FCRA Amendment: Judgment Summary

FCRA Amendment

On April 8th 2022, Justices A.M. Khanwilkar, Dinesh Maheshwari, and C.T. Ravikumar upheld the constitutional validity of the 2020 Amendment to the Foreign Contribution (Regulation) Act, 2010 (FCRA).

The FCRA was introduced in 2010 to impose restrictions on the receipt of foreign contributions by non-governmental organisations. In 2020, the Union Government enhanced the Act’s stringency through a series of Amendments. The Amendments placed strict limitations on who could receive foreign contributions, how non-governmental organisations could use them, and whether they could be transferred to other persons and organisations.

In 2021, Noel Harper, the Chairperson of the Andhra Pradesh-based Care & Share Charitable Trust, and the trustees of three other NGOs challenged the constitutionality of three provisions of the 2020 FCRA Amendment.

Is the Prohibition on Transferring Foreign Contributions to Other Persons Constitutionally Valid?

Section 7 of the Amended FCRA bars registered recipients of foreign contributions from transferring funds to other persons or organisations. This holds irrespective of the registration status of the other person or organisation. 

The petitioners argued that the provision imposes a blanket ban on the transfer of foreign contributions. This affects smaller organisations that may not be able to receive foreign contributions. This is because smaller organisations may be unable to display their track record or meet the FCRA’s eligibility criteria for registration. They depend on the transfer of funds from larger organisations. A blanket bar on transfers therefore affects both small organisations and intermediary organisations that typically transfer funds to them.

According to the petitioners, amended Section 7 violates the Right Against Arbitrariness held under Article 14 of the Constitution of India, 1950. Further, the provision violates the Right to Freedom of Speech and Expression and the Right to Form Associations or Unions held under Articles 19(1)(a) and 19(1)(c) respectively.

The Union argued that the Amendments do not bar persons or organisations from receiving foreign contributions. Instead, the Amendments impose effective regulatory measures that are uniformly applicable to NGOs across the country. No organisation has the inherent right to receive foreign contributions—in this context, organisations must comply with regulatory conditions. Further, the 2020 Amendments ensure that foreign contributions are not used to threaten the sovereignty and integrity of India.

With respect to amended Section 7, the Union argued that organisations were operating a chain of transfers to other organisations. Only a small percentage of the foreign contributions received were being utilised for the purposes of which the contribution was permitted. As amended Section 7 was in furtherance of the objective and purpose of the FCRA Amendment, it was not arbitrary.

The Court held that the bar on ‘transfer’ within amended Section 7 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. In this context, amended Section 7 advances the legislature’s intent to mandate the recipient’s use of foreign contributions solely for the purpose for which it was permitted to receive the registration.

As per the rational basis test, there must be an ‘intelligible differentia’, or marked difference, between the two categories created by a legislation. The difference in how the two categories are treated must have a rational link to the legislation’s purpose. In this context, the restriction on transfers imposed by the law applies to organisations receiving foreign donations. The restriction imposed by amended Section 7 bears a rational nexus with the FCRA’s purpose . Therefore, amended Section 7 does not violate the Right to Equality under Article 14.

Further, based on its experience with unamended Section 7, the Court emphasised that Parliament had the power to change the benchmark of restrictions imposed on these organisations through Amendments.

Is the Requirement to Furnish Aadhaar Details for FCRA Clearance Violative of the Right to Privacy?

Under Section 12A of the Amended FCRA, it is mandatory to produce the Aadhaar details of the organisation’s office bearers, functionaries, and directors as identification for FCRA registration.

The petitioners argued that this requirement violated their Right to Privacy, contravening the Supreme Court’s decision in K.S. Puttaswamy (AADHAAR) v Union of India.

The Union argued that Section 12A’s mandate rested on its past experiences of the abuse of the (unamended) FCRA by organisations using funds for other purposes.

The Court read down Section 12A. It held that Indian nationals must be allowed to furnish their passports as identification documents. The Court did not express its views on whether the insistence on Aadhaar violated the Right to Privacy.

Is the Requirement to Open an FCRA Account in a Particular Branch of a Specified Bank Unreasonable and Arbitrary?

Under Section 17(1) and 12(1A), both those seeking FCRA registration and recipients of foreign contributions would have to open an FCRA account at the Sansad Marg branch of the State Bank of India in New Delhi.

Petitioners claimed that this was manifestly arbitrary, unreasonable, and imposed unreasonable restrictions, violating the Rights Against Arbitrariness, Freedom of Expression, and Life held under Articles 14, 19, and 21 respectively. The FCRA’s unamended provisions instituted an effective monitoring mechanism by requiring organisations to open accounts at scheduled banks. However, the amended provision is excessive and fails the test of proportionality.

The Union argued that Sections 17(1) and 12(1A) were necessary to strictly regulate the inflow of foreign funds. Regulation had become difficult to monitor because of the doubling of foreign contributions in the last decade. Opening an FCRA account in a particular branch ensures transparency and accountability. This account can be opened  online—account-holders need not travel to New Delhi. Further, organisations are free to open additional accounts in other banks in other parts of the country.

The Court upheld Sections 17(1) and 12(1A). Opening a bank account at a specified location is a one-time exercise. This process will increase efficiency. Further, the account can be operated without the physical presence of the account-holder. The process is neither arbitrary nor irrational.