Supreme Court Upholds Amendments to Foreign Contribution (Regulation) Act, 2010: Noel Harper & Ors. vs. Union of India & Anr. (2022) INSC 306 (08 April 2022)

Introduction

Date of the Judgment: 08 April 2022
Citation: (2022) INSC 306
Judges: A.M. Khanwilkar, J., Dinesh Maheshwari, J., C.T. Ravikumar, J. (authored by A.M. Khanwilkar, J.)

Can the government impose stricter rules on how non-governmental organizations (NGOs) receive and use foreign funds? The Supreme Court of India recently addressed this crucial question in a batch of petitions challenging the 2020 amendments to the Foreign Contribution (Regulation) Act (FCRA), 2010. These amendments introduced significant changes, including restrictions on transferring foreign contributions and mandatory opening of accounts in a specific bank branch.

The core issue revolved around whether these amendments violated the fundamental rights of NGOs and other organizations, particularly their rights to freedom of association, expression, and trade. The Court examined the government’s justifications for these changes, including concerns about misuse of foreign funds and national security.

Case Background

The case involves multiple petitioners, primarily NGOs and trusts, who challenged the constitutional validity of the 2020 amendments to the FCRA, 2010. These organizations are engaged in social upliftment activities, including education, healthcare, and rehabilitation of marginalized communities. They rely heavily on foreign contributions to fund their operations.

The petitioners argued that the amendments, particularly those restricting the transfer of foreign contributions and mandating the opening of accounts in a specific branch of the State Bank of India (SBI) in New Delhi, were arbitrary, unreasonable, and violated their fundamental rights under Articles 14, 19, and 21 of the Constitution. They contended that these changes would severely hamper their ability to carry out their social welfare activities.

Timeline

Legal Framework

The judgment primarily deals with the following sections of the Foreign Contribution (Regulation) Act, 2010, as amended by the Foreign Contribution (Regulation) Amendment Act, 2020:

• Section 7, FCRA, 2010: This section, as amended, prohibits the transfer of foreign contributions to any other person, regardless of whether that person is also registered under the Act. The unamended provision allowed such transfers with prior government approval.

• Section 12(1A), FCRA, 2010: This newly inserted provision mandates that every person applying for registration under the Act must open an “FCRA Account” in a manner specified in Section 17 and provide the details of this account in their application.

• Section 12A, FCRA, 2010: This new section empowers the Central Government to require Aadhaar numbers as identification documents for office bearers, directors, and other key functionaries of organizations seeking registration or renewal under the Act.

• Section 17(1), FCRA, 2010: This section, as amended, requires every person granted a certificate or prior permission under Section 12 to receive foreign contributions only in an “FCRA Account” opened in a designated branch of the State Bank of India (SBI) in New Delhi. However, it allows for opening of other FCRA accounts in any scheduled bank for utilizing the funds.

These provisions are to be read in the context of the overall objective of the FCRA, which is to regulate the acceptance and utilization of foreign contributions to ensure that they do not undermine national interests or the values of a sovereign democratic republic.

Arguments

Petitioners’ Arguments:

• The petitioners argued that the amendments violate their fundamental rights under Articles 14, 19(1)(a), 19(1)(c), 19(1)(g), and 21 of the Constitution. They contended that the restrictions imposed by the amendments are arbitrary, unreasonable, and disproportionate.

• They argued that the complete prohibition on transferring foreign contributions under Section 7 is overbroad and vague, impacting the ability of organizations to collaborate and serve larger social needs. They also argued that the word “transfer” is not defined in the Act, leading to ambiguity.

• The petitioners asserted that the requirement to open an FCRA account in a specific branch of SBI in New Delhi under Section 17(1) is irrational and serves no legitimate purpose, especially when all scheduled banks are regulated by the Reserve Bank of India and are obligated to report transactions.

• They contended that the mandatory requirement of Aadhaar details under Section 12A violates the principle of proportionality and the right to privacy, as established in the K.S. Puttaswamy case.

• The petitioners highlighted that the amendments would particularly affect smaller, grassroot organizations that rely on intermediary organizations for funding and support.

Respondents’ Arguments:

• The respondents, primarily the Union of India, argued that the amendments were necessary to ensure effective regulatory measures regarding the inflow and utilization of foreign funds. They stated that the amendments were necessitated by past experiences of misuse and misappropriation of foreign contributions.

• They contended that the amendments do not bar any person from transacting in foreign contributions, provided they comply with the parameters of the Act, including registration and prior permission.

• The respondents emphasized that the amendments are uniformly applicable and do not discriminate against any NGO. They argued that the restrictions are reasonable and do not infringe upon fundamental rights.

• They asserted that the mandatory opening of FCRA accounts in a designated branch of SBI was to facilitate better monitoring of fund flows and prevent misuse of foreign contributions.

• The respondents argued that the requirement of Aadhaar details was to facilitate proper identification of persons and associations and ensure that their activities are not detrimental to national interests.

Submissions Table:

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues for consideration:

1. Whether the amended Sections 7, 12A, 12(1A), and 17 of the FCRA, 2010, are ultra vires Articles 14, 19, and 21 of the Constitution of India.
2. Whether the public notice dated 13th October 2020 issued by the Respondent No. 2 is illegal and unconstitutional.
3. Whether the respondents can be directed not to interfere with the acceptance and utilization of foreign contributions, the operation of existing bank accounts, and the functioning of the petitioners.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• K.S. Puttaswamy (Retired) & Anr. (AADHAAR) vs. Union of India & Anr. [(2019) 1 SCC 1] – Discussed the right to privacy and proportionality in the context of Aadhaar.

• Public Union for Civil Liberties vs. State of T.N. & Ors. [(2004) 12 SCC 381] – Recognized the indispensable role played by non-profit organizations.

• K.C. Gajapati Narayan Deo & Ors. vs. State of Orissa [AIR 1953 SC 375] – Discussed the principles of reasonable restrictions.

• Maneka Gandhi vs. Union of India & Anr. [(1978) 1 SCC 248] – Dealt with the interpretation of Article 21 and the concept of reasonableness.

• Ajay Hasia & Ors. vs. Khalid Mujib Sehravardi & Ors. [(1981) 1 SCC 722] – Discussed the concept of arbitrariness.

• Indra Sawhney & Ors. vs. Union of India & Ors. [1992 Supp (3) SCC 217] – Discussed the principles of equality.

• T.M.A. Pai Foundation & Ors. vs. State of Karnataka & Ors. [(2002) 8 SCC 481] – Dealt with the rights of minorities.

• Natural Resources Allocation, In Re, Special Reference No.1 of 2012 [(2012) 10 SCC 1] – Discussed the principles of natural justice.

• Modern Dental College and Research Centre & Ors. vs. State of Madhya Pradesh & Ors. [(2016) 7 SCC 353] – Discussed the principles of proportionality.

• Shayara Bano vs. Union of India & Ors. [(2017) 9 SCC 1] – Discussed the concept of manifest arbitrariness.

• Navtej Singh Johar & Ors. vs. Union of India [(2018) 10 SCC 1] – Dealt with the rights of LGBTQ community.

• Anuradha Bhasin vs. Union of India & Ors. [(2020) 3 SCC 637] – Discussed the principles of proportionality and reasonable restrictions.

• Indian Social Action Forum (INSAF) vs. Union of India [AIR 2020 SC 1363] – Recognized the right to receive foreign contributions.

• A.K. Gopalan vs. State of Madras [AIR 1950 SC 27] – Discussed the effect of law on fundamental rights.

• Shreya Singhal vs. Union of India [(2015) 5 SCC 1] – Discussed the concept of vagueness and overbreadth in laws.

• Manohar Lal Sharma vs. Union of India & Ors. [W.P. (Crl.) No.314 of 2021 etc., decided on 27.10.2021] – Discussed the need for specific evidence of national security issues.

• M/s. Laxmi Khandsari & Ors. vs. State of U.P. & Ors. [(1981) 2 SCC 600] – Held that courts should refrain from interfering with policy matters on the ground of individual hardship.

• All India Council for Technical Education vs. Surinder Kumar Dhawan & Ors. [(2009) 11 SCC 726] – Held that courts should refrain from interfering with policy matters on the ground of individual hardship.

• Rajeev Suri vs. Delhi Development Authority & Ors. [2021 SCC Online 7] – Discussed the legislative policy.

• Joseph Lochner vs. People of the State of New York [198 U.S. 45 (1905)] – Discussed due process and the role of courts in reviewing laws.

• New State Ice Company vs. Ernest A. Liebmann [285 U.S. 262 (1932)] – Discussed economic regulation.

• West Coast Hotel Company vs. Ernest Parrish [300 U.S. 379 (1937)] – Discussed the state’s power to regulate economic matters.

• United States of America vs. Carolene Products Company [304 U.S. 144 (1938)] – Discussed the standard of judicial review.

• American Federation of Labor, Arizona State Federation of Labor et al. vs. American Sash & Door Company et al. [335 U.S. 538 (1949)] – Discussed the limits of judicial review in economic regulation.

• Ferguson vs. Skrupa [372 U.S. 726 (1963)] – Discussed the role of courts in reviewing economic regulations.

• State of Himachal Pradesh & Ors. vs. Himachal Pradesh Nizi Vyavsayik Prishikshan Kendra Sangh [(2011) 6 SCC 597] – Held that courts should be loath in interfering with the wisdom of the legislature adopting a particular policy.

• Ravindra Ramachandra Waghmare vs. Indore Municipal Corporation & Ors. [(2017) 1 SCC 667] – Held that courts should be loath in interfering with the wisdom of the legislature adopting a particular policy.

• State of Himachal Pradesh & Ors. vs. Satpal Saini [(2017) 11 SCC 42] – Held that courts should be loath in interfering with the wisdom of the legislature adopting a particular policy.

• Union of India vs. Indian Radiological & Imaging Association & Ors. [(2018) 5 SCC 773] – Held that courts should be loath in interfering with the wisdom of the legislature adopting a particular policy.

• Dr. Ashwani Kumar vs. Union of India & Anr. [(2020) 13 SCC 585] – Held that the legislature is supreme.

• Rustom Cavasjee Cooper vs. Union of India [(1970) 1 SCC 248] – Held that the Court will not sit in appeal over the policy of Parliament in enacting a law.

• R.K. Garg vs. Union of India & Ors. [(1981) 4 SCC 675] – Held that the Courts have only the power of destroying and not to reconstruct.

• Peerless General Finance and Investment Co. Limited & Anr. vs. Reserve Bank of India [(1992) 2 SCC 343] – Held that self-limitation needs to be exercised by the Courts.

• Premium Granites & Anr. vs. State of T.N. & Ors. [(1994) 2 SCC 691] – Held that self-limitation needs to be exercised by the Courts.

• Delhi Science Forum & Ors. vs. Union of India & Anr. [(1996) 2 SCC 405] – Held that self-limitation needs to be exercised by the Courts.

• BALCO Employees’ Union (Regd.) vs. Union of India & Ors. [(2002) 2 SCC 333] – Held that self-limitation needs to be exercised by the Courts.

• State of Madhya Pradesh vs. Narmada Bachao Andolan & Anr. [(2011) 7 SCC 639] – Held that self-limitation needs to be exercised by the Courts.

• Charanjit Lal Chowdhury vs. The Union of India & Ors. [AIR 1951 SC 41] – Discussed the principles of classification.

• The State of Bombay & Anr. vs. F.N. Balsara [AIR 1951 SC 318] – Discussed the principles of classification.

• Kathi Raning Rawat vs. State of Saurashtra [AIR 1952 SC 123] – Discussed the principles of classification.

• Gurbachan Singh vs. State of Bombay & Anr. [AIR 1952 SC 221] – Discussed the principles of classification.

• The State of Punjab vs. Ajaib Singh & Anr. [AIR 1953 SC 10] – Discussed the principles of classification.

• Habeeb Mohamed vs. The State of Hyderabad [AIR 1953 SC 287] – Discussed the principles of classification.

• Kedar Nath Bajoria vs. The State of West Bengal [AIR 1953 SC 404] – Discussed the principles of classification.

• Baburao Shantaram More vs. Bombay Housing Board & Anr. [AIR 1954 SC 153] – Discussed the principles of classification.

• Harman Singh & Ors. vs. Regional Transport Authority, Calcutta Region & Ors. [AIR 1954 SC 190] – Discussed the principles of classification.

• Sakhawant Ali vs. State of Orissa [AIR 1955 SC 166] – Discussed the principles of classification.

• Budhan Choudhry & Ors. vs. State of Bihar [AIR 1955 SC 191] – Discussed the principles of classification.

• D.P. Joshi vs. State of Madhya Bharat & Anr. [AIR 1955 SC 334] – Discussed the principles of classification.

• Hans Muller of Nurenburg vs. Superintendent, Presidency Jail, Calcutta & Ors. [AIR 1955 SC 367] – Discussed the principles of classification.

• Kishan Singh & Ors. vs. State of Rajasthan & Ors. [AIR 1955 SC 795] – Discussed the principles of classification.

• P. Balakotaiah vs. Union of India & Ors. [AIR 1958 SC 232] – Discussed the principles of classification.

• Shri Ram Krishna Dalmia vs. Shri Justice S.R. Tendolkar & Ors. [AIR 1958 SC 538] – Discussed the principles of classification.

• Express Newspaper (Private) Ltd., & Anr. vs. Union of India & Ors. [AIR 1958 SC 578] – Discussed the principles of classification.

• Khandige Sham Bhat vs. Agricultural Income-tax Officer, Kasaragod & Anr. [AIR 1963 SC 591] – Discussed the principles of classification.

• Raja Bira Kishore Deb, hereditary Superintendent, Jagannath Temple vs. The State of Orissa [AIR 1964 SC 1501] – Discussed the principles of classification.

• Ganga Ram & Ors. vs. Union of India & Ors. [(1970) 1 SCC 377] – Discussed the principles of classification.

• Anant Mills Co. Ltd. vs. State of Gujarat & Ors. [(1975) 2 SCC 175] – Discussed the principles of classification.

• Mohan Kumar Singhania & Ors. vs. Union of India & Ors. [1992 Supp. (1) SCC 594] – Discussed the principles of classification.

• Venkateshwara Theatre vs. State of Andhra Pradesh & Ors. [(1993) 3 SCC 677] – Discussed the principles of classification.

• Ombalika Das vs. Hulisa Shaw [(2002) 4 SCC 539] – Discussed the principles of classification.

• Dharam Dutt & Ors. vs. Union of India & Ors. [(2004) 1 SCC 712] – Discussed the principles of classification.

• Basheer @ N.P. Basheer vs. State of Kerala [(2004) 3 SCC 609] – Discussed the principles of classification.

• O.K. Ghosh & Anr. vs. E.X. Joseph [AIR 1963 SC 812] – Discussed the concept of public order.

• Saghir Ahmad & Anr. vs. State of U.P. & Ors. [AIR 1954 SC 728] – Discussed the concept of reasonable restrictions.

• Babulal Parate vs. The State of Maharashtra & Ors. [AIR 1961 SC 884] – Discussed the concept of reasonable restrictions.

• Daya vs. Joint Chief Controller of Imports & Exports & Anr. [AIR 1962 SC 1796] – Discussed the concept of reasonable restrictions.

• Akadasi Padhan vs. State of Orissa & Ors. [AIR 1963 SC 1047] – Discussed the concept of reasonable restrictions.

• Municipal Committee, Amritsar & Ors. vs. State of Punjab & Ors. [(1969) 1 SCC 475] – Discussed the concept of reasonable restrictions.

• State of Gujarat & Anr. vs. Mirzapur Moti Kureshi Kassab Jamat & Ors. [(2005) 8 SCC 534] – Discussed the concept of reasonable restrictions.

• State of Madras vs. V.G. Row [AIR 1952 SC 196] – Discussed the concept of reasonable restrictions.

• Chintamanrao vs. State of Madhya Pradesh [AIR 1951 SC 118] – Discussed the concept of reasonable restrictions.

• R.M.D. Chamarbaugwalla vs. Union of India [AIR 1957 SC 628] – Discussed the concept of reasonable restrictions.

• Dwarka Prasad Laxmi Narain vs. The State of Uttar Pradesh [AIR 1954 SC 224] – Discussed the concept of reasonable restrictions.

• M.B. Cotton Association vs. Union of India [AIR 1954 SC 634] – Discussed the concept of reasonable restrictions.

• Narendra Kumar & Ors. vs. The Union of India & Ors. [AIR 1960 SC 430] – Discussed the concept of reasonable restrictions.

• Collector of Customs, Madras vs. Nathella Sampathu Chetty & Anr. [AIR 1962 SC 316] – Discussed the concept of reasonable restrictions.

• Hanif Quareshi & Ors. vs. State of Bihar & Ors. [AIR 1958 SC 731] – Discussed the concept of reasonable restrictions.

• Mohd. Faruk vs. State of Madhya Pradesh [AIR 1970 SC 93] – Discussed the concept of reasonable restrictions.

• Smt. Maneka Gandhi vs. Union of India [(1978) 1 SCC 248] – Discussed the concept of reasonable restrictions.

• Om Kumar & Ors. vs. Union of India [(2001) 2 SCC 386] – Discussed the concept of reasonable restrictions.

• Modern Dental College & Research Centre & Ors. vs. State of Madhya Pradesh & Ors. [(2016) 7 SCC 353] – Discussed the concept of reasonable restrictions.

• Internet and Mobile Association of India vs. Reserve Bank of India [(2020) 10 SCC 274] – Discussed the concept of reasonable restrictions.

• State of Kerala vs. Joseph Antony [AIR 1994 SC 2461] – Discussed the concept of reasonable restrictions.

• Virendra Singh vs. State of U.P. [AIR 1954 SC 447] – Discussed the concept of reasonable restrictions.

• Ram Manohar Lohia vs. State of Bihar [AIR 1966 SC 740] – Discussed the concept of reasonable restrictions.

• Shayara Bano vs. Union of India [(2017) 9 SCC 1] – Discussed the concept of reasonable restrictions.

• Navtej Singh Johar vs. Union of India [(2018) 10 SCC 1] – Discussed the concept of reasonable restrictions.

• Anuradha Bhasin vs. Union of India [(2020) 3 SCC 637] – Discussed the concept of reasonable restrictions.

• K.S. Puttaswamy vs. Union of India [(2019) 1 SCC 1] – Discussed the concept of reasonable restrictions.

Statutes:

• The Constitution of India, Articles 14, 19, and 21

• The Foreign Contribution (Regulation) Act, 2010

• The Foreign Contribution (Regulation) Amendment Act, 2020

Judgment

The Supreme Court upheld the constitutional validity of the amendments to the Foreign Contribution (Regulation) Act, 2010. The Court held that the amendments were necessary to ensure effective regulation of foreign contributions and did not violate the fundamental rights of the petitioners. The Court observed that the restrictions imposed by the amendments were reasonable and in the public interest.

The Court emphasized the need to balance the rights of individuals and organizations with the need to protect national interests and prevent misuse of foreign funds. The Court noted that the amendments were aimed at ensuring transparency and accountability in the receipt and utilization of foreign contributions.

The Court also held that the mandatory requirement of opening an FCRA account in a designated branch of SBI was not arbitrary and was intended to facilitate better monitoring of fund flows. The Court further observed that the requirement of Aadhaar details was a reasonable measure to ensure proper identification of persons and associations.

The Court concluded that the amended provisions were not ultra vires Articles 14, 19, and 21 of the Constitution and that the public notice issued by the respondents was legal and constitutional.

Flowchart: Process of Receiving Foreign Contributions

Conclusion

The Supreme Court’s judgment in Noel Harper & Ors. vs. Union of India & Anr. has significant implications for NGOs and other organizations receiving foreign contributions. The Court’s decision to uphold the amendments to the FCRA, 2010, reinforces the government’s authority to regulate the inflow and utilization of foreign funds in the interest of national security and public order. While the judgment acknowledges the importance of NGOs in social upliftment, it also emphasizes the need for accountability and transparency in their operations.

The judgment underscores the delicate balance between fundamental rights and the state’s regulatory powers. It also highlights the judiciary’s reluctance to interfere in policy matters, particularly those related to national security and financial regulation. The amendments and the judgment have led to significant changes in the way foreign contributions are received and utilized in India, requiring organizations to adapt to the new regulatory framework.