It is that time of the year, which comes once in every five years, where every political party in India is seen competing with each other to woo the public for votes. The amount of money spent on canvassing by each political party is undoubtedly huge.
There are many sources from where the political parties raise funds, and one such source being contributions made by cash rich corporates.
The New Companies Act, 2013 has enhanced the limit of such contributions by companies.
What is a Political Contribution?
Political contribution means any contribution given to any political party for any purpose or to any person for political purpose, in cash or kind, directly or indirectly.
What is a Political Party?
According to Sec 29A of the Representation of the People Act, 1951, any association or body of individual, citizens of India calling itself a political party and intending to be part of Representation of the People Act, 1951 making an application to the Election Commission for its registration as a political party can be called as Political Party.
Types of political contributions under the ambit of Section 182 of the Companies Act 2013.
The following types of contributions attract this section:
a) Any amount of expenditure incurred, directly or indirectly, by a company on advertisements in any publication (such as a souvenir, brochure, tract, pamphlet or the like) by or on behalf of a political party; [Section 182 (2) (b)]
b) Any amount of expenditure incurred, directly or indirectly, by a company on advertisements in any publication, where such publication is not by or on behalf of but for the advantage of a political party; [Section 182 (2) (b)].
c) 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, can reasonably be regarded as likely to affect public support for a political party.[Section 182 (2) (a)]
Which Companies can make political contributions?
Any company, private or public, can make a political contribution up to 7.5%
of the average net profits made during the 3 immediately preceding financial years and subject to the conditions laid down in section 182.
However, the following types of Companies cannot, in any case, make any political contribution to any political party or for political purpose:
a) Government Company;
b) Any other company which has been in existence for less than 3 financial years.
All amounts so contributed to political parties have to be disclosed in the Company’s Statement of Profit and Loss giving particulars of the total amount contributed and the name of the political party to which such amount was contributed. The board of directors of the contributing company is required to pass a resolution at a board meeting, authorizing the company to make such a contribution.
The Ministry of Corporate Affairs (MCA) has, vide circular No. 17/27/2013-CL-V
given clarification on the applicability of Sec 182(3) of the Companies Act, 2013, i.e., the disclosure requirements on part of the Company contributed by it to any political parties.
In this regard, the MCA has clarified that:
- Companies contributing any amount or amounts to an Electoral Trust Company for contributing to a political party or parties are not required to make disclosures required under section 182(3) of Companies Act 2013. It will suffice if the Accounts of the company disclose the amount released to an Electoral Trust Company.
- Companies contributing any amount or amounts directly to a political party or parties will be required to make the disclosures laid down in section 182(3) of the Companies Act, 2013.
- Electoral trust companies will be required to disclose all amounts received by them from other companies/sources in their Books of Accounts and also disclose the amount or amounts contributed by them to a political party or parties as required by section 182(3) of Companies Act, 2013.
Disclaimer: The entire contents of this document have been developed on the basis of relevant information and are purely the views of the authors. Though the authors have made utmost efforts to provide authentic information however, the authors and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.