Supreme Court Upholds FCRA Amendments Impacting NGO Funding

An Indian 10 rupee banknote and a U.S. one-hundred dollar banknote. (Photographer: Dhiraj Singh/Bloomberg)

The Supreme Court of India has upheld the amendments made to the Foreign Contribution (Regulation) Act, 2010.

In 2020, the government had introduced several amendments to the FCRA that broadly barred free transfer of funds by FCRA-registered entities such as non-governmental organisations, mandated Aadhaar registration of NGO officials and introduced bank account restrictions.

A group of non-profit organisations had challenged the following provisions before the apex court:

The ban on transferring foreign contribution by an FCRA-registered organisation to any other person.
The requirement of submission of Aadhaar for all senior functionaries.
The mandate to route all FCRA funds through a primary account at the New Delhi branch of State Bank of India.

The top court upheld the amendments but offered relief on the requirement to submit Aadhaar of the senior functionaries of the organisations. Instead of Aadhaar, the top court said, senior functionaries can also submit their passport details.

The petitioners had argued that the amendments were arbitrary and unreasonable, whereas the government argued that the law cannot be declared unconstitutional because it has onerous compliances.

Amended Section 7 Is Not Discriminatory Or Arbitrary, Says Supreme Court

Prior to 2020, Section 7 allowed transfer of contributions from one FCRA recipient to another. A complete prohibition on such transfers served no legitimate purpose, the petitioners had argued.

The top court noted that the legislative intent is to completely prohibit transfer of foreign contributions by a person who had originally received it. It is open to the Parliament to introduce such restrictions on the basis of exigencies and experience gained during the implementation of the applicable provision, the apex court said.

This restriction inevitably fixes the accountability of the recipient organisation and mandating maximum utilisation by itself for permitted purposes. This is the procedure established by law. It can neither be said to be arbitrary nor discriminatory, much less manifestly arbitrary — within the meaning of Article 14 or impinging upon Article 21 of the Constitution.

Supreme Court of India

Requirement Of Designated Bank Account To Take Donations Upheld

As per the 2020 amendment, all FCRA funds have to be routed through a primary account at the New Delhi branch of State Bank of India.

Such a change in framework for acceptance of foreign contributions cannot be the basis to question the validity of the amendment, the Supreme Court noted. The need to have a single account for receiving foreign contributions was to ensure better monitoring, the bench noted.

The FCRA account operators cannot claim right of continuity of a deficient and flawed framework.

Supreme Court of India

Ordinarily, the judgment adds, convenience of people engaged in a business must be uppermost in the mind of the Parliament, but in this case the change had become essential because of the past experience of abuse and misutilisation.

The bench also noted that while the amendment required the organisations to accept donation in one specific account, the utilisation could still be done through multiple accounts in the scheduled branches.

It is a balanced approach, the top court said, while adding that opening the main FCRA account was a one-time exercise. There should not be insistence of physical presence of people for complying with the formalities, the court added.

In the context of the law made by the Parliament in the interests of the sovereignty and integrity of the country and security of the State, public order, as also in the interests of the general public, such a provision cannot be lightly viewed much less on the specious plea of manifestly arbitrary.

Supreme Court of India

Requirement Of Aadhaar Is Not Mandatory

The top court noted that the purpose of this requirement was to merely identify the key functionaries of the registered association to make them accountable for violations under the law.

In case of a foreigner, a passport is considered sufficient identification and there is no reason why the same cannot apply to an Indian citizen. Therefore, senior functionaries should be allowed to submit their passport as an identification document instead of Aadhaar card, the bench said.

The order was pronounced on Friday by a bench of Justices AM Khanwilkar, Dinesh Maheshwari and CT Ravikumar after it reserved the order in November 2021.