Foreign Contribution Case: Supreme Court Allows NGO to Use Funds for Salaries and Institutional Expenses

The Supreme Court of India recently ruled in Operation Mobilization India & Ors. v. State of Telangana & Ors., a case involving allegations of financial mismanagement and violations under the Foreign Contribution (Regulation) Act (FCRA), 2010. The Court granted relief to the petitioners by allowing them to utilize their frozen accounts for paying salaries and institutional expenses while ensuring strict financial oversight. The judgment is significant as it balances regulatory compliance with the operational continuity of institutions run by the petitioners.

Background of the Case

The case stems from FIR No. 22 of 2016, registered on September 29, 2016, by the Economic Offences Wing (CID), Telangana, under Sections 409, 420, 477(A) of the Indian Penal Code (IPC) and Section 37 of the Foreign Contribution (Regulation) Act, 2010. The allegations centered around the misappropriation of foreign contributions and financial fraud. Over time, multiple legal challenges arose:

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• In 2017, the Supreme Court directed the investigation to be concluded expeditiously.
• In 2019, the complainant sought a transfer of the investigation to the Central Bureau of Investigation (CBI), but the agency declined involvement.
• In 2020, the Telangana CID froze the petitioners’ bank accounts, which led them to challenge the action in the High Court.
• The High Court dismissed their plea, prompting the petitioners to approach the Supreme Court.

Arguments by the Petitioners

• The petitioners argued that the freezing of accounts was arbitrary and prevented them from operating 103 educational institutions and more than a dozen primary health centers across 18 states in India.
• They contended that the CID lacked jurisdiction to investigate FCRA violations involving sums exceeding Rs. 1 crore, as per a notification by the Ministry of Home Affairs, which designated the CBI as the competent authority.
• They requested the Supreme Court to lift the freeze at least for salary payments and institutional expenses to ensure that schools and health centers could continue operating.

Arguments by the Respondents

• The Telangana State government argued that the freeze was necessary due to the serious nature of allegations and that financial oversight was required.
• The complainant insisted on maintaining transparency and ensuring that all financial transactions were audited.

Key Observations of the Supreme Court

• The Court found that the Telangana government itself had written to the Ministry of Home Affairs, acknowledging that the CBI was the proper authority for investigating FCRA violations involving amounts over Rs. 1 crore.
• The Court noted that despite the long pendency of the case, no charge sheet had been filed and that the petitioners’ institutions needed funds to continue operations.
• The Court stated: “We are satisfied on the own showing of the respondent-State of Telangana that the order of attachment dated 21st November 2020 needs to be stayed in so far as salary and institutional expenses are concerned.”

Final Judgment

The Supreme Court disposed of the petition, making its interim order from April 7, 2021, absolute. The key directives were:

• The petitioners were allowed to use their accounts strictly for salaries and institutional expenses.
• They were required to maintain proper records and have their accounts audited by a Chartered Accountant.
• Quarterly financial reports were to be submitted to the Investigating Officer or the Trial Court.

The Court clarified that its ruling was limited to ensuring the smooth functioning of educational institutions and health centers and did not comment on the merits of the pending criminal case.

Implications of the Judgment

• The judgment provides immediate relief to the petitioners, ensuring that employees and beneficiaries of their institutions do not suffer due to the ongoing investigation.
• It underscores the importance of financial accountability while protecting the interests of organizations engaged in public service.
• The ruling highlights the need for jurisdictional clarity in FCRA-related investigations, particularly in cases involving large sums.

Conclusion

The Supreme Court’s decision in this case is a balanced approach to handling financial investigations against NGOs. It ensures that regulatory compliance does not come at the cost of disrupting essential services. The ruling sets a precedent for cases involving FCRA violations, emphasizing due process while safeguarding the operational continuity of institutions reliant on foreign contributions.

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Petitioner Name: Operation Mobilization India & Ors..
Respondent Name: State of Telangana & Ors..
Judgment By: Justice Vikram Nath, Justice Prashant Kumar Mishra.
Place Of Incident: Telangana.
Judgment Date: 05-04-2024.

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