FCRA amendment disproportionately penalises voluntary surrender

Sections 14A and 15 of the FCRA, which can lead to a seizure by the government of the management of all assets of the civil society organisations (CSOs), even upon voluntary surrender of an FCRA certificate, are equaly draconian like those which secured Supreme Court's approval.  Yet, these provisions have evaded critical scrutiny so far.  

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IN April, the Supreme Court upheld the draconian Foreign Contribution (Regulation) Amendment Act, 2020 in its entirety, challenged in the Noel Harper case, even as it read down Section 12A of the Foreign Contribution (Regulation) Act, 2010 ('FCRA'). The petitioners had challenged Section 12 read with Section 17, along with Sections 7, 8 (1)(b), 11(2), and 12A of the FCRA.

The petitioners argued that the said provisions, amended/added by the 2020 Act, greatly inhibited and limited the functioning of CSOs, and were manifestly arbitrary under Article 14 of the Constitution. However, the Union Government argued that the FCRA amendments were aimed at preventing foreign powers from interfering with the internal polity of the nation, and were thus necessary for protecting its sovereignty.

Even though the above mentioned amendments were challenged before the Supreme Court as unconstitutional, Sections 14A and 15, which seem equally, if not more chilling, were left out of the purview of the challenge for unknown reasons. Sections 14A and 15 can lead to a seizure by the government of the management of all assets of the CSOs created with foreign money, even upon voluntary surrender (contrasted with cancellation or rejection) of an FCRA certificate.  Ironically, however, these provisions have not been critically analysed thus far, and deserve due attention.

Problematic provisions

The Union Ministry of Home Affairs has declared that a total of 1,800 non-governmental organizations have been rejected for renewal of FCRA certificates in the last three years, as they failed to fulfil the eligibility criteria under the FCRA and rules made thereunder. According to the FCRA, the assets of such organizations whose certificate has been rejected under Section 14 will be seized by the government under section 15, and the same will be vested with the prescribed authority, that is, the home departments of the respective state governments.

What is striking, however, is that the 2020 Act goes a step further to legislate that even without contravention of the FCRA, simply upon the voluntary surrender of the certificate by an NGO under section 14A, all the assets of the said NGO will be similarly seized by the government under section 15A. It is deeply concerning to know that the seizure of assets after rejection (or cancellation) and voluntary surrender of the certificate are being treated equally as per the amendment. Juxtaposing section 14 with section 14A, it would not be incorrect to say unequals are being treated equally, which is violative of the principle of fairness.

This provision is manifestly arbitrary and unjust for the organizations that are willingly surrendering their FCRA certificate, and will disproportionately affect such NGOs. Therefore, it could be argued that section 14A violates Article 14 of the Constitution.

To understand how this amendment is likely to play out in effect, let us consider an NGO working in the education or healthcare sector that has created schools or hospitals with foreign money received under FCRA, which now decides to voluntarily surrender its certificate. The government allows the surrender of certificate, upon satisfactory investigation and without finding any contravention of the FCRA. However, under section 15A, the government will now be able to seize the operational school or hospital, which are meant for public good and welfare. Is it fair to undermine the right of the NGO to carry out its welfare activities despite no contravention of law? Does it not impose a penal action upon them?

Furthermore, in cases where such a public welfare asset was partly funded through domestic funding, the scenario is further complicated as the asset is not purely an asset built with foreign donations. Is the government justified in taking over the management of such jointly funded public welfare assets, either under rejection or voluntary surrender of an FCRA certificate?

Undue harshness 

The seizure or attachment of assets is not an unusual practice when one looks at how regulatory bodies react in cases of default or contravention of the law. But the mannerism by which the State wields power in matters of the FCRA is distinct from any other legislation.

Historically, taxation laws have been the most stringent of laws. Under the tax regime, Section 281B of the Income-tax Act, 1961 ('IT Act') states that in a case assessment/ reassessment, if the Assessing Officer feels that it is necessary to attach the property to protect the interests of the revenue, they may, with the approval of the concerned Commissioner/Director, attach the property. If the assessee is in default and has not paid the same even after the Tax Recovery Officer has demanded the same, the latter can attach the immovable or movable property of the assessee, and either sell them or appoint a receiver for the management of the property (Additionally, the assessee can also be put under detention in jail, but for our context, this is not so important).

Even in such cases, if the assessee provides security to the satisfaction of the officer, the officer can cancel the attachment. Before taking possession, the concerned authority under the IT Act is required to give notice to the party, and is given an opportunity to pay the dues. The IT Act even provides an opportunity for a defaulter or any person who is affected by the sale, to buy back the said property under Rule 60 of the Second Schedule of the IT Act. Section 14A of the FCRA provides for no recourse in case the concerned authority takes possession of the property, let alone provide any opportunity to regain possession.

The Home Department has the absolute authority to take possession under section 14A, with no scope for the surrendering organization to explain their case. When even the ironclad taxation law in the country seems mild compared to the provisions of FCRA, the rationale of the amendment brought about by the 2020 Act becomes suspect.

Uncertainty ahead

The act of taking possession of property made using foreign funds upon surrender of FCRA certificate is not merely disproportionate and arbitrary, but also antithetical to even the procedure as followed under taxation law. Further, 5,789 organizations did not apply for FCRA certificate renewal and have lost their ability to receive or use foreign financing. The status of their immovable assets created by FCRA funding, whose certificate has lapsed as on December 31, 2021 has become unclear, and the fate of their operations seem ambiguous.

So far, the FCRA  has been severely criticized by CSOs and declared as a "death blow" to the sector, largely on the grounds of its back-breaking and arbitrary measures, such as the abolition of sub-granting of foreign donations (Section 7), and a drastic reduction of the administrative expenditure cap on NGOs by more than half (Section 8(1)(b)). However, a close analysis of sections 14A and 15, as discussed above, reveals that these provisions are also deeply problematic for CSOs. Their arbitrariness and ambiguity hold great potential to open a floodgate of litigation in the future.

In the Noel Harper case, the Supreme Court held that permitting foreign contributions, which are donations, into the country is a matter of State policy backed by legislation and the FCRA, as amended, governs this situation. It further stated that the State is allowed to impose a regime that fully prohibits the reception of foreign donations as citizens inhere no right to receive foreign contribution. In view of this ruling, how the court will respond to challenges against sections 14A and 15, is worrisome for CSOs.