In light of the recent Hon’ble Supreme Court ruling dated February 15, 2024, striking down amendments to sub-sections (1) and (3) of Section 182 of the Companies Act, 2013 via the Finance Act of March 31, 2017, several questions have arisen regarding political contributions and their disclosure norms. Here are FAQs addressing the implications and necessary actions for compliance:
1. Which provisions of the Companies Act, 2013, have been affected by the Supreme Court’s Ruling?
The Supreme Court in the matter of Association for Democratic Reforms & Anr. Vs. Union of India & Ors. has struck down the amendments made in Section 182(3) of the Companies Act, 2013 by the Finance Act 2017. It has also struck down the deletion of proviso to section 182(1) of the Companies Act, 2013.
It means:
- The limit of 7.5% of the average net profits during the three immediately preceding financial years as provided in the proviso to subsection (1) of section 182 stands reinstated.
- The requirement to disclose the specific amount contributed and the name of the parties stands reinstated.
2. Can Companies still make Political Contributions following the Supreme Court’s Ruling?
Yes, but within the reinstated limit of 7.5% of the average profits over three years.
3. What modes are available for Political Contributions to companies?
Political contributions must be made through non-cash methods such as account payee cheques, bank drafts, or electronic clearing systems or through any instrument pursuant to any scheme notified under the law, further time being in force, for contribution to political parties.
4. Are Political contributions made before the Supreme Court Ruling valid?
Yes, political contributions made before the ruling will remain valid.
5. Should previous Political contributions before this Supreme Court Ruling be considered for further Political contributions within the Current Fiscal Year?
Yes, previous political contributions made prior to the Supreme Court Ruling should be taken into account when making further political contributions during the current financial year.
6. Which companies are prohibited from making Political Contributions?
Government-owned companies, entities with less than three years of existence, and those having No or NIL average net profit over the past three financial years are restricted from making political contributions.
7. Whether a new board resolution is required to be passed for making political contributions?
The Companies need to check the earlier resolution passed by their respective board of directors. In case the resolution authorizes the company to make political contributions without any limits, then fresh resolution of board of directors is required to be passed.
8. What disclosures are required in the Profit and Loss account for the Financial Year 2023-24?
The companies must disclose the particulars of political contributions along with the names of political parties in their profit and loss account.
9. Should disclosure be made for electoral bond contributions in the Profit and Loss Account for the financial year 2023-24?
Yes, the companies are also required to disclose the political contributions made prior to the Supreme Court’s Ruling whether made through electoral bonds or otherwise in the profit & loss account to be prepared for financial year 2023-24.
