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LATEST NEWS UPDATES | Ahead of polls, limits to political funding by corporates removed -Amitav Ranjan

Ahead of polls, limits to political funding by corporates removed -Amitav Ranjan

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published Published on Dec 3, 2013   modified Modified on Dec 3, 2013
-The Indian Express


Ahead of the Lok Sabha elections, the UPA government has made it free for business houses to donate without limit to parties or persons for political purposes. All that a corporate now has to do is float a company with a name that has the words "electoral trust" in it.

A different reading of the law, ratified by the department of legal affairs in the law ministry in October - about seven weeks after the department had taken the opposite stand and disapproved of it - exempts business houses from Sec 293A of the Companies Act, which allows a company to make a political contribution only after it has been in existence for more than three years.

The exemption also removes the ceiling on political funding by firms.

The legislative department of the law ministry had earlier opposed the move, and argued that giving exemptions under clause (b) of sub-sections 1 and 2 of Sec 293A would be "excessive and ultra vires" of the Companies Act.

Clause 1b, inserted through an amendment in 1985, stipulates that "No company which has been in existence for less than three financial years shall contribute any amount or amounts, directly or indirectly, to any political party or for any political purpose to any person".

Clause 2b says that an eligible company can donate a maximum of five per cent of its average net profit over the previous three years, subject to approval by the board of directors.

On September 6, Legal Affairs supported the Legislative Department, saying that "Section 293A being different from Section 25, it may not be legally correct to extend the same (293A) to a company incorporated under Section 25 and covered under the Electoral Trust Scheme (ETS).

"Doing so may not be in accordance with the intent of the legislature," it opined, on the grounds that while 293A dealt with provisions and restrictions on political contributions, Section 25 only dealt with licensing of charitable or other such philanthropic companies dispensing with the requirement of "limited" in their name.

But the opposition withered a month later after the ministries of corporate affairs and finance argued that electoral trust companies were exempted from 293A as they came under the ambit of "any other useful object" allowed in Section 25 of the Act.

"On the basis of principle of 'ejusdem generis', words 'any other useful object' appearing in Section 25 would cover any object that is for the benefit of the society as a whole," Corporate Affairs argued, while seeking a review of the law ministry's September opinion.

"Such companies can be lawfully formed under Section 25 of the Companies Act and can be legitimately exempted from provisions of Section 293A. The purpose of this scheme (ETS) is one of bringing transparency and accountability in public life," it said.

Finance's argument was that a company under the Electoral Trust Scheme was "correctly conceived" as a Section 25 company as "there was no profit motive in the activity to be carried out by the electoral trust which is fundamentally a pre-requisite and acid test of a Section 25 company".

Despite its earlier stand on the variance between Sections 25 and 293A, Legal Affairs concurred on October 24. "We also agree with the views of the Ministry of Finance and the views of Ministry of Corporate Affairs," it said, thus paving the way for the exemptions.


The Indian Express, 3 December, 2013, http://www.indianexpress.com/news/ahead-of-polls-limits-to-political-funding-by-corporates-removed/1202496/0


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