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Mainstream, Vol XLVII No 19, April 25, 2009

Clean Politics demands No Corporate Funding to Political Parties

Sunday 26 April 2009, by Rajindar Sachar


Recently there has been a heated public debate on TV about donations being made by the corporate sector to various political parties for elections, mainly to the Congress and BJP and to some others—depending on which area a particular company has more stake. Previously there used to be somewhat hesitancy in admitting the corporate-political monetary axis. But no longer, one industrialist unashamedly boasting that he gave donations to both the parties but of equal amount. Another donor was more cautious but complained that it should not be disclosed publicly—clever thinking because of the uncertainty of which party may come to power! Such cynicism of money power playing a dominant role in the elections and the people accepting it as a normal feature is a matter of grave concern for clean politics.

It is unfortunate that there is almost no public debate on corporate money power muddying the political process in the country. In the Companies Act 1913, there was no statutory provision banning donation being made to political parties. The High Courts thus had no option but to hold that donations to political parties could be made; yet they felt uncomfortable and warned of the dangers involved. Chagla, the CJ of the Bombay High Court, warned: “It is our duty to draw the attention of Parliament to the great danger inherent in permitting companies to make contribution to the funds of political parties. It is a danger which may grow apace and which may ultimately overwhelm and even throttle democracy in this country.”

Similarly the Calcutta High Court warned: “Its dangers are manifold. In the bid for political favouritism by the bait of money the company which will be the highest bidder may secure the most unfair advantage over the rival trader companies. Thirdly, it will mark the advent and entry of the voice of the big business in polities and in the political life of the country.”

Regrettably, Parliament ignored this warning and added in the 1960 Section 293A to the Companies Act permitting them to contribute to political parties five per cent of their net profits. The danger signs were visible immediately and the Santhanam Committee Report of 1962 recommended a total ban on all donations by companies to political parties because the public belief in the prevalence of corruption at high political levels has been strengthened by the manner in which funds are collected by political parties, especially at the time of elections.

However, no action was taken till Parliament became a more diverse body in 1969 and then it was forced to impose a total ban on contributions by companies to political parties—Madhu Limaye, the Socialist MP, was the dominant voice for banning corporate funding. The statement and objects of this amendment were given as follows:

A view has been expressed that such contributions have a tendency to corrupt political life and to adversely affect healthy growth of democracy in the country, and it has been gaining ground with the passage of time. It is, therefore, proposed to ban such contributions.

An attempt was made in 1976 to modify the law but it failed.


In 1978 the Government of India constituted a high-powered Expert Committee to review the Companies Act 1956 and the Monopolies Act. It was presided over by a judge of the Delhi High Court. Amongst its members were some of the top lawyers, industrial houses, trade union leaders, and accountants. It unanimously recommended that the ban on donations by companies to political parties should continue.

The Report warned once this is permitted, the danger the democracy can be well visualised; namely, politics being dictated by the interests of large companies which, by the very nature of it, would be able to contribute more funds as compared to the smaller companies.

Notwithstanding the warning, Section 293A was amended in 1985 and the Board of Directors was authorised to make donations to political parties. That law still continues. It is unfortunate that while other democracies recognise the danger of money power playing an unhealthy part in elections, we are still continuing with it. Thus in the USA under the Federal Election Campaign Act, 1971 it is unlawful for any candidate for the President, Vice-President, Senate, Congress to receive any contribution and it is unlawful for any company to make any contribution to political parties.

It is beyond doubt that contribution by companies is given not because of any ideological reason but really as a device to be in the good books of the ruling party. Thus between 1966 to 1969, 75 companies paid down Rs 1.87 crore out of which Rs. 144 lakhs were given to the ruling party; the ruling Congress party in 1967 alone received Rs 87 lakhs.

The perception and reality have not changed—thus we find that in 2003-04, the BJP got Rs 90 crores as against the Congress’ Rs 65 crores. The peak of the BJP was Rs 155 crores in 2004-05 and it went down to Rs 137 crores in 2007-08. The rise in the share of the Congress party during this period was phenomenal, starting from 2002-03 at Rs 53 crores, to Rs 265 crores in 2007-08. More significant, the corporate-political nexus is illustrated by corporate donation to the BSP of Mayawati rising in 2002-03 from Rs 10.9 crores to Rs 55.6 crores in 2007-08. Does one need more proof of the invidious entry of the corporate sector in our body politic and of the dangerous consequences?

Another infirmity is the vesting in the Board of Directors the power to choose a political party for giving contribution. Why, it is legitimately asked, should the decision to utilise corporate funds be determined by a coterie of 10 or 15 Directors rather than that of thousands of shareholders who are the real owners of the company?

A further question relates to the legitimate demands of the workers in the company to have a say for distribution of corporate funds (the Supreme Court has recognised their right to the funds of the company).

All these problems are bound to become more controversial as the actual working of the utilisation of these funds becomes public. A straightforward, honest, equitable solution is to ban the corporate funding of political parties, as in the USA and UK. Clean politics mandates this as a minimum prerequisite by all political parties. Let the electorate demand that the manifestos of the parties include such a provision—let them give a straight answer immediately.

The author, a retired Chief Justice of the Delhi High Court, is the Chairperson of the Prime Minister’s high-level Committee on the Status of Muslims and the UN Special Rapporteur on Housing. A former President of the People’s Union for Civil Liberties (PUCL) he is a tireless champion of human rights. He can be contacted at e-mail: /

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