New Delhi: The Modi government has quietly moved to let the Bharatiya Janata Party and Congress off the legal hook for violating the Foreign Contribution (Regulation) Act 2010 (FCRA) when they accepted donations from the London-based multinational, Vedanta.

The Delhi high court ruled in 2014 that both parties were guilty of violating the FCRA and ordered the government and the Election Commission to act against them.

Though the Centre went on appeal and the matter is now pending in the Supreme Court, finance minister Arun Jaitley slipped in a hitherto unnoticed clause in the Finance Bill as part of this year’s Union budget which retrospectively amends the FCRA to redefine Vedanta – and foreign companies like it – as “Indian” companies, thus nullifying the illegality that the BJP and Congress committed when they took money from it.

The clever amendment to the FCRA in the Finance Bill says,

“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 FCRA [PDF] bans political parties from receiving funds from any foreign source. In its original provision, the law defines “foreign source” to include any company with foreign investment of above 50%:

“a company within the meaning of the Companies Act, 1956, and more than one-half of the nominal value of its share capital is held, either singly or in the aggregate, by one or more of the following: (A) the government of a foreign country or territory; (B) the citizens of a foreign country or territory; (C) corporations incorporated in a foreign country or territory; (D) trusts, societies or other associations of individuals (whether incorporated or not), formed or registered in a foreign country or territory; (E) foreign company;”

Under the new definition, so long as the foreign company’s ownership of an Indian entity is within the foreign investment limits prescribed by the government for that sector, the company will be treated as “Indian” for the purposes of the FCRA.

The new provision is retrospective, and is with effect from 2010, when the FCRA was introduced.

Apart from Vedanta, hundreds if not not thousands of foreign companies – from the UK and the United States but also China, the United Arab Emirates or elsewhere – will now be able to make contributions to Indian political parties – and towards “activities of a political nature” by NGOs, and others.

In other words, while legitimising the actions of the BJP (and Congress), the Modi government has opened the door wide for everyone else.

The retrospective amendment is bound to generate controversy as many related questions about foreign funding of political parties are pending in the Supreme Court. This could re-open yet again the nature of political funding from the corporate sector.

The FCRA has become a political battleground after the Modi government began tightening the screws on several prominent NGOs for alleged violations of the the law. The Home Ministry had sent notices to well-established NGOs funded by the Ford Foundation and Greenpeace to determine whether all necessary clearances under the FCRA law had been duly taken.

Many civil society activists had then accused the Centre of selectively targeting NGOs which had allegedly encouraged “political activism” (read: pursued cases against the accused in the 2002 Gujarat riots). At that time, the specific question of political parties having formally received funds from a foreign company like Vedanta was also raised. While the high court judgment against the BJP and Congress is being appealed in the Supreme Court, a public interest litigation has also filed by Prashant Bhushan seeking disclosure of foreign funds received by political parties.

When The Wire drew the attention of Bhushan to the provision in the Finance Bill, he said it is clear that the retrospective amendment to the FCRA is aimed at bailing out the two major political parties before the Supreme Court is even able to examine the matter. “This is a case of preempting the judiciary through a retrospective change in law.”

“After the Delhi high court had upheld our contention that party funds received by the BJP and Congress from Vedanta subsidiaries in India was violative of the FCRA, these parties went to Supreme Court challenging the order. The case came up for first hearing only on Friday,” he said.

In March 2014, a division bench of the Delhi high court asked the government and the Election Commission to act against the two parties for accepting donations from Vedanta subsidiaries. The court asked the Union home ministry to “relook and reappraise the receipts of the political parties and identify foreign contributions received by foreign sources” and take action within six months.