Custodial Turn In India's Foreign Contribution Regulation Amendment, 2026

While the 2020 amendment dealt with the conditions of allowing and spending foreign contribution, the 2026 Amendment deals with what happens to the assets of the concerned entity once the registration is cancelled or surrendered or is deemed to have ceased. Currently, over 20,000 registrations have been reported to have been cancelled or non-renewed over the last decade on murky grounds. This piece argues that these new rules aim for accountability and transparency, but are creating new bar­ri­ers for Non-Governmental Organisations (“NGOs”) to exist and function independently.

The Statutory Vesting under Chapter IIIA

There is a new Chapter IIIA inserted into the parent Act, that creates a Designated Authority in whom foreign contribution and assets created therefrom vest, first provisionally and, without renewal within a prescribed period, vests permanently. The state's justification rests on the Supreme Court's holding in Noel Harper v. Union of India 2022 LiveLaw (SC) 355, which held “ There is no fundamental right vested in anyone to receive foreign contribution (donation) or foreign exchange”. Furthermore, Section 16A provides that all foreign contribution and assets created from it shall first provisionally vest in the Designated Authority from the date of cancellation, surrender, or cessation of a registration certificate. Cessation itself has been defined broadly to be “a certificate is deemed to have ceased where no renewal application was made, where renewal was denied, or where renewal was not obtained before expiry”.

Subsequently, if after such vesting the concerned entity referred fails to obtain a fresh certificate or renewed or restored then the foreign contribution shall thereupon “stand permanently vested in the Designated authority”.

It also permits the Authority to then apply the seized or vested assets for public purposes, by a transfer to any government ministry, department, or local authority, or by sale, with the proceeds credited to the Consolidated Fund of India. These rules extend the Authority's claim to those assets that were created partly from foreign contribution, without prescribing a mechanism for apportioning the domestically funded share prior to disposal.

This cessation treats a missed filing deadline or an undecided renewal application the same and then removes the volitional element that previously anchored the regime. The state's power to divest now adds on to the administrative delay as readily as to adjudicated misappropriation, collapsing a distinction that Sections 14 and 14A of the Parent Act. The extension of vesting to mixed-funded assets, without an apportionment mechanism preceding any permanent transfer, creates a disproportionality problem under Article 300A of the Constitution. The state's claim is not even calibrated to a fraction of the contribution or asset, but rather to the whole of it giving the government unbridled ability of surveillance over finances, social media accounts etc.

The New Role of Key Functionaries

Now, the 2026 Amendment defines a term “key functionaries” which means and includes the directors, partners, trustees, karta, office bearers, members of governing bodies and other persons associated with the organisation. This is a very generic definition and all those who hold office in an organisation will be subject to the FCRA and therefore accountable. One of the very important compliance issues is that if it is either dissolved or becomes defunct then the last of its key functionaries are now under statutory duty to report the organisation's status to the Central Government and their assets and foreign contribution shall thereafter stand permanently vested in the Authority.

Moreover, Section 39 of the Parent Act has also introduced the concept of strict liability for all key functionaries in respect of any offence committed by an organisation, whereupon they will be liable unless reasonable steps are taken to avoid the same. A key change has been undertaken to cut the maximum length of imprisonment for an offence under the FCRA from five years to a period of one year or a fine. It has also introduced a safeguard, i.e, prior approval from the Central Government is required before it starts investigating offences under the FCRA. This also adds an opportunity for the executive to have ambiguous rules to follow when granting approval to investigate.

The Compliance Infrastructure Preceding Seizure: Sections 7, 8, 12A, and 17

The formidable landscape created under the 2020 regime exists namely, the ceiling on administrative costs in Section 8(1)(b) of the FCRA (twenty per cent), the identity-disclosure requirements under Section 12A of the FCRA, the absolute bar on sub-granting under Section 7 of the FCRA and the Central mandate in Section 17 of the FCRA requiring all foreign investments to be channeled through a single State Bank of India branch in New Delhi. In the past, these regulations served as checkpoints to monitor, control, and review foreign investments throughout the investment process. But now, under the 2026 Amendment, however, they are given a completely different purpose. The Bill creates a situation of de facto seizure as default consequence of any contravention of the disclosure obligation under Chapter IIIA.

This turn creates significant asymmetry in the civil society of India on a systemic basis. If a material breach occurs, such as exceeding the twenty per cent limit, or minor changes in accounting in the designated SBI account, or late submission of documents has the same consequences as a misappropriation of funds. The law creates a technical obstacle course that can lead to corporate erasure, and to permanent absorption of assets by the State.

Also, such a punitive model deepens the structural inequalities within the non-profit sector. Well-resourced urban NGOs with in-house legal and accounting staff can fulfill these compliance challenges, the hassle of SBI and the time-intensive FC-4 reports. In contrast, there is no buffer for grassroots, rural or minority-serving institutions. These localized entities are especially vulnerable in part because of the Section 7 sub-transfer ban, that puts them in a chokehold position and financially isolated.

Any time a grassroot organization fails to make a timely Section 12A filing, or successfully pass a Section 12A renewal period, due to administrative constraints, it wouldn't be necessarily to fund financial fraud against national security. The 2026 framework, by setting such capacity constraints as a justification for asset expropriation, makes it possible to establish a regulatory regime that puts the viability of community-based, small-scale projects at risk due to routine delays – making the civic space in India much more like a space of involuntary liquidation than active regulation.

The 2026 Amendment tightens an existing heavily scrutinised civil society and gives the executive unsupervised control over their assets. The government's justification, drawn from a documented history of certificate cancellations for misappropriation, and from India's alignment with FATF Recommendation 8 on non-profit-sector abuse. These concerns point to a genuine gap in the 2010 Act, which did not provide a mechanism for the custody or disposal of foreign contributions and assets created from them after a registration lapsed, was surrendered, or was cancelled.

The temporal application of the 2026 Amendment remains unclear, as the text does not indicate whether the vesting framework is intended to operate prospectively or extend to existing cases of cancellation, surrender, or cessation. While safeguarding against the misuse of foreign contributions in the interests of national security is a legitimate regulatory objective, that objective must be balanced against the need to ensure that the framework does not disproportionately restrict the autonomy of civil society organisations or become a tool to suppress dissenting voices.