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Cash cloak for parties

The Narendra Modi government has drawn a veil of secrecy on corporate donations to political parties.

By Jayanta Roy Chowdhury
  • Published 23.03.17
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New Delhi, March 22: The Narendra Modi government has drawn a veil of secrecy on corporate donations to political parties.

Finance minister Arun Jaitley slipped in a surprising amendment to the Companies Act, 2013, through a last-minute change in the Finance Bill, 2017, which removes the cap that barred a company from donating more than 7.5 per cent of its average net profit in the three immediately preceding financial years to a political party.

Worse, it also removed a requirement that made it obligatory for a company to disclose in its profit and loss statement the name of the party to which the donation has been made.

The Lok Sabha passed the Finance Bill along with a batch of 40 amendments that Jaitley introduced yesterday after a hurried debate.

"This means, for example, that an infrastructure firm could theoretically pay up to 50 per cent of its net profits to a single party as donation without anyone getting wiser as to which party has been paid... this throws open the possibility that an order to build a highway or a railway bridge could be given to a firm and that firm could pay the donation to the party in power which placed the order with it," said a senior official with the Comptroller and Auditor General's office.

"The beauty is that if this happens, it will be legitimate and no questions can be asked by any ethics committee of Parliament or by any CAG audit," the official added.

The "innocent" amendment made as part of others to the Finance Bill, 2017, is in Section 182 of the Companies Act, 2013. It says "in sub-section (I) - (a) the first proviso will be omitted".

While this seems an innocent deletion of a section, in effect it removes the cap on political donations which till now stipulated that "the aggregate amount contributed" by a company in any financial year shall not exceed 7.5 per cent of its average net profits in the preceding three financial years.

BJD MP Bhratruhari Mahtab said: "It opens the floodgates for potential corruption and removes the means to check it." Mahtab had staged a walkout with party members, dissatisfied with answers given by the finance minister to queries on the amendments.

Agreed Nilotpal Basu, former CPM MP and Central Committee member: "This is typical of the duplicity of the ruling alliance which slips in changes that help breed corruption even as it claims that it is fighting a war against corruption."

"We need to remove the anonymity clause and make it mandatory for firms to disclose to which party they have paid money. Otherwise, we could be flooded with cases of misuse of office to get political donations," said Dinesh Trivedi of the Trinamul Congress.

PRS Legislative Research, an independent research body which helps parliamentarians by conducting research on bills and funding, points out in a note that the amendments to the Finance Bill, 2017, remove not only "the limit of 7.5 per cent of net profit of the last three financial years", but also "the requirement of a company to disclose the name of the political parties to which a contribution has been made".

This has happened as the amendments to the Companies Act now also allow firms to pay "through any instrument issued... for contribution to political parties". This means the Companies Act recognises the Election Bonds scheme being separately notified by the government.

The bonds, to be authorised by the Reserve Bank of India and issued by scheduled banks, can be bought by any firm and then given to political parties of the company's choice without disclosing the beneficiaries' name. The government argues that this has been done to enable firms and individuals to draw a veil of secrecy on their funding.

"Every political party and every government of every hue has said one thing and done the opposite on this issue of political party funding," said Jagdeep Chhokar of the Association for Democratic Reforms (ADR).

Auditors say the line in the profit and loss statement will simply read "political donations", without specifying the name of the party.

"The anonymous contribution clause, along with removal of funding cap, could lead to opening up the backdoors to unethical actions by corporates. This loophole is coming after a lot of work was done by all parties to bring in a revamped Companies Act which sought to bring in more ethical conduct by Indian firms," said Swapan Sarkar, a Delhi-based chartered accountant.

Under Section 182 of the Companies Act, no political donation can be made unless the board of directors passes a resolution authorising such a payment.

Political donations made by companies also cover payments to a person who "is likely to affect public support for a political party" and advertisements in any publication that further the cause of a political party.