Political parties in India extend favors, for those who contribute them with hefty donations, when they come to power. Before elections donors have to keep both prominent parties in good spirit so that their future interests are balanced. In India there is no transparency in the functioning of political parties. Although some regulations exist with regard to contribution to political parties, this does not ensure transparency. This Article focuses on the changes that are brought in by the Companies Act, 2013 and briefly some of relevant laws covering the subject.
Provisions under the Old Act:
Section 293A of Companies Act 1956 is the relevant section which prescribes the manner of making contributions to political parties and limits on such contributions. The essence of section can be summarized as follows:-
1. A board resolution is mandatory for making any political contributions prior to making any donations or contributions(same provision exists in new act)
2. A government company is prohibited from making any political contributions. Similarly any other company which has been in existence for less than 3 financial years is also prohibited from making any contributions directly or indirectly(same provision exists in new act)
3. Any company falling in a category other than the above, can contribute to any political party for any political purpose but the aggregate of all contributions during the year must be within the limit of 5% of company’s average net profits during 3 immediate financial years preceding the year of contribution and computed as per section 349 and 350 of the Old Act. Readers may note the words” directly or indirectly. By deeming provision, all payments made by whatever name will be treated as contributions to political parties, if such payment directly or indirectly benefits political parties or meant for end use of political parties( same provisions exist except that the limit has been increased to 7.5%)
4. A disclosure of the amount or amounts contributed during the financial year to any political party or to any person for political purposes directly or indirectly during the financial year giving particulars of the total amount contributed and the name of the party or person to which or to whom such amount has been contributed.(Significant change is made with regard to disclosure. Dealt with elaborately in following paragraphs)
5. Company is liable to pay 3 times of the contributions as fine for any violation and eve ry officer is liable to imprisonment for a period up to 3 years in addition to fine(penalty amount is now 5 times the contribution but imprisonment is reduced to 6 months)
Quick look at Changes brought in by New Act: Section 182 of the New Act deals with the prohibitions on contributions to political parties. A quick glance will reveal that the contents or more or less similar to Old Section 293-A except for perceivable change in the enhancement of old limit from 5% to 7.5% of the average of net profit during 3 immediate financial years preceding the year of contribution. However a causal reader will miss implication of sub section 3 of section 182(corresponding to 293-A(4).The relevant subsections are reproduced below for better appreciation.
(4) Every company shall disclose in its profit and loss account any amount or amounts contributed by it to any political party or for any political purpose to any person during the financial year to which that account relates, giving particulars of the total amount contributed and the name of the party or person to which or to whom such amount has been contributed.
(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.
A careful attention may be paid to highlighted portions. As per Section 182(3) the New Act, Companies have to compulsorily disclose the name of the political party and not the name of the via media person. As per the wording in Section 293-A (4)old Act, a company can mention the name of the person who received contribution for a political party and could avoid mentioning naming of the political party. But the new Act does not permit so. Moreover it is also relevant to note that at the end sub section 4 of section 182 the following explanation appears.
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.
According to the above explanation contributions can be made only to a political party registered under section 29A of the representation of the People Act, 1951. Let us see the reasons for this.
Provisions of Representation of People’s Act (RPA):
According to Section 29 C of RPA Political parties are bound to disclose the details of donors such as name ,PAN mode of payment etc, to Election Commission of India every year, if the amount of contribution more than Rs.20,000/- to avail income tax benefit. Parties take advantage of this provision and ensure that donations in amounts less than Rs. 20,000 are collected to avoid giving list of donors. Under Sections 3 & 4 of Foreign Contributions (Regulation) Act (FCRA), 1976, political parties are not permitted to accept contributions from foreign companies or companies controlled in India by foreign companies.
Provisions under Income tax act:
Donations made by companies to any political party or electoral trusts will entitle to a deduction from total income u/s 80 GGB of the Income tax act. However escape of scrutiny is possible by keeping the donations receipts under Rs.20,000/- to avoid revealing of donors.
Magnitude of funding political parties
Association of Democratic Reforms (ADR) has displayed in its website its analysis of income statements filed by political parties. It released a report in Sept 13, 2013 on its findings covering a period between April 2004-31st March12. According to this analysis, 75% of the sources of funding of political parties is unknown and 25% is from known source ie donors can be identified. During the said financial years between 2004 and 2012 national parties received 436 crores, of which 380 crores (87%) is from Corporate/ Business houses.
New route for political contributions?
Now companies can set up Electoral trusts for funding political parties and avail tax benefits. Some big corporate houses such as Tatas, Ambanis,Birlas,Mittals, Vedantas have already taken steps in this direction. Recently MCA has clarified that any political contributions will not be considered as CSR spends.
The mindset of corporate houses that they will face victimization, if their contributions are made public, must change. Particularly electoral reforms must ensure that every donation or contribution to political party must be disclosed irrespective of the limits so that responsibility and accountability is thrust on the donors as well as on the recipient to promote transparency in the political party’ functioning.
G S Rao, Consultant
Tags: The Companies Act, 2013,
This article contains interpretation of the Act and personal views of the author are based on such interpretation. Readers are advised either to cross check the views of the author with the Act or seek the expert’s views if they want to rely on contents of this article.
Tags Corporate Law