In September 2020, the government enacted the Foreign Contributions (Regulation) Amendment Act, further restricting the manner in which foreign funds could be received and used.  The amendment prevents a recipient from transferring funds to any other entity, reduces the allowed ‘administrative expenses’ from 50 per cent to 20 per cent of the received funds, and empowers the government to order an organisation to not utilise foreign contributions pending an inquiry on suspected violations.  

One of the amendments that has received widespread criticism is the mandatory provision that the foreign contributions must be deposited in the FCRA account created in the State Bank of India (SBI), New Delhi branch. 

Developments

Recently, on April 8, 2022, the Supreme Court in Noel Harper Vs Union of India, endorsed the Centre’s Amendment, saying that accepting foreign donations cannot be an absolute or even a vested right and held that the restrictions placed on Non- Government Organisations’ (NGOs) ability to raise and use foreign donations through the said amendments are constitutional. 

The Amendment was challenged by Noel Harper, the Chairman of the Care & Share Charitable Trust, and the Jeevan Jyothi Charitable Trust, who argued that the blanket requirement to open an account at one specific SBI branch is manifestly arbitrary, serves no purpose, violating the right to equality.  

Further, they argued that the Amendment lacks a legitimate objective and has a disproportionate impact on NGOs.  

In response, the court observed that free and uncontrolled inflow of foreign funds has the potential to impact the socio-economic structure and polity of the country.  

Impact on NGOs 

It was argued that the restrictions will hamper the functioning of NGOs that receive foreign funds. The petitioners, including individuals and NGOs, argued that the amendments were ambiguous, and violated their fundamental rights. 

Reasonable Restrictions 

The court stated no one can claim that receiving foreign funds was an absolute or fundamental right. Further, it held that the restrictions in the amendments were reasonable. 

The term “reasonable” has not been defined under the Constitution and no tests were laid down either—the role of the Supreme Court to interpret the constitution comes into play. Over time, the Supreme Court has laid down, in a plethora of cases, various tests and principles with respect to the concept of ‘reasonable restrictions’. In Bombay Hawkers Union v Bombay Municipal Corporation, the provisions of the Bombay Municipal Corporation Act, which required street hawkers to have a licence, were challenged, but the SC observed that the restrictions were reasonable and constitutional. 

‘Not absolute rights’

In the recent Noel Harper case, the court acknowledged that it is well-established that rights guaranteed under Part III of the Constitution and Article 19 in particular, are not absolute rights. The same are subject to reasonable restrictions, as predicated in clauses (2) and (6) of Article 19. It is open to the State to make a law, so as to impose reasonable restrictions on the exercise of such right under Article 19(1)(a) in the interests of the sovereignty and integrity of India, the security of the State, friendly relations with Foreign States, public order, decency or morality or in relation to contempt of Court, defamation or incitement to an offence; in case of Article 19(1)(c) – in the interests of the sovereignty and integrity of India, public order or morality; and in case of Article 19(1)(g) – in the interests of the general public. 

The court held that the provisions introduced by the Amendment Act are only for regulating the manner of doing business more importantly, concerning foreign contribution. 

The new rules enable authorities to take urgent disciplinary measures, provide a regulatory framework to moderate the inflow of foreign funds into the country. The amendments do not prohibit inflow of foreign contributions but are regulatory in nature.  The purpose is to prevent the foreign hand from undermining constitutional and legislative institutions and ensure that organisations and people respect the values of the sovereign state.

(The author is Partner – Assurance and Transaction Advisory, Nangia & Co LLP, Consultancy firm) 

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