Day 1 Oral Hearing

On October 29th, 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 petitioner NGOs 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 October 29th, Senior Advocate Gopal Sankaranarayan, appearing for the petitioners, argued that the Amendment effectively prohibits the use of foreign funds by NGOs instead of placing reasonable restrictions.  The Bench cautioned Mr. Sankaranarayanan to focus on the constitutional challenges to the Amendment. Khanwilkar J stated that the Court cannot assess the effectiveness of the Amendment, since it must assume that the Parliament’s decisions on policy matters are sound. 

 

The Amendment Does Not Reasonably Restrict, It Prohibits

Citing the Social Action Forum (2018) case, Mr. Sankaranarayan argued that the CJI Dipak Mishra-led Bench had stated that legislative restrictions on the functioning of NGOs must be balanced against their right to raise and use foreign funds. Specifically, the Bench had noted that an absolute prohibition cannot be placed upon utilising foreign funds for NGOs that are not involved in political activities. 

Mr. Sankaranarayan argued that the Amendment acted as a prohibition, not a restriction. Section 7, in its amended form, disallows the transfer of goods and funds received from foreign sources, from one NGO to the other. For example, an NGO cannot hand over blankets donated by foreign sources to another NGO for distribution. 

Further, he clarified that many large NGOs with international visibility often raise funds for smaller, grass-roots organisations that may not have similar access. He argued that before the Amendment, one NGO could transfer foreign funds to another, provided the receiving NGO was registered under the FCRA. If not registered, the transfer could be approved by the Union government. However, the Amendment to Section 7 makes any transfer illegal,  taking away the mechanisms that made the restriction on foreign funds reasonable. 

Mr. Sankaranarayn stated that the Amendment violates Articles 14, 19 and 21. He argued that the government must have some basis to impose such harsh restrictions.Without them, the Amendment is arbitrary. When assessing whether the restrictions on the Article 19(6) rights of NGOs are reasonable, the Court must consider the effect on public interest. Since the NGOs are deprived of any ‘elbow room’ to effectively serve society in the current scheme, the restrictions are not reasonable. 

 

Pegasus Precedent: National Security Must be Demonstrated

Mr. Sankaranarayanan lamented that NGOs who did essential life-saving work during the pandemic are being viewed as linked to terrorist activities. Relying on the Pegasus order, he pointed out that the government cannot use national security as a justification for restrictions on citizens’ fundamental rights unless these national security concerns are adequately demonstrated to the Court. 

Further, like the Pegasus case the Union’s affidavit was limited – it did not explain how the FCRA Amendment is essential to  protect national security. Khanwilkar J reminded the Counsel that the FCRA case was different from the Pegasus case as it challenges the constitutional validity of legislative amendments. Hence, the Court must analyse the legislative text, and should not infer legislative intent from affidavits. 

 

No Reason for Seeking Aadhar Information for Receiving Foreign Contribution

Finally, Mr. Sankaranarayanan argued that the Aadhar judgment had held that Aadhar information can only be sought when the benefits a person seeks under a legislation are related to the Aadhar information. The FCRA Amendment unreasonably seeks Aadhar information of those involved with an NGO receiving foreign funds. 

Khanwilkar J distinguished the Aadhar petitioners’ case from that of the FCRA petitioners. The Aadhar petitioners argued that deprivation of privacy can be done only through primary legislation, not delegated. He enquired if the FCRA petitioners were going a step ahead to argue that the state could not limit privacy by primary legislation either. Mr. Sankaranarayanan clarified that in substance, both sets of petitioners were arguing that the deprivation of privacy was disproportionate and the proportionality analysis for primary and delegated legislation would remain the same. 

 

The Bench will hear the Union’s response to the petitioners’ arguments on November 9th, 2020.