By K P C Rao., LLB., FCS., FCMA
“That gift is good, which is made to one from whom no return is expected, with the feeling that it is one‘s duty to give and which is given in proper place and time and to a worthy person.”
- The Bhagwad Gita,
(Chapter 17, Text 20)
BACKGROUND
The question of corporate donations continued to arouse debate in and outside the Parliament. Political donations by companies have taken on an increasingly high profile in recent years, and are a source of ongoing controversy within the legal systems across the Globe. The term political donations refer to gifts to a politician, a political party, or an election campaign for political purpose. ‘Political purpose’ is defined in the U.K. Companies Act of 1967, Section 19(3) as giving money directly or indirectly (I) to a political party in the United Kingdom or (2) to a person carrying on any activities which may reasonably be regarded as likely to affect public support for a political party.
Businesses, by their very definition, need to be profitable. In the race for making profits, corporate often forget the substratum on which their business is set up. They often become unconcerned with the impact of their business on the society - forgetting the basic tenets of our Constitution which contemplate social and economic justice to all citizens. Corporate Social Responsibility is a matter intrinsically ingrained in the Constitution of India which envisages an economic development that does not result in the concentration of wealth and means of production to the common detriment and that material resources of the community are so distributed as best to subserve the common good.
Corporate Citizenship Vs CSR
A new terminology that has been gaining grounds in the business community today is Corporate Citizenship. So what is corporate citizenship and is this fundamentally different from corporate social responsibility? Corporate citizenship is defined by the Boston College Centre for Corporate Citizenship, as the business strategy that shapes the values underpinning a company’s mission and the choices made each day by its executives, managers and employees as they engage with society.
According to this definition, the four key principles that define the essence of corporate citizenship are: (i) Minimise harm (ii) Maximise benefit (iii) Be accountable and responsive to key stakeholders (iv) Support strong financial results. Thus, corporate citizenship, similar to its CSR concept, is focusing on the membership of the corporation in the political, social and cultural community, with a focus on enhancing social capital. Notwithstanding the different terminologies and nomenclature used, the focus for companies today should be to focus on delivering to the basic essence and promise of the message that embodies these key concepts – CSR and Corporate Citizenship.
There is no clear definition of the term 'Corporate Social Responsibility". It can be explained as a responsible way of doing business, taking into consideration of the development concerns of the people in the area in which the business is located, running the affairs of the company in a manner consistent with business ethics, transparency, good governance and at the same time becoming accountable to both shareholders and the general public. In the socio-economic system envisaged in the Constitution of India, no one can amass wealth to the detriment of society in general, ignoring the environmental concerns, developmental needs and aspirations of the society.
The stake holders in a responsible business transcend the shareholders. People affected by the running of business are also to be considered as its stakeholders. Natural resources make use of as raw materials and economy of the people in general whose lives become concerned with the running of the business establishment is matters intrinsically connected to the business. Corporates can bring in social progress and get support from the society when they make use of the resources, expertise and innovative techniques that would benefit the society.
Corporate Social Responsibility is not a fad or a passing trend, it is a business imperative that many Indian companies are either beginning to think about or are engaging with in one way or another. While some of these initiatives may be labelled as corporate citizenship by some organisations, their basic message and purpose is the same. A successfully implemented CSR strategy calls for aligning these initiatives with business objectives and corporate values thereby integrating corporate responsibility across the business functions and enhancing business reputation. The challenge for us is to apply fundamental business principles to make CSR sharper, smarter, and focused on what really matters.
Why do Companies make Political Donations?
Of the range of possible motivations for companies to make political donations, perhaps the profit-maximisation is only a significant factor to be considered by most of the Corporate. Even this poses problems, as it is difficult to determine the real motivation for donations. Some may advocate a corporate social responsibility (‘CSR’) view, disclaiming the view of profit-maximisation as necessarily being in the company’s best interest. They advocate broader concern for the environment and community within which the company exists. However, the possibility of CSR as a valid justification for political donations, noting that though CSR masquerading as “enlightened self interest” could serve to validate a political donation under the strict “benefit” test, the more appropriate rationalisation would appear to be profit-maximisation.
Companies making donations ‘may expect to receive a sympathetic hearing on issues affecting them and would hope for favourable treatment [from politicians]’. It is often difficult to discern whether such ‘benefits’ are real, not least because the elected officials involved are likely to be unwilling to admit that favours and discretionary treatment can be bought. Furthermore, some ‘benefits’ may well contravene other legislation.
Supporting a political party which promises lower company taxes, or making donations because ‘[the company sees] a democracy with a pluralist base as being an essential ingredient for a stable economy and policies that lead to economic growth’, are even more questionable practices. The benefit the donations provide, if any, is diluted and non-specific. Clearly, it is often very difficult to demonstrate a definite benefit to the company as a result of a political donation, and this problem provides a compelling reason for amending the Companies Act either to require specific shareholder approval of political donations or prohibit the political donations/contributions all together by the corporate.
GLOBAL SCENARIO
Position in United Kingdom (UK)
The Companies Act 1985 (UK) has been amended so that companies incorporated in the United Kingdom must generally obtain shareholder authorisation for a donation policy prior to making a donation to registered parties and political organisations, domestically or within the European Union (‘EU’). Approval for the donation policy must be passed by resolution in a general meeting of the company every four years. Prior shareholder consent is not required for total donations to EU political organisations under £5 000 in a given 12 month period.
The Act also requires companies to provide information relating to political donations and expenditure in the directors' report, with separate disclosure regimes for donations within the UK/EU area and those given to political organisations in the rest of the world.
In UK the changes made to the Companies Act requirements on political donations by the 2006 Act are:
1) private companies can authorise donations and/or expenditure by written resolution, rather than having to hold a general meeting;
2) a holding company is permitted to seek authorisation of donations and expenditure in respect of both the holding company itself and one or more subsidiaries through a single approval resolution;
3) a holding company must authorise a donation or expenditure by a subsidiary only if it is a "relevant holding company" (i.e., the ultimate holding company or, where such a company is not a UK-registered company, the holding company highest up the chain which is a UK-registered company);
4) companies are allowed to table separate approval resolutions in respect of donations to political parties and donations to other political organisations;
5) donations to independent election candidates will be covered by the provisions with effect from 1stOctober 2008;
6) there is greater clarity about the provision of facilities for trade union officials through the introduction of a specific exemption for donations to trade unions, other than contributions to the union's political fund which require prior approval;
7) there are important changes to the rules on ratification and liability in cases of unauthorised donations or expenditure; and
8) the new provisions apply to companies incorporated in Northern Ireland (but with a commencement date of 1st November 2007 instead of 1st October 2007).
Position in United States (US) and Canada
US law positively prohibits corporations from making donations in connection with US elections, while under Canadian law only individuals are authorised to make donations to political parties. These two reforms have similar operational faults, brought about by the fact that the provisions are found in their respective Electoral Acts rather than their company law regimes. The reforms were clearly premised on protecting the democratic process domestically; however they seemingly do nothing to prevent US and Canadian companies from donating to overseas political parties in jurisdictions whose electoral laws do not prohibit receiving donations from companies. As such, the interests (and equity) of shareholders are not fully protected.
However, during January 2010 the U.S. Supreme Court pronounced an important judgment in Citizens United v. Federal Election Commission[1] on the issue of political spending by corporations in elections.
The case had unlikely origins. It involved a documentary called “Hillary:The Movie,” a 90-minute stew of caustic political commentary and advocacy journalism. It was produced by Citizens United, a conservative non profit corporation, and was released during the Democratic presidential primaries in 2008.
Citizens United lost a suit that year against the Federal Election Commission, and scuttled plans to show the film on a cable video-on-demand service and to broadcast television advertisements for it. But the film was shown in theatres in six cities, and it remains available on DVD and the Internet.
Overruling two important precedents about the First Amendment rights of corporations, a bitterly divided Supreme Court ruled that the government may not ban political spending by corporations in candidate elections.
The 5-to-4 decision was a vindication, the majority said, of the First Amendment’s most basic free speech principle — that the government has no business regulating political speech. The dissenters said that allowing corporate money to flood the political marketplace would corrupt democracy.
The ruling, Citizens United, overruled two precedents: Austin v. Michigan Chamber of Commerce[2], a 1990 decision that upheld restrictions on corporate spending to support or oppose political candidates, andMcConnell v. Federal Election Commission[3], a 2003 decision that upheld the part of the Bipartisan Campaign Reform Act of 2002 that restricted campaign spending by corporations and unions.
The 2002 law, usually called McCain-Feingold, banned the broadcast, cable or satellite transmission of “electioneering communications” paid for by corporations or labour unions from their general funds in the 30 days before a presidential primary and in the 60 days before the general elections.
The law, as narrowed by a 2007 Supreme Court decision, applied to communications “susceptible to no reasonable interpretation other than as an appeal to vote for or against a specific candidate.”
Citizens United v. Federal Election Commission was an unprecedented, controversial decision by the United States Supreme Court, holding that corporations, unions and not-for-profit organizations cannot be restricted from funding electioneering broadcasts. The decision struck down a provision of the McCain-Feingold Act of 2002 that prevented corporate funding of political broadcasts within a certain period of time before an election as unconstitutional under the free speech clause of the First Amendment.
While the decision has its ardent supporters, a clear majority of Americans oppose it. It is widely seen as ideologically motivated, and possibly more so than the infamous Bush v. Gore[4] decision of 2000.
The decision U.S. Supreme Court in 2010 also has implications on the nature and character of corporations as well as aspects of corporate governance.
Position in Australia
Australian corporate law is comprised of case law and a number of Acts, the most significant of which are the Corporations Act 2001 (Cwlth) (‘Corporations Act’) and the Australian Securities and Investments Commission Act 2001 (Cwlth). Neither of these areas specifically broaches the topic of political donations by companies, nor does any other legislation (i.e. election legislation) ban such donations.
In the absence of a specific prohibition of political donations by companies, it would appear that they are, prima facie, permitted. However, broader principles of Australian corporate law place limitations on when they can be made. Company funds, which are ultimately shareholders’ funds, can only be used where a benefit to the company can be shown to eventuate. This is premised on the law governing company officers’ duties. Directors and senior executives have a duty to act in good faith in the interests of the company. The authorisation of a political donation in circumstances where there is no obvious benefit for the company’s shareholders would breach this duty.
Directors and senior executives also have a fiduciary duty to avoid conflicts of interest, and a statutory duty not to make improper use of their position. They could breach this if, for example, they received endorsement as a party candidate for an election as a result of a political donation by the company.
INDIAN SITUATION
The relevant enactments governing the political donations in India are provided in the Companies Act, 1956, The Representation of the People Act, 1951 (RPA) and The Foreign Contribution (Regulation) Act, 1976 (FCRA) as amended in 2010. “The propriety of companies making contributions to any political party or for any political purpose has been the subject of discussion and there are divergent views on this issue.
Divergent Views
While imposing blanket ban on political donations
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While permitting donations
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"The propriety of companies making contributions to any political party or for any political purpose to individual or body has for some time been the subject of discussion both inside and outside the Parliament. A view has been expressed that such contributions have a tendency to corrupt political life and to adversely affect healthy growth of democracy in the country, and it has been gaining ground with the passage of time. It is, therefore, proposed to ban such contributions.”
- Statement of Objects and Reasons to Section 293-A Companies (Amendment) Act, 1969
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“so that with a view to permitting the corporate sector to play a legitimate role within the defined norms in the functioning of our democracy, necessary legislation would be undertaken to allow companies to make contributions to political parties from out of their profits”
- The Statement of Objects and Reasons for the new S.293-A Companies (Amendment) Bill, 1976
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a) The Companies Act, 1956
Historical perspectives
i) Prior to 1956
Before 1956, there was no statutory provision relating to donations to political parties, section 293(1)(3) of the Companies Act, 1956 empowered the Board of Directors of a company to contribute “to charitable and other funds not directly relating to the business of the company…..” sums not exceeding ` 25,000/- or 5% of the average net profits of any financial year whichever was greater. The High Courts of Bombay and Calcutta took the view that donations to political parties were covered by this provision and that companies could lawfully make donations to political parties if such a power was conferred by the objects clause. [Jayantilal R. Koticha v. Tata Iron and Steel Co. Ltd.,[5]Dehri Rohtas Light Rly. Co. Ltd. Re. Indian Iron and Steel Co. Ltd.[6]] In Kothicha’s case, the court while confirming such an amendment of the objects clause expressed its misgivings about the likely effect of corporate donations on the political process. Chagla C.J., said:
“ ……. We think it our duty to draw the attention of Parliament to the great danger inherent in permitting companies to make contributions to the funds of political parties. It is a danger which may grow apace and which may ultimately overwhelm and even throttle democracy in the country. Therefore it is desirable for Parliament to consider under which circumstances and under what limitations companies should be permitted to make these contributions…..” In our opinion S. 293 is not a sufficient check on the evil. Wide power is conferred upon the directors to make these contributions and with the consent of the company unlimited power is conferred upon them. As we know from experience, in a large number of cases the so-called sanction of the company is a mere camouflage. Either the directors control the company or some powerful person holds some large block of shares so as to control the voting. The least that Parliament can do is to require the sanction of the court before any large amount is paid by the company to the funds of a political party.”
Similar views were also expressed by the Calcutta High Court in Re. Indian Iron and Steel Co. Ltd.[7],
ii) Companies (Amendment) Act, 1960
In its report published in 1957, the Companies Act (Amendment) Committee referred to both these judgments and recommended that full information relating to such contributions should be incorporated in the accounts. S. 293A was inserted by Act 65 of 1960, limiting the amount which could be donated in any financial year to Rs 25,000/- or 5% of the average net profits of the three preceding financial years, whichever was greater. Sub-sec., (2) required the company to give particulars in its Profit and Loss Account of the amounts donated and the names of the political party or persons who were the recipients of these donations.
iii) Companies (Amendment) Act, 1969
By the Companies (Amendment) Bill, 1968, donations to political parties were banned altogether. After the total ban was imposed, the companies tried to circumvent it by placing advertisement in souvenirs issued by political parties. The Calcutta High Court held that the payments for such advertisements were not donations. [Graphite India Ltd. v. Dalpat Rai Mehta.[8]]
iv) Companies (Amendment) Bill, 1976
In 1976, a Bill (Bill 80 of 1976) was introduced in Parliament, purporting to give companies the power to donate up to 5% of their profits to political parties. This bill however lapsed. In result the blanket ban on political donations has continued.
v) Companies (Amendment) Act, 1985
The section 293 was recast by the Amendment Act, 1985. The new section 293A seeks to continue the existing blanket ban against political contributions in the case of Government companies and companies which have been in existence for less than three financial years. The new section seeks to permit any other company to make political contributions not exceeding five per cent, of its average net profits if a resolution authorizing such contributions is passed at a meeting of the Board of Directors. The new section also seeks to impose an obligation on every company to disclose in its profit and loss account any amount or amounts contributed by it to any political party or any political purpose.
The limits, compliance, disclosure and penal provisions prescribed under the Act are as under:
1) Limits
Five per cent of its average net profits determined in accordance with the provisions of sections 349 and 350 of the Companies Act during the three immediately preceding financial years.
2) Compliance
Contribution shall be made by a company with prior resolution authorizing the making of such contribution passed at a meeting of the Board of directors.
3) Disclosure
a) Disclose in its profit and loss account
b) Of any amount or amounts contributed by it to any political party or for any political purpose to any person
c) 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
4) Penalty
In case of default of the above:
(i) On the company – fine which may extend to three times the amount so contributed; and
(ii) Every officer in default – imprisonment for a term which may extend to three years and shall also be liable to fine.
Donations or subscription by Producer Company[9] (Sec581ZH)
A Producer Company may, by special resolution, make donation or subscription to any institution or individual for the purposes of:
(a) promoting the social and economic welfare of Producer Members or producers or general public; or
(b) promoting the mutual assistance principles:
Provided that the aggregate amount of all such donation and subscription in any financial year shall not exceed three per cent, of the net profit of the Producer Company in the financial year immediately preceding the financial year in which the donation or subscription was made:
Provided further that no Producer Company shall make directly or indirectly to any political party or for any political purpose to any person any contribution or subscription or make available any facilities including personnel or material.
CA Institute’s Guidance Note
The Institute of Chartered Accountants of India has issued a Guidance Note on Section 293A of the Companies Act and the Auditor. The Guidance Note has been revised in consonance with the amended provisions of the Companies Act in 1986 and discussed the duties of the Auditor in connection with political contributions and has made the following recommendations:
1) Excess above the prescribed limit if ascertainable, should be disclosed in the audit report with proper facts if the same are not given in the annual accounts.
2) If the Company has obtained a legal opinion as regards the legality of a particular contribution and the auditor accepts the view, there is no need for its disclosure in the audit report.
3) The auditor may obtain a board resolution to the effect that all contributions attracting the provisions of this section are brought into the Company’s Books.
Further, it has been laid down by the Supreme Court that the income from donations would be excluded from taxable income only if the recipient political party maintains audited accounts and furnishes return. This is necessary to enable the authorities to know whether the contributions are within the limits prescribed by the sections and whether the money was spent for political purposes. [A Registered Society v. Union of India[10]]
b) The Representation of the People Act, 1951
Section 29B allows registered political parties to accept voluntarily offered contributions from Indian companies. Contributions of more than Rs 20,000/- have to be declared by the political party to the Election Commission.
There is an express prohibition on political parties receiving funds from a “foreign source” as defined in FCRA.
A “foreign source” as defined in FCRA includes a foreign company or a company which is a subsidiary of a foreign company, or a multinational corporation. It also includes a company within the meaning of the Companies Act, if more than one half of the nominal share capital of such a company is held either singly or in aggregate by (a) a government of a foreign country or territory; or (b) citizens of a foreign country or territory; or (c) corporations incorporated in a foreign country or territory.
A company will be treated as a “subsidiary” of another company when the other company (a) controls the composition of the board of directors; or (b) exercises or controls more than half of the total voting power of such company; or (c) when the other company holds more than half of the nominal capital of such company. So, a subsidiary of a foreign entity may be prohibited from making contributions to political parties even if such subsidiaries are companies incorporated under the Companies Act.
Foreign contribution as used in FCRA includes direct and indirect contributions. If a foreign entity uses an Indian entity as an intermediary to contribute funds to a political party in India, then such funds may be considered an “indirect foreign contribution” by a “foreign source” and consequently, political parties will not be allowed to accept them.
Section 4 of FCRA also prohibits an Indian company from delivering any amount accepted by it from any “foreign source” to any person if such Indian company knows that such person intends or is likely to deliver such amounts to a political party. These restrictions primarily aim at checking abuse of funds received from a “foreign source” and ensuring that what cannot be contributed directly by a foreign source is not contributed indirectly.
CHANGES CONTEMPLATED UNDER THE NEW COMPANIES BILL 2011
Prohibitions and restrictions regarding political contributions (Clause.182 of the Companies Bill, 2011)
(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 law for the making and the acceptance of the contribution authorised by it.
(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.
(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.
(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.
Corporate Social Responsibility (Clause 135)
In the new Companies Bill 2011, the government has proposed that companies should earmark 2% of average profits of the preceding three years for CSR activities and make a disclosure to shareholders about the policy adopted in the process. The Clause reads as follows:
(1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.
(2) The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.
(3) The Corporate Social Responsibility Committee shall,—
(a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified min Schedule VII;
(b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
(c) monitor the Corporate Social Responsibility Policy of the company from time to time.
(4) The Board of every company referred to in sub-section (1) shall,—
(a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and
(b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
(5) The Board of every company referred to in sub-section (1), shall make every endeavour to ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy;
Provided that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.
A COMPARISON BETWEEN EXISTING AND PROPOSED COMPANIES BILL, 2011
A Comparison between the existing Law and Proposed Companies Bill, 2011regarding Political Contributions is furnished below:
Description
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Companies Act, 1956
(Section 293A)
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Companies Bill, 2011
(Clause 183)
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Limits
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Five per cent of its average net profits determined in accordance with the provisions of sections 349 and 350 during the three immediately preceding financial years.
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Seven and a half per cent of its average net profits during the three immediately preceding financial years
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Compliance
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Contribution shall be made by a company with prior resolution authorizing the making of such contribution passed at a meeting of the Board of directors.
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Contribution shall be made by a company with prior resolution authorizing the making of such contribution passed at a meeting of the Board of directors.
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Disclosure
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a) Disclose in its profit and loss account
b) Of any amount or amounts contributed by it to any political party or for any political purpose to any person
c) 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
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a) Every company shall disclose in its profit and loss account
b) Of any amount or amounts contributed by it to any political party during the financial year to which that account relates,
c) Giving particulars of the total amount contributed and the name of the party to which such amount has been contributed.
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Penalty
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In case of default of the above:
(i) On the company – fine which may extend to three times the amount so contributed; and
(ii) Every officer in default – imprisonment for a term which may extend to three years and shall also be liable to fine.
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If a company makes any contribution in contravention of the provisions of this section, the company shall be punishable with fine which may extend tofive 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 tofive times the amount so contributed.
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As stated above, the US Supreme Court’s majority in Citizens United v. Federal Election Commission swept aside a century-old doctrine in election law, ruling that the campaign finance restriction violated the First Amendment’s free speech principles. The dissenters said opening the floodgates to corporate money will corrupt democracy.
There is no ‘one size fits all’ answer to the question of political donations by companies, as evidenced by the variety of different approaches taken overseas. There is, however, a trend towards codifying and clarifying the relevant laws. As Indian corporate law currently stands, there is explicit provision for, or prohibition of, political donations by companies. Broader principles of corporate law indicate that political donations can be made by companies, as long as they comply with the parameters stipulated under the relevant provisions.
Interestingly, the position in India appears to be more liberal (at least from a company law standpoint). Section 293A of the Companies Act, 1956 in fact allows companies (other than Government companies and those in existence for less than 3 financial years) to make political contributions subject to a maximum of 5% (7.5% contemplated in Companies Bill 2011) of the average net profits during 3 immediately preceding financial years. Companies also have to comply with accompanying disclosure obligations.
What is hidden beneath the mere text of the statutory provision is the intense debate that has occurred in the preceding decades resulting in several amendments to Section 293A. A review of the commentary to this section will reveal that the position has fluctuated from uncertainty about the validity of a political contribution by a company to a complete ban and finally resting with the current position as a compromise.
Unsurprisingly, in India the corporate money has already long been in politics in some or other form and the most influential actors in most political campaigns are corporations. Media corporations are no exception. These corporations overtly editorialize for and against candidates, and also influence elections by choosing what to cover and how to cover it. Even if many newspapers usually try to be neutral in their treatment of candidates outside the editorial pages, many opinion magazines (which are generally owned by corporations) don’t even aspire to such neutrality. And of course this means that media corporations and their owners and officers have tremendous power, far greater than what a typical voter (even a typical rich voter) would have.
As has been pointed out by Chagla C.J (in Kothicha’s case) there is a great danger inherent in permitting companies to make contributions to the funds of political parties. The situation may further worsen and may ultimately overwhelm and even throttle democracy in the country. When, governments that are supposed to represent the peoples’ will and interests in a representative democracy start to represent the will and interests of corporations and big business, the government mutates from being of the people, by the people and for the people to becoming of the corporations, by the corporations and for the corporations. The state is becoming a corporate state. And this mutation transforms democracy into fascism.
Neo-liberal economic policies have a political fallout of inducing this mutation of government from a democratic representative of peoples’ interests to an undemocratic representative of corporate interests. Not only is neo-liberalism leading to the privatisation of natural resources like seed and land, water and biodiversity, health and education, power and transport, it is also leading to the privatisation of government itself. And a privatised corporate state starts to see people fighting for public good and economic democracy as a threat.
Given the experience in foreign jurisdictions, the author advocates that the Companies Act be further amended so as to completely ban/prohibit political donations by the corporate or at least to include a statutory requirement for shareholder approval prior to a company making political donations or donating in accordance with a donation policy (to cover widely held listed companies). An exception to these requirements would be allowed where a company’s total annual political donations are below a legislated materiality threshold. The disclosure rules within the Companies Act should also be amended to require disclosure in the annual report of details of recipients and amounts of all political donations made in the relevant financial year. These amendments will clarify the situation with respect to such donations, as well as assist directors to better discharge their corporate governance responsibilities.
[Published in the 'CORPORATE SECRETARY' A Monthly Journal of Hyderabad Chapter of ICSI during July, 2012]
[4] Bush v. Gore; 531 U.S. 98 (2000), is the landmark United States Supreme Court decision that effectively resolved the 2000 presidential election in favour of George W. Bush.
[5] Jayantilal R. Koticha v. Tata Iron and Steel Co. Ltd. (1957) 27Com Cases 604 : AIR 1958 Bom 15 (DB);
[6] Dehri Rohtas Light Rly. Co. Ltd.,(1960) 30 com Cases 387; AIR 1959Pat 514. In Re, Indian Iron and Steel Co. Ltd. (1957) 27 Com Cases 361 : AIR 1957 Cal 234.
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