Introduction:

In the case involving Sharma Centre for Heritage Education and Ellen Sharma Memorial Trust versus the Union Government (FRCA Wing), the Madras High Court, through Justice Anand Venkatesh, was called upon to adjudicate on petitions challenging the rejection of applications for renewal of registration under the Foreign Contribution (Regulation) Act, 2010 (FCRA), with the petitioner institutions arguing that they were unjustly denied renewal despite decades of bona fide operations in education and welfare.

Arguments:

The petitioners, represented by Mr. S. Ramamurthy, Ms. E. Ann Priscilla Swarna Kumari, Ms. Saitanya Kesan, and Mr. Satish Parasaran, Senior Counsel, highlighted that both institutions were established in 1982 with the object of advancing education and welfare of children, successfully running schools and health centers primarily in and around Chennai, with nearly 70-75% of their funding sourced through foreign contributions, mostly from persons of Indian origin settled abroad who wished to give back to their motherland. The trusts were registered under Section 12 of the FCRA in 1983, with regular renewals up to 2016, and they applied again for renewal in 2021, duly responding to every query raised by the authorities; however, the applications were ultimately rejected. The petitioners argued that there was no material whatsoever indicating misuse of funds or any activity prejudicial to public or national interest, and that the authorities acted arbitrarily and mechanically in refusing the renewal without specifying clear reasons, which amounted to a violation of the principles of natural justice.

Conversely, the Union Government, represented by Additional Government Counsel Mrs. A. R. L. Sundaresan assisted by Mr. K. S. Jeyaganeshan, Senior Panel Counsel, contended that the petitioners violated Section 7 of the FCRA, which post-2020 amendment requires prior permission even when transferring foreign funds between two entities registered under the Act, asserting that the trust failed to provide satisfactory explanations and that the right to receive foreign funds or renew registration was not a fundamental or vested right but a privilege subject to strict compliance with statutory conditions, further arguing that the rejection of renewal was within the discretionary powers conferred on the authorities under Sections 16(1) and 12(4)(a)(vi) and (vii) of the Act. The government maintained that the mere fact of the petitioners’ prior registration did not entitle them to automatic renewal and that each renewal application must be scrutinized afresh, emphasizing that allowing automatic renewals could undermine national security and public interest if foreign funds were misused.

Judgement:

After a detailed examination, the Court found that the rejection communication merely cited Section 16(1) read with Section 12(4)(a)(vii) without mentioning any specific contravention, and only in their counter before the Court did the authorities allege a breach of Section 7, which the Court criticized as an afterthought rather than a valid ground for rejection. Justice Venkatesh noted that prior to the 2020 amendment, transfer of foreign contributions between two registered entities did not require prior permission, and that after the amendment, it was incumbent upon the authorities to clearly inform and guide the petitioners regarding compliance with the new requirements, instead of outright rejecting their applications. The Court underscored that the petitioners’ contributions to education and welfare could not be ignored and stated that merely receiving foreign funds should not, by itself, cast suspicion on an NGO unless there was concrete material indicating misuse or activities against national interest, especially when funds were sourced from Indian-origin individuals abroad wishing to contribute to their country’s development. Stressing the importance of fairness and the need for authorities to adopt an open-minded approach in assessing institutions working for charitable purposes, the Court held that the rejection of renewal based on procedural lapses without any material suggesting misuse of funds would result in unnecessary hardship and even closure of institutions providing essential services to children. Consequently, the Madras High Court allowed the petitions, quashed the impugned communication rejecting the renewal applications, and directed the Union Government to process and grant renewal to the petitioners within four weeks, reaffirming that procedural irregularities alone, unaccompanied by substantive misconduct, cannot justify denial of registration under the FCRA. The judgment reiterated the balance that must be maintained between regulating foreign contributions for national security and encouraging genuine philanthropic activities, thereby sending a strong message that NGOs committed to public welfare should not be harassed without cogent evidence of wrongdoing.