Ahead of polls, limits to political funding by corporates removed

Dec 03 2013, 09:07 IST
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No restrictions on corporate funds for election campaign? No restrictions on corporate funds for election campaign?
SummaryThe legislative department of the law ministry had earlier opposed the move.

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

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