Passage of Companies Bill, 2012 reveals double speak of Congress and BJP

Companies Bill facilitates corporate funding for political parties and co-option of NGOs

Provision for CSR in the Bill needs to be revisited

New Delhi Aug 9, 2013: The passage of Companies Bill, 2012 by Rajya Sabha merits attention of all the lovers of true democracy. The Contesting Election on Government Expenses Bill, 2012 is also pending in the Rajya Sabha which was long due for putting a check on increasing use of black money in elections and political activities but the passage of Companies Bill has emerged as a threat to the idea of State funding of elections. Yet another opportunity has been lost to deal with the menace of black money with the passage of this Bill. The attached letter to the President urges him to send back the Bill for replacing corporate donation for political parties with provision of corporate donation for government’s electoral fund that can be used for State funding of elections.

With the passage of the Companies Bill the terms of reference (TOR) of A K Antony headed Group of Ministers (GoM) on Corruption which includes State Funding for Elections has become meaningless. How is this TOR consistent with the Section 182 of the Companies Bill, 2012 that provides for funding of political parties by companies?

This reveals double speak, insincerity and inconsistency of the Indian National Congress led UPA government and the Bhartiya Janta Party. The Companies Bill should have banned corporate funding for electoral campaigns but this has not happened. This is contrary to several reports of the Parliamentary and government's committees which recommended State funding of elections to deal with black money.

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.

It may be noted that Section 182 (1) of the Bill reads: "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".

It may be recalled that two contradictory things happened in the Lok Sabha on December 14, 2011. Companies Bill, 2011 was introduced by Dr Veerappa Moily as a Union Minister in the afternoon that made 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."

The Bill which has been passed has the endorsement of Yashwant Sinha headed Parliamentary Standing Committee on Finance is doing the exact opposite of what was proposed by Indian National Congress.

The collusion between major parties including Indian National Congress that was witnessed in the report Indrajit Gupta headed Parliamentary Committee remains unaltered. The silence of the left parties is quite deafening in this regard. In the light of this development, the reluctance of the political parties except Communist Party of India to come under the ambit of Right to Information Act is not inexplicable.

The 309 page Bill gives greater role to shareholders and promotes shareholder democracy of sort. Earlier, Yashwant Sinha headed Parliamentary Committee on Finance submitted its 375 page report on August 31, 2010 and recommended 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’s Companies Bill, 2012 has complied with the recommendations of Yashwant Sinha headed Parliamentary Committee.

It is explicable as to how Yashwant Sinha forgot that he was a member of the Group of Ministers (GoM), headed by the then Union Home Minister, L.K. Advani, to consider recommendations of the Indrajit Gupta headed Committee on State funding of elections during the Bhartiya Janata Party led National Democratic Alliance (NDA) Government. 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 favouring State funding of elections.

As a follow up the Union Government had constituted a Group of Ministers (GoM) on January 6, 2011 to consider measures that can be taken by the Government to tackle corruption, under the chairmanship of Union Finance Minister. Its terms of reference include –State funding of elections. The Group of Ministers had 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 September 6, 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. The passage of the Bill signals how these efforts seem to have been in vain.

It merits recalling that at the 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. The 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 passage of the Companies Bill, 2012 shows that what Sonia Gandhi had told the Convention of Indian Youth Congress has not been incorporated in the Bill.

The question is why did 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 was expected to do undertake two contradictory legislative works by the Union Cabinet.

It appears to be a case of both Congress led UPA and BJP led NDA is preaching one thing and practicing just the contrary. The passage of this legislation re-legitimizes corporate funding of political parties instead of reversing the trend.

Besides this Section 181 of the Companies Bill, 2012 appears quite dangerous. It reads: The Board of Directors of a company may contribute to bona fide charitable and other funds: Provided that prior permission of the company in general meeting shall be required for such contribution in case any amount the aggregate of which, in any financial year, exceed five per cent of its average net profits for the three immediately preceding financial years." 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.

While the hollowness of Concept of Corporate Social Responsibility (CSR) which is an exercise in advertising and brand positioning is well known, the same has been 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.
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 mortality 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 the 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.

The provision of corporate funding for political parties 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, apparently 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 newspapers in USA that it would turn the political class into prostitutes.

Following footsteps of the trends in USA, the provisions in the 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. Given this trend will it be surprising if very soon there will be approval for foreign direct investments in myriad disguises to facilitate setting up of legislation manufacturing factories?

Democratic institutions can only be strengthened if political parties and other political organizations are given a priority by the state through fiscal support for becoming a democracy given the fact that it is always a work in progress. Studies based on large data sets on political financing in more than 40 democracies provide empirical account of campaign finance and have brought to light hidden aspects of politics and questioning widespread beliefs about political finance, such as the rapid increase of campaign costs. The problems associated with the high cost of election campaigns and the establishment of a balanced and transparent system for their financing merit state's attention.
The experience from contemporary European democracies shows that political parties are necessary and desirable institutions for democracy and direct involvement of the state through financing election campaigns is transforming parties from their status as voluntary private associations into parties as public utilities.

The legislation in question does not appreciate that it is the dependence of political parties on non-state actors for financing elections that determines their electoral and non-electoral performance. It is a flawed legislation which is compromising the political outcomes through an inherent political engineering which is co-terminus with property based citizens' rights.

While it has been admitted that --there is no guarantee that economic prosperity ensures democratization, the ulterior motive of the sponsors of electoral reforms is the former and not the latter. In the post-Citizens United era and in the era of legislated corporate funding through Companies Bill, the parliamentary elections in India in 2014 will be rewriting the political geography and will reveal its residual democratic content.

By shaping not only the strategies, rational choice but also their goals, political parties as institutions structure political situations and leave their own imprint on political outcomes. This significance underlines the inference that parties cannot be left at the mercy of non-state actors. As long as these actors shape the outcome no matter who wins in electoral battles, democracy is not a winner because our deformed political system is turning legislatures into a forum for legalized bribery. The way out could be to recommend that these very corporate donations be pooled into an electoral fund which can be used for state funding of elections. In connection with this, the six page long The Contesting Election on Government Expenses Bill, introduced by Prabhat Jha, Member of Parliament merits attention.

There is a logical compulsion for the President to send back the Companies Bill, 2012 with an advice to remove provision for corporate funding of political parties and substitute it with the provision of state funding for the political parties.