Prohibitions and restrictions regarding political contributions (Section 182 of the Companies Act, 2013) :
Section 182 of the Companies Act, 2013 came into force on 12th September, 2013 which provides for Prohibitions and restrictions regarding political contributions. According to this section:
(i) Notwithstanding anything contained in any other provision of this Act, a company may contribute any amount directly or indirectly to any political party. Here, “political party” means a political party registered under section 29A of the Representation of the People Act, 1951.
(ii) The following companies are not allowed to contribute to any political party:
(a) a Government company; and
(b) a company which has been in existence for less than three financial years.
(iii) 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.
(iv) No such contribution shall be made by a company unless a resolution authorising the making of such contribution is passed at a meeting of the Board of Directors and such resolution shall be deemed to be justification in law for the making and the acceptance of the contribution authorised by it.
(v) Without prejudice to the generality of the provisions of sub-section (1),
(a) 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, at the time at which such donation or subscription or payment was given or made, can reasonably be regarded as likely to affect public support for a political party shall also be deemed to be contribution of the amount of such donation, subscription or payment to such person for a political purpose;
(b) the amount of expenditure incurred, directly or indirectly, by a company on an advertisement in any publication, being a publication in the nature of a souvenir, brochure, tract, pamphlet or the like, shall also be deemed,—
(1) where such publication is by or on behalf of a political party, to be a contribution of such amount to such political party, and
(2) where such publication is not by or on behalf of, but for the advantage of a political party, to be a contribution for a political purpose.
(vi) Every company shall disclose in its profit and loss account any amount or amounts contributed by it to any political party during the financial year to which that account relates, giving particulars of the total amount contributed and the name of the party to which such amount has been contributed. [Section 182(3)]
(vii) If a company makes any contribution in contravention of the provisions of this section, the company shall be punishable with fine which may extend to five times the amount so contributed and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months and with fine which may extend to five times the amount so contributed.
The MCA vide General Circular 19/ 2013 dated 10th December 2013, issued a clarification on disclosures to be made under section 182 relating to ‘Prohibition and restrictions regarding political contributions‘ of the Companies Act, 2013.
The circular says that, with the coming into force of the scheme relating to ‘Electoral Trust Companies’ under the Income Tax Act, 1961 read with Ministry of Finance Notification No. S.O. 309(E) dated 31st January, 2013, it will be expedient to explain the requirements of disclosure on part of a company of any amount or amounts contributed by it to any political parties under section 182(3) of the Companies Act, 2013.
The Ministry hereby clarifies that:
(i) 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 be sufficient, if the Accounts of the company disclose the amount released to an Electoral Trust Company.
(ii) 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.
(iii) 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.