Impact of Mandatory Aadhaar Linking for NGO Trustees

– Legal Validity & Privacy Concerns

Introduction

The mandatory linking of Aadhaar numbers for NGO trustees, introduced through the Foreign Contribution (Regulation) Amendment Act, 2020, represents a significant shift in India’s regulatory approach to NGOs receiving foreign contributions. Aimed at enhancing transparency and curbing misuse of funds, this requirement has sparked widespread debate over its legal validity and implications for privacy rights, particularly in light of the landmark Justice K.S. Puttaswamy (Retd.) vs Union of India (2017) judgment, which recognized privacy as a fundamental right.
This section provides a comprehensive analysis of the legal basis for Aadhaar linking, its validity under constitutional principles, the privacy concerns it raises, the operational challenges for NGOs, and potential reforms to balance transparency with individual rights.

Legal Basis

The Foreign Contribution (Regulation) Amendment Act, 2020, amended Section 12 of the FCRA, 2010, to mandate the submission of Aadhaar numbers for all office-bearers, trustees, and key functionaries of NGOs applying for FCRA registration or renewal. This requirement is part of a broader effort to verify the identities of individuals managing foreign contributions, preventing fraudulent entities from operating under the guise of NGOs.
The Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016, under Section 7, permits mandatory Aadhaar linking for accessing government benefits or services, which the government argues includes FCRA registration as a regulatory privilege.

The Supreme Court’s 2018 judgment in Puttaswamy upheld the Aadhaar Act’s constitutionality for specific purposes but imposed limitations, striking down mandatory linking for private services like bank accounts and mobile connections due to privacy concerns. The court established a three-fold test for mandatory Aadhaar linking: it must have a legal basis, serve a legitimate state interest, and be proportionate to the objective.

Case Study: In 2021, the Gauhati High Court issued a notice to the State Bank of India (SBI) questioning the necessity of Aadhaar for opening FCRA bank accounts, citing the Puttaswamy judgment’s proportionality test. This case highlights ongoing judicial scrutiny of the Aadhaar mandate in the NGO sector.

Legal Validity Under Puttaswamy

The FCRA’s Aadhaar requirement satisfies the Puttaswamy three-fold test to a certain extent:

• Legality: The requirement is backed by the FCRA Amendment Act, 2020, providing a statutory basis.

• Legitimate State Interest: Preventing misuse of foreign contributions, which could fund anti-national activities, aligns with national security and financial transparency objectives.

• Proportionality: The government argues that Aadhaar linking is a minimal intrusion necessary to verify identities, given the risks associated with foreign funding.

• However, critics contend that the requirement fails the proportionality test because it applies uniformly to all trustees, regardless of their role or the NGO’s size, and alternative identification methods like PAN or passports could achieve the same objective with less intrusion. The broad scope of the mandate, coupled with India’s history of data breaches, raises questions about its necessity and effectiveness.

Privacy Concerns

The mandatory Aadhaar linking for NGO trustees raises several privacy concerns that resonate with the principles articulated in Puttaswamy:

• Data Security Risks: Aadhaar data breaches, such as the 2018 incident exposing personal details of millions of citizens, highlight vulnerabilities in India’s data infrastructure. NGOs handling sensitive foreign contributions are particularly attractive targets for cyberattacks.

• Potential for State Surveillance: Linking Aadhaar to NGO trustees could enable government monitoring of their financial and operational activities, raising fears of state overreach and intimidation, especially for NGOs critical of government policies.

• Exclusion of Legitimate Trustees: Individuals without Aadhaar, such as those in remote areas, non-residents, or those opposed to Aadhaar on principle, may be excluded from serving as trustees, limiting the diversity and expertise of NGO governance.

• Erosion of Autonomy: The requirement may deter capable individuals from joining NGOs due to privacy concerns, impacting organizational autonomy and reducing the pool of talent available for leadership roles.

Example: “Rural Empowerment Trust,” an NGO in Assam, struggles to comply with the Aadhaar requirement because one of its trustees, a tribal leader from a remote area, lacks an Aadhaar card due to logistical challenges. This delays the NGO’s FCRA renewal, halting its foreign-funded literacy programs and affecting hundreds of beneficiaries.

Impact on NGOs

The Aadhaar mandate imposes significant operational and compliance challenges for NGOs:

• Administrative Burden: NGOs must ensure all trustees obtain and link Aadhaar numbers, requiring coordination, documentation, and potentially facilitating Aadhaar enrollment, which increases administrative costs and diverts resources from programmatic activities.

• Delays in Registration and Renewal: Non-compliance can lead to delays or rejection of FCRA registration or renewal applications, disrupting access to foreign funds critical for ongoing projects.

• Legal and Financial Risks: NGOs may face legal challenges or penalties for failing to comply, as seen in cases where the MHA has suspended FCRA licenses for procedural lapses.

• Erosion of Public and Donor Trust: Perceived government overreach may reduce public confidence in NGOs, deterring donations and partnerships, particularly for organizations engaged in advocacy or human rights work.

Debate: Transparency vs. Privacy Rights

The debate over mandatory Aadhaar linking for NGO trustees pits the government’s transparency objectives against individual privacy rights

Arguments in Favor of Aadhaar Linking:

• Enhanced Transparency: Aadhaar linking verifies trustee identities, reducing the risk of fraudulent or shell NGOs operating to launder foreign funds.
• National Security Alignment: Preventing misuse of foreign contributions aligns with national security objectives, particularly in light of concerns about funding for anti-national activities.
• Global Best Practices: Identity verification aligns with international standards for financial transparency, as seen in anti-money laundering frameworks like the Financial Action Task Force (FATF) guidelines.

Arguments Against Aadhaar Linking:

• Violation of Privacy Rights: The requirement infringes on the fundamental right to privacy under Puttaswamy by mandating sensitive data disclosure without adequate safeguards or demonstrable necessity.
• Disproportionate Measure: Alternative identification methods, such as PAN, passports, or voter IDs, could achieve the same transparency objectives with less intrusion.
• Exclusionary Impact: The mandate disproportionately affects marginalized communities and non-residents, who may lack access to Aadhaar enrollment or documentation.

Reforms and Solutions

To balance the government’s transparency goals with privacy rights, the following reforms are proposed:

• Voluntary Aadhaar Linking: Allow NGOs to use alternative identification documents, such as PAN, passports, or voter IDs, for trustees without Aadhaar, reducing exclusion and privacy concerns.

• Robust Data Protection Measures: Strengthen data security under the Digital Personal Data Protection Act, 2023, by implementing encryption, access controls, and regular audits to safeguard Aadhaar data used in FCRA processes.

• Judicial Review and Clarification: Seek Supreme Court clarification on the constitutionality of the FCRA’s Aadhaar mandate, as suggested by ongoing review petitions challenging the 2018 Aadhaar judgment, to ensure alignment with Puttaswamy principles.

• Exemptions for Small NGOs: Provide exemptions or simplified compliance pathways for small or rural NGOs facing logistical challenges in Aadhaar enrollment, ensuring equitable access to FCRA registration.

• Stakeholder Consultation: Engage NGOs, civil society, and privacy experts in policy discussions to develop a balanced approach that addresses transparency without compromising rights.

Table 2: Aadhaar Linking for NGO Trustees: Key Issues

Recent Updates (2025)

As of June 4, 2025, no Supreme Court ruling has overturned the FCRA’s Aadhaar mandate for NGOs, but review petitions challenging the 2018 Aadhaar judgment remain pending, potentially impacting this requirement. The Digital Personal Data Protection Act, 2023, has introduced stricter data protection norms, which could mitigate some privacy concerns if rigorously enforced. Additionally, the MHA’s extension of FCRA registration validity until June 30, 2025, provides temporary relief for NGOs navigating compliance challenges, including Aadhaar linking.

Conclusion

The mandatory Aadhaar linking for NGO trustees is a legally grounded measure aimed at enhancing transparency in foreign funding but raises significant privacy concerns under the Puttaswamy framework. While it serves national security and financial integrity objectives, the operational challenges, exclusionary impact, and data security risks necessitate reforms. Voluntary linking, robust data protection, and judicial review can ensure a balanced approach that upholds transparency without compromising the privacy and autonomy of NGO trustees.