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FCRA amendments could discourage NGO activities: SC

The Supreme has made oral observations that if NGOs are prohibited from transferring foreign funds to other NGOs, their activities could get restricted

Sabrangindia 02 Nov 2021

FCRA

While dealing with a petition challenging the Foreign Contributions Regulation (Amendment) Act 2020, the Supreme Court orally remarked that these could discourage Non Government Organisations (NGOs) in the country. 

The amendments have been challenged in two petitions namely Noel Harper and others v. Union of India and Jeevan Jyothi Charitable Trust and others v. Union of India contending that the legislation has imposed excessive restrictions on NGOs in utilising foreign funds. The arguments in the case will continue on November 9.

The bench noted that the amendments imposed an absolute prohibition on the NGOs from transferring the foreign contributions to other entities, reported LiveLaw.

The arguments were made by Additional Solicitor General Sanjay Jain on behalf of the Centre, who stated that the main purpose of an NGO is to utilise funds and not to transfer them, and thus, the amendments do not prohibit legitimate utilisation. It only prohibits outsourcing of corpus. He added that the amendments ensure that NGOs utilise the money they are resourcing and not acting as a nodal agency.

The court was however, unconvinced and pointed out that even those NGOs who would wish to transfer funds to a subsidiary or to independent NGOs will be restrained from doing so.

The ASG reasoned that the funds can only be used for the NGOs own activity to which Justice Khanwilkar questioned, “What if it is one of my objectives as a NGO? I may fund other NGO who are doing the same job. That is one of my activities. You say even that activity cannot be done now. Whether it'll be permissible or not?"

Another valid observation made by the bench was that foreign donors may not want to engage with multiple organisations and could contribute to one which could distribute those funds to other organisations. The ASG responded that this option is open in terms of domestic contributions but not for foreign contributions.

To this the bench said that these amendments are in effect discouraging NGO activity. The ASG submitted that if transfer of funds is allowed and one organisation is not in control of day to day affairs of the receiving organization then it will lead to a perverted situation.

The counsel for the petitioners argued during the previous hearing that while the Act in its earlier form imposed reasonable restrictions on transfer of funds, the amendments impose absolute prohibition which violates Articles 14 (right to equality) and 19 (right to carry on trade) of the Constitution.

The FCRA amendment

The amendments prohibit transfer of foreign contribution to any other organisation, earlier such transfer was allowed to other organisations registered to receive foreign contribution.

Further, the NGO is now required to receive foreign contributions only in one particular branch of State Bank of India situated in New Delhi. Earlier an NGO could receive such contributions in any one branch of a scheduled bank.

The Act also restricts use of the foreign contribution for administrative purposes. While earlier the restriction was that not more than 50% of the funds can be used, now it has been reduced to 20% for administrative purposes. The amendment also allows the government to suspend the certificate of registration of an NGO for a period of 180 days.

Related:

MHA relaxes validity of FCRA registration certificates, deadline for opening bank accounts

Assam charity slapped with ‘sedition’ charges!

Amnesty International targeted once again, this time by CBI

FCRA amendments could discourage NGO activities: SC

The Supreme has made oral observations that if NGOs are prohibited from transferring foreign funds to other NGOs, their activities could get restricted

FCRA

While dealing with a petition challenging the Foreign Contributions Regulation (Amendment) Act 2020, the Supreme Court orally remarked that these could discourage Non Government Organisations (NGOs) in the country. 

The amendments have been challenged in two petitions namely Noel Harper and others v. Union of India and Jeevan Jyothi Charitable Trust and others v. Union of India contending that the legislation has imposed excessive restrictions on NGOs in utilising foreign funds. The arguments in the case will continue on November 9.

The bench noted that the amendments imposed an absolute prohibition on the NGOs from transferring the foreign contributions to other entities, reported LiveLaw.

The arguments were made by Additional Solicitor General Sanjay Jain on behalf of the Centre, who stated that the main purpose of an NGO is to utilise funds and not to transfer them, and thus, the amendments do not prohibit legitimate utilisation. It only prohibits outsourcing of corpus. He added that the amendments ensure that NGOs utilise the money they are resourcing and not acting as a nodal agency.

The court was however, unconvinced and pointed out that even those NGOs who would wish to transfer funds to a subsidiary or to independent NGOs will be restrained from doing so.

The ASG reasoned that the funds can only be used for the NGOs own activity to which Justice Khanwilkar questioned, “What if it is one of my objectives as a NGO? I may fund other NGO who are doing the same job. That is one of my activities. You say even that activity cannot be done now. Whether it'll be permissible or not?"

Another valid observation made by the bench was that foreign donors may not want to engage with multiple organisations and could contribute to one which could distribute those funds to other organisations. The ASG responded that this option is open in terms of domestic contributions but not for foreign contributions.

To this the bench said that these amendments are in effect discouraging NGO activity. The ASG submitted that if transfer of funds is allowed and one organisation is not in control of day to day affairs of the receiving organization then it will lead to a perverted situation.

The counsel for the petitioners argued during the previous hearing that while the Act in its earlier form imposed reasonable restrictions on transfer of funds, the amendments impose absolute prohibition which violates Articles 14 (right to equality) and 19 (right to carry on trade) of the Constitution.

The FCRA amendment

The amendments prohibit transfer of foreign contribution to any other organisation, earlier such transfer was allowed to other organisations registered to receive foreign contribution.

Further, the NGO is now required to receive foreign contributions only in one particular branch of State Bank of India situated in New Delhi. Earlier an NGO could receive such contributions in any one branch of a scheduled bank.

The Act also restricts use of the foreign contribution for administrative purposes. While earlier the restriction was that not more than 50% of the funds can be used, now it has been reduced to 20% for administrative purposes. The amendment also allows the government to suspend the certificate of registration of an NGO for a period of 180 days.

Related:

MHA relaxes validity of FCRA registration certificates, deadline for opening bank accounts

Assam charity slapped with ‘sedition’ charges!

Amnesty International targeted once again, this time by CBI

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