Business Standard

Legal views split on disclosure of political donations by India Inc

- RUCHIKA CHITRAVANS­HI New Delhi, 16 February

The implicatio­ns of the Supreme Court’s verdict on the electoral bonds scheme on India Inc’s annual disclosure­s about political donations and bond purchase remain unclear, with legal experts divided on the issue.

The apex court in its Thursday order declared the 2017 amendment to Section 182 of the Companies Act, which mandated non-disclosure of particular­s on political contributi­ons, as “unconstitu­tional”.

“Harmonised reading of the SC judgment with constituti­onal provisions would mean any financial statement of companies would now require a disclosure. This would, however, be applicable to donations made after February 15, 2024, when the SC’S order came into effect,” said Mukesh Butani, founder and managing partner, BMR Legal.

Prior to the amendment, the Act required companies to disclose any amount contribute­d to a political party, along with the particular­s of the amount donated and the name of the recipient. The Act then also limited the amount a company could donate in a single financial year to 7.5 per cent of the company’s average net profit during the previous three financial years.

Section 182 of the Companies Act was amended through the Finance Act in 2017 and it did away with the cap on the amount that could be donated by a company and also the requiremen­t to disclose the recipient of the donation.

Some experts believe that with Section 182 no longer applicable, companies will have to disclose these contributi­ons in their profit and loss statements for 2023-24, even for donations made before February 15.

Ankit Singhi, partner at Corporate Profession­als, advised companies to now remain “mindful of the limit of 7.5 per cent of average net profit of three financial years before making political contributi­ons” and that “such contributi­ons, along with the details of political parties, shall be disclosed in the financial statements starting from FY24.”

However, Anjali Jain, partner at Areness law firm, flagged uncertaint­y about whether the judgment would apply retrospect­ively to contributo­rs. “If so, the current MCA (Ministry of Corporate Affairs) portal would need to be updated to align with these requiremen­ts.” Jain said, adding that the judgment is probably going to have a “prospectiv­e effect”. The Supreme Court has asked State Bank of India to provide detailed particular­s of all political contributi­ons made via electoral bonds during the specified period. “It is unlikely that the correspond­ing contributo­rs would also be required to bring such disclosure­s to the front,” Jain added.

Despite the uncertaint­y, some experts believe companies may still disclose these contributi­ons in their financial statements in the spirit of transparen­cy. “Companies would have to approach the MCA to seek clarificat­ion on disclosure requiremen­ts this year, so that there is no confusion,” Butani added.

The MCA did not respond to an email query on this issue.


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