SC upholds new restrictions on foreign funds

What is the News?

The Supreme Court has upheld the constitutional validity of the Foreign Contribution (Regulation) Amendment Act, 2020 or FCRA Act. 

What is the case about?

A petition was filed in the Supreme Court challenging the Foreign Contribution (Regulation) Amendment Act, 2020 or FCRA Act. 

The FCRA amendment lays down certain conditions for NGOs such as 1) Mandatory production of the Aadhaar card for registration under the FCRA, 2) NGOs and recipients to open a new FCRA account at a specified branch of the State Bank of India in New Delhi as a “one-point entry” for foreign donations, 3) Limit of usable foreign contribution for administrative expenses from 50% to 20% and 4) Prevents the transfer of foreign funding to any other person.

What were the arguments put forth by the petitioners?

Firstly, these amendments suffered from ambiguity, over-governance and violated their fundamental rights.

Secondly, they put a blanket ban on the capacity of intermediary organizations in India to distribute foreign donations to smaller and less visible NGOs.

Thirdly, there is no rational link between designating a particular branch of a bank with the objective of preserving national interest.

What did the Government say regarding FCRA?

The amendments were needed:

To Prevent Interference: The amendments were necessary to prevent foreign state and non-state actors from interfering with the country’s polity and internal matters.

To prevent malpractices by NGOs: The changes are also needed to prevent malpractices by NGOs and the diversion of foreign funds.

Monitor Flow of Funds: The provision of having one designated bank for receiving foreign funds is aimed at making it easier to monitor the flow of funds.

What did the Supreme Court say regarding FCRA?

The Supreme Court upheld the constitutional validity of the Foreign Contribution (Regulation) Amendment Act, 2020 or FCRA Act on following grounds:

– No one has a fundamental or absolute right to receive foreign contributions.

– Amendments only provide a strict regulatory framework to moderate the inflow of foreign funds into the country.

– Free and uncontrolled inflow of foreign funds has the potential to impact the socio-economic structure and polity of the country.

– Permitting the inflow of foreign funds is a matter of policy of the State-backed by law. Hence, it is open for a state to have a regime that may completely prohibit receipt of foreign donations, as there are no absolute rights to receive foreign donations. 

– Inconvenience to a party is not a ground to challenge the constitutionality of a provision that mandates the opening of FCRA accounts in the designated bank.

However, the court read down one of the provisions of the 2020 FCRA Amendment Act, which mandated the production of Aadhaar card for registration. The court allowed the office-bearers of NGOs to use their Indian passports as an identification documents.

Source: This post is based on the article “SC upholds new restrictions on foreign funds” published in The Hindu on 9th April 2022.