Foreign contribution transfer prohibition

Finin2min Summary — in 2 Minutes

Official source and legal ownership

What this covers

Before 2020, Section 7 of the FCRA allowed an entity receiving foreign contribution to transfer it onward to another person, provided the transferee was itself FCRA-registered or had obtained permission, with government approval required for other cases. The Foreign Contribution (Regulation) Amendment Act, 2020 substituted this with a near-complete prohibition: no person who is registered or has obtained prior permission, and who receives foreign contribution, may transfer such contribution to any other person.

How courts have drawn the line

Judicial interpretation of the amended Section 7 has clarified that the prohibited "transfer" refers to passing funds to third parties not engaged in the recipient's own programmes, while payment to a third-party agency in genuine furtherance of the recipient's own foreign-funded purposes - for instance, paying a vendor or service provider to deliver part of the recipient's own project - is "utilisation," not a prohibited transfer.

Why it matters

Because the line between prohibited "transfer" and permitted "utilisation via a third party" turns on whether the funds are genuinely being applied to the recipient's own approved purpose, an organisation structuring any arrangement involving payments to another entity - a sub-grant, a partnership, a service contract - needs to document clearly which side of that line the arrangement falls on before treating it as routine vendor payment.