Analysing the Constitutional Validity of the Foreign Contributions Regulation (Amendment) Act, 2020

Introduction

FCRA licences for 5,968 NGOs, including Mother Teresa’s Missionaries of Charity, were recently revoked after they failed to follow amended requirements to file for renewal on January 1. While the licenses of 12,501 non-governmental organizations (NGOs) expired on December 31, the licenses of 5,710 NGOs expired on January 1. NGOs must register with the home ministry, which gives them a unique FCRA registration number that must be updated every five years, in order to accept foreign funds. In addition, the Supreme Court started considering a petition in October contesting the most recent modifications to the Foreign Contribution Regulation Act (FCRA), which many non-governmental organizations (NGOs) claim have pinched their revenues. All NGOs must now maintain a primary bank account in Delhi, and the amount of money that may be utilized for administrative expenditures has been decreased from 50% to 20% as a result of the reforms. Furthermore, the types of foreign donations that may be accepted have been limited.

Numerous NGOs and organizations from all around the world have expressed their dissatisfaction with the 2020 amendment. They said that the modifications will stifle the growth of thousands of small and mid-sized non-profits, the majority of which focus on local and hyperlocal concerns. They feel that it will become difficult for global people to donate to India.

Citizens from other nations have been able to donate into organizations close to their hearts because of an enabling atmosphere in international fundraising. International donors would be deterred from contributing to India as a result of the new FCRA legislation, since the cost of money disbursals will rise. People who previously used to donate to one non-profit organization and then sub-granted to another ten non-profits will now have to distribute funds to each of these organizations separately. This also reminds us that foreign influence and financial misappropriation may potentially rise. The FCRA revisions, according to the government, would prevent certain persons from misusing foreign cash and are essential for an “Atmanirbhar Bharat” . In practice, however, the new statute works against attempts to decrease foreign involvement in India’s internal affairs. Many similar arguments have been raised in opposition to the revisions proposed in 2020. This subject is now a heated topic of debate, with several cases being filed before courts.

In this article, we’ll look at what “foreign contribution” truly means, how the need for foreign contribution regulation developed, and how FCRA came into existence. Furthermore, we will examine the FCRA Act of 2010, as well as the 2020 version of the same, before going on to evaluate FCRA’s problems and controversies, as well as its legality.

What Does Foreign Contribution Mean?

Foreign contribution refers to donation or transfer of any article by any foreign source, which may be of any article, if the market value of such article on the date of such gift is not more than such sum as may be specified by the Central Government from time to time by the rules made by it in this behalf. An individual, a Hindu undivided family, an organization, or a corporation registered under Section 25 of the Companies Act, 1956 are all considered “persons” under the FCRA, 2010.Under the Foreign Contribution Regulations Act of 2010, any gift or transfer received from a foreign source is considered a foreign contribution. Even in rupee terms, such transactions are considered foreign contributions. It’s also worth remembering that any “person” may accept foreign donations if it meets certain requirements, including having a specific cultural, educational, or social programme, obtaining FCRA registration from the Central Government, and not being forbidden under Section 3 of the FCRA, 2010.

Need for Regulation and Genisis of FCRA

When foreign-funded NGOs started to proliferate in India shortly after independence, the necessity to control foreign donations became apparent. The country was on the verge of taking off, and it was determined to change its fate and economy. Supporters of a regulatory system said that there was a period when geographical dominance and areas of influence of imperialist powers were the norms, and that today money is the best medium of interceding in the country’s internal affairs. They backed up their argument by stating that neo-colonialism is now a well-known and widely recognised truth that it is a smart replacement for the previous sort of crude colonialism. According to them, this is generally accompanied by large foreign gifts in different forms, as well as foreign hospitality.

The FCRA ensures that NGOs and their programmes are held accountable and transparent in their financial dealings. This legislation aims to harmonize several schemes under which non-governmental organizations (NGOs) strive to safeguard human rights, health, and basic rights, based on task orientation and driven by individuals who have a similar public interest. As a result, the necessity for a regulatory framework for the same became apparent, resulting in the creation of the FCRA.

Foreign Contribution (Regulation) Act, 2010

FCRA is a consolidated act with the goal and aim of regulating the acceptance and use of foreign contributions or foreign hospitality by certain individuals and associations, as well as to prevent the usage of foreign contributions or foreign hospitality for any activities detrimental to the national interest, as well as for matters related to or incidental to such activities. Its purpose is to make up for flaws in the 1976 predecessor legislation. On September 26, 2010, President Obama signed the measure into law. The FCRA was first created in 1976 to ensure that political organizations and other significant groups in national life operate in a way that is compatible with democratic norms, and it did so by prohibiting political parties from accepting foreign donations. The 1976 FCRA was superseded in 2010 by the 2010 FCRA. However, several exceptions were provided by a series of revisions to the FCRA 2010 enacted via the Finance Acts of 2016 and 2018, making it easier for political parties to receive foreign contributions.

The legislation restricts access to foreign money for individuals, organizations, and businesses, as well as forbids the use of foreign funds for actions that are harmful to the national interest. Non-governmental organizations must apply for an FCRA certificate from the Indian Ministry of Home Affairs (MHA) to receive foreign funding, and once granted, they must adhere to onerous procedural requirements regarding reporting, disclosure, fund transfers, and use of funds, among other things. FCRA Rules 2011 have been issued under Section 48 of the FCRA 2010, which gives guidelines for the Act’s implementation. Later, Amit Shah, the Minister of Home Affairs, proposed the Foreign Contribution (Regulation) Amendment Bill, 2020, which amended the previous Act in numerous ways.

Foreign Contribution (Regulation) Amendment Bill, 2020

On September 20, 2020, the Foreign Contribution (Regulation) Amendment Bill, 2020 was tabled in the Lok Sabha. The bill modifies the Foreign Contribution (Regulation) Act of 2010, which governs the receipt and use of foreign donations by people, organizations, and businesses.

The original act was significantly altered as a result of it. The following are some of them:

1. The Act made receiving foreign contributions unlawful for certain persons. Election candidates, judges, members of any legislature, and political parties are among them. The Bill broadened this list to include government personnel. A public servant is someone who works for the government, is paid by the government, or is compensated by the government for fulfilling a public function.
2. Foreign donations may only be transferred to another person if that person is already registered to accept foreign contributions or has previously obtained authorization to collect foreign contributions under the Act. This was modified by the law, which made it illegal to send foreign contributions to anybody else. Under the Act, “persons” include individuals, organisations, and registered businesses.
3. Under the Act, a person may accept foreign contributions if they have obtained a certificate of registration from the central government, or if they have not registered but have gotprior government clearance to do so. Anyone who wants to be registered or gets prior permission to collect foreign contributions must fill out an application and submit it to the central government in the proper manner. According to the law, anybody asking prior permissions, registrations, or renewal of registrations must provide evidence of identification in the form of the Aadhaar numbers of all of its office bearers, directors, or key functionaries.
4. The Act mandates that a registered individual accept foreign contributions solely at a single branch of a designated bank. They may, however, open other bank accounts to take advantage of the contribution. According to the Bill, foreign donations will only be accepted in an account designated by the bank as an “FCRA account” at a branch of the State Bank of India in New Delhi that has been approved by the central government. Additional than the overseas gift, no other funds should be received or deposited in this account.
5. According to the Act, anyone who has been given a certificate of registration must renew it within six months of its expiration date. Before renewing the certificate, the government may investigate to ensure that the applicant is not fictitious, has not been prosecuted or convicted for engaging in religious conversion activities, and has not been convicted of diversion or misapplication of funds, among other things.
6. An individual who receives a contribution from a foreign is obliged under the Act to utilize it specifically for the purpose under which it was given. They are also prohibited from spending more than half of their contribution on administrative costs. This percentage was cut to 20% by the act.
7. A provision in the Bill allows the centre to enable an individual to relinquish their certificate of registration. The government may do so if an examination finds that the individual has not infringed any of the Act’s requirements and that the administration of the foreign donation has been assigned to a government-designated body.
8. The government may revoke a person’s registration for up to 180 days under the Act. A suspension might be prolonged for up to another 180 days, according to the amendment.

Concerns and Controversies related to FCRA

As previously stated, the FCRA was adopted in 1976 to provide a framework to control the receipt and use of foreign donations or hospitality in India. This was done to ensure that individuals, media, judiciary, government servants among others, would not be eligible to receive such contributions, and to regulate how they were received and used for others. The lengthy title was one of the key changes when the 1976 statute was replaced by the current act of 2010. While the 1976 Act said that it was a statute to regulate in accordance with the “values of a sovereign democratic republic,” the current act of 2010 indicates that it is an act to consolidate any actions that are damaging to the “National Interest.” As a result, a national interest took precedence, and some persons, organizations, or businesses were barred from taking foreign donations. Persons, individuals, organizations, corporations, and firms are forbidden from receiving foreign donations under Section 3 of the Act, with exceptions allowed for in Section 4. The central government has the authority under Section 5 to notify an organization of a “political character.” As a result, such an organization is placed in the forbidden category. Section 7 makes it illegal for a registered person to transmit foreign donations to an unregistered person.

As a result, as the economy began to open up and the globe became one global village, the licensing raj was relaxed, control over gold, imports, and foreign currency was removed, and the Executive chose to tighten the procedure of accepting foreign contributions. Even if done with the best of intentions to protect the country’s interests, the causes or elements that lead to this excessive control in the age of globalization and liberalization are not obvious even from the aims and reasons. The powers that be made the legislation more regressive by establishing prohibition and national interest guiding principles to regulate the regime of receiving foreign donations in India just because some flaws were discovered. Furthermore, the government gained greater control over the manner foreign donations were accepted by NGOs, organizations, associations, and other entities as a result of the revisions made by the Amendment Act of 2020. However, since the new Act was enacted, some unscrupulous individuals have continued to abuse it, and methods and means have been devised to get around the rules and processes. In the previous decade, several associations and non-governmental organizations (NGOs) have had their registrations cancelled for violating different sections of the FCRA, 2010 and the Rules established thereunder. When pressed for an explanation, the authorities cited many studies to support their decision. According to the government, several NGOs that receive foreign financing are seen by India’s central government as engaged in the anti-development activity, and hence have a detrimental influence on economic progress. ‘Impact of NGOs on Development,’ according to a study by the Intelligence Bureau “NGOs and their foreign funders are also preparing to target many new economic development projects, according to assertions made by NGOs and their international donors, which are often quoted.

Excessive control of foreign donations may have an impact on the operation of non-governmental organizations (NGOs) that assist in the implementation of government programmes at the ground level. They fill in the gaps left by the government’s failure to fulfil its duty. NGOs play a key role whenever there are floods or other critical crises, such as the current COVID-19 incident. In such instances, all local organizations collaborate with non-governmental organizations (NGOs). Even in recent cases, local organizations collaborated with civic organizations to assist migrant workers and cope with the pandemic-related crisis. Regulating the sharing of resources across national borders, which is critical to the operation of a global society, is unfortunate. It’s also preventing organizations around the nation from doing everything they can to support great causes on an individual level.

Analyzing the Constitutionality of FCRA

The Foreign Contribution Regulation Act controls how NGOs in India get contributions from outside the country. Accepting foreign contributions “for any conduct that are damaging to the national interest” is prohibited. The government also can deny clearance if it believes the donation to the NGO would damage the public interest or the state’s economic interests. According to the FCRA 2020, foreign contributions may now only be received in an account designated by the bank as an “FCRA account” at a State Bank of India branch in New Delhi that will be authorized by the central government. Other than foreign contributions, this account should not receive or deposit any funds. Volunteer organizations have called this provision hugely disruptive, since many of them would be unable to maintain these accounts. The new Act also restricts the use of foreign money by NGOs to pay administrative costs to 20%, down from 50% before. According to non-profits, this would ultimately lead to the death of the whole sector, since administrative budget caps will prevent even the biggest NGOs from operating. Notwithstanding the apex court’s ruling that Aadhaar be made a mandated by law identification document for all office-bearers and other important functionaries of NGOs or affiliations eligible to receive foreign donations, opposition leaders have raised reservations about the stipulation that Aadhaar be made a required by law identification document for all key functionaries of NGOs or associations eligible to receive foreign donations.

The limitations under the FCRA have important ramifications for the Constitution’s free speech and association rights in Articles 19(1)(a) and 19(1)(c). The right to free speech is hurt in two ways: To begin with, pro-government biases may be produced by allowing only some political organizations to receive foreign money while banning others. Second, NGOs must use caution while criticizing the government, since excessive criticism might jeopardize their survival. FCRA guidelines may stifle critical voices by finding them to be against the public interest. As a consequence of the chilling effect on free speech, self-censorship may emerge. The Supreme Court determined that the Act might be used to limit freedom of speech. Furthermore, since the right to freedom of association (Article 20) is included in the UDHR, a violation of this right is likewise a violation of human rights. Limits imposed under the FCRA in the name of “public interest” and “economic interest” were found to be in violation of the “legitimate restrictions” test, according to the court. The language was too unclear, providing the state far too much freedom in how it implemented the provision. While controlling corrupt NGOs is critical in this context, terms like “public interest” must be defined explicitly.

Conclusion

FCRA is needed to regulate foreign donations and foreign hospitality, as well as to protect India’s sovereignty, integrity and public interest. When it comes to situations like Greenpeace, the Delhi High Court has already approved the organization’s Writ Petition by ordering the MHA to present a fully-proven explanation. Such a move necessitates legal action against government measures that are potentially biased against NGOs, as well as legislation controlling NGOs’ financial concerns. The FCRA has both advantages and disadvantages. On the positive side, we can see that the Act was formed for the advantage and improvement of those who receive foreign contributions and cash, notwithstanding a few limits and halts. This Act has simplified the process of growing and comprehending the foreign contribution system. Many people may benefit from outside assistance in this way, since contributions are paid when the right paperwork is submitted and registration is completed correctly. However, the modifications to the FCRA made it difficult for non-governmental organizations (NGOs) and other organizations that aim to improve society to get foreign funds. These limits, it has been asserted, would severely impede the running of non-governmental organizations (NGOs) that accept foreign donations, as well as small NGOs that will no longer be able to receive financial transfers from bigger organizations.

Non-profits have been able to fill financial deficits through 2020 by combining contributions from corporate social responsibility, Indian funders, and overseas donors. Many of these avenues for financing have been closed as a result of amendments to the FCRA Act. Non-profits have taken up the burden of nation-building since independence. When the government wants the sector to be strong and resilient, an ill-conceived legislation should not be a hindrance. It is critical to evaluate the FCRA Act to eliminate current ambiguities and avoid different negative repercussions as a result of their existence, which might stymie the regulation’s principal aim as well as the advancement of society and the country as a whole.

This article is authored by Arnav Laroia, student at National Law University, Jodhpur

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