Introduction and summary of facts
The Supreme Court of India, in its recent judgment in Noel Harper and Ors. v. Union of India has upheld the constitutional validity of the amendments made to the Foreign Contribution (Regulation) Act, 2010, (“Act”). The amendments introduced vide the Foreign Contribution (Regulation) Amendment Act of 2020 (“Amendment Act”) had imposed certain restrictions on the form and the manner in which foreign contributions may be received, managed, and utilised in India. Several petitions were filed before the Supreme Court challenging the constitutional validity of the amendments introduced to sections 7, 12(1A), 12A, and 17(1) of the Act.
Constitutional validity of the amended section 7
Section 7 of the Act as amended by the Amendment Act provides that foreign contribution received in India must not be transferred to any other entity, and this blanket prohibition of transfer was challenged on the grounds of the amendment being manifestly arbitrary and unreasonable.
The Supreme Court upheld the constitutional validity of the amendment to section 7 stating that the amended section 7 does not provide for a blanket ban on the transfer of foreign contribution. The apex court maintained that the restrictions under section 7 of the Act must be read harmoniously with section 8, and the objective of the Act, which was to ensure that the foreign contribution must be utilised for the purpose for which the contribution has been received. The Supreme Court further distinguished the ’utilisation’ of foreign contribution under section 8 from a prohibited transfer under section 7, and clarified that a transfer of foreign contribution for its utilisation as per the purposes for which it has been received would not attract the restrictions under section 7 of the Act.
The Supreme Court while evaluating the restrictions imposed under the amended section 7 against the backdrop of Articles 14, 19 and 21 held that the Amendment Act only imposed reasonable restrictions and accordingly rejected the constitutional challenge to the amended section 7.
Constitutional validity of the amended section 12 (1A) and section 17(1)
The Supreme Court also upheld the constitutional validity of section 12 (1A) and section 17(1) of the Act, which provided that foreign contribution in India must only be received in a bank account in a specific bank in New Delhi, and the same bank account shall be designated as the FCRA bank account.
The Supreme Court observed that the mandate to receive foreign contribution through a single bank account was introduced to regulate the inflow and utilisation of the foreign contribution. The Supreme Court further observed that as the receivers of foreign contribution were permitted to open other bank accounts for utilising the foreign contribution received, the restrictions imposed vide the amended sections 12 (1A) and 17 (1) were not manifestly arbitrary, irrational or without legitimate objectives of the state, and accordingly not violative of the Constitution of India.
Constitutional validity of the amended section 12A
As per the amended section 12A of the Act, the office bearers, directors, and other key functionaries of an entity may be required to provide their Aadhaar number as an identification document, for seeking a registration or a prior permission to receive foreign contribution in India. However, the Supreme Court read down the above amended section and held that such office bearers, directors or key functionaries may even produce a passport for the purposes of identification, similar to the requirement for foreign nationals, and production of a valid passport shall be regarded as substantial compliance with section 12A of the Act.
Our thoughts
The Supreme Court vide this judgment has resolved the uncertainty around the constitutional validity of the amendments introduced to the provisions of the Foreign Contribution (Regulation) Act, 2010, and provided some much needed clarity on the scope of application of the amended sections. In particular, the key clarification provided by the Supreme Court in relation to non-applicability of the transfer restrictions under section 7, to transfer of foreign contribution to third parties for the purposes of permitted utilisation under the Act, is expected to calm down any nerves that may have been associated with the wide language and strict restrictions under the amended section 7.
Authors: Souvik Ganguly, Managing Partner, and Aman Bagaria, Associate.
The information contained in this document is not legal advice or legal opinion. The contents recorded in the said document are for informational purposes only and should not be used for commercial purposes. Acuity Law LLP disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident or any other cause.