Supreme Court: In a major win for the Union of India, the 3-judge bench of AM Khanwilkar*, Dinesh Maheshwari and CT Ravikumar, JJ  has upheld the validity of the amendments to the provisions of the Foreign Contribution (Regulation) Act, 2010 vide the Foreign Contribution (Regulation) Amendment Act, 2020.

The Court was of the opinion that receiving foreign donation cannot be an absolute or even a vested right. By its very expression, it is a reflection on the constitutional morality of the nation as a whole being incapable of looking after its own needs and problems.

Asking the question that “in normal times”, why developing or developed countries would need foreign contribution to cater to their own needs and aspirations, the Court observed that the 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 charitable associations may instead focus on donors within the country, to obviate influence of foreign country owing to foreign contribution. There is no dearth of donors within our country.”

The Court also observed that the foreign aid can create presence of a foreign contributor and influence the policies of the country and hence, the presence/inflow of foreign contribution in the country ought to be at the minimum level, if not completely eschewed.

The Court, however, read down Section 12A and construed it as permitting the key functionaries/office bearers of the applicant (associations/NGOs) who are Indian nationals, to produce Indian Passport for the purpose of their identification.

Why were the amendments challenged?

Certain Non-Governmental Organisations (NGOs) assailed the constitutional validity of the amendments to the provisions of the Foreign Contribution (Regulation) Act, 2010 vide the Foreign Contribution (Regulation) Amendment Act, 2020, which has come into effect on 29.9.2020, in particular, Sections 7, 12(1A), 12A and 17(1), being manifestly arbitrary, unreasonable and impinging upon the fundamental rights guaranteed to the NGOs under Articles 14, 19 and 21 of the Constitution.

Object of 2010 Act

Intrinsic in the regulatory provisions of the 2010 Act is to permit inflow of foreign contribution only in the manner specified in the Act including its utilisation; and any activity inconsistent with the 2010 Act was to visit with penal consequences. The preamble of the 2010 Act restates the need to strictly regulate the inflow of foreign contribution, as lack of it would inevitably affect the national interests including the sovereignty and integrity of the country.

Object of 2020 Amendment

It was noticed that the annual inflow of foreign contribution had almost doubled between the years 2010 and 2019 and many recipients of foreign contribution had not utilised the same for the purposes for which they were registered or granted prior permission under the Act. Further, many recipients had also failed to adhere to and fulfil the statutory compliances — which resulted in cancellation of as many as 19,000 certificates of concerned persons/organisations during the stated period, including initiation of criminal investigation concerning outright misappropriation or misutilisation of foreign contribution. It was increasingly reported that some of the NGOs were primarily involved in routing of foreign contribution accepted by them and not utilising the same itself for the purposes for which certificate of registration was issued. Such transfer created several operational issues bordering on malpractices impacting the very intent of the Principal Act. For, routing of foreign contribution entails in diverting it to another area of activity including misuse thereof. There had been cases of successive transfers and creation of a layered trail of money making it difficult to trace the flow and final utilisation.

To eradicate misuse and abuse of foreign contribution in the past, despite the firm regime in place in terms of the 2010 Act, the Parliament in its wisdom, vide Amendment Act of 2020, adopted the path of moderation by making it mandatory for all to accept foreign contribution only through one channel and to utilise the same “itself” for the purposes for which permission has been accorded.

Validity of Section 7

The restriction or complete prohibition on transfer to third party, by no standards deprive acceptance of foreign contribution and utilisation thereof in the manner permitted for definite purposes, such as cultural, economic, educational or social programme. Such a provision must be understood as being procedure established by law in the interests of the general public and in the interests of sovereignty and integrity of the country, including public order.

There is no restriction regarding utilisation of foreign contribution, leave alone complete prohibition. The rationale of Section 7 as amended, inter alia, is that the donor (foreign source) is made fully aware of the definite purposes already declared by the recipient and permitted by the competent authority and corresponding obligation upon the recipient regarding utilisation of the funds itself for stated purposes and none else.

The restriction under Section 7 applies to a class of persons who are permitted to accept foreign donation for being utilised by themselves for the definite purposes, without any discrimination and it is so done to uphold the objective of the Principal Act. Thus, there is clear intelligible differentia with a direct nexus sought to be achieved with the intent of the Principal Act. Such strict regime had become inevitable because of the experience gained by the concerned authorities over a period of time, including about the abuse of the earlier dispensation under the unamended provision.

“This restriction inevitably fixes the accountability of the recipient organisation and mandating maximum utilisation by itself for permitted purposes. This is the procedure established by law. It can neither be said to be arbitrary nor discriminatory much less manifestly arbitrary — within the meaning of Article 14 or impinging upon Article 21 of the Constitution.”

It is a reasonable restriction as it does not hinder with the right of forming associations as well as to engage in business of charity. Being a regulatory measure necessitated because of past experience and to uphold the intent of the Principal Act, insisting for utilisation, spending of foreign contribution by the recipient itself cannot be said to be irrational, arbitrary, discriminatory, or unreasonable restriction as such.

Validity of Section 12(1A) and Section 17(1)

Section 12(1A) has been inserted by Act 33 of 2020, which envisages that every person who makes an application under subSection (1) of Section 12 is obliged/required to open FCRA account in the manner specified in Section 17 and mention details of such account in his application. Section 17, in particular sub-Section (1) as amended, mandates that every person who had been granted certificate or prior permission under Section 12 shall receive foreign contribution only in an account designated as FCRA account in the specified bank. The unamended Sections 12 and 17 did not impose such restriction.

“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. Assuming that some inconvenience is likely to be caused to few applicants, but the constitutionality of a statute cannot be assailed on the basis of fortuitous circumstances and more so when it being only a one-time exercise to ensure inflow of foreign contribution through one channel only, being a precondition for grant of permission.”

Further, there is no restriction regarding utilisation of the funds only through that (primary) FCRA account. For, it is open to the recipient to operate multiple accounts in other scheduled banks for its utilisation.

These provisions do not completely prohibit forming of the associations or engaging in business of charity as such but merely regulate the manner of doing business more importantly, concerning foreign contribution.

“The need to have only one entry point for the inflow of foreign contribution had been viewed by the Parliament as the best option for regulating the inflow of foreign contribution.”

Validity of Section 12A

Section 12A mandates that the person concerned who seeks prior permission or prior approval under Section 11, or makes an application for grant of certificate under Section 12, including for renewal of certificate under Section 16, to provide as identification document, the Aadhaar number of all its office bearers or Directors or other key functionaries.

Since the provision envisages that a copy of the Passport can also be provided as identification document of all its office bearers or Directors or other key functionaries or Overseas Citizen of India Card, in case of a foreigner, the Court was of the view that as the Passport in case of a foreigner is accepted as sufficient identification document, there is no reason why such Passport of Indian national cannot be relied upon for the same purpose. Thus, it was held that the provision needs to be construed as permitting furnishing of the Indian Passport of the key functionaries of the applicant who are Indian nationals, for the purpose of their identification.

[Noel Harper v. Union of India, 2022 SCC OnLine SC 434, decided on 08.04.2022]

*Judgment by: Justice AM Khanwilkar

For petitioners: Senior Advocate Gopal Sankaranarayanan and Advocate Gautam Jha,

For Respondents: Solicitor General Tushar Mehta and Additional Solicitor General Sanjay Jain

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