POLITICAL DONATIONS BY CORPORATE – A
THREAT TO DEMOCRACY
By Dr T Padma., LLM., Ph D (Law)
LLD Scholar (A P Law University)
kethepadma@gmail.com
“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 1st October 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, and McConnell
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
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 `
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 ` 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
|
Companies Act, 1956
(Section 293A)
|
Companies Bill, 2011
(Clause
183)
|
Limits
|
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.
|
Seven and
a half per cent of its average net profits
during the three immediately preceding financial years
|
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.
|
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.
|
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
|
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.
|
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.
|
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.
|
CONCLUSION
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 SUPREME COURT JOURNAL PART - 25 & 28 JUNE & JULY -2012 (5) SCJ]
[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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