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Companies Act 2015 continues to facilitate corporate funding for political parties and co-option of NGOs

Written By Gopal Krishna on Thursday, May 28, 2015 | 5:41 AM

Provision for CSR in the Act needed to be revisited

The Companies (Amendment) Act, 2015 has received the assent of the President. It has been notified in the Official Gazette with effect from 26th May, 2015. Companies (Amendment) Bill, 2014 which was introduced to amend Companies Act, 2013 was approved by the Lok Sabha on17th December, 2014 and by the Rajya Sabha on 13th May, 2015. This Act along with the 2013 Act merits attention of all the lovers of true democracy. Notably, the Contesting Election on Government Expenses Bill, 2012 is pending in the Rajya Sabha which was long due for putting a check on increasing use of black money in elections and political activities but the Companies Act has emerged as a threat to the idea of State funding of elections. Yet another opportunity has been lost to deal with the menace of black money with the passage of the Act.
Union Cabinet chaired by the Prime Minister, Narendra Modi gave its approval for the Companies (Amendment) Bill, 2014 on 29th April, 2015. With this 2013 Act has received the seal of approval from the NDA government. There was a need for replacing corporate donation for political parties with provision of corporate donation for government’s electoral fund that can be used for State funding of elections. But the government accepted the status quo in general.  Thus, regime has changed but the order has remained the same.
The Companies Act reveals double speak, insincerity and inconsistency of the ruling parties and opposition parties. The Companies Act should have banned corporate funding for electoral campaigns but this has not happened. This is contrary to several reports of the Parliamentary and government's committees which recommended State funding of elections to deal with black money.
The root of rampant corporate crimes committed with impunity, environmental destruction, poisoning of food chain and human rights violations by security forces has been traced to corporate funding of political parties. In the aftermath of industrial disasters, frauds and war crimes by companies world over, this Act merits rigorous scrutiny by all sections of legislatures and society.
It may be noted that there is a provision in the Act that reads: "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".
It may be recalled that two contradictory things happened in the Lok Sabha on 14th December, 2011. Companies Bill, 2011 was introduced by Dr Veerappa Moily as a Union Minister in the afternoon that made provision for corporate funding of parties. Within hours of the introduction of this Bill, Manish Tiwari, National Spokesperson of the Indian National Congress who stood up to speak about UPA's seriousness in dealing about Black money stated, "I feel ashamed to state that black money which is linked to our advertisement policy is related to electoral finance that needs to be rectified."

The 2013 Act was passed with the endorsement of Yashwant Sinha headed Parliamentary Standing Committee on Finance. The 2015 Act has the endorsement of Indian National Congress in the Parliament. 

The collusion between major parties that was witnessed in the report Indrajit Gupta headed Parliamentary Committee remains unaltered. The silence of the left parties is quite deafening in this regard. In the light of this development, the reluctance of the political parties except Communist Party of India to come under the ambit of Right to Information Act is not inexplicable.
The Act gives greater role to shareholders and promotes shareholder democracy of sort.
It is explicable as to this government forgot about the recommendations of the Group of Ministers (GoM), headed by the then Union Home Minister, L.K. Advani, to consider recommendations of the Indrajit Gupta headed Committee on State funding of elections during the Bhartiya Janata Party led National Democratic Alliance (NDA) Government. The Committee on State Funding of Election was headed by the former Union Home Minister and veteran CPI leader, Indrajit Gupta, had submitted its report to the Government on 14th January, 1999 favouring State funding of elections.
It merits recalling that at the Convention of Indian Youth Congress on November 29, 2011, Sonia Gandhi, Chairman, Indian National Congress reiterated the need for state financing of elections as a measure against corruption in the electoral process. Earlier, she had demanded it at the Congress plenary in December 2010. The Union Minister for Law & Justice informed the Lok Sabha on November 28, 2011 that --Group of Ministers constituted by the Central Government is considering measures that can be taken by the Government to tackle corruption which inter alia include the introduction of state funding of elections. The Act shows that what Sonia Gandhi had told the Convention of Indian Youth Congress has not been incorporated in the Act. BJP led NDA government wasted the opportunity of rectifying the Act.
It is evident that both Congress led UPA and BJP led NDA are preaching one thing and practicing just the contrary. The passage of this legislation re-legitimizes corporate funding of political parties instead of reversing the trend.
There is a provision in the Ac which appears quite dangerous. It reads: The Board of Directors of a company may contribute to bona fide charitable and other funds: Provided that prior permission of the company in general meeting shall be required for such contribution in case any amount the aggregate of which, in any financial year, exceed five per cent of its average net profits for the three immediately preceding financial years." This is a masterstroke to co-opt bonafide charitable institutions and turn them into fake public interest institutions who serve corporate interests. Both are divergent interests for sure.

While the hollowness of Concept of Corporate Social Responsibility (CSR) which is an exercise in advertising and brand positioning is well known, the same has been introduced in the Companies Act. The provision regarding CSR reads" Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Borad consisting of three or more directors, out of which at least one director shall be an independent director. The Board's report shall disclose the composition of the Corporate Social Responsibility Committee. The Corporate Social Responsibility Committee shall,—(a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the compay as specified in Schedule VII the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.
Notably, Schedule VII mentioned in the clause provides a list of "Activities which may be included by companies in their Corporate Social Responsibility Policies" These activities relate to:— (i) eradicating extreme hunger and poverty; (ii) promotion of education; (iii) promoting gender equality and empowering women; (iv) reducing child mortality and improving maternal health; (v) combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases; (vi) ensuring environmental sustainability; (vii) employment enhancing vocational skills; (viii) social business projects; (ix) contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments for socioeconomic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and (x) such other matters as may be prescribed.
The activities that have been mentioned above are functions of the State towards the citizens. This is a case of outsourcing functions of the government to companies. It may have been better if instead of letting companies do CSR activities if the same 2 % of their annual profit is collected as tax to create a fund for undertaking state funding of elections? Prime Minister's National Relief Fund itself can collect it as Government of India did acting as parens patriae (guardian of the nation), passed the Bhopal Gas Disaster (Processing of Claims) Act, 1985 in the case against USA's Union Carbide Corporation, currently owned by USA's Dow Chemicals Company. A five judge bench of the Supreme Court upheld that the State had rightly taken over the exclusive right to represent and act on behalf of every person entitled to make a claim in the Charan Lal Sahu Vs Union of India and others on 22 December, 1989. The Companies Bill should provide for “creation of an Industrial Disaster Fund” to comply with this very order in the aftermath of world worst industrial disaster before the nuclear disasters of Chernobyl and Fukushima. 

The political parties that will collect up to 7.5 % of annual profits of the companies as donations will not have the political will to regulate CSR activities and will not be able to acts in any case. A regime that is elected based on state funding of elections can undertake the above welfare activities and act as a genuine parens patriae. Citizens rightfully deserve it. The proposal of such CSR activities as acts of charity is an assault on provisions of the constitution that provides for entitlements for life and environment as a fundamental right.
The provision of corporate funding for political parties must be looked at in the backdrop of the decision of Supreme Court of USA on January 21, 2010 in the Citizens United case, which was denounced by US President Barack Obama, apparently for the sake of record. The US Court considered whether there could be a ban on corporations using their general treasury funds for elections-related expenditure. A majority (5-4) of the Court ruled that such a ban was violative of the right to free speech. Essentially, the US Court struck down certain campaign-finance limits as a violation. The impact of this ruling is that corporate entities in the USA are free to use their general treasury funds to incur election-related expenditure, in a departure from past precedents. It also raised a question do corporations have free-speech rights, just as do individuals? If this is the path of corporations very soon, indeed "We The People" will be excluded from even representative government because of Corporate Personhood. It was said in the newspapers in USA that it would turn the political class into prostitutes.

In connection with this, the six page long The Contesting Election on Government Expenses Bill, introduced by Prabhat Jha, Member of Parliament merits attention.
Contrary to the wisdom of the Bill, this Act is aimed at doing away with the requirement for filing a declaration by a company before commencement of business or exercising its borrowing powers and rationalizing the procedure for laying draft notifications granting exemptions to various classes of companies or modifying provisions of the Act in Parliament, in order to ensure speedier issue of final notifications. This Bill reveals the incestuous relationship between business enterprises and the ruling parties.   
Instead of setting matters right, the official amendments contained in the 2015 Act addresses issues related to ease of doing business and puts in place a speedier process for approval of draft notifications for providing exemptions etc. from specific provisions of the Act to a class of companies.  
There is a logical compulsion for amending the Companies Act to outlaw the provision for corporate funding to political parties and substitute it with the provision of state funding for the political parties as envisaged in The Contesting Election on Government Expenses Bill.
Following footsteps of the trends in USA, the provisions in the Companies Bill is all set to turn most political parties into brothels wherein made-to-order legislations will have a field day if it is not the case already. Given this trend will it be surprising if very soon there will be approval for foreign direct investments in myriad disguises to facilitate setting up of legislation manufacturing factories?

Democratic institutions can only be strengthened if political parties and other political organizations are given a priority by the state through fiscal support for becoming a democracy given the fact that it is always a work in progress. Studies based on large data sets on political financing in more than 40 democracies provide empirical account of campaign finance and have brought to light hidden aspects of politics and questioning widespread beliefs about political finance, such as the rapid increase of campaign costs. The problems associated with the high cost of election campaigns and the establishment of a balanced and transparent system for their financing merit state's attention.
The experience from contemporary European democracies shows that political parties are necessary and desirable institutions for democracy and direct involvement of the state through financing election campaigns is transforming parties from their status as voluntary private associations into parties as public utilities.
The legislation in question does not appreciate that it is the dependence of political parties on non-state actors for financing elections that determines their electoral and non-electoral performance. It is a flawed legislation which is compromising the political outcomes through an inherent political engineering which is co-terminus with property based citizens' rights.
While it has been admitted that --there is no guarantee that economic prosperity ensures democratization, the ulterior motive of the sponsors of electoral reforms is the former and not the latter. In the post-Citizens United era and in the era of legislated corporate funding through Companies Act is an act of rewriting the political geography and will reveal its residual democratic content.
By shaping not only the strategies, rational choice but also their goals, political parties as institutions structure political situations and leave their own imprint on political outcomes. This significance underlines the inference that parties cannot be left at the mercy of non-state actors. As long as these actors shape the outcome no matter who wins in electoral battles, democracy is not a winner because our deformed political system is turning legislatures into a forum for legalized bribery. The way out could be to recommend that these very corporate donations be pooled into an electoral fund which can be used for state funding of elections.


For Details: Gopal Krishna, ToxicsWatch Alliance (TWA), Mb: 08227816731, 09818089660, E-mail-1715krishna@gmail.com, Web: www.toxicswatch.org

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