Association Of Voluntary ... vs Union Of India
1990 Latest Caselaw 423 Del

JUDGMENT

S.B. Wad, J.

1. This appeal is filed by the Association of Voluntary Agencies for, Rural Development (AVARD) under section 21(2) of the Foreign Contribution (Regulation) Act, 1976 (hereinafter referred to as "the Act"), against the order dated May 19, 1988, passed by the Ministry of Home Affairs, Government of India, under section 10(b) of the Act. Through the said impugned order the appellant was directed to obtain prior permission of the Central Government to accept any foreign contribution from the date of the order until further orders. The impugned order is attacked on the ground of non-existence of objective material vitiating the alleged "satisfaction" and breach of the principles of natural justice. No show-cause notice was given to the appellant before the order was passed and no reasons were stated in the order although it was alleged that the conduct of the appellant was "prejudicial to the public interest."

2. The appellant-association was registered as a society under the Societies Registration Act on December 16, 1958. The principal object of the association is the welfare of the rural communities. With this end in view, the association works for the mutual co-operation of the voluntary agencies. It works as a clearing house for information on rural welfare and publishes monographs, periodicals, journals, etc., for that purpose. It also holds seminars on the welfare of the rural population. It carries on other activities for rural development, including preparation of master plan and assistance in its implementation. Smt. Kamla devi Chattopadhayay was the founder president of the association. Later on, late Shri Jai Prakash Narain was elected as its president and continued as such till 1979.

3. Between 1979 and 1981 the association received approximately a sum of Rs. 20 lakhs in Indian currency from the Ford Foundation office in India. before making this contribution the Ford Foundation had obtained prior permission and no-objection certification from the Ministry of Finance, Government of India. In April, 1988, the Ministry of Home Affairs, Government of India, issued a show-cause notice to the association under section 6 of the Act for alleged violations of the Act. The notice stated that intimation as required by From FC3 prescribed under the rules framed under the act was not given by the association for the contributions received during the year 1980 81. For the year 1982 it was alleged that the audited accounts for Rs. 11,620 were not furnished. It was also alleged that returned in From FC3 for the period July 1, 1983 to June 30, 1984, and for the year ending 30, 1986, were not furnished.

4. In reply to the said show-cause notice the appellants filed a detailed reply on April 26, 1988. In the said reply they clarified that the amounts were received as far back as 1979-81. They categorically stated that the amounts were not received in U.S. dollars but were received in Indian currency from the Ford Foundation office in India. The association further stated that since the Ford Foundation had already obtained the permission in writing from the Government of India, their understanding was that no information was required to be furnished by the association under the Act, they being the second recipients. The first recipients were the Ford Foundation in India. They had further stated that they had furnished the audited accounts and the progress report to the Ford Foundation from time to time ending with April, 1988. The association further stated in its reply that for the period subsequent to 1982 no funds were received and, therefore, the only return that could have been furnished were "nil" returns. However, along with the reply the association filed all the returns under Form FC3 for all the years and requested the Government to accept the same. Admittedly, the show-case notice which was issued by the Government in March, 1988, was in terms of section 6 of the Act. After the receipt of the said reply no action was taken by the Government pursuant to section 6.

5. But, suddenly the impugned order was passed under section 10(b) of the Act on May 19, 1988. The order reads:

"Whereas the Association of Voluntary Agencies for Rural Development, 5(FF), Institutional Area, Deen Dayal Upadhayaya Marg, New Delhi-110 002, was registered as an association under sub-section (1) of section 6 of the Foreign Contribution (Regulation) Act, 1976 (49 of 1976), vide registration No. 231650021;

Whereas the Central Government is satisfied that acceptance of foreign contribution by the said Association of Voluntary Agencies for Rural Development, New Delhi, is likely to affect prejudicially the public interest;

Now, therefore, in exercise of the powers conferred by clause (b) of section 10 of the Foreign Contribution (Regulation) Act, 1976, the Central Government hereby requires, in public interest, the said Association of Voluntary Agencies for Rural Development, 5(FF), Institutional Area, Deen Dayal Upadhayaya Marg, New Delhi- 110 002 (including its branches and units), to obtain prior permission of the Central Government to accept any foreign contribution from the date of this order, until further orders.

The said association may make a representation against this order, if it so desires, within thirty days of the receipt of this order.

(Sd) Indira Misra, Joint Secretary to the Govt. of India"

It may be necessary at this stage to know some provisions of the Act. The Foreign Contribution (Regulation) Act, 1976, was passed with a view to regulate acceptance and utilisation of foreign contributions and to ensure that the political associations and voluntary agencies function in a manner consistent with the values of Sovereign Democratic Republic. Some amendments were made in the Act in the year 1985, particularly in section 6 of the Act.

6. Section 2(c) of the Act defines "foreign contribution" as :

"'Foreign contribution' means the donation, delivery or transfer made by any foreign sources, -

(i) of any article, not being an article given to a person as a gift for his personal use, if the market value, in India, of such article, on the date of such gift, does not exceed one thousand rupees;

(ii) of any currency, whether Indian or foreign;

(iii) of any foreign security as defined in clause (i) of section 2 of for Foreign Exchange Regulation Act, 1973 (46 of 1973);

Explanation. - A donation, delivery or transfer of any article, currency or foreign security referred to in this clause by any person who has received it from any foreign source, either directly or through one or more persons, shall also be deemed to be a foreign contribution within the meaning of this clause;

Section 6 of the Act deals with associations running cultural, economic and social programmes, such as the appellant- association. The provisions of section 6(1) read :

"6(1) No association (other than an organisation referred to in sub-section (1) of section 5) having a definite cultural, economic, educational, religious or social programme shall accept foreign contributions unless such association, -

(a) registers itself with the Central Government in accordance with the rules made under this Act; and

(b) agrees to receive such foreign contributions only through such one of the branches of a bank as it may specify in its application for such registration,

and every association so registered shall give, within such time and in such manner as may be prescribed, an intimation to the Central Government as to the amount of each foreign contribution received by it, the source from which and the manner in which such foreign contribution was received and the purposes for which and the manner in which such foreign contribution was utilised by it :

Provided that where such association obtains any foreign contribution through any branch other than the branch of the bank through which it has agreed to receive foreign contribution or fails to give such intimation within the prescribed time or in the prescribed manner or gives any intimation which is false, the Central Government may, by notification in the Official Gazette, direct that such association shall not, after the date of issue of such notification, accept any foreign contribution without the prior permission of the Central Government."

7. Section 10(b) of the Act gives power to the Central Government to prohibit receipts of foreign contributions in certain contingencies, although the association falls within the provisions of section 6(1). The said provision reads :

"10. The Central Government may - ...

(b) without prejudice to the provisions of sub-section (1) of section 6, require any association specified in that sub-section, to obtain prior permission of the Central Government before accepting any foreign contribution :

Provided that no such prohibition or requirement shall be made unless the Central Government is satisfied that the acceptance of foreign contribution by such association or person or class of persons, as the case may be, the acceptance of foreign hospitality by such person, is likely to affect prejudicially -

(i) the sovereignty and integrity of India; or

(ii) the public interest; or

(iii) freedom or fairness of election to any Legislature; or

(iv) friendly relations with any foreign State; or

(v) harmony between religious, racial, linguistic or regional groups, castes or communities."

8. If the Central Government suspects of a contravention of the provisions of the Act, it can direct special inspection under section 14 and can even seize the records under section 15. Under section 15A the Central Government, can direct special audit of the association's accounts. Any order passed by the Central Government under section 10 is appealable, to the High Court within a period of 60 days.

9. Section 21(2) of the Act reads;

"Any organisation referred to in section 5, or any person or association referred to in section 9 or section 10, aggrieved by an order made in pursuance of the Explanation to sub-section (1) of section 5 or by an order of the Central Government refusing to give permission, or by any order made by the Central Government under section 5 or section 9 or section 10, as the case may be, may within 60 days from the date of such order prefer an appeal against such order to the High Court within the local limits of whose jurisdiction the appellant ordinarily resides or carries on business or personally works for gain, or, where the appellant is an organisation or association, the principal office of such organisation or association is located."

10. From the scheme of the Act it is clear that where the association is a registered association under section 6 of the Act, it is sufficient for the association to give intimation in regard to foreign contribution and their utilisation. It is not required to obtain prior permission for receipt of foreign contributions. The provision in regard to registration was introduced by the Amending Act of 1985. the appellant-association was already working as a voluntary association since 1958. The appellant- association got itself registered under section 6 of the Act after the said amendment. Section 6 is a self-contained code as it not only lays down the duty of voluntary associations in regard to intimation, but through its proviso lays down also the sanctions for non-compliance. in case of failure of the association to comply with the provisions of section 6(1) the Central Government can require the association to obtain prior permission of the Central government before any contribution is accepted. The Central Government can do it by issuing an official notification in the Gazette in regard to the date from which the permission is necessary. it is implied in the provisions of section 6 that before taking such an action, a show-cause notice would be given to the erring association and the orders would be passed on objective material and considerations. But, if the Central Government has reasonable suspicion in regard to an association, it can direct special inspection, seizure of accounts and records and special audit. These powers are given to the Central Government to see that the provisions of the Act in regard to receipt of foreign contribution and its utilisation are complied with by the association. Section 10 provides a very drastic power to the Central government to prohibit receipt of foreign contributions, where the actions of an association are likely to prejudicially affect sovereignty and integrity of India or public interest or freedom or fairness of elections to any Legislature or friendly relations with any foreign state or harmony between religious, racial, linguistic or regional groups, castes or communities. the impugned order is purportedly passed under this section.

11. Admittedly, no show-cause was issued to the appellants before passing an order under section 10 of the Act. it is stated in the counter-affidavit that no notice to show cause is required to be given before action under section 10 is taken. It is also averred that although no notice was required to be given, a notice was, in fact, given to the appellants on April 4, 1988, and their reply was duly considered before the impugned order was passed. it is also asserted in the counter-affidavit that the Act does not require any reasons to be stated in the order passed under section 10(b) of the act.

12. Counsel for the appellants strongly objects to these assertions in the counter-affidavit and similar submissions made by the counsel for the respondents during the hearing. Relying on the decisions of the supreme court in Commissioner of Police v. Gordhandas Bhanji, and in union of India v. P.K. Roy, , counsel submits that the impugned order has to be examined and understood on its own terminology and cannot be improved upon by the counter-affidavit. he has referred to the decisions of the Supreme Court in Mahabir Prasad Santosh Kumar v. State of U.P., and in Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India, , where the Supreme Court has emphasised on disclosure of material to the affected person and of passing a reasoned order where the Tribunal is acting in a quasi-judicial capacity. He has also referred to the subsequent decisions of the Supreme Court where the requirement of fair play and observance of natural justice, even in administrative matters, is laid down by the Supreme Court.

13. It is now a well-settled proposition of law that even if the requirement of natural justice is not laid down in a statute, the court can read the same if the provisions of the statute are likely to have civil consequences to citizens. The action taken under action 10 is capable of causing serious hurt and incalculable harm to the reputation of any association which is doing voluntary social work. If the Government publicly states that an association is receiving foreign contributions, which stand in the way of fair elections or which would harm the sovereignty and integrity of India, there will be such a public outcry that the association would be required to close down without even a chance of explaining it to the public as to what is the true nature of its activities. Thus, it is not merely a violation or an injury of a civil right, but an adverse predicament for the functioning of any voluntary agency. Any order passed under section 10, therefore, must be passed on objective material and facts disclosed to the concerned association. A show-cause notice and an opportunity of explaining alleged objective material must be given to the voluntary association. The final order must disclose that the "satisfaction" is founded on objective material and must furnish proper reasons for non-acceptance of the explanation of the association against which the order is to be passed. None of these requirements of ensuring fair play are observed in passing the impugned order.

14. In the impugned order, the Central Government merely states that it is "satisfied" that the AVARD is likely to affect prejudicially the public interest by its acceptance of foreign contributions. The order does not state the material on the basis of which the satisfaction is arrived at. it is silent as to whether any show cause notice was issued to the appellants and whether the explanation of the appellants has been considered before passing the impugned order. The respondents cannot be permitted to add to or to improve upon the impugned order by averments in the counter-affidavit. This would amount to passing of a fresh order based on different grounds. The impugned order must stand or fall on its own legs and cannot be made to stand on the props furnished from without. The impugned order also suffers from the serious lacuna of not stating the reasons for passing the order. Existence of objective material is a pre-condition for proper satisfaction and furnishing of cogent reasons is a sine qua non of application of mind. The assertion in the counter-affidavit that section 10(b) does not require any reason to be stated is untenable in law and is to be rejected. We have held that the counter-affidavit cannot be looked into for improving upon the impugned order. But, even if it is examined, the assertion of the respondents that a show-cause notice was issued to the appellant-association and their explanation was considered before passing the impugned order is factually incorrect. We have already shown that the impugned order is totally silent in regard to the show-cause notice or the reply filed by the appellants. The respondents, in the counter- affidavit, have relied upon the notice dated April 4, 1988, and its reply. It is clear that the assertion is completely misconceived. The said show-cause notice was given under section 6 of the Act and not under section 10. The said notice merely stated of the technical non-compliance of furnishing the returns in terms of Form FC-3 under the Regulations. It does not talk of any activity which is "prejudicial to public interest." The appellants, thus, had no opportunity whatsoever to point out to the respondents that their conduct was not prejudicial to public interest. It may also be noted that section 6 is a code by itself, and an independent sanction is provided in the proviso to section 6(1). It is clear that after initiating the proceeding under section 6 by issuing the show-cause notice in April, 1988, the Central Government abandoned the action under the said section. Although the last sentence of the impugned order speaks of show-cause notice of thirty days (which was replied to by the appellant), the respondents have not treated it as a show-cause notice but treated it as an order in the counter-affidavit. The said last sentence illustrates non-application of mind.

15. It is difficult to understand as to why the said action was abandoned and a more severe action under section 10(b) was resorted to by accusing the appellant-association of actions "prejudicial to the public interest". In reply to the show-cause notice under section 6, the appellants had given an explanation as to why they did not file the FC-3 returns. Even if it is assumed that their explanations in not furnishing the returns in time was wholly wrong, they had actually furnished the said returns along with the reply to the show-cause notice. They had also stated in their reply that the audited accounts and the progress report were being sent by them to the Ford Foundation from time to time. it is not the allegation in the impugned order that any false information was given by the appellants or that their conduct was suspicious. Apart from the fact that the impugned order is illegal, there was no justification given by the Central Government to resort to the drastic provisions of section 10 of the Act.

16. For the reasons stated above, the impugned order is quashed and set aside. The appeal is allowed with costs. Counsel fee Rs. 1,500.