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Report No. 255

(iv) Laws regulating contribution to political parties

2.22.1. Section 29B of the RPA makes it very clear that there is no limit on political parties accepting contributions from individuals or corporations, so long as the donor is not a government company, or the donation is not a foreign contribution (since it is prohibited under Section 3 of the Foreign Contribution (Regulation) Act, 2010).

2.22.2. A significant source of political donations is through corporate funding, which is explicitly permitted under Section 182(1) of the Companies Act of 2013, dealing with prohibitions and restrictions regarding political contributions to political parties, and reproduced below:

"182. (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."

2.22.3. Pertinently, the contribution limit of 7.5% of the company's average net profits during the three immediately preceding financial years is an increase from the previous stipulation of 5% profit in Section 293A of the Companies Act of 1956. Additionally, as per Rule 4(7) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 notified on 27th February 2014, direct or indirect contribution to any political party under Section 182 of the Companies Act shall not be considered as a corporate social responsibility activity.41

41. Ministry of Corporate Affairs, Companies (Corporate Social Responsibility Policy) Rules, 2014 27th February 2014,
<http://www.mca.gov.in/Ministry/pdf/CompaniesActNotification2_2014.pdf>

2.22.4. Section 182(4) of the Companies Act, 2013 provides for penalties for corporate contributions in contravention with the provisions of Section 182 in the form of fines levied on the company up to five times the amount so contributed, or imprisonment up to six months along with a similar fine for any company officer who is in default.



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