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COMPANY LAW
Govt explores ways to lift veil on political funding
Wed, 11 Aug 2010 23:06:28 GMT
The Economic Times

Govt explores ways to lift veil on political funding

NEW DELHI: Corporate donations to political parties, a long-standing lightning rod for criticism for the implicit conflicts of interest in a controlled economy, will come under greater scrutiny when a new Companies Bill, expected to be passed in the winter session of Parliament, gains the force of law.

Provisions enforcing greater transparency and disclosure norms on such donations will be part of the upcoming bill, which is currently being studied by a Parliamentary Standing Committee, corporate affairs minister Salman Khurshid told reporters today.

“There should be more transparency in the way corporates fund political parties,” Khurshid said. “Who you (a company) are giving money to, what purposes you are giving money for, how much is permissible under the law, how much is to be disclosed, these are very important issues which I hope will be addressed in the new Companies Bill,” he added.

Under the existing law, companies can donate up to 5% of their profit in a year to political parties, and are required to disclose the amount in their profit and loss account. This exercise should be done with the approval of its board of directors through a resolution.

Under the provisions of the draft law, a company will be required to keep its investors and shareholders updated about the details of such donations.

Funding political parties out of a company’s funds has long been a sticky subject. However, there has been little initiative on the part of successive governments to tackle the issue. Most of India’s prominent political parties receive large donations from companies.

The issue comes to sharper focus during elections, when parties routinely flout spending limits imposed by the election commission. While the spending limits have been criticised for being impractical, the covert and overt sources of party funds have long been a concern as the first in a chain of quid pro quos that result in unwelcome influence in government affairs.

Speaking on the sidelines of a conference on public governance hosted by All India Management Association (AIMA), the minister said that with the government looking to better corporate governance framework in companies as well promote greater shareholder’s democracy, the framework on political funding by corporates needs improvement.

The Companies Bill, which is currently under consideration of the Parliamentary Standing Committee on Finance, is likely to be made a law by end of this year. As per procedure, the Standing Committee will pass on its recommendation to the ministry of corporate affairs, which will then study and suitably weave into existing Bill before being made into a law.

Mr Khurshid further said that in case the issue could not be addressed in the new Companies Act, the government would work out voluntary guidelines for corporate donations to political parties.

The provision in the present Companies Act that allows companies to make contributions up to 5% of their net profits was first passed in 1960 and further amended in 1985 to allow board of directors of companies to authorise such donations. This was irrespective of the recommendations of a high-powered expert committee that in 1978 called for continuing with a ban on such donations by companies.
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