Political Contribution by Companies - Adding fuel to Fire....

POLITICAL CONTRIBUTION BY COMPANIES –ADDING FUEL TO THE FIRE????

By : Priyanka Venkatapathy, M.L., (Awaiting CS Membership)

“Politics” the buzzword, is also one of the most criticised words in India. But whether we will able to survive as a sovereign socialist secular democratic republic country without politics??? And yes it is a difficult question to answer. Though our political system is criticised largely, we depend on politics hoping for a better governance and brighter tomorrow. Being a citizen of India, we are responsible for creating strong governance in the country. Such inherent responsibility entrusted with every citizen is also extended to the man made creation called “Company”.  We can say that this is one of the fundamental reasons of why the companies are allowed to make political contributions. Importance of such contributions made by Companies in a country like India can be understood from the statistics as shown in the table below.

Now we will look into the provisions relating to political contribution under Companies Act, 2013.

Are political contributions by companies permissible under Companies Act, 2013?.

Section 182 of the Companies Act, 2013 talks about political contribution by companies whereas earlier section 293A  of the Companies Act, 1956 act dealt the same. Interestingly this Section 182 of the Companies Act, 2013 was one of the 98 sections notified on 12^th day of September 2013.

Which criteria of Companies can contribute to a political party?

1. A company which is not a government company and

2. A company which has been in existence for atleast three financial years

The companies which fulfils both the criterias may contribute any amount directly or indirectly to any political party.

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

(Section 293A(1)(b)(ii) & 293A(2)(b) of the Companies Act, 1956 was also regulating contribution to any person for any political purpose. That doesn’t find a place under the Companies Act, 2013 which means there is no bar on contribution for any political purpose to any person. Not clear whether this is the intent or a drafting error).

What is the maximum cap of such contribution?

Aggregate of the amount contributed by the company in any financial year shall not exceed seven and a half percent of its average net profits during the three immediately preceding financial years.

(In Companies Act, 1956 aggregate of the amount contributed by the company was capped at 5% of its average net profits)

What is the pre-condition for such contribution?

Resolution authorizing the making of such contribution being passed at a meeting of Board of Directors and such resolution is deemed to be justified under law for making and acceptance of contribution authorised by it.

(No change from the Companies Act, 1956)

What will be considered as political contribution?

 (a) A donation or subscription or payment given by a company to a person who is carrying on any activity which can be reasonably regarded as likely to affect public support for a political  party shall be deemed to be contribution.

(b) Amount of expenditure incurred, directly or indirectly, by a company on advertisement in any publication (being a publication in the nature of a souvenir, brochure, tract, pamphlet or the like) by or on behalf of a political party or for its advantage 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 to the person publishing it.

(No change when compared to Companies Act, 1956)

What are all the disclosures required while contributing?

Every company shall disclose in its profit and loss account  the details of amount contributed to any political party or for any political purpose during the financial year to which that account relates  and also give particulars of the total amount contributed and  the name of the party or person to which or to whom such amount has been contributed.

(Companies Act, 2013 mandates the disclosure of the name of the political party to which contribution is made. However, this mandate was not welcomed by the corporate world.)

MCA has issued circular No. 17/27/2013-CL-V dated 10.12.2013 providing clarifications on disclosures stating that Company contributing any amount to an 'Electoral Trust Company' for contribution to a political party or parties are not required to make disclosures required under section 182(3) of the Companies Act 2013. It will suffice if the Accounts of the such  company disclose the amount released to an Electoral Trust Company

Is there any method of calculation of profit in the Companies Act, 2013?

The method of calculation of profit has not been stated in the Companies Act, 2013, while a particular method was prescribed in the earlier 1956 Act. We need to see whether Rules which will be notified later will take care of this part.

What are the punishments in case of contravention of the Section?

Company

Five Times the Amount Contributed. (In Companies Act, 1956 Act it was three times the amount so contributed)

Officer

Imprisonment for a term which may extend to six months and shall also be liable to fine which may extend to Five Times the Amount Contributed. (In Companies Act, 1956, the officer shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine). P.S. Interestingly, the maximum imprisonment term is reduced from three years to six months. While in majority of the provisions of the new Act the penalty has been substantially increased this is the only area, where it has been reduced J

Conclusion

Given all these, does the nexus of corporate and politics are heading towards a brighter future? Statistics shows that there is heavy flooding of money into the politics by corporate. Now with the new Act, Companies will have the ability to contribute higher amount than earlier. Will it really help the developing democracy like India or will it be an act of adding fuel to the existing fire? This is something which we should think about. We cannot deny the fact that India is in need of a good political system and good governance. Only if morals and ethics are followed by companies in political contribution, we can make the dream of good governance and a brighter tomorrow into reality.

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