Harshita & Siddharth Dev Prasad

Abstract: The FCRA Amendment Bill, 2026 raises a fundamental constitutional question: where does legitimate regulation of foreign contributions end and executive control over institutions begin? By enabling the State to vest charitable assets upon non-renewal of registration, the Bill extends regulatory power beyond financial oversight. This piece examines whether such custodianship satisfies proportionality, particularly in the absence of procedural safeguards, independent oversight, and risk-based scrutiny.

Few would question the State’s legitimate interest in regulating foreign contributions in India. Money received from overseas inevitably engages concerns relating to national security, democratic transparency and public accountability. For decades, the Foreign Contribution (Regulation) Act, 2010 has provided the legal framework through which that objective is pursued. The latest amendment introduced in Parliament, however, raises a different constitutional question. It is no longer merely about regulating foreign funds; it is about determining who ultimately controls the institutions built with them.

The real debate, therefore, is not one between civil society and national security. Rather, it is whether the State, while pursuing a legitimate regulatory objective, has crossed the line from regulating foreign contributions to exercising excessive executive control over the institutions that receive them. The central constitutional question is one of proportionality: where does regulation end and control begin?

The Custodianship Mechanism

The Foreign Contribution (Regulation) Amendment Bill, 2026 was introduced in the Lok Sabha on 25 March 2026 and, after being deferred amid opposition from civil society groups and religious communities, was re-listed for consideration in the Monsoon Session that began on 20 July 2026. Its most consequential feature is the creation of a statutory Designated Authority, empowered to take over, manage and dispose of the assets of an organisation whose FCRA registration ceases to exist whether by cancellation, surrender, or non-renewal. Under the existing Act, cancellation or surrender already causes foreign contribution and the assets created from it to vest in a prescribed authority under Section 15. What the Bill adds is that mere non-renewal, including a deemed cessation where no renewal application is even filed, or where one is filed and denied will now trigger the same consequence, as set out in the PRS Legislative Research analysis of the Bill. Where assets permanently vest in the Authority, it must apply them to public purposes: transferring them to ministries, departments or agencies of the central or state government, or disposing of them through sale or other processes, with the proceeds credited to the Consolidated Fund of India. The government may answer that this is no ordinary taking. Because the assets can travel only to public ends and never into private hands, the arrangement can be presented as a reallocation of charitable property in the manner of cypres, under which a trust’s endowment is steered toward a kindred purpose once the original vehicle can no longer pursue it. The comparison flatters the Bill. Cypres proceeds under the supervision of a court and is disciplined at every stage by the founder’s intent; the Designated Authority decides alone, owes that intent nothing, and may extinguish the asset altogether by sale, the proceeds vanishing into the general revenues of the State. A doctrine devised to preserve charitable purpose cannot be pressed into the service of a mechanism that is wholly indifferent to it. Where an asset is wholly or partly a place of worship, the Bill does require the Authority to entrust its management to a prescribed person and to ensure that its religious character is maintained, a safeguard that, notably, has no equivalent for a school, hospital or research institution built with the very same category of funds. The gap is not mere untidiness in drafting; it rests on a doctrinal footing that ultimately tells against the Bill. Shrines are shielded by Articles 25 and 26, a textual anchor that a secular clinic or classroom cannot claim, which explains the differential treatment without justifying it. The sharper difficulty lies elsewhere. A substantial share of the schools, colleges and hospitals this Bill imperils are founded and run by religious or linguistic minorities, and Article 30 is available to them in its own right. T.M.A. Pai Foundation v. State of Karnataka and the decisions following it treat the power to administer, and not merely to establish, as the heart of that guarantee. Handing such a school or hospital to a State nominee because a certificate went unrenewed strains Article 30 directly, an objection narrower and firmer than the proportionality argument developed below.  On paper, the vesting mechanism is presented as an accountability measure designed to prevent diversion or misuse of property acquired through foreign funding. In principle, that objective is difficult to contest.

The constitutional concern lies elsewhere.

From Regulating Money to Regulating Institutions

The FCRA has always empowered the State to examine foreign funding. Registration may be suspended for breaches and cancelled for continued non-compliance under Section 14, and penal consequences may arise where foreign contributions are misappropriated. The amendment is a qualitative change in the sense that it extends regulatory power from the flow of money to the governance of assets themselves. As per the FCRA portal, as of 15 July 2026 only 14,449 organisations held active FCRA certificates, while 22,498 had been cancelled and a further 15,212 had lapsed without renewal. To gauge the scale of what may be at stake, Ministry of Home Affairs figures show that 13,520 organisations together received Rs 55,741 crore in foreign contribution between 2019 and 2022 alone. Losing the registration could now see a government-appointed Designated Authority take over hospitals, schools, research institutions and charitable infrastructure built over decades.

This is not merely an administrative modification; at the most fundamental level, it alters the nature of the statute. Until now, the FCRA essentially regulated the receipt and utilisation of foreign contributions. The proposed amendment goes beyond regulating money to regulating institutions themselves. That distinction is constitutionally significant because it directly affects the operational autonomy of civil society organisations. Precision about the affected right is owed at this stage, since the test invoked below was framed for restrictions on Part III. Property departed that Part with the Forty-fourth Amendment and now rests in Article 300A, which K.T. Plantation Pvt Ltd v. State of Karnataka reads as demanding fairness, reasonableness and the absence of arbitrariness rather than the structured four-stage inquiry reserved for fundamental rights. A bridge is therefore needed, and Article 19(1)(c) furnishes one: the liberty to associate means little if the State may capture the very assets through which an association exists and functions. So understood, vesting is not merely a deprivation of property to be tested for reasonableness, but a curtailment of associational freedom, and proportionality applies in full.

While the distinction between ownership and custody may have legal significance, its significance in practice is equally worth considering. In an organisation whose success hinges on the continuity of management, control matters more than ownership. Even as ownership may continue to stay the same, the shift in management control would significantly change the dynamic between the organisation and the State. The hospital, school, or research centre cannot be effective simply because it owns things; rather, it should retain its autonomy in administering what it owns for its charitable purposes. Consider a healthcare trust that used foreign contributions a decade ago to construct a rural hospital, and has since run the facility entirely on domestic donations and patient revenue, with no further reliance on foreign funds. Under the Bill, the moment its FCRA certificate lapses even for want of a renewal application rather than any wrongdoing on the trust’s part, the hospital itself, and not merely any unspent foreign funds, would vest in the Designated Authority. The trust’s continued, entirely domestic, management of the facility offers it no protection once the statutory trigger operates.

The Proportionality Standard

This is where constitutional proportionality assumes importance. In Modern Dental College and Research Centre v. State of Madhya Pradesh, a Constitution Bench consolidated the doctrine into a four-pronged inquiry for testing restrictions on fundamental rights: whether the measure serves a legitimate goal, whether it is a suitable means of furthering that goal, whether a less restrictive but equally effective alternative existed, and whether the measure strikes a fair balance between the objective pursued and the right it curtails. The Supreme Court reaffirmed this framework, with refinements to the third and fourth prongs, in Justice K.S. Puttaswamy v. Union of India while recognising the right to privacy. That framework assumes particular importance where legislation confers broad executive discretion over private institutions.

The Supreme Court has already had occasion to test the FCRA against this very framework, and its approach counsels caution rather than comfort. In Noel Harper v. Union of India, a three-judge bench delivered a 132-page judgment upholding the ban on sub-transfer of foreign contributions between organisations under Section 7, the reduction of permissible administrative expenditure from 50 per cent to 20 per cent of foreign funds received, and the requirement that all foreign contribution be routed through a single designated State Bank of India branch in New Delhi, while reading down the accompanying Aadhaar mandate to permit a passport as an alternative form of identification. The Court held these measures to be reasonable and proportionate restrictions bearing a clear nexus with the Act’s object. Commentators have since observed that the judgment engaged substantively with only the first two prongs of the proportionality test, legitimacy and suitability, while largely bypassing the necessity and balancing stages that ask whether a less restrictive alternative existed and whether the harm caused was proportionate to the benefit secured. Those 2020 amendments, however, regulated only the flow and administration of funds; they did not touch the ownership or management of assets already created. The 2026 Bill poses the same proportionality question on a materially larger canvas permanent vesting of hospitals, schools and research infrastructure, where a similarly truncated review would be considerably harder to justify. A caution attaches to that expectation. The sparse treatment of necessity and balancing in Noel Harper may not have been an oversight at all, but the expression of a settled judicial willingness to leave this particular statute alone. Three judges accepted far-reaching curbs on administrative expenditure, sub-transfer and banking channels with little probing, in a case turning on the same Act and the same security rationale now advanced. If that reflects genuine comfort with the scheme rather than the habit of one bench, the hope that sheer magnitude will summon a fuller inquiry this time may disappoint, and the case for securing these safeguards in Parliament, rather than trusting to litigation, grows correspondingly stronger.

Where the Bill’s Safeguards Fall Short

Measured against that standard, the amendment raises difficult questions. Its objective is undoubtedly legitimate. The second prong, however, collapses well before the remaining two are reached. A measure aimed at misuse must ordinarily bear some evidentiary relation to misuse. This one does not. Cancellation, surrender, non-renewal and deemed cessation attract vesting alike, and only the first presupposes any adverse finding; a lapse may follow nothing worse than a forgotten filing, a late one, or a shortfall against a rupee figure. Consequences of this severity, fastened to occurrences that disclose nothing whatever about diversion, are not merely disproportionate but ill-fitted to the object claimed for them. Yet proportionality requires more than legitimate ends; it requires carefully calibrated means. If the consequence of losing an FCRA registration is the transfer of management of institutional assets to a government-appointed Designated Authority, the accompanying safeguards must be equally robust.

On this count, the Bill’s own architecture supplies the evidence. PRS Legislative Research’s analysis identifies several such gaps. First, neither the Act nor the Bill affords an organisation a hearing before its renewal application is denied, and the Bill does not extend the existing right of appeal to a High Court, available under the Act for orders of cancellation or confiscation,  to cases of non-renewal. An organisation can therefore lose institutional assets built over decades through the operation of a deeming provision, with no forum in which to contest the very decision that triggers the loss. Second, vesting operates retroactively in effect: an organisation that received foreign funds years ago, built a hospital or school with them, and has since run entirely on domestic resources would still see that asset vest in the Designated Authority the moment its certificate lapses, even though the foreign contribution itself was fully and legitimately utilised. What operates here is a present trigger rather than a re-characterisation of a completed transaction, so the grievance is better housed in the doctrine of legitimate expectations, traced through Indian administrative law from Union of India v. Hindustan Development Corporation. Having received, applied and fully accounted for the money under the regime then in force, an organisation could fairly assume that the State’s interest in those funds was spent, and that the building thereafter answered only to the purpose it was raised to serve. Fixing a fresh and open-ended penalty to a closed episode unsettles that assumption. The framing also answers the reply that the provision looks only forward: prospectivity cannot cure the defeat of a reliance the State itself invited. Third, the Bill provides no way for an organisation to voluntarily exit the FCRA framework without losing such assets,  surrender, like non-renewal, also triggers vesting, meaning an organisation must keep renewing its certificate in perpetuity merely to retain infrastructure it has already built. Fourth, where an asset has been created partly from domestic and partly from foreign funds, it vests in the Authority in its entirety by default, and the organisation bears the burden of persuading the Authority to carve out and return the “distinct or ascertainable” domestically funded portion, a standard that may be impossible to satisfy where funds were commingled, as in a hospital ward built from both domestic and foreign donations. Shifted burdens are hardly foreign to Indian statutes, and the complaint is not that they are objectionable as such. Section 24 of the Prevention of Money Laundering Act, 2002 does much the same, and courts have accepted it because the shift follows a recorded belief or suspicion attaching to the property. Nothing of that sort precedes the shift here. It is set off by the bare expiry of a certificate, with no finding of fault recorded and no occasion at which one might have been. That missing predicate, rather than the reversal itself, is where the provision is constitutionally vulnerable. Fifth, the Bill does not extend this consequence to assets created through the Act’s “prior permission” route, producing the anomaly that two organisations which built identical schools with identical foreign funds may face entirely different fates depending only on which registration route they used. Sixth, the FCRA (Amendment) Rules, 2026, notified on 22 June 2026, specify that an organisation will be deemed to have carried out “reasonable activity in its chosen field for the benefit of society” the threshold the Act requires for renewal, only if it has utilised at least Rs 10 lakh of foreign contribution over the preceding two financial years. Take an organisation that spent Rs 20 lakh in foreign funds to set up a rural library, and now needs only about Rs 4 lakh a year in foreign or domestic funds to keep it running: that organisation could fail the Rs 10 lakh threshold precisely because it has become efficient, and lose the library to the Designated Authority as a result, even though it continues to serve its community exactly as intended. More than an unlucky outcome in a stray case, this defeats the object the criterion was meant to secure. If continued spending is measured in order to establish that a body remains functioning rather than dormant, penalising it for sustaining a working library on far less than it once required is self-defeating rather than merely excessive. The flaw lies in suitability, not in necessity or balance. Each of these gaps bears directly on the third and fourth prongs of the proportionality test that Noel Harper left underexamined: the absence of a less restrictive alternative, and the absence of any balancing between the government’s stated objective and the magnitude of what is taken from the institution. The first and the sixth belong elsewhere. Stripping an institution of its assets with no occasion to establish innocence, and penalising thrift in the name of activity, are not excesses committed in pursuit of the statutory object; they are means at odds with it.

The FATF Contradiction

The government has repeatedly invoked the Financial Action Task Force’s standards to justify tighter oversight of foreign-funded organisations. Yet FATF’s own Mutual Evaluation Report on India, adopted at its June 2024 Plenary and released that September, found India only “partially compliant” with Recommendation 8 on non-profit organisations precisely because its existing measures were not sufficiently risk-based or targeted at organisations demonstrably vulnerable to terrorism financing. FATF’s revised Recommendation 8 and accompanying guidance, issued in November 2023, direct member states toward focused and proportionate measures applied only to the subset of non-profits shown to be genuinely at risk, precisely so as to avoid disrupting or discouraging legitimate charitable activity. A blanket custodianship mechanism triggered by the routine, five-yearly expiry of a certificate, applicable uniformly across every FCRA-registered organisation regardless of its risk profile, sits uneasily against that international benchmark, undercutting, rather than reinforcing, the very source of legitimacy the government invokes for the Bill. The work this comparison is meant to do should be stated openly. FATF’s recommendations bind no legislature and their breach carries no sanction, so the argument is not one of illegality. It is that the necessity enquiry demands a workable and gentler alternative, and Recommendation 8 describes one: calibrated scrutiny reserved for those bodies actually shown to be at risk, endorsed by the very authority the government cites and already applied in assessing India. That such an option exists does more than expose an inconsistency in the government’s reasoning; it leaves the third prong unmet.

Where Regulation Ends and Control Begins

This concern becomes more significant when viewed against the broader regulatory landscape. Over the past decade, more than 22,000 FCRA registrations have been cancelled and over 15,000 have lapsed without renewal, as recorded on the FCRA portal. While many such actions may well have been justified, the amendment substantially increases the consequences that now follow regulatory action. A consequence that was once restricted only to being barred from receiving future foreign contributions now threatens to extend to State management of the accumulated assets of years of charitable work.

None of this suggests that Parliament lacks the authority to strengthen financial oversight. Nor does it diminish the importance of ensuring that foreign contributions are utilised strictly for legitimate purposes. But the principle of constitutional governance demands more than legitimate objectives; it requires proportionate means. A framework that effectively places civil society infrastructure under executive management must be accompanied by clear statutory standards, meaningful procedural safeguards, and independent oversight, a hearing before the denial of renewal, a right of appeal against that denial, a defined and narrow timeline for provisional vesting, and a risk-based trigger rather than one that operates automatically upon the mere passage of five years.

Ultimately, the key issue surrounding the FCRA Amendment Bill is not whether NGOs need to be regulated. They need to be. It is about where regulation ends and control begins. In a constitutional democracy, that distinction is neither semantic nor political it is the line that separates legitimate oversight from excessive State power. Parliament would do well to ensure that, in seeking greater accountability, it does not inadvertently redraw that line.

Siddharth Dev Prasad is a fourth-year law student at Gujarat National Law University, Gandhinagar, with scholarly interests in commercial law and dispute resolution. He regularly writes on contemporary legal developments at the intersection of law and public policy.

Harshita is a fourth-year law student at Gujarat National Law University, Gandhinagar, with a keen interest in corporate and commercial law.