The Sabrang Trust's licence was suspended last year by the home ministry, which asked the organisation to explain its foreign funding.
Recently, a home ministry official was arrested after it emerged that he had removed critical files linked to the investigation.
Ms Setalvad, who has for years fought for Gujarat riot victims, has been accused of receiving around 1.8 crore from the US-based Ford Foundation, allegedly in violation of government rules.
The 53-year-old has also been charged by the Gujarat police of embezzling funds meant for victims of the communal riots in the state in 2002. Ms Setalvad has denied any wrongdoing and alleged that she is being persecuted for her campaign for justice for the riot victims.
Amid a crackdown on foreign charities, the Home Ministry put the $12.5 billion Ford Foundation on a watch list last year.
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