Tulip Kanth

New Delhi, April 9, 2022:The Supreme Court has upheld the constitutional validity of Foreign Contribution (Regulation) Amendment Act, 2020 and opined that the State can have a regime which may completely prohibit receipt of foreign donation, as no right inheres in the citizen to receive foreign contribution (donation).

The Larger Bench of Justice A.M. Khanwilkar, Justice Dinesh Maheshwari and Justice C.T. Ravikumar said,” the need to strictly regulate the inflow of foreign funds and to oversee utilisation thereof for the purposes for which it has been received having been recognised and being the rationale behind the Amendment Act, including owing to the experience regarding abuse of the regime under the unamended provision, the challenge to such amendment cannot be taken forward”.

The Apex Court was considering certain petitions filed under Article 32 of the Constitution of India primarily assailing the constitutional validity of the amendments to the provisions of the Foreign Contribution (Regulation) Act, 2010 by the Foreign Contribution (Regulation) Amendment Act, 2020, in particular, Sections 7, 12(1A), 12A and 17(1), being manifestly arbitrary, unreasonable and impinging upon the fundamental rights guaranteed to the petitioners under Articles 14, 19 and 21 of the Constitution.

The list of petitioners included Non-profit Organizations/Trusts from all over the country and Trustees of National Worker Welfare Trust and Care and Share Charitable Trust located in Andhra Pradesh and Telangana. 

The petitioners challenged the Amendment of Section 7 of the 2010 Act on the ground that this change is arbitrary and directly affects the implementation of the social upliftment schemes of the Trusts through foreign contribution. According to the petitioners, It is a blanket ban on transfer of foreign contributions, thus affecting the collaborations in developing eco-system.

The petitioners also challenged the validity of Sections 17(1) and 12(1A) on the ground that the same suffer from the vice of manifest unreasonableness, ambiguity, overbreadth and impose unreasonable restrictions. Section 17 of the Act was also challenged on the ground of being violative of Articles 14, 19(1)(c), 19(1)(g) and 21 of the Constitution of India insofar as it requires opening of primary FCRA account in SBI, NDMB only. 

Thus, the challenge was made to the amended provisions on the ground of abridgement of fundamental rights of the petitioners guaranteed under Articles 14, 19(1)(a), 19(1)(c), 19(1)(g) and 21 of the Constitution of India.

The amended Section 7 postulates complete prohibition on the transfer of foreign contribution to other person — not even to a person having certificate of registration under the Act. A person who is registered and granted a certificate or has obtained prior permission under the Act to receive foreign contribution will henceforth be required to utilise the amount “itself” and not through any other person.

Discussing this provision, the Larger Bench stated that the restriction or complete prohibition on transfer to third party, by no standards deprive acceptance of foreign contribution and utilisation thereof in the manner permitted for definite purposes, such as cultural, economic, educational or social programme. 

Noting that such a provision must be understood as being procedure established by law in the interests of the general public and in the interests of sovereignty and integrity of the country, including public order, the Bench added that the amended provision is not to completely prohibit inflow of foreign contribution, but is a regulatory measure to permit acceptance by registered persons or persons having prior permission to do so with condition that they must themselves utilise the entire contribution including for administrative expenses within the limits provided under Section 8 of the Act.

Resultantly, the Bench held that there is no infraction even of Article 19(1)(c) or 19(1)(g) including Articles 14 and 21 of the Constitution. Consistent with this view, the Bench rejected the challenge to the amended Section 7 on all counts. 

The Bench also asserted, “Indubitably, foreign contribution is qualitatively different from foreign investment. Receiving foreign donation cannot be an absolute or even a vested right. By its very expression, it is a reflection on the constitutional morality of the nation as a whole being incapable of looking after its own needs and problems.”

Coming to Section 12(1A) which has been inserted by Act 33 of 2020, envisages that every person who makes an application under Section 12(1) is obliged/required to open FCRA account in the manner specified in Section 17 and mention details of such account in his application. Section 17, in particular sub-Section (1) as amended, mandates that every person who had been granted certificate or prior permission under Section 12 shall receive foreign contribution only in an account designated as FCRA account in the specified bank.

At the outset, the Bench noted that the challenge to such amendment cannot be taken forward considering the need to strictly regulate the inflow of foreign funds and to oversee utilization thereof for the purposes for which it has been received.

Assuming that some inconvenience is likely to be caused to few applicants, but the constitutionality of a statute cannot be assailed on the basis of fortuitous circumstances and more so when it being only a one-time exercise to ensure inflow of foreign contribution through one channel only, being a precondition for grant of permission. There is no restriction regarding utilization of the funds only through that (primary) FCRA account. For, it is open to the recipient to operate multiple accounts in other scheduled banks for its utilisation, added the Top Court.

Elucidating on this law point, the Bench said, “It cannot be a usual or ordinary business for everyone and anyone wanting to accept foreign contribution. Permitting inflow of foreign contribution, which is a donation, is a matter of policy of the State backed by law. In this case, it is governed by the 2010 Act as amended. It is open to the State to have a regime which may completely prohibit receipt of foreign donation, as no right inheres in the citizen to receive foreign contribution (donation).”

According to the Bench, the provisions such as Section 12(1A) and Section 17(1) introduced by the Amendment Act, is a holistic approach adopted by the Parliament to provide for strict regulatory measure and for ensuring transparency and accountability in the matter of foreign contribution.

The Court also stated that opening of main FCRA account in the designated bank, is only a one-time exercise and it can be organised even at the local branches of the designated bank in the manner specified in the instructions issued in that regard.

Thus, the Bench negated the challenge to these provisions as being violative of Articles 14, 19 and 21 of the Constitution by holding that such provisions became necessary for efficient regulation of foreign contribution on real-time basis and this can neither be said to be manifestly arbitrary nor irrational much less without legitimate objective of the State. 

Next, the Bench considered the challenge made to Section 12A which mandates that the person concerned who seeks prior permission or prior approval under Section 11, or makes an application for grant of certificate under Section 12, including for renewal of certificate under Section 16, to provide as identification document, the Aadhaar number of all its office bearers or Directors or other key functionaries. The Top Court mentioned that it is not open to argue that associations desirous of obtaining certificate of registration under this Act need not furnish official identification document pertaining to its key functionaries.

Highlighting that this provision envisages that a copy of the Passport can also be provided as identification document of all its office bearers or Directors or other key functionaries or Overseas Citizen of India Card, in case of a foreigner, the Bench held that the underlying purpose of this provision is merely to identify the key functionaries of the registered association so that they can be made accountable for violations, if any. 

Clarifying that the the challenge to this provision being unreasonable is not required to be taken any further, the Apex Court held that that the provision needs to be construed as permitting furnishing of the Indian Passport of the key functionaries of the applicant who are Indian nationals, for the purpose of their identification.

Declaring that the amended provisions by the 2020 Act, namely, Sections 7, 12(1A), 12A and 17 of the 2010 Act are intra vires the Constitution and the Principal Act,the Bench also clarified that it had construed section 12A 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 and this shall be regarded as substantial compliance of the mandate in Section 12A concerning identification.

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