Foreign Fund Contributions to Indian NGOs Under Scrutiny: High Court Orders Stringent Verification

Bengaluru: In a significant development, the Bengaluru High Court has ruled that funds received by Indian organizations from overseas under the Foreign Contribution regulation Act, 2010 (FCRA) will now be subject to rigorous scrutiny by the Union Home Department. The landmark verdict was delivered by a bench headed by Justice KS Hemalekha in response to a petition filed by the Manasa Center for Development and Social Organizations, an NGO based in Bangalore.

The court's directive has far-reaching implications for organizations receiving foreign contributions, particularly those that claim to channel aid for the betterment of impoverished communities. Highlighting the importance of transparency and accountability, the court has called upon relevant authorities to furnish detailed information regarding the influx of foreign funds supposedly meant for aiding the underprivileged.

This legal standpoint is reinforced by the Central Home Department's directive from 2013, instructing banks to ensure rigorous scrutiny of funds before their release. Consequently, the onus lies with the Home Department to meticulously verify and approve these foreign contributions, in accordance with Section 46 of the FCRA. This responsibility has also been reiterated by the Reserve Bank of India (RBI).

To facilitate this scrutiny, the Central Home Department collaborates with security agencies to assess the credibility and intent of the contributors. Any financial institution receiving funds from foreign entities, be it organizations, individuals, or agencies, must adhere to the stringent guidelines outlined by the Central Home Department before allowing the deposit of funds into NGOs' accounts. The court emphasizes that funds should not be transferred into the beneficiary's account without obtaining explicit permission from the Central Home Department.

The case at hand involves the Manasa Center for Development and Social Organizations, which had deposited substantial amounts into their bank account at Development Credit Bank Limited in 2013. Despite the NGO's compliance with legal registration requirements, the bank withheld the release of funds received from overseas, citing the necessity for approval from the Central Home Department. This move was deemed unlawful by the NGO, prompting them to seek a court order for compensation amounting to Rs.10 lakh.

This verdict not only establishes a robust framework for scrutinizing foreign contributions but also underscores the imperative for NGOs and financial institutions to operate within the bounds of the law. As the legal landscape surrounding foreign fund transfers evolves, organizations and banks alike must adapt to the heightened standards of transparency and accountability set forth by the Bengaluru High Court.