Sections 181 and 182 of the Companies Act, 2013: Charitable and Political Contributions
Sections 181 and 182 of the Companies Act, 2013 regulate two different kinds of company contributions. Section 181 deals with contributions to bona fide charitable and other funds. Section 182 deals with contributions made directly or indirectly to political parties and imposes eligibility, approval, disclosure, payment-mode and penalty requirements.
| Provision | Subject | Key requirement |
|---|---|---|
| Section 181 | Bona fide charitable and other funds | Prior permission in general meeting is required where the aggregate contribution in a financial year exceeds 5% of the average net profits of the three immediately preceding financial years. |
| Section 182 | Political contributions | Subject to statutory eligibility, Board approval, the applicable contribution ceiling, disclosure requirements, permitted banking modes and penalties for contravention. |
Section 181: Company to Contribute to Bona Fide and Charitable Funds
Section 181 authorises the Board of Directors to make contributions to bona fide charitable and other funds. The provision also creates a shareholder-approval threshold.
Rule under Section 181: the Board may contribute to bona fide charitable and other funds. However, prior permission of the company in general meeting is required where the aggregate amount contributed in a financial year exceeds 5% of the company's average net profits for the three immediately preceding financial years.
Meaning and practical effect
The section distinguishes between the Board's general authority to make genuine charitable or other fund contributions and larger contributions crossing the statutory threshold. Once the aggregate contribution for the financial year exceeds the 5% threshold, prior permission of the company in general meeting is required.
The expression "average net profits" should be read with the relevant provisions of the Companies Act, including Section 198 where applicable to the computation required under the Act.
Section 182: Prohibitions and Restrictions Regarding Political Contributions
Section 182 is a special provision governing corporate political contributions. It begins with a non-obstante clause and permits an eligible company to make direct or indirect contributions to a political party subject to the conditions contained in the section.
Companies that cannot contribute
A Government company cannot make a political contribution under Section 182. A company that has been in existence for less than three financial years is also excluded from the permission granted by Section 182(1).
Contribution ceiling after the Supreme Court judgment
Section 182 originally restricted the aggregate political contribution in a financial year to 7.5% of the company's average net profits during the three immediately preceding financial years. The Finance Act, 2017 removed that ceiling. On 15 February 2024, the Supreme Court held the deletion of the proviso permitting unlimited corporate contributions to be arbitrary and violative of Article 14 and struck it down. The statutory provision must therefore be applied consistently with that judgment.
Board resolution is mandatory
A political contribution cannot be made unless a resolution authorising the contribution is passed at a meeting of the Board of Directors. The Board resolution is a substantive statutory requirement under Section 182.
Payments treated as political contributions
Section 182 extends beyond a payment made directly to a political party. A donation, subscription or payment made by a company to a person may be treated as a political contribution where, to the company's knowledge, that person is carrying on an activity that can reasonably be regarded as likely to affect public support for a political party.
Expenditure incurred directly or indirectly on an advertisement in a souvenir, brochure, tract, pamphlet or similar publication may also be deemed to be a political contribution where the publication is by or on behalf of a political party, or where it is for the advantage of a political party.
Disclosure in the profit and loss account
The Finance Act, 2017 had amended Section 182(3) so that a company was required to disclose only the total amount contributed during the financial year. The Supreme Court in 2024 struck down that amended disclosure provision as unconstitutional. The pre-2017 disclosure framework required disclosure in the profit and loss account of the amount contributed to political parties, including particulars of the amount and the name of the political party receiving the contribution.
Mode of making political contributions
Section 182(3A), introduced in 2017, requires political contributions to be made through traceable banking channels such as an account payee cheque, account payee bank draft or electronic clearing system through a bank account. Its proviso referred to an instrument issued under a notified scheme for contributions to political parties. The Electoral Bond Scheme itself was struck down by the Supreme Court in 2024 and can no longer be relied upon as a valid route for political contributions.
Penalty for contravention of Section 182
If a company makes a contribution in contravention of Section 182, the company may be punished with a fine extending to five times the amount contributed. Every officer of the company who is in default may be punished with imprisonment for a term extending to six months and with a fine extending to five times the amount contributed.
Meaning of political party
For Section 182, "political party" means a political party registered under Section 29A of the Representation of the People Act, 1951.
Sections 181 and 182: Key Difference
Section 181 concerns bona fide charitable and other funds and requires prior general-meeting permission when the statutory 5% threshold is crossed. Section 182 specifically regulates political contributions and contains separate rules concerning eligibility of the company, Board authorisation, contribution limits, disclosure, payment methods and consequences of non-compliance.
Official and Primary Legal Resources
For compliance or legal proceedings, the current statutory text and binding judicial decisions should be checked before acting. The principal official sources relevant to this page are the Companies Act, 2013 on India Code and the Supreme Court judgment concerning the Electoral Bond Scheme and Section 182.
Companies Act, 2013 - India Code
Supreme Court judgment dated 15 February 2024 - Association for Democratic Reforms v. Union of India
This article is intended as a general legal reference. Statutory provisions should be read with applicable amendments, rules, notifications and binding court decisions.