NGOs Shouldn't Be Looked At With Suspicion Just Because They Receive Foreign Aid: Madras High Court

Justice Anand Venkatesh held that unless there was a serious violation of the foreign funds, the authorities should have an open mind while dealing with the institutions.

“Before parting with the case, it is inevitable to sum up that just because some institutions run with the aid of foreign contribution, it is not necessary to look at the institutions like that of the petitioners with suspicion unless there are materials to show that such foreign contribution is being misused and it is being used against public interest/national interest. This is more so where persons of Indian origin, settled in foreign countries, earn money and want to give something back to their country by contributing funds,” the court said.

The court was hearing petitions filed by two institutions – Sharma Centre for Heritage Education and Ellen Sharma Memorial Trust, against the order of the Union Government (FRCA Wing) rejecting their application for renewal of registration under the Foreign Contribution (Regulation) Act, 2010.

According to the petitioner institutions, they were founded in the year 1982 with the object of improving the education and overall welfare of children, and the trust had set up Schools and Health centres in and around Chennai. The trust submitted that 70-75% of its revenue was through foreign donations, which were used for performing charitable and social work.

The trust also informed the court that it was duly registered under Section 12 of FRCA on March 25, 1983, and the registration had been renewed regularly, with the last renewal in 2016. While so, the trust submitted that it filed an application for renewal in 2021. Various queries were raised on the application, which were duly answered. However, ultimately, the application was rejected, which has been challenged in the present plea.

The Union Government informed the court that there was a violation of Section 7 of the Act since there was movement of funds between the NGOs without obtaining prior permission. The Centre submitted that the trust was unable to give a satisfactory answer to the queries raised and thus, by exercising the powers under Section 16(1) read with Section 12(4)(a)(vi) and (vii) of the Act, the renewal was rejected.

The Centre also argued that the trust did not have a fundamental right to carry on the activity of running educational institutions using foreign contributions. It was argued that the right to receive foreign aid was not a vested right, and it could not be claimed as a matter of right. It was also argued that merely because the trust was registered, the renewal was not a right and every application for renewal was to be treated like a fresh permission.

The court noted that the rejection communication did not contain the reasons for rejection except that the renewal was refused under Section 16(1) read with Section 12(4)(a)(vii) of the Act. The court noted that the authority had not specified the provision which was contravened by the trust and NGO. The court noted that only in the counter, the authority had specified that the trust had violated Section 7 of the Act.

The court held that Section 7, as it stood before amendment, allowed transfer of foreign contribution to other person who was also registered under the Act. However, after the amendment in 2020, even such a transfer to a registered person had to be with the prior permission of the competent authority. The court thus opined that even if the authorities were of the opinion that there was a violation, they should have called for clarification from the petitioners and informed them about the amendment.

The court also highlighted that in the present case, there was no material to show that the foreign contribution was misused. The court held that just because a procedural formality was not followed, it should not be put against the trust and reject renewal, which would ultimately result in closing the institutions.

Thus, the court allowed the appeal and set aside the communication by the authorities rejecting the renewal application. The court also directed the authorities to process the application and grant renewal to the trust within 4 weeks.

Counsel for Petitioner: Mr. S. Ramamurthy for Ms. E. Ann Priscilla Swarna Kumari & Ms. Saitanya Kesan, Mr. Satish Parasaran, SC for Mr. Rahul Balaji

Counsel for Respondents: Mrs. Mr. A. R. L. Sundaresan, AGG assisted by Mr. K. S. Jeyaganeshan, Senior Panel Counsel