Surreptitious FCRA Amendment: The Empire Attempts to Push Back

The government appears to be seeking to counter news reports that are critical of the planned amendment to the Foreign Contribution (Regulation) Act.

The government is trying to counter news reports critical of the planned amendment to the FCRA. Credit: PTI

The government is trying to counter news reports critical of the planned amendment to the FCRA. Credit: PTI

Since The Wire broke the story of  the proposed surreptitious amendment of the Foreign Contribution (Regulation) Act 2010 (FCRA) to let the BJP and Congress off the hook for illegally accepting donations from foreign companies, there has been fairly widespread reporting on this issue, mostly critical of the way the amendment is being attempted to be enacted. The editorial in the Business Standard is one such example.

The FCRA bans parties from receiving foreign contributions.

The amendment effectively redefines the Indian subsidiaries of foreign companies – hitherto considered ‘foreign entities themselves under the FCRA – as ‘Indian’ companies, thus allowing them to make donations to political parties.

Possibly driven by this negative media coverage, the government seems to have moved to counter the critical reporting. Two news items, one in The Hindu and the other in Mint, seem representative.

A petition for amendment

The title and the lead of the report in The Hindu seem to contradict each other. The headline says “FCRA tweaked to boost CSR spend,” which is unambiguous in its message that the basic purpose of the amendment, referred to as “a discreet move” in the report, is to “boost” spending on corporate social responsibility (CSR). The lead, however, tells a different story; it says the amendment clears the way for political “parties to receive donations from firms classified as foreign companies.”

The Hindu report also refers to a “petition” by “at least 22 companies,” including Infosys and Axis Bank, submitted to finance minister Arun Jaitley in September 2015, highlighting problems in spending the mandatory 2% of their profits on CSR activities. Jaitley was reported to have written a letter to the home ministry seeking its response to the petition. The report also says that while the home ministry “had already prepared a cabinet note to amend the FCRA, … sending it to cabinet would have meant that a Bill would have to be drafted and wait for the parliament to pass the legislation.”

It is not clear from the report in The Hindu how the FCRA’s definition of “foreign source” – the target of Jaitley’s amendment – hinders an Indian company from spending CSR funds. The petition filed by the companies is not in the public domain, nor is the letter reportedly written by Jaitley to the home ministry, and thus their contents remain unknown. Right to information (RTI) applications seeking their copies have been filed and responses are awaited.

There are other unanswered questions too. Why was the FCRA not amended using the normal course of revising a law? Why was it considered necessary, or even desirable, to include this amendment in the Finance Bill? The Business Standard editorial provides a tentative answer to the second question.

“Adding to the misgivings about the opportunism embedded in this amendment is the fact that it has been included in the Finance Bill, 2016, which is a Money Bill under the constitution. This means that the Rajya Sabha can neither amend nor reject it once the Bill is passed by the Lok Sabha, nor can it be referred to a joint committee of the houses. This legislative chicanery becomes explicable only because of the ruling coalition lacking the requisite numbers in the upper house to pass any controversial legislation. But the real question is how the speaker can certify this amendment as a Money Bill. First, the FCRA falls under the home ministry, not the finance ministry. Second, it is an issue that involves political party funding and in no way entails taxation, expenditure or borrowing of the Government of India or any appropriation or receipts to the Consolidated Fund of India, which are the broad constitutional qualifications for a Money Bill.”

Managing CSR obligations 

As for the report in the Mint, the title of the piece leaves no doubt of its intentions: “FCRA amendment expected to boost ‘foreign source’ firms’ CSR plans.” The essence of the Mint report is three-fold.

It extolls the virtues of the proposed amendment by eulogising how it will allow “companies to manage their CSR obligation without doing FCRA due diligence [because they] will be able to make donations without ensuring that the not-for-profit receiving the funds has FCRA clearance.” The report quotes three chartered accountants who are said to be working with corporates and “not-for-profits” in support.

The other is the benefit that the proposed amendment will provide for NGOs, particularly smaller ones. It will “give a boost to the small not-for-profit organisations that do not have the resources to adhere to the cumbersome FCRA registration and licensing procedures but are doing good work at the grassroots level.” Another observation made by one of the chartered accountants quoted is that “it will provide an opportunity to all charitable organisations, including those without FCRA registration, to access corporate grants and CSR funds.”

The concern of the government for “smaller” not-for-profits that do “not have FCRA registration” is extremely touching and providing them access to funds that have been considered taboo for the 40 years since the FCRA was enacted is even more moving.

Of course, one sentence in the report seems to indicate something different. “Even foundations run by such companies must [currently] obtain a licence under FCRA norms to operate.” This shows that the “at least 22 companies” might be keen on the amendment so that they can donate their CSR money to their own foundations rather than to the so-called “smaller not-for-profits.”

A more interesting feature of the Mint report is the opinion the chartered accountants have given on the legal applicability of the proposed amendment, saying that “the amendment may not benefit political parties.” The logic supporting this conclusion is that “foreign source is defined under 10 overlapping clauses in the FCRA and the proposed amendment deals with only one such clause. It is not a blanket exemption of all foreign sources.”

It is indeed true that “foreign source” is defined under ten clauses in the FCRA under Section 2(1)(j) but what seems to have not been noticed, either deliberately or inadvertently, is a key paragraph of the Delhi high court judgment, which says, “The interpretation of the term “foreign source” as defined under Section 2(1)(e) of the Act lies at the heart of the present controversy and begs for judicial consideration” (italics added).

It needs to be pointed out that Section 2(1)(e) of the 1976 Act became Section 2(1)(j) of the 2010 Act when the FCRA was revised in 2010, and that both these sections are identical. The reason for amending only one clause of this section is that it is this particular clause that qualifies Vedanta, Sterlite, and Sesa as “foreign sources” according to the judgment.

Another moot point related to this is whether the Supreme Court will go by the interpretations given to Mint by chartered accountants or  will make up its own mind based on what is argued before it by lawyers engaged by the two leading political parties – the BJP and the Congress. What the lawyers representing the political parties and the government will argue in the Supreme Court is anybody’s guess.

No distinction between government and political party leading it

In the past, the government has said, in a sworn affidavit in the Supreme Court, that while the Election Commission of India has the right, under Section 10-A of the Representation of People (RP) Act, 1951, to “receive” a statement of election expenses of a candidate contesting election to parliament, it did not have the right to “scrutinise” that statement. The Supreme Court, logically, rejected this contention but the fact that the government actually made it is startling in itself.

And we now have a government that has said in the Supreme Court that political parties should not come under the purview of the RTI Act, even though it was passed unanimously in parliament and the highest statutory authority to administer the Act, the Central Information Commission (CIC), has declared that six national political parties fulfil the definition of “public authority,” as specified in the Act.

The distinction between the government of the day and the political party that forms or leads the government seems to have completely eroded. There is now a long history of government proposing to amend and parliament amending, often unanimously, laws whenever the proper application of a law to political parties puts them at the slightest discomfort, as seen with the amendment of the RP Act in 1974.

At that time the Supreme Court had said that the expenditure incurred or authorised by friends and supporters of a candidate contesting elections will be considered part of the election expenditure incurred by the candidate themselves. Parliament acted with great alacrity to add an “explanation” to Section 77 of the RP Act to nullify the Supreme Court judgment and to clarify why it was doing so; it also made it effective from the date of the judgment. The current case of the proposed amendment of the FCRA seems very similar, except that the amendment is proposed to be effective from the date the FCRA was revised rather than the date of the Delhi high court judgment.

Jagdeep S. Chhokar is a former professor, dean, and director in-charge of the Indian Institute of Management, Ahmedabad, and a founder-member of the Association for Democratic Reforms, who were one of the petitioners in the Delhi high court case.