The Wire: New Delhi: Tuesday,
April 12, 2016.
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.)
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