The Supreme Court bench comprising Justices AM Khanwilkar, Dinesh Maheshwari
and CT Ravikumar delivered the verdict in Noel Harper and Ors. v. Union of
(W.P. (C) No. 566/2021) with other connected matters that had
challenged the Foreign Contribution (Regulation) Amendment Act, 2020 ("2020
The 2020 Act made certain crucial amendments to the Foreign Contribution
(Regulation) Act, 2010 (2010 Act), which are:
What the Petitioners Contended
- Prohibiting the transfer of foreign contributions received to "any other
person," including individuals and companies [Section 7];
- Reducing the amount of foreign contribution that can be used for
administrative expenses from 50% to 20% [Section 8(1)(b)];
- Empowering the Central Government to direct persons receiving foreign
contribution to utilize it or not or even receive any further funding after
conducting a summary inquiry [Section 11(2)];
- Opening a bank account in the main branch of State Bank of India in New
Delhi, which would be used to receive foreign contribution by the
registrants under FCRA [Sections 12 & 17];
- All office bearers and functionaries of the registered organization to
provide their Aadhaar numbers for identification purposes [Section 12A].
Noel Harper, Chairman of the Care & Share Charitable Trust, that works primarily
for child welfare, challenged the amended Sections 7, 12(1A), 12A and 17 for
being manifestly arbitrary, unreasonable, and impinging upon the fundamental
rights guaranteed under Articles 14, 19 and 21 of the Constitution. While Jeevan
Jyothi Charitable Trust, which works on issues of migrant workers - challenged
Section 17 for being violative of Article 14, 19(1)(c), 19(1)(g) and 21 of the
Section 7 read with Section 17(1) was assailed to be overbroad, vague and
arbitrary as it hinders social upliftment schemes and affects the collaborations
with smaller grassroot organizations that may not get access to grants from
foreign countries and are dependent on organizations such as that of the
petitioner(s). The ordinary meaning of expression "utilization," as per the
petitioner, would include transfer of foreign contribution to another entity;
and, thus, there is apparent conflict between Section 7 and Section 8.
Thus, the total prohibition is manifestly arbitrary and has no causal connection
with the object sought to be achieved - thus violative of the rights guaranteed
under Articles 14, 19(1)(c) and 19(1)(a) of the Constitution. Moreover, it was
argued that the provision being manifestly arbitrary and lacking any determining
principle, is wholly unreasonable and, therefore, violative of Article 21 of the
Constitution. The petitioner notably contended that the State had failed to
establish a "national security" claim to justify the amendments, and thus no
omnibus prohibition can be said to be valid.
Section 12A was assailed to be violative of the test of proportionality, insofar
as it mandated to produce Aadhaar details of the office bearers of the
organizations as identification document for grant of FCRA certificate under
Section 12, or renewal under Section 16 or to open a bank account under Section
17. Since the office bearers without an Aadhaar card can provide an alternate
Section 17(1) read with 12(1A) was challenged on the ground that they suffer
from the vice of manifest unreasonableness, ambiguity, overbreadth and impose
unreasonable restrictions. Section 17 was also challenged on the grounds that it
fails the test of proportionality and fails to provide a fair procedure.
The challenge was limited to the requirement of opening a bank account at one
specific SBI branch in New Delhi. Under the 2010 Act or any other law, such a
mandate is absurd, illogical, and serves no valid purpose, since all scheduled
banks with FCRA accounts are controlled by the Reserve Bank of India, so there
is no logic to demonstrate how the unamended regime will harm national interest.
Furthermore, the State was accused of not substantiating the principle of
necessity, despite the fact that it is already required to register an FCRA
account in a designated bank, with account data connected to the organization's
FCRA registration number.
All of the organizations have been given a unique ID with registration on an
electronic portal "DARPAN." Furthermore, as indicated in Section 18 read with
Rule 17 of the 2011 Rules, registered organizations must file periodical
returns. Thus, the phony national security justification cannot be accepted, and
there can be no presumption in support of the amendment.
What the Government Claimed
The object behind the 2010 Act, the government argued, is "to secure the
sovereignty and integrity of India including public order and public interests.
This wisdom of the Parliament cannot be lightly brushed aside being a
legislative policy." The 2020 Act is intended to ensure effective regulatory
measures regarding inflow and utilization of foreign funds � as it is "evident
that the foreign contribution owing to its nature and vast expanse was being
abused by some registered organizations."
Thus, in no manner, the amendments impact the fundamental rights, much less
under Articles 14, 19(1)(c), 19(1)(g) and 21 of the Constitution, as contended
by the petitioners. The government further argued, the "legislative intent
behind enactment of the 2010 Act is that foreign contribution cannot be allowed
unless it is tightly regulated and controlled."
Thus, the government contended, "the amended provisions are intended to remedy
the mischief of endless chain of transfers of foreign contribution from the
recipient NGOs to other registered NGOs creating layered trail of money making
it difficult to trace the flow and legitimate utilization thereof."
In response to the challenge to Section 7, the government stated that Parliament
decided to enact a severe regime to address the problems that had arisen as a
result of the previous system's ineffectiveness. Without a doubt, the new regime
does not fully restrict foreign contributions, but just implies the use of funds
from foreign sources solely for the purposes for which it was received and
granted permission for.
As per the government, Section 12(1A), which makes it essential to furnish
details of FCRA account, is necessary to "obliterate the mischief of foreign
powers and foreign State and non-State actors indulging in activities resulting
in interference in the internal polity of the country with ulterior designs."
Further, the core intent behind Section 12A is "to facilitate proper
identification of person and associations with which the persons are connected
and also purposeful real-time monitoring of activities for ensuring that the
same are not detrimental to the national interest."
The stipulation by Section 17(1) has been constructed to maintain "the inflow of
foreign contribution through designated channel which is to ensure effective
implementation of proper regulatory and controlled measures." Before the
amendment, the NGOs used to receive foreign contribution in an exclusive bank
account in any bank in India, which "inevitably caused enormous difficulty in
monitoring of inflow or outflow of amount from the respective accounts and also
during audit process."
On the point of violation of Article 14, the government argued that "the
amendments fulfil the 'twin test of classification' founded on the factum of
classification between Indian citizens and foreigners, so much so, Indian
contribution and foreign contribution."
While countering the challenge on the ground of Article 19(1)(c) and 19(1)(g),
there exists no right to seek a foreign contribution without regulation, and the
amendments are "squarely covered by the exceptions provided for within the
meaning of Article 19(4) and 19(6) of the Constitution." Moreover, Article 21 of
the Constitution "cannot and does not include the right to receive unregulated
funds and contributions; misuse of which inevitably threatens the polity and
sovereignty and integrity of the country."
After tracing the legislative history and object of the statute in detail, the
Court noted, "there is no fundamental right vested in anyone to receive foreign
contribution (donation) or foreign exchange." Further, the Court observed,
"Philosophically, foreign contribution (donation) is akin to gratifying
intoxicant replete with medicinal properties and may work like a nectar.
However, it serves as a medicine so long as it is consumed (utilized) moderately
and discreetly, for serving the larger cause of humanity. Otherwise, this
artifice has the capability of inflicting pain, suffering and turmoil as being
caused by the toxic substance (potent tool) - across the nation. In that, free
and uncontrolled flow of foreign contribution has the potentials of impacting
the sovereignty and integrity of the nation, its public order and also working
against the interests of the general public."
The Court reasoned that instead of gaining foreign contribution, the
organizations should focus on generating donations within India, as "there is no
dearth of donors within our country." The Court said that "foreign aid can
create presence of a foreign contributor and influence the policies of the
country. It may tend to influence or impose political ideology." Moreover, as
per the Court, foreign aid has the tendency of "destabilizing the social order
within the country"
The Court rejected the challenge on all counts and noted that the amendment does
not prevent the recipient from utilizing the foreign contribution "itself." The
rationale of Section 7 as amended, inter alia, is that the foreign donor is made
aware of the declared purpose which is permitted by the authority, and a
corresponding obligation upon the recipient regarding utilization of the funds
"itself" for stated purposes and "none else."
The Court rejected the argument of the amendment being ultra vires and read down
the meaning of "transfer" under Section 7 to be a case of per se (simplicitor)
transfer by the recipient of foreign contribution to third party without
requiring engaging in the definite activities of the recipient for which the
recipient had obtained a certificate of registration.
The amendment was not discriminatory or manifestly arbitrary, the Court held, as
there is clear intelligible differentia with a direct nexus sought to be
achieved with the intent of the 2010 Act. As per the Court, providing complete
restriction on transfer simplicitor was the just option to fix accountability of
the recipient organization and maximize utilization for the permitted purposes
of the donation.
The Court thus held:
"The fact that unamended provision was less restrictive, cannot be the basis to
test the constitutional validity of the provision on the touchstone of Article
19(1)(c) or 19(1)(g) or Articles 14 and 21 of the Constitution. The amended
Section 7, being plain and clear and having nexus with the object sought to be
achieved and is necessitated because of sovereignty and integrity of India or
security of the State, public order and in the interests of the general public."
Such a provision must be understood, the Court held, as being procedure
established by law.
Section 12(1A) and Section 17(1)
The Court fully agreed with the government that it was necessary to have the
bank account at a specified bank, providing for strict regulatory measures and
for ensuring transparency and accountability, and being a matter of national
security, its validity cannot be questioned. The Court said, the mere fact that
the previous regime allowed opening bank accounts at any bank in India - would
not be a ground to challenge the amendments, as the Parliament can change the
law in its wisdom.
In fact, the "Parliament must be credited with for having taken recourse to
corrective dispensation for eradicating the mischief, which any sovereign
country can ill-afford," the Court noted. Thus, it can neither be said to be
manifestly arbitrary nor irrational, much less without a legitimate objective.
Accordingly, the Court had no hesitation in negating the challenge as being
violative of Articles 14, 19 and 21 of the Constitution.
The Court noted that the provision envisages a Passport to be used as an
identification document, for OCIs and Foreigners holding office. As per the
Court, it cannot be argued that those seeking an FCRA certificate of
registration do not need to provide official identification documents of its
officials. The Court held, the amendment needs to be construed as "permitting
furnishing of the Indian Passport of the key functionaries of the applicant who
are Indian nationals,"� negating the mandatory requirement of producing Aadhaar.
Since the Supreme Court upheld the FCRA 2020, it would impact all "non-profit"
entities registered in India that receive foreign contribution � as it would
require them to function on the government's whim. Those who do not receive
foreign funding but rely on grants from others who receive it, will not be able
to do so now � hampering the collaborative work, as was contended by the
Petitioners. As per the Supreme Court, "charitable activity is a business."
So be it. But charity is not business, for if it was, it could have financed
itself � never requiring donors but needing investors. Yet again, the Court
found itself sinking in the ever-deepening basin known as the "national