TaxTMI 
TaxTMI 
2022 (4) TMI 471
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....reign Contribution (Regulation) Amendment Act, 2020 for short, "the 2020 Act" or "the Amendment Act", as the case may be, which has come into effect on 29.9.2020, in particular, Sections 7, 12(1A), 12A and 17(1), being manifestly arbitrary, unreasonable and impinging upon the fundamental rights guaranteed to the petitioners under Articles 14, 19 and 21 of the Constitution. 2. Re: Writ Petition (Civil) No. 566 of 2021 (a) Petitioner No. 1 in this petition along with Carol Faison founded a trust in the name of "The Care and Share Charitable Trust" in Vijayawada, India (bearing Registration No. 242/1997), in the year 1997. It is the case of the petitioners that the Trust is also registered with the Income Tax authorities and Ministry of Home Affairs, Government of India including under the Foreign Contribution (Regulation) Act, 1976 for short, "the 1976 Act" for receipt of foreign funds (FCRA No. 010260151 dated 8.12.1998 and renewed on 10.8.2016 under the 2010 Act). Petitioner No. 1 is serving as one of the trustees of the said Trust and petitioner No. 2 (Nigel Mills) is a social worker and one of the trustees of the stated Trust. The Trust is engaged in the social upliftment a....
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....al "FCRA account" will be barred from receiving foreign contribution. The petitioner-Trusts and similarly placed persons The expression "person" as defined in Section 2(1)(m) of the 2010 Act as amended, reads thus: "2. Definitions.-(1) In this Act, unless the context otherwise requires,- (a) to (l) xxx xxx xxx (m) "person" includes- (i) an individual; (ii) a Hindu undivided family; (iii) an association; (iv) a company registered under section 25 of the Companies Act, 1956 (1 of 1956);" (individuals/non-profit organisations) shall mandatorily have to shift to new regime and open FCRA account(s) in the specified branch on or before the designated date. There is no tangible justification forthcoming for introducing such a change in the dispensation. (c) The petitioners have referred to the Circular issued by the Reserve Bank of India (RBI) dated 6.2.2012 in exercise of its power under Section 36(1)(a) of the Banking Regulation Act, 1949, containing detailed guidelines for implementation of the provisions of the 2010 Act including the opening of FCRA accounts in all scheduled commercial banks (excluding Regional Rural Banks/RRBs) throughout India. Public noti....
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....ions 17(1) and 12(1A) on the ground that the same suffer from the vice of manifest unreasonableness, ambiguity, overbreadth and impose unreasonable restrictions. Section 17(1) is also discriminatory, as it mandates opening of "FCRA account" and receiving of foreign contribution only at one bank at New Delhi, i.e., New Delhi Main Branch for short, "NDMB" of the State Bank of India for short, "SBI", 11, Sansad Marg, New Delhi-110001 on specious ground of logistical issues for verification of accounts at different locations. Broadly on these assertions, the petitioners have prayed for the following reliefs: - "a. To hold and declare that the impugned Sections 7, 12A, 12(1A) and 17 as inserted in the FCRA, 2010 by the Foreign Contribution (Regulation) Amendment Act, 2020 are ultra vires Articles 14, 19 & 21 of the Constitution of India and the same be struck down as unconstitutional. b. A writ in the nature of certiorari and/or any other writ, order or direction of like nature setting aside and quashing the impugned public notice dated 13th October, 2020 issued by the Respondent No. 2 as illegal and unconstitutional. c. To direct the Respondents not to interf....
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....isions of the 2010 Act, however, have altered the compliance procedure including the registration of the Trusts receiving foreign contributions. That change, however, is manifestly arbitrary, irrational and unreasonable. The purpose of provisions such as Section 17 (unamended) and the relevant Rules framed under the Act served the cause of effective monitoring of foreign contribution received, in order to prevent misutilisation of such funds. However, the amended provision is excessive, irrational, arbitrary and falls foul of test of proportionality. It suffers from the vice of disproportionate restrictions and failure to provide fair procedure. To buttress the grounds of challenge, reliance is placed on K.C. Gajapati Narayan Deo & Ors. vs. State of Orissa AIR 1953 SC 375; Maneka Gandhi vs. Union of India & Anr. (1978) 1 SCC 248; Ajay Hasia & Ors. vs. Khalid Mujib Sehravardi & Ors. (1981) 1 SCC 722 (para 16); Indra Sawhney & Ors. vs. Union of India & Ors. 1992 Supp (3) SCC 217; T.M.A. Pai Foundation & Ors. vs. State of Karnataka & Ors. (2002) 8 SCC 481 (para 25); Natural Resources Allocation, In Re, Special Reference No.1 of 2012 (2012) 10 SCC 1 (para 107); Modern Dental College an....
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....ded 2010 Act. This petitioner is also relying upon the dictum in INSAF supra at Footnote No.22 (para 18); adverting to the objective of the 2010 Act. Reliance is also placed on the elucidation of this Court in In Re: Distribution of Essential Supplies and Services During Pandemic 2021 SCC OnLine SC 339 (Suo Moto Writ Petition (C) No.3 of 2021), for issuing a peremptory writ. Also, reliance is placed on the decision in Teesta Atul Setalvad vs. State of Gujarat (2018) 2 SCC 372, to urge that in the past instances have come to the fore regarding misappropriation of funds by NGOs. Lastly, reliance is placed on Rev. Stainislaus vs. State of Madhya Pradesh & Ors. (1977) 1 SCC 677. (b) The principal relief claimed in this petition, however, does not survive for consideration. For, the date of last extension granted by the competent authority has expired; and no further extension had been granted thereafter during the pendency of this writ petition. Nevertheless, we reproduce the reliefs claimed in this writ petition, which read thus: - "A. Issue a Peremptory Writ of Mandamus directing Respondent No. 1 not to grant any further extension to the NGOs from complying with the manda....
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....ce of foreign contribution and its utilisation. (c) Notably, in these petitions, no challenge is set forth in respect of amended provisions, as obtained prior to coming into force of the 2020 Act. The same were complied with by all concerned without any demur. (d) The purpose behind the amendment of 2020, is to make meaningful and effective regulatory arrangement and real-time reporting of utilisation of the foreign contribution for the activity for which it has been earmarked and permitted to be so used in terms of the registration certificate or prior permission of the competent authority. (e) The permission to receive foreign contribution is granted to persons for a definite cultural, economic, educational or social programme meant for the benefit of the society, as mandated in Sections 11 and 12 of the 2010 Act. The dispensation envisaged in the Act is to seek registration or prior permission of the competent authority to receive and utilise foreign contribution. The person having obtained such certificate of registration or prior permission, cannot complain about the regulatory provisions regarding utilisation thereof for the prescribed activities. For, the legislativ....
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....rity of the country, the Parliament opted the strict dispensation of restricted utilisation of foreign contribution by the recipient NGOs itself for the permitted activities. 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 utilisation thereof. (h) The successive multiple chain of transfers not only create a layered trail of money, but also lead to substantive portion of foreign contribution being utilised as administrative expenditure by the concerned entity by claiming it as its own allowance for administrative expenditure to the extent of 50 per cent of the receipt. The aggregate of such administrative expenditure, if reckoned with the aggregate quantum of inflow of funds by the original recipient, would, in a given situation, far exceed the statutory bar of 50 per cent of total contribution received by the NGO from abroad. Further, the wisdom of the Parliament was also in favour of reducing the permissibility of administrative expenditure by limiting it to 20 per cent, so that max....
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....ion through designated channel which is to ensure effective implementation of proper regulatory and controlled measures. Sufficient time was given to the FCRA account holder to comply with the formalities as per the new dispensation. (l) Initially, a public notice was issued on 13.10.2020 providing for procedure and operation of the designated FCRA account, giving time till 31.3.2021, which came to be extended from time to time until December, 2021. It is stated that the respondent No. 1 also informed all the FCRA registered associations/organisations through SMS and e-mail on their registered mobile number and e-mail address about the public notice dated 13.10.2020. The competent authority also amended the Foreign Contribution (Regulation) Rules, 2011 for short, "the 2011 Rules". It is urged that some individual hardship may be caused to the registered associations on account of the change, but that cannot be the basis to declare the law made by the Parliament, vide the 2020 Act, invalid. Reliance is placed on M/s. Laxmi Khandsari & Ors. vs. State of U.P. & Ors. (1981) 2 SCC 600 and All India Council for Technical Education vs. Surinder Kumar Dhawan & Ors. (2009) 11 SCC 726, wh....
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....1976 Act. Certain changes were brought about to that Act in the year 1985, making it more effective. The 2010 Act had been the outcome of a bill drafted in 2006. The Statement of Objects and Reasons, as mentioned in the said Bill titled as "Foreign Contribution (Regulation) Bill, 2006" recognised that significant developments had taken place since 1984, such as change in internal security scenario, an increased influence of voluntary organisations, spread of use of communication and information technology, quantum jump in the amount of foreign contribution being received and large-scale growth in the number of registered organisations, necessitating comprehensive legislative approach. The Bill was referred to the Department-related Parliamentary Standing Committee on Home Affairs. Eventually, the 2010 Act was perceived. This legislative history has been taken note of in the case of INSAF supra at Footnote No.22. The amendments effected in the year 2020 had become necessary to ensure that the object of the Act is achieved efficiently. (o) It is urged that the 2010 Act cannot be equated with any other general legislation. The object behind this Act is to insulate the democratic po....
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....by the Courts which exercise the power of judicial review. It is further held in this decision that it is not for the Judges to seek to develop new all-embracing principles of law in a way that reflects the stance and opinion of the individual judges when the society/legislature as a whole are unclear and substantially divided on the relevant issues. (q) Reliance is also placed on Rustom Cavasjee Cooper vs. Union of India (1970) 1 SCC 248 (para 63, 70) , restating the above principle and observing that the Court will not sit in appeal over the policy of Parliament in enacting a law. Reliance is also placed on R.K. Garg vs. Union of India & Ors. (1981) 4 SCC 675 (para 8) , wherein it has been observed that the Courts have only the power of destroying and not to reconstruct. Further, in respect of economic regulation being replete with complexity, self-limitation needs to be exercised by the Courts, thereby following the path of judicial wisdom. Reliance is also placed on Peerless General Finance and Investment Co. Limited & Anr. vs. Reserve Bank of India (1992) 2 SCC 343 (para 31); Premium Granites & Anr. vs. State of T.N. & Ors. (1994) 2 SCC 691 (para 54); Delhi Science Forum & ....
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....7-29, 61-65); The State of Bombay & Anr. vs. F.N. Balsara AIR 1951 SC 318 (paras 37-42, 47, 62); Kathi Raning Rawat vs. State of Saurashtra AIR 1952 SC 123 (paras 7, 19, 32-36, 45-48); Gurbachan Singh vs. State of Bombay & Anr. AIR 1952 SC 221 (paras 3-6, 8); The State of Punjab vs. Ajaib Singh & Anr. AIR 1953 SC 10 (para 22); Habeeb Mohamed vs. The State of Hyderabad AIR 1953 SC 287 (paras 4-6); Kedar Nath Bajoria vs. The State of West Bengal AIR 1953 SC 404 (paras 6-16); Baburao Shantaram More vs. Bombay Housing Board & Anr. AIR 1954 SC 153 (para 6); Harman Singh & Ors. vs. Regional Transport Authority, Calcutta Region & Ors. AIR 1954 SC 190 (para 7); Sakhawant Ali vs. State of Orissa AIR 1955 SC 166 (paras 9-10); Budhan Choudhry & Ors. vs. State of Bihar AIR 1955 SC 191 (paras 5, 7, 9); D.P. Joshi vs. State of Madhya Bharat & Anr. AIR 1955 SC 334 (paras 14-16); Hans Muller of Nurenburg vs. Superintendent, Presidency Jail, Calcutta & Ors. AIR 1955 SC 367 (paras 14, 24-25); Kishan Singh & Ors. vs. State of Rajasthan & Ors. AIR 1955 SC 795 (paras 3-5); P. Balakotaiah vs. Union of India & Ors. AIR 1958 SC 232 (para 13(IIa), 14-16); Shri Ram Krishna Dalmia vs. Shri Justice S.R. Tendo....
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.... also because Section 17(1) of the 2010 Act would permit the registered NGOs to open and operate another FCRA account in any scheduled bank/branch of their choice in the country. Accordingly, it is urged that the argument regarding amended provisions being violative of Article 14, is devoid of merits. (t) While countering the challenge on the ground of Article 19(1)(c) and 19(1)(g), it is stated that there exists no right to seek a foreign contribution without regulation. Further, the 2010 Act does not prohibit the foreign contributions or the right to form the associations itself or the right to practice any profession. Rather, it merely seeks to provide efficacious regulatory regime regarding foreign contributions to be received by such associations. The rights under Article 19(1)(c) and 19(1)(g), therefore, remain unaffected. It is urged that right to form an association and right to freedom of trade and profession do not include right to receive unbridled and unregulated foreign contributions and more so its utilisation for activities other than permissible activities. In other words, the law in question is squarely covered by the exceptions provided for within the meaning o....
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....nty and integrity of the country, public order and interests of general public. That objective being consistent part of the legislative policy of the country for the past five decades, is beyond judicial review. As the impugned amendments have a direct and proximate relationship with the stated object of the Principal Act, they are fully protected within the meaning of Article 19(4) and 19(6). (x) It is further contended that right to life and liberty within the meaning of 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. The amended provisions, by no stretch of imagination, prohibit the inflow of foreign contributions or the right to form associations itself or the right to practice any profession. The same merely provide for tight regulatory mechanism to ensure that the foreign contribution received from foreign source is utilised only for the purpose by the recipient itself for which it has been so permitted, and that restriction is only to secure the sovereignty and integrity of the nation and public order. In any c....
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....eign contribution from foreign donors and also utilise the same by opening accounts in different scheduled banks/branches of their choice in the country, by no stretch of imagination, can be said to impinge upon the fundamental rights of the registered associations or persons having prior permission of the competent authority. (z) As regards the grievance of the writ petitioners being forced to open and operate account in the designated bank and branch i.e., SBI, NDMB, it is stated in the reply affidavit that for outstation FCRA organisations located in remote areas and for operational ease of any FCRA organisation, MHA and SBI have put in place a system to enable the associations/FCRA organisations/NGOs to open main bank account in SBI, NDMB without any need to physically come to Delhi. It certainly dispels and redresses the principal grievance of the writ petitioners about they being forced to visit Delhi to open account in the designated branch coupled with the enabling provision allowing the registered associations to utilise and transact from any scheduled bank/branch of their choice in the country. The fundamental basis of assail to the amended provisions, therefore, falls....
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.... urged that the amended provisions are intended to further the object of the Principal Act and are regulatory in nature concerning the receipt and utilisation of foreign contribution or foreign hospitality by certain individuals or associations or companies and incidental matters; and are consistent with the underlying principles expounded in the Principal Act. (cc) After having said as above, the affidavit goes on to highlight that none of the amended provisions even remotely permit or attempt to oversee the banking functions. The amended provisions of the Act, as well as, the Regulations, are intended to only bring out clarity on crucial role assigned to the banks in respect of the implementation of the Principal Act of 2010. Similarly, the stated circular is only an administrative guidance for better implementation of the provisions of the 2010 Act. (dd) The respondents have, thus, prayed for dismissal of the writ petitions W.P. (C) No.566 of 2021 and W.P. (C) No.751 of 2021 filed by the registered associations, consequently leaving nothing for consideration in the writ petition filed by Vinay Vinayak Joshi W.P. (C) No.634 of 2021. 6. Counter affidavit filed by responde....
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....g internet banking activity anywhere and anytime, aided with the power and convenience of the internet. The entities can avail CINB and may customize their authority matrix for making any financial transactions. It is also open to the entities to open and operate FCRA account (utilization account) at one or more branches of scheduled banks of their choice. Alternatively, they are free to use their previous accounts as utilization accounts, to which funds can be transferred from the designated FCRA account at SBI, NDMB. (d) It is also asserted that the entities are not required to maintain minimum balance in FCRA accounts. Further, they are free to operate their account without physically approaching SBI Branch on regular basis as in the case of any other normal account holder, if they intend to access internet banking facility. It is denied that the registered associations/concerned entities are required to appoint a designated person in New Delhi and make frequent trips for offline KYC verification as alleged. Instead, they can approach the nearest SBI Branch and get the offline verification of document done at the said Branch itself. In other words, the argument of inconvenien....
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....davit filed by the writ petitioners (a) The writ petitioners have filed rejoinder affidavit whereby assertions made in the writ petitions are reiterated. The emphasis is essentially in respect of grounds to assail the validity of the amended provisions of the 2010 Act, in particular Sections 7, 12(1A), 12A and 17(1). The rejoinder affidavit also points out the reason for rejection of application for registration and opening of bank account. Those matters, however, cannot be the basis to test the validity of the provisions. Hence, it is not necessary to elaborate the same. They are more in the nature of inconvenience caused in respect of process of registration and of operating the FCRA accounts. 8. Submissions of the writ petitioners in Writ Petition (C) Nos.566 and 751 of 2021 (a) The registered associations/writ petitioners would urge that the argument of legislative policy being inviolable cannot be countenanced. For, this Court in A.K. Gopalan vs. State of Madras AIR 1950 SC 27, noted that the Court is obliged to consider the effect of the law on the citizens and whether the same impacts the fundamental rights guaranteed under Part III of the Constitution. (b) It is....
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....ed to receive the same for utilisation for specified purposes. The ordinary meaning of expression "utilisation" would include transfer of foreign contribution to another entity; and, thus, there is apparent conflict between Section 7 and Section 8 of the Act. As a result, amended Section 7 is not only absurd, but defeat the very object of the Principal Act, which allows regulated use of foreign contribution. In absence of any definition of expressions "transfer" and "utilisation", use of foreign contribution by the entity would be risking violation of the provisions of the Act. (d) It is urged that Section 7 is overbroad and vague. There is ambiguity as to what constitutes various social or educational or cultural or economic or religious purpose under Section 11(1) of the Act and at the same time, Section 35 of the Act invites punishment for contravention of any provision of the Act. For that reason, Section 7 suffers from the vice of manifest arbitrariness and hit by Article 14 of the Constitution. To buttress this argument, reliance is placed on the enunciation of this Court in Shreya Singhal vs. Union of India (2015) 5 SCC 1. Further, the amended Section 7 would not permit c....
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....y receiving foreign contribution. Such a requirement is absurd, irrational and serves no legitimate purpose under the 2010 Act or any other law. It is urged that the challenge is not to the amended sub-Section (2) of Section 17 requiring reporting to the authority. That being a Bank's obligation can be taken forward by the Bank. No tangible logic is forthcoming to justify the need for Section 12(1A) read with Section 17(1), as to how national interest would be jeopardised by not adhering to that regime especially when all the scheduled banks are regulated by the Reserve Bank of India, including other Government owned public sector banks or even local branches of SBI. Each one of them is obliged to report all such transactions within 48 hours to the MHA. Such a provision, therefore, is simply absurd and irrational. (g) It is argued that the impact of amended provisions is to denude the registered associations to have physical access to their primary account at Delhi along with a host of other restrictions. It is further urged that the amended provision does not stand the test of legitimate goal for which such dispensation is necessary nor spells out the causal connection for comp....
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.... There is no legitimate goal set forth for inserting Section 12A in the Principal Act. It is urged that even this provision has no nexus with the object sought to be achieved under the Principal Act and suffers from the vice of violation of Article 19 of the Constitution. 9. We have heard Mr. Gopal Sankaranarayanan, learned senior counsel and Mr. Gautam Jha, learned counsel for the petitioners and Mr. Tushar Mehta, learned Solicitor General and Mr. Sanjay Jain, learned Additional Solicitor General for the respondents. Legislative History 10. In the first place, we must advert to the legislative history culminating with the 2010 Act, as amended in 2020. A Bill was introduced in the Rajya Sabha in the year 1973 titled as "the Foreign Contribution (Regulation) Bill, 1973". The Statement of Objects and Reasons appended to the said Bill read thus: - "STATEMENT OF OBJECTS AND REASONS There has been widespread concern about the unregulated receipt of funds from foreign agencies by individuals and organisations in the country. The Bill seeks to regulate the acceptance and utilisation of foreign contribution or hospitality with a view to ensuring that our parliame....
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....n democracy was bound to feel concerned about the same. The experience of other countries was also discussed by the members. The members mentioned about the inflow of foreign contribution from many countries and noted that some times it was being received directly and some times indirectly, through other countries. It was coming in many forms including receipt by religious organisations. It was agreed that the foreign contribution can be permitted in regulated manner without completely prohibiting the inflow thereof. Eventually, to address the mischief of growing foreign influence owing to influx of foreign donations in our country, the Bill was passed which took the form of the Act i.e., the Foreign Contribution (Regulation) Act, 1976. This Act came into force on 5.8.1976 Vide notification No. GSR 755(E), dated 5.8.1976 published in the Gazette of India, Extraordinary, Part-II, section 3(i) as a shield in our legislative armoury. The preamble of the 1976 Act reads as under: "An Act to regulate the acceptance and utilization of foreign contribution or foreign hospitality by certain persons or associations, with a view to ensuring that parliamentary institutions, political ....
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....to send intimation regarding such receipt to the Central Government within such time and such manner to be prescribed by the rules made under the Act. It had been observed that a number of associations had not sent such intimation. In order to effectively monitor the receipt of foreign contribution, this sub-section was amended to provide that associations referred to therein shall accept foreign contribution only after they are registered with the Central Government specifically for the purpose and accept such contributions only through a specified branch of a bank. They would, however, be required to give, within such time and in such manner as may be prescribed, intimation to the Central Government as to the amount of foreign contribution received by them, the source from which and the manner in which such foreign contribution was received by them, etc. Where any registered association does not accept foreign contribution through the specified branch of a specified bank or does not submit intimations, etc., in time, the Central Government has been empowered to direct that such association shall not accept foreign contribution without the prior permission of the Central Governmen....
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.... institutions, political associations, academic and other voluntary organisations as well as individuals working in important areas of national life may function in a manner consistent with the values of a sovereign democratic republic. The Act was amended in 1984 to extend the provisions of the Act to cover second and subsequent recipients of foreign contribution and to the members of higher judiciary, besides introducing the system of grant of registration to the associations receiving foreign contribution. 2. Significant developments have taken place since 1984 such as change in internal security scenario, an increased influence of voluntary organisations, spread of use of communication and information technology, quantum jump in the amount of foreign contribution being received, and large scale growth in the number of registered organisations. This has necessitated large scale changes in the existing Act. Therefore, it has been thought appropriate to replace the present Act by a new legislation to regulate the acceptance, utilisation and accounting of foreign contribution and acceptance of foreign hospitality by a person or an association. 3. The Foreign Contr....
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....ates for elections, correspondents, columnists, editors, owners, printers or publishers of newspapers. They were also extending hospitality. The effects of such funding and hospitality were quite noticeable and to have some control over such funding and hospitality and to regulate the acceptance and utilisation of foreign contribution or foreign hospitality by certain persons or associations, with a view to ensuring that Parliamentary institutions, political associations and academic and other voluntary organisations as well as individuals working in the important areas of national life may function in a manner consistent with the values of a sovereign democratic republic the Foreign Contribution (Regulation) Act, 1976 (49 of 1976) was enacted. Since its enactment in 1976 several deficiencies had been found and it was proposed to enact a fresh law on the subject by repealing the Act 49 of 1976. Accordingly the Foreign Contribution (Regulation) Bill was introduced in the Parliament." (emphasis supplied) It will be useful to advert to the preamble of the 2010 Act. The same reads thus: - "An Act to consolidate the law to regulate the acceptance and utilisation of ....
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....Sections 7, 12(1A), 17 and insertion of Section 12A in the Act. The unamended Sections 7, 12 and 17 read thus: - "7. Prohibition to transfer foreign contribution to other person.- No person who - (a) is registered and granted a certificate or has obtained prior permission under this Act; and (b) receives any foreign contribution, shall transfer such foreign contribution to any other person unless such other person is also registered and had been granted the certificate or obtained the prior permission under this Act: Provided that such person may transfer, with the prior approval of the Central Government, a part of such foreign contribution to any other person who has not been granted a certificate or obtained permission under this Act in accordance with the rules made by the Central Government. *** 12. Grant of certificate of registration.- (1) An application by a person, referred to in section 11 for grant of certificate or giving prior permission, shall be made to the Central Government in such form and manner and along with such fee, as may be prescribed. (2) On receipt of an application under sub-section (1), the ....
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....eign contribution is proposed to be utilised; (c) the person making an application for giving prior permission under sub-section (1) has prepared a reasonable project for the benefit of the society for which the foreign contribution is proposed to be utilised; (d) in case the person being an individual, such individual has neither been convicted under any law for the time being in force nor any prosecution for any offence pending against him; (e) in case the person being other than an individual, any of its directors or office bearers has neither been convicted under any law for the time being in force nor any prosecution for any offence is pending against him; (f) the acceptance of foreign contribution by the person referred to in sub-section (1) is not likely to affect prejudicially- (i) the sovereignty and integrity of India; or (ii) the security, strategic, scientific or economic interest of the State; or (iii) the public interest; or (iv) freedom or fairness of election to any Legislature; or (v) friendly relation with any foreign State; or (vi) harmony between religious, racial, social, ....
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....ance and utilisation of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilisation of foreign contribution or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto. 2. The said Act has come into force on the 1st day of May, 2011 and has been amended twice. The first amendment was made by section 236 of the Finance Act, 2016 and the second amendment was made by section 220 of the Finance Act, 2018. 3. The annual inflow of foreign contribution has almost doubled between the years 2010 and 2019, but many recipients of foreign contribution have not utilised the same for the purpose for which they were registered or granted prior permission under the said Act. Many of them were also found wanting in ensuring basic statutory compliances such as submission of annual returns and maintenance of proper accounts. This has led to a situation where the Central Government had to cancel certificates of registration of more than 19,000 recipient organisations, including non-Governmental organisations, during the period bet....
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....o the 2020 Act, the relevant provisions including the newly inserted clauses read thus: - "7. Prohibition to transfer foreign contribution to other person.- No person who - (a) is registered and granted a certificate or has obtained prior permission under this Act; and (b) receives any foreign contribution, shall transfer such foreign contribution to any other person. *** 12. Grant of certificate of registration.- (1) An application by a person, referred to in section 11 for grant of certificate or giving prior permission, shall be made to the Central Government in such form and manner and along with such fee, as may be prescribed. (1A) Every person who makes an application under sub-section (1) shall be required to open "FCRA Account" in the manner specified in section 17 and mention details of such account in his application. (2) On receipt of an application under sub-section (1), the Central Government shall, by an order, if the application is not in the prescribed form or does not contain any of the particulars specified in that form, reject the application. (3) If on receipt of an application for ....
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.... contribution is proposed to be utilised; (d) in case the person being an individual, such individual has neither been convicted under any law for the time being in force nor any prosecution for any offence pending against him; (e) in case the person being other than an individual, any of its directors or office bearers has neither been convicted under any law for the time being in force nor any prosecution for any offence is pending against him; (f) the acceptance of foreign contribution by the person referred to in sub-section (1) is not likely to affect prejudicially- (i) the sovereignty and integrity of India; or (ii) the security, strategic, scientific or economic interest of the State; or (iii) the public interest; or (iv) freedom or fairness of election to any Legislature; or (v) friendly relation with any foreign State; or (vi) harmony between religious, racial, social, linguistic, regional groups, castes or communities; (g) the acceptance of foreign contribution referred to in sub-section (1),- (i) shall not lead to incitement of an offence; (ii) shall not endanger t....
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....also open one or more accounts in one or more scheduled banks of his choice to which he may transfer for utilising any foreign contribution received by him in his "FCRA Account" in the specified branch of the State Bank of India at New Delhi or kept by him in another "FCRA Account" in a scheduled bank of his choice: Provided also that no funds other than foreign contribution shall be received or deposited in any such account. (2) The specified branch of the State Bank of India at New Delhi or the branch of the scheduled bank where the person referred to in sub-section (1) has opened his foreign contribution account or the authorised person in foreign exchange, shall report to such authority as may be specified,- (a) the prescribed amount of foreign remittance; (b) the source and manner in which the foreign remittance was received; and (c) other particulars, in such form and manner as may be prescribed." 21. It is well-established that rights guaranteed under Part III of the Constitution and Article 19 in particular, are not absolute rights. The same are subject to reasonable restrictions, as predicated in clauses (2) and (6) ....
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....not yielding the desired result. This impelled the Parliament to amend the 2010 Act (vide 2020 Act) to make it more stringent and effective to subserve the cause and intent of the Principal Act - not only in regard to the modality of acceptance of foreign contribution in the prescribed manner but also making it imperative for the recipient of foreign contribution to utilise the same "itself" for the designated or specified purposes for which it was so permitted. 24. 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 (utilised) 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. 25. To eradicate misuse and abuse of foreign contribution in the....
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.... meaningful and effective, so as to deal with the increasing impact of foreign contribution. 27. It is unnecessary to underscore the distinction between foreign contribution and foreign investment. By its very nature, foreign contribution is a donation accepted from a foreign source purportedly for definite cultural, economic, educational, religious or social programme and to serve the cause of humanity. The expression "foreign contribution" has been defined in Section 2(1)(h) of the 2010 Act to mean donation, which can be in the form of delivery or transfer made by any foreign source of any article, currency, security, etc. 28. It is open to a sovereign democratic nation to completely prohibit acceptance of foreign donation on the ground that it undermines the constitutional morality of the nation, as it is indicative of the nation being incapable of looking after its own affairs and needs of its citizens. The third world countries may welcome foreign donation, but it is open to a nation, which is committed and enduring to be self-reliant and variously capable of shouldering its own needs, to opt for a policy of complete prohibition of inflow/acceptance of foreign contributi....
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....lf and more so, for the purposes for which it was allowed to be received by that person, the amended provisions ought to pass the muster of reasonable restriction. Certainly, such a change cannot be labelled as irrational much less manifestly arbitrary, especially when it applies uniformly to a class of persons without any discrimination. We need to remind ourselves the dictum of this Court in Rustom Cavasjee Cooper supra at Footnote No.48 and also R.K. Garg supra at Footnote No.49 - that it is not for the Court to consider relative merits of the different political theories or economic policies including that an economic legislation may be troubled with crudities, inequities, uncertainties or the possibility of abuse cannot be the basis for striking it down. 31. It must follow that acceptance of foreign contribution is otherwise prohibited by law and violation of such restriction has been made an offence under Chapter VIII of the 2010 Act. Nothing prevents the organisations interested in doing charitable work in raising contribution within the country. In that sense, the 2010 Act deals with a class of persons accepting foreign contribution from foreign source. All such persons ....
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....reign source, to any person if he knows or has reasonable cause to believe that such other person intends, or is likely, to deliver such currency to any political party or any person referred to in sub-section (1), or both. (c) No citizen of India resident outside India shall deliver any currency, whether Indian or foreign, which has been accepted from any foreign source, to- (i) any political party or any person referred to in sub-section (1), or both; or (ii) any other person, if he knows or has reasonable cause to believe that such other person intends, or is likely, to deliver such currency to a political party or to any person referred to in sub-section (1), or both. (3) No person receiving any currency, whether Indian or foreign, from a foreign source on behalf of any person or class of persons, referred to in section 9, shall deliver such currency- (a) to any person other than a person for which it was received, or (b) to any other person, if he knows or has reasonable cause to believe that such other person intends, or is likely, to deliver such currency to a person other than the person for which such currency was received. deals with prohibition to accep....
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....permission under this Act and receives any foreign contribution,- (a) shall utilise such contribution for the purposes for which the contribution has been received: Provided that any foreign contribution or any income arising out of it shall not be used for speculative business: Provided further that the Central Government shall, by rules, specify the activities or business which shall be construed as speculative business for the purpose of this section; (b) shall not defray as far as possible such sum, not exceeding twenty per cent. of such contribution, received in a financial year, to meet administrative expenses: Provided that administrative expenses exceeding twenty per cent. of such contribution may be defrayed with prior approval of the Central Government. (2) The Central Government may prescribe the elements which shall be included in the administrative expenses and the manner in which the administrative expenses referred to in sub-section (1) shall be calculated. is about restriction to utilise foreign contribution for administrative purpose. Section 9 9. Power of Central Government to prohibit receipt of foreign contribution, etc., in certain cases....
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....ting, prohibit such person from paying, delivering, transferring or otherwise dealing with, in any manner whatsoever, such article or currency or security save in accordance with the written orders of the Central Government and a copy of such order shall be served upon the person so prohibited in the prescribed manner, and thereupon the provisions of sub-sections (2), (3), (4) and (5) of section 7 of the Unlawful Activities (Prevention) Act, 1967 (37 of 1967) shall, so far as may be, apply to, or in relation to, such article or currency or security and references in the said sub-sections to monies, securities or credits shall be construed as references to such article or currency or security. is about the power of the Central Government to prohibit payment of currency received in contravention of the Act. 34. The provisions of Chapter III deal with the subject of registration. Section 11 11. Registration of certain persons with Central Government.- (1) Save as otherwise provided in this Act, no person having a definite cultural, economic, educational, religious or social programme shall accept foreign contribution unless such person obtains a certificate of registration from the....
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....oreign contribution shall be accepted with the prior permission of the Central Government. is about registration of certain persons with Central Government. Section 12 is about grant of certificate of registration and the procedure therefor. Section 12A has been inserted vide the 2020 Act providing for power of Central Government to require Aadhaar number etc., as identification document at the time of registration or for renewal of certificate. Section 13 deals with situations where certificate of registration can be suspended and Section 14 14. Cancellation of certificate.-(1) The Central Government may, if it is satisfied after making such inquiry as it may deem fit, by an order, cancel the certificate if- (a) the holder of the certificate has made a statement in, or in relation to, the application for the grant of registration or renewal thereof, which is incorrect or false; or (b) the holder of the certificate has violated any of the terms and conditions of the certificate or renewal thereof; or (c) in the opinion of the Central Government, it is necessary in the public interest to cancel the certificate; or (d) the holder of certificate has violated any of the pro....
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....ts, etc. 36. As aforesaid, the 2010 Act is to regulate foreign contribution as defined in Section 2(1)(h). As the petitioners are desirous of engaging in definite cultural, economic, educational, religious or social programme and for doing so accept foreign contribution, they had to seek certificate of registration from the Central Government in terms Section 11. The certificate of registration refers to definite activities which will be undertaken by the concerned organisation/trust for utilisation of foreign contribution. Having shown interest in obtaining such certificate of registration or for renewal thereof, it is obligatory for the organisation to comply with the formalities, including as specified in Sections 7, 12(1A) read with Section 17 or Section 12A. We shall deal with this aspect in detail a little later. 37. Besides complying with the formalities for registration under Section 11, the persons interested in receipt/acceptance of foreign contribution from foreign source after grant of such certificate of registration, are obliged to do so only through the FCRA account which is required to be opened under Section 17 being a precondition for grant of certificate of....
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.... 41. The expressions "foreign contribution" 2. Definitions.-(1) In this Act, unless the context otherwise requires,- (a) to (g) xxx xxx xxx (h) "foreign contribution" means the donation, delivery or transfer made by any foreign source,- (i) of any article, not being an article given to a person as a gift for his personal use, if the market value, in India, of such article, on the date of such gift, is not more than such sum as may be specified from time-to-time, by the Central Government by the rules made by it in this behalf; (ii) of any currency, whether Indian or foreign; (iii) of any security as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and includes any foreign security as defined in clause (o) of section 2 of` the Foreign Exchange Management Act, 1999 (42 of 1999). Explanation 1.-A donation, delivery or transfer of any article, currency or foreign security referred to in this clause by any person who has received it from any foreign source, either directly or through one or more persons, shall also be deemed to be foreign contribution within the meaning of this clause. Explanation 2.-The interest acc....
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....at the time of a company being more than one-half of such value at the time of making the contribution, such company shall not be a foreign source; (vii) a trade union in any foreign country or territory, whether or not registered in such foreign country or territory; (viii) a foreign trust or a foreign foundation, by whatever name called, or such trust or foundation mainly financed by a foreign country or territory; (ix) a society, club or other association of individuals formed or registered outside India; (x) a citizen of a foreign country; have been defined in Sections 2(1)(h) and 2(1)(j) of the 2010 Act as amended. 42. Section 11 of the Act, as applicable vide the Amendment Act of 2020, is in one sense complete prohibition to receive foreign contribution unless have obtained certificate of registration or prior permission from the Central Government in that regard. Further, Section 11 allows receipt or acceptance of foreign contribution only for definite purposes such as cultural, economic, educational, religious or social programme. 43. A person desirous of receiving/accepting foreign contribution for such definite purposes had to seek a certificate of re....
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....amended, inter alia, is that the donor (foreign source) is made fully aware of the definite purposes already declared by the recipient and permitted by the competent authority and corresponding obligation upon the recipient regarding utilisation of the funds itself for stated purposes and none else. 47. Indeed, even the expression "utilisation" has not been defined in the Act. The ordinary meaning of expression "utilisation" must be understood in the context of the purpose for which a certificate of registration or prior permission under the Act has been granted by the Central Government. If the foreign contribution is utilised for such definite purposes 136 Illustrative list of activities permitted as mentioned in the Annual Report (2004-2005) prepared by Ministry of Home Affairs, Foreigners' Division, FCRA Wing read thus: "1. Religious * Celebrations of religious functions/festivals etc.; * Construction/repair/maintenance of places of worship, religious schools.; * Education of priests and preachers (dissemination of the message of good will etc. from the holy books).; * Publication and distribution of religious books/ literature.; * Maintenance of priests / preachers / ....
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....g awareness about Acquired Immune Deficiency Syndrome (AIDS)/treatment and rehabilitation of persons affected by AIDS.; * Welfare of the physically and mentally challenged.; * Welfare of the Schedules Castes.; * Welfare of the Scheduled Tribes.; * Welfare of the Backward Classes.; * Environmental programs.; * Survey for socio-economic and other welfare programs.; * Preservation and maintenance of wild life.; * Preservation of natural resources.; * Awareness against social evils.; * Rehabilitation of victims of heinous crimes.; * Rehabilitation of beggars, bootleggers, child labour etc.; * Creating awareness of Government schemes & laws to general public.; * Any other activities related to the above. 5. Cultural * Celebration of national events (Independence/Republic day/festivals).; * Theatre/films/puppet show/road show etc.; * Maintenance of places of historical and cultural importance.; * Preservation of ancient/tribal art forms.; * Preservation and promotion of cultural heritage or literature of India.; * Cultural shows.; * Any other activities related to the above." including administrative expenses permissible under Section 8, even though it may theoretically entail in t....
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.... the manner in which such foreign contribution was received, and the purposes for which, and the manner in which such foreign contribution was utilised by him. This information may facilitate inquiry mechanism and to reassure that the foreign contribution accepted by the person has been utilised for definite purposes permitted by the competent authority. Any breach of this stipulation may entail in penal action under the Act. 50. It was vehemently urged before us that since the transferee would also possess certificate of registration and bound by the provisions of the 2010 Act, it would serve no legitimate purpose by prohibiting transfer of foreign contribution to such person. Accepting this argument would be completely glossing over the legislative intent for which the amendment has been effected. The legislative intent is to introduce strict dispensation qua the recipient of foreign contribution to utilise the same "itself" for the purposes for which it has been permitted as per the certificate of registration or permission granted under the Act by the Central Government. In addition, by the same Amendment Act, utilisation of foreign contribution for administrative purpose by....
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.... foreign donation, much less an absolute right. 54. We say so because the theory of possibility of national polity being influenced by foreign contribution is globally recognised. For, foreign contribution can have material impact in the matter of socio-economic structure and polity of the country. The 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. Such being the expanse of the effect of foreign contribution coupled with the tenet of constitutional morality of the nation, the presence/inflow of foreign contribution in the country ought to be at the minimum level, if not completely eschewed. The influence may manifest in different ways, including in destabilising the social order within the country. The charitable associations may instead focus on donors within the country, to obviate influence of foreign country owing to foreign contribution. There is no dearth of donors within our country. 55. Pertinently, the 1976 Act came to be repealed by the 2010 Act, as it had become necessary to do so because of the experience gained that in the name of foreign contribution, atte....
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....upto prescribed administrative expenses. 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. As a matter of law, since the subject Act deals with a distinct class of persons (accepting/receiving foreign contribution) and it is founded on an intelligible differentia having object sought to be achieved by the Principal Act, it fulfils the test predicated in Shayara Bano supra at Footnote No.18. For the same reason, the amended provision under challenge is neither capricious, irrational or lacking determining principle, nor suffers from the vice of excessiveness and being disproportionate. 59. We need to bear in mind that there is presumption that the Parliament understands and reacts to the needs of its own people as per the exigencies and experience gained in the implementation of the law. Mere plea of inconvenience is not enough to attract the constitutional inhibition.....
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....bject sought to be achieved by the 2010 Act. To wit, to ensure that Parliamentary institutions, political associations and academic and other voluntary organisations as well as individuals working in the important areas of national life should function in a manner consistent with the values of a sovereign democratic republic without being influenced by foreign contributions or foreign hospitality. The Court went on to observe that long title of the Act makes it clear that the regulation of acceptance and utilisation of foreign contribution is for the purpose of protecting "national interests" and to prohibit organisations of a political nature from receiving foreign contributions. 62. That being the underlying purpose for which the Act has been enacted, whilst interpretating the amended provisions, we cannot be oblivious to the concern expressed by the Parliament, about the state of affairs and the fallout of the implementation of the dispensation enunciated under the unamended Act. As the Parliament took a well informed and conscious decision to alter that position - to make it a strict regulatory regime of not permitting the recipient of foreign contribution to transfer the fu....
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....tional, arbitrary, discriminatory, or unreasonable restriction as such. 65. The restriction or complete prohibition on transfer to third party, by no standards deprive acceptance of foreign contribution and utilisation thereof in the manner permitted for definite purposes, such as cultural, economic, educational or social programme. Such a provision must be understood as being procedure established by law in the interests of the general public and in the interests of sovereignty and integrity of the country, including public order. Resultantly, there is no infraction even of Article 19(1)(c) or 19(1)(g) of the Constitution as urged by the writ petitioners before us, including Articles 14 and 21 of the Constitution. Consistent with this view, we must reject the challenge to the amended Section 7 on all counts. 66. For the same reason, the argument of the writ petitioners about lack of rational nexus with the object sought to be achieved by the Principal Act much less the Amendment Act, must also fail. The rationale is of larger public interests and more particularly to obviate adverse impact on the economy, public order, sovereignty and integrity of the country. Such amendment....
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....n particular sub-Section (1) as amended, mandates that every person who had been granted certificate or prior permission under Section 12 shall receive foreign contribution only in an account designated as FCRA account in the specified bank. The unamended Sections 12 and 17 did not impose such restriction. Notably, as per the new regime foreign remittances are being received through SWIFT platform by international banking wherein certain mandatory fields are required to be captured apart from other details transaction wise. Further, foreign remittances do not have structured framework, including disclosures regarding purposes. All these deficiencies will stand resolved thereby enhancing the monitoring mechanism in real-time basis, remittance wise by adopting the new dispensation predicated in the amended provisions. 69. Once again, the need to strictly regulate the inflow of foreign funds and to oversee utilisation thereof for the purposes for which it has been received having been recognised and being the rationale behind the Amendment Act, including owing to the experience regarding abuse of the regime under the unamended provision, the challenge to such amendment cannot be ta....
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....pproach to ensure that the objective of the Principal Act is fulfilled, namely, of strict regulation of the inflow and utilisation of foreign contribution for the purposes for which it is so permitted, such as only cultural, economic, educational or social programme. 72. 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 Parliament is supreme and has a final say in matters of legislation when it reflects on alternatives and choices with inputs from different quarters, with a check in the form of democratic accountability and a further check by the Courts which exercise the power of judicial review Dr. Ashwani Kumar (supra at Footnote No.47). We find force in the argument that it had become necessary for the Parliament to step in and provide a stringent regime for effectively regulating the inflow and utilisation of foreign contribution. Hence, there had been legitimate goal for amending the subject provisions of acceptance of funds through one channel. Concededly, despite the requirement of opening FCRA account in the designated bank, it is open to the or....
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....scriminate receipt/inflow and more so utilisation of foreign contribution had been threatening the sovereignty and integrity of the country itself. Being a matter of security of the State, public order and in the interests of the general public, it is not open to question the validity of such a law on the touchstone of Article 19(1)(c) or 19(1)(g) of the Constitution. It is not a provision to completely prohibit forming of the associations or engaging in business of charity as such. It is a provision for regulating the manner of doing business more importantly, concerning foreign contribution. 76. Opening of main FCRA account in the designated bank, as has been rightly contended by the respondents, is only a one-time exercise and for which instructions and protocols have been issued by the competent authority, not to insist for physical presence for complying with the formalities. It can be organised even at the local branches of the designated bank in the manner specified in the instructions issued in that regard. Moreover, the provision does not prohibit the person/registered association from opening multiple accounts in other scheduled banks, wherein the amount received in (p....
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....onnel. To buttress this plea, reference is made to the observation made by the Reserve Bank of India - that voluminous data on Foreign Remittances will put an extra financial burden on the Bank and increase its costs including divert focus on monitoring of suspicious transactions. This argument does not commend to us at all. In digital banking operations, it is not the head count dispensing physical services that would matter, but the effectiveness of the software is important. We are also not impressed by the plea that for organisations located in remote parts of the country, there would be impediments and for that reason, Section 7 violates test of fairness and reasonableness. In any case, respondent No.3 (SBI) has on affidavit explained as to the extent of measures taken for ensuring efficient servicing of FCRA accounts of all the registered associations/account holders. Respondent No.3 has also assured that if need arises, suitable corrective measures including to upgrade the facilities/services would be taken at its end. Suffice it to observe that the argument under consideration cannot be the basis to doubt the constitutional validity of the provisions in the form of Section ....
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....dentification document, the Aadhaar number of all its office bearers or Directors or other key functionaries. The Statement of Objects and Reasons of the Amendment Act are testimony about the past experience of abuse of foreign contribution receipts and spending on activities not connected with the purposes for which it was so permitted. It had been noticed that the inflow of foreign contribution had almost doubled between the years 2010 and 2019 and many of the registered associations had failed to comply with basic statutory formalities necessitating cancellation of certificates of registration of more than 19,000 registered organisations. This is a staggering (substantial) number indicative of gross violations by large number of registered associations. More so, this amendment had been necessitated to safeguard the sovereignty and integrity of the country, and public order, including in the interests of the security of the State and of the general public. It is a law made by the Parliament which is competent to make such a law concerning the activities related to foreign donations and more particularly about its acceptance in prescribed manner and utilisation for the purposes de....