This article is written by Somya Mishra, a student of Bangalore Institute of Legal Studies

Government and citizens both are interrelated to each other and since political parties are a link between them, they are always expected to be accountable to the public at large. It is essential to have comprehensive and transparent accounting methods and systems so that the true financial position of the parties could be revealed. A political party that agrees to take funds from a company but is reluctant to make full disclosure is disallowed to receive such funds.

Amongst the various sources of funding to the political parties, company is one of them.

Relevant provisions for political parties’ donations and contributions in India

According to Sec 29B of the Representation of People’s Act, every political party is entitled to accept contribution offered to it by any person or company voluntarily, other than a Government company. No political party is allowed to accept any contribution from any foreign source as defined under Sec 2 of the Foreign Contribution (Regulation) Act, 1976.

According to Sec 29C of the Representation of People’s Act, the political parties are required to declare the details of contributions of more than Rs. 20,000 and prepare a report for the same in each financial year. Here, contribution includes contributions from both private persons as well as companies.

It is made mandatory for the political parties to submit to the Election Commission of India a list of donations they receive of over Rs. 20,000, giving names and addresses of the donors (Sec 29-C, RPA). If they fail to do so, then such political parties are disentitled from getting any tax relief under that Act.

Sec 182 of Companies Act, 2013 states that the companies donating contributions to the political parties must be in existence for a minimum period of three years. Also, the companies can donate only up to 7.5% of its profit in a year and is bound to disclose the amount in its profit and loss account. This exercise of the power of the companies can take place only with the approval of the board of directors through a resolution. If a company violates any 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 were involved in such violation shall be punishable with imprisonment for a term which may extend to six months and shall also be liable to fine of 5 times the amount contributed.

The government enacted the ‘Electoral Trusts Scheme, 2013’ in order to streamline the process of funding and to ensure the transparency of corporate funding to the political parties’ poll expenses. According to this scheme, Electoral Trust companies were set up and were promised tax benefits in proportion to the funds they provided to various political outfits.

The Corporate Affairs Ministry amended its ‘Name Availability Guidelines’ for the companies to enable registration of non-profit companies. The companies were required to have the phrase ‘Electoral Trust’ before their names and get registered, so as to differentiate them from other companies, as allowed under Sec 25 of the Companies Act, 1956 under the Electoral Trusts Scheme, 2013. The companies were supposed to have an affidavit to the effect that they would be limited only for the purpose of registration of companies under the Electoral Trust Scheme of Central Board of Direct Taxes.

The companies were allowed tax benefits on one condition, i.e. only if they distribute 95% of total contributions received by them in any financial year to the registered political parties within that year itself. The Electoral Trust companies were not allowed to accept contributions from foreign citizens or companies. They need to take the PAN number of all contributors who were resident Indians and passport number of NRI citizens at the time of receiving the contribution.

Current Status of Political Funding

Under the current legal requirements, political parties are generally not completely transparent in their finances and thus a huge proportion of their income remains unaccounted for. There are unknown sources of funding reported by political parties in their annual disclosure report such as ‘sale of coupons’, ‘Aajiwan Sahayog Nidhi’, ‘relief fund’, ‘miscellaneous income’, ‘voluntary contributions’, ‘contribution from meetings/morchas’ etc. for which there is no information available in the public domain.

BSP has been an excellent example of such lack of transparency in the political parties’ disclosure. Since last 8 years, it has not disclosed even a single name of the donor who has contributed above Rs. 20,000 to them, though every year its total income has been in crores.

This egregious level of opacity in the financial disclosure of political parties certainly creates a suspicion towards the dubious sources of income which ultimately effects our electoral process.

DETAILS NEEDED TO ENSURE WHETHER A COMPANY IS GENUINE OR NOT?

1. Registration data of the company website: This may provide information relating to the name of the person who created the website, which may help to further gather information about the company. The information as to the period since when the website is in existence and when will it expire, is necessary. If a website is created only for a short span of time, it may indicate some scam.

2. Reviews of the company on the internet: Reviews from the public often help to believe on the genuineness of a company. The more the positive reviews, the more faith is built on the company.

3. Proper certification and licenses: It is important to ensure that the company has complied with the regulations of the Companies Act and has the proper certificates and licenses proving the authenticity of the company.

4. Company’s credit report: All the credit report related to the company must be taken down. In order to ensure the legitimacy of a company, the company’s credit score, their contact details, financial performance as to the profit and loss accounts of the company, number of directors- their personal & professional information, everything needs to be recorded.

5. KYC of the corporate entity: KYC (Know Your Customer) is very important as it provides a detailed information about the company. It seeks copy of the PAN card, copy of Certificate of incorporation, Memorandum of Association, Articles of Association, Board resolution, Photo identity proofs of authorised person and registered address. This totally secures against any fraud from the company.

6. Contact on the given registered address and phone number: The company must be rechecked as to whether they have given a genuine contact number and address by calling on that number and confirming it.

7. Discrepancies and lack of professionalism: One should thoroughly go through the website and see to it that no such discrepancy is found. The kind of information which it shares shows how coordinated the business is. They must be original and not copied from elsewhere.

The AAP Controversy

Just 4 days before the Delhi elections, AAP has been engulfed into a big controversy, a controversy over political funding. AAP has been charged with the allegation of money laundering from AVAM (AAP Voluntary Action Manch) for 4 companies which have funded the party with 50 lakh each, namely Goldmine Buildcon, Skyline metal, Infolance software & Sunvision agencies, are believed to be bogus companies. ‘HAWALA AT MIDNIGHT’ has been the breaking news these days. These companies are found to have fake addresses and no profits or loss accounts since 3 years. The directors of these companies are directors of more than 1 company. One Hem Prakash Sharma is a director of 56 companies and Dharmendra Upadhyaya of 18 companies, which indicates a suspicion.

Though the companies are registered with ROC, it is not enough to prove the genuineness of the company as it provides information only regarding its registered address, its existence and its paid-up capital. Whether the company is doing business currently or not is not provided under ROC.

AAP rules say that all donation up to Rs 10Lakh are vetted by the Advisory Committee and for donations above that, it is scanned by the Political Advisory Committee.

BJP has also alleged that AAP has flouted foreign exchange law as it routed money from a foreign company which is not supposed to donate money to an Indian Company. However, a recent disclosure from Mrs. Mann, who made this donation along with her husband, threw some light on this issue. AVAM had alleged against AAP that the money was paid to them by cheque and a dubious transaction has taken place. Mrs. Mann stated that the basic facts offered by AVAM are incorrect and they paid through credit card and not through cheque. Since she claims to be an Indian citizen, it is not even the violation of Sec 3(1) of Foreign Contribution (Regulation) Act, 1976 which restricts political parties to accept contributions from foreign companies.

Although AAP has tried clearing its hands from this allegation, the controversy is still on.

Need for strict implementation

There is a grave need for a strict mechanism for ensuring that there is final transparency and accountability on the part of the political parties. In order to put forward a true picture of the financial position of the political parties, there must be a standardized procedure and framework of reports. Institute of Chartered Accounts of India (ICAI) has taken a step towards this direction on the request of the Election Commission of India (ECI). ADR considers it the top most priority.

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