On April 8, 2022, a three-member bench of the Supreme Court delivered its judgement on the 2020 amendment to the Foreign Contribution Regulation Act (FCRA) of 2010, upholding the tight regulations brought in on foreign fund flows to NGOs.

This judgement has far-reaching consequences because the 2020 amendment puts several restrictions on entities working in a wide range of human development: health, education, climate change mitigation, civil rights etc.

First things first.

The key elements introduced in the 2020 amendment include:

· Expanding the list of entities prohibited from receiving foreign funding beyond the FCRA Act of 2010 to include the whole universe of “public servant” defined in Section 21 of the Indian Penal Code.

· Disallowing a recipient to “transfer such foreign contribution to any other person” – which denies aid to small and grassroot level NGOs and individuals working among the poorest.

· Making it mandatory to open FCRA account only in the designated SBI branch in New Delhi to receive foreign contributions, for which Aadhaar card is mandatory.

· Stopping the use of foreign funds and suspending the FCRA license on mere suspicion (“reason to believe”) and “pending any further inquiry” – without giving on opportunity to be heard or producing evidence upfront (Section 11).

· The period of suspension of license extended from 180 days to 360 days.

It is the arbitrary provision of suspending FCRA license without giving a chance to be heard or providing evidence upfront (Section 11), which came handy when the Delhi High Court, in its February 2022 judgement, ruled in the favour of the government and upheld the suspension of FCRA license of human rights group, Commonwealth Human Rights Initiative (CHRI).

SC upholds 2020 FCRA amendments

The apex court’s judgement upholding the 2020 amendment in the FCRA of 2010 is a setback for the NGOs, many of which work in critical areas of development at the grassroot level.

Before talking about the judgement, here is a brief background for better appreciation of how the amendment hurts the economy and people.

On December 2021, the FCRA licenses of 5,933 NGOs lapsed, either due to their failures to apply for renewal within a stipulated timeframe or rejection of their renewal applications by the Ministry of Home Affairs (MHA) – the regulatory ministry.

The last few years have seen 12,580 NGOs losing licenses, which include IIT-Delhi, Jamia Millia Islamia, Indian Medical Association (the largest body of medical practitioners in India), Nehru Memorial Museum & Library (NMM&L), Press Institute of India (PII), JNU’s Nuclear Science Centre, Lady Shri Ram College for Women; Delhi College of Engineering (Government of NCT of Delhi) and Oxfam India.

It came to notice in March 2022 that the MHA had put the US-based Hewlett Foundation on watchlist after finding that it was funding climate awareness campaigns in India, which a government official revealed, was not permissible under the FCRA. From November 2021, no fund has been given to any NGO or association in India.

Even the license of Mother Teresa’s Missionaries of Charity, which works for destitute, was suspended on the Christmas of 2021 (December 25), under circumstances which is not clear yet. After a country-wide hue and cry, the license was renewed till 2026 a few days later on January 9, 2022.

The above examples indicate that the FCRA is not only being used to prevent misuse but also as a tool to control NGOs on the ground.

Coming back to the apex court’s order upholding the 2020 FCRA amendment, here are some of the key observations the court made to justify its action:

· “In short, no one can be heard to claim a vested right to accept foreign donation, much less an absolute right”; “By its very expression, it is a reflection on the constitutional morality of the nation as a whole being incapable of looking after its own needs and problems”.

· “…the presence/inflow of foreign contribution in the country ought to be at the minimum level…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…”

· “It must be borne in mind that the legislation under consideration must be understood in the context of the underlying intent of insulating the democratic polity from the adverse influence of foreign contribution…”

· “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 contribution (donation) from foreign source.”

· Indian passport “needs to be construed” as identification document, instead of the Aadhaar card (the only relief granted).

Foreign donations to political parties pending

Going by the Supreme Court’s logic in upholding the FCRA amendment, a few questions arise.

First, if foreign contributions to NGOs can destabilise social order and endanger democratic policy (“insulating the democratic polity from the adverse influence of foreign contribution”) and India needs to be “self-reliant”, why should foreign funding be restricted only to the NGOs but not to political parties?

Sounds odd?

Actually, the FCRA of 2010, and the FCRA of 1976 that it replaced, both expressly banned foreign contributions/donations to political parties to insulate Indian democracy and government from foreign influence. Section 4 of the FCRA 1976 and Section 3 of the FCRA 2010 say: “No foreign contribution shall be accepted by any political party or office bearer thereof.” Section 29-B of the Representation of the People (RP) Act of 1951 also prohibits political parties from receiving funds from foreign and domestic government-run companies.

Political parties are critical to democracy. They fight elections, form governments and make laws to govern the country. Hence, they need to be insulated from influence far more than any NGO.

The first to go was the FCRA prohibition (Section 4 of the FCRA 1976 and Section 3 of the FCRA 2010) under an interesting development.

The two leading political parties – the BJP and Congress – were found violating the two laws (FCRA an RP Act) by accepting funding from both foreign companies as well as government-owned companies (19 instances for the BJP and 15 instances from the Congress during FY04 and FY12). This was challenged before the Delhi High Court and in 2014, the court held both the political parties guilty. It asked for punitive action (within six months).

Instead of that, the Centre legalised the violations.

It amended the FCRA of 2010 to permit foreign donations by changing the definition of “foreign source” through the Finance Bill of 2016 and then extended it to the FCRA of 1976, through the Finance Bill of 2018, to give it retrospective effect from 1976 (giving complete immunity from punitive action).

Several petitions challenging these amendments are pending before the Delhi High Court and the Supreme Court.

Second, the Centre brought Electoral Bond in 2017 – an opaque instrument (bearer bond) that allows anonymous, unlimited and unaccounted money to be donated to political parties from both domestic and foreign sources. The Electoral Bond is also out of legal scrutiny and disclosure norms. The RP Act of 1951 was amended to keep it out of the scrutiny of Election Commission of India (ECI) and The Companies Act of 2013 was amended to (i) remove limits on such corporate donations and (ii) disclosing the name of the political party to which such donations are being made.

Electoral Bonds make it impossible for anyone, other than the central government, to know which domestic and foreign individual/company is donating to which political parties because these (bearer) bonds are issued by the government-run State Bank of India alone.

This makes the prohibition under the RP Act of 1951 (Section 29B) meaningless and hence, has not been changed yet. The ECI can’t scrutinise funding through the Electoral Bond and the Companies Act of 2013 has been disabled from disclosure norms about political funding or amount. Simple!

Now, if a “foreign source” is funding the ruling party now or in future (which wouldn’t be known to outsiders), who knows how it compromises India’s policies and governance (both at the central and state)?

Several petitions challenging the constitutional validity of the Electoral Bond are pending before the Supreme Court since 2018. Instead, the apex court has allowed the bonds to be freely traded and the three-member bench that upheld the legality of the 2020 FCRA amendment, didn’t talk about it at all – or the real “destabilising” and “corrupt” impact it has on governance.

To his credit, Chief Justice of India Justice NV Ramana assured one of the petitioners earlier this month that he would soon take it up for examining its constitutionality.

Crackdown on NGOs

The crackdown on NGOs using the FCRA wasn’t started by the BJP government in 2014. It started much earlier (record of cancellation of FCRA licenses available from 2011) during the previous UPA government.

The Ministry of Home Affairs (MHA) records show, the licenses of 20,675 entities have been “cancelled” by 2021. The bulk of these cancellations have come after 2015 (16,745).

There is no record of licenses suspended.

Records show the spate of cancellations began in 2012 when the protest against the Kudankulam (Tamil Nadu) nuclear plant peaked. From 4 cases in 2011, cancellation of FCRA licenses mounted to 3,922 in 2012. It was reduced to 4 in 2013; then went up to 59 in 2014; then hit a high of 10,003 in 2015. After a lull in 2018 (1), the list went up to 1,808 in 2019 and then plunged to 0 in 2020. In 2021, only 3 licenses were cancelled and none so far in 2022.

But these numbers exclude suspended FCRA licenses – which is now permitted for 360 days under the FCRA Amendment Act of 2020 – and that has its own crippling impact.

How crackdown on NGOs hurt economy and people

Recall Prime Minister Narendra Modi’s call to NGOs for help during the devastating second wave of the pandemic in May 2021 when scores of people were dropping dead due to the lack of oxygen and hospital beds?

By that time, the NGOs had already been crippled because the tightening of the FCRA norms had started earlier (no amendment is needed to do that as the UPA had demonstrated it too). They were in no position to help the people desperately seeking help. The government appealed to the world community following which at least 40 countries provided oxygen and essential medicines.

By then, the 2020 FCRA amendment had further hurt the NGOs. Ironically, the 2020 amendment was notified on September 28, 2020 – amidst the first wave of the pandemic).

An investigating report of 2022 revealed that foreign funds to NGOs had fallen by 87% in one single year – from Rs 16,490 crore in FY19 to Rs 2,190 crore in FY20 (up to which data is available). By May 2021, when the Prime Minister sought help from NGOs, their foreign funding would have dwindled even further.

Human rights activist Venkatesh Nayak of CHRI says the 2020 FCRA amendment extended the period of suspension of FCRA license to 360 days but kept the limit of foreign funds that can be used during the suspension period at 25% (of the fund received).

This has delivered another blow to the NGOs because the suspension period has been doubled but they would have to do with the same 25% of the funds.

This then is why the Supreme Court’s order needs to be challenged through review petitions.

Crackdown on NGOs

Apex court's FCRA order a big blow to NGOs, grassroot development work