Regulatory updates

The Finance Act, 2017 prescribed certain amendments, which inter alia include amendment to Section 182 of the Companies Act, 2013⁷Section 182 of the Companies Act, 2013 deals with Prohibitions and Restrictions Regarding Political Contributions. These amendments included:

• No limits to contribution: : Prior to the Finance Act, 2017, there was a monetary limit up to which companies could contribute to the political parties. This monetary limit was seven and a half (7.5) per cent of the average net profit for the three immediately preceding financial years. However, the Finance Act, 2017 deleted this requirement, thereby removing any limits for contributions that could be made to political parties.
• Disclosure of contributions made: Prior to the Finance Act, 2017, every company had to provide details of amounts contributed by it to any political party during the financial year, by disclosing the following details:

• The total amount contributed during the year
• Name of the party to which the amount is contributed.

However, the Finance Act, 2017 deleted this requirement, thereby no separate disclosure of amounts of political contributions made by companies during the year were to be made.

Supreme court judgement

On 15 February 2024, the Supreme Court passed a judgement, and declared the changes made by the Finance Act, 2017 to inter alia the Companies Act, 2013 as ‘unconstitutional’ (Supreme Court judgement). This is because non-disclosure of information regarding the funding of political parties is violative of the right to information of citizens under Article 19(1)(a) of the Constitution⁸ Article 19(1)(a) of the Constitution provides citizens of India the freedom of speech and expression. This right also includes the right to access information because this right is meaningless when others are prevented from knowing/listening. It is according to this interpretation that the Right to Information (RTI) is a fundamental right . The amendments which were introduced by the Finance Act 2017 to the provisions of the Companies Act 2013, permitting unlimited funding of political parties by corporate entities were held to be arbitrary and violative of Article 14 of the Constitution⁹ Article 14 of the Constitution is clearly in two parts – while it commands the State not to deny to any person ‘equality before law’, it also commands the State not to deny the ‘equal protection of the laws’. Equality before law prohibits discrimination. It is a negative concept. The concept of ‘equal protection of the laws’ requires the State to give special treatment to persons in different situations in order to establish equality amongst all. It is positive in character. Therefore, the necessary corollary to this would be that equals would be treated equally, whilst un-equals would have to be treated unequally. However, by removing the limits on contributions to political parties, no distinction was being made between profit-making and loss-making companies for the purposes of political contributions. .

Effective Date: The Amendment Rules came into force from the date of publication in the Official Gazette, i.e., 14 March 2024.

To access the text of the Amendment Rules, please click here