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BACKGROUND

Political contributions in India, where a vibrant democracy exists, have always been subject of much debate. In this respect contributions from companies assume significance. Prior to the year 1956, there was no provision for political contributions. However, the erstwhile Companies Act 1956 had the provision initially, through an amendment in 1960, permitting such contributions which was, in 1969, totally prohibited. In 1985, through another amendment,  political contributions were again allowed. The section 293A of the erstwhile Companies  Act  was the operative provision.  The law in this respect has since been retained in the new Companies Act 2013 in a  somewhat modified form.    

NEW LAW

The new provision enshrined in section 182 of the Companies Act 2013 has been analyzed as follows:

Who can contribute

Law

182. (1) Notwithstanding anything contained in any other provision of this Act, a company, other than a Government company and a company which has been in existence for less than three financial years, may contribute any amount directly or indirectly to any political party:

Provided that the amount referred to in sub-section (1) or, as the case may be, the aggregate of the amount which may be so contributed by the company in any financial year shall not exceed seven and a half per cent. of its average net profits during the three immediately preceding financial years:

Provided further that no such contribution shall be made by a company unless a resolution authorising the making of such contribution is passed at a meeting of the Board of Directors and such resolution shall, subject to the other provisions of this section, be deemed to be justification in the law for the making and the acceptance of the contribution authorised by it.

Analysis

This sub section {1} allows making of direct or indirect contribution to political party with certain restrictions.  

Following companies are permitted to make contributions. Thus:-

  • a non Government company, or
  • a company which has been in existence for three financial years or more,

may contribute  an amount, directly or indirectly, to any political party.

The term “political party” has been defined in the Representation of the People Act 1951.

Pertinently these provisions not only cover contributions to apolitical party but also contributions for any political purpose to any person; this will be clear from reading the sub section {2} hereinafter.

Not Permitted

From the sub section it is clear that a Government company as defined in section 2{45} of the Companies Act 2013, as follows, is not permitted to make any political contribution:-

 “Government company” has been defined to mean any company in which not less than fifty one per cent. of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company.

Moreover, a company in existence for less than three financial years is not permitted to make any political contribution.      

Limits

Further it has been provided that the aggregate of the amount which may be so contributed by a company in any financial year shall not exceed seven and a half per cent. {7.5%} of its average net profits during the three immediately preceding financial years. This is an increase from 5% as had been laid down in section 293 A of the  erstwhile Companies Act 1956. Interestingly the provision in section 293A that the determination of average net profits would be in accordance with the calculations given in sections 349 and 350 of that Act, has been removed in this new section 182. It appears that the profits arrived out of statutory accounting principles would now be applicable instead of any special calculations.

Authority

It is also laid down that the political contribution shall be made by a company only by:-

- a resolution of the Board of Directors, authorizing the making of such contribution, passed at its meeting. {Significantly resolution by circulation in terms of Section 175 of the Companies Act 2013 is not allowed},  and

- such resolution passed by the Board shall, subject to the other provisions of this section, be deemed to be justification in the law for the making and the acceptance of the contribution authorized by it.

DEEMING CONTRIBUTION

Law

182. (2) Without prejudice to the generality of the provisions of sub-section (1),—

(a) a donation or subscription or payment caused to be given by a company on its behalf or on its account to a person who, to its knowledge, is carrying on any activity which, at the time at which such donation or subscription or payment was given or made, can reasonably be regarded as likely to affect public support for a political party shall also be deemed to be contribution of the amount of such donation, subscription or payment to such person for a political purpose;

(b) the amount of expenditure incurred, directly or indirectly, by a company on an advertisement in any publication, being a publication in the nature of a souvenir, brochure, tract, pamphlet or the like, shall also be deemed,—

(i) where such publication is by or on behalf of a political party, to be a contribution of such amount to such political party, and

(ii) where such publication is not by or on behalf of, but for the advantage of a political party, to be a contribution for a political purpose.

Analysis

{A} This sub section {2} stipulates that without prejudice to the generality of the provisions of sub-section (1):-

  • donation, or
  • subscription, or
  • payment

caused to be given by a company:-

  • on its behalf, or
  • on its account

to a person who, to the knowledge of the company, is carrying on any activity which, at the time at which such donation or subscription or payment was given or made, can reasonably be regarded as likely to affect public support for a political party {emphasis supplied}  shall also be deemed to be contribution of the amount of such donation, subscription or payment to such person for a political purpose (emphasis supplied}.

Thus the significant words are “affect public support for a political party” which will trigger the payment etc made by a company for a “political purpose”. Thus this is a deeming provision.

{B} This sub section also stipulates that without prejudice to the generality of the provisions of sub-section (1) the amount of expenditure incurred, directly or indirectly, by a company on an advertisement in any publication, being a publication in the nature of:-

  • a souvenir,
  • brochure,
  • tract,
  • pamphlet, or
  • the like,

shall also be deemed where such publication is:-

(i) by or on behalf of a political party, to be a contribution of such amount to such political party, and

(ii) not by or on behalf of, but for the advantage of a political party, to be a contribution for a political purpose.

Here too, contributions to a “political party” and for a “political purpose” have been covered through a deeming provision, where a company gives any advertisement in a political publication.

DISCLOSURE OF CONTRIBUTION

Law

182 (3) Every company shall disclose in its profit and loss account any amount or amounts contributed by it to any political party during the financial year to which that account relates, giving particulars of the total amount contributed and the name of the party to which such amount has been contributed.

Analysis

According to this sub section {3}, where a company has made any political contribution in terms of these provisions it shall make disclosure in its profit and loss account of:-

- any amount/s  contributed by it to any political party during the financial year to which that account relates,

{Meaning thereby that this disclosure has to be made  in the current P & L Account, hence,  contributions during the financial year have to be given. It appears that earlier years' contributions cannot be clubbed with the current one};

- giving particulars of the total amount contributed,

{Meaning thereby that aggregate amounts contributed during the financial year have to be given}; and

- the name of the party to which such amount has been contributed.

{Meaning thereby that aggregate amounts contributed to each of the named political party during the financial year have to be given} .

Significantly it was held in the case of Common Cause , A Registered Society v Union of India {1977} 88 Com Cas.1 {SC} that it is mandatory that political contributions and donations are made in a transparent manner.

CONTRAVENTION

Law

182. (4) If a company makes any contribution in contravention of the provisions of this section, the company shall be punishable with fine which may extend to five times the amount so contributed and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months and with fine which may extend to five times the amount so contributed.

Explanation.—For the purposes of this section, “political party” means a political party registered under section 29A of the Representation of the People Act, 1951

Analysis

This sub section {4} stipulates the consequences where there is contravention of these provisions. Hence  where a company makes any contribution in contravention, it shall be punishable;-

- with fine which may extend to five times the amount so contributed, and

- every officer of the company who is in default shall be punishable with imprisonment for a maximum term of six months and with maximum fine  of five times the amount so contributed.

“Officer who is in default” has been defined in section 2 {60} of the Companies Act 2013. 

The explanation given in this sub section defines a political party and lays down that  for this  section, “political party” means a political party registered under section 29A of the Representation of the People Act, 1951.

Section 2(f) of the 1951 Act defines "political party";- means an association or a body of individual citizens of India registered with the Election Commission as a political party under section 29A of that Act.

In terms of section 29 A, for the purpose of registration of any association or body of individual citizens of India as a political party, the association or body is required to make an application to the Election Commission of India giving therein full particulars required under that section and additional particulars required under the Registration of political parties (Furnishing of Additional Particulars) Order, 1992.  Only on registration, a political party will be eligible to receive contributions under these provisions.

CONCLUSION

Earlier law for political contributions by companies, laid down in section 293 A of the erstwhile Companies Act 1956, has been improved under the new section 182 of the new Companies Act 2013. This is certainly a welcome step as political funding has always remained a sensitive issue, and a more pragmatic law is the order of the day.

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