The constitutional validity of amendments to provisions of the Foreign Contribution (Regulation) Act in 2020 upheld by Hon’ble SC.  [2022] 137 taxmann.com 130 (SC)[08-04-2022] |

The order was passed by a bench of Justice AM Khanwilkar, Dinesh Maheshwari and CT Ravikumar.

The Supreme Court on Friday upheld the constitutional validity of the amendments to the provisions of the Foreign Contribution (Regulation) Act, 2020 which imposes several new conditions on the receipt and use of funds by the NGOs, besides making it mandates that they will receive foreign contribution only in an account designated as FCRA account in the specified bank.

“The amended provision is not to completely prohibit inflow of foreign contribution but is a regulatory measure to permit acceptance by registered persons or persons having prior permission to do so with condition that they must themselves utilise the entire contribution including for administrative expenses within the limits,” the court said.

The court observed that the theory of the possibility of the national polity being influenced by foreign contribution is globally recognised.

“Foreign contribution can have a material impact in the matter of socio-economic structure and polity of the country. Foreign aid can create the presence of a foreign contributor and influence the policies of the country. It may tend to influence or impose political ideology,” the court said.

“Such being the expanse of the effect of foreign contribution coupled with the tenet of constitutional morality of the nation, the presence/inflow of foreign contribution in the country ought to be at the minimum level, if not completely eschewed,” the court said.

The influence may manifest in different ways, including destabilizing the social order within the country. The charitable associations may instead focus on donors within the country, to obviate the influence of foreign countries owing to foreign contributions and there is no dearth(means absence) of donors within our country, the court noted.

Pertinently, the 1976 Act was repealed by the 2010 Act, as it had become necessary to do so because of the experience gained that in the name of foreign contribution, attempts were made by unscrupulous entities to disturb the economy and sovereignty of our country, the court noted.

That being the underlying reason, it must follow that the legislative intent behind the Act and the constant effort of the Government and of the Parliament is to discourage foreign contribution generally, but allow it for specific definite purposes mentioned in Section 11 of the Act; and for which, the person receiving or accepting foreign contribution is obliged to obtain a certificate of registration under the Act or prior permission, as the case may be, the court remarked.

As per section 11 of the amended FCRA Act 2020,

• No person having a definite cultural, economic, educational, religious or social program shall accept foreign contribution unless such person obtains a certificate of registration from the Central Government.
• Only registered Persons can accept FCRA funds or other person can accept any foreign contribution only after obtaining the prior permission of the Central Government and such prior permission shall be valid for the specific purpose for which it is obtained and from the specific source.
• Central Government, on the basis of any information or report, and after holding a summary inquiry, has reason to believe that a person who has been granted prior permission has contravened any of the provisions of this Act, it may, pending any further inquiry, direct that such person shall not utilise the unutilised foreign contribution or receive the remaining portion of foreign contribution which has not been received or, as the case may be, any additional foreign contribution, without prior approval of the Central Government:( inserted by amendment act of 2020)e.f. 29-9-2020.
• Central Government may, by notification in the Official Gazette, specify—

In its 132 page order, the apex court also noted that there can be no absolute right in that regard.

“We declare that the amended provisions vide the 2020 Act, namely, Sections 7, 12(1A), 12A and 17 of the 2010 Act are intra vires (within the legal power) the Constitution and the Principal Act, for the reasons noted hitherto.

Extract of section 12A as under:

“Notwithstanding anything contained in this Act, the Central Government may require that any person who seeks prior permission or prior approval under section 11, or makes an application for grant of certificate under section 12, or, as the case may be, for renewal of certificate under section 16, shall provide as identification document, the Aadhaar number of all its office bearers or Directors or other key functionaries, by whatever name called, issued under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016), or a copy of the Passport or Overseas Citizen of India Card, in case of a foreigner.]

Note:  section 12A Inserted by the Foreign Contribution (Regulation) Amendment Act, 2020, w.e.f. 29-9-2020.

As regards Section 12A, we have read down the said provision and construed it as permitting the key functionaries/office bearers of the applicant (associations/NGOs) who are Indian nationals, to produce an Indian Passport for the purpose of their identification. That shall be regarded as substantial compliance of the mandate in Section 12A concerning identification,” the court said.

The court noted that the inflow of foreign contributions had almost doubled between the years 2010 and 2019 and many of the registered associations had failed to comply with basic statutory formalities necessitating the cancellation of certificates of registration of more than 19,000 registered organisations.

“This is a staggering (substantial) number indicative of gross violations by a large number of registered associations. More so, this amendment had been necessitated to safeguard the sovereignty and integrity of the country, and public order, including in the interests of the security of the State and of the general public,” the court said.

It is a law made by the Parliament which is competent to make such a law concerning the activities related to foreign donations and more particularly about its acceptance in a prescribed manner and utilisation for the purposes defined in the certificate/permission granted by the competent authority, the court pointed out.

“It has a legitimate purpose and nexus sought to be achieved with the objective underlying the Principal Act and the subject amendment. It is not open to argue that associations desirous of obtaining a certificate of registration under this Act need not furnish official identification document pertaining to its key functionaries,” the court said.

“We are 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,” the court said.

“Thus understood, the challenge to this provision being unreasonable need not detain us nor is required to be taken any further. Whereas, we hold 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, ” the court said.

The court was hearing three separate petitions. One of the petitions was filed under Article 32 of the Constitution of India primarily assail 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 September 29, 2020, in particular, Sections 7, 12(1A), 12A and 17(1).

Section 7 is related to the Prohibition to transfer foreign contributions to another person.

Extract of section 7 as under:

Prohibition to transfer foreign contribution to other person.

7. No person who—

shall transfer such foreign contribution to any other person.

section 12(1A) Every person who makes an application under sub-section (1)  for prior permission shall be required to open ”FCRA Account” in the manner specified in section 17 and mention details of such account in his application.

Section 12A Empower  Central Government to require Aadhaar number, passport , Overseas Citizen of India Card, in case of a foreigner etc., as identification document of all its office bearers or Directors or other key functionaries.

Section 17 Substituted by the Foreign Contribution (Regulation) Amendment Act, 2020, w.e.f. 29-9-2020  For Foreign contribution through  bank account in specified branch of SBI at new Delhi .

17.(1) Every person who has been granted certificate or prior permission under section 12 shall receive foreign contribution only in an account designated as “FCRA Account” by the bank, which shall be opened by him for the purpose of remittances of foreign contribution in such branch of the State Bank of India at New Delhi, as the Central Government may, by notification, specify in this behalf.

Note: SBI parliament street, New Delhi.

Provided that such person may also open another ”FCRA Account” in any of the scheduled bank of his choice for the purpose of keeping or utilising the foreign contribution which has been received from his ”FCRA Account” in the specified branch of State Bank of India at New Delhi:

Provided further that such person may also open one or more accounts in one or more scheduled banks of his choice to which he may transfer for utilising any foreign contribution received by him in his ”FCRA Account” in the specified branch of the State Bank of India at New Delhi or kept by him in another ”FCRA Account” in a scheduled bank of his choice:

Provided also that no funds other than foreign contribution shall be received or deposited in any such account.

(2) The specified branch of the State Bank of India at New Delhi or the branch of the scheduled bank where the person referred to in sub-section (1) has opened his foreign contribution account or the authorised person in foreign exchange, shall report to such authority as may be specified,—

in such form and manner as may be prescribed.]

The petitioner claimed that these provisions are being manifestly arbitrary, unreasonable and impinging upon the fundamental rights guaranteed to the petitioners under Articles 14, 19 and 21 of the Constitution.

Another petition has challenged the validity of Sections 17(1) and 12(1A) on the ground that the same suffers from the vice of manifest unreasonableness, ambiguity, overbreadth and imposes unreasonable restrictions. Section 17(1) is also discriminatory, as it mandates the opening of “FCRA account” and receiving of foreign contributions only at one bank at New Delhi, that is New Delhi Main Branch of the State Bank of India (SBI).

Union of India, in its reply, said that the thrust of their plea is that the amendment does not bar any person to transact in foreign contribution provided it is compliant with the parameters predicated in the 2010 Act including concerning FCRA registration or prior permission.

The amendments were necessitated owing to past experience of the executive and are a matter of legislative wisdom. The amendments are intended to ensure effective regulatory measures regarding inflow and utilisation of foreign funds. These are uniformly applicable and do not discriminate against any NGO receiving foreign contributions from foreign donors and its utilisation. It is stated that the amendments, in no manner, impact the fundamental rights, much less under Articles 14, 19(1)(c), 19(1)(g) and 21 of the Constitution, as contended, the centre submitted.