SUSPENSION OF CERTIFICATE UNDER SECTION 13(1) OF FOREIGN CONTRIBUTION REGULATION ACT, 2010

[Mr. M. GOVINDARAJAN]

Section 11 of the Foreign Contribution (Regulation) Act, 2010 (‘Act’ for short) provides that any person having a definite cultural, economic, educational, religious or social programme shall accept foreign contribution shall obtain a certificate of registration from the Central Government. Section 12 provides the procedure for obtaining the certificate of registration by the eligible person.  The certificate of registration may be granted subject to conditions prescribed in the certificate of registration.  The Authority may reject the application for registration.  The reasons for such rejections shall be intimated to the applicant.  The certificate of registration is valid for five years.

Cancellation of certificate of registration

Section 14 of the Act provides that the Central Government may, if it is satisfied after making such inquiry as it may deem fit, by an order, cancel the certificate if-

• the holder of the certificate has made a statement in, or in relation to, the application for the grant of registration or renewal thereof, which is incorrect or false; or
• the holder of the certificate has violated any of the terms and conditions of the certificate or renewal thereof; or
•  in the opinion of the Central Government, it is necessary in the public interest to cancel the certificate; or
• the holder of certificate has violated any of the provisions of this Act or rules or order made there under; or
• if the holder of the certificate has not been engaged in any reasonable activity in its chosen field for the benefit of the society for two consecutive years or has become defunct.

Suspension of certificate of registration

Section 13 of the Act provides that where the Central Government, for reasons to be recorded in writing, is satisfied that pending consideration of the question of canceling the certificate on any of the grounds mentioned in section 14, it is necessary so to do, it may, by order in writing, suspend the certificate for a period of 180 days, or such further period, not exceeding 180 days, as may be specified in the order.   Every person whose certificate has been suspended shall-

• not receive any foreign contribution during the period of suspension of certificate:
•  utilize, in the prescribed manner, the foreign contribution in his custody with the prior approval of the Central Government.

The section does not provide for giving an opportunity to the person concerned about the suspension of the certificate.  The reasons are to be recorded by the Authority in suspension of the certificate.

In ‘Commonwealth Human Rights initiative v. Union of India’ – 2022 (2) TMI 794 – Delhi High Court, the petitioner is an independent, nonprofit, civil society organization, headquartered in New Delhi, India since 1993.  The object of the petitioner is to promote access to justice, access to information and timely fulfillment of the United Nations Sustainable Development Goals in India and in Commonwealth countries.  The petitioner was granted a Certificate of Registration on 03.09.1993 under the Foreign Contribution Regulation Act, 1976.  The same was renewed up to October 31, 2021. 

The petitioner’s FCRA Registration was suspended for 180 days under Section 13 of the Act pending consideration of cancellation of Certificate of Registration of the petitioner under Section 14(1)(d) of the Act on 26.06.2021.  On 26.06.2021 the petitioner gave a reply contending that there was no violation of the Act and requested to revoke the suspension order.  The Department caused an audit the books of accounts of the petitioner and the audit was conducted from 09.08.2021 to 14.08.2021.  The Department drew certain observations on the said audit and forwarded the same to the petitioner for their comments on 07.10.2021.

On 01.12.2021 the suspension was extended for further 180 days.  A show cause notice dated 07.12.2021 was issued to the petitioner.

The petitioner filed the present writ petition before the High Court with the prayer to quash the suspension order issued by the Department.  The petitioner submitted the following before the High Court-

• The order of suspension was issued on-

• non submission of ‘Details of activities/ projects for which foreign contribution has been received and utilized at the prescribed point 3(a) in FC-4 form in AR for the FY 2018-19’. 
• The Bank Account No. 60051011 0004721, Bank of India, New Delhi opened on 18.02.2016 has not been intimated online to the Ministry and there is flow of foreign contribution in this Bank account.
• Further, one utilization account through which the Association has been utilizing foreign contribution has not been intimated in ARs for the FY 2016-17 and 2017-18

• The above said particulars were furnished in the Annual Return of the respective year.  However again the said particulars are furnished to the Department.
• Section 8(1)(a) of the Act does not apply to or prohibit bona fide refunds of unutilized foreign contributions back to the donor. 
• Section 13 of the Act requires recording of reasons as to why the Competent Authority was satisfied that the drastic and optional action of suspension was necessary pending consideration of the question of cancellation of the certificate on any of the grounds mentioned in Section 14(1) of the Act.
• No such reason(s) explaining the necessity of suspension has been recorded or communicated through the impugned order dated June 07, 2021.
• Given the drastic nature of the power of suspension under Section 13(1) to bring an organization to a grinding halt and to threaten its existence as well as damage its reputation, this particular safeguard of recording reasons for the necessity of suspension enshrines an important principle of natural justice, which has been violated.
• The Act does not provide for automatic suspension of FCRA certificate on initiation of inquiry into an organization’s affairs or on commencement of consideration on the question of cancellation of such organization’s certificate. The power of suspension has been provided only as an optional power under Section 13 of the Act.
• There was no inquiry or Show Cause notice on the date of suspension.
• The impugned suspension order is liable to be set aside on grounds of violation of the doctrine of proportionality.

The respondent submitted the following before the High Court-

•  There exists a need for deeper scrutiny and inquiry and therefore the respondent has conducted an audit as well as inspection of the petitioner’s association under Section 20 and 23 of the Act from August 09, 2021, to August 14, 2021.
•  Pending decision on cancellation of FCRA registration certificate under Section 14(d) of the Act, the FCRA registration Certificate of the petitioner’s association was suspended vide Order dated June 07, 2021, in the exercise of the powers conferred by Section 13 of the Act for a period of 180 days with effect from the date of the order or until further orders whichever is earlier.
• The suspension order dated June 07, 2021, is a reasoned / speaking order that cites the reasons for the suspension. 
• As far as the right of opportunity of being heard is concerned, there is no such provision(s) envisaged under Section 13 of the FCRA, 2010, to offer an opportunity to the registration certificate holder of being heard before suspending the registration certificate
• The opportunity of being heard is provided under Section 14(2) of the Act, before the proceedings leading to the cancellation of registration certificate and if things would turn in that direction, that opportunity of being heard would be duly provided to the petitioner.
• The suspension order is not a punitive measure, nor is it stigmatic and it is only interim in nature which may or may not lead to cancellation of the certificate of registration of the petitioner.
• Non-furnishing of complete information in the statutory FC-4 Form (Annual Return) constitutes a violation of Section 18 of the Act read with Rule 17.
•  The petitioner may open one or more utilization account(s) and in all such cases intimation shall be furnished to MHA within 15 days of the opening of any such account.
• It is made mandatory to furnish such information in electronic form on FCRA Portal through Form FC-6 only.
• Furnishing details of utilization bank account in reply to the Standard Questionnaire (SQ) cannot be termed as a specific intimation as expressly stipulated in Rule 9(1)(C).
• The foreign contribution / donation are received for fulfillment of only a defined aim / objective and it has to be utilized for the same. 
•  There is no provision in the Act for a refund of foreign contribution / donation to the donor, and any interest or income derived by utilization foreign contribution also becomes foreign contribution, which is to be utilized as per law.

The Additional Solicitor General reiterating the above stand.

The High Court considered the submissions put forth by the parties in the present writ petition.  The High Court analyzed the provisions of Section 13 and     14 of the Act.  The High Court also analyzed the impugned order.  The High Court observed that the provisions for suspension of certificate under Section 13 and cancellation of certificate under Section 14 are measures in keeping with the general mandate of the Act and the rules. So, it follows if reasons exist, that the utilization of the contribution is not in accordance with the mandate of the Act, the Central Government by recording in writing the reasons, can suspend the certificate.  The only effect of suspension is that the certificate is kept in abeyance and the certificate holder does not receive contribution during that period. There is also a safeguard, that is, in case of hardship; the certificate holder can apply to the Central Government for receiving the financial contribution or utilizing the foreign contribution in its custody which may be allowed by the Central Government.    The only caveat is that the power of suspension should not be exercised in an arbitrary manner and without any reasonable ground or as a vindictive misuse of power.

The High Court was of the view that Section 13(1) of the Act gives discretion to the Central Government to suspend the certificate only if it is satisfied that it is necessary to do so. It is not necessary that in all cases suspension is resorted to.  The fact of the questionnaire issued by the respondents and the reply filed by the petitioner is duly accepted by the petitioner.  The petitioner contended that the said questionnaire was of a general one.  The High Court did not agree with the contention of the petitioner.  The questionnaire is with regard to the manner of receipt and utilization of foreign funds for the FYs 2011-2012 to 2015-2016 and regarding manner of receipt and utilization of foreign funds by the petitioner for the FYs 2011-2012 to 2016-2017.    The suspension order also records the no intimation of utilization of foreign contribution in annual returns for the year 2016-2017 and 2017-2018.   The petitioner has refunded some contribution back to the donor in FYs 2013-2014 and 2014-2015, which is also in violation of the Act.     The questionnaires were part of the process of inquiry and the plea that the suspension was made without inquiry is unsustainable. 

The High Court found that the impugned order recorded the following violation of the provisions of the Act-

• The activities / projects for which foreign contribution has been received and utilized have not been given in the prescribed Point 3(a) in FC-4 Form in AR for the FYs 2018 - 2019.
• The bank account No.600510110004721, Bank of India, New Delhi opened on February 18, 2016, has not been intimated online to the Ministry and there is a flow of foreign contribution in this bank account.
•  One utilization account through which the Association has been utilizing foreign contribution has not been intimated in ARs for the FYs 2016-2017 and 2017-2018.
• In addition, the association has refunded some foreign contributions back to the donor in FYs 2013-2014 and to 2014-2015 in violation of Section 8(1)(a) of the FCRA, 2010.

The suspension order can be passed by the Central Government considering the gravity of violations, the nature of evidence available and effect on public interest.     The violations of Act can be reasons to suspend the certificate.   Section 13(2)(b) stipulate permission being granted for the utilization of the foreign contribution in the custody, which is 25% of the unutilized amount as per the Rule. 

The High Court observed that the satisfaction is of the Central Government and this Court cannot substitute the reasons unless such reasons are perverse.   The scope of judicial review is very limited and should be exercised only when it is a case of mala fide, arbitrariness, or an ulterior motive.  The High Court was of the view that the reasons have been given in the impugned order.  The High Court found no reasons to interfere with the impugned orders.  Therefore the High Court dismissed the writ petition.