FCRA In Supreme Court: The Case That Could Significantly Impact India's NGOs
The Foreign Contribution Regulation Act, 2010, is not like any other general law, the central government told the Supreme Court while defending the 2020 amendments.
Broadly, the amendments bar free transfer of funds by FCRA-registered entities, such as non-governmental organisations, mandate Aadhaar registration of an NGO's officials and introduce bank account restrictions.
The changes have come under criticism by philanthropy and social sector experts. A more nuanced discussion before the law was passed would have thrown light on the potential hazards of these amendments to development and democracy, a criticism by Ingrid Srinath published in BloombergQuint said.
Aggrieved by the amendments, a group of non-profit organisations have challenged them in the Supreme Court. The amendments fail the constitutional test since they are manifestly arbitrary and unreasonable, the petitioners have argued. Specifically, they've challenged:
The ban on transferring foreign contribution by an FCRA-registered organisation to any other person. (amendment to Section 7).
The requirement of submission of Aadhaar for all senior functionaries (Section 12).
And the mandate to route all FCRA funds through a primary account at the New Delhi branch of the State Bank of India (Section 17).
The Supreme Court of India reserved its judgment on the challenge to the amendments after hearing the petitioners, the central government and the State Bank of India.
Here’s how the the government and the petitioners have built their case:
Amendments Are 'Arbitrary', 'Unreasonable': Petitioners
The petitioners have argued that amendment to Section 7 not only prohibits transfer of the foreign contribution but prevents its utilisation as well. Prior to the 2020 amendment, the petitioners say, the law limited the transfer of contribution between FCRA-registered persons; now it bars the transfer in toto.
In the present case, even if Parliament intended to curb passing on of money to third party organisations, the effect of Section 7 is far from it. It not only prohibits transfer of all “foreign contributions” (whether currency or articles), but also prohibits “transfer” to “any person” thereby preventing utilisation of foreign contribution as well.Submission by the petitioners
This restricts collaboration between registered NGOs to serve larger social needs across the country. In international development projects, sub grants are extended to organisations at the grassroot level by the lead partner. The funds-transfer restriction, they've pointed out, is resulting in closure of smaller organisations.
The petitioners cite the precedent in INSAF Vs Union of India to argue that the top court has recognised that any arbitrary and over-broad restrictions on the right to receive foreign funding would violate Article 14 - the right to equality.
The total prohibition on transfer of foreign contribution to any “other person” under Section 7 may prohibit the very utilisation of foreign contribution by any organisation since “person” under Section 2(m) is defined so widely to include any individual or organisation and the word transfer is undefined and can have a broad interpretation.Submission by the petitioners
The second amendment pertaining to office bearers' Aadhar registration for FCRA certification has been challenged on the ground that it fails the test of proportionality.
This, particularly since overseas citizens of India or foreign nationals serving as office bearers can provide an identity alternate to an Aadhar card for the same purposes.Submission by the petitioners
Finally, the mandatory requirement to open a bank account in the New Delhi branch of State Bank of India has been challenged on grounds of unconstitutionality and the operational difficulties it poses.
The petitioners have argued that:
There is no legitimate state goal evident from the text of this amendment.
The goals sought to be achieved by the amendment could have been achieved by less restrictive means. For instance, the earlier law required every organisation to open an FCRA account in a scheduled bank and the details were to be registered with the Ministry of Home Affairs. All organisations are registered on a portal which provides the government with their financial details and activity reports. And then, banks are also required to report within 48 hours any new contribution in an FCRA registered account.
It will create administrative burden and operational costs for NGOs outside Delhi since they won't have physical access to their primary FCRA account.
It will also lead to increasing delays in the receipt and withdrawal of foreign funds utilised, particularly where there is an inability to physically access the branch in case there are any technical matters to sort out.Submission by the petitioners
Onerous Compliance Does Not Mean A Law Is Unconstitutional: Government
The central government in its reply has pointed out the special nature of the FCRA law which makes it different from any other general legislation.
This law was enacted to insulate the democratic polity and institutions from undue foreign influence. A law cannot be held unconstitutional only because it has onerous compliance, the government has submitted.
The account at the SBI New Delhi can be opened without the need to physically visit the branch. The State Bank of India agreed with the government on this point.
An organisation can still open another FCRA registered account in any other eligible bank and transfer funds from the mandatory SBI Account. Citing enforcement and operational requirements, the government has argued that the flow of information from a centralised system is necessary to achieve the object of the FCRA Act.
Monitoring ultimate utilisation of foreign contribution was becoming difficult, it told the court.
..while ensuring proper monitoring of the inflow and outflow of Foreign Contribution from FCRA Account in the NDMB of SBI as mandated by the amended provision, it has been duly ensured that the NGOs/associations are not put to any undue hardships or extra financial costs/compliance burden.Submission by the Central Government
The Aadhaar requirement for senior functionaries has been defended on the grounds of ensuring proper identification. The need for the amendment is to ensure activities of associations are not detrimental to the national interest and hence the restrictions are reasonable and proportionate, the government said in its reply.
And finally, the amendment to Section 7 barring the transfer of FCRA contribution was to ensure organisations receiving the contribution actually utilise it. Some organisations were functioning just as donors of the foreign contributions received by them to other organisations.
….it was considered necessary to stop the transfer of Foreign Contribution in order to fix the accountability and thus ensure that the recipient organization itself actually utilises the Foreign Contribution that it receives.Submission by the central government
Rejecting the arguments on the constitutional validity of the amendments, the government said there exists no fundamental right to receive unbridled, unregulated foreign contributions. The amendments, it said, are protected by the reasonable restrictions allowed by the Constitution on fundamental rights.
Even the right to life and liberty under Article 21 does not envisage the right to receive foreign contributions without due care and regulation, the government said.
The date of pronouncement of the judgment by the Supreme Court is not known yet.