Featured

FCRA: Amending a Repealed Law Retrospectively Crosses all Ethical and Legal Limits

Any move to open the floodgates for foreign donations to political parties is a threat to the integrity of India’s democracy and needs to be questioned.

Corporate donations have been a win-win for politicians and company promoters. It is the people of this country who are the losers. Credit: PTI

The scourge of private company donations to political parties has been a subject of serious debate in India for more than half a century. A news report that appeared in The Hindu on November 28, 1967, should make the present day political leaders introspect on how they have dealt with this problem in the recent years.

“The Government of India has decided at the highest level to impose a ban on contributions by companies to political parties. This decision has been taken independently of the Bill introduced in the Lok Sabha by Mr Madhu Limaye (S.S.P.) demanding a curb on such donations. It is reliably learnt that quite sometime ago the Union Minister for Industrial Development and Company Affairs was asked to go into the entire question and based on his recommendation the Union Cabinet proposed that there should be a total ban on such contributions. This matter was first highlighted when Cement Allocation and Co-ordination Organisation was known to have distributed nearly Rs 40 lakhs as donations for various political parties and individuals for election purposes”

Half a century later, had Madhu Limaye and the political leaders of that time continued to live on and were to witness the machinations of the successive governments, especially the present National Democratic Alliance government, they would have wondered whether what they were seeing these days was truly an “independent” India.

For a few decades that followed independence, those who led the nation either in parliament or elsewhere were those who made sacrifices for its freedom. They knew that when private companies chose to fund elections, they would not do it out of their love for democracy. The donors would often look for quid pro quos which included the political executive tweaking the policies of the government to favour the donor companies and occasionally allowing them to break the rules to maximise their profits.

When Madhu Limaye moved a private member’s bill in 1967 to ban private companies from giving donations to political parties, he was genuinely anxious to prevent the business houses from using their money power to exert undesirable influence over the politics of the country.

Powerful MNCs are known to fund elections indirectly in many developing countries and dictate terms to the elected governments. To prevent this, the Indian government enacted the Foreign Contributions Regulation Act (FCRA) in 1976 to prohibit political parties and their members from accepting donations from foreign sources. They realised that foreign funding of elections would sound the death knell for India’s democracy.

FCRA of 1976 was replaced later by FCRA of 2010 with more or less similar provisions to prohibit political donations from foreign sources. Meanwhile, the Representation of the People Act of 1951 was also amended to incorporate provisions similar to those in FCRA.

Indian politicians have come a long way since the days of Limaye and his likes. Electioneering has since become an extravagant and remunerative exercise. In addition to the outright electoral corruption that includes not only bribing the voters but also buying away the legislators, it has also become a fashion for our leaders to use chartered helicopters, seaplanes, bigger aircraft and other modes of luxurious transport to bamboozle the poor voter. Each election rally for the 2014 elections cost the nation tens of crores of rupees. Hundreds of such rallies were held in the name of upholding the democracy. Once the parties win elections, they would wield enormous control over the natural resources of the country and the companies that are waiting to grab them.

The political parties need to raise funds to fuel massive election rallies to be able to seize political power. Therefore, the appetite for easy money in the guise of electioneering has increased by leaps and bounds. One avenue that is readily available for this is to induce private companies to fund the political parties to match their increasing demand for funds.

The relationship between the political parties and the business houses progressively became symbiotic, one supporting the other at the cost of the public at large. Once elected, the ruling political leadership would allow the companies to plunder the natural resources of the country at will, wink at their violating the law of the land occasionally and sometimes even committing human rights violations. It is a cosy relationship in which both sides flourished.

The spirit underlying Limaye’s Private Member’s Bill in 1967 has become a thing of the past, a pleasant but non-existent illusion, giving place to a different kind of a motivation on the part of the present day leaders, that of joining hands with the business houses and collectively abridging the rights of the people at large. The successive governments have been blatant in manipulating the relevant provisions of the Companies Act and FCRA to further the self-interest of the political parties in this direction. Statutory restrictions on company donations were looked upon as irritants that should be removed as early as possible.

It is ironic that national political parties like Congress and the BJP would not see eye to eye on crucial legislation such as the Bill on women’s reservation in the legislature and the proposed law on Lokpal, but they have always acted together in unusual harmony when it came to amending the laws to facilitate the smooth, unhindered flow of company donations into their coffers.

In 1985, Section 293 of the Companies Act was amended to permit political parties to accept donations from private companies, provided the latter were in existence for more than three years, subject to a ceiling of 5% of the profits of a given company, averaged over three years. Even that was found to be far too restrictive.

When the new Companies Act replaced the old one in 2013, the then government was quick to take advantage of the opportunity by relaxing the ceiling from 5% to 7.5% in Section 182 of the new Act. It is significant that the same government while getting the new Companies Act enacted, thought it fit to provide a lower threshold of only 2% for the funds to be set apart by companies for corporate social responsibility (CSR). That much was their concern for the society at large.

As a further step towards liberalising company donations to political parties, the Finance Act of 2009 introduced the concept of electoral trusts through which companies could channel funds to political parties. Both political parties and the donor companies became eligible for the benefit of tax exemption. Despite judicial rulings to the contrary, the political parties also unilaterally exempted themselves from public scrutiny under the Right to Information Act. Fund flows under the cover of opacity kept the ordinary citizen in the dark about how the political parties were conducting their affairs.

Meanwhile, several political parties, especially Congress and BJP, violated FCRA provisions under both 1976 and 2010 laws by accepting foreign company donations year after year. On a writ petition [WP(C) 131/2013] filed on this, the Delhi high court pronounced an order dated March 28, 2014, directing the government to act against the errant political parties within six months.

The appeals filed by Congress and BJP against that order were dismissed by the apex court on November 29, 2016. Though there was no interim order against the order of the Delhi high court, the government, responsible for enforcing FCRA, failed to comply with that order. The government is at present facing contempt proceedings on this account.

Having failed to secure favourable orders from the judiciary, the NDA government quickly took the extraordinary step of retrospectively altering the laws that stood in the way of company donations flowing into their bank accounts.


Also read: Jaitley’s Electoral Bonds Are Proof That Political Parties Are Sovereign in India and Not the People


The first such step was taken when the NDA government introduced a provision in the Finance Act of 2016 to amend FCRA, 2010 retrospectively w.e.f. September 26, 2010 (the day that FCRA 2010 came into force) to exclude Indian subsidiaries of foreign companies from the definition of a “foreign company”.

This has permitted any foreign company, desirous of funding the political parties in India, to do so by merely going through the formality of setting up a subsidiary in India. In a way, this amendment was intended to “regularise” the illegal donations received by the political parties since 2010.

Congress and BJP were the major beneficiaries of this questionable legislative tinkering. Still, the political parties’ appetite for company donations, including foreign company donations, was not fully satiated. After all, Section 182 of the Companies Act of 2013, as it stood then, restricted the quantum of donation that a company could make to political parties in a year to 7.5% of the average profit. The NDA government which waxed eloquent on its resolve to bring in electoral reforms found this cap on donations far too restrictive in the matter of seeking funds from companies, both domestic and foreign.

One should take note of the blurred line that exists today between domestic and foreign companies. As a result of the liberalisation of FDI since 1991, a domestic company could any day become a foreign-controlled entity. In view of this, one should be circumspect about political donations from all private companies, whether they are domestic or otherwise.

In the Finance Act of 2017, the government amended the Companies Act to lift the cap of 7.5% altogether, paving the way to both domestic and foreign companies for donating an unlimited proportion of their profits to the political parties. As if this was not enough, in the same Finance Act, the government went one step further and introduced the concept of “electoral bonds” which created space for opacity in company donations as the electoral bonds would protect the anonymity of the donee political parties.

This implies that all companies could hereafter donate as much of funds as they wish to political parties and, in exchange, seek concessions by way of both policy largesses and tacit condonation for occasional acts of malfeasance.

These changes regularised the FCRA violations committed by the political parties since 2010. They permitted them to seek unlimited donations hereafter from all companies. Despite all these ingenious manoeuvres, one irritating snag still remained unresolved to their discomfort. While all FCRA violations since 2010 have got regularised, what about the violations committed prior to that date under FCRA of 1976?

FCRA of 1976 lapsed in 2010 but it left its blemish on Congress, BJP and a few other political parties who defied it.

Extraordinary problems usually call for extra-ordinarily innovative solutions, even if they defy all ethical norms and pangs of the conscience. If news reports are to be believed, NDA government has apparently found an ingenious way to resolve this insurmountable problem.

Revive FCRA of 1976 and then unleash the powerful legislative weapon on it by retrospectively amending it in such a way that the sins committed in the past will transform overnight into noble deeds. That is what the NDA government seems to be doing now. The latest Finance Bill is handy for this purpose and, after all, the NDA government has perfected the art of using it to play retrospective havoc on the statute.

To alter a legislation retrospectively is considered bad in practice. To revive a lapsed law and amend it retrospectively transcends all ethical and legal barriers. When it is to be resorted to, not for subserving the public interest, but for furthering the self-interest of the political parties, it defies both logic and the moral values of politics.


Also read: Hidden in Budget 2018, Blatant Subterfuge on Political Funding


Why are the political parties so keen to remove all hurdles in receiving donations from private firms? Who are the donor companies who are eager to provide political donations? What is the nature of the organic link between the two?

The donors include mostly mining, iron and steel, power, chemicals, pharmaceuticals, telecom, real estate and similar other companies. The analysis made by Association for Democratic Reforms (ADR) has shown that company contributions through electoral trusts tend to benefit the ruling party much more than the others, as such donations are meant to influence decision making in the government that is in power. For example, ADR’s reports show that nine electoral trusts donated Rs 637.54 crore to political parties between 2013-14 and 2016-17, with the BJP receiving Rs 488.94 crore and the Congress Rs 86.65 crore. By tweaking FCRA and Companies Act, it is the BJP that would benefit most, though most political parties are willing partners in this game.

The circumstances surrounding company donations in India are best illustrated by looking at the case of illegal iron ore mining in different states. A committee headed by Justice M. B. Shah was set up by the government a few years ago to inquire into this matter in several states including Goa.

Let us consider the case of illegal mining in Goa.

Justice Shah Commission found several statutory violations committed by the mining companies operating in Goa. Some mining leases there were held by foreign companies, though it was illegal under the Indian laws. Several companies violated the mining laws as well as the forest and the wildlife protection laws. The Commission found extensive under-invoicing of large quantities of iron ore exported outside the country. For example, in 2011-12 alone, the mining companies exported 38.25 million tonnes (MMT) of iron ore from out of the state. The extent of under-invoicing of the exports ranged from 30% to 50%, suggesting thousands of crores of rupees of undisclosed export earnings possibly syphoned off to overseas accounts. Such under-invoiced iron ore exports from Goa took place since 2003 or even earlier.

mining in Goa

Mining in Goa. Credit: PTI

Some companies involved in under-invoicing of iron ore exports also figure among those revealed by the Panama/Paradise papers as having undisclosed foreign accounts. It may not be coincidental that some of them also happened to be the major givers of donations to the political parties in India.

Apparently, the illegal gains earned by the mining companies, with the tacit approval of the successive governments ruled by one political party or the other, got round-tripped through tax havens back to India, often in the form of political donations.

It has been a win-win game for the politicians and the company promoters. It is the people of this country who are the losers. The magnitude of this scam would be much larger as several minerals, including iron ore, were illegally mined from several states, largely exported at under-invoiced prices and the illicitly earned profits deposited abroad and occasionally round-tripped to bribe the politicians.

In his election speeches in 2014 and thereafter, Narendra Modi expressed his resolve to bring back black money stashed away in overseas accounts and redistribute the same among the people. He also talked time and again about his firm determination to put an end to the scourge of electoral corruption. As many as 1.3 billion Indians are awaiting this transformation to happen with bated breath. Do the above referred legislative changes introduced by NDA government since 2016 gel well with this public expectation?

It is not as though the NDA government now and the UPA government earlier underscored the adverse implications of the inflow of funds from foreign sources. When it came to NGOs receiving foreign funds, these very governments came down on them with an iron hand, plodded the investigating agencies to spy on them and booked them for undermining the security of the nation. Apparently, what applied to such NGOs would not apply to the self-righteous political leadership in our country.

The only way that NDA can restore the credibility of the government in this respect will be by desisting from going ahead with its proposal to amend FCRA of 1976, revoking the amendments made to FCRA and the Companies Act in 2016 and 2017, revisiting the idea of non-transparent “electoral bonds” and taking the initiative of submitting BJP and all its NDA partners to public scrutiny under the Right to Information Act. Anything less than this will fail to restore NDA’s sagging credibility as a party that wishes to be different from the others.

Meanwhile, the civil society at large should collectively question any move by anyone that opens the floodgates to foreign political donations which pose a serious threat to the integrity of our electoral system.

E. A. S. Sarma is former secretary to the government of India.

Liked the story? We’re a non-profit. Make a donation and help pay for our journalism.
  • K SHESHU BABU

    It may be foolish to expect political mainstream parties to stop accepting donations specially when they are interdependent on corporates industrialists. Even court ruling may not bring out any significant alteration. People should reject these parties in elections. That may be the only way. But, electoral mal practices ( like EVM tampering) may hinder reflection of true public opinion. There is a need for a mass movement towards alternative politics to clean the mess and corruption

  • alok asthana

    BJP simply can’t be expected to do anything ethical. Let us stop expecting miracles and gear up for the fight ahead in 2019

  • Amitabha Basu

    When the entire election machinery of the political parties runs on black money and undisclosed ‘donations’ by moneybags expecting reciprocal benefits from them, it is pointless to expect that laws made by these very parties will curb such unethical practices.