Law bans foreign firms from making political donations

NEW DELHI (TIP): The law forbids a “foreign company” to make any donation to political parties even if it has an Indian subsidiary. Yet, the home ministry and the two leading parties, Congress and BJP, have all filed affidavits claiming that a political donation is allowed if the majority shareholding in the foreign company registered abroad is of an Indian.

The affidavits were filed in August before the Delhi high court in response to a PIL filed by Association for Democratic Reforms (ADR) and retired civil servant EAS Sarma. The PIL alleged that Congress and BJP have for years been receiving donations to the tune of tens of crores from foreign companies through their Indian subsidiaries.

The one example cited against the government and the two parties is of UK-registered Vedanta Resources, in which Indian citizen Anil Agarwal holds at least 50% of the paid-up capital. Referring to the donations admittedly made by Vedanta through three of its Indian subsidiaries, Sterlite, Sesa Goa and MALCO, the petitioners alleged that the government had not taken any action against Congress and BJP because, among other reasons, finance minister P Chidambaram had been on the board of directors of the parent company.

The PIL has asked for a court-monitored investigation as foreign funding of political parties is prohibited by at least two laws. In a bid to prevent “utilization of foreign contribution for any activities detrimental to the national interest”, Section 29B of the Representation of the People Act stipulates that no political party be allowed to accept any donation from “any foreign source”. Accordingly, Section 3(1)(e) of the Foreign Contribution Regulation Act (FCRA) prohibits any financial contribution from any foreign company to a political party. Section 2(1)(g)(ii) of FCRA clarifies that a foreign company includes its Indian subsidiaries.

In their separate but similarly argued affidavits, the government and the two named political parties contended however that contributions from the subsidiaries of a foreign company such as Vedanta were allowed by FCRA. Their justification is that one of definitions of a foreign company, spelt out in Section 2(1)(g)(i) of FCRA, is an entity “within the meaning of Section 591 of the Companies Act”. The implication of this reference, in their interpretation, is that a donation made by any foreign company through its Indian subsidiary will not be regarded as a foreign contribution so long as an Indian holds a majority stake in the parent company.

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