FINANCE ACT 2017

3. Amendments to the Representation of the People Act, 1951 

The Finance Act, 2017, introduced several amendments to the Representation of the People Act, 1951, and other laws to facilitate corporate donations to political parties. These amendments included:

1. Increasing the limit on the amount of money that a company can donate to a political party from 7.5% of its average net profits over the previous three years to 10%.
2. Removing the requirement for companies to disclose the names of the political parties to which they have donated money.
3. Allowing companies to make political donations through electoral bonds, which are essentially a form of bearer bonds that can be bought from authorized banks and given to political parties. The identity of the donor is not disclosed, and the political party can encash the bonds at any time.

Supreme Court Verdict

The Supreme Court struck down several of these amendments in a judgment delivered in April 2023. The Court held that the amendments were unconstitutional because they violated the principle of transparency and accountability in political funding. The Court also held that the amendments were not necessary to achieve the government's stated objective of promoting transparency in political funding.

4. The Companies Act, 2013

The Companies Act, 2013, is a comprehensive legislation in India that regulates the incorporation, governance, and operations of companies in the country. It replaced the Companies Act, 1956, and introduced several significant changes to modernize corporate laws and enhance corporate governance practices.

The key features of the Companies Act, 2013, include:

• The Act categorizes companies into various types based on their structure, such as private companies, public companies, one-person companies (OPCs), and producer companies.
• The Act emphasizes corporate governance principles, including the composition and functions of the board of directors, roles and responsibilities of directors, audit committee requirements, and disclosure norms.
• It provides detailed provisions for the incorporation of companies, including the process of registration, minimum capital requirements, and the memorandum and articles of association.
• The Act regulates the issuance, transfer, and buyback of shares, rights and obligations of shareholders, share capital maintenance, and dividend distribution.
• It lays down provisions related to the appointment, qualification, resignation, removal, and remuneration of directors. It also mandates the rotation of auditors and independent directors in certain cases.
• The Act requires certain classes of companies to spend a specified percentage of their profits on CSR activities and mandates disclosure of CSR initiatives in their annual reports.
• It sets out the requirements for financial statements, their preparation, auditing, and filing with the Registrar of Companies (ROC). The Act also mandates the appointment of auditors and their independence.
•  The Act provides procedures and regulations governing mergers, amalgamations, demergers, and corporate restructuring, including approval by shareholders and regulatory authorities.
• It incorporates provisions related to corporate insolvency resolution processes, debt restructuring, and liquidation to address financial distress and ensure efficient resolution of insolvency cases.
• The Act prescribes penalties for non-compliance with its provisions, including fines, imprisonment, and disqualification of directors. It also establishes the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) for adjudicating disputes and enforcing compliance.

5. The Interplay between the Companies Act, 2013 and the Electoral Bonds Scheme (EBS)

The Companies Act, 2013, and the Electoral Bonds Scheme (EBS) are connected in the context of corporate donations to political parties in India. The Companies Act, 2013, regulates the functioning and operations of companies in the country, including their financial transactions and corporate governance practices. The Electoral Bonds Scheme (EBS), on the other hand, was introduced in 2018 as a mechanism for political funding, allowing individuals and companies to donate money to political parties through electoral bonds.

• Under the Companies Act, 2013, companies are allowed to make donations to political parties, subject to certain conditions. The Act specifies that companies can donate up to 7.5% of their average net profits over the previous three years to political parties. However, the Act also requires companies to disclose the names of the political parties to which they have made donations in their annual financial statements.
• The EBS was introduced as a more transparent and accountable mechanism for political funding. Under the scheme, individuals and companies can purchase electoral bonds from authorized banks and donate them to political parties. The identity of the donor is kept anonymous, and the political party can encash the bonds at any time.
• In 2017, the government introduced amendments to the Companies Act, 2013, through the Finance Act, 2017. These amendments increased the limit on the amount of money that a company can donate to a political party from 7.5% of its average net profits over the previous three years to 10%. The amendments also removed the requirement for companies to disclose the names of the political parties to which they have made donations.
• In 2023, the Supreme Court of India struck down several amendments to the Representation of the People Act, 1951, and other laws that were introduced through the Finance Act, 2016, and the Finance Act, 2017, to facilitate corporate donations to political parties. The Court held that these amendments were unconstitutional because they violated the principle of transparency and accountability in political funding.
• The Supreme Court's ruling has had a significant impact on the Electoral Bonds Scheme. With the amendments to the Companies Act, 2013, being struck down, companies are no longer able to make donations to political parties through electoral bonds. This has raised questions about the future of the scheme and the government's efforts to promote transparency in political funding.