Contribution to Political Parties by Companies- Law and Rule - Section 293 A of Companies Act, 1956- Violation if any and its Punishment

In Indian Companies Act Section 293A(1) was substituted by the Companies Amendment Act 1985  seeking to continue the existing blanket ban against political contributions in case of (1) Government Companies, (2) Companies which have been in existence for less than three financial years. Section 293A(2) permits all other companies to make political contributions directly or indirectly for any political party or any political purpose to any persons.

The decision to contribute money to any political party should be authorized by passing Resolution in the meeting of Board of Directors of the Company. The amount of contribution by a company in a financial year shall not exceed five percent (5%) of its average profits.

A donation or subscription or payment cased to be given by a company on its behalf or on its account to a person who, to its knowledge, is carrying on any activity which, at the time at which such donation or subscription or payment was given or made, can reasonably be regarded as likely to effect public support for a political party shall also be deemed to be contribution of the amount of such donation, subscription or payment to such person for a political purpose; the amount of expenditure incurred by a company on advertisement in any publication by or on behalf of a political party or for its advantage shall also be deemed where such publication is by on behalf of a political party to be a contribution of such amount to such political party, and Where such publication is by or on behalf of but for the advantage of a political party to be a contribution for a political purpose to person publishing it. 

As per Section 293(4) of the Indian Companies Act it is mandatory to disclose the amount of political contribution made in the Profit and Loss account of the Company. The details should include (1) particulars of the total amount contributed and (2) The name of the party or person to which or to whom such amount has been contributed. 

Limit of Political Donations can be made by Companies

The ceiling of political contribution is 5% of the average Net Profit determined in accordance with the Provisions of Section 349 and 350 during the three immediately preceding financial years. The limit would benefit only to larger companies as the contribution will increase according to the increase in profit. 

Disclosure as per Section 293A(4) for Political Contribution in Profit and Loss Account

As per Section 293A(4) of the Indian Companies Act, it is mandatory for every company to disclose in its profit and loss account any amount or amounts contributed by it to any political party or any political purpose. 

How to authorise for political contributions?

Decision for political donation is to be taken in the Meeting of Board of Directors of the company. The decision will be taken by the board of directors, but to which party the contribution is to be made will depend on the political thinking of the board of directors. 

Contravention of Section 293A of Indian Companies Act and its Punishment

As per Section 293A(5) if a company make any political contribution in contravention of the provisions of Section 293(A) of the Act.

(a)  The Company shall be punishable with fine which may be extend to three times the amount so contributed and

(b) Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine.    

 

 

Contribution to Charitable Trust or Organizations by Companies

According to Section 293(1)(e) of the Indian Companies Act, 1956 the Board of Directors of a Public Company or a Private Company which is a subsidiary of a public company, shall not except with the consent of such public company or subsidiary in general meeting contribute after the commencement of the Act, charitable or other funds not directly relating to the business of the company or welfare of its employee, any amounts the aggregate of which will, in any financial year, exceed Fifty Thousand Rupees or five percent (5%) of its average net profits as determined in accordance with the provisions of section 349 and 350 during the three financial year immediately preceding is greater.

Donation or Contribution to National Defense by companies

As per Section 293B of the Indian Companies Act, 1956 companies may make contribution for the purpose of National defense uninhibited by the limits and conditions imposed by section 293(1)(e) of the Act or Memorandum of Association of the Company. But it is mandatory to disclose the amount of contribution made during the year in the Profit and Loss Account for year in which it relates 

 

 

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