Day 2 Oral Hearing

On November 9th, a three-judge Bench comprising Justices Khanwilkar, Maheshwari and Ravikumar began hearing arguments in the petitions challenging the 2020 Amendment to the Foreign Contribution (Regulation) Act, 2010. 

The petitioners, NGOs and individuals associated with them, are concerned that the Amendment places unreasonable restrictions on the receipt and use of foreign funds, and will impede the crucial social services rendered by the NGOs. The Union government states that in order to defend against interference by foreign powers, it is essential to monitor foreign funds. The government argues that the Amendment was made in the interest of national security, and to prevent malpractice among NGOs. 

On November 9th, Solicitor General Tushar Mehta submitted that a legislation can be challenged only on three grounds— legislative incompetence, fundamental rights violation, and that the Amendment contravened the objective of the original Act. Mr. Mehta submitted that the right to foreign contribution was not a fundamental right. Since the original Act was not under challenge, the Bench agreed that the ground of legislative incompetence did not apply either. Accordingly, Mr. Mehta took the Court through the history of foreign contribution legislation to prove that the legislative intent was always to regulate and monitor its use. Hence, this Amendment was in line with this legislative history. 

 

Consistent Government Policy of Treating Foreign Contributions as a Regulated Source, Not as Fundamental Right

Mr. Mehta took the Court through the statement of objects of the first 1976 Act regulating foreign contributions, and of its subsequent Amendments (1985, 2006 and 2010). He argued that since 1976, Parliament had consistently maintained a policy of guarding the country against the abuse and misuse of foreign contributions in a manner out of sync with national ‘security and integrity’. Correcting him, Khanwilkar J pointed out that the concern stated in the legislation was sovereignty, which allowed wider restrictions than integrity or security. Agreeing, Mr. Mehta continued by pointing out that the right to foreign contribution was never viewed by Parliament as a fundamental right. Foreign contributions were always a carefully monitored and regulated source of funds. 

Through the statement of objectives of the previous Amendments, Mr. Mehta sought to prove that Parliament had changed the regulatory framework whenever the country ‘experienced new developments’. He noted that the 2020 Amendment in its objectives explains that foreign contributions had doubled between 2010 and 2019, and that many NGOs were found not utilising foreign funds for their stated purpose. He submitted that the previous framework was so inadequate that the Union government had to cancel the registration of 19,000 NGOs for non-compliance with basic requirements in the Act. These developments, he argued, necessitated the most recent Amendment. 

Mr. Gopal Sankaranarayanan, appearing for the petitioners, pointed out that if the government made 19,000 cancellations before the Amendment, then the past regulations were working, and that no Amendments were necessary. 

The Bench asked why the Amendment placed the entire regulatory framework under the control of the Union Ministry of Home Affairs, which is meant to deal with security measures, and not the finance department. Mr. Mehta mentioned IB reports, which he had not placed on record, showing foreign contributions for ‘Naxalite and other activities’ which were impermissible under the Act. He stated that monitoring the purpose of foreign contributions was not merely an accounting activity, but involved an element of security and sovereignty. 

In a previous hearing, the petitioners had lamented that NGOs, which did essential social work, were unfortunately being viewed through the ‘coloured lens’ of terrorism. 

 

FCRA Registration at SBI Delhi Branch Necessary for Effective Monitoring

Addressing the petitioners’ specific challenges, Mr. Mehta first explained why the mandate of opening an FCRA account in the SBI Delhi main branch was necessary. He stated that before the Amendment, the government’s regulatory framework relied on local banks and small branches to report the inflow of foreign funds. Tracking this information, when received from multiple banks for an ever expanding number of NGOs all over the country, involved large operational costs and led to many oversights and lapses. 

Mr. Mehta also argued that the SBI had come up with mechanisms to ease the process of FCRA registration at the Delhi branch, so that physical presence in Delhi was not required for the process. Mr. Sankaranarayanan asked the Bench to consider allowing registration at all other SBI branches in the country as well. 

 

‘Transfers’ Prohibited to Bar NGOs from Acting as Commission-Seeking ‘MIddlemen’

Mr. Mehta moved to Section 8, which restricts the use of foreign contributions for administrative purposes. He argued that before the Amendment, the NGO could pocket 50% of the funds for ‘administrative purposes’. NGOs could then transfer the remaining funds in smaller amounts to many other NGOs. These NGOs could show the money received from the original NGO was sourced from foreign contributions, and continue the practise of pocketing 50%. In this process, very little funding was used for the intended purpose. Accordingly, Section 8 was amended to limit administrative use to 20%. Mr. Mehta stated that transfers from one NGO to the other were also prohibited by the Section 7 Amendment to stop this practise of administrative charges. 

 

Transfers Are An Essential Means of Utilisation For NGOs, Says Petitioner

Responding to the petitioners’ argument that the Amendment places an unreasonable prohibition on the effective use of foreign contributions, Mr. Mehta stated that Section 7 bars transfers , but Section 8 allows utilisation for a specified purpose. 

Mr. Sankaranarayanan submitted that for some organisations, transfers are an important  means of utilisation. He took the example of Pratham, a world-renowned organisation that conducts an annual survey of education in every district in the country. To do so, it must partner with smaller organisations which can only function if Pratham shares its foreign funds. Section 7, in its amended form, would criminalise such activities. Hence, the Amendment is a complete bar on foriegn contribution for some NGOs. 

Maheshwari J implored Mr. Sankaranarayanan to articulate how this was unconstitutional, stating that the Government gets to decide what policy is most beneficial, not NGOs. Mr. Mehta, making a similar argument, stated that in the R.C. Cooper case, where a far more drastic move of bank nationalisation was concerned, the Court had not intervened even though the Government was ‘virtually taking over’ one entire sector. An act cannot be overturned because a policy decision is unadvisable. 

 

The Bench reserved judgment in this matter. Both parties will file written submissions to the Court, following which the Bench will deliver a decision. The Court may either uphold the Amendment as it is, allowing the Union to closely monitor every foreign contribution, and substantially limiting the ways in which NGOs can utilise these funds. Or, it may read down Sections 7 and 8 to allow the NGOs some ‘elbow room’, as Mr. Sankaranarayanan put it, in their operations.