Supreme Court clarifies the definition of “political nature” for NGOs receiving foreign funds: Indian Social Action Forum vs. Union of India (2020)

Date of the Judgment: March 6, 2020
Citation: 2020 INSC 252
Judges: L. Nageswara Rao, J., Deepak Gupta, J.
Can an organization be restricted from receiving foreign funds if it engages in activities like protests for public causes? The Supreme Court of India addressed this crucial question in a case concerning the Foreign Contribution (Regulation) Act, 2010. The Court clarified the scope of what constitutes an organization of a “political nature,” which is restricted from receiving foreign contributions under the Act. This judgment interprets the provisions of the Foreign Contribution (Regulation) Act, 2010, and the Foreign Contribution (Regulation) Rules, 2011, specifically concerning the definition of organizations of political nature. The bench comprised Justices L. Nageswara Rao and Deepak Gupta.

Case Background

The Indian Social Action Forum (INSAF), the Appellant, filed a Writ Petition in the High Court of Delhi challenging the constitutional validity of certain provisions of the Foreign Contribution (Regulation) Act, 2010 (FCRA) and the Foreign Contribution (Regulation) Rules, 2011. INSAF, a registered society, is involved in resisting globalization, combating communalism, and defending democracy. They argued that Sections 5(1) and 5(4) of the FCRA, along with Rules 3(i), 3(v), and 3(vi) of the Rules, violate Articles 14, 19(1)(a), 19(1)(c), and 21 of the Constitution of India. INSAF contended that the power given to the Central Government to declare an organization as being of a political nature was arbitrary and without sufficient guidelines.

Timeline

Course of Proceedings

The High Court of Delhi dismissed the Writ Petition filed by the Appellant, holding that the challenged provisions were not vague or arbitrary. The High Court stated that sufficient guidance was provided by the Parliament in Section 5 of the Foreign Contribution (Regulation) Act, 2010. Aggrieved by the decision of the High Court, the Appellant filed an appeal before the Supreme Court of India.

Legal Framework

The core of this case revolves around the Foreign Contribution (Regulation) Act, 2010, and the Foreign Contribution (Regulation) Rules, 2011.

✓ Section 3(1)(f) of the Foreign Contribution (Regulation) Act, 2010 prohibits certain entities, including “an organisation of a political nature as may be specified under sub-section (1) of section 5 by the Central Government,” from accepting foreign contributions.

✓ Section 5(1) of the Foreign Contribution (Regulation) Act, 2010 empowers the Central Government to specify an organisation as an organisation of a political nature, not being a political party, based on its activities, ideology, or association with any political party. It also allows the Central Government to frame guidelines specifying the grounds for such specification.

✓ Section 5(2) of the Foreign Contribution (Regulation) Act, 2010 mandates that the Central Government issue a notice to the organization, informing it of the grounds on which the order under Section 5(1) is proposed.

✓ Section 5(3) of the Foreign Contribution (Regulation) Act, 2010 requires that the organization be given an opportunity to submit its representation, which must be considered within the prescribed time, and an order must be passed recording the reasons.

✓ Rule 3 of the Foreign Contribution (Regulation) Rules, 2011 provides guidelines for declaring an organization to be of a political nature. The specific sub-rules challenged in this case are:

• Rule 3(i): “organisation having avowed political objectives in its Memorandum of Association or bylaws;”
• Rule 3(v): “organisation of farmers, workers, students, youth based on caste, community, religion, language or otherwise, which is not directly aligned to any political party, but whose objectives, as stated in the Memorandum of Association, or activities gathered through other material evidence, include steps towards advancement of Political interests of such groups;”
• Rule 3(vi): “any organisation, by whatever name called, which habitually engages itself in or employs common methods of political action like ‘bandh’ or ‘hartal’, ‘rasta roko’, ‘rail roko’ or ‘jail bharo’ in support of public causes.”

The Act aims to regulate foreign contributions to ensure that they do not undermine the values of a sovereign democratic republic, particularly by preventing foreign influence in political activities.

Arguments

Appellant’s Arguments:

• The Appellant argued that Section 5(1) of the Foreign Contribution (Regulation) Act, 2010, grants excessive and unguided power to the Central Government. The terms ‘activity’, ‘ideology’, and ‘programme’ are vague and undefined, leading to arbitrary decisions.

• The Appellant contended that Section 5(4) of the Foreign Contribution (Regulation) Act, 2010, is flawed because it does not specify the authority to which an aggrieved party can make a representation.

• The Appellant submitted that Rules 3(i), 3(v), and 3(vi) of the Foreign Contribution (Regulation) Rules, 2011, are vague, overbroad, and unreasonable. The terms ‘political objectives’, ‘political activities’, ‘political interests’, and ‘political action’ lack clarity and can be interpreted to include any activity, even those not related to party politics.

• The Appellant argued that restricting access to foreign funds violates the fundamental rights guaranteed under Articles 19(1)(a) and 19(1)(c) of the Constitution, which protect freedom of speech and expression and the right to form associations.

• The Appellant relied on the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights, arguing that political rights are an integral part of human rights.

Respondent’s Arguments:

• The Respondent argued that the constitutional validity of a statute can only be challenged on the grounds of legislative competence and violation of fundamental rights.

• The Respondent submitted that subordinate legislation can only be challenged if it is ultra vires the parent Act.

• The Respondent contended that the Appellant organization cannot invoke Article 19 of the Constitution, as these rights are guaranteed only to citizens, and the organization is not a citizen.

• The Respondent argued that the right to receive foreign contributions is not a fundamental right guaranteed under Article 19 of the Constitution.

• The Respondent submitted that sufficient safeguards against the abuse of power are incorporated in the Act and the Rules.

• The Respondent argued that the possibility of abuse of power is not a valid ground to challenge a legislation.

• The Respondent suggested that the principle of ‘reading down’ should be adopted if the Court finds any ambiguity in Rule 3 of the Rules.

Issues Framed by the Supreme Court

The Supreme Court addressed the following issues:

1. Whether Section 5(1) of the Foreign Contribution (Regulation) Act, 2010, is unconstitutional for being vague and conferring unguided power on the executive.
2. Whether Section 5(4) of the Foreign Contribution (Regulation) Act, 2010, is unconstitutional for not specifying the authority to whom a representation should be made.
3. Whether Rules 3(i), 3(v), and 3(vi) of the Foreign Contribution (Regulation) Rules, 2011, are unconstitutional for being vague, overbroad, and unreasonable, thereby violating Article 14 of the Constitution.
4. Whether the restrictions imposed by the Act and Rules violate the fundamental rights guaranteed under Article 19 of the Constitution.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court relied on Tata Engineering and Locomotive Co. Ltd. v. State of Bihar [CITATION] and Shree Sidhbali Steels Ltd. vs. State of Uttar Pradesh [CITATION] to hold that an organization cannot claim fundamental rights under Article 19.
• The Court referred to Association for Democratic Reforms v. Union of India [CITATION] for the background of the 1976 Act.
• The Court cited State Trading Corporation of India Ltd. V. The Commercial Tax Officer, Visakhapatnam [CITATION] and Bennett Coleman & Co. v. Union of India [CITATION] to reiterate that an organization cannot claim fundamental rights under Article 19.
• The Court used K. A. Abbas v. Union of India [CITATION] to emphasize that the court should construe a law to align with the legislature’s intention.
• The Court relied on Chiranjit Lal Chowduri v. Union of India [CITATION] and Union of India v. Elphinstone Spinning and Weaving Co. Ltd. [CITATION] to state that in case of ambiguity, courts can take aid from historical background and aims of the Act.
• The Court cited Shailesh Dhairyawan v. Mohan Balkrishna Lulla [CITATION] to support the principle that purposive construction is the predominant doctrine of interpretation.
• The Court referred to Collector of Customs v. Nathella Sampathu Shetty [CITATION] to state that possible abuse of power is not a ground to declare a provision unconstitutional.
• The Court used DTC v. Mazdoor Congress [CITATION] to apply the doctrine of “reading down”.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to balance the objectives of the Foreign Contribution (Regulation) Act, 2010, with the rights of voluntary organizations. The Court recognized the importance of preventing foreign funds from influencing political activities while also ensuring that legitimate organizations working for social and economic welfare are not unduly restricted. The Court emphasized that the legislative intent was to prohibit foreign funds in active politics and that the provisions of the Act should be interpreted to achieve this objective.

Logical Reasoning

The Court considered alternative interpretations but rejected them in favor of a purposive construction that aligns with the legislative intent. The Court emphasized that the Act’s objective is to prevent foreign influence in politics, not to stifle the activities of legitimate voluntary organizations.

The Court held that:

• Section 5(1) of the FCRA is not vague.
• Section 5(4) of the FCRA is not unconstitutional.
• Rule 3(i) of the FCRR is valid.
• Rule 3(v) of the FCRR is valid, but the term ‘political interests’ must be construed to be in connection with active or party politics.
• Rule 3(vi) of the FCRR is valid, but it only applies to organizations involved in active or party politics.
• Organizations cannot claim rights under Article 19 of the Constitution.

The Court quoted the following from the judgment:

“The object sought to be achieved by the Act is 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 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 interest.”

“We are of the opinion that the expression ‘political interests’ in Rule 3 (v) has to be construed to be in connection with active politics or party politics.”

The Court clarified that organizations supporting public causes through legitimate means of dissent, without a political goal or objective, cannot be penalized.

Key Takeaways

• Organizations with avowed political objectives in their Memorandum of Association or bylaws are restricted from receiving foreign funds.
• Organizations of farmers, workers, students, etc., not directly aligned with any political party, can be restricted if their objectives include steps towards advancing political interests connected to active or party politics.
• Organizations that habitually engage in political actions like ‘bandh,’ ‘hartal,’ etc., in support of public causes can be restricted if these actions are connected to active or party politics.
• The right to receive foreign contributions is not a fundamental right guaranteed under Article 19 of the Constitution.
• The doctrine of “reading down” can be used to interpret vague provisions in a manner that aligns with the legislative intent.

Directions

The Supreme Court did not issue any specific directions but clarified the interpretation of the relevant provisions of the Act and Rules.

Development of Law

The ratio decidendi of this case is that the term “political nature” in the context of the Foreign Contribution (Regulation) Act, 2010, should be narrowly interpreted to include only organizations that are actively involved in party politics or have a direct political agenda. The Court has clarified that legitimate social and economic welfare activities should not be restricted. This judgment provides a clearer understanding of the scope of the Act and Rules, preventing misuse against genuine voluntary organizations.

Conclusion

The Supreme Court’s judgment in the case of Indian Social Action Forum vs. Union of India clarifies the scope of what constitutes an organization of a “political nature” under the Foreign Contribution (Regulation) Act, 2010. The Court upheld the validity of Section 5(1) and 5(4) of the Act, but it also applied the doctrine of “reading down” to Rules 3(v) and 3(vi) of the Foreign Contribution (Regulation) Rules, 2011, to ensure that the provisions are not misused to target voluntary organizations that are not involved in active or party politics. The judgment balances the need to regulate foreign contributions with the rights of legitimate organizations to receive foreign funding for social and economic welfare activities.