Supreme Court Upholds Foreign Contribution(Regulation) Amendment Act 2020

The Supreme Court on Friday upheld the 2020 amendments made to the Foreign Contribution (Regulation) Act 2010, which introduced restrictions in the handling of foreign contributions by organizations in India.A bench comprising Justices AM Khanwilkar, Dinesh Maheshwari and CT Ravikumar pronounced the judgment in PILs challenging the Foreign Contriubtion(Regulation) Amendment Act 2020(Noel Harper and others versus Union of India and connected cases).However, the Bench read down the condition that Aadhaar numbers should be given for FCRA clearance and said that applicants should be allowed to produce Passports. The challenge was primarily to the following amendments :Amendment to Section 7, which forbids a recipient of foreign contribution from transferring the same to any other entity.Amendment to Section 8(1)(b), which reduces the limit of usage of foreign contribution for administrative expenses from 50% to 20%(not much pressed during arguments).Amendment to proviso to Section 11(2), which states that the Centre can direct an organization to not utilize foreign contributions pending an inquiry on suspected violations.Newly added Section 12 & 17 which state that the foreign contributions must be deposited in the FCRA account created in the specified branch of the scheduled bank, which was later notified as the New Delhi Branch of the State Bank of India.Newly added Section 12A which empowers Centre to obtain Aaadhaar numbers of the key functionaries of organization for approval."To sum up, 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 the Constitution and the Principal Act, for the reasons noted hitherto. 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 Indian Passport for the purpose of their identification. That shall be regarded as substantial compliance of the mandate in Section 12A concerning identification", the concluding portion of the judgment stated.While the petitioners challenged the amendments as arbitrary and stringent and making the functioning of NGOs extremely difficult, the Central Government said that the changes in the law were necessary to prevent malpractices and diversion of funds by NGOs.The Bench had reserved judgment in the matter on November 10, 2021. Senior Advocate Gopal Shankaranarayanan led the arguments in the lead case filed by Noel Harper. Solicitor General Tushar Mehta appeared for the Central Government."Transfer" and "Utilization" interpretedOne of the argument raised by the petitioners was that the absolute prohibition of transfer will prevent NGOs from engaging third party agencies in relation to their charitable works.In this regard, the Court interpreted that the payment to third party agencies in furtherance of the purposes of the recepient would be a case of "utilization" and not "transfer". "Transfer" within the meaning of Section 7 would be transfer to third parties for acts beyond the purposes for which the FCRA approval has been granted. Based on this interpretation, the Court said that Section 7 was intra-vires."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. Indeed, if the recipient of foreign contribution engages services of some third party or outsources its certain activities to third person, whilst undertaking definite activities itself and had to pay therefor, it would be a case of utilisation.The transfer within the meaning of Section 7, therefore, would 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. On this interpretation, it must follow that the argument regarding amended Section 7, being ultra vires, must fail".The Court said that a complete prohibition of transfer is necessary to prevent diversion of funds for other purposes."...some of the recipient organisations were reportedly indulging in successive chain of transfers to other organisations, thereby creating a layered trail of money and also utilisation of funds towards administrative costs of successive transfers upto fifty per cent leaving very little funds for spending on the purposes for which it was permitted. Hence, providing...

Supreme Court Upholds Foreign Contribution(Regulation) Amendment Act 2020

Manu Sebastian

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