Supreme Court misinterpreted legitimate NGO activities as against national interests

By Prakhar Raghuvanshi

Foreign contributions to individuals, associations and corporations are regulated by the Foreign Contribution (Regulation) Act, 2010 (“FCRA”). The central purpose of the law is to prohibit foreign contributions that may be used for activities that harm the national interest. The FCRA was amended by Parliament in 2020 to prohibit sub-transfers of foreign contributions to another person, reduce the use of foreign contributions for administrative activities to 20 percent of the existing 50 percent, require that foreign contributions can be received at the State Bank of India (“SBI”) branch in New Delhi, and for registration or renewal of registration, among other things, Aadhaar is required as proof. Clubd together, these have mainly affected non-governmental organizations (‘NGOs’).

The amendments were challenged in the Supreme Court in the Noel Harper v. Union of India case. The court, in a more than 130-page ruling (mostly repeating the Union government’s claims) in April, upheld all amendments except for the reading of Section 12A, which required Aadhaar as identification; the court ruled that the provision must be interpreted as permitting the issuance of a passport for identification (paragraph 84 of the judgment).

First, the Constitution guarantees freedom of association for individuals who may be subject to reasonable restrictions within the meaning of Article 19(4). Does the 2020 FCRA amendment impose unreasonable restrictions on this right, by prohibiting transfers of funds and reducing the amount that can be used for administrative activities? The rationale for such a prohibition is that NGOs transfer funds received to other NGOs, creating a client-client relationship (Section 5(f)).

The court assumes without any evidence that these activities are contrary to the national interest. An NGO can perform its routine functions through other smaller NGOs. The same cannot be equated with activities that are harmful to the national interest or with the use of funds for the benefit of society.

The United States Supreme Court ruled in the National Association for the Advancement of Colored People versus Alabama (1958) that freedom of association for the advocacy of ideas and the expression of grievances was protected under the freedom of speech and due process clauses of the US Constitution. This view was reiterated in Bates versus City of Little Rock (1960). NGOs would qualify for such protection due to the nature of their work.

In addition, in our Supreme Court decision earlier this year in Parsi Zoroastrian Anjuman, MHOW vs. The Sub Divisional Officer/The Registrar of Public Trusts &Anr. in the context of religious faith, Judge Ravindra Bhat noted:

“Any measure of public oversight promulgated by express statutory provisions shall not be extended to such an extent that the right to freedom of association, under Article 19(1)(c), is reduced to an empty shell, devoid of meaningful exercise of choice.”

Second, in order to meet the threshold of a reasonable restriction, it must be weighed against the subject matter of the law. The aim here is to limit foreign funds that could be used for activities that harm the national interest. However, there is no connection between transferring funds from one NGO to another or using 50 percent of the funds for administrative activities or receiving funds from SBI, New Delhi, and national interest. The court merely takes for granted the state’s claims instead of making an appropriate analysis.

The court overlooks the challenge of Article 14 by accepting the state’s argument without proper reasoning and case law. Justice AM Khanwilkar J. writes (paragraph 57):

“We do not understand how such a provision (amended Article 7) can be regarded as discriminatory or, so to speak, vague or irrational, much less clearly arbitrary. The restriction therein applies to a class of persons who may accept foreign donations for use by themselves for certain purposes, without discrimination of any kind and this is done to uphold the purpose of the Constitution. There is thus a clearly intelligible difference with a direct connection that is pursued with the intention of the main law. Such a strict regime had become inevitable because of the experience gained by the authorities concerned over a period of time, including on the misuse of the previous waiver under the unchanged provision.”

As previously mentioned, the changes are not directly related to the purpose of the FCRA, causing the two-tier test to fail. The court does not discuss the nexus, nor does it question the State’s repeated ‘abuse’ argument. In addition, the court does not seem to be aware of case law on indirect discrimination.

The purpose of each law is linked to a motive that cannot be challenged in court. Therefore, a shift is needed from the purpose of the law to the operation of the law. This is called the effects-based approach to equality. The essential question in applying this approach is: is the operation (not the object or purpose) of the law permitted under the Constitution?

The question that the Supreme Court had to answer in Noel Harper was whether the effect of the FCRA changes was permissible. The effect of the amendment will have a disproportionate impact on the functioning of the associations by banning sub-transfers and cutting the resources that can be spent on administrative activities. This disproportionate negative effect on associations is prohibited under the equality scheme, however new the aim of the law may be.

Third, the judgment infringed the principle of proportionality. The reasonable restriction on freedom of association under Article 19(4) must be weighed against the proportionality test. The legitimate interest of the state (or the purpose of the law) must be fulfilled in a way that does not restrict the right of the individual beyond what is necessary. Proportionality is a matter of both means and ends. However, Judge Khanwilkar notes otherwise in Noel Harper (paragraph 66):

“…In order to overcome the calamity and increase transparency and accountability regarding the acceptance and also the use of foreign contributions, which are quite substantial each financial year and have a growing effect on the nation’s economy, it was became necessary to introduce amended Section 7. In other words, there is a clear rationale behind the amendment that is consistent with the purpose of the main law and the purpose pursued by the provisions. The fact that the unmodified provision was less restrictive cannot be the basis for checking the constitutional validity of the provision against the touchstone of Article 19(1)(c) or Article 19(1)(g) or the Articles 14 and 21 of the Constitution. †

As the Supreme Court states in Justice KS Puttaswamy versus Union of India (2017), proportionality is an important aspect of protection against arbitrary action by the state. It ensures that the nature and quality of the infringement of the law is not disproportionate to the purpose of the law. The Supreme Court had subsequently ruled in the 2020 Anuradha Bhasin v Union of India case that only an appropriate or least restrictive choice of measures is allowed under the Constitution. Therefore, the finding that the “unchanged provision was less restrictive, cannot form the basis for checking the constitutional validity of the provision” turns the principle of proportionality on its head, and it is nothing short of a constitutional nightmare that such a finding comes from the high Council.

Finally, the verdict stated several times that sub-transfers are prohibited and that FCRA funds could only be received at the SBI’s New Delhi branch to ensure a trail of funds and that the use for the permitted purpose is being done. Under the unaltered law, transfers of funds could be made from one registered FCRA account to another registered FCRA account. It is a logical mystery how the trail of funds could not be kept when both parties are FCRA registered.

Cutting off the hands of non-state actors such as NGOs will have consequences for the social and economic condition of our nation and our democracy.

The FCRA amendment has paralyzed NGOs and will unfortunately continue to do so despite the presence of a so-called “guardian of the constitution”. (IPA service)

Courtesy: The Leaflet

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