the recipient at entry to prescribing the channels through which the money may move for as long as the recipient holds the status. Critics who describe 2020 as a rupture and defenders who describe it as housekeeping are both describing this migration, from opposite ends.

The absolute prohibitions: Section 3 and the organisation of a political nature

Section 3 is the Act’s hard core. It provides that no foreign contribution shall be accepted by a candidate for election; by a correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper; by a judge, a government servant or an employee of any corporation or body owned or controlled by the government; by a member of any legislature; by a political party or an office bearer of a political party; by an organisation of a political nature that has been specified under Section 5; or by an association or a company engaged in the production or broadcast of audio or audio visual news or current affairs programmes through any electronic mode, or a correspondent or columnist or editor linked with such an entity. The amendment of 2020 added the public servant to the barred categories, aligning the clause with the wider codes that govern public office. These prohibitions are absolute in form. They are not permission provisions with a discretion attached: no registration, no prior permission and no ministerial indulgence can make an acceptance lawful for a person within Section 3, and a receipt by such a person is a contravention however worthy the purpose for which the money was wanted.

The selection of categories is itself the statute’s theory of vulnerability. Elections, legislatures, the judiciary, the civil service, the press and the broadcast of news are the points at which foreign money could most directly purchase influence over the formation of public decisions, and the Act removes those points from the market altogether rather than regulating their participation in it. Everything else in the Act, the entire permission regime, is built for the residual field: cultural, economic, educational, religious and social programmes, which the Act names in Section 11 as the fields of the persons who must be registered or permitted. The boundary the Act draws is therefore not between good money and bad money. It is between functions that may never be financed from abroad and functions that may be financed from abroad under supervision.

Section 5 supplies the one element of judgement inside Section 3. The Central Government may specify an organisation as an organisation of a political nature, not being a political party, having regard to the activities of the organisation, the ideology it propagates, or its association with the activities of a political party, and an organisation so specified falls under the Section 3 bar. The specification is made under guidelines framed in the Rules, Rule 3 of the Foreign Contribution (Regulation) Rules, 2011, which lists grounds that include an organisation with avowed political objectives in its memorandum, a trade union whose objectives include promoting political goals, a voluntary action group with objectives of a political nature, front or mass organisations of a political party, organisations of farmers, workers, students or youth whose objectives include steps towards the advancement of the political interests of such groups, and any organisation that habitually employs common methods of political action such as bandh, hartal, rasta roko, rail roko or jail bharo in support of public causes. An organisation served with such a specification has a right of representation under Section 5, and the representation procedure is part of the provision’s design.

The breadth of Rule 3 was tested in Indian Social Action Forum (INSAF) v Union of India, decided by the Supreme Court on 6 March 2020, reported at (2020) 4 SCR 903. The Court upheld Section 5 against the challenge that its terms were vague, but it read down the two widest grounds in the Rule. The expression political interests in Rule 3(v) was construed narrowly, to mean interests connected with active politics or party politics, and the Court held that an organisation which supports the cause of a group of citizens agitating for their rights, without a political goal or objective, cannot be penalised by being declared an organisation of a political nature. Rule 3(vi) received the same discipline: bandh and hartal are common methods of political action, but an organisation that resorts to legitimate means of protest in support of a public cause is not, for that reason alone, an organisation of a political nature. The Court added the counterweight in the same judgment: organisations used for channelling foreign funds by political parties cannot escape the rigour of the Act where there is concrete material. INSAF is the necessary companion to any reading of Section 5, because it fixes the distance between the ground as written in the Rule and the ground as it may lawfully be applied, and it did so before the amendment of 2020 was enacted, in the last phase of the pre-amendment regime.

The press and broadcast categories deserve a moment of their own, because they are the prohibitions most often questioned and the ones whose rationale is least often stated fairly. The Act does not bar a journalist from earning foreign income; the fee exclusion in the definition leaves a correspondent’s earnings for work done untouched. What Section 3 bars is the acceptance of foreign contribution, a gratuitous transfer, by the persons who write, edit, own, print and publish the registered press, and by the associations and companies that produce or broadcast news and current affairs, together with their correspondents, columnists and editors. The theory is the one that runs through the whole of Section 3: opinion-forming functions, like decision-making functions, are not to be financed by gifts from foreign sources, because a gift creates the obligation that a fee does not. Critics answer that the category is drawn by occupation rather than by conduct, that it catches the small language newspaper and the large media house in the same words, and that the line between a contribution to a media organisation and support for journalism through fellowships, prizes and funded reporting is one the definition, not the prohibition, has to police. The provisions have stood in both the 1976 and the 2010 Acts in materially similar form, and no part of the amendment of 2020 touched them; they are among the oldest settled positions in the statute.

Section 6 completes the prohibitory chapter for hospitality. No member of a legislature, office bearer of a political party, judge, government servant or employee of a corporation or body owned or controlled by the government shall, while visiting a country or territory outside India, accept any foreign hospitality without the prior permission of the Central Government, subject to the exceptions the section itself makes, including for medical emergency. The provision is aimed at influence that never becomes a bank entry: the funded tour, the hosted conference, the hosted treatment. Its presence in the Act is a reminder that the statute’s subject is influence as much as money, and that its definition of the regulated transaction follows the substance of the benefit rather than its monetary form.

Beyond the named categories, Sections 9 and 10 give the Central Government a reserve power over the unnamed. The Central Government may prohibit a person or organisation not specified in the Act from accepting foreign contribution, and may require a person or class of persons to obtain prior permission before accepting foreign contribution or foreign hospitality, where the statutory conditions for those orders are met. The reserve powers matter to the constitutional analysis, because they show that the Act’s prohibitions are not exhausted by Section 3, and they matter to practice, because an organisation that is in none of the barred categories is not thereby outside the Act’s reach. The permission regime, to which the article turns next, is the normal route; Sections 9 and 10 are the route by which the exceptional case is brought inside the same discipline.

The permission regime: registration and prior permission

Section 11 states the gate. No person having a definite cultural, economic, educational, religious or social programme shall accept foreign contribution unless that person is registered with the Central Government under the Act or obtains prior permission for the contribution in question. The two routes differ in kind, and the difference is the first practical question every organisation faces. Registration is a status: it certifies the organisation, for a period, as a person who may receive foreign contribution from any foreign source for its stated programme, subject to the Act’s conditions. Prior permission is a transaction approval: it certifies a particular receipt, from a particular source, for a particular purpose, and it is the route designed for the organisation that cannot yet seek registration, or that needs to receive a specific contribution for a specific project.

Section 12 prescribes the procedure and the conditions of registration. The applicant applies in the prescribed form, and the Central Government, after such inquiry as it considers necessary, grants a certificate where the statutory conditions are satisfied. Those conditions are directed to genuineness and to risk: the person must not be fictitious or benami; must not have been prosecuted or convicted for creating communal tension, for conversion by inducement or force, or for seditious or analogous activity; must not have been found guilty of diversion or misutilisation of funds; must not be likely to use the contribution for the personal gains of its functionaries or for speculative business; must not have contravened the Act; and must not be likely to engage in propagation of sedition or advocacy of violent methods, or in activity likely to affect prejudicially the sovereignty and integrity of India, friendly relations with a foreign State, public interest, harmony between groups, or the fairness of an election. The Rules add the expectation of a record: an applicant is expected to have existed and worked in its chosen field for the period the Rules prescribe, with accounts to show for it, which is why registration is in practice a status earned by an operating organisation rather than a licence obtainable at incorporation. The certificate of registration is valid for five years from the date of its issue.

Prior permission under Section 12 follows the same form of application and a similar inquiry, but its grant is tied to the contribution described in the application: the source, the amount or value, and the purpose. The organisation that receives under prior permission holds no general entitlement, and a second contribution from a second source is a second permission. The distinction between the routes is therefore also a distinction of administrative weight. Registration concentrates the inquiry at entry and at renewal; prior permission repeats the inquiry at each receipt. Donors funding a project through an organisation without registration should understand that the permission they rely on is the organisation’s permission for that project, and that delay or refusal at that point is a delay or refusal of the project funding itself, not a technicality curable elsewhere.

Prior permission has a texture of its own that applicants discover late. The application is made in Form FC-3B, and it is built around the commitment of the donor: the foreign source commits a stated amount, or a stated contribution in kind, for a stated purpose, and the permission, when granted, authorises that receipt. The arrangement disciplines both sides. The donor cannot treat the permission as a general clearance for a relationship, and the recipient cannot treat it as a float from which other projects may be drawn. Where a project is funded by several donors, each contribution stands on its own permission or on the recipient’s registration; where a donor wishes to fund a programme wider than the permission sought, the application must be framed for the wider programme at the outset. The permission route is also the route on which refusal is least visible and most absolute in effect, because a refused permission leaves no certificate to suspend or cancel and no status to defend: there is simply a contribution that may not be received, and a project that must be refinanced domestically, redesigned or abandoned. Advisers accordingly treat the prior permission application as a project document, drafted with the same care as the funding proposal it depends on, since the ministry’s inquiry examines the genuineness of the applicant, the reality of the programme and the character of the source together.

The two routes also differ in what they assume about the future. Registration assumes a continuing organisation and examines it as one: its history, its functionaries, its systems. Prior permission assumes a transaction and examines it as one: this money, from this source, for this work. An organisation at the threshold of foreign funding should choose by that test and not by the accident of which form is shorter, because the choice recurs: the organisation that takes three successive prior permissions for what is in truth a continuing foreign-funded programme will find the fourth inquiry asking why it has not sought registration, and the organisation that registers for a single project will carry five years of obligations for one receipt.

Section 16 governs renewal. A certificate is renewed on application made within the period the Act and Rules prescribe before the certificate expires, and the renewed certificate runs for five years. The amendment of 2020 strengthened the renewal stage in two respects that are treated in the amendment section below: it armed the Central Government to hold an inquiry before renewing, and it adjusted the consequences that follow where renewal is not sought or not granted. The discipline of renewal is the discipline of the whole regime in miniature. A certificate is not a property right renewed by the passage of time; it is a permission that the State re-examines, and the organisation’s five years of accounts, returns and conduct under the certificate are the material on which the re-examination proceeds.

The coercive sequence of the Act runs through Sections 13, 14 and 14A. Under Section 13, where a registered person contravenes the Act or the conditions of the certificate, or where the Central Government considers action necessary in the public interest, the certificate may be suspended for a period specified in the order, pending consideration of cancellation. Suspension is not a neutral state. A person whose certificate is suspended shall not receive any foreign contribution during the period of suspension, and may utilise foreign contribution already held, up to the proportion the section permits, only with the prior approval of the Central Government; the balance is frozen with the account. Under Section 14, the certificate may be cancelled on grounds that include a false statement in the application, contravention of the Act or of the certificate’s conditions, the public interest, the organisation having become defunct or non-functional, and the other grounds the section enumerates; cancellation follows a reasonable opportunity of being heard. Under Section 15, on cancellation or on the certificate ceasing to be valid, the foreign contribution and assets created out of it in the custody of the person vest in the prescribed authority until the Central Government directs otherwise, which is why cancellation is an existential event for an organisation whose buildings, vehicles and balances were built from foreign contribution. Section 14A, inserted in 2020, adds the orderly exit: a person may be permitted to surrender the certificate, and surrender under that provision is the route by which an organisation that no longer wishes to receive foreign contribution closes its position under supervision rather than by lapse.

The accounts and reporting machinery completes the picture. Section 19 requires a registered person to maintain accounts of the foreign contribution received and utilised. The Rules require an annual return, filed in the prescribed form, Form FC-4 under the Rules as amended from time to time, reporting receipts, utilisation, balances and the interest earned, audited and placed in the public domain through the ministry’s portal. Banks through which foreign contribution moves carry reporting obligations of their own under Section 21 and the Rules, so that a receipt is visible to the regulator from the bank’s side as well as from the recipient’s. Section 20 and the inspection provisions arm officers authorised by the Central Government to inspect accounts and records, and the prohibitions on acceptance are backed by the penalty chapter, Sections 33 to 37, under which acceptance or transfer of foreign contribution in contravention of the Act exposes the person to imprisonment extending to five years, or to fine, or to both, together with confiscation of the contribution in the cases the Act provides. The regime is therefore not a registration formality with a certificate at the end. It is a continuing supervised status, in which the certificate is the visible part and the accounts, the bank reporting and the renewal inquiry are the substance.

Registration in detail: conditions, inquiry and the certificate

The conditions in Section 12 repay slow reading, because they reveal what the State thinks registration is for. The negative conditions are a catalogue of the harms the regime exists to prevent. An applicant must not be fictitious or benami, which is the condition against the shell: the organisation that exists on paper to receive. The applicant must not have been prosecuted or convicted for an offence involving the creation of communal tension or disharmony, for conversion from one religion to another by inducement or force, or for seditious activity, which are the conditions against the recipient as an instrument of division. The applicant must not have been found guilty of diversion or misutilisation of its funds, which is the condition against the repeat offender, and must not have contravened the Act itself. The applicant must not be likely to use the contribution for the personal gains of its office bearers or functionaries, or for speculative business, which are the conditions against private profit dressed as programme. And the applicant must not be likely to engage in propagation of sedition or advocacy of violent methods, or in activity likely to affect prejudicially the sovereignty and integrity of India, friendly relations with a foreign State, public interest, harmony between religious, racial, social, linguistic or regional groups or castes or communities, or the fairness of an election to a legislature. Read as a whole, the catalogue is the Section 3 theory restated at the level of the applicant: the barred categories are excluded by function, and these conditions exclude by predicted conduct anyone whose history or likely use points the same way.

The inquiry that tests the conditions is administrative and, in the nature of the material, intelligence-fed. Applications are made online in the forms the Rules prescribe, Form FC-3A for registration, Form FC-3B for prior permission and Form FC-3C for renewal, with the organisation’s registration documents, its audited statements of accounts for the period the Rules require, its activity reports and the particulars of its office bearers. The ministry’s inquiry extends to the antecedents of the applicant and its functionaries, and the file travels, in the ordinary course, to the agencies whose business is the security assessment the conditions demand. Two practical consequences follow. The first is time: registration is not a filing but a scrutiny, and an organisation planning a programme around foreign funding that has not begun the application has not begun the programme. The second is candour: the conditions include the accuracy of the application itself, a false statement in an application is a ground of cancellation under Section 14 and an offence in its own right, and the applicant who conceals a conviction, a relationship or a funding history has built the ground of its own cancellation into its certificate.

Eligibility in practice also carries the expectation of a working record. The Rules and the application framework expect an organisation seeking registration to have existed and to have been active in its chosen field for the period prescribed, with a record of expenditure on its activities to show, an expectation that has the effect, deliberate in design, of reserving registration for organisations that have already demonstrated a programme with domestic resources. Prior permission carries no such expectation of the same weight, because the permission is for a defined contribution and a defined purpose, and the inquiry can be proportioned to the transaction. This difference explains the population of each route: registration is held by established organisations with continuing foreign relationships, while prior permission serves the newer organisation, the single project and the donor whose grant is a single act.

The certificate, when granted, is a document with a number, a validity of five years and a set of conditions endorsed by the Act rather than negotiated with the holder. The holder must receive only through the designated account, must utilise only for the granted purposes, must keep the accounts Section 19 requires, must file the annual return, must intimate changes in its name, address, objects, bank and office bearers through the forms the Rules prescribe, and must submit to renewal at the five-year point. None of this is a formality layered over an entitlement; it is the entitlement. The organisation that finds the continuing obligations disproportionate to the funding it expects is an organisation for which prior permission, or domestic funding, is the rational course, and the existence of Section 14A surrender, added in 2020, is the Act’s acknowledgment that exit from the status should be as deliberate as entry into it.

The 2020 amendment: the centrepiece

The Foreign Contribution (Regulation) Amendment Act, 2020, Act 33 of 2020, received the assent of the President on 28 September 2020 and was brought into force on 29 September 2020 by notification S.O. 3395(E). Its statement of objects and reasons spoke of strengthening the compliance mechanism and enhancing transparency and accountability in the receipt and utilisation of foreign contribution worth thousands of crores of rupees every year, and of facilitating genuine non-governmental organisations working for the welfare of society. The changes it made are best taken one by one, because their combined effect is larger than any of them and because public discussion frequently attributes to the amendment changes it did not make, including the error, common on respectable pages, of describing transfer between registered organisations as still permitted.

The first change is the transfer prohibition. Section 7, which in its earlier form restricted transfer of foreign contribution to persons who were not registered or permitted, was substituted so that no person who has been granted a certificate or prior permission shall transfer foreign contribution to any other person. The word is any. The recipient’s own registration is irrelevant; the purpose is irrelevant; the relationship between the organisations is irrelevant. A registered organisation may apply foreign contribution to its own programme, and it may pay for goods and services in the course of that programme, but it may not pass the contribution itself down a chain. The second change is the administrative expense cap. Section 8(1)(b), which obliges every recipient to defray administrative expenses from foreign contribution within a stated proportion, had fixed that proportion at fifty per cent; the amendment substituted twenty per cent, one fifth in place of one half, with the Act’s machinery allowing a different proportion only with the prior approval of the Central Government. The third change is the designated account. Section 17 was substituted, and Section 12 adjusted with it, so that every person granted a certificate or prior permission shall receive foreign contribution only in an account designated as the FCRA Account, opened in the branch of the State Bank of India at New Delhi that the Central Government specifies by notification, the branch specified being the New Delhi Main Branch at Sansad Marg; no foreign contribution may be received in any other account. The recipient may open one or more further accounts in any scheduled bank for utilising the contribution after it has been received into the designated account, and the designated account itself may not be used for other funds or purposes. The fourth change is identification. A new Section 12A empowers the Central Government to require that a person who seeks prior permission or applies for a certificate, including for renewal, shall provide as an identification document the number issued under the identity statute discussed in the series article on the Aadhaar Act 2016 explained for all its office bearers, directors or other key functionaries who are Indian nationals, and a copy of the passport or of the overseas citizen card in the case of a foreigner. The fifth and sixth changes concern the life of the certificate: the Central Government was empowered to conduct an inquiry before renewal of a certificate, and a new Section 14A enabled surrender of a certificate with permission. The seventh change reaches back to the prohibitions: Section 3 was amended to add the public servant to the categories that may never accept foreign contribution. And an eighth, in Section 11, armed the Central Government, after a summary inquiry, to direct a person not to utilise or to receive foreign contribution where contravention appears, a holding power short of suspension and cancellation.

Each change answers a stated administrative difficulty, and each creates a difficulty of its own, which the debate section below states in the voices of the two sides. For the text, three consequences should be fixed. The amendment did not alter the Section 3 categories beyond adding the public servant; the substantive prohibitions on who may be funded were already in the Act. It did not reduce the purposes for which a registered organisation may spend; the programme fields of Section 11 stand as they stood. And it did not touch the definition of foreign contribution or the fee exclusion. What it rearranged was the plumbing: the path money may travel, the single door through which it must enter, the share of it that may be consumed by administration, and the identified persons who answer for it. The series thesis finds its clearest civil society instance here, because a change to an intermediary rule reaches parties the statute does not address: the organisation at the end of a funding chain is not regulated by the amendment, is not named by it, and may hold no certificate at all, yet the amendment determines whether it receives anything.

Two of the amendment’s smaller changes repay attention because they altered the posture of the regime between renewals. The first is the direction power in Section 11. Before the amendment, the instruments available against a recipient whose conduct gave concern were the heavy ones: suspension under Section 13 while cancellation was considered, and cancellation itself. The amendment inserted a lighter instrument, empowering the Central Government, where it is satisfied after a summary inquiry that a person has contravened the Act, to direct that person not to utilise foreign contribution already received, or to receive further contribution, until the direction is withdrawn or the matter is resolved. A summary inquiry is not the inquiry of a cancellation proceeding; the power is a holding power, exercisable quickly, and its existence changes the negotiation between regulator and recipient in every compliance dispute, because the recipient’s inflow and utilisation can be paused without the ministry committing itself to the cancellation it may not ultimately pursue. The second change is the renewal inquiry taken with the surrender provision. Read together, Sections 14A and 16 as amended describe a register under active management: certificates are examined at renewal on the record of their lives, and certificates that their holders no longer want have a formal exit. The register the amendment envisages is therefore not a list that grows by accretion and shrinks by scandal, but a list that is periodically re-earned and formally departed from, and the record of registrations in the years after 2020, with its cancellations, non-renewals and surrenders distinguished in the record section of this article, is the first register kept on those terms.

The amendment’s treatment of the public servant completes the circle back to the prohibitions. Section 3 as enacted in 2010 barred the government servant and the employee of a government corporation or body; the amendment added the public servant, a wider expression drawn from the general law of public office, so that the holder of a public office who is not, in the technical sense, a government servant is within the bar. The change is small in words and characteristic in direction: like the transfer bar, it closes a gap at the margin of a category rather than redrawing the category, and it confirms the reading of the amendment as a whole, that its method was to tighten the working of the 2010 scheme at the points where experience had shown the scheme’s edges to be permeable.

The implementation of the amendment is part of its meaning, because the amendment reached a registered population that had to be moved, certificate by certificate, onto new rails. Every existing holder had to open the designated account at the New Delhi Main Branch and complete the Section 12A identification for its office bearers, and the renewal cycle that followed the amendment was the first renewal cycle conducted under the amended Act, with the inquiry power available and the new conditions in force. The ministry extended the validity of certificates falling due during the transition by public notices, and fixed and then refixed the dates by which the designated account had to be opened, the final extension running to 30 June 2021, as organisations across the country completed a banking migration to a single branch, most of them without visiting it. The episode is the practical footnote to the Supreme Court’s description of the account as a one-time exercise: the exercise was indeed one-time, and it was also, for a sector of thousands of organisations, a substantial administrative season, in which certificates were renewed, allowed to lapse, surrendered or cancelled in numbers that the record section of this article treats with the attribution they require. An account of the amendment that ends with its text, or with its validation in Noel Harper, omits the season in which its costs and its sorting effects were actually incurred, and in which a part of the registered population of 2020 decided, or discovered, that it would not be part of the registered population thereafter.

The transfer prohibition and the model it ended

The namable claim of this article can be stated plainly. The 2020 amendment did not restrict what may be funded; it restricted who may pass funding on. Under the pre-amendment Section 7, transfer was restricted but possible within the regulated class: a registered organisation could transfer foreign contribution to another person who was also registered or permitted, and on that possibility an entire distribution model had been built. A small number of larger organisations, with the administrative capacity to obtain and hold registration, received funds from foreign donors and passed them to smaller field organisations, many of which held no certificate of their own and had never received foreign contribution directly. The model was lawful, it was disclosed in returns, and it matched the structure of the sector, in which capacity to satisfy a central regulator is concentrated in the same metropolitan organisations that are closest to donors, while the work the donors wish to fund is done by organisations with neither the staff nor the systems that registration demands.

The substituted Section 7 ends the model at its root. Because the bar is on transfer to any other person, the registered intermediary can no longer sub-grant at all: not to an unregistered partner, and not to a partner that holds its own certificate. The money must be utilised by the recipient itself for the purposes for which the certificate or permission was granted. The Supreme Court in Noel Harper was careful about the boundary of this proposition, and the boundary matters to practice. Transfer, the Court held, means the per se transfer of the contribution to a third party without the recipient engaging in the definite activities for which its certificate was granted; where the recipient engages the services of a third party, or outsources an activity, while itself undertaking the definite activities of its programme and pays for that engagement, the payment is utilisation, not transfer. A registered organisation may therefore still run a programme through contractors, implementing partners paid against work, and service providers; what it may not do is hand over the contribution as a fund for another organisation to apply under that other organisation’s own direction. The line between paying for a partner’s work and funding a partner is the line on which the sector’s restructured arrangements stand, and it is a line of substance: who directs the activity, whose programme it is, and who accounts for the money.

The incidence of the change is the analytical point. A prohibition addressed to the transferor is felt by the transferee, and the transferees of the old model were disproportionately the organisations least able to replace the channel: small, place-based, without a dedicated compliance function, and in many cases without the three-year record and application infrastructure that registration requires. Supporters of the amendment answer that this incidence is the point, and state the answer in the debate section below: a chain in which money passes through several hands before it is spent is a chain in which the regulator’s sight of the final use dims at every link, and a State that has accepted the premise of a permission regime is entitled to require that the person it has vetted is the person who spends. Critics answer that the premise proves too much, because the same tracing difficulty is handled elsewhere in financial regulation by reporting rather than prohibition, and that the realistic alternatives for a small organisation, registering itself or folding its work into a larger organisation’s programme as a contractor, each carry costs that fall on the work rather than on any abuse. The article adjudicates neither. It records that the change is a change to an intermediary rule, that its widest effects are on parties the amendment does not name, and that any assessment of the amendment which confines itself to the position of registered organisations has missed where most of the effect landed.

Accounts, returns and inspection: the continuing obligations

The obligations that run with a certificate deserve their own account, because they are where compliance is won and lost in ordinary years. Section 19 requires every person granted a certificate or prior permission to maintain accounts of any foreign contribution received by it and of the manner of its utilisation, in the form and for the period the Rules prescribe. The annual return, filed in Form FC-4 under the Rules, reports for each financial year the opening balance, the receipts from each foreign source, the interest earned, the utilisation under the heads the form prescribes, the administrative expenses and the closing balance, and it is accompanied by the audited statement and the certificate of a chartered accountant. The return is filed online and is public: the ministry’s portal places the returns of registered organisations in the public domain, so that a donor, a journalist or a rival can read what an organisation received and how it says the money was spent. That publicity is part of the regime’s design and part of its discipline, since a return is a statement made once to the regulator and permanently to the world.

The banks are the second reporting line. Under Section 21 and the Rules, a bank through which foreign contribution is remitted or received must report the remittance and the receipt to the authority the Act designates, within the time prescribed, and the Reserve Bank’s directions to banks on the Act make the branch that mishandles an FCRA receipt answerable in its own regulatory house. The designated account structure of 2020 sharpened this line into a single channel: every receipt in the country enters through one branch, whose reporting is the regulator’s earliest knowledge of the flow. An organisation that receives a remittance into a utilisation account or a domestic account has not merely breached a banking instruction; it has broken the channel through which the State sees the transaction at all, which is why Section 17 is enforced as a substantive provision and not as a matter of form.

Inspection and audit stand behind the paper. Officers authorised by the Central Government may inspect the accounts and records of a registered person, and the Act’s audit provisions allow the accounts of a recipient to be audited by an authority the government designates where the returns or other material give cause. The powers are not self-executing punishments; their function in the system is to make the return a verifiable document rather than a declaration, and to give the renewal inquiry and the suspension power an evidentiary base. The organisation that maintains its FCRA accounts as a separate ledger, reconciled monthly against the designated and utilisation accounts, with the classification of each expense between programme and administration recorded when the expense is incurred, is an organisation for which inspection is an afternoon’s work. The organisation that reconstructs its FCRA position at return time, from a general ledger in which foreign and domestic money have mixed, is an organisation manufacturing the discrepancies that inquiries feed on. The Act does not prescribe bookkeeping technique, but its structure rewards one technique and punishes the other with complete impartiality.

A further set of intimations keeps the certificate matched to the organisation it describes. Changes in the name of the organisation, its address, its registration, its objects or key functionaries, and the opening or closing of utilisation accounts, must be intimated in the forms of the FC-6 series that the Rules prescribe, within the times prescribed. The requirement is easily overlooked because nothing dramatic attends it, and it matters for the same reason the identification requirement matters: the certificate is issued to a described organisation with described persons and described accounts, and a change in any of those particulars that is not intimated leaves the organisation operating under a certificate that no longer describes it. Non-renewal files in the renewal rounds after 2020 repeatedly turned on accumulations of small unintimated changes, a lesson the sector’s advisers drew and repeated: the regime forgives very little by way of drift.

The restructuring that followed the transfer bar is the amendment’s largest practical legacy, and it is still working itself out in the sector’s arrangements. Consortia that had operated as funder and sub-grantees re-formed in three lawful shapes. In the first, the donor grants in parallel, making a separate grant to each organisation that will spend, each recipient holding its own certificate or prior permission; the coordination cost moves to the donor, and small organisations face the registration question directly. In the second, the former intermediary becomes the implementer: it holds the grant, designs and directs the programme, and engages the field organisations as contractors and service providers paid against deliverables, which Noel Harper’s distinction between transfer and utilisation permits; the field organisation’s autonomy narrows to the terms of its engagement, and its status changes from grantee to vendor, with consequences for its own accounts, its tax position and its relationship with the community it serves. In the third, the field organisations federate or merge their compliance into a shared structure that can hold registration for the work in common. Each shape is lawful, and each redistributes cost, control and risk differently among donor, intermediary and field organisation, which is why the debate about the amendment does not settle: the parties are not disagreeing about whether restructuring is possible, they are disagreeing about what the restructuring does to the ecology of small organisations over time.

The designated account and the single door

Section 17 as substituted deserves separate treatment because it is the change most often described as a formality and is, in design, something more. Every receipt of foreign contribution in India must enter through one account, the FCRA Account, in one branch of one bank, the New Delhi Main Branch of the State Bank of India at Sansad Marg, specified by the Central Government. The recipient may then move the money to utilisation accounts in scheduled banks of its choosing and spend from there. The designated account may receive nothing else: no domestic funds, no fees, no transfers from the organisation’s own other accounts. The bank itself is a reporting instrument, obliged to report receipts and remittances within the periods the Rules prescribe, so the State acquires, at a single point, a complete and timely picture of the inflow of foreign contribution into the country.

The government’s justification, accepted by the Supreme Court, is supervisory geometry. Under the earlier Section 17, a recipient received contribution in an account with any scheduled bank and intimated the designation; thousands of accounts in hundreds of branches produced a reporting picture that was complete only after returns were filed and reconciled. A single door converts ex post reconciliation into near-contemporaneous visibility, and the Court held the requirement workable because opening the account is a one-time exercise, the account may be operated without the physical presence of the account holder, and the recipient’s freedom to bank for utilisation elsewhere is untouched. The criticism, stated fully below, is that the geometry is indifferent to distance and capacity: an organisation in a district town, whose bankers, auditors and donors must all be re-papered to a branch in the capital, pays a fixed cost that is trivial to a national organisation and material to a small one, and that a reporting obligation on all scheduled banks would have produced visibility without the relocation. Both accounts describe the same section. The section’s defenders are describing what it does for the regulator; its critics are describing what it costs the regulated, and the choice between those descriptions is a choice of policy, not a question of fact.

The identification requirement belongs with the account in the design of the amendment, because both are instruments of answerability. Section 12A fastens the certificate to identified natural persons. The office bearers, directors and key functionaries of an applicant must furnish the Aadhaar number as an identification document, or, for a foreigner, the passport or overseas citizen documentation, at application and at renewal. The purpose the Supreme Court attributed to the provision is narrow: to identify the key functionaries of the association so that they can be made accountable for violations. On that footing the Court read the provision down, holding that an office bearer who is an Indian national may produce an Indian passport for identification instead of the Aadhaar number, and that such production is substantial compliance with Section 12A. The reading down is the one point on which the challenge to the amendment succeeded, and it is routinely omitted from summaries of the judgment, which is an error this article corrects: the mandate as it stands in law is an identification mandate with a passport alternative for Indian nationals, not an unqualified Aadhaar mandate.

The transition for existing accounts shows the section in operation. Before the amendment, a registered person received foreign contribution into the account it had designated under the earlier Section 17, with a scheduled bank of its choice, and intimated the designation; utilisation accounts stood behind that account. The substituted section displaced that architecture at a stroke: the old designated account ceased to be a lawful receiving account, and every holder, including holders whose certificates had years to run, had to open the new FCRA Account at the New Delhi Main Branch and redirect its donors to it. Receipts that arrived in the old account after the change were receipts outside Section 17, and the ministry’s transition notices, with their successive extensions, were directed to exactly that exposure. The banks’ part in the transition was not passive. A bank that credits a foreign remittance to an account other than the designated account has participated in a receipt the Act forbids, and the reporting obligations that bind banks under the Act and the Reserve Bank’s directions made the branch network, in effect, the enforcement perimeter of the single door: a remittance addressed to the wrong account surfaces in reporting whether or not the recipient discloses it. The recipient’s own duty runs in parallel, to intimate the designated account and every utilisation account in the forms prescribed, and to keep the account particulars on its certificate record matched to the accounts it actually operates, since a renewal inquiry that finds an unintimated account has found a contravention without needing to look further.

For donors, the section changed the mechanics of payment in a way that still generates error. A remittance instruction that names the recipient’s familiar local account, the account from which programmes are visibly run, is an instruction to pay into a utilisation account, and utilisation accounts may not receive foreign contribution directly. The money must enter at the designated account and descend internally. Donor systems that pay against invoices and standing instructions built for domestic grants therefore have to be re-pointed for India, and grant letters for Indian recipients standardly record the designated account particulars as a term of the grant, so that the donor’s own compliance file shows the channel the Act requires.

Administrative expenses: the one fifth cap

Section 8 obliges a recipient to use foreign contribution for the purposes for which it was received, and Section 8(1)(b) fixes the share that may be defrayed towards administrative expenses. The figure stood at fifty per cent before 29 September 2020 and stands at twenty per cent after it, the Central Government retaining power to permit a higher proportion in a given case on prior approval. The Rules schedule what counts as administrative: salaries and wages of administrative staff, travel, rent, utilities, accounting and legal charges, printing, communication and the like, while the remuneration of persons directly engaged in the programme activity is a programme cost. The line the Rules draw is therefore between the cost of the machine and the cost of the work, and the cap presses on the machine.

The compliance question that occupies the sector is the classification question, because the cap is indifferent to an organisation’s real cost structure and sensitive only to its accounting categories. An organisation whose programme is delivered by employed professionals, researchers, lawyers, doctors, field investigators, faces the question whether those salaries are the work or the administration of the work; the Rules answer by function, and the answer must be applied person by person and head by head. The criticism of the cap, made by the petitioners in Noel Harper and by commentators since, is that a uniform one fifth assumes a cost structure typical of a grant-making or materials-distributing charity and fits badly an organisation whose principal input is skilled staff, so that the cap operates as a limit on a kind of organisation rather than on a level of overhead. The defence, which the Court accepted, is that the cap is a proportion rule with an approval escape, that the legislature is entitled to require that the bulk of a foreign contribution reach the programme it was given for, and that inconvenience in rearrangement is not a constitutional defect. The figure also has a history worth noticing: the fifty per cent ceiling was itself a discipline when introduced, and the trajectory of the provision, from a half to a fifth, is the trajectory of the regime as a whole, each revision moving the permitted margin of the intermediary between donor and beneficiary closer to the beneficiary’s side of the transaction.

The classification discipline the cap imposes can be illustrated by the three heads on which inquiries most often turn. The first is the salary of the head of the organisation. A chief executive divides time between the direction of programmes and the administration of the institution, and the Rules’ functional test requires the division to be made and recorded, not asserted in a single line at the year end; organisations that keep a contemporaneous allocation, reviewed by the board, are in a different position at inquiry from organisations that allocate by convention. The second is rent. Premises used partly for programme delivery, a training hall, a clinic, a field office where beneficiaries are served, and partly for administration take an apportionment of the same character, and the apportionment follows use, not convenience. The third is travel. Travel by programme staff to programme sites is a programme cost; travel to a board meeting or a compliance conference is administration; the same person’s journey can contain both, and the voucher, not the traveller, decides. None of these lines is drawn by the Act with precision, and the imprecision is deliberate in structure: the Act fixes the proportion and the Rules fix the heads, and the recipient’s accounts must show a defensible application of the heads to its facts. What the one fifth figure changed was not the existence of the classification exercise but its margin for error: at one half, a doubtful head seldom decided compliance; at one fifth, the doubtful heads are the compliance question, which is why the cap, of all the 2020 changes except the transfer bar, generated the deepest revision of internal accounting practice in the sector.

What a registered organisation may and may not do

The table below is the compliance object of this article. It states, for each activity a registered organisation routinely undertakes, what the Act permits, the limit where one exists, the provision, and the consequence of breach.

Activity	What the Act permits	Limit	Provision	Consequence of breach
Receiving foreign contribution	Receipt from any foreign source for the registered programme, or under prior permission for the specified contribution	Certificate or prior permission must be in force; barred categories may never receive	Sections 3 and 11	Penalty chapter liability, confiscation of the contribution
Banking the contribution	Receipt only into the designated FCRA Account at the State Bank of India, New Delhi Main Branch; utilisation accounts may be opened in other scheduled banks	No receipt into any other account; no other funds into the designated account	Section 17	Receipt outside the designated account is a contravention; bank reporting exposes it
Transferring it to a partner organisation	Not permitted; the recipient must utilise the contribution itself, paying third parties for services in its own programme is utilisation, not transfer	Absolute bar on transfer to any other person, registered or not	Section 7	Contravention of the Act; suspension or cancellation of the certificate and penalty liability
Spending it on administration	Administrative expenses may be defrayed from the contribution	Twenty per cent of the contribution received in the year, higher only with prior approval	Section 8(1)(b)	Excess defrayal is a contravention bearing on renewal and cancellation
Spending it on programmes	Utilisation for the definite cultural, economic, educational, religious or social programme for which it was received	Purpose bound; accounts and annual return in Form FC-4	Sections 8, 11 and 19	Diversion is a ground of cancellation and an offence
Engaging a foreign consultant	Payment from the contribution for services engaged in the recipient’s own programme, as utilisation	The engagement must be the recipient’s own activity; the consultant may not be funded as a transferee	Sections 7 and 8	A disguised transfer is treated as transfer, with the consequences above
Receiving foreign hospitality	Acceptance by persons outside the barred classes; the classes named in Section 6 require prior permission while visiting abroad	Prior permission for legislators, party office bearers, judges, government servants and public corporation employees	Sections 2 and 6	Acceptance without permission is a contravention under the penalty chapter
Renewing registration	Renewal on application within the prescribed period before expiry, for a further five years	Inquiry may be held before renewal; identification under Section 12A applies at renewal	Sections 12A and 16	Non-renewal ends the entitlement to receive; unutilised funds fall under the directions regime

The two rows on which difficulty concentrates are the transfer row and the administration row, and they are the two rows the 2020 amendment rewrote. A compliance officer reading the table should notice what it shows about the regime’s centre of gravity: of the eight activities, the Act leaves only programme spending substantially to the organisation’s judgement, and surrounds every movement of the money, its entry, its banking, its onward passage, its overhead share and its renewal, with a rule that can be checked from outside, by the bank, by the return, or by the renewal inquiry.

The renewal round is also the point at which the Act’s theory of the certificate becomes concrete for boards. A certificate in its fourth year is not an ageing asset but a case in preparation: the returns of the intervening years, the intimations filed or missed, the expense classifications adopted, the accounts kept, are the evidence on which the fifth year’s question will be answered. Organisations that internalise this treat each annual return as a renewal document and each board meeting as a renewal rehearsal, and they meet the inquiry, when it comes, with a file rather than a reconstruction. Organisations that treat the certificate as settled property discover the theory at the moment of its application, when the inquiry examines a record that can no longer be improved. The difference between the two is the difference the Act, as a term-status regime, is designed to produce, and it is the practical moral of this article for the organisations within its payload: under a regime of continuation, compliance is not an event at entry but the whole content of the status, renewed or lost on the strength of the years between the grants.

Foreign hospitality: the benefit that is not money

Foreign hospitality is the Act’s second subject, and it is treated separately in the text because it defeats the banking channel entirely. A hosted visit leaves no remittance to report: the air ticket is bought abroad, the hotel is settled abroad, the conference table is laid abroad, and the benefit to the Indian recipient is real although no rupee crosses a border in the recipient’s name. The Act’s definition of foreign hospitality covers the offer of travel, board, lodging, transport, medical treatment or any other cost-free service of that character by a foreign source, and Section 6 attaches the permission requirement to the classes of person whose susceptibility to influence the Act most distrusts: members of legislatures, office bearers of political parties, judges, government servants and employees of corporations and bodies owned or controlled by the government, each while visiting a country or territory outside India. For those classes, foreign hospitality may be accepted only with the prior permission of the Central Government, applied for in the manner the Rules prescribe, with the emergency exception the section makes for medical treatment arising in the course of a visit.

The provision repays attention for what it shows about the statute’s theory. The Act is not, at bottom, a law about money. It is a law about the obligations that benefits from foreign sources may create in persons who exercise public functions or shape public opinion, and money is simply the commonest form the benefit takes. That is why the Section 3 list and the Section 6 list overlap so heavily, why a judge is barred from the grant and from the hosted tour alike, and why the permission for hospitality is prior permission: a benefit consumed abroad cannot be undone by a refusal issued after the return home. For persons outside the named classes, foreign hospitality is not regulated by Section 6, although a benefit that is in substance a contribution in kind to an organisation’s programme may fall within the definition of foreign contribution and the permission regime of Section 11, a boundary that organisations hosting foreign-funded events in India, or sending staff to foreign-funded events abroad, are advised to examine on their facts rather than assume.

Suspension, cancellation and the fate of the funds

The coercive sequence of Sections 13 to 15 is the part of the Act an organisation reads most carefully when it is too late, and it deserves reading in advance. Suspension under Section 13 is the intermediate step. Where the Central Government, after such inquiry as it considers necessary, is of the opinion that a registered person has contravened the Act or the conditions of the certificate, or that action is necessary in the public interest, it may suspend the certificate for the period specified in the order while the question of cancellation is considered. The incidents of suspension are severe in a controlled way. The suspended person shall not receive any foreign contribution during the suspension, so the inflow stops at once. Utilisation of contribution already held is not free either: the person may utilise the unutilised contribution, up to twenty five per cent of it, only with the prior approval of the Central Government, and the remainder is held where it lies. For an organisation with salaries and field commitments running, suspension is therefore a liquidity event as much as a legal one, and boards that understand the Act keep domestic reserves for the contingency in a way boards that regard suspension as unthinkable do not.

Cancellation under Section 14 is the terminal decision, and its grounds map the regime’s values. A certificate may be cancelled where the holder made a false statement in the application or in a document produced for it; where the holder has contravened the Act or the Rules or the conditions of the certificate; where cancellation is necessary in the public interest; where the holder has not been engaged in any reasonable activity in its chosen field for the period the section specifies; and on the other grounds the section enumerates, including the holder’s conviction for offences of the character the registration conditions name. Cancellation is preceded by a reasonable opportunity of being heard, and the order is a reasoned administrative decision open to challenge in the writ jurisdiction. The hearing requirement is not decoration. Several cancellations across the Act’s life have been tested in the High Courts on the adequacy of the opportunity given and the material relied on, and the cases stand for the ordinary administrative law discipline that a power to end a status must be exercised on material, after hearing, and for reasons that bear scrutiny.

Section 15 then answers the question every affected organisation asks first: what happens to the money and the property. Where a certificate is cancelled, or ceases to be valid, the foreign contribution and the assets created out of it that are in the custody of the person vest in the banking or other authority the Act prescribes, as the case may be, until the Central Government, after such inquiry as it considers necessary, directs their management and utilisation. The design is custodial, not confiscatory in form: the funds are frozen into public custody because their character is foreign contribution held for stated purposes, and the State that licensed their entry claims the disposition of what remains when the licence ends. The consequences for an organisation are in practice total where its assets were created from foreign contribution, since a building, a vehicle fleet or a corpus built from foreign grants is within the vesting, and the organisation’s domestic assets alone survive to it. An organisation contemplating surrender under Section 14A faces the same section from the other side: surrender is orderly precisely because the disposition of the remaining contribution and assets is settled under direction rather than left to the departing holder’s choice.

Running beside the administrative sequence is the penalty chapter. Sections 33 to 37 punish the acts the regime most cares about: accepting foreign contribution or hospitality in contravention of the Act, transferring foreign contribution in contravention, using contribution for purposes other than those permitted and the residuary contraventions, with imprisonment extending to five years, or fine, or both, in the principal cases, and with enhanced punishment for repeat offences and liability of persons in charge where the offender is an organisation or company. Confiscation of the contribution or hospitality that is the subject of the offence is provided for in the cases the chapter specifies. The chapter’s place in the system should be noted: prosecution is the rare and heavy end of enforcement, while suspension, cancellation and non-renewal are the working instruments, and a compliance culture that calibrates itself to the risk of prosecution has misunderstood where the Act’s pressure actually lies.

The absence of a statutory appeal is a design feature of the Act that shapes all the rest. The Act gives a right of representation at the specification stage under Section 5 and an opportunity of being heard before cancellation under Section 14, but it provides no appellate forum against refusal of registration, refusal of renewal, suspension or cancellation; the aggrieved organisation’s remedy is the writ jurisdiction of the High Courts under Article 226 of the Constitution, and in practice the litigation of the regime has proceeded there and in the Supreme Court under Article 32, as Noel Harper itself did. The writ court does not re-decide the merits of a renewal; it examines the legality, rationality and procedural fairness of the decision, which means that the record made before the ministry, the application, the reply to a notice, the documents filed at inquiry, is the case, in a sense more complete than in systems with a full appeal. Organisations and their advisers who treat the administrative stage as a preliminary skirmish and reserve their substance for court have inverted the reality: under this Act, the administrative stage is where the facts are fixed, and the court stage is where the fixing is reviewed.

The FCRA among neighbouring statutes

The Act does not occupy its field alone, and a compliance analysis that stops at its borders will mislead. Four neighbouring bodies of law touch the same money at different points, and the distinctions between them are the distinctions on which real transactions turn.

The first neighbour is the foreign exchange law. The Foreign Contribution (Regulation) Act is not a part of the Foreign Exchange Management Act, 1999, and the two statutes answer different questions about the same remittance. FEMA asks whether a cross-border flow is permitted in exchange terms, on current or capital account, through authorised dealers and within the investment limits the policy prescribes; the FCRA asks whether this recipient may accept this contribution from this source for this purpose. A remittance can satisfy FEMA entirely and contravene the FCRA completely, as it does when a lawful wire reaches an unregistered organisation, and the involvement of an authorised dealer bank in the transfer is no answer to the FCRA question. The definitions interlock at one point only: the foreign source definition borrows the foreign investment limits of the exchange law to decide when an Indian company with foreign shareholding is treated as foreign, which is the borrowing the finance amendments of 2016 and 2018 adjusted with retrospective effect.

The second neighbour is the election law. Section 29B of the Representation of the People Act, 1951 entitles a political party to accept contributions from persons and companies other than a government company, and the scheme of that Act, read with the prohibition in Section 3 of the FCRA, excludes foreign contribution from party finance through both doors at once: the election statute’s entitlement does not extend to foreign sources, and the contribution statute bars the acceptance in terms. The layering matters because it shows the Section 3 prohibition on parties is not an eccentricity of the FCRA but one expression of a position the surrounding law takes generally, that electoral competition is to be financed domestically, whatever view is taken of the retrospective definitional amendments discussed in the parties section of this article.

The third neighbour is the income tax law, which meets the sector from the opposite direction. The Income-tax Act exempts the income of charitable trusts and institutions that satisfy its conditions and allows donors deductions for gifts to approved funds and institutions, and its regime has its own registrations, its own returns and its own prohibitions on anonymous donations and on the application of income outside approved purposes. An organisation can hold income tax exemption and be refused FCRA registration, or hold FCRA registration and lose its tax exemption, because the two regimes certify different things: the tax regime certifies that income is applied to charitable purposes, the contribution regime certifies that foreign money may be accepted by identified persons for stated programmes under supervision. Foreign donors are sometimes surprised that an Indian organisation’s tax approvals say nothing about its capacity to receive their grant lawfully, and the surprise is expensive when it arrives after the remittance.

The fourth neighbour is the companies law, at the point of corporate giving. A company incorporated in India may donate from its profits, and its corporate social responsibility obligations under the companies legislation organise a part of that giving; none of that is foreign contribution merely because the company’s shareholders include foreign holders, which is the clarification the 2016 amendment wrote into the foreign source definition. The boundary case is the Indian subsidiary as donor: its donation is domestic corporate giving under the companies and tax law, and foreign contribution under the FCRA only if the definition, as amended, treats the company itself as a foreign source. The whole of the parties controversy, and a good deal of ordinary donor diligence, is contained in that single classificatory question, which is why this article has returned to the definition at each stage of its argument.

Political parties and the retrospective amendments

Political parties stand in a position of their own, and it is a position that has to be stated in two parts, because the text and the history point in different directions. The text is short. A political party and its office bearers are within Section 3(1)(f): no foreign contribution shall be accepted by them, at all, and the wider law of political funding, mapped in the series article on the electoral bonds law in India explained, proceeds on the same premise that the finance of electoral competition is a domestic matter. The history concerns the definition of the giver. Where a contribution comes from an Indian company whose shares are held by a foreign company, whether the contribution is foreign depends on the definition of foreign source and of foreign company, and that definition Parliament amended twice through finance legislation. By the Finance Act, 2016, the definition was amended so that a company incorporated in India in which a foreign company holds shares within the limits permitted under the foreign exchange law, the discipline whose own history runs from the statute of 1973 to its successor as the series article on the FERA to FEMA transition records, is not treated as a foreign source by reason of that holding alone; the amendment was made retrospective to 26 September 2010, the date of the 2010 Act. By the Finance Act, 2018, that retrospective operation was extended: the date 26 September 2010 in the 2016 amendment was replaced by 5 August 1976, the commencement of the 1976 Act, so that the amended definition governs the whole life of the regime.

The amendments followed litigation. In Association for Democratic Reforms v Union of India, the Delhi High Court held on 28 March 2014 that donations received by two national parties, the Bharatiya Janata Party and the Indian National Congress, from Sterlite Industries and Sesa Goa, Indian subsidiaries within the Vedanta group whose holding company was incorporated in England and Wales, were contributions from a foreign source, accepted in contravention of the 1976 Act, and directed the Ministry of Home Affairs and the Election Commission to act. Both parties appealed. After the Finance Act, 2016, both withdrew their appeals in November 2016 as infructuous, since the amended definition, operating from 2010, altered the position for the later period; the 2018 extension then carried the amended definition back across the period of the donations themselves. The Association for Democratic Reforms and E.A.S. Sarma challenged the retrospective amendments in the Supreme Court, contending that a legislature may not overturn a judicial finding of contravention by changing the definition retrospectively and routing the change through a finance Bill; that challenge is part of the record of the subject, and the article states it without adopting it.

Both readings of the episode deserve statement, because the brief for this article requires them and because each is held by serious people. The explanation offered for the amendments is one of clarification: an Indian company, incorporated in India, employing in India and taxed in India, whose foreign shareholding is within the limits that the foreign investment policy of the government itself permits, is an odd thing to classify as a foreign source, and the definition as originally drawn produced the result that ordinary corporate donations by such companies, of the same character as the corporate social responsibility spending the companies legislation organises and the series guide to the Companies Act 2013 complete guide describes, exposed recipients to a contravention that nobody had designed. On that reading, retrospectivity is the natural form of a clarification, because a definition that was always meant to bear one meaning should bear it for the whole period in dispute. The criticism is one of consequence: a court had examined the donations, held them to contravene the Act in force, and directed action; a retrospective amendment that follows such a finding removes the consequence of the finding for the very parties it bound, and does so through a Money Bill, where the second chamber’s scrutiny does not run. On that reading, the question is not whether the new definition is defensible, it is whether a finding of contravention should be defeasible by the persons found against. The article presents the position the law is in, a party is prohibited without exception from receiving foreign contribution, and the definition of foreign source has been amended retrospectively to 5 August 1976, and it presents both the explanation and the criticism, and it adjudicates neither, because the challenge to the amendments raises questions of legislative power that are for the courts, and the wisdom of the course raises questions that are for Parliament.

The record on registrations

The number of organisations holding registration under the Act has fallen substantially over the decade in which the 2010 Act has operated, through cancellations, through non-renewal and through surrender, and the series discipline for such a record is attribution: every figure with its source and its period, and no cause asserted for the decline beyond what the sources themselves state. Two figures from the Supreme Court’s judgment in Noel Harper anchor the scale. The Court recorded that the inflow of foreign contribution had almost doubled between the years 2010 and 2019, and that failures to comply with basic statutory formalities had necessitated the cancellation of the certificates of registration of more than 19,000 registered organisations across the period the judgment surveyed. Those figures are the Union’s figures as the Court received and recited them, and they are stated here as such: they establish the scale the Court was shown, of inflow growth and of cancellation, and they do not by themselves establish why any individual certificate ended.

Cancellation and non-renewal are different events, and conflating them is the commonest error in discussion of the record. Cancellation under Section 14 is a decision, taken on stated grounds after an opportunity of being heard, and it carries the Section 15 consequence for funds and assets. Non-renewal is the failure of a certificate to be continued at the five-year point, whether because the organisation did not apply in time, applied and did not satisfy the inquiry, or had ceased to function; an organisation that has become defunct generates a non-renewal without any adverse finding at all. Surrender under Section 14A is a third route, chosen by the organisation. A fall in the register is therefore a sum of unlike things: enforcement, expiry, exit and death of organisations, and a commentary that assigns the whole fall to any one of them has gone beyond its evidence. What can be said on the record is that the register the ministry publishes, and the ministry’s statements of the number of active certificates at given dates, show a substantially smaller registered population than the population the 2010 Act began with, and that the renewal round that followed the 2020 amendment, in which identification under Section 12A and the designated account under Section 17 had to be completed by organisations that had held certificates for years, was the point at which a large part of the reduction was registered. The causes of that reduction, compliance burden, organisational mortality, enforcement priority and voluntary exit among them, are asserted by the participants in the debate in different proportions, and the article asserts none of them, in accordance with the instruction under which it is written.

A word on method is owed on this record, because the figures that circulate in the debate are of three different kinds and are often exchanged for one another. The first kind is the register figure: the count of certificates in force on a date, published by the ministry or stated by a minister in Parliament, which is a stock figure and moves by every route in and out, grant, renewal, cancellation, surrender, expiry and restoration on review. The second kind is the flow figure: the number of cancellations, refusals or renewals in a period, which measures administrative activity and says nothing directly about the stock. The third kind is the inflow figure: the value of foreign contribution received in a year, which the statement of objects and reasons of the 2020 Bill described as running to thousands of crores of rupees every year, and which the Supreme Court recorded as having almost doubled between 2010 and 2019. Arguments that move between the kinds without marking the move are unreliable in whichever direction they point: a fall in the stock does not show a rise in enforcement unless the flows are examined, and a rise in inflow does not show a failure of the regime unless the cancellations are examined against it. The ministry’s annual reporting and the answers given in Parliament are the sources from which all three kinds must be taken, with their dates, and this article has confined itself to the figures the Supreme Court recited and to the direction of the stock, because those are the propositions the sources in hand support without strain.

The courts: INSAF and Noel Harper

Two judgments frame the Act as it stands. INSAF, in 2020, confined the political nature specification to active and party politics, and so confined the one discretionary prohibition in Section 3. Noel Harper, in 2022, sustained the amendment that confined everyone else. Read together, they describe the judicial posture towards the regime with some precision: the courts have policed the edges at which the Act touches political classification and personal identification, and have declined to disturb the legislature’s central choices about channels, caps and transfer.

Noel Harper v Union of India, decided on 8 April 2022 by a bench of A.M. Khanwilkar, Dinesh Maheshwari and C.T. Ravikumar, JJ., reported at 2022 LiveLaw (SC) 355 and at [2022] 19 SCR 879, arose on writ petitions by Noel Harper of the Care and Share Charitable Trust and by the Jeevan Jyothi Charitable Trust and others, challenging the 2020 amendment under Articles 14, 19 and 21. The holdings can be stated as the Court stated them. There is no fundamental or vested right to receive foreign contribution; the right to form and run an association does not carry a right to receive unregulated foreign funds, and the receipt of foreign contribution is a matter on which the State may take a policy position. The amended Sections 7, 12(1A), 12A and 17 are intra vires the Constitution and the parent Act. The prohibition on transfer is a permissible choice of moderation: Parliament, confronted with misuse that persisted under the earlier regime, required every recipient to accept contribution through one channel and to utilise it itself for the purposes for which permission was accorded. The designated account is a one-time exercise that increases efficiency and is neither arbitrary nor irrational, and the account may be operated without physical presence. Mere inconvenience in complying is not a constitutional inhibition, and there is a presumption that Parliament understands and reacts to the needs of its own people as experience of a law’s working accumulates. The sovereignty and integrity of India ought to prevail, and the rights in Part III must give way to the interests of the general public, public order and the security of the State where the two conflict in this field. And Section 12A was read down: the identification mandate is satisfied, for an office bearer who is an Indian national, by production of an Indian passport, which shall be regarded as substantial compliance.

The judgment also contains the passage its critics quote most, the observation that associations affected by the restrictions could solicit domestic philanthropy rather than rely on foreign funds. Supporters treat the passage as a statement of the policy space the Constitution leaves open; critics treat it as an answer to a question the petitioners had not asked, since the right asserted was not a right to any particular quantum of funding but a right against conditions said to be disproportionate to their object. The article records the passage because a summary of Noel Harper without it misdescribes the judgment’s temper, and records both treatments of it for the same reason. What the judgment settled, and what no subsequent authority in the materials for this article displaces, is the validity of the four changes with which this article is chiefly concerned: the transfer bar, the one fifth cap as it falls under Section 8, the designated account, and the identification requirement as read down. Challenges to other features of the regime, and proceedings in individual cancellation and renewal matters, continue to be decided on their own facts in the High Courts, and the wider statutory field within which questions of foreign presence and status arise is mapped in the series citizenship law in India complete guide.

The reasoning by which the Court reached those holdings is as important as the holdings, because it fixes the terms on which future challenges will be argued. The Court began from the character of the entitlement: the freedom of association in Article 19(1)(c) protects the forming and continuing of an association, and the petitioners’ case required the further step that the freedom carries with it an entitlement to receive foreign funds without the conditions the amendment imposed. That step the Court declined, holding that the right to receive foreign contribution is not a fundamental right and that the inflow of foreign money into the polity is a subject on which the legislature may form and act on a policy. From that premise the standard of review followed: the amendments were to be tested for a rational connection with the object of the parent Act and for consonance with that Act, not weighed as restrictions on a guaranteed flow. The Court then examined the experience Parliament had acted on, the persistence of misuse and of non-compliance under the regime of 2010, the doubling of inflow across the decade and the cancellations in their thousands, and treated the amendment as a path of moderation between the two courses open to the legislature, prohibition of foreign contribution altogether and continuance of the lighter regime. A legislature that could have closed the door entirely, and chose instead to narrow the channel, identify the answerable persons and cap the overhead share, was not, in the Court’s analysis, acting disproportionately in the choices it made among those instruments.

Two strands of the reasoning deserve separate notice. The first is the treatment of inconvenience. The petitioners’ affidavits spoke of distance, of banking difficulty, of compliance load falling on small organisations far from the capital. The Court’s answer, that mere inconvenience is not enough to attract a constitutional inhibition and that there is a presumption that Parliament understands the needs of its own people and reacts to experience gained in a law’s working, places the practical burden of the regime outside the reach of constitutional challenge on that ground alone; the burden must be shown to be arbitrary or unconnected with the object before it counts. The second strand is the reading down of Section 12A, which shows the limit of that deference. Where a provision’s mandate could be satisfied by a less intrusive identification that served the same purpose, the Court construed the provision to permit it, treating the production of an Indian passport by an Indian office bearer as substantial compliance. The reading down is the judgment’s acknowledgment that identification is the purpose and the Aadhaar number an instrument, and it is the part of the judgment with the most immediate operational content, since it governs every application and renewal filed under the amended Act.

The case for the regime, and the case against it

The stance charter of this series requires that contested questions be given in their strongest form, in the voice of those who hold them, and the FCRA question admits of a clean statement on both sides.

The case for the regime, as the Union of India made it in Noel Harper and as the Supreme Court accepted it, is a case about visibility and entitlement. A State is entitled to know the sources of funding for activity within its territory and to regulate them; every comparable jurisdiction regulates foreign funding of domestic politics and civil society in some form, and several prohibit foreign funding of electoral activity outright. The flow the Act governs is large: on the figures the Court recorded, inflow almost doubled between 2010 and 2019, and more than 19,000 certificates had been cancelled for failures that included basic statutory formalities, which the Union presented as evidence that the earlier, lighter regime was not producing compliance. The transfer prohibition prevents funds passing through chains in which the ultimate use becomes progressively harder to trace; the designated account gives the regulator a single, timely view of inflow; the administrative cap ensures that a contribution given for a programme is spent predominantly on the programme; the identification requirement fixes identified persons with accountability. Above all, the constitutional premise: there is no right to receive foreign contribution, as the Court held, so the conditions attached to a permission the State is not obliged to give at all must be judged with latitude, and conditions that are rational, connected to the object and uniform in application survive.

The case against, as the petitioners in Noel Harper made it and as sector commentators continue to make it, is a case about incidence and fit. The functions the sector performs, in health, education, legal aid, research and relief, include functions that are not otherwise funded at the places where they are performed, and a funding condition is never only a funding condition: it is a condition on the work. The transfer prohibition ended a distribution model that reached small organisations without the capacity to obtain registration themselves, and the organisations it displaced were not shown to be the organisations whose conduct justified the change. The administrative cap does not reflect the cost structure of organisations whose principal input is skilled staff, and so presses hardest on research, advocacy and professional service organisations, a selection effect the provision does not avow. The designated account imposes on a district organisation a banking relocation whose benefit accrues to the regulator. Non-renewal, where it occurs without a reasoned and appealable decision, leaves an organisation holding funds it cannot spend and a status it cannot recover, with the writ jurisdiction of the High Courts as its only remedy, a remedy priced beyond many of the organisations affected. And the retrospective amendments on political parties are deployed as evidence of asymmetry: the strictest reading of foreign funding law for the voluntary sector, and a definitional amendment with forty years of retrospectivity for the parties that govern.

The comparative limb of the case for the regime is sound in its general form and should be stated accurately. The United States has since 1938 required agents of foreign principals engaged in political activity to register and disclose under its Foreign Agents Registration Act, and its federal election law prohibits foreign nationals from contributing in connection with elections at every level. The United Kingdom prohibits donations to political parties from impermissible donors, a class that includes foreign companies and individuals not on the electoral register, under its parties and elections legislation. Australia built a foreign influence transparency scheme in 2018 alongside bans on foreign donations in its electoral law. The forms differ, registration in one place, prohibition in another, transparency in a third, and the Indian regime’s combination of prohibition for public functions with a permission system for civil society is at the supervised end of the range; but the premise that foreign money in domestic public life is a fit subject for law is common ground among democracies and is not an Indian peculiarity. The critics’ comparative answer is equally specific: the comparable regimes concentrate their prohibitions on politics and lobbying and regulate charities through their charity and tax law, whereas the FCRA subjects the charitable sector itself to a prior permission system administered by the home ministry, a design whose closest relatives are found in States whose treatment of civil society India does not ordinarily cite with approval. Both comparative claims are true of the materials they select, and the selection is the argument.

A verdict is available on one narrow point, and the article takes it, because the evidence supports it and the charter permits it. On the question of what the amendment did, as distinct from whether it should have been done, the record is clear: the amendment’s operative changes were to intermediaries, channels and overheads, not to the catalogue of permissible purposes or permissible recipients, and its largest effects fell on organisations that were never its addressees. That is a finding about incidence, not about justification, and it is consistent with both cases stated above. On justification the article adjudicates neither, for the reason given at its head: the constitutional question has been decided by the court charged with deciding it, and the policy question is of the kind on which the Constitution leaves the answer to Parliament, answerable in turn to the electorate that the Act’s first prohibitions exist to insulate from foreign money.

The compliance function: donors, office bearers and the working file

Three practical payloads close the article. The first is for the donor and the adviser. A foreign donor’s diligence on an Indian recipient resolves into a short set of verifications: that the recipient holds a certificate of registration in force, or holds prior permission covering the donor’s contribution and its purpose; that the remittance is directed to the recipient’s designated FCRA Account at the State Bank of India, New Delhi Main Branch, and to no other account, since a remittance to a utilisation account or a domestic account is a receipt outside Section 17 however innocent the intention; that the purpose of the grant falls within the programme for which the certificate or permission was granted; and that the grant agreement does not promise onward sub-granting that Section 7 forbids, structuring any multi-organisation programme instead as parallel grants to each organisation that will spend, or as a single grant to the organisation that will itself deliver, with partners engaged and paid for their work.

What must a donor verify before remitting funds to India?

Four things, in order. The recipient’s certificate of registration must be in force, or a prior permission must cover the contribution and its purpose. The remittance must be directed to the designated FCRA Account at the State Bank of India, New Delhi Main Branch, and to no other account.

The purpose must fall within the programme for which registration or permission was granted. And the grant must not promise onward transfer that Section 7 prohibits, since the recipient has to spend the contribution itself or pay for services within its own programme.

The second payload is for office bearers, and it is about personal exposure.

Why do office bearers carry personal exposure under the Act?

Because the Act is built to make identified persons answerable. Section 12A fastens every application and every renewal to the identified office bearers, directors and key functionaries of the organisation, so that the certificate has names attached to it. The penalty chapter then runs against the persons who accept, transfer or utilise contribution in contravention.

The identification the Supreme Court described in Noel Harper exists, in the Court’s words, so that the key functionaries can be made accountable for violations. A trusteeship of a registered organisation is therefore a position with a personal compliance content, not a ceremonial one.

An office bearer who treats the certificate as the organisation’s affair rather than the board’s will misjudge the renewal round as well, since renewal is the point at which the conduct of the certificate’s life is examined and at which identification must be furnished again. The prudent board treats the FCRA file, the designated account statements, the utilisation account records, the annual returns as filed and the classification of expenses between programme and administration, as standing board papers, reviewed with the same regularity as the audited accounts. Practitioners assembling those papers for a board or a donor review commonly keep the underlying decks and returns together in a single working file, and a browser-based presentation viewer is the sort of tool by which such a compliance deck is opened and checked without disturbing the file of record. The third payload is for the organisation deciding whether to enter the regime at all. Registration is a five-year supervised status with real running costs in accounting, audit, banking and reporting, and it is worth its costs to an organisation with a durable foreign funding relationship and a programme that fits Section 11; prior permission is the better instrument for a defined project with a defined donor; and an organisation whose foreign receipts are fees for services in the ordinary course of its business may stand outside the definition altogether, provided the character of those receipts is genuine and documented. This article is legal information about a statute and its interpretation, not advice on any organisation’s position, which turns on facts no article can see.

Grant design is where the Act meets the drafting table, and the agreements that survive the regime share a recognisable shape. The purpose clause is drawn to the certificate: it recites the programme for which the recipient is registered, because a purpose outside the certificate is a utilisation the Act forbids however the parties describe it. The payment clause is drawn to the channel: it names the designated account, the branch and the requirement that no instalment be directed elsewhere. The onward clause is drawn to Section 7: it states that the recipient will apply the grant itself, engages any partner by contract for services within the recipient’s programme where the programme requires one, and records that no part of the grant is to be transferred as a sub-grant. The reporting clause is drawn to the return: it obliges the recipient to furnish the donor the audited utilisation certificate and the extracts of the Form FC-4 return in which the grant appears, because the donor’s own regulators and auditors will ask for the same paper the ministry receives. And the change clause is drawn to renewal: it provides for the consequences, suspension of instalments and orderly closure among them, if the recipient’s certificate is suspended, not renewed or surrendered during the grant’s life. None of this is ornament. Each clause answers a section, and a grant agreement for India that lacks them has left its answers to implication in the one jurisdiction where implication is least available.

The Act that emerges from this account is neither the formality its defenders sometimes describe nor the prohibition its critics sometimes describe. It is a permission regime of the classical Indian kind, inherited from an Emergency statute, consolidated in 2010, tightened in 2020 at the points where money moves between hands, and sustained by the Supreme Court in 2022 on the express ground that foreign contribution is a subject on which the State may choose its policy. Its prohibitions are absolute at the points where money meets elections, office, courts and news. Its permissions are conditional everywhere else. And its most consequential sentence may be the shortest one it contains, the substituted Section 7, in which a legislature that set out to regulate the acceptance and utilisation of foreign contribution decided that the money must stop moving at the first pair of hands it lawfully reaches.

Frequently Asked Questions

Q: What does the FCRA regulate?

The Foreign Contribution (Regulation) Act, 2010, Act 42 of 2010, regulates the acceptance and utilisation of foreign contribution and foreign hospitality by certain individuals, associations and companies in India, and prohibits acceptance and utilisation for any activities detrimental to the national interest. Foreign contribution means a donation, delivery or transfer by a foreign source of an article, currency or security, and the Act reaches Indian citizens abroad and the foreign branches of Indian bodies. It bars named categories of person from receiving at all, and it requires everyone else with a definite cultural, economic, educational, religious or social programme to be registered or to hold prior permission.

Q: Who is prohibited from receiving foreign contribution?

Section 3 of the Act bars acceptance outright, with no permission capable of curing it. The barred categories are a candidate for election; a correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper; a judge; a government servant or employee of a corporation or body owned or controlled by the government, a category to which the amendment of 2020 added the public servant; a member of any legislature; a political party or its office bearer; an organisation of a political nature specified under Section 5; and an association or company engaged in producing or broadcasting audio or audio visual news or current affairs programmes, with its linked journalists.

Q: What registration or permission is required?

Section 11 requires a person having a definite cultural, economic, educational, religious or social programme to accept foreign contribution only if registered with the Central Government under Section 12 or holding prior permission for the contribution in question. Registration is granted after inquiry, on conditions directed to genuineness, including that the applicant is not fictitious, has no relevant conviction, has not diverted funds and is not likely to use the contribution for personal gain or purposes the Act names. A certificate is valid for five years and renewable under Section 16. Prior permission is tied to the particular contribution, its source and its purpose, rather than to the organisation’s general status.

Q: Which FCRA provisions did the 2020 amendment rewrite?

The Foreign Contribution (Regulation) Amendment Act, 2020, Act 33 of 2020, in force from 29 September 2020, substituted Section 7 to prohibit transfer of foreign contribution to any other person, amended Section 8(1)(b) to reduce the administrative expense limit from fifty per cent to twenty per cent, substituted Section 17 to require receipt only in a designated FCRA Account at the State Bank of India, New Delhi Main Branch, inserted Section 12A requiring identification of office bearers, inserted Section 14A enabling surrender of a certificate, empowered inquiry before renewal under Section 16, armed a summary direction power in Section 11, and added the public servant to Section 3.

Q: Can foreign contribution be transferred to another organisation?

No. Section 7 as substituted by the amendment of 2020 provides that a person granted a certificate or prior permission shall not transfer foreign contribution to any other person. The bar is unqualified: the other organisation’s own registration does not cure it, and the earlier position, under which transfer within the registered class was possible, no longer holds. The recipient must utilise the contribution itself for the purposes for which it was received. The Supreme Court in Noel Harper drew the boundary of the bar: paying a third party for services engaged in the recipient’s own programme is utilisation, while handing the contribution over as a fund for another to apply is transfer.

Q: What did the Supreme Court decide about the 2020 amendments?

In Noel Harper v Union of India, decided on 8 April 2022 and reported at 2022 LiveLaw (SC) 355, the Supreme Court upheld the constitutional validity of the amendment. The Court held that no person has a fundamental or vested right to receive foreign contribution, that receipt of foreign contribution is a matter on which the State may take a policy position, and that the amended Sections 7, 12(1A), 12A and 17 are intra vires the Constitution and the parent Act. The transfer prohibition and the designated account requirement were held to be proportionate choices open to Parliament. Section 12A alone was read down, so that an office bearer who is an Indian national may produce an Indian passport as identification instead of the Aadhaar number.

Q: How are political parties treated under foreign funding law?

Political parties and their office bearers are prohibited without exception from accepting foreign contribution, under Section 3(1)(f) of the Act. The complication lies in the definition of the giver. The Finance Act, 2016 amended the definition of foreign source so that an Indian company with foreign shareholding within the limits permitted under the foreign exchange law is not a foreign source by reason of that holding, with effect from 26 September 2010; the Finance Act, 2018 extended that operation back to 5 August 1976. The amendments followed the Delhi High Court judgment of 28 March 2014, which had held donations to two national parties from Indian subsidiaries of a foreign group to contravene the 1976 Act.

Q: Why are FCRA registrations cancelled or not renewed?

Cancellation under Section 14 is a decision on stated grounds, which include a false statement in the application, contravention of the Act or of the conditions of the certificate, the public interest, and the organisation having become defunct or non-functional, and it follows an opportunity of being heard; before cancellation, Section 13 permits suspension pending consideration. Non-renewal is a different event: the certificate is not continued at the five-year point, whether because no application was made in time, because the inquiry before renewal was not satisfied, or because the organisation had ceased to operate. In Noel Harper the Court recorded cancellations of more than 19,000 certificates across the period it surveyed, attributed to failures of compliance.

Q: What is the difference between FCRA registration and prior permission?

Registration is a status and prior permission is a transaction approval. A certificate of registration under Section 12 entitles the organisation, for five years, to receive foreign contribution from any foreign source for the programme stated in its application, subject to the continuing conditions of the Act. Prior permission entitles the organisation to receive the particular contribution described in its application, from the source named, for the purpose stated, and no other. An organisation that expects a continuing flow of foreign funding therefore seeks registration, which concentrates official inquiry at entry and renewal, while an organisation with a single defined project and donor seeks prior permission for that project.

Q: Which bank account must foreign contribution be received into?

Since the amendment of 2020, foreign contribution may be received only in the account designated as the FCRA Account, opened in the branch of the State Bank of India at New Delhi specified by the Central Government, the New Delhi Main Branch at Sansad Marg. Section 17 as substituted permits no receipt into any other account, and the designated account may receive foreign contribution and nothing else. After receipt, the organisation may open one or more accounts in any scheduled bank for utilisation and spend from those accounts. The Supreme Court upheld the single-door requirement in Noel Harper, treating the opening of the account as a one-time exercise that may be operated without physical presence.

Q: What counts as administrative expenses under the FCRA?

Section 8(1)(b) caps the share of foreign contribution that may be defrayed towards administrative expenses, and the Foreign Contribution (Regulation) Rules schedule the heads that count as administrative, including the salaries of staff engaged in administration, rent, utilities, travel for administrative purposes, accounting, audit and legal charges, printing and communication. The remuneration of persons directly engaged in the programme activity is a programme cost rather than an administrative one, and classification follows the function the person performs. The cap therefore turns on a head-by-head and person-by-person classification in the organisation’s accounts, and a misclassification is a compliance defect even where total spending is honestly incurred.

Q: What happens when FCRA renewal is refused?

A certificate that is not renewed ceases to entitle the organisation to receive foreign contribution, and receipts after that point are contraventions of Section 11. Renewal under Section 16 is sought by application within the prescribed period before expiry, and after the amendment of 2020 the Central Government may hold an inquiry before renewing, at which the organisation’s conduct during the certificate’s life, its returns, accounts and identification particulars are the material examined. Foreign contribution already held when entitlement ends falls under the Act’s directions regime for such balances, and the organisation’s remedy against a refusal lies in representation under the Act and, failing that, in the writ jurisdiction of the High Court.

Q: Can a registered organisation surrender its FCRA certificate?

Yes. Section 14A, inserted by the amendment of 2020, enables the Central Government to permit a person to surrender the certificate granted under the Act. Surrender is the orderly exit from the regime for an organisation that no longer wishes to receive foreign contribution, and it replaced the untidy alternatives of allowing a certificate to lapse mid-stream or inviting cancellation. On surrender, as on cancellation or on a certificate ceasing to be valid, the treatment of foreign contribution and of assets created out of it is governed by the Act, under Section 15 and the directions of the Central Government, rather than by the organisation’s unilateral decision.

Q: What is foreign hospitality under the FCRA and who needs permission to accept it?

Foreign hospitality is hospitality offered by a foreign source, in the form of travel, lodging, board, transport, medical treatment or a similar benefit, and the Act regulates it separately from contribution because influence may travel without money moving. Section 6 provides that no member of a legislature, office bearer of a political party, judge, government servant or employee of a corporation or body owned or controlled by the government shall, while visiting a country or territory outside India, accept any foreign hospitality without the prior permission of the Central Government, subject to the exceptions the section makes, including medical emergency. Persons outside those classes are not under the Section 6 requirement.

Q: What penalties follow from accepting foreign contribution without registration or permission?

Acceptance in contravention of Section 11 is an offence under the penalty chapter of the Act, Sections 33 to 37, which exposes the person to imprisonment for a term extending to five years, or to fine, or to both, and the contribution itself is liable to confiscation in the cases the Act provides. Contravention also has administrative consequences independent of prosecution: the certificate, where one exists, may be suspended under Section 13 pending consideration and cancelled under Section 14, and on cancellation the foreign contribution and assets created out of it vest under Section 15 in the prescribed authority until the Central Government directs otherwise.

Q: How did the INSAF judgment affect the meaning of an organisation of a political nature?

In Indian Social Action Forum (INSAF) v Union of India, decided on 6 March 2020, the Supreme Court upheld Section 5 of the Act but read down the widest grounds in Rule 3 of the Foreign Contribution (Regulation) Rules, 2011. The expression political interests in Rule 3(v) was confined to interests connected with active politics or party politics, and the Court held that an organisation supporting the cause of citizens agitating for their rights, without a political goal, cannot be declared an organisation of a political nature, and that resort to legitimate methods of protest in support of a public cause does not by itself attract the declaration. Organisations used to channel foreign funds for political parties remain within the provision on concrete material.

Q: Does interest earned on foreign contribution count as foreign contribution?

Yes. Interest that accrues on foreign contribution held in the designated account or a utilisation account is treated as foreign contribution, because it is an accretion to money that originated with a foreign source, and the definition’s tracing of contributions through recipients supports that treatment. The interest must be reported in the annual return in Form FC-4 with the rest of the account, and it is subject to the same rules of utilisation, including the administrative expense proportion in Section 8, as the principal. An organisation that treats bank interest on its FCRA accounts as unrestricted domestic income misstates its return and its utilisation position.

Q: Can an organisation open a second account for using foreign contribution?

Yes, and the structure is compulsory in form. Section 17 as substituted requires receipt only into the designated FCRA Account at the State Bank of India, New Delhi Main Branch, and then permits the recipient to open one or more accounts in any scheduled bank of its choice for keeping or utilising the contribution so received. The utilisation accounts are where programme spending happens; the designated account is a receiving door only and may not be used for domestic funds or for the organisation’s general banking. Banks carrying such accounts report receipts and remittances under the Act and the Rules, so the movement from the designated account to utilisation accounts forms part of the regulator’s record.

Q: What inquiries may precede renewal of an FCRA certificate after the 2020 amendment?

The amendment of 2020 armed the Central Government to open the renewal stage to inquiry. Section 16 renewal is no longer a clerical continuation: before renewing, the Central Government may cause an inquiry to be held into the organisation’s compliance during the expiring certificate, examining whether the contribution was utilised for the purposes granted, whether returns and accounts were filed as the Act requires, whether the administrative expense limit was observed and whether any condition of the certificate was breached. Section 12A identification applies at renewal as at application, so the office bearers’ identification documents form part of the renewal file. An adverse inquiry outcome bears directly on renewal and may also ground suspension or cancellation proceedings.

Q: How long does an FCRA registration remain valid?

A certificate of registration granted under Section 12 is valid for five years from the date of its issue. It may be renewed under Section 16 for successive periods of five years on application made within the period prescribed before the existing certificate expires. Validity is conditional throughout its life rather than absolute for its term: the certificate may be suspended under Section 13 pending consideration of cancellation, cancelled under Section 14 on the grounds that section states, or surrendered with permission under Section 14A, and each event ends or interrupts the entitlement to receive foreign contribution notwithstanding that five years have not run.