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TMI Blog2022 (2) TMI 794X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment in the case of Modern Dental College and Research Centre and Ors. [ 2016 (5) TMI 1366 - SUPREME COURT] the same is inapplicable to the present case, inasmuch as, the impugned order suspending the petitioner is in consonance with the object which the instant legislation/statute strives to achieve and has not gone in excess of that object, as my findings above would depict, and as such, satisfies the doctrine of proportionality. - W.P.(C) 6400/2021, CM Nos. 20091/2021, 34987/2021, 37037/2021, 44671/2021 & 46751/2021 - - - Dated:- 14-2-2022 - HON'BLE MR. JUSTICE V. KAMESWAR RAO Petitioner Through: Mr. Arvind P. Datar Sr. Adv. and Mr. Chandra Uday Singh, Sr. Adv. with Mr. Kabir Dixit and Ms. Illa Sheel, Advs. Respondent Through: Ms. Aishwarya Bhati, ASG with Mr. Anil Soni, CGSC, Mr. Devesh Dubey and Mr. Aman Sharma, Advs. J U D G M E N T V. KAMESWAR RAO, J 1. This petition has been filed by the petitioner with the following prayers: The Petitioner, therefore, prays that in the facts and circumstances of the present case this Hon'ble Court may be pleased to: a) Issue a writ, order, or direction in the nature of Certiorari qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the FCRA, 2010, was served on the petitioner. According to the Show Cause Notice, the respondent had authorised an audit of the petitioner s books of accounts and activities for the first time vide order dated July 29, 2021, passed under Section 20 and Section 23 of the FCRA, 2010. The said audit was conducted from August 09, 2021, to August 14, 2021. Upon scrutiny of audited records, certain observations were drawn and shared with the petitioner vide letter dated October 07, 2021, for comments. 8. It is the case of the petitioner that the impugned order of suspension is erroneous in terms of the following finding: (a) Details of activities/ projects for which foreign contribution has been received and utilized has not been given at the prescribed point 3(a) in FC-4 form in AR for the FY 2018-19. In this regard, it is stated that the response by the petitioner dated June 26, 2021, to the impugned order has duly clarified that the details of project-wise foreign contribution received and utilised during the Financial Year (hereinafter, FY ) 2018-2019 along with the opening and closing balance of foreign contribution that has been furnished online by the petitioner in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since its opening. The respondent was well acquainted with the opening of the said account and in no way has the petitioner concealed this information. Consequently, the renewal of the registration of the petitioner was approved on October 28, 2016. d. That apart, further on March 02, 2016, the petitioner informed the FCRA Division of the aforementioned new utilisation account with details such as the account name, number, address of the bank branch; IFSC Code was dispatched to the Secretary, Ministry of Home Affairs (hereinafter, MHA ) via Speed Post. e. The operation of the said account was again disclosed in the Annual Return of 2015-2016 submitted on December 15, 2016, and in future years. f. Moreover, on January 18, 2017, the petitioner furnished a detailed reply to the Questionnaire received from the respondent vide communication No. F.No. II/21022/58(0855)/2016-FC(MU) dated January 02, 2017, regarding the manner of receipt and utilisation of foreign funds for the FYs 2011-2012 to 2015-16. The details of every receipt and utilisation account including the aforementioned bank account were furnished at Annexure-I of the said reply. g. The closed status o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that in the absence of any such express or even implied prohibition on refund of unutilised contribution, the respondent is wrong to consider a refund to be a violation of the provision of the FCRA, 2010 merely because there is no provision for refund in the Act. (d) It is also observed from bank statement of utilization account that the Association is mixing foreign contribution with domestic donation in violation of Section 17 of the Act. In this regard, it is stated that the specific bank accounts / transactions and the FYs for which mixing of foreign contribution with domestic donation has been alleged have not been mentioned. It is submitted that according to the petitioner's records and understanding, there has been no mixing of foreign contributions and domestic donations on any account. 9. Mr. Arvind P. Datar and Mr. Chandra Uday Singh, learned Senior Counsel appearing on behalf of the petitioner submitted that Section 13 of the FCRA, 2010 requires recording of reasons as to why the Competent Authority was satisfied that the drastic and optional action of suspension was necessary pending consideration of the question of cancellation of the certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner's activities are already in the public domain. Any donors who have ever given foreign contributions to the petitioner are distinguished and credible and have already been disclosed by the petitioner to the respondent. Section 12(4) of the FCRA, 2010 provides an exhaustive list of reasons for which registration or renewal may be denied to an organisation. However, terms such as grave , sensitive , and officially classified as secret are not listed in Section 12(4) or anywhere else in the Act for grounds for action and thus the respondent is using such terms to cause prejudice. 14. It is submitted that the provisions under FCRA, 2010 do not provide for automatic suspension of FCRA certificate on initiation of inquiry into an organisation s affairs or on commencement of consideration on the question of cancellation of such organisation s certificate. The power of suspension has been provided only as an optional power under Section 13 of the FCRA, 2010. 15. According to them, based on proceedings initiated during the pendency of this petition, which impugns the order of suspension dated June 07, 2021, on December 07, 2021, a Show Cause Notice under Section 14(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uiry for the purpose of Section 14. To accept them as an inquiry for Section 14 would be to forego an important procedural safeguard for all FCRA registered entities. 18. They stated it is a gross misinterpretation to state that the Impugned Suspension order itself records as many as five irregularities/contraventions by way of example and this could not have been possible without an inquiry as required under Section 14(1). It is their submission that on the contrary, the language of Section 20 and Section 23 of the FCRA, 2010 is instructive on the question of nature of inquiry contemplated under Section 14(1). Section 20 and Section 23 of the FCRA, 2010 incorporate important procedural safeguards. Section 20 obligates the respondent to conduct a necessary inquiry into the accounts and activities of a registered entity if there is reasonable cause to believe that it has contravened any provisions of the Act or has furnished incorrect information. There is no provision of suspension before or prior to an inquiry under Section 20 or Section 23. Section 23 enjoins the Central Government to record reasons in writing as to the grounds for suspecting that an organisation has violate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent because the consequences of suspension under the Act were drastic, to avail the option of exercising the power of suspension the respondent must record reasons in writing for why it is necessary to exercise the power of suspension; (iii) If the reasons for suspension are not recorded in the order of suspension they cannot be subsequently supplied in a legal proceeding; (iv) A suspension order passed without strict observance of such statutory safeguards is liable to be quashed. Therefore, in terms of paragraph 6 of the judgment in the case of Indian Social Action Forum (supra), the suspension is liable to be quashed. 23. In the counter affidavit, the respondent has stated, that it administers the FCRA, 2010 to regulate receipt and utilisation of foreign contribution by Indian entities like NGOs, Non-Profit Organisations, Voluntary Organisations, etc. 24. That FCRA, 2010 is internal security legislation that casts an obligation on the Central Government to ensure that receipt and utilisation of foreign contributions do not in any way affect, prejudicially, the governance structure and processes of all the organs of the State. The entities that receive and u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Section 19 of the FCRA, 2010. d. That the petitioner association has refunded some unspent foreign contribution back to the donor in the FYs 2013-2014 and thereby violating Section 8(1)(a) of the FCRA, 2010. e. That the petitioner s association has mixed local / domestic and foreign donation in the FCRA utilisation bank account and thereby violating the third proviso to Section 17(1) of the FCRA, 2010. 27. According to the respondent, as there exists a need for deeper scrutiny and inquiry, which is already underway, the MHA has conducted an audit as well as inspection of the petitioner s association under Section 20 and 23 of the FCRA, 2010 from August 09, 2021, to August 14, 2021. 28. It is also stated that pending decision on cancellation of FCRA registration certificate under Section 14(d) of the FCRA, 2010, the FCRA registration Certificate No. 231650671R of the petitioner s association was suspended vide Order dated June 07, 2021, in the exercise of the powers conferred by Section 13 of the Act for a period of 180 days with effect from the date of the order or until further orders whichever is earlier. 29. It is submitted by the respondent that the suspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmore, as per Rule 17(6) of the FCRR, 2011, a copy of the statement of the foreign contribution account is required to be submitted with the Annual Return (FC-4). In this regard, it is stated by the counsel for the respondent that furnishing of statement of utilisation account along with Annual Return cannot be termed as intimation as specifically stipulated in Rule 9(1)(C) of the FCRR, 2011. 32. It is further submitted that the opening of a new utilisation account in accordance with the donor is relevant to the petitioner. However, intimation of the opening of a new utilisation account was to be given by the petitioner s association as per Rule 9(1)(C) of the FCRR, 2011. Moreover, it is stated that furnishing details of utilisation bank account in reply to the Standard Questionnaire (SQ) cannot be termed as a specific intimation as expressly stipulated in Rule 9(1)(C) of the FCRR, 2011. That apart, the respondent is of the view that foreign contribution / donation is received for fulfillment of only a defined aim / objective and it has to be utilised for the same. There is no provision in the FCRA, 2010 for a refund of foreign contribution / donation to the donor, and any inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 14, and is not circumscribed by the issuance of Show Cause Notice under Section 14(2). As far as the contention of the petitioner is concerned, no action under Section 13 can be taken unless the Show Cause Notice is issued under Section 14 is clearly contrary to the plain reading and mandate of the statute itself. v. The facts in the present case clearly demonstrate that inquiry into the infirmities in the account of the petitioner had started in the year 2017 itself. It is submitted that a questionnaire is issued to an organisation against whom a security input or a complaint has been received. It was only when some serious anomalies and contravention of the Act and rules were found that the impugned suspension order dated June 07, 2021, was issued. vi. Furthermore, it is stated that the petitioner has also sought to impugn the order of extension of suspension for the period of 180 days dated December 01, 2021, on the same ground that the Show Cause Notice under Section 14(2) was issued only on December 07, 2021. According to them, this challenge cannot be sustained on account of the admitted facts between the first suspension dated June 07, 2021, and its ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contribution during the period of suspension of certificate: Provided that the Central Government, on an application made by such person, if it considers appropriate, allow receipt of any foreign contribution by such person on such terms and conditions as it may specify; (b) utilise, in the prescribed manner, the foreign contribution in his custody with the prior approval of the Central Government. Section 14. Cancellation of certificate (1) The Central Government may, if it is satisfied after making such inquiry as it may deem fit, by an order, cancel the certificate if (a) the holder of the certificate has made a statement in, or in relation to, the application for the grant of registration or renewal thereof, which is incorrect or false; or (b) the holder of the certificate has violated any of the terms and conditions of the certificate or renewal thereof; or (c) in the opinion of the Central Government, it is necessary in the public interest to cancel the certificate; or (d) the holder of certificate has violated any of the provisions of this Act or rules or order made thereunder; or (e) if the holder of the certificate has not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te. Wherever the legislature intended to stipulate inquiry / opportunity, it had said so, like in Section 14(1) and 14(2) of the FCRA, 2010. Not prescribing inquiry / opportunity to the holder of the certificate before suspension under Section 13(1) of the FCRA, 2010 has also to be understood from the perspective, that the FCRA, 2010 is to consolidate the law, to regulate the acceptance and utilisation of foreign contribution or foreign hospitality by certain individuals or association or companies and to prohibit acceptance and utilisation of foreign contribution or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith. Therefore, the provisions for suspension of certificate under Section 13 and cancellation of certificate under Section 14 are measures in keeping with the general mandate of the Act and the rules. So, it follows if reasons exist, that the utilisation of the contribution is not in accordance with the mandate of the Act, the Central Government by recording in writing the reasons, can suspend the certificate. 37. The suspension under Section 13(1) of the FCRA, 2010 is pending consideration of the question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from the Respondent vide communication no. F.No. II/21022/58(0855)/2016-FC(MU) dated 02.01.2017 regarding the manner of receipt and utilisation of foreign funds for the FY s 20 11-12 to 2015-16. The details of every receipt and utilisation account including the aforementioned bank account were furnished at Annexure-I of the said reply. A copy of the said detailed reply along with the said Annexure-I is at Annexe-6 to Petitioner's response dated 26.06.2021 (Annexure P-7 to this petition). f. Further, on 20.09. 20 18, the Petitioner once again submitted a detailed reply to the Questionnaire received from MHA vide communication no. F.No. II/21022/ 58(213)/20 18-FC(MU) dated 05.09.2018, regarding the manner of receipt and utilisation of foreign funds by the Petitioner for the FYs 2011-12 to 2016-17. The details of all receipt and utilisation accounts including the aforementioned bank account were furnished at Annexure I to the said reply. A copy of the said detailed reply along with said Annexure I is at Annexe-7 to Petitioner's response dated 26.06.2021 (Annexure P-7 to this petition). On this, the submissions of Mr. Datar and Mr. Singh were, that neither does the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Section 13 of the FCRA, 2010 requires recording of reasons as to why the competent authority was satisfied that the drastic and optional action of suspension was necessary pending consideration of the question of cancellation of the certificate on any of the grounds mentioned in Section 14(1) of the FRCA, 2010, however, no such reasons explaining the necessity of suspension has been recorded in the impugned order dated June 07, 2021. (2) The drastic nature of the power of suspension under Section 13(1) to bring an organisation to a grinding halt and to thereafter damage its reputation and existence, this particular safeguard of recording reasons for the necessity of suspension enshrines an important principle of natural justice which has been violated. 43. Suffice to state, there is nothing in the provision to show that these violations cannot be construed as reasons which weighed with the Central Government, to suspend the certificate. Surely, if the violation makes a strong prima facie case against the certificate holder, if proved, would lead to cancellation of certificate under Section 14(2), then the Central Government will be justified in suspending the certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court cannot substitute the reasons unless such reasons are perverse. The scope of judicial review is very limited and should be exercised only when it is a case of mala fide, arbitrariness, or an ulterior motive. 48. The plea of Mr. Datar and Mr. Singh that the audit / inspection as required under Section 20 and Section 23 of the FCRA, 2010 was authorised on July 29, 2021, and the question of cancellation can be said to have been pending consideration only after that date and cannot cure the illegality of the suspension order dated June 07, 2021, is also unmerited, in view of my finding above that, no inquiry is contemplated under Section 13(1) of the FCRA, 2010 before suspending the certificate of registration and the audit / inspection authorised on July 29, 2021, is an inquiry contemplated under Section 14(1) of the FCRA, 2010 which precedes the issuance of Show Cause Notice under Section 14(2) for cancellation of the registration. In any case, it is the case of the respondent that inquiry into the infirmities in the account had started in the year 2017 that is before June 07, 2021. That apart, pursuant to the finding in audit / inspection, and after seeking the respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also stated in the instant case, the inquiry was underway when the order of suspension was passed which itself records as many as five contraventions that were found in the accounts of the petitioner. 51. I must state that on a first blush, the submission made by Mr. Datar and Mr. Singh looked appealing, but on deeper consideration, I find that this Court, in the facts of that case had set aside the suspension order on two grounds, firstly, no reasons have been spelt out in the suspension order and secondly, the respondents have neither issued Show Cause notice nor initiated an inquiry by the time the suspension order was passed. 52. Insofar as, stating the reasons for suspension is concerned, as concluded above, I am of the view that the reasons have been given in the impugned order. To that extent, the judgment has no applicability. Insofar as the conclusion of the Court by the time the suspension order was passed neither an inquiry was initiated nor any Show Cause notice was issued is concerned, it is my conclusion that the process of inquiry was started in the year 2017. So, it is not a case where neither any inquiry was initiated nor any Show Cause notice was issued. So, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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