"You are discouraging the activities of NGOs”: Supreme Court while hearing challenge to amendments to FCRA

  • Thyagarajan Narendran
  • 05:45 PM, 28 Oct 2021

A Supreme Court bench comprising of Justices Khanwilkar, Dinesh Maheshwari and C.T. Ravi Kumar today while hearing the plea challenging to amendments to Foreign Contributions (Regulation) Amendment Act, 2020 (FCRA) noted that the amendment to the provisions of the act are discouraging the activities of NGOs. 

The batch of petitions challenge the validity of section 7, which prohibits the transfer of foreign funds.  Section 12A which provides for aadhaar as an identification for prior approval and registration. Section 17 which mandatesopening of FCRA primary account exclusively in a branch of State Bank of India in New Delhi notified by the Centre 

Gopal Sankaranarayanan, Senior Advocate, appearing for the petitioner argued that Rule 24 which has been omitted by the amendment says any person intending to transfer foreign contribution may make an application to the centre, and the centre on verification will allow such a contribution, however after the Rule was scrapped, there is no procedure under law to receive such contributions. 

He further pointed out the observation made by the court in another challenge "such organisations who are working for social economic welfare cannot be brought under the act by widening the term political interest." He submitted that this was how the court intended to achieve balance and there cannot be prohibition in receiving funding by organisations not related to politics. The court at this point noted that nobody is against foreign contributions and the act is clear on that however scheme of the act has to be looked into to see how difficult it has been made to receive it.

Sankaranarayanan then submitted that most of the foreign contributions are made by Indians living abroad. The court then noted that if the foreign contributions so received were invested properly but the rules become important if they are not used properly. Gopal Sankaranarayanan then relied on the recent judgment of the court in the pegasus spyware case stating that "if national security is applied, there is a clear restriction on me. The judgment makes it very clear that centre cannot get a free pass every time it is raised."

He further argued that the  government should demonstrate that decision of asking the trusts to operate their primary accounts from SBI, Delhi is in public interest, otherwise it will not satisfy reasonable restriction test as laid down under Article 19(6) of the constitution. He submitted that the Reserve Bank of India has said that voluminous data on foreign remittances will put an extra burden on the financial institutions, which will increase the cost of banking and will also divert the focus on monitoring suspicious transaction, however SBI has said that local branches can be used to open accounts but any other facility like cheque takes time. The court replied to this noting that provisions of a legislation cannot be struck down for practical issues. Sankaranarayanan retorted saying that the reasonableness of these provisions must be explained. 

He concluded his arguments by bringing to the court's notice that these organisations have done excellent work across India and they have never been found to be in default of any legal provisions till before FCRA came into force. He said the amendments to the legislation are very harsh.

Additional Solicitor General (ASG) appearing for the Centre argued that the question that really needs to be looked at is if the amendments are in any manny a hindrance to the functioning of these NGOs. It was argued that these amendments were not brought in haste and they were brought after 10 years of actual amendments and allied situations on ground and that the parliament has seen the functioning of the act before amending it.

He submitted that the prohibition is on the diversion of funds and there was an exception earlier as well which had a due classification as to entities that were registered or had permission under the act. The court asked the ASG if the object of the NGO was to finance other NGOs, the funds could be transferred earlier however it cannot be done now. The ASG replied to this saying that the funds could be utilised only for the NGO's own activity and if the activity is included in its objects.

The bench then enquired the ASG "An NGO is registered by complying with all requirements, under old regime they could transfer funds to such NGOs that are registered. No it can't transfer even if the other NGO promotes a similar activity of the donor NGO?" The ASG replied to this saying nothing prevents an NGO in reaching out to another NGO if it an activity in its objects adding that a donor country cannot determine the legal mechanism of a donee country.

The bench further enquired the ASG that a foreign donor may take a view that they won't deal with multiple agencies but if their aim is to send funds across the country, it can happen through multiple NGOs. The ASG replied to this saying that if it is an all Indian NGO, it can have offices across the country, pointing out that the dynamics of execution has changed. 

However, the bench before classifying the matter as part-heard told the ASG "You are discouraging the activities of NGOs in the process."

The matter is now listed for further hearing on 9th November.