MHA clearance must for credit of foreign funds; mere registration under the FCR Act not enough: K’taka HC

Bengaluru: The High Court of Karnataka has said that merely possessing permanent registration under the Foreign Contribution (Regulation) Act, 2010, does not create a right in favour of an organisation to get the funds received from foreign countries, credited to their designated savings bank account.

The court also clarified that the contributions received from abroad are always subject to further clearance by the Ministry of Home Affairs (MHA) as per the provisions of the FCR Act.

Justice K.S. Hemalekha passed the order while rejecting a petition filed in 2014 by Bengaluru-based Manasa Centre for Development and Social Organisation, a non-governmental organisation (NGO).

In 2013, the petitioner, a registered NGO authorized to receive foreign contributions under the FCR Act, lodged a complaint against Development Credit Bank Ltd., Bengaluru. They alleged that the bank wrongfully denied the withdrawal of funds from their account. The petitioner-NGO requested the court to direct the bank to release the funds and pay ₹10 lakh as compensation.

However, the court pointed out that the MHA makes decisions about categorizing foreign donors as requiring "prior reference/permission" under the relevant clauses of the FCR Act, 2010, based on feedback and information obtained from the field/security agency.

The details of such “prior reference/permission category” are further communicated to the Reserve Bank of India (RBI) under Section 46 of the FCR Act, 2010 to instruct all the banks and their branches to ensure that any fund flow from any organisation/person/agency mentioned in the “prior reference/permission category” to any bank account in India will be brought to the notice so that such funds are allowed to be credited in the accounts of the recipient only after due clearance from the MHA, the court said.

In one such “prior reference/permission category”, the court pointed out, the MHA in 2013 communicated to the RBI to direct all banks to ensure that any fund flow to any individuals/entity in India from ‘Dan Church Aid’ is brought to the notice of the Ministry for clearance before crediting into the account of the recipient, NGOs, associations, etc.

The court observed that the petitioner-NGO had received two contributions, of ₹5.23 lakh and ₹23.89 lakh, from ‘Dan Church Aid’ in 2013 and the bank had sought approval from the MHA to credit the amount to the petitioner’s account.

The bank declined to credit the amount on the instruction received during June-October from the MHA not to credit the amount till approval by the Ministry.

The petitioner was not entitled for credit of the amount into its account without the clearance from the MHA, the court said while rejecting the petition.

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