Foreign Contributions Regulations in India

India’s diverse social fabric needs no introduction. In a developing country, ‘constructive’ philanthropy designed to cater to the fast-growing needs is particularly important. In a country with massive population such as ours, it’s often difficult for the government machinery to engineer a trickle down of every social welfare scheme. This is where Non-governmental organisations or associations (‘NGOs’) come in to play an important part. They work with the government and focus on their purpose, which can be religion, human rights, animal rights, poverty eradication, environment, etc. NGOs can be international, national, or regional and can adapt quickly and respond to the changing needs of the society faster than a government organisation which require executive and electoral approval for action.[1]

NGOs receive most of their financial armour in the form of donations from private individuals, for-profit companies, charitable foundations, governments, and foreign entities. There has always been a debate on the unregulated receipt of funds from foreign agencies by individuals and organisations across India and their possible impact on the values of a sovereign democratic republic. Since early 2000, this debate has intensified as India witnessed an exponential jump in the amount of foreign contributions.

A couple of years ago, the Parliament felt the need to amend the existing regime controlling the inflow of foreign contribution in India i.e. the Foreign Contribution (Regulation) Act, 2010 (“Act”). This was done by passing the Foreign Contribution (Regulation) Amendment Act, 2020 (“2020 amendment”). The 2020 amendment aimed at tightening the regulatory framework not just for the modality of acceptance of foreign contribution but also ensuring that the recipient utilises such fund only for its the intended purposes. The amendment was criticised by most NGOs for being manifestly arbitrary, unreasonable, and impinging upon the fundamental rights guaranteed under Articles 14, 19 and 21 of the Constitution of India.

Therefore, the constitutional validity of the 2020 amendment came to be challenged and recently, a three-judge bench of the Supreme Court in Noel Harper vs. Union of India & Ors.[2] (‘Noel Harper’), while upholding the 2020 amendment, held that there is no fundamental right vested in anyone to receive foreign contributions as the rights guaranteed under Part III of the Constitution and Article 19 in particular, are not absolute rights; they are subject to reasonable restrictions, as predicated in clause (2) and (6) of Article 19. Further, the state is at liberty to make laws to impose reasonable restrictions on the same in the interest of sovereignty and integrity of India, security, relations with foreign states, public order, decency or morality, or in relation to contempt of court, defamation or incitement to an offence.

This is a landmark judgment that comes from a familiar place. The Court has echoed sentiment that the disappearance of checks and balances could send the foreign contribution regime to a frictionless void. To understand the implications of this landmark judgment, it is imperative to first understand the relevance of NGOs in  a civil society.

Many NGOs have contributed to the society in true spirit of their purpose. For example, NGO ‘Goonj’ was listed by Forbes as India’s most powerful rural entrepreneur organisation, and both ‘Smile foundation’ and ‘Teach for India’ have been lauded for their efforts in educating under-privileged children. In fact, as far back as 1962, International Committee of the Red Cross was instrumental in identification of Prisoners of War and made it possible for many forgotten heroes of the Indian Army, that were taken captive by the Chinese forces during the Indo-China war, to return to their families.

On the other hand, authorities have, from time to time,  come down heavily on NGOs for inter-alia, being ‘organisations of a political nature’ and allegedly indulging in prohibited activities such as indoctrination, disruption of communal harmony and religious conversations. Many indicted NGOs ended up losing their permanent registration or faced blacklisting / suspension of their grants.

In Noel Harper, the Supreme Court has used a metaphor comparing foreign contributions to a ‘gratifying intoxicant replete with medicinal properties that may work like nectar so long as consumed moderately’ indicating that too much of it may break the nation. The Supreme Court has also observed that NGOs may instead focus on the hundreds of donors available within the country to obliterate the influence of foreign powers, thus, indicating that charity must begin at home.

The main grievance of the petitioners in Noel Harper was that the 2020 amendment is in the nature of crippling prohibitions. It bans the transfer of foreign contribution received by an NGO to any other person and mandates Aadhaar as identification document of all office bearers, directors or key functionaries of an Indian society/trust receiving foreign contribution. Further, it mandates that foreign contributions can be received by the relevant registered person in a foreign contribution regulation account opened only with the State Bank of India, New Delhi’s parliament street branch and no other scheduled commercial bank. There is also restriction on the usage of unutilised foreign contribution if, based on an inquiry, the government believes that such person has contravened provisions of the Act. While NGOs earlier could use up to 50% funds for administrative use, the new amendment restricts this use to 20%.

The Union of India (‘Union’) contented that the 2020 amendment was introduced in legislative wisdom from past experiences in implementing the Act, and the real grievance of the petitioner was arising out of the operational inconveniences, caused to them in a modified regime. The Union argued that the Constitution of India does not predicate that all laws must be general in character and universal in application, and that it is open for the legislature to distinguish and classify persons or things for the purposes of legislation that is the principal of intelligible differentia. Inter-alia, the Union also argued that the implementation of Act increasingly revealed that certain NGOs were involved primarily in routing of foreign contributions only. They received and utilised all contribution by transferring it to other NGOs, thereby establishing a multi layered principal-client relationship.

The essence of Union’s arguments was that the regulatory agencies were finding it increasingly difficult to monitor the veiled pattern of ultimate utilisation of foreign contribution by the transferee and consequent misuse of funds for prohibited activities. Hence, it became necessary to obliterate the mischief of foreign powers, foreign state and non-state actors, who were  indulging in social activities with the ulterior motive of interfering in the internal polity of the country.

On issue of requirement of Aadhaar, the Union clarified that the intent behind such a requirement was to facilitate proper identification of persons and associations and to allow real-time monitoring of their activities for ensuring that the same is not detrimental to national interest. The requirement of a designated bank account at one location in India was necessitated because NGOs have been receiving foreign contribution in exclusive bank accounts of their choice in India and that resulted in opening of multiple bank accounts and hundreds of branches spread across India. This inevitably caused enormous difficulty in monitoring the influence of money from respective accounts and proved a hurdle for internal audit process.

In Noel harper, the Court reiterated a settled principal of international law that the Parliament understands and reacts to the needs of all its people as per the exigencies and experience gained in the implementation of the law and a mere plea of inconvenience is not enough to attract the constitutional inhibition. While many would disagree that the petitioners were merely putting up a plea of inconvenience, it is quite understandable that deference must be accorded to a state in formulating policies that are best suited to its population.

The Supreme Court also observed that there is intrinsic evidence to indicate that the changes affected by the 2020 amendment are to serve the legitimate common purpose and has a rational nexus to the object of the Act. The Supreme Court in this judgment also observed that in the years 2010 to 2019, the annual inflow of foreign contribution almost doubled in India. But at the same time, the judgment noted, many recipients failed to order and fulfil the statutory compliances which resulted in cancellation of about 19,000 certificates of concerned organisation/persons during the nine-year period, including initiation of criminal investigation concerning outright misappropriation. Further, the Apex Court noted that the 2020 amendments are backed by strong legislative intent and notably, there was unanimity among the members of both the Houses, cutting across party lines, to have such a strict regime.

While the aforesaid may have weighed with the Court, it is important to mention that any legislation whose constitutional validity is brought into challenge, has necessarily passed through both Houses of the Parliament before ending up in court of law in India. Therefore, it may be said even if both Houses of Parliament have passed a legislation, it may not be the only yardstick to guarantee its constitutional validity.

The Supreme Court also read down the provision mandating the production of Aadhaar card for registration and allowed the office-bearers of NGOs to use their Indian passports as an identification document. It is also interesting to note that the Supreme Court rejected the argument that the SBI Main branch with 40 odd personnel lacks the infrastructure to deal with thousands of FCRA accounts and therefore, the NGOs should not be mandated to open accounts only with this one designated branch. The reasoning provided of the same was that it is not a headcount dispensing physical services that would matter, but the effectiveness of the software that is important. This reasoning may be perceived as a double-edged sword because on one hand the Supreme Court has stressed on the importance of digital banking, on the other hand, NGOs do not have the flexibility to open and operate foreign contribution regulation account with any scheduled bank in India.  This casts clouds over the efficiency of digital banking in India since, even in this day and age of location non-specific banking, digitalisation of records and transactions and sophisticated banking-softwares, an NGO finds itself tied to one location of one of the many banks in India.

The Supreme Court has observed that introducing change for the betterment of governance is the prerogative of the Parliament and the fact that an amended provisions were less restrictive cannot be the basis to test the constitutional validity of the amendment provisions on the touchstone of article 19(1)(c) or 19(1)(g) or Article 14 and 21 of the Constitution. Further, that the 2010 amendment cannot be equated with any other general legislation as the intent behind the act is to insulate democratic policy, public institutions as well as individuals working in the national democratic space from being unduly influenced by foreign contributions or hospitality received from foreign source.

It is quite clear that the legislature and the judiciary have echoed similar sentiments in so far as strengthening the intent of the 2020 amendment. Both hold NGOs accountable in spirit of the saying that with great power comes great responsibility. As stated before, one of the reasons NGOs have been able to work swiftly is because of the flexibility of financial structure and agility to delegate funds and agenda to other non-registered organisation working at grassroot levels. It may be difficult for these organisations to continue with the ‘old ways’ and the 2020 amendment is a call upon them to re-design and adapt. While national interests trump all, it is also important to ensure that in a country like India, the mammoth yet extremely necessary task of trickle down of social welfare is facilitated and not impaired. The 2020 amendment is the first step in recognising and curbing NGOs that are politically motivated and receive foreign contributions to utilise them for ulterior motives. In future we may see a stricter regime for the same.


[1] https://borgenproject.org/ngo/?nowprocket=1

[2] WP (C) No. 566 of 2021; judgement dated April 8, 2022.

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Partner in the  General Corporate and TMT Practice at the Mumbai office of Cyril Amarchand Managaldas. Bharat has over 30 years of experience at senior management level. His areas of specialization includes company law, corporate and commercial laws, securities law, capital market, mergers…

Partner in the  General Corporate and TMT Practice at the Mumbai office of Cyril Amarchand Managaldas. Bharat has over 30 years of experience at senior management level. His areas of specialization includes company law, corporate and commercial laws, securities law, capital market, mergers and acquisitions, joint ventures, media & entertainment law, competition law, employment law and property matters. He heads firm’s media and entertainment law practice.  He is highly regarded in Government circles and in various industry organizations for his proactive approach on public policy issues. Bharat was a member of the Expert Committee appointed by the Government of India to revise the Companies Act, 2013.

Prior to joining the Firm, Bharat was the Group General Counsel of the Tata Group.  He has been at the helm of and steered several large key M&A transactions pursued by the Tata Group in the last 17 years.

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Senior Associate in the Dispute resolution practice at the Ahmedabad office of Cyril Amarchand Mangaldas. Rinkel specialises in civil and commercial litigation. She can be reached at rinkel.singh@cyrilshroff.com