When less is not more – FCRA amendments and Supreme Court’s rights jurisprudence

The FCRA regulates acceptance and utilisation of foreign contribution or foreign hospitality by ‘persons’, which term includes individuals, Hindu undivided families, associations and companies. The law prohibits acceptance of such contribution for activities detrimental to national interest. Persons desirous of receiving foreign donations are required to obtain a certificate of registration from the Central Government, after which they can receive foreign contribution for a definite cultural, economic, educational, religious or social purpose. Transfer of foreign contribution to any other person was allowed only when such other person was also registered under the FCRA to accept such contribution. In 2020, following an amendment to section 7 of the FCRA, transfer of foreign contribution to any other person is completely prohibited. Other notable changes brought in 2020 included a stipulation that foreign contribution could be received in a FCRA account which can be opened at a specific branch of the State Bank of India in New Delhi, and mandatory requirement of furnishing Aadhaar details by those applying for registration (or renewal of registration) under the FCRA.

These amendments were challenged before the SC by certain non-profit organisations and trusts registered under the FCRA. The challenge to section 7 was premised on the violation of two fundamental rights provisions under the Constitution – first, Article 19(1) which guarantees the right to freedom of speech and expression, the right to form associations, and the right to practice any profession, and second, Article 14 guaranteeing the right to equality and permitting only reasonable classification between persons or groups. The Court shot down the petitioners’ challenge on both grounds, and upheld the validity of section 7, along with that of most other amendments.

What stands out in this judgment is the SC’s formulation of the rights vesting with the petitioners. It was held that there exists no right to seek a foreign contribution without regulation. As a natural corollary, it was open to the State to have a regime which completely prohibits the receipt of foreign donation. It is peculiar because the petitioners did not claim an unhinged right to receive foreign contribution. Instead, the challenge to section 7 was on the ground that a complete prohibition on transfer of foreign contribution would jeopardise the functioning of smaller (and less visible) grassroots organisations which might not have direct access to grants from foreign sources. Such organisations may have to remain dependent on partner organisations for access to funds, and the amended section 7 would strip them of their ability to fruitfully carry on their activities. In essence then, the petitioners argued for access to foreign contribution, not as a standalone right, but to be able to meaningfully exercise their fundamental rights to expression and association.

At multiple points in the judgment, the SC observed that the petitioners’ grievance is founded in operational inconvenience, which by itself cannot be the basis of invalidating the amendments. A more probing line of inquiry by the Court could have begun with ascertaining the true import of the fundamental rights invoked. Following that, the amendments could have been tested against the reasonable restrictions that can be imposed on these rights. The SC, upon holding that the petitioners do not have an unregulated right to receive foreign contribution, turns to the object of the FCRA, which is to secure the interests of sovereignty and integrity of the country. Given that under Article 19(4) of the Constitution, reasonable restrictions can be imposed on this freedom in the interests of the sovereignty and integrity of India (or public order, or morality), the SC provides full protection to the amended section 7 of the FCRA. An examination of the true scope of the freedom of association, especially in terms of accessibility to resources necessary for organisations to function, is missing. If such an inquiry had happened, it is possible that the Court would have done a more nuanced balancing between the petitioners’ right and the restriction imposed on it by the amended section 7. Instead, this balancing exercise hinged more on what rights were NOT vested in the petitioners, as opposed to those that were.

The amended section 7 was also challenged for being violative of Article 14 for bearing no causal connection with the aims and object of the FCRA. Judicial innovation through the years has ensured that the right to equality under Article 14 also prevents arbitrariness in State action. On the face of it, the amended section 7 creates a distinction between organisations which can collaborate with foreign donors to procure donations, and smaller, grassroots organisations which may not have the wherewithal to do so. The complete prohibition on transfer of foreign donations can palpably disadvantage the latter type of organisations.

On Article 14, the SC resorted to the traditional classification test by asking – first, whether the classification under section 7 was founded on intelligible differentia, and second, whether the differentia bore a rational relation with the object of the law in question (the FCRA). Having been laid down in several cases earlier, this test was restated (and reaffirmed) in a 1978 judgment of the SC where the constitutional validity of a Special Courts Bill was in question. On the first question in Noel Harper, the Court found that the amended section 7 applied across the board, without any discrimination, to all persons who are permitted to accept foreign donation. This was to be viewed alongside the State’s interest in securing the sovereignty and integrity of India, which could be compromised by the misuse of foreign contribution. The stricter regulatory regime brought about by the amendments of 2020 was meant to avert that possibility. Consequently, the SC upheld the validity of the impugned amendments.

The Court’s use of the classification test may be formulaically accurate. However, there is an evolving body of legal scholarship which asserts that the classification test is highly deferential to State action, especially because Courts give significant weight to the State’s claims about the nature of its actions and how they must be evaluated. All the State needs to do is demonstrate a legitimate interest, and a rational nexus between the restrictive measure and that interest. The fate of the FCRA amendments was decided similarly, with scant attention to how, in practice, these amendments could disproportionately disadvantage smaller organisations and indirectly discriminate against them.

The judgment repeatedly alludes to the special character of the FCRA because it aims to shield India’s democratic space from the undue influence which may accompany foreign contribution. It also endorses the need for a more stringent regulatory regime owing to “endless chains of transfers” of foreign contribution between multiple organisations. The text of the judgment, however, does not refer to any supporting evidence either unearthed by the Court’s own examination of the issue or as presented by the State.

A bare reading of this judgment does validate popular concerns about foreign contributions. An exhaustive inquiry by the Court might have eventually led the judges to the same decision, but only after a stricter scrutiny of the amendments, besides also adding to the Court’s own fundamental rights jurisprudence. After all, adjudication is not merely about courts arriving at favourable decisions; it is about them asking the right questions, and supplying cogent reasons, in deciding one way or another.

The article has been authored by Ritwika Sharma is senior resident fellow at Vidhi Centre for Legal Policy and leads Charkha, Vidhi’s Constitutional Law Centre.