2014 (4) TMI 516 - HC - FEMA

Court rules donations from foreign shareholding companies to political parties as 'Foreign Sources' under FCRA. Investigations ordered.

ASSOCIATION FOR DEMOCRATIC REFORMS AND ANR Versus UNION OF INDIA AND ORS

ASSOCIATION FOR DEMOCRATIC REFORMS AND ANR Versus UNION OF INDIA AND ORS - TMI Issues Involved:1. Violation of the Foreign Contribution (Regulation) Act, 1976 by political parties.2. Interpretation of 'Foreign Source' under Section 2(e) of the Foreign Contribution (Regulation) Act, 1976.3. Validity of donations made by companies with foreign shareholding to political parties.4. Compliance with Section 29(b) of the Representation of People Act, 1951.5. Compliance with Section 293(a) of the Companies Act, 1956.Detailed Analysis:1. Violation of the Foreign Contribution (Regulation) Act, 1976 by Political Parties:The petitioner asserted that political parties, including Respondent No.3 and Respondent No.4, violated the Foreign Contribution (Regulation) Act, 1976 (FCRA) by accepting foreign contributions. Section 4(1)(e) of the FCRA prohibits political parties from accepting foreign contributions. The court noted that the petition focused on donations made up to 2009 and did not concern the Foreign Contribution (Regulation) Act, 2010.2. Interpretation of 'Foreign Source' under Section 2(e) of the Foreign Contribution (Regulation) Act, 1976:The major concern was the interpretation of 'Foreign Source' under Section 2(e) of the FCRA. The court highlighted that the term 'Foreign Source' is defined inclusively, covering a broad spectrum of entities. The court emphasized the legislative intent to provide a wide coverage to the term to suppress the mischief the Act aimed to address.3. Validity of Donations Made by Companies with Foreign Shareholding to Political Parties:The petitioner argued that donations made by Sterlite and Sesa, companies registered in India but with significant foreign shareholding, should be considered foreign contributions. The court analyzed the shareholding structure and concluded that Vedanta, the parent company of Sterlite and Sesa, is a 'Foreign Company' under Section 591 of the Companies Act, 1956, and thus qualifies as a 'Foreign Source' under Section 2(e)(iii) of the FCRA. Consequently, donations from Sterlite and Sesa were deemed to be from a 'Foreign Source.'4. Compliance with Section 29(b) of the Representation of People Act, 1951:Section 29(b) of the Representation of People Act, 1951 prohibits political parties from accepting donations from government companies and foreign sources. The court noted that the Respondent No.3 admitted to receiving donations from State Trading Corporation and Metals & Minerals Trading Corporation of India, both government companies. The defense claimed it was an inadvertent mistake, as the donations were meant for the National Student Union of India (NSUI). The court directed an investigation to determine the validity of this claim.5. Compliance with Section 293(a) of the Companies Act, 1956:The petitioner alleged that Respondent No.3 violated Section 293(a) of the Companies Act, 1956 by accepting donations from government companies. The court directed the first and second respondents to investigate the matter and take appropriate action based on their findings.Conclusion:The court concluded that the donations made by Sterlite and Sesa to political parties were from 'Foreign Sources' under the FCRA. The court directed the Union of India to investigate the donations made by State Trading Corporation and Metals & Minerals Trading Corporation of India to determine if the entries were a mistake. Additionally, the court instructed the respondents to re-examine the receipts of political parties and identify foreign contributions received from foreign sources, taking necessary action as per the law within six months. The writ petition was disposed of with no order as to costs.