Madras High Court Sets Aside FCRA Renewal Rejection | Holds Technical Breach Under Amended Section 7 Cannot Deny Registration | Orders Renewal Within Four Weeks
Safiya Malik
The High Court of Madras Single Bench of Justice N. Anand Venkatesh allowed a civil miscellaneous appeal and a writ petition concerning the denial of renewal of registration under the Foreign Contribution (Regulation) Act, 2010. The Court quashed the communications issued by the Ministry of Home Affairs that refused renewal of registration to two associated non-governmental organizations and ordered the authorities to proceed with the renewal process within four weeks.
The Court found that the denial, based solely on a technical breach involving transfer of foreign funds between sister NGOs, lacked sufficient legal grounding in the absence of allegations of misuse or diversion. It held that neither of the organizations had been provided with reasons in the impugned communications and that there was no material to suggest personal gain or improper utilization of funds.
The bench clarified that the mere movement of foreign contributions among registered entities without prior approval, after the amendment to Section 7, does not justify denial of renewal in the absence of any malfeasance. The Court accordingly issued directions to grant renewal within a fixed time frame.
The petition arose from proceedings initiated under the Foreign Contribution (Regulation) Act, 2010 (FCRA). The appellant in the Civil Miscellaneous Appeal (CMA) and the petitioner in the Writ Petition (WP) were two registered non-governmental organizations (NGOs) operating in the field of education and child welfare. The Ellen Sharma Memorial Trust, established in 1982, operates schools and health centres in Chennai and Kanchipuram, while Sharma Centre for Heritage Education is a sister NGO involved in heritage education.
Both entities were registered under the FCRA and had been periodically renewing their registrations. The Ellen Sharma Memorial Trust had most recently received renewal effective from November 2016, valid for five years. The organizations submitted renewal applications under Section 16 of the FCRA in early 2021. Thereafter, they received several queries from the authorities, to which they responded, including submission of bank statements and clarifications on operational matters.
On December 9 and December 29, 2021, respectively, the petitioner and the appellant received impugned communications denying their renewal requests. The denial was based on Section 16(1) read with Section 12(4)(a)(vii) of the Act. These communications did not specify the nature of the alleged violations.
In response, the Ellen Sharma Memorial Trust filed a writ petition under Article 226 of the Constitution of India, seeking to quash the denial and direct the respondents to renew the registration. The Sharma Centre for Heritage Education filed a civil miscellaneous appeal under Section 31(2) of the Act, seeking similar relief.
The petitioners contended that the organizations had never been found in violation of FCRA provisions prior to this denial. They submitted that foreign donations comprised up to 75% of their revenue and were vital for ongoing educational and welfare activities. The final queries from the authorities had requested information about office premises, common office bearers, and fund transfers between the organizations. Petitioners submitted that the NGOs functioned from the same premises to reduce overhead costs, had only some overlapping board members, and had furnished certified bank statements for the relevant periods.
The respondents, including the Director and Secretary of the FCRA Wing, Ministry of Home Affairs, submitted counter affidavits alleging violations under Section 7 of the Act. They stated that foreign contributions had been transferred among the sister NGOs without prior approval as required under the 2020 amendment to Section 7. They argued that this violation disqualified the NGOs from receiving renewal under Section 12(4)(a)(vi) and (vii).
The respondents further argued that renewal of FCRA registration is not a vested right and cited judgments in support of the principle that renewal may be refused if statutory conditions are not met. They relied upon the Supreme Court’s decision in Noel Harper v. Union of India (2023) 3 SCC 544 and Gajraj Singh v. State Transport Appellate Tribunal (1997) 1 SCC 650.
The petitioners relied on Supreme Court judgments including Institute of Chartered Accountants of India v. L.K. Ratna (1986) 4 SCC 537 and Madhyamam Broadcasting Ltd. v. Union of India (2023) 13 SCC 401, as well as two Madras High Court decisions in Trust Children v. Union of India (W.P.No.14343 of 2024) and Oasis Ministerial International v. Union of India (W.P.No.28110 of 2021), to argue that principles of natural justice required disclosure of reasons and an opportunity to respond before denial.
The Court recorded that both the writ petition and the civil miscellaneous appeal involved a common issue and proceeded to dispose them by a common judgment. It noted: “The impugned communications... have not contained any reasons except stating that the renewal was refused under Section 16(1) read with Section 12(4)(a)(vii) of the Act.”
Referring to Section 7 of the FCRA as it stood prior to the 2020 amendment, the Court stated: “The petitioner trust and its other two sister NGOs did not have any issues when the above provision was in force since the transfer of funds was made amongst themselves and those NGOs were registered and granted the necessary certificates under the Act.”
Upon examining the submissions and the report placed in a sealed cover, the Court found: “In the entire report, there is absolutely no material to show that the petitioner trust and its sister NGOs are misusing the foreign contributions... It has also been stated that there is no personal gain or diversion of foreign contributions for undesirable purposes.”
The Court held that the NGOs were not given specific reasons for denial and were not put on notice for the alleged violation. It recorded: “If, ultimately, any violation is alleged... they must be necessarily put on notice and they must be informed regarding the violation and their response must be sought for.”
Addressing the amendment of Section 7, the Court noted: “The requirement of getting the prior permission started only after the provisions of Section 7 of the Act were amended under Act XXXIII of 2020... The period between October 2020 and February 2021 became applicable.”
The Court found the procedural breach to be minor and stated: “Even though ignorance of law is no excuse, this principle cannot be applied in the abstract and it must be tested on the facts and circumstances of each case.”
“Violation of the provisions of Section 7 of the Act should not be put against both the petitioner trust as well as the appellant to deny the renewal of registration.”
“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.”
The Court quashed the impugned communications refusing renewal. It directed: “There shall be a direction to the respondents to act upon the respective application submitted by both the petitioner trust as well as the appellant for renewal of registration and grant renewal under Section 16 of the Act within a period of four weeks from the date of receipt of a copy of this order.”
It recorded that there had been no misuse, diversion, or use against national or public interest, and stated: “The reasoning given in the impugned communications will not strictly apply to both the petitioner trust as well as the appellant.”
The Court further rejected the respondents’ reliance on the proviso to Section 12(5): “The contention of the respondents that they need not communicate the reasons... by bringing the case within the Proviso... is unsustainable.”
Stating proportionality, the Court invoked the Madhyamam Broadcasting stating: “The standard of proportionality infuses a culture of justification where the State has to discharge the burden of justifying that its action was reasonable and not arbitrary.”
Accordingly, it concluded: “The impugned communications of the respondents are hereby set aside.”
Advocates Representing the Parties:
For the Petitioners: Mr. S. Ramamurthy, Ms. E. Ann Priscilla Swarna Kumari, Ms. Saitanya Kesan, Mr. Satish Parasaran, Senior Counsel, and Mr. Rahul Balaji
For the Respondents: Mr. AR.L. Sundaresan, Additional Solicitor General, assisted by Mr. K.S. Jeyaganeshan, Senior Panel Counsel
Case Title: M/s. Sharma Centre for Heritage Education & Ellen Sharma Memorial Trust vs. Union of India & Anr.
Neutral Citation: 2025: MHC:1466
Case Number: CMA No. 746 of 2022 & WP No. 4887 of 2022
Bench: Justice N. Anand Venkatesh
