Companies Bill for Corporate Funding of political parties & NGOs introduced

Press Release

Companies Bill for Corporate Funding of political parties & NGOs introduced

Reveals Double Speak of UPA Government on State Funding for Elections

Corporate State can become guardian of political parties & NGOs, not of citizens

New Delhi: Two contradictory things happened in the Lok Sabha on December 14, 2011. Companies Bill, 2011 was introduced by Dr Moodbidri Veerappa Moily in the afternoon that makes provision for corporate funding of parties. Within hours of the introduction of this Bill, Manish Tiwari, National Spokesperson of the Indian National Congress who stood up to speak about UPA’s seriousness in dealing about Black money stated, “I feel ashamed to state that black money which is linked to our advertisement policy is related to electoral finance that needs to be rectified”.

This reveals double speak, insincerity and inconsistency of the Indian National Congress led UPA government. It is the Companies Bill which is needed to be rectified to deal with black money and corporate funding for electoral campaigns but this has not happened. This is contrary to the sense of both the houses of the Parliament.

The root of rampant corporate crimes committed with impunity, environmental destruction, poisoning of food chain and human rights violations by security forces has been traced to corporate funding of political parties. In the aftermath of industrial disasters, frauds and war crimes by companies world over, this Bill merits rigorous scrutiny by all sections of legislatures and society.

The 397 page Bill gives greater role to shareholders promoting shareholder democracy of sort. The Bill allows for certain types of companies to be subject to a less stringent regulatory framework. It has new provisions related to independent directors and auditors in the name of corporate governance. The Bill allows certain financial relationships between independent directors and the company, which can lead to conflicts of interest. The Bill provides for a number of issues currently specified in the Act, to be specified by the government in the rules. The government has greater role in drafting rules under the Bill so the impact of any possible change cannot be estimated.The Bill is available at http://toxicswatch.files.wordpress.com/2011/12/the-companies-bill-2011.pdf.

This Bill will replace 332 page Companies Act, 1956 that provided the legal framework within which companies function. It defined the relationship between the management of a company, the shareholders who own the company, other stakeholders, and the government. It was amended 24 times since 1956. This is in pursuance of the concept paper issued in 2004 by the Ministry of Corporate Affairs on a new company law. The Ministry had constituted an Expert Committee under the Chairmanship of Dr J J Irani to suggest a framework for such a law to replace the existing Act. The Committee submitted its report in May, 2005. The history of laws creating companies which are least understood is quite old and goes further back in the colonial past that will have to be dealt with on some other occasion.

Clause 182 of this Bill deals with prohibitions and restrictions regarding political contributions. It corresponds to section 293A of the Companies Act, 1956 and seeks to provide the manner and limits up to which a company shall be able to contribute the amount to any political party or to any person for a political purpose. The clause further provides the manner in which every company shall disclose in its profit and loss account any amount so contributed by it during any financial year. This clause further provides penal provision in case company contravenes the provision.

It reads as follows: 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 Company to contribute to bona fide and charitable funds, etc. 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.

Earlier, the 261 page Companies Bill, 2009 was referred to Yashwant Sinha headed Parliamentary Standing Committee on Finance on September 9, 2009. The Committee submitted its 375 page report on August 31, 2010. The Companies Bill 2011 was freshly introduced after incorporating it.

On page 225 of its report while commenting on clause 161 of Companies Bill 2009 (which is same as clause 182 of Companies Bill 2011), it said, “This clause seeks to provide the manner and limits up to which a company shall be able to contribute the amount to any political party or to any person for a political purpose. The clause further provides the manner in which every company shall disclose in its profit and loss account any amount so contributed by it during any financial year.” The report reveals that “During evidence, the Committee raised the issue regarding political contribution by corporates to political parties. In response, the Secretary, Ministry of Corporate Affairs during evidence stated that: ―Whatever is there in the Act, which is there from 1956, the same provisions are there and there was no discussion. You can take a view. I have nothing to say on that.”

Clause 581ZH of the Companies Act, 1956 Act dealt with the donations or subscriptions by producer company. It reads: 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.

This clause read with 293A of the 1956 Act that explicitly deals with "Political contributions" and "Prohibitions and restrictions regrading Political Contributions" appears to be at cross purposes. The clause 293 A reads:

(1) Notwithstanding anything contained in any other provision of this Act, -(a) no Government company ; and (b) no other company which has been in existence for less than three financial years shall contribute any amount or amounts, directly or indirectly, - (i) to any political party ; or (ii) for any political purpose to any person.

(2) A company, not being a company referred to in clause (a) or clause (b) of sub-section (1), may contribute any amount or amounts, directly or indirectly, -(a) to any political party ; or
(b) for any political purpose to any person :

Provided that the amount or, as the case may be, the aggregate of the amounts which may be so contributed by a company in any financial year shall not exceed 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.

Explanation. - Where a portion of a financial year of the company falls before the commencement of the Companies (Amendment) Act, 1985, and a portion falls after such commencement, the latter portion shall be deemed to be a financial year within the meaning and for the purposes, of this sub-section:

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.

(3) Without prejudice to the generality of the provisions of sub-sections (1) and (2), -(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 effect 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 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.

(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.
(5) If a company makes any contribution in contravention of the provisions of this section, -
(a) the company shall be punishable with fine which may extend to three times the amount so contributed ; and (b) every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine.

Instead of upholding clause 581ZH of the old act and making it better, it has now been merged thereby legalizing enhanced corporate contributions for NGOs and political parties for good. Thus, it is not surprising that corporate sponsored NGOs have maintained a silence about it unmindful of the facts that such deafening silence on such a crucial issue reveals the true character of some of the NGOs involved in leading the anti-corruption movement. The mainstream media appears to be hand in glove with them or has not applied their mind to it. It is high time those peoples movements which are not tainted by such blood stained corporate wealth emerging from a military-mining-industrial complex provided leadership.

On page 226, the report of the Parliamentary Standing Committee reads: “The Committee desire that sub-clause 1(a) of Clause 161 of the Companies Bill 2009(clause 182 in the Companies Bill 2011) may be modified so as to make it clear that “any political party” would mean and read as "a political party registered with the Election Commission". Similarly, sub-clause 1(b), which reads as “to any person for a political purpose” may be deleted, as it may leaves scope for ambiguity and misuse.

In this context, the Committee also recommend that the prescribed maximum percentage for contributions to political parties in a financial year may be raised to 7.5% from the existing 5% of the average net profits during the three immediately preceding financial years, keeping in view the fact that the number of political parties in the country has increased and such donations are not made every financial year.” Clearly, UPA government has complied with the recommendations of the Yashwant Sinha headed Parliamentary Committee.

The report further reads: “The Committee further recommend that the Ministry should also stipulate a cap on contribution to charitable and other funds as donation as proposed in sub-clause 160(1) (e) [clause 182 in the Companies Bill 2011]. Any contribution under this sub-clause, regardless of percentage, should be required to be made only with the consent of the shareholders of the company by a special resolution. It also needs to be stipulated in the sub-clause that the contribution should be made only to “bonafide” charitable institutions, that is, those institutions which have neither attracted any restraints from any regulatory authorities, including the Revenue Department of Government, in the past nor have defaulted in filing the requisite annual returns and statements with the Government.” This is a masterstroke to co-opt “bonafide” charitable institutions and turn them into fake public interest institutions who serve corporate interests. Both are divergent interests for sure.



In practice this legislation legitimizes corporate funding of political parties. It is explicable as to how Yashwant Sinha forgot that he was a member of the Group of Ministers (GoM), headed by the Union Home Minister, L.K. Advani, to consider recommendations of the Indrajit Gupta Committee on State funding of elections during the Bhartiya Janata Party led National Democratic Alliance (NDA) Government. The GoM was decided on August 17, 2001 by the Union Cabinet, presided over by the then Prime Minister, Atal Behari Vajpayee. The Committee on State Funding of Election was headed by the former Union Home Minister and veteran CPI leader, Indrajit Gupta, had submitted its report to the Government on January 14, 1999. The Indrajit Gupta panel had favoured State funding of elections, saying it was justified constitutionally and legally. It had recommended State funding in kind and not in cash.

At a public function of journalists on July 15, 2011 at Indore Press Club, Madhya Pradesh Chief Minister Shivraj Singh Chouhan appealed for provision of state funding of elections in the presence of Vice President, Hamid Aansari and several ministers. In such a context, the recommendation for continued corporate funding of Parliamentary Standing Committee headed by BJP is quite bizarre and inexplicable.



UPA’s role is equally sad. In theory, a PIB release dated September 14, 2011 reveals that UPA Government has accepted the recommendations made by the Group of Ministers (GoM) on Corruption in its First Report on September 6, 2011. The Union Government had constituted a Group of Ministers (GoM) on 6th January. 2011 to consider measures that can be taken by the Government to tackle corruption, under the chairmanship of Union Finance Minister, Pranab Mukherjee. Its terms of reference “State funding of elections”.

The Group of Ministers has called upon the Ministry of Law to formulate concrete proposals on Constitutional and statutory amendments which are required for introducing reforms relating to State Funding of Elections as per a PIB release dated October 15, 2011. The Group of Ministers had, in its meeting held on 6th September, 2011, asked the Ministry of Law to report progress in the consultative process already initiated by it. In the 30th September, 2011 meeting of the GoM, after the Law Ministry made a presentation on the subject, the Group of Ministers directed the Law Ministry to formulate specific proposals for consideration and decision of the GoM, excluding such areas where consultation with political parties was required.

In the recently concluded Convention of Indian Youth Congress on November 29, 2011, Sonia Gandhi, Chairman, Indian National Congress led United Progressive Alliance (UPA) reiterated the need for state financing of elections as a measure against corruption in the electoral process. Earlier, she had demanded it at the Congress plenary in December 2010. Salman Khurshid, Union Minister for Law & Justice informed the Lok Sabha on November 28, 2011 that “Group of Ministers constituted by the Central Government is considering measures that can be taken by the Government to tackle corruption which inter alia include the introduction of state funding of elections. The Group of Ministers has discussed certain formulations those could be adopted to address this issue but no final decision has yet been taken” in a written reply to a question. The Companies Bill, 2011 shows that what Sonia Gandhi told the Convention of Indian Youth Congress has not been incorporated in the Bill.

The Companies Bill provides for excessive rule making powers to the executive for subordinate legislation. This is not advisable given the poor state of our national governance. The Bill makes provision for only one person to make a company-One Person Company Limited under clause 3 (1), c. The India Economic Census 2005, revealed that the country has 4.2 million non-farm enterprises and less than 3 lakh active companies. This appears to be an exercise in the corportisation of the whole of non-farm enterprises. It seems to be an engineered act of legislative corruption that merits more consideration than Lokpal Bill before it is passed by the Parliament.

In such a backdrop, why does Union Law Ministry pretend forgetfulness while approving the Companies Bill that provides for corporate funding of political parties about Group of Ministers decision asking it “to formulate concrete proposals on Constitutional and statutory amendments which are required for introducing reforms relating to State Funding of Elections”? It is clear that Union Law Ministry is expected to do undertake two contradictory legislative works by the Union Cabinet.

Is it not the case that both Congress led UPA and BJP led NDA is preaching one thing and practicing just the contrary? Is it any wonder that Dow Chemicals Company cites the opinion of two senior officer bears of BJP and Congress in their “Q and A with respect of the Government of India’s request for a Curative Petition”? in the matter of Bhopal’s industrial disaster?. Dow says, “according to the formal legal opinions of two respected Indian jurists, Senior Counsel, Dr. Abhishek Manu Singhvi and Mr. Arun Jaitely, Dow cannot be found liable under the laws of India. (See the full opinions at:Mr. Arun_Jaitley_Opinion_EXPARTE.pdf; Dr.Abhishek_Manu_Singhvi.pdf)”. Dr Singhvi gave his 10 page opinion on the letterhead of National Spokesperson of Indian National Congress. Jaitely gave his 15 page opinion on the letter head of the Senior Advocate having phone numbers which is used by him as Member of Parliament. Corporate funding manifests itself in myriad disguises.

The provision of corporate funding of political parties in the Companies Bill must be looked at in the backdrop of the decision of Supreme Court of USA on January 21, 2010 in the Citizens United case, which was denounced by US President Barack Obama for the sake of record. The US Court considered whether there could be a ban on corporations using their general treasury funds for elections-related expenditure. A majority (5-4) of the Court ruled that such a ban was violative of the right to free speech. Essentially, the US Court struck down certain campaign-finance limits as a violation. The impact of this ruling is that corporate entities in the USA are free to use their general treasury funds to incur election-related expenditure, in a departure from past precedents. It also raised a question do corporations have free-speech rights, just as do individuals? If this is the path of corporations very soon, indeed ‘We The People’ will be excluded from even representative government because of Corporate Personhood. It was said in the US papers that it would turn the political class into prostitutes.

In that case Companies Bill is all set to turn most political parties into brothels wherein made-to-order legislations will have a field day if it is not the case already. Will it be surprising if very soon there will be approval for Foreign Direct Investment (FDI) to facilitate setting up of legislation manufacturing factories?

While the hollowness of Concept of Corporate Social Responsibility (CSR) is well known, the same is being introduced in the Companies Bill. Clause 135 of the Bill that deal with CSR reads" 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 Borad 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 compay as specified in Schedule VII 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.

Schedule VII mentioned in the clause provides a list of "Activities which may be included by companies in their Corporate Social Responsibility Policies" These activities relate to:—
(i) eradicating extreme hunger and poverty; (ii) promotion of education; (iii) promoting gender equality and empowering women; (iv) reducing child mortlity and improving maternal health; (v) combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases; (vi) ensuring environmental sustainability; (vii) employment enhancing vocational skills; (viii) social business projects; (ix) contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments for socioeconomic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and (x) such other matters as may be prescribed.

The activities that have been mentioned above are functions of the state towards its citizens. This is a case of outsourcing functions of the government to companies. It may have been better if instead of letting companies do CSR activities if the same 2 % of their annual profit is collected as tax to create a fund for undertaking state funding of elections? Prime Minister's National Relief Fund itself can collect it as Government of India did acting as parens patriae (guardian of the nation), passed the Bhopal Gas Disaster (Processing of Claims) Act, 1985 in the case against USA’s Union Carbide Corporation, currently owned by USA’s Dow Chemicals Company. A five judge bench of the Supreme Court upheld that the State had rightly taken over the exclusive right to represent and act on behalf of every person entitled to make a claim in the Charan Lal Sahu Vs Union of India and others on 22 December, 1989. The Companies Bill should provide for “creation of an Industrial Disaster Fund” to comply with this very order in the aftermath of world worst industrial disaster before the nuclear disasters of Chernobyl and Fukushima.

The political parties that will collect up to 7.5 % of annual profits of the companies as donations will not have the political will to regulate CSR activities and will not be able to acts in any case. A regime that is elected based on state funding of elections can undertake the above welfare activities and act as a genuine parens patriae. Citizens rightfully deserve it. The proposal of such CSR activities as acts of charity is an assault on provisions of the constitution that provides for entitlements for life and environment as a fundamental right.

For Details: Gopal Krishna, ToxicsWatch Alliance (TWA), E-mail:krishna1715@gmail.com, Mb: 9818089660, Web: toxicswatch.blogspot.com