Permanent FCRA Registration Doesn't Guarantee Foreign Fund Crediting Without Ministry's Clearance: Karnataka High Court

The Karnataka High Court recently ruled that permanent registration under the Foreign Contribution (Regulation) Act (FCRA) did not endow an unequivocal right to credit foreign funds into their designated savings account without authorisation from the Ministry of Home Affairs. 

Justice K S Hemalekha thus dismissed a petition filed by MANSA seeking a direction to the Development Credit Bank (DCB) to release frozen funds received from a foreign donor Dan Church Aid which has been put under the ‘prior approval category’ by the Ministry of Home Affairs.

“Mere possession of the permanent registration under the FCRA, 2010 does not permit the petitioner to get the amounts credited to the designated savings bank account, which is always subject to the clearance of the Ministry of Affairs.”

The FCRA regulates the acceptance and utilization of foreign contributions or hospitality by certain individuals or associations, aiming to prevent activities detrimental to national interests.

The petitioner informed the court that it had obtained permanent registration under FCRA, and even though there were sufficient funds in the bank account, DCB dishonoured the cheque citing “insufficient funds” and rejected certain cheques issued from the above account.

On enquiry, the bank handing over a letter to the petitioner has stated that an amount of Rs.29,12,890.96 has been kept aside and that any remittance being received from "Dan Church Aid" can be credited to the petitioner’s account only after receiving appropriate approvals/clearance from the Ministry of Home Affairs and as such, the bank was constrained to freeze the credit in the petitioner’s account.

The petitioner contended that the frozen funds were not from "Dan Church Aid" but from other donors, and the freezing action was arbitrary and high-handed.

The respondents countered that their actions were prompted by the Ministry of Home Affairs directive not to credit funds from "Dan Church Aid" without ministry clearance, in line with the FCRA and RBI regulations. They emphasised that having permanent FCRA registration does not automatically permit fund crediting; clearance from the Ministry of Home Affairs is essential. A letter from the Ministry dated 20.11.2018 to the ASGI supported the Ministry's directive.

The bench noted that the object of the FCRA that an Act to consolidate the law to regulate the acceptance and utilisation of foreign contributions or foreign hospitality by certain individuals, associations or companies and to prohibit the acceptance and utilisation of foreign contributions or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto.

The Ministry evaluated inputs from various sources, including field and security agencies, categorising foreign donors into a "Prior Reference/ Permission Category." Under this mechanism, banks were mandated not to credit foreign funds until the Ministry granted its clearance. In this instance, the Ministry determined that "Dan Church Aid" had adverse inputs, leading it to direct the petitioner's bank not to credit the received funds.

It was also held that a perusal of the letter taking the feedback and inputs from the field/security agency would make a decision to place a foreign donor(s) into the “Prior Reference/Permission Category” under the relevant provisions of FCRA.

Further, it said,

“The “Prior Reference/Permission Category” by the union was communicated to the RBI and the RBI in the year 2013, in turn, directed all the banks and the branches to ensure that any fund flow to any individuals/entity so in India from “Dan Church Aid” is brought into notice of this ministry for clearance before crediting into the account of the recipient, NGOs, associations and the same has to be conveyed to all the banks and their branches by the RBI.”

Following this the Court held that since the petitioner received two inward remittances from the "Dan Church Aid" in their account being operated in the DCB  to the extent of Rs.5,23,549.34 and Rs.23,89,343.62 were credited. Accordingly, the clearance was sought by the DCB Bank from the ministry for crediting the aforementioned inward remittance into the petitioner's account. 

“Keeping in view the adverse inputs and feedback of the field (Security Agencies) against the “Dan Church Aid” the respondent bank DCB was informed by the Ministry dated 31.10.2013 not to credit the above-mentioned foreign contribution into the account of MANASA Centre for Development and Social Action, Bangalore till further instructions from this Ministry,” it said.

Accordingly, it dismissed the petition.

Case Title: MANSA–Centre for Development and Social Action v. Managing Director, Development Credit Bank & Others.

Case No: WRIT PETITION No.6111/2014

Citation: 2023 LiveLaw (Kar) 325

Date of Order: 11-08-2023

Appearance: Advocate Siji Malayil for Petitioner.

Advocate V.K. Sreenath for FOR R-1/R2.

Deputy Solicitor General H. Shanthi Bhushan FOR R-4.

Click Here To Read/Download the Order