In a Win for Activists, SC Issues Notice to Centre on Plea Challenging Foreign Political Funding

The petition before the apex court had claimed that retrospective amendments to the FCRA were meant to bail out the BJP and Congress, held guilty by the Delhi high court of accepting foreign funding.

New Delhi: The Supreme Court’s notice to the Centre on July 2 seeking a response to a plea alleging that the recent amendments to the Foreign Contribution (Regulation) Act (FCRA), 2010 have opened the doors to unlimited political donations from foreign firms has come as a shot in the arm for activists battling to ensure transparency in political funding.

The activists had also alleged that the FCRA amendment was primarily aimed at protecting the two major national parties – the Bharatiya Janata Party and the Congress, which were held guilty by the Delhi high court in 2014 of taking foreign funding in violation of the FCRA Act.

‘Amendments to FCRA made to overturn the HC judgment against BJP, Congress’

The petition before the apex court was filed by founder-trustee of the Association for Democratic Reforms (ADR) Jagdeep S. Chhokar and former bureaucrat E.A.S. Sarma. They challenged the amendments to the FCRA through the Finance Act, 2016 and the Finance Act, 2018 on the grounds that they had been “made in an attempt to overturn the judgment passed by the Delhi high court (in a PIL filed by petitioners herein) holding the two major political parties (the BJP and the Congress) guilty of taking foreign funding, against which the special leave petitions were dismissed by this court.”

Appearing for the petitioners, senior advocates Prashant Bhushan, Kamini Jaiswal and Pranav Sachdeva contended that “the said amendments have opened doors to unlimited political donations from foreign companies, thereby legitimising financial contributions received from foreign sources.”

SC notice to MHA on plea

Upon hearing the plea, the bench comprising Chief Justice Dipak Misra and Justices A.M. Khanwilkar and D.Y. Chandrachud issued a notice to the home ministry and tagged the matter with other similar pending petitions.

The petition had noted that the writ was being filed under Article 32 of the constitution in public interest to challenge the amendments made in the FCRA Act 2010 through Finance Act, 2016 and Finance Act, 2018, which had been passed as a Money Bill with retrospective effect from 1976.

It claimed that the “amendments have been made in an attempt to overturn the judgment passed by the Delhi high court (in a PIL filed by petitioners herein) holding the two major political parties (the BJP and the Congress) guilty of taking foreign funding, against which the SLPs were dismissed by this hon’ble court.”

Amendments in FCRA ‘opened doors to unlimited political donations from foreign companies’

Insisting that the “amendments have opened doors to unlimited political donations from foreign companies and thereby legitimising financial contributions received from foreign sources”, the petition had alleged that this also went “against settled principle of separation of powers since it has overruled the Delhi high court judgment (against which SLPs were dismissed).”

Elaborating on the issue, it said: “It is a settled law the legislature cannot over-turn any court judgment; it can only remove the basis of the judgment. The Delhi high court had held the two major national political parties (BJP and Congress) guilty of taking foreign funding in violation of FCRA 1976.”

Centre brought second amendment in 2018 despite matter being sub judice before SC

Noting that the amendment made in FCRA 2010 through the Finance Act 2016 was already under challenge before the Supreme Court, and that it had issued a notice in the matter on October 3, 2017, the petition said “despite the same being sub-judice, the parliament has now made the amendment with retrospective effect from 1976 vide Finance Act, 2018 which has come into force from 1st April 2018.”

The Wire had earlier reported how the Finance Bill had again amended FCRA 2010 to condone illegal donations to the BJP and Congress from foreign companies.

The petition had recalled that “in 1976, the Foreign Contribution (Regulation) Act, 1976 was enacted by the parliament to serve as a shield in legislative armoury, in conjunction with other laws like the Foreign Exchange Regulation Act, 1973, and insulate the sensitive areas of national life – like journalism, judiciary and politics from extraneous influences stemming from beyond our borders. It imposed prohibition on candidates for election from accepting foreign contribution from foreign sources.”

FCRA 1976 sought to prevent interference in ‘internal affairs of country’

The main reason behind enacting the said law, the petition said, was to prevent monetary aid/donations from gaining dominance and perhaps interfering with the internal affairs of the country, so as to safeguard the rule of law and ensure protection of fundamental rights guaranteed under Article 14 and 21.

Stating that FCRA 2010 was later enacted by the parliament, the petition said, through Section 54 (1) this Act repealed the earlier FCRA, 1976. However, the definition of ‘foreign source” remained unchanged.

Delhi HC had in 2014 held Congress, BJP guilty of violating FCRA 1976

On March 28, 2014, the petition said, the Delhi high court had in a writ petition held the Congress and BJP guilty of violating FCRA 1976. “The petition highlighted donations made to the political parties i.e. BJP and Congress by M/s Sterlite Industries Ltd. And M/s Sesa Goa Ltd., companies registered in India under the Companies Act, 1956 and more than 50% of their issued share capital was held by Vedanta Resources PLC, a company incorporated under the Companies Act, 1985 and registered in England and Wales with registration No.04740415.”

The high court held the two major national political parties guilty of taking foreign funding and directed the Ministry of Home Affairs and Election Commission of India to take action against them within six months.

Finance Bill 2016 changed definition of “foreign company” under FCRA

To counter the high court order, the petition stated, “in 2016, for the first time the Finance Bill was used to bring amendments to the FCRA, 2010 to change the definition of what constitutes a foreign company in such a way that key beneficiaries of UK-based Vedanta group, the BJP and Congress, would not face legal scrutiny for donations received from 2010 onward. Vide the said Act, amendment was brought to the definition of ‘foreign source’ in the FCRA, 2010.”

The petition said a proviso was added to the definition of “foreign source” which stated: “Provided that where the nominal value of share capital is within the limits specified for foreign investment under the Foreign Exchange Management Act, 1999, or the rules or regulations made thereunder, then, notwithstanding the nominal value of share capital of a company being more than one-half of such value at the time of making the contribution, such company shall not be a foreign source.”

On November 29, 2016, the petition noted that “the SLPs filed against the Delhi high court judgment by the two political parties were dismissed as withdrawn” by the apex court.

HC had issued contempt notice to Centre in March 2017 for noting acting against BJP, Congress

On March 21, 2017, the Delhi high court issued contempt notice to Union of India on a petition filed by the petitioners who argued that the amendment in FCRA 2010 with effect from September 26, 2010 would not come to the aid of the two political parties. The high court specifically recorded the contention of the petitioners that amendment made by Finance Act, 2016 would not help the two political parties.

Subsequently, on October 3, 2017, the Supreme Court issued notice on a PIL filed by ADR challenging the provisions of Finance Act, 2016 and Finance Act, 2017 including the amendment to FCRA 2010.

On October 9, 2017, the Delhi high court on an application filed by the Central government for extension of time, gave it six months from the date of the order to take action against the two political parties for violations of FCRA.

On March 14, 2018, Lok Sabha passed the Finance Bill, 2018 whereby a retrospective amendment was made to the Finance Act of 2016. The amendment added the applicability of the proviso added by the Finance Act, 2016 retrospectively from 1976, instead of 2010.

On March 30, the Ministry of Finance notified the Finance Act, 2018 amending FCRA 2010 with effect from 1976.

Petition said Congress leader admitted retrospective amendment was to overcome FCRA violation

In the petition before the Supreme Court, ADR also submitted that on April 11, “Congress leader Dr Abhishek Manu Singhvi admitted on NDTV show that the retrospective amendment is to get over the violation of FCRA committed by Congress and BJP.”

In fact, while writing for The Wire earlier this year, Chhokar had made a detailed reference to this programme. Citing the programme, he stated that “these repeated attempts at amending the FCRA had, and have, only one objective: To save the BJP and Congress from being prosecuted for the violations of FCRA, as determined by the Delhi high court in its judgment of March 28, 2014.”

Chhokar further noted how the anchor had asked: “I am obviously talking about the amendments that we have actually seen to the FCRA which is something, it’s a story that’s almost amusing, were it not for the fact that it is so serious that after you and the BJP were pulled up by the Delhi high court for violations of receiving foreign funds. First, the Act is amended, going back to September 2010 and then when the Supreme Court says that the court was referring to the 1976 Act, then the Finance Bill goes all the way back to 1976 to amend the Act. Now isn’t this a case of all political parties, including you, being complicit in basically using Parliament going back to 1976, amending the law to protect yourself from being caught out for an illegality.”

To this, he had quoted Singhvi as responding: “I would be less than candid if I did not partly agree with you, though not with your strong words. But you must realise one thing, and this is a bit of legalese here which you must appreciate. Yes, it is true, that more than the two mainstream parties were involved and therefore an amendment was used. But, you know, it is not as bad as you make it sound. It was done for a case-specific aberration. I don’t think the intention was to violate the Act but since technically the view was the Act stood violated, both the parties agreed that, they should amend the law. And let me tell you what happened. It is a case-specific case of Vedanta or Sterlite group. They made an open donation, but there was a particular clause which read in a particular way by interpretation, was assumed to be compliant but was found by the courts to be non-compliant. There was nothing hidden about it. It is just that they had a set of foreign shareholders and foreign elements, which would have not made it a compliant thing. Now the only way to get about it was either to have prosecutions for both the parties. Remember it is not hidden, it is not surreptitious, not intended to violate in that sense. So to get around that prosecution, I think this was made, I wish it could have been avoided. Therefore, the going back to 1976 is not in the blanket sense you mean it, that there were millions of donations from millions of different donors. Remember the funny part of this whole thing is, it is for one donor, one donor, therefore, though you are right in theory, it is not as bad as it sounds. And I think it should be avoided in the future. It is a bona fide donation, accepted by the donee bona fide, made by the donor bona fide, but found to be in violation of the Act, which is rectified and therefore retrospective.”

This narrative, Chhokar had stated, “should not leave any doubt whatsoever in anyone’s mind that all political parties believe that the law of the land does not apply to them. They seem to be convinced that they are above the law.”

Petition cites many grounds for declaring FCRA amendments ‘void, illegal and unconstitutional’

The petition before the Supreme Court filed by Chhokar had demanded that the amendments introduced in FCRA 2010 by Section 236 of Finance Act, 2016 and by Section 217 of the Finance Act, 2018 be declared “void, illegal and unconstitutional” as they have “opened the floodgates to unlimited corporate donations to political parties and anonymous financing by Indian as well as foreign companies which can have serious repercussions on the Indian democracy.”

The petition further elaborated that “the Finance Act, 2016 has amended the Foreign Contribution Regulation Act (FCRA), 2010, to allow foreign companies with subsidiaries in India to fund political parties in India, effectively, exposing the Indian politics and democracy to international lobbyists who may want to further their agenda.”

It also charged that Finance Act, 2018 has amended FCRA 2010 with effect from 1976 “in an attempt to over-turn the judgement” passed by the Delhi high court.

‘Amendments pose a serious danger to the autonomy of the country’

Asserting that these “amendments pose a serious danger to the autonomy of the country and are bound to adversely affect electoral transparency, encourage corrupt practices in politics and have made the unholy nexus between politics and corporate houses more opaque and treacherous and is bound to be misused by special interest groups and corporate lobbyists,” the petition had also claimed that they were “in violation of Articles 14 and 21 of the Constitution of India.”

The petition further cautioned that “if the recent amendments are not set aside, foreign countries and corporate houses and extremely wealthy lobby groups can have a stranglehold on the electoral process and governance. Such activities, if allowed, can result in a situation that legislation, regulations etc. can be ultimately be passed and laws brought in to favour of these corporates and lobby groups at the expense of the common citizens of the country.”

‘Amendments will lead to creation of shell companies, rise in benami transactions’

It also highlighted the possibility that “this will lead to the creation of shell companies and rise of benami transactions to channelise the undocumented money into the political and electoral process in India.”

It also went into the details of what constituted a Money Bill to state that “the Finance Bill, 2018 may be a Money Bill if it deals only with the matters specified above, and not with any other extraneous matter as otherwise it would be analysed as a Financial Bill. However, an amendment to FCRA cannot be categorised as a Money Bill.”

Finally, the petition argued that “it is a settled principle of law that the legislature can pass an amendment to an existing law to cure the defect in that law.”

Therefore, it said, “when the Court held BJP and INC guilty of accepting donations from ‘Financial Source’ as prohibited in FCRA, 1976, then in no circumstance whatsoever can any political party in power use the powers vested in the legislature to cure the guilt on its part by bringing any law or amendment to an existing law.”

It also questioned how the scope of amendment to an already repealed act can be altered. “The legislature by extending the scope of amendment to the already repealed FCRA, 1976 has tried to get away with the guilt on the part of BJP and INC as recognised by the hon’ble high court and this is nothing but breach of the principle of Separation of Powers,” the petition said.

In light of all these alleged fallacies in law, the petition had sought that the amendments introduced in FCRA 2010 by Section 236 of Finance Act, 2016 and by Section 217 of the Finance Act, 2018 be declared “void, illegal and unconstitutional”.