Comforting the Comfortable and Afflicting the Afflicted: The Supreme Court’s FCRA Judgment

In 2020, Parliament amended the Foreign Control (Regulation) Act of 2020 [“the FCRA Amendments“]. The FCRA is India’s umbrella law for regulating foreign donations to non-governmental organisations [“NGOs”]. The FCRA amendments did four consequential things:

1. Section 7 of the FCRA was amended to prohibit “sub-transfers” – i.e., the transfer of funds from an FCRA-registered NGO to any other body or person (notably, this included transfers to other FCRA-registered bodies as well).
2. Section 8 of the FCRA was amended to prohibit more than 20% of donated funds being used for administrative activities (the earlier cap was 50%).
3. Sections 12 and 17A of the FCRA were amended to stipulate that FCRA funds could only be received in one branch of the State Bank of India at New Delhi.
4. Section 12 was also amended to stipulate that those applying for an FCRA registration or renewal may be required to produce their Aadhaar number as proof of identification.

It can therefore be seen that the effect of the amendments was to make the legal regime under the 2010 Act stricter in various respects (with the corollary of making it harder for NGOs to function). These four amendments were challenged in various proceedings before a few High Courts. In the Noel Harper case, there was – initially – a more limited challenge to one of the amendments. However – in an increasingly common practice – the Supreme Court in its wisdom decided to stay most of the ongoing High Court challenges, and issue a comprehensive judgment (Noel Harper v Union of India) on the amendments instead. For anyone who has been following the recent career of the Supreme Court in cases involving the government – and especially the many cases decided by benches led by Khanwilkar J, who presided over this case as well – the judgment will come as no surprise: the amendments were upheld almost in their entirety.

An analysis of the judgment reveals that it is characterised by many of the regrettable features that have come to characterise Indian civil rights jurisprudence today. The Court begins by framing the issue in a way that is most favourable for the State, and least favourable for the citizen. Having framed the question thus, it then goes on to accept the State’s factual claims at face value, but does not extend the same courtesy to the citizen. Having done that, it then applies those parts of existing legal doctrine that favour the State, and ignores – or misrepresents – those parts that protect the rights of citizens. Having framed the question in favour of the State, accepted the State’s version of reality, and applied the doctrine in favour of the State – voila! – the conclusion is that the challenged State action emerges validated from the tender caresses of judicial review.

How does this happen in the Noel Harper case? Let’s start with the framing. In paragraph 21, the Court states that “there is no fundamental right vested in anyone to receive foreign contribution (donation) or foreign exchange; and that the purport of the Principal Act and the impugned amendments are only to provide a regulatory framework and not one of complete prohibition.” (emphasis supplied) At the outset, this then allows the Court to significantly devalue the rights claims at issue. The framing is also false: it is nobody’s case that the Constitution guarantees a “fundamental right to receive foreign contribution” (sic). What the Constitution does guarantee is a fundamental right to the freedom of association. The freedom of association is meaningless unless individuals who wish to form associations are able to access funds to carry out the activities for which they associate. When the State, therefore, passes a law that places significant burdens upon the ability of associations to access funding, the effect of such a law is to impinge upon the constitutionally guaranteed freedom of association.

None of this is particularly novel to Indian jurisprudence: to take just one example, in Sakal Papers v Union of India, the government’s Newspaper Act – which authorised the government to “regulate” the prices of newspapers according to the number of pages that they had – was struck down for violating Article 19(1)(a) of the Constitution. Going by the logic of the Supreme Court in Noel Harper, the question in Sakal Papers would have been thus: “is there a fundamental right to publish a newspaper of X length and price it at Y rupees?” Did the Supreme Court in Sakal Papers frame the question thus? No, because it chose to apply common sense instead: the effect of a price/page regulation is to impinge upon the freedom of speech and expression, and therefore requires to be tested on 19(2) grounds. Similarly, the effect of “regulating” (i.e., restricting) funding for associations is to impinge upon the freedom of association, and therefore requires to be strictly tested on grounds of proportionality.

Having thus framed the question to the disadvantage of the citizen, the blithe acceptance of the State’s factual assertions comes in at paragraph 23. In paragraph 23, the Court notes:

In due course of time, however, it was realised that the dispensation enunciated in the 2010 Act was also not yielding the desired result. This impelled the Parliament to amend the 2010 Act (vide 2020 Act) to make it more stringent and effective to subserve the cause and intent of the Principal Act — not only in regard to the modality of acceptance of foreign contribution in the prescribed manner but also making it imperative for the recipient of foreign contribution to utilise the same “itself” for the designated or specified purposes for which it was so permitted. 

This passage refers to the issue of sub-granting, which is now prohibited under amended Section 7. Put simply, the issue of sub-granting is this: small and grassroots NGOs do not often have the wherewithal to liaise directly with foreign donors (that are often big institutions), and receive funds. For this reason, these small NGOs often tie up with larger, more established national NGOs: the national NGO negotiates with the foreign grantor, and then passes on the grant to the smaller NGO. It is crucial to note that under the old FCRA regime, it was already a requirement that both the grantor and the grantee NGO would have to be registered under the FCRA, and therefore, both entities already existed within the regulatory regime. It is therefore entirely unclear – including from the Statement of Objects and Reasons that the Court extracts a few paras before – which part of the old regime “was not yielding the desired result”, thus necessitating a prohibition on sub-granting. Indeed, this entire paragraph is a complete non-sequitur: the Court goes from “subserving the cause and intent of the Principal Act” to “making it imperative for the recipient of foreign contribution to utilise the same “itself”” (prohibition of sub-granting) without any elaboration of the logical link between the two. I’d suggest that the reason for that is that there is no logical link between the two. Putting the word “itself” in “scare quotes” does not establish that logical link.

An attempt at establishing a logical link is then made in paragraph 26, where the Court reproduces the Statements of Objects and Reasons of the Act. In sum, it is the State’s case – according to the Court – that NGOs have been found to be “routing” money that has been sent to them to other sources, creating “several issues” bordering on “malpractices”, the creation of a “layered trail of money” where it is “difficult to trace the flow.” Notice that this entire paragraph is fact-free: there are a series of assertions without specifications or evidence, which the Court does scrutinise. Furthermore, specifically on the issue of sub-transfers, quite apart from evidence, the argument defies logic: if both the grantor and the grantee are already FCRA registered – that is, already subject to the regulatory regime under the Act – where is the question of “routing”, “layered trail(s) of money”, and “difficulties in tracing the flow”? Once again, no answer is forthcoming – because no answer exists. The non-answer is provided by the Court in paragraph 50, where it notes:

Accepting this argument would be completely glossing over the legislative intent for which the amendment has been effected. The legislative intent is to introduce strict dispensation qua the recipient of foreign contribution to utilise the same “itself” for the purposes for which it has been permitted as per the certificate of registration or permission granted under the Act by the Central Government. 

Once again, we have the same question-begging argument that the Court tries to gloss over by putting the word “itself” in scare-quotes. However, even if we were to accept this – that there was a legitimate purpose to requiring that only the donor NGO “itself” can use the funding it gets – there is a further constitutional threshold to meet: the test of proportionality. Under the test of proportionality, the State would be required to show – for example – that this kind of a prohibition is the least restrictive method for achieving the desired goal (i.e., adequate regulatory oversight of foreign funds), and that the extent of restriction is proportionate to the goal. Notably, the Court does not engage in a proportionality analysis at all, because it has already held – via its self-serving framing – that there is “no vested right to receive foreign funds.” (paras 55 – 68) The Court also ignores the argument from discrimination, on the basis that this ban on sub-grants specifically hits smaller and grassroots NGOs who cannot directly liaise with big donors, by stating that the law is “facially neutral.” Needless to say, this ignores entirely the law on indirect discrimination, which asks not whether the law is neutral “on its face”, but whether it has a discriminatory impact. Thus, we come to the third stage of this particular form of judicial-executive reasoning that has come to characterise the Court’s judgments of late: constitutional doctrine that is inconvenient to the State is simply ignored.

In the Court’s judgment upholding the vires of Section 7, therefore, we see each of the three steps mentioned in the beginning of this blog post: a founding (incorrect) assumption that benefits the State, acceptance of the State’s factual claims without scrutiny (even when those claims are facially illogical), and selective use of constitutional doctrine to the benefit of the State. The same issues are present – in a far more cursory fashion – in its analysis of the other impugned provisions. With respect to the mandate that all organisations must open their FCRA accounts in a specific branch of the SBI in Delhi, the Court notes that this is necessary because it provides “a complete and transparent check on the inflow and utilisation of foreign contribution towards a single point source on real-time basis.” The Court provides absolutely no reasoning with respect to how this specific restriction will solve the purported issue of “abuse” of the old regime (an initial requirement of reasoning), much less whether it is a proportionate restriction: it only repeats – multiple times – that the old regime was being abused, and that there is need for “strict” regulation “in the interests of the sovereignty of the country”. This form of reasoning might be suitable for WhatsApp forwards that we have all received about how foreign NGOs are ruining the country, but it is rather inappropriate for the highest Court in the country. The Court then notes:

A priori, opening of main FCRA account in the designated bank as per the law made by the Parliament in that regard, cannot be brushed aside on the specious argument of some inconvenience being caused to the registered associations. (paragraph 73)

There are, of course, echoes of the notorious “minuscule minority” line from Koushal v Naz here. Once again, though, the lack of knowledge of – or attention to – existing Indian constitutional jurisprudence is startling. When the effect of a law is to place a heavy burden upon the exercise of a constitutional right, then – under judicial review – the Court is required to subject it to proportionality scrutiny. The Court simply evades that obligation by framing it as an “inconvenience”, and therefore constitutionally irrelevant.

There is also a particular irony here, given that the State’s entire argument for requiring every FCRA-registered NGO to open its FCRA account in a designated branch of SBI Delhi is – in effect – its administrative convenience. It is reminiscent of the Peruvian President Óscar R. Benavides, who once notoriously said, “for my friends, anything; for my enemies, the law!” In this judgment, the Supreme Court likewise says, “for the State, any convenience; for the citizen, every burden.” In law school, we are taught that one of the functions of a Constitution is to put limits upon the power of the State, to secure the freedom of the individual. Increasingly, the Supreme Court is reversing that relationship: the purpose of the Constitution – according to the Court – is to constrain the individual, so that the there can be no check upon the power of the State.

For these reasons, this judgment is somewhat difficult to analyse: the “reasoning” part of it essentially consists of the Court repeating the State’s contentions, repeating how “national security” and “sovereignty and integrity” are important, repeating how there must be “strict regulation” of foreign funding, and concluding on the basis of the above that the amendments are valid. Analysing this judgment, therefore, is more a task of reconstruction than anything else: reconstructing the framing that the Court chooses to ignore, the facts that it chooses to gloss over, and the doctrine that it chooses not to apply. Indeed, it is not so much about analysing legal reasoning, but analysing the absence of it; in Noel Harper, it is the silences that speak the loudest.

But perhaps, a clue to decoding this judgment – to its multiple lapses of logic and evasions – can be found in paragraphs 53 and 54, where the Court notes:

Indubitably, foreign contribution is qualitatively different from foreign investment. Receiving foreign donation cannot be an absolute or even a vested 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 question to be asked is: “in normal times”, why developing or developed countries would need foreign contribution to cater to their own needs and aspirations? Indisputably, the aspirations of any country cannot be fulfilled on the hope (basis) of foreign donation, but by firm and resolute approach of its own citizens to achieve the goal by sheer dint of their hard work and industry. Indeed, charitable activity is a business. Receiving contribution within India to do charitable activity can be and is being regulated differently. It is not possible to have a similar approach relating to foreign contribution from foreign source. In short, no one can be heard to claim a vested right to accept foreign donation, much less an absolute right. 

We say so because the theory of possibility of national polity being influenced by foreign contribution is globally recognised. For, foreign contribution can have material impact in the matter of socio-economic structure and polity of the country. The foreign aid can create presence of a foreign contributor and influence the policies of the country. It may tend to influence or impose political ideology. Such being the expanse of the effect of foreign contribution coupled with the tenet of constitutional morality of the nation, the presence/inflow of foreign contribution in the country ought to be at the minimum level, if not completely eschewed. 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, to obviate influence of foreign country owing to foreign contribution. There is no dearth of donors within our country. 

This is what we call the proverbial slipping of the mask. The Court really really really dislikes foreign donors (as opposed to foreign investors, who – it is of course a well-known fact – never try to influence a sovereign nation’s laws and policies). It hates their guts. It thinks it is a sign of national weakness that individual citizens rely upon foreign donations for funding. Citizens must work hard, because ultimately work will set you free.

In their private lives, judges are of course free to have their prejudices, and hold whatever anti-NGO and anti-foreign funding views they want to. The problem is when these prejudices leak into judgments – as has clearly happened in this case. The relentless beating of the “national security” and “sovereignty and integrity” drums, the unseemly patting on the back of the State for making foreign funding more difficult to receive, and the open contempt for NGOs who do apply for FCRA registrations (“specious argument”) all make for very disturbing reading: it is the crystallisation of State prejudice into judicial prejudice, where – far from checking State abuse – the judiciary sees its primary role as the State’s cheerleader, enthusiastically applauding as it cuts down the rights of those ungrateful and undeserving citizens who don’t want to work hard enough and want to take foreign donations instead. In this brave new world, we don’t get constitutional rights unless we deserve them, and the Court will determine if we are worthy (sneak preview: most of us will not be).