No Vested Right To Receive Foreign Contribution – Indian FCRA Regulations
If you have questions or would like additional information on the material covered herein, please contact:
No Vested Right To Receive Foreign Contribution – Indian FCRA Regulations
In the Matter of: Noel Harper & Ors. vs. Union of India & Anr. [Writ Petition (Civil) No. 566 of 2021] with Writ Petition (Civil) No. 634 of 2021 and Writ Petition (Civil) No. 751 of 2021
Forum: Hon’ble Supreme Court of India
Order Delivered on: April 8, 2022
- Factual Background:
With the enactment of the Foreign Contribution (Regulation) Amendment Act, 2020 (“Amendment Act”), multiple petitions were filed inter alia assailing the amendments made to the Foreign Contribution (Regulation) Act, 2010 (“FCRA”). Particularly, the Supreme Court was dealing with the constitutional validity of the amendments introduced in the FCRA vide the Amendment Act to Sections 7, 12(1A) and 17(1) and insertion of Section 12A on the grounds that the same were arbitrary, unreasonable and impinging upon the fundamental rights guaranteed to the petitioners under Articles 14, 19 and 21 of the Constitution of India.
A summary of the key amendments in the FCRA vide the Amendment Act, which have been challenged, and the unamended provisions are provided herein below:
|Section 7 (Prohibition to transfer foreign contribution to other person)
|A person who was registered and granted a certificate or had obtained prior permission under the FCRA and received any ‘foreign contribution’1 was not allowed to transfer such foreign contribution to any other person unless such other person was also registered and had been granted the certificate or obtained prior permission under the FCRA. Additionally, transfer of such foreign contribution was also allowed to unregistered persons with the Central Government’s prior permission.
|No transfer of foreign contribution is allowed.
|Section 12(1A) (Grant of certificate of registration) (New Provision)
|Requires a person applying for registration or prior permission to open ‘FCRA Account’ in terms of the amended Section 17 of the FCRA.
|Section 12A (Power of Central Government to require Aadhaar number, etc., as identification document) (New Provision)
|In case of registration or prior permission or renewal, all office bearers, directors and key functionaries of the registered organisation are required to provide their Aadhaar numbers for identification purposes or a copy of the Passport or Overseas Citizen of India Card in case of a foreigner.
|Section 17 (Foreign contribution through scheduled bank)
|FCRA Account could be opened in any scheduled bank for receipt of foreign contribution which was to be stated in the application for registration.
|Section 17(1) now mandates that every person who had been granted certificate or prior permission under Section 12 or seeking new registrations/permission to receive foreign contribution only in one bank account, i.e., New Delhi Main Branch of the State Bank of India.
In the present case, the petitioners were aggrieved by the enactment of Amendment Act, which restructured the mechanism of acceptance and reporting of foreign contribution by making it more stringent and cumbersome. As the amended section 7 of FCRA prohibited any person registered under FCRA from transferring any foreign contribution to any person irrespective of whether such person is duly registered or not, the petitioners contended that the aforesaid amendment will adversely affect the grassroot organizations, who do not meet the eligibility criteria to obtain registration under FCRA and are entirely dependent upon the intermediary organizations for the purpose of funding/transfer. The petitioners therefore asserted that the amendment to section 7 is arbitrary in nature and violative of the rights guaranteed under Article 19 and Article 14 of the Constitution of India.
At the outset, the Hon’ble Supreme Court of India noted that the rights guaranteed under Part III of the Constitution of India, especially Article 19, are not absolute rights and the same are subject to reasonable restrictions. The Court observed that the State is empowered to impose reasonable restrictions on the exercise of aforesaid rights inter alia guaranteed under Article 19 of the Constitution of India, for protection of sovereignty of India and interest of general public. The Court additionally observed that “no one can be heard to claim a vested right to accept foreign donation, much less an absolute right.”
The Apex Court recognized that owing to high volume of inflow of foreign contribution and large-scale improper utilisation and misappropriation of foreign contribution, it was necessary for the Parliament to introduce the Amendment Act, to ensure proper receipt and utilization of foreign funds in accordance with the approval.
Validity of Amended Section 7:
One of the contentions raised before the Court was that imposing an absolute prohibition on transfer of foreign contribution, which was not there prior to the Amendment Act, will prevent non-government organizations (“NGOs”) from engaging third party agencies to undertake charitable work. While refuting the aforesaid contention, the Court held that amended Section 7, though imposes a complete restriction on transfer of foreign contribution, it does not prevent the recipient from utilising the foreign contribution ‘itself’ for the purposes for which such recipient has been granted registration/permission under the FCRA.
The Court interpreted the word ‘transfer’ within Section 7 to be “a case of per se (simplicitor) transfer by the recipient of foreign contribution to third party without requiring to engage in the definite activities of cultural, economic, educational or social programme of the recipient of foreign contribution, for which the recipient had obtained a certificate of registration from the Central Government.”
Additionally, vis-à-vis the interpretation of the word ‘utilisation’ for the purposes of FCRA, the Court observed the following:
“47. Indeed, even the expression “utilisation” has not been defined in the Act. The ordinary meaning of expression “utilisation” must be understood in the context of the purpose for which a certificate of registration or prior permission under the Act has been granted by the Central Government. If the foreign contribution is utilised for such definite purposes.., including administrative expenses permissible under Section 8, even though it may theoretically entail in transfer of foreign contribution, it would not be a case attracting the rigors of Section 7. In other words, Section 7 may be attracted if the utilisation is not for the definite or permitted purposes for which the certificate of registration or permission under the Act has been granted by the competent authority. …”
The Court emphasised that if the recipient of foreign contribution engages services of some third party or outsources its certain activities to third person while undertaking mandated activities itself and pays for such services, it would still be a case of utilisation.
Thus, the Supreme Court held the amendment to Section 7 to be intra-vires.
Validity of Section 12(1A) and 17(1) :
It was inter alia contended by the petitioners that opening of ‘FCRA Account’ in terms of Sections 12(1A) and 17(1) of the Amendment Act was discriminatory as it mandated opening of the FCRA Account at a specific bank branch for receipt of foreign contribution and impose unreasonable restrictions. The Supreme Court while refuting the aforesaid contention held that:
“71. The fact that earlier FCRA account could be opened in any scheduled bank, cannot preclude the Parliament from legislating a law which requires inflow of foreign contribution in some other manner specified by law…
73.A priori, opening of main FCRA account in the designated bank as per the law made by the Parliament in that regard, cannot be brushed aside on the specious argument of some inconvenience being caused to the registered associations.”
The Court further observed that there was no restriction regarding utilisation of funds only through the primary ‘FCRA Account’ as additional accounts could be opened in scheduled banks for its utilisation. Thus, the Court denied the contention as mere inconvenience cannot be a ground for declaring new insertion of Section 12(1A) and the amended Section 17(1) as unconstitutional.
Validity of Section 12A
With respect to section 12A, the Supreme Court provided relief by permitting Indian nationals to produce a copy of their passport (instead of necessarily providing Aadhaar numbers) for the purpose of identification and stated that the purpose of Section 12A is to merely identify the key functionaries of the registered association, in order to make them accountable in case of violation.
The Amendment Act is a major paradigm shift in the regulatory regime of FCRA. The intent of the Government is to implement a strict regime for receipt of foreign contribution to minimise its abuse and distribution of funds for wrongful purposes. The Government is also of the view that many NGOs have often routed foreign contributions and thereafter transferred the funds to other entities for its utilisation. To stop such malpractices and to fix accountability, the Government considers it necessary to stop the transfer of foreign contribution and ensure that only the recipient entity utilises the funds for the declared charitable objectives. To minimise chain of layered transfers from one entity to the other impacting traceability and utilisation of funds, the Government introduced the Amendment Act to prohibit transfer of funds and impose self-utilisation.
The Amendment Act, on the other hand, has been vociferously opposed by many NGOs as interfering, restrictive and downright ultra vires the Constitution of India. The NGOs have also claimed that the Amendment Act severely impedes free flow of funds to smaller NGOs running charitable activities at the grassroot levels and dependent upon the bigger NGOs receiving foreign contribution. Interestingly, all these arguments have been rejected by the Apex Court by categorically stating that “no one can be heard to claim a vested right to accept foreign donation, much less an absolute right”. The Court further added that there are many donors within India and the Government of India is well within its right to either prohibit or restrict receipt of these funds or impose stringent conditions on receipt of foreign donations in the interest of its security, sovereignty, public order and national interest.
 The term ‘foreign contribution’ is defined under Section 2(h) of FCRA to mean “the donation, delivery or transfer made by any foreign source – (i) of any article, not being an article given to a person as a gift for his personal use, if the market value, in India, of such article, on the date of such gift, is not more than such sum as may be specified from time to time, by the Central Government by the rules made by it in this behalf; (ii) of any currency, whether Indian or foreign; (iii) of any security as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 and includes any foreign security as defined in clause (o) of section 2 of` the Foreign Exchange Management Act, 1999.
Explanation 1.— A donation, delivery or transfer of any article, currency or foreign security referred to in this clause by any person who has received it from any foreign source, either directly or through one or more persons, shall also be deemed to be foreign contribution within the meaning of this clause.
Explanation 2.— The interest accrued on the foreign contribution deposited in any bank referred to in sub-section (1) of section 17 or any other income derived from the foreign contribution or interest thereon shall also be deemed to be foreign contribution within the meaning of this clause.
Explanation 3.—Any amount received, by any person from any foreign source in India, by way of fee (including fees charged by an educational institution in India from foreign student) or towards cost in lieu of goods or services rendered by such person in the ordinary course of his business, trade or commerce whether within India or outside India or any contribution received from an agent of a foreign source towards such fee or cost shall be excluded from the definition of foreign contribution within the meaning of this clause;”