Political Contributions & Companies Act 2013
The Companies Act 2013, specifically Section 182, has recently been in the spotlight due to its implications on political contributions made by Indian companies through electoral bonds. Section 182 outlines the prohibitions and restrictions regarding political contributions. It permits companies, excluding government companies and those in existence for less than three years, to contribute directly or indirectly to any political party. However, such contributions are subject to certain conditions and limitations. This blog informs about the Section 182 of the Companies Act, 2013 and discusses it’s crucial role in regulating corporate funding to political parties, thereby influencing the democratic process in India.
Key points relating to prohibitions and restrictions on political contributions by Indian companies.
Under Section 182 of the Companies Act, 2013, there are provisions related to prohibitions and restrictions on political contributions by companies. Here are the key points:
Definition of “Political Party”
For the purpose of Section 182, a “political party” refers to a political party registered under section 29A of the Representation of the People Act, 1951.
Applicability
All companies other than:
- A government company and
- A company which has been in existence for less than three financial years
Transactions Treated as Political Party Contributions
Apart from direct contributions, certain other transactions are also treated as political party contributions:
Donations, subscriptions, or payments made by a company to a person who, to its knowledge, is carrying on any activity likely to affect public support for a political party.
Expenditure incurred directly or indirectly by a company on an advertisement in any publication (e.g., souvenir, brochure, pamphlet) is also deemed a contribution if it benefits a political party.
In summary, the Companies Act 2013 allows most companies to make political contributions, but there are specific rules and compliance requirements to ensure transparency and accountability in such donations.
Mode of Contribution
Contributions must be made by an account payee cheque, a bank draft, or through the electronic clearing system using a bank account. Companies may also contribute through any instrument issued pursuant to any scheme notified under any law for contribution to political parties.
Authorized Contributions
All other companies can make political contributions to a registered political party subject to certain compliances. To authorize such contributions, every company must pass a Board resolution during a meeting of the Board of Directors. The total amount contributed by the company under this section during the financial year must be disclosed in its profit and loss account.
Maximum Contribution
The total amount the company can contribute in any fiscal year, shall not surpass seven and a half percent of its average net profits over the preceding three fiscal years.
Contribution Accounting
Each company must include in its profit and loss account any sum or sums it has contributed to any political party during the corresponding financial year, providing details of the total contribution amount and specifying the party to which the contribution was made.
Penalty
If a company violates the regulations outlined in this section by making contributions, it shall be subject to a fine of up to five times the contributed amount. Additionally, any officer of the company found in default may face imprisonment for a maximum term of six months and a fine of up to five times the contributed amount.
Prohibited Companies
Government Companies and companies that have been in existence for less than three financial years are prohibited from making political contributions.