Supreme Court upholds the constitutional validity of The Foreign Contribution (Regulation) Amendment Act, 2020

The constitutional validity of the Foreign Contribution (Regulation) Amendment Act, 2020 (FCRA Amendment) was challenged before the Supreme Court in a recent case in Noel Harper Vs. Union of India.[1] Sections 7,12 (1A), 12A and 17 (1) of the FCRA Amendment were challenged on the ground that these provisions are arbitrary, unreasonable and in violation of the fundamental rights provided under Articles 14, 19 and 21 of the Indian Constitution.

Noel Harper, the chairperson of the Andhra Pradesh-based Care & Share Charitable Trust and the trustees of three other NGOs challenged the FCRA Amendment on the following grounds:

a)     It bars even registered recipients of foreign contributions from transferring funds t other persons or organisations irrespective of the registration status of the transferee.

b)     It mandates receiving funds only with a designated branch of State Bank of India, New Delhi, with compulsory quoting of Aadhaar Number of all its office bearers.

After hearing both sides, the Apex Court held that mere plea of inconvenience is not enough to assail constitutional validity of legislation and upheld the FCRA Amendment.

Key findings of the court in this regard are:

• Receiving foreign donations cannot be an “absolute or even a vested right”.
• The intention of the FCRA Amendment was to ensure effective regulatory measures regarding inflow and utilisation of foreign funds.
• Bar on ‘transfer’ within Section 7 of FCRA Amendment refers to simple transfers by the recipient of the foreign contributions to third parties who are not engaged in the former’s cultural, social, educational, and social programmes.
• The Parliament in order to eradicate the misuse and abuse of foreign contribution vide the FCRA  Amendment adopted a 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.
• The rationale behind quoting of Aadhaar number in the application was merely to identify the key functionaries of the registered association and to make them accountable for violations, if any.
• Court further read down Section 12A of the FCRA Amendment and permitted the key functionaries or office bearers of the associations/NGOs, who are Indian nationals, to produce Indian passports for the purpose of their identification.
• Apex Court upheld the requirement under Section 17 of FCRA Amendment which provided for opening the FCRA account at the Sansad Marg branch of the State Bank of India in New Delhi by the persons seeking FCRA registration and recipients of foreign contributions. The Court in this regard observed that opening a bank account in SBI is a one-time exercise and it can be further operated online on real-time basis without the need for physical presence of the account holder or its officials.

Impact of the Supreme Court ruling on Indian Social Sector 

The Supreme Court has to a certain extent brought some clarity regarding the transfer restrictions placed under Section 7 of the FCRA Amendment. If the recipient of foreign contribution engages services of third party or outsources its activities to a third person, whilst undertaking definite activities itself and had to pay therefor, it would be a case of utilisation and the transfer restrictions under Section 7 will not be applicable in such cases. This should bring some relief to the Indian Social Sector.  

[1] [2022] 137 taxmann.com 130 (SC)