New Delhi: Receiving foreign donations cannot be an absolute right, the Supreme Court said Friday, as it upheld the constitutional validity of the Foreign Contribution (Regulation) Amendment Act, 2020.
The Narendra Modi government’s 2020 amendments to the FCRA had imposed new restrictions on how NGOs, individuals, and other organisations could receive or use funds contributed from abroad, leading to criticism from some quarters that it could have a deleterious effect on civil society organisations.
A three-judge bench, led by Justice A.M. Khanwilkar, however, described the new “regulatory measures” as “effective” and in the “larger public interest, more particularly to safeguard the sovereignty and integrity of the country”. The bench also praised Parliament for the “corrective” measure it had taken to eradicate misutilisation of funds under the old FCRA law.
Foreign contributions, the court noted, could have a “material impact” on the “socioeconomic structure and polity of the country” — in essence, that foreign donors could exert undue influence in India. Therefore, it affirmed the state’s power to “have a regime which may completely prohibit receipt of foreign donation, as no right inheres in the citizen to receive foreign contributions (donation).”
The bench also advised charitable organisations to seek Indian donors rather than foreign ones for reasons of national interest.
The court’s judgment came in the wake of a petition that challenged some of the amendments to the FCRA.
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Petition challenging FCRA amendments
The new FCRA law introduced stringent provisions for compliance by NGOs receiving foreign donations and imposed restrictions on the way such contributions are handled. The changes made it mandatory for all NGOs to have their primary account to receive foreign donations in Delhi and further reduced the percentage of funds that can be spent as administrative expenses from 50 per cent to 20 per cent.
The petition on which the top court pronounced its judgement was filed by Noel Harper of the NGO Care and Share Charitable Trust, and specifically questioned Section 7 (prohibiting transfer of foreign funds to a third-party account), Section 17 (mandating opening of FCRA primary account exclusively in a State Bank of India branch notified in Delhi) and Section 12A (requiring Aadhaar as identification for prior approval, registration etc) of the amended law.
While the bench upheld the validity of the provisions on all counts, it read down Section 12A and allowed key Indian national functionaries and office-bearers of NGOs to use their passport for identification.
A ‘mere plea of inconvenience’ vs Parliament’s ‘final say’
The SC verdict emphasised that Parliament has “final say” in matters of legislation.
“[I]t is open to the Parliament to change the benchmark of restriction from higher standard to lower standard or vice versa on the basis of the exigencies and experience gained during the implementation of the applicable provision at the relevant time,” the court held.
Legislature enjoys “considerable latitude” while exercising its wisdom, the court maintained, adding Parliament understands and reacts to the needs of “its own people”. Therefore, a “mere plea of inconvenience” from some sections is not enough to challenge the constitutionality of a law.
“The courts ought not to adopt a doctrinaire approach in construing the amended provisions and undermine the legislative intent of strengthening the regulatory mechanism concerning foreign contribution,” the bench said.
“There is intrinsic evidence to indicate that the change affected by the amendments is to serve the legitimate government purpose and has a rational nexus.”
A call to focus on donors within the country
The court accepted the Centre’s contention that it was necessary to amend the FCRA to stop “unscrupulous entities” from “disturbing the economy and sovereignty of our country”.
Observing that there was no dearth of donors in India, the court also asked charitable associations to look beyond foreign contributions, which could “influence or impose political ideology” and, therefore, ought to be at a “minimum level”.
“The influence [of foreign donors] may manifest in different ways, including in destabilising the social order within the country. The charitable associations may instead focus on donors within the country, to obviate influence of foreign country owing to foreign contribution,” the court observed.
Further, the bench articulated its disapproval of any kind of dependence on foreign donations.
“[T]he aspirations of any country cannot be fulfilled on the hope of foreign donation, but by firm and resolute approach of its own citizens to achieve the goal by sheer dint of their hard work and industry,” the bench said.
“By its very expression, it (foreign donation) is a reflection on the constitutional morality of the nation as a whole being incapable of looking after its own needs and problems,” the court added, drawing a distinction between a foreign contribution and foreign investment.
On transfer and utilisation of funds
The old FCRA law allowed the recipient of a foreign contribution to transfer it to another person, provided they too were registered and had been granted a certificate by the government. The new law rules out such a transfer under Section 7, which was a point of contention in the petition.
The court held that this modification of the law was intended to “overcome mischief, enhance transparency and accountability regarding acceptance and also utilisation of foreign contribution which is quite substantial in every financial year, having proliferating effect on the nation’s economy”.
The former law allowed for misutilisation of foreign contributions, the court said, because it allowed for a transfer of funds to a third party who might use it for an altogether different purpose.
It was clarified that if the recipient of a foreign donation engages the services of a third party or outsources certain functions, while undertaking the activities specified in its terms and agreement, then it would be not be a case of misutilisation.
The changed law, the court reinforced, also did not prevent recipients from utilising foreign contributions for the purposes for which they had been granted a certificate of registration.
“On conjoint reading of Sections 7 and 8, as amended, the legislative intent of mandating utilisation of foreign contribution by the recipient itself for the purposes for which it had been permitted gets reinforced,” the court ruled.
Section 8 of the FCRA is related to administrative expenses. The amended law allows NGOs to utilise only 20 per cent of the donation received for this purpose, although this can be exceeded with the prior approval of the Centre.
While the validity of this section was not an issue before the court, the bench did make mention of both sections 7 and 8 as reasonable restrictions.
“Absent such stringent provision[s], some of the recipient organisations were reportedly indulging in successive chain of transfers to other organisations, thereby creating a layered trail of money,” the court said, adding that in some instances “up to fifty per cent” of transfers were going towards administrative costs, “leaving very little funds for the purpose”.
The court rejected the charge that these new regulations around the usage of funds [check] were arbitrary and violative of Article 19 (freedom of speech and expression – particularly the right to carry on trade freely) as well as Articles 14 (equality) and 21 (liberty).
A defence of banking restrictions
The court upheld the validity of Section 17, which makes it mandatory for the recipient to receive foreign donations in an account designated as FCRA in a specific bank.
The bench opined that this provided a structured framework for receiving donations, including for disclosures regarding the purposes, and enhanced the monitoring mechanism.
There was “force in the argument” of the Centre, the court said, that the section 17 amendment addressed “clear and discernible lacunae that cropped due to the presence of FCRA accounts of scores of registered organisations, in different scheduled banks of the country”.
The challenge became more pronounced “due to doubling of foreign contribution inflow in the last decade,” the court obseved.
The new regime will enable the authorities to take immediate corrective measures and to “pre-empt the impending threat perceived of its (donation) volume including undesirable source of remittance”.
(Edited by Asavari Singh)
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