FCRA: Are political parties unique organisations, and thus above the law?

The past year-and-a-half or so has seen several instances of very prompt action having been taken against some civil society organisations (CSOs) based on suspicions and allegations of violations of the Foreign Contribution (Regulation) Act (FCRA). On the other hand, now we have a situation where a high court has held two organisations — which for all practical purposes, can be considered to be CSOs because these are neither government nor corporate business organisations — actually guilty of having violated the FCRA as far back as 28 March, 2014, and actually “directed” the Union of India to “take action as contemplated by law… within a period of six months”. But, all the Ministry of Home Affairs — the administering authority for implementing FCRA and which took very prompt and stern action against other CSOs — did, as far as is known as a result of an RTI application, was (a) to write a letter to the Ministry of Corporate Affairs asking for “names of companies falling under the category of ‘foreign source’, who have donated to political parties, namely, Indian National Congress and Bharatiya Janata Party, during the years 2006-7, 2007-8, 2008-09 and 2009-10 and 2010-11,” and (b) forward the response of the Ministry of Corporate Affairs to the Election Commission of India. If it sounds strange and mysterious, read on. Having discovered that the BJP and the Congress had accepted donations from an electoral trust which, on removing the ‘corporate veil’ twice, was found to be actually controlled by a company registered in a foreign country, a CSO and a retired secretary to the Government of India, filed a public interest litigation in the Delhi High Court requesting that action under FCRA be taken against these two political parties since political parties are expressly banned from accepting donations from foreign sources by the FCRA. It was in response to this petition that the Delhi High Court pronounced its judgment on March 28, 2016, mentioned in the opening paragraph above. [caption id=“attachment_3035682” align=“alignleft” width=“380”] Representational image. Reuters[/caption] Not having taken action commensurate with the offence, and after the two political parties had filed appeals in the Supreme Court, against the high court’s decision, the government of the day attempted, albeit unsuccessfully, to amend the FCRA to get the two parties off the hook. This has been described in this column earlier . It was during the hearings of those appeals in the Supreme Court on 22 and 29 November that the lawyers appearing for the BJP and the Congress to withdraw their appeals against the High Court order. It was widely reported in the media that the senior counsel appearing for the BJP and the Congress said that their clients had obtained clarifications from the government in the light of the amendment made in 2010 to the FCRA. The parties did not intend to pursue their appeals in view of the government’s assurance, …It was further reported that “Under the 2010 amendment, the government had relaxed the norms for political parties for receiving donations from foreign companies wanting to discharge their corporate social responsibility.” Let us look at the “amendments made in 2010 to the FCRA”. The FCRA was first enacted in 1976. It came to be known as FCRA 1976. In 2010, it was replaced by a new Act the preamble to which said “An Act to consolidate the law to regulate the acceptance and utilisation of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilisation of foreign contribution or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto.” The Act passed in 2010 came to known as FCRA 2010. The “amendments made in 2010 to the FCRA” referred to by the “senior counsel appearing for the BJP and the Congress” seems to be a misunderstanding or loose description. An exact rendition would most likely be amendments made “to the FCR Act of 2010 in 2016. There are two reasons for saying so. It is better to present them in the reverse chronological order. The FCRA 2010 was amended as part of the Finance Bill 2016, surreptitiously, according to some commentators, and this amendment reads as follows:

“In the Foreign Contribution (Regulation) Act 2010, in section 2, in sub section(1), in clause (j), in sub-clause(vi), the following proviso shall be inserted with effect from 26 September, 2010, namely: ‘Provided that where the nominal value of share capital is within the limits specified for foreign investments under the Foreign Exchange Management Act, 1999, or the rules and regulations made thereunder, then, notwithstanding the nominal value of the 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 deemed a foreign source’.”

The second reason explains why amendment of FCRA 2010 was considered so critical that it was made part of the Finance Bill 2016. A key paragraph of the Delhi High Court judgment of March 2014 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 Delhi High Court judgment. It is important to note that what the “amendment” done in 2016 to the 2010 Act changes is “section 2, in sub section(1), in clause (j), in sub-clause(vi)” of the Foreign Contribution (Regulation) Act 2010. This is important because of what the very second paragraph of the Delhi High Court judgment of 28 March, 2014, which was challenged by the two parties, says. This is reproduced below: “Since the writ petition drew attention to donations made to politicalparties for the period up to the year 2009, we record at the outset that ourconcern is not with the Foreign Contribution (Regulation) Act, 2010 which has come into force on September 26, 2010. Our discussion of the legalposition would be with respect to the Foreign Contribution (Regulation) Act,1976.” The sagacity of the Delhi High Court judges has to be admired that they clarified this issue right in the beginning of the judgment, in 2014 itself when further amendment of the FCRA 2010 possibly could not have been predicted. It should not be necessary to point this out to anyone that since FCRA 2010 did not exist in 2009 when the donations in question were made and accepted, the law in existence at the time of performance of the illegal action would apply and that was, and remains, FCRA 1976. Would it not be outrageous if an offence committed in 1980, for example, were to be tried under a law which came into force only in 2012? It is unbelievable that the senior lawyers representing the two parties had not read or were not conscious of the implications of the second paragraph of the Delhi High Court order that they were challenging. Why they chose to argue this way remains a mystery but it seems plausible that this may well have been the reason for withdrawal of the appeals. It should not be hard to imagine what would have been the response of the home ministry if a CSO had been held guilty of having violated the FCRA. This is what shows that political parties, although neither government nor business organisations, are not being treated at par with other, mortal, CSOs, since no action is taken against them even after a high court has found them unambiguously guilty of having committed an offence against the law of the land. Now that the high court judgment has, in a way, been reaffirmed, all eyes are on the home ministry to see what action does it take and when. A former secretary to the Government of India has already written to the home ministry to de-register the two parties. Whether political parties are actually covered by the law of the land, like other CSOs, should be known soon. The author is a former professor, dean, and director-in-charge of IIM-Ahmedabad