Foreign Funding of NGOs and NPOs in Pakistan After 2026 LHC 2316: The Lahore High Court Restores the 2022 Regulatory Policy

Foreign Funding of NGOs and NPOs in Pakistan After 2026 LHC 2316: What the Lahore High Court Actually Decided

Pakistan’s regulatory environment for NGOs, NPOs, charities and donor-funded institutions has undergone another important constitutional shift.

On 13 April 2026, a Division Bench of the Lahore High Court allowed the Federation’s intra-court appeals in Federation of Pakistan through Federal Secretary, Ministry of Economic Affairs v M/s Human Rights Commission of Pakistan and another, I.C.A. No. 59781/2024 and connected appeals, and set aside the September 2024 Single Bench judgment which had declared the Policy for Local NGOs/NPOs Receiving Foreign Contributions, 2022 unlawful and without legal effect.

The judgment is reported as 2026 LHC 2316.

Its practical effect is important enough. The 2022 foreign-contribution policy survives.

Its constitutional reasoning, however, deserves considerably more attention.

This is not simply a judgment about NGO registration or Economic Affairs Division paperwork. It concerns the relationship between executive power and legislation, the constitutional status of the Rules of Business, Cabinet government, the permissible boundaries of judicial review, and the extent to which foreign contributions received by Pakistani civil-society organisations may be regulated through executive policy rather than a dedicated Act of Parliament.

For foreign-funded NGOs and NPOs, the judgment therefore changes not only the compliance landscape, but also the legal strategy available when that regulatory system is applied unfairly.

The Court deliberately reduced the dispute to two constitutional questions

The Division Bench itself framed the controversy in strikingly simple terms.

It asked:

whether the Federal Government was competent to formulate policy regulating NGOs and NPOs receiving foreign contributions; and

whether the courts could interfere with such governmental policy through constitutional writ jurisdiction.

That framing is important.

The Court did not begin from the question whether the Policy was desirable, whether NGOs considered the regime burdensome, or whether another regulatory model might have been more proportionate.

It began with constitutional competence.

That approach largely determined the eventual outcome.

Articles 90 and 99 became the constitutional foundation of the judgment

The Division Bench placed considerable reliance upon Articles 90 and 99 of the Constitution.

Article 90 deals with the exercise of executive authority by the Federal Government, while Article 99 requires rules concerning the allocation and transaction of Federal Government business.

The Court emphasised that the Rules of Business, 1973 are not merely convenient administrative instructions circulating between government departments. They form part of the constitutional machinery through which executive government operates.

The judgment describes the Rules of Business as providing a comprehensive system governing allocation of governmental business, inter-divisional consultation and the hierarchy of governmental decision-making extending from Secretaries and Ministers to the Prime Minister and Cabinet.

Later, after reviewing authorities including Mustafa Impex, the Court states:

“The Rules of Business are constitutionally mandated rules and must be followed by the Government…”

That sentence has significance well beyond NGO regulation.

The Court is effectively treating the Rules of Business as both a source of executive authority and a restraint upon executive action.

That distinction is extremely important for future litigation.

The Federation succeeded because the Division Bench concluded that the 2022 Policy had travelled through the constitutionally prescribed executive machinery.

But the same reasoning suggests that where government action fails to comply with the relevant Rules of Business, the defect may itself provide a basis for judicial review.

In other words, the judgment does not simply strengthen the Executive.

It also makes procedural legality more important.

Cabinet approval was not merely ceremonial

The distinction between the present case and the earlier Marie Stopes Society v Federation of Pakistan, reported as 2022 CLC 880, is particularly important.

The Division Bench expressly held that the earlier precedent was distinguishable because the regulatory policy considered there had not been approved through the same Federal Cabinet process.

The 2022 Policy, by contrast, had been approved by Cabinet through Case No. 559/Rule-19/2022 dated 11 November 2022.

This was not treated as a minor administrative difference.

It was a material constitutional distinction.

The Court examined the Rules of Business in some detail and concluded that the 2022 Policy had passed through the required executive process, including Cabinet consideration. It therefore held that the Policy had been lawfully issued within the constitutional and procedural framework.

This gives NGO counsel an important practical lesson.

When challenging an executive decision, it is no longer enough simply to argue:

“there is no Act of Parliament authorising this policy.”

One must ask a more sophisticated series of questions.

Which Division had constitutional responsibility for the subject?
Who approved the policy?
Was the Prime Minister’s or Cabinet’s approval required?
Was that approval actually obtained?
Were mandatory consultations undertaken?
Was the Policy notified by the competent authority?
Did the subsequent administrative decision remain within the Policy itself?

Those questions may now become more important than the abstract argument that executive policy necessarily requires separate primary legislation.

The most striking sentence in the judgment

Perhaps the most consequential passage appears at page 15.

After considering the role of executive government in policy formation, the Division Bench states:

“The executive can issue guidelines for this purpose and there is no need for enacting law.”

The Court then answers its first constitutional question expressly by holding that the Government was fully authorised to frame the Policy for Local NGOs/NPOs Receiving Foreign Contributions, 2022.

That is strong language.

But it should not be quoted without its context.

The Court was not announcing that the Federal Government may regulate any subject it wishes through executive guidelines regardless of legislation or constitutional rights.

The sentence appears within a specific analysis of executive authority, Articles 90 and 99, the Rules of Business, Cabinet approval, the Ministry’s allocated functions and foreign-contribution regulation.

The safer reading is therefore:

within an area falling legitimately within federal executive competence, and where the constitutionally prescribed decision-making machinery has been followed, a separate Act of Parliament is not necessarily required merely because the Government chooses to regulate through policy or guidelines.

That is still a significant constitutional proposition.

It is simply not an unlimited one.

This judgment does not mean policy can override legislation

There is an important conceptual distinction between executive policy operating within the law and executive policy attempting to replace or contradict the law.

Nothing in 2026 LHC 2316 authorises an executive policy to override the Constitution, contradict an Act of Parliament, extinguish a statutory entitlement, or immunise arbitrary administrative action from judicial review.

Indeed, much of the case law relied upon by the Division Bench states the opposite.

The Court quotes authority explaining that judicial review remains available where policy violates fundamental rights, conflicts with the Constitution or legislation, or is demonstrably arbitrary or discriminatory.

This produces an important legal nuance.

The Court strengthens executive policy-making authority while simultaneously preserving the classical grounds of administrative-law review.

For practitioners, this means that future disputes will likely shift away from a broad attack upon the existence of the Policy and towards scrutiny of the legality of decisions made under the Policy.

That is a substantial change in litigation strategy.

Judicial review survives, but the Court draws a sharp line around policy wisdom

The Division Bench relied extensively upon authorities concerning judicial restraint in policy matters.

It reproduced Supreme Court jurisprudence making clear that constitutional courts do not sit as appellate bodies deciding whether government policy is wise, commercially sensible or administratively optimal.

The judicial function is directed towards legality.

The authorities reproduced in the judgment distinguish between asking:

“Was this the best policy?”

and asking:

“Was this policy constitutionally and lawfully made?”

The first question ordinarily belongs to the Executive.

The second remains the business of the courts.

The judgment cites authority stating that the court may examine whether government policy violates fundamental rights, conflicts with the Constitution or statute, or is arbitrary or discriminatory.

It also reproduces the proposition that judicial review is principally concerned with the manner in which the decision was taken, rather than whether the court would itself have made the same decision.

Another authority adopted in the judgment stresses that policy decisions are not wholly immune from review, but courts will not interfere simply because another approach appears fairer, wiser or more appropriate.

That distinction is essential for NGOs considering litigation.

A constitutional petition which essentially says:

“this foreign-contribution regime is burdensome and there ought to be a better one”

will face considerable difficulty.

A petition showing:

lack of jurisdiction,
procedural unfairness,
discriminatory treatment,
mala fides,
failure to follow the Policy,
failure to follow mandatory governmental procedure,
a decision contrary to statute,
or infringement of a fundamental right

remains conceptually different.

There is an apparent tension inside the judgment which future courts may have to resolve

One particularly interesting aspect of 2026 LHC 2316 deserves critical attention.

After reproducing authorities confirming that policy decisions may be reviewed where unconstitutional, unlawful, arbitrary or discriminatory, the Division Bench later states rather categorically that:

“interference cannot be made by this Court in the policy matters of the Government in writ jurisdiction.”

Read literally, that sentence appears broader than the jurisprudence immediately preceding it.

The authorities cited by the Court plainly recognise that policy is not absolutely immune from Article 199 review.

The more coherent reading is therefore that the Court was rejecting interference with policy merely because of disagreement with its wisdom or desirability, rather than extinguishing judicial review altogether.

This distinction may become important in future litigation.

The better view, consistent with the authorities actually discussed in the judgment, is that constitutional review of policy survives but remains confined to recognised public-law grounds.

The treatment of Article 18 is surprisingly brief

The Division Bench also disagreed with the Single Bench’s reliance upon Article 18 of the Constitution.

Article 18 concerns freedom of lawful trade, business or profession.

The Division Bench concluded that Article 18 was not applicable to the controversy in the manner assumed below and that Article 99, concerning conduct of Federal Government business, was instead directly engaged.

The judgment goes so far as to say that the Single Judge had not been properly assisted on this question.

This is an important holding, but the reasoning on Article 18 itself is relatively compressed.

The Court does not undertake a lengthy examination of whether particular NGO activities might, depending upon their legal structure or operations, have an economic or professional character.

Nor does this part of the judgment contain an extended proportionality analysis of the Policy’s individual restrictions.

That may leave room for future constitutional argument in an appropriately different factual case.

The judgment establishes that Article 18 did not invalidate the Policy in the litigation before the Division Bench.

It does not necessarily decide every conceivable fundamental-rights challenge to every future application of the Policy.

The Ministry of Economic Affairs was found constitutionally competent

The judgment also addresses which part of the Federal Government could properly administer the regime.

The Court held that, under Rule 3(3) read with the relevant Schedule to the Rules of Business, the Ministry of Economic Affairs possessed constitutional competence because its allocated functions included the assessment, programming, negotiation, coordination and accounting of external economic assistance.

That finding is significant.

The foreign-contribution framework was not upheld merely because “the Federal Government” exists in the abstract.

The Division Bench connected the subject matter of the Policy with the specific governmental Division to which responsibility for external economic assistance had been allocated.

Again, this reinforces the importance of jurisdictional architecture.

The Court described the 2022 Policy as a comprehensive regulatory instrument

The Division Bench characterised the Policy as having the objective of regulating and improving the effectiveness of foreign funding received by locally registered NGOs and NPOs.

It referred specifically to the Policy’s coverage of eligibility, applications, approval, monitoring, suspension and grievance redressal.

This matters because the Court did not appear to regard the framework merely as voluntary administrative guidance.

It treated it as a functioning regulatory system falling within federal executive competence.

For NGO Boards, that should end any lingering assumption that foreign-contribution approval is merely a peripheral administrative formality.

What the judgment does not decide

Equally important is what 2026 LHC 2316 does not decide.

It does not hold that every refusal by EAD is lawful.

It does not hold that every security objection is immune from review.

It does not hold that an NGO can be indefinitely kept in regulatory limbo.

It does not authorise discriminatory treatment.

It does not permit government departments to disregard their own Policy.

It does not validate decisions made by an incompetent officer.

It does not permit executive policy to override primary legislation.

And it does not remove constitutional scrutiny where a decision is arbitrary, mala fide or infringes an applicable fundamental right.

Those propositions follow from the very administrative-law authorities relied upon by the Division Bench.

This is why the post-2026 litigation environment is not:

“NGOs can no longer challenge EAD.”

It is:

“NGOs need to challenge the right decision, on the right public-law ground, with the right record.”

That is an altogether more sophisticated proposition.

A practical example

Suppose an NGO submits a complete application under the 2022 Policy.

It satisfies the published eligibility requirements.

Its donor agreement is disclosed.

Banking arrangements are transparent.

No adverse statutory finding exists.

Yet the application remains undecided for an excessive period, or is rejected through a non-speaking order referring vaguely to “policy considerations”.

The fact that 2026 LHC 2316 upheld the Policy does not necessarily prevent judicial review.

The legal case would no longer principally be:

“the 2022 Policy itself is unconstitutional because Parliament did not enact it.”

The case might instead become:

the competent authority failed to exercise jurisdiction;
the prescribed procedure was not followed;
relevant material was ignored;
irrelevant considerations were relied upon;
reasons were not supplied;
similarly situated organisations were treated differently;
or the decision became arbitrary through unreasonable delay.

That is the practical difference this judgment creates.

The Rules of Business may now become an NGO litigation tool

There is an irony in the judgment.

The Federation relied successfully upon the Rules of Business to defend the Policy.

Future NGO litigants may rely upon those same Rules to challenge particular governmental action.

The Division Bench repeatedly emphasises that the Rules possess constitutional sanction and are mandatory for governmental Divisions.

The judgment also reproduces extensive authority explaining that departures from those Rules undermine lawful governmental administration.

That creates a potentially useful line of inquiry whenever an adverse EAD decision is received:

Was the matter placed before the correct authority?

Were the required Divisions consulted?

Was the approval level correct?

Was Cabinet or Prime Ministerial approval required?

Was the relevant Rule of Business followed?

Was the instrument properly authenticated?

Was the decision genuinely that of the competent governmental authority?

These are no longer merely bureaucratic questions.

After this judgment, they are constitutional questions.

The Marie Stopes precedent was distinguished, not erased

Another point worth emphasising is the treatment of Marie Stopes Society v Federation of Pakistan, 2022 CLC 880.

The Division Bench did not simply state that the earlier judgment had been wrongly decided.

Instead, it distinguished the earlier policy because Cabinet approval had been absent there, whereas the 2022 Policy had received Cabinet approval.

That is legally important.

It means the earlier case remains relevant to the proposition that executive regulatory action may be vulnerable where the constitutionally required governmental approval process is defective.

What changed was the factual and procedural foundation of the 2022 Policy.

For lawyers advising NGO Boards, the lesson is that formal governmental provenance matters.

The judgment is also a warning to the Government

Although the immediate victor was the Federation, the judgment should not be read as an unconditional judicial endorsement of executive regulation.

The Rules of Business reasoning imposes responsibilities on government itself.

The Court repeatedly stresses that governmental business must be conducted through the constitutionally prescribed structure and that compliance with the Rules is mandatory.

The Executive cannot invoke those Rules as the source of its authority while ignoring them when inconvenient.

That provides an important rule-of-law counterweight to the judgment.

What should NGOs and NPOs do now?

For foreign-funded organisations, the practical consequence is that compliance should be reviewed as a single connected legal system.

A Board should be able to answer, from documentary evidence:

Who is the foreign donor?
What is the legal character of the contribution?
Which project will receive it?
Does the governing instrument authorise that activity?
Does the EAD/MoEA approval correspond with the donor agreement?
Are the geographical and programmatic activities aligned with the approval?
Which bank account receives the funding?
Who may operate that account?
How are project expenditure and unrestricted funds separated?
What contractor and vendor controls apply?
What tax treatment is being adopted?
What reporting must be made to EAD, FBR, the donor and the Board?
What happens to donor-funded assets after project completion?
What happens if security clearance is delayed?
What happens if the donor changes the project scope midway?
Who is authorised to communicate with the regulator?
And can the organisation reconstruct the entire transaction history if questioned three years later?
That final question is perhaps the most important.

A compliant NGO should not merely possess approvals.

It should possess an audit trail capable of explaining its approvals.

Foreign donors should also rethink their contracts

The judgment matters equally to foreign donors.

International organisations entering funding arrangements with Pakistani NGOs should not draft agreements on the assumption that regulatory approval is entirely the recipient organisation’s internal problem.

Where implementation is dependent upon EAD or another governmental clearance, donor agreements should appropriately address:

regulatory conditions precedent;
commencement dates;
delayed approvals;
budget re-phasing;
project extensions;
termination rights;
return of unutilised funds;
asset ownership;
audit access;
regulatory disclosure;
anti-fraud reporting;
and cooperation during governmental review.

A poorly drafted foreign-grant agreement can create a contractual obligation to commence activities before the Pakistani organisation is legally ready to do so.

That is an avoidable problem.

What should organisations already experiencing EAD difficulties do?

They should resist the temptation to treat every regulatory obstacle as identical.

A delayed approval requires one strategy.

A rejected application requires another.

An adverse security report raises different issues.

A show-cause notice requires immediate evidential preservation and procedural response.

A suspension or termination decision may require administrative review, grievance procedures and potentially constitutional litigation.

An organisation should therefore establish first whether the problem is:

substantive,
procedural,
jurisdictional,
security-related,
documentary,
tax-related,
banking-related,
or connected with the donor agreement itself.

Only then should litigation be considered.

A more important judgment than the sector may initially realise

The most interesting aspect of 2026 LHC 2316 is that it does more than restore one NGO policy.

It moves Pakistani public law concerning foreign-funded civil society towards a model in which the legality of executive regulation depends heavily upon constitutional executive procedure.

The Federal Government succeeded because it could point to Articles 90 and 99, the Rules of Business, the competent Ministry and Cabinet approval.

That combination persuaded the Court that separate legislation was unnecessary for this particular regulatory framework.

The same constitutional logic may eventually be used against government where those safeguards are not followed.

That is why the judgment should not be reduced to:

“Government wins, NGOs lose.”

The more accurate formulation is:

“Executive foreign-funding regulation survives, provided that executive power remains constitutionally constituted and lawfully exercised.”

That is a considerably more important proposition.

Our view

The Division Bench has plainly strengthened the Federal Government’s legal position concerning the Policy for Local NGOs/NPOs Receiving Foreign Contributions, 2022.

It has also made wholesale challenges to the Policy substantially more difficult.

But the judgment has not abolished administrative law.

It has shifted its centre of gravity.

The next generation of NGO litigation is likely to focus less upon whether the Federal Government may possess a foreign-contribution policy at all and more upon whether a particular decision under that Policy was taken by the correct authority, through the correct procedure, for lawful reasons and consistently with constitutional and statutory obligations.

For NGO Boards and foreign donors, the prudent response is therefore neither alarm nor complacency.

It is governance.

Compliance should be examined before funds arrive, not after an objection is raised.

Foreign-funding arrangements should be capable of surviving not merely a filing review but a hostile audit, regulatory inquiry or constitutional challenge.

And where executive action becomes arbitrary, discriminatory or procedurally defective, organisations should recognise that 2026 LHC 2316 narrows one avenue of challenge but does not close the courthouse door.

Josh and Mak International advises Pakistani and international NGOs, NPOs, section 42 companies, charitable institutions, philanthropic organisations and donor-funded programmes on foreign-contribution regulation, Economic Affairs Division matters, donor agreements, tax and governance compliance, regulatory investigations and constitutional challenges to administrative action.

For advice concerning NGO foreign funding in Pakistan, EAD approvals, foreign contribution compliance, donor agreements or regulatory disputes, Barrister Aemen Zulfikar Maluka may be contacted at aemen@joshandmak.com.

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