A regime meant to reduce foreign influence over Indian charities may end up requiring them to keep taking foreign money.
Consider a hospital built by an Indian charitable trust through a pooled project fund. Indian donors supplied most of the money. A foreign foundation contributed the rest. The foreign grant was lawfully received, properly reported and spent entirely on the approved project.
Years later, the trust no longer needs foreign funding. It decides to surrender its certificate or the certificate expires because the government did not act on the renewal application in time.
Under the Foreign Contribution (Regulation) Amendment Bill, 2026, the entire hospital — not just the share financed by the foreign grant — would pass into the hands of a Designated Authority notified by the central government. The Bill calls this vesting. Initially it is provisional: the asset passes into the Authority’s legal control. Unless the trust recovers its registration within a period to be prescribed later, the vesting becomes permanent. The hospital could then be handed to a government department or sold, with the proceeds credited to the Consolidated Fund of India.
Compliance should produce finality. Where foreign contribution was received under a valid certificate and lawfully spent on the approved purpose, the later expiry of that certificate should affect only the organisation’s ability to receive foreign money in future. It should not make title to a completed hospital conditional on remaining inside the FCRA system forever.
The new Rules, notified in June, go further. They may pressure an organisation that has become entirely locally supported to keep seeking and spending foreign money simply to preserve its registration, and with it control of assets built years earlier.
Expiry is not wrongdoing
The government is right that asset vesting is not new.
Section 15 of the existing Act already provides that, where a registration is cancelled, the foreign contribution and assets created from it vest in a prescribed Authority, and are returned if the organisation regains registration. In 2020 this framework was extended to voluntary surrender, permitted only where the government is satisfied that the organisation has not contravened the Act. Vesting, therefore, already applies to organisations found compliant.
The Rules were also amended in 2020. Rule 12(6A) extended temporary vesting — pending renewal or fresh registration — to unutilised foreign contribution and assets created from it, wherever a certificate is deemed to have ceased because no renewal application was filed or the fee was not paid.
Section 15 was the original sin: it established that the end of a funding licence could have consequences for a property that was already lawfully owned. The 2020 changes widened that principle.
What the 2026 Bill adds is finality. Under the current framework, there is no deadline after which an organisation’s entitlement to the return of its assets is extinguished. The Bill introduces a clock. When it runs out, the property may be transferred or sold. Proposed Section 16B carries assets already vested under the existing Act or Rules into that new framework.
It also widens the triggers.
Proposed Section 14B says a certificate ceases in three situations: no renewal application was made, renewal was refused, or the certificate “is not renewed before its expiry.” The government’s own FAQ accepts that a registration ending in these ways should not automatically be equated with fraud or criminal wrongdoing.
The third route is particularly troubling. It contains no exception for an organisation that filed a complete application, paid the fee, and is simply waiting for an answer.
Section 16(3) of the existing Act already anticipates that the government may be slow. It says renewal should ordinarily be completed within 90 days, and where it is not, the Ministry of Home Affairs (MHA) must communicate its reasons to the applicant.
Today, delay is something the government owes the organisation an explanation for. Under the Bill, delay that continues until expiry puts the building under government control and on a path towards permanent loss.
The MHA has for years protected pending applicants through time-limited public notices extending certificate validity to a specified date or until disposal, whichever came first. Those notices are administrative accommodations, renewed at the ministry’s discretion. They are not statutory guarantees, and the Bill declines to make them one.
Nor is provisional vesting passive custody. The Bill requires the organisation to give the Authority access to its premises and records, hand over control of bank accounts and movable assets when required, and carry on its activities under the Authority’s supervision and on terms it specifies.
There may also be no cessation order to challenge under the Act. This route operates by law rather than through an express refusal. The Bill provides remedies against later decisions of the Designated Authority, but no direct statutory challenge to the automatic event that first places the property under its control. Article 226 remains available, but it is no substitute for a hearing before the property is taken.
Regulation is not ownership
Once a lawful grant is received and used for its approved purpose, the resulting asset is held under the organisation’s own governing law and charitable objects. It does not still belong to the foreign donor. Nor does it become property held on behalf of the Indian government.
The government did not buy the land, construct the building, or accept the obligations of running the institution. Its permission for the original transaction does not create a perpetual reversionary interest in what that transaction produced.
Article 300A of the Constitution says no person may be deprived of property except by authority of law. In Kolkata Municipal Corporation v. Bimal Kumar Shah, decided in 2024, the Supreme Court held that deprivation of property requires safeguards including notice, a meaningful hearing, a reasoned decision, public purpose, restitution or fair compensation and legal finality. The absence of one or more, it said, could render a law susceptible to challenge.
That case concerned compulsory acquisition and does not decide this Bill. But automatic cessation can trigger provisional vesting without a hearing or a reasoned cessation order, and the Bill provides no compensation if that vesting becomes permanent.
Nor does Noel Harper v. Union of India settle the question. That judgment upheld restrictions on receiving, transferring and using foreign contribution, holding that no one has a vested right to receive foreign donations. It did not consider whether the government may permanently acquire completed assets built with money already lawfully received and spent.
The right to receive foreign money in the future and the right to retain property lawfully created in the past are different questions.
The whole mixed-funded asset goes first
The central objection would remain even if the property was entirely foreign-funded. Section 16A(2), however, goes further still.
The government’s standing answer is that only assets created from foreign contribution are affected, and that an organisation’s other property is untouched. That describes the general rule in Section 16A(1). It does not describe Section 16A(2).
That provision says an asset “shall vest wholly” in the Designated Authority whether it was created or acquired partly from foreign contribution. The organisation may then apply for the return of any portion that is “distinct or ascertainable.”
Consider the hospital again. Suppose Indian contributors supplied 80 per cent of the cost and the foreign foundation 20 per cent. The entire hospital passes to the Authority first. The trust may then apply to recover whatever domestic-funded portion the Authority accepts as distinct or ascertainable.
But the Bill does not explain how an 80 per cent financial interest in an indivisible operating hospital is to be returned. Its land, structure, wiring, equipment and later additions may have been financed from different sources over several years, and a share reconstructed on paper may correspond to nothing physically separable.
The Bill therefore does not merely preserve an enduring government claim over assets lawfully created from foreign contribution. In mixed-funded cases, it reaches property financed with Indian money. The donors who supplied that money had no dealings with any foreign source, and no reason to expect that their contribution would be exposed merely because it was pooled into the same project as a foreign grant.
That reverses the proper burden. A State claim against an organisation’s property should be specific and established by the government, not imposed on the whole asset first and questioned afterwards.
The rule that keeps you foreign-funded
The FCRA Amendment Rules, notified on 22 June, make this worse.
They provide that, for cancellation and renewal, an organisation is deemed to have undertaken reasonable activity only if it has utilised at least Rs 10 lakh in foreign contribution during the last two financial years for the relevant purpose. Only foreign-funded activity counts.
Consider what this means for an organisation that has succeeded in becoming locally supported. Falling below the threshold does not itself transfer its property. But it may jeopardise renewal. And under the Bill, non-renewal can place assets created through earlier foreign grants into provisional vesting and, eventually, permanent State ownership.
There is no cut-off protecting an asset because the foreign contribution that built it was received and lawfully spent decades ago. A hospital built from a grant many years earlier may remain hostage to the organisation satisfying present-day FCRA conditions.
The result is a trap. An organisation may have to keep seeking and spending foreign money it does not need, indefinitely, to protect property it already lawfully holds. How much that trap costs an organisation depends on a period the Bill does not specify.
Parliament is being asked to legislate in the dark
An organisation must regain registration within “such period as may be prescribed.” If it fails, its assets vest permanently. But the Bill does not say whether that period will be one month, one year or five years.
That is not an administrative detail. It is the line between temporary custody and the permanent loss of a hospital. A one-month window and a five-year window are materially different laws, yet Parliament will vote without knowing which one it is enacting.
The Bill also leaves the manner of possession, the return of the domestic-funded portion and the disposal of assets to future Rules. Its own Memorandum Regarding Delegated Legislation calls these “matters of procedure and administrative detail” and concludes that the delegation is “of a normal character.”
What should change
The question is not how the State should manage property it has taken. It is whether it should have a claim to it at all.
There is a real administrative problem. The government says nearly 22,000 registrations have been cancelled and around 15,000 have ceased, leaving funds and assets in limbo that State authorities have struggled to possess, maintain or manage.
Identifiable unspent money is not the source of the difficulty. It can be frozen, accounted for and dealt with through banking directions or judicial supervision, and it needs no upkeep, no security and no possession-taking. The difficulty is what the money built: hospitals and schools the State has a claim over but cannot run, which the organisation still occupies but can no longer freely manage.
That limbo exists because Section 15 asserted a claim over completed property in the first place. Had it not, a lapsed certificate would end an organisation’s ability to receive foreign money and nothing more. The hospital would remain its hospital. There would be nothing for a State officer to take possession of, and nothing to sit in custody for a decade.
The government’s own complaint concedes the point. If State authorities cannot take possession of, maintain or manage a working hospital, that is not an argument for giving them a firmer title to it. It is an argument for their never having been made its custodian.
Finality does not require the State to become the owner. Unspent foreign contribution can be recovered or redirected through an appropriate legal process; it remains connected to the permission under which it was received. Completed assets of a functioning institution can be released from the regime altogether. Where an organisation is genuinely defunct, its property can be dealt with under the trust, society or company law that governs it, or transferred under court supervision to another institution pursuing similar objects. Permanent transfer to the State is the most intrusive option available, not the only one. It is also the one that leaves the government holding exactly the assets it has just told us it cannot manage.
The MHA says permanently vested assets will keep serving public purposes: schools going to the education department, hospitals to the health department. But a charitable hospital is already serving a public purpose. Moving it to a government department does not create its public character. It changes who owns and controls it.
At a minimum, permanent vesting without compensation should require proof that property represents unlawful proceeds, was created through fraud, or was implicated in a serious violation. In the absence of any such wrongdoing, taking a completed asset should be treated as compulsory acquisition and subjected to ordinary acquisition law, prior process and fair compensation.
Where the government finds fraud, diversion or misuse of foreign contribution, it has ample power to act — and should. But regulatory authority is not ownership. The expiry of a funding licence should end an institution’s ability to receive foreign money, not take the hospital with it.
Ajay Mallareddy is the co-founder of Hyderabad-based Centre for Liberty. His X handle is @IndLibertarians. Views are personal.
(Edited by Prashant Dixit)