Regulator’s Gaze over Unutilised Foreign Contributions of NGOs
Summary: As per the recent reports, the Ministry of Home Affairs has issued show cause notices to several NGOs registered under the Foreign Contribution (Regulation) Act, 2010, asking why their registrations should not be cancelled in cases where foreign contributions have neither been received nor utilised for three consecutive financial years. While prolonged non-utilisation may, in the regulator’s view, raise questions on an organisation’s bona fide intent, the development has sparked debate on whether non-utilisation of foreign funds alone can justify cancellation, particularly where NGOs continue to pursue their objectives through other lawful means.
Introduction
As per recent reports[i], the Ministry of Home Affairs has issued notices to several non-governmental organisations (“NGO/s”) holding registration under the Foreign Contribution (Regulation) Act, 2010[ii] (“FCRA”), asking why their registrations should not be cancelled. These notices are aimed at NGOs that have not received or utilised foreign contribution for the last three consecutive financial years (“FY/s”) from FY 2021-22 to FY 2023-24. Moreover, the notices require NGOs to respond within 21 days, providing justifications for any non-utilisation of foreign contribution. Failure to do so may result in ex parte actionby the government, including cancellation of FCRA registration. This development has triggered concern within the non-profit fraternity, particularly on how the regulator is viewing ‘utilisation’ of funds.
Regulatory Basis for Action
The notices have been issued under Section 14(1)(e)[iii] of the FCRA, which allows cancellation of registration where an organisation has not carried out any reasonable activity in its chosen field for the benefit of society for two consecutive years or has become defunct.
The term reasonable activity remains open to interpretation as the FCRA or the rules[iv] do not lay down any guidelines around it. If one were to go by the underlying intent of the law, when an NGO receives foreign contributions to support specific social activities, it should be used within a reasonable timeframe. Therefore, according to the government, prolonged non-utilisation of foreign contribution, particularly where it remains unutilised for two or more consecutive years, raises questions about the bona fide intent of the organisation to carry out activities for which it was granted registration.
Once an organisation’s registration is cancelled under the FCRA, any unutilised foreign contribution lying in the designated FCRA account, along with assets created out of such funds, vests with the Additional Chief Secretary or Principal Secretary (Home) of the concerned state government or union territory. Such authority may, in public interest, utilise the funds or dispose of the assets to manage the activities of such organisation[v]. Upon cancellation, the organisation is not eligible to seek FCRA registration for a period of three years[vi] and where registration is subsequently granted, the vested funds and assets are required to be returned to the concerned organisation[vii].
Like lack of clarity on what amounts to ‘reasonable activity’, FCRA also does not clarify on the term ‘utilisation’. Courts have clarified that utilisation must be understood in the context of the purpose for which the FCRA registration was granted.[viii]
Balance vs Imbalance
The show cause notices are slightly ambiguous in terms of their intended consequences. While the notices state that failure to respond may result in ex parte action by the government, they also call upon organisations to explain why their FCRA registrations should not be cancelled. Whether the intended action is directed at immediate cancellation, or whether organisations will have time to demonstrate future utilisation of foreign contribution remains unclear.
FCRA regulates the acceptance and utilisation of foreign contribution, however, what these notices fail to consider is whether such activity must be carried out using only foreign contribution, or whether pursuing stated objectives through other lawful means would suffice. Non-utilisation of foreign contribution may not necessarily indicate absence of reasonable activity, particularly where activities are undertaken using domestic funds or through assets created using foreign contribution in earlier years. Moreover, recent instances of non-utilisation of foreign contribution may also be a consequence of the FCRA framework having undergone frequent changes in the last few years.
Determining whether an organisation has genuinely become defunct may warrant a more holistic assessment. Indicators such as failure to pursue stated objectives at all (not just via use of foreign contribution), within the stipulated number of years of getting registered or non-maintenance/ submission of statutory records, may provide a more reliable basis than mere non-utilisation of foreign funds. From a regulatory perspective, a more corrective approach, such as issuing an early cautionary communication to NGOs to take relevant steps to use the unutilised foreign funds, rather than issuing show cause notices seeking to cancel registrations (which are in any case difficult to obtain), may end up preventing the disruption of legitimate charitable activities in the country.
[i] Govt sends notices to wake up ‘inactive’ NGOs, The Economic Times (dated December 26, 2025) (Available at: Govt sends notices to wake up ‘inactive’ NGOs).
[ii] Foreign Contribution (Regulation) Act, 2010.
[iii] Foreign Contribution (Regulation) Act, 2010, Section 14(1)(e).
[iv] Foreign Contribution (Regulation) Rules, 2011.
[v] Foreign Contribution (Regulation) Act, 2010, Section 15.
[vi] Foreign Contribution (Regulation) Act, 2010, Section 14.
[vii] Foreign Contribution (Regulation) Act, 2010, Section 15.
[viii] Noel Harper v. Union of India, (2023) 3 SCC 544.