TaxTMI 
TaxTMI 
2014 (4) TMI 516
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....of. 2. Since the writ petition drew attention to donations made to political parties for the period up to the year 2009, we record at the outset that our concern is not with the Foreign Contribution (Regulation) Act, 2010 which has come into force on September 26, 2010. Our discussion of the legal position would be with respect to the Foreign Contribution (Regulation) Act, 1976. 3 By way of illustration, the petitioner relies upon the annual report of Vedanta Resources plc, a company incorporated under the Companies Act, 1985 and registered in England and Wales with registration No.04740415 as also the annual report of M/s Sterlite Industries India Ltd. (hereinafter referred to as Sterlite), a company registered in India under the Companies Act, 1956 evidencing donation made by Sterlite to political parties in India. The petitioner also refers to a company by the name of M/s Sesa Goa Ltd. (hereinafter referred to as Sesa), which is incorporation in India under the Companies Act, 1956 but controlling shareholding whereof is owned by Vedanta Resources plc. The said company has also made donations to political parties. The petitioner brings home with reference to the annual report o....
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.... India. 7. The understanding of the anatomy of a legislation would require a cognizance to be taken of the attending circumstances in wake of which the legislation was enacted. The Foreign Contribution (Regulation) Bill, 1973 was introduced in the Parliament which finally culminated into the Act No.49 of 1976 being passed. 8. The parliamentary debates that ensued on the Bill on the floor of the House in the Lok Sabha and the Rajya Sabha provide valuable insights and bring to fore the circumstances engulfing our nation which necessitated the legislation. 9. We are conscious that any interpretation flowing from the speeches made in the parliamentary debates by individuals cannot be a safe guide of the legislative intent of the entire house and therefore cannot be dispositive of the matter to halt the Court in its solemn pursuit of deciphering the true legislative intent. However, it assumes significance that it is permissible under the law of our land to refer to the text of such debates and place reliance thereon to the limited extent viz. for discerning the state of affairs prevalent in the society at the point of time when the Bill was introduced and the mischief/evils which we....
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....v. P.R Mukherjee and [1981] 2 SCC 585 Sonia Bhatia v. State of U.P. 15. The practice of referring to travaux preparatories such as parliamentary history - debates, Statement of Object and Reasons appended to the Bill etc. as evidence of the circumstances which necessitated the passing of a piece of legislation and reliance upon the Constituent Assembly debates in interpreting the provisions of the Constitution has been consistently approved by the Supreme Court since time immemorial and is evinced by line of decisions : AIR 1956 SC 246 A Thangal Kunju Musaliar v. M Venkatachalam Potti [1969] 1 SCC 839 A.V.S Narasimha Rao v. State of A.P; AIR 1993 SC 477 Indira Sawhney v. Union of India; [2001] 7 SCC 126 S.R Chaudhuri v. State of Punjab; and [2003] 7 SCC 224 Karnataka Small Scale Industries Development Corporation Ltd. v. Commissioner of Income Tax. 16. The debates which took place on the floor of the two Houses of Parliament upon the introduction of the Foreign Contribution (Regulation) Bill, 1973 provide valuable insights into the turbulent state of affairs prevalent in our nascent democracy as shaped by the events across the globe. A reading of the text of the debates reveals t....
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....53 P.V Narsimha Rao v. Central Bureau of Investigation:- "What is the best way to win political foes? Persuasion? Understanding? Love? Compassion? Dale Carnegie's sermons? ... secret of success lies, at least with regard to some, in mastering the art of transferring one's own bulging wallets into the eager pockets of others." [Emphasis Supplied] 17. In this regard it may be profitable to take a note of the observations in V.K.R.V.Rao and Dharm Narain's Foreign Aid and India's Economic Development, wherein it has been pertinently observed on page 72:- "India's policy of non-alignment with power blocs enabled it to receive foreign contributions from both the blocs. Eventually, with too much money coming in, with no self-discipline, regulation, transparency or public accountability, and with some groups building empires in the name of contribution." 18. In the debates on the floor of the two Houses of Parliament reference to an enquiry conducted by the Intelligence Bureau can also be found, as per which it was revealed that the Political Par....
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....as acquired a new purpose and a new reality. Sir, there was a time when territorial domination and spheres of influence of the imperialist powers and big powers were the order of the day. But now money seems to be the best way of interference in the domestic affairs of the country. But it is now a well-known and universally accepted fact that neocolonialism is a clever substitute for the old type of crude colonialism. This is usually backed by the generous foreign contributions in various shapes, foreign hospitality.... ... Sometimes these contributions assume the shape of foundations and chain of institutions and under the garb of other cultural activities. The foreign exchange deficits and requirements of developing countries and poor countries that particularly do not have oil resources these days have added to the dimension of this problem. Even our trade unions are not spared by the people who are interested in financing their activities in other countries. ... The CIA's doings all over the world have very clearly indicated as to what could be done by foreign money and foreign interference. Take, for instance, the investments of multinational corporat....
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....n (Regulation) Act, 1976 was enacted by the Parliament to serve as a shield in our legislative armoury, in conjunction with other laws like the Foreign Exchange Regulation Act, 1973, and insulate the sensitive areas of national life like - journalism, judiciary and politics from extraneous influences stemming from beyond our borders. 21. As a matter of fact, the architects of our great nation, in their profound wisdom and foresight, sounded a note of caution even before we attained Independence from the British colonial rule. The Father of the Nation Mahatma Gandhi, in the magazine 'Harijan' wrote : 'We know what American aid means. It amounts in the end to American influence, if not American rule added to the British.' (Harijan, April 26, 1942) 22. John D. Montgomery in his book titled Foreign Aid in International Politics, 1st Ed. 1969, whilst explaining the nuances of foreign contributions and aids has remarked on page 7 "... Both foreign contribution and foreign aid can have different effects in diplomacy. It could serve to create a 'national presence' by the foreign contributor. It has the ....
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....ign, source on behalf of any association, referred to in sub-section (1) of section 6, shall deliver such currency- (i) to any association or organisation other than the association for which it was received, or (ii) to any other person, if he knows or has reasonable cause to believe that such other person intends, or is likely, to deliver such currency to an association other than the association for which such currency was received." 25. The term 'Foreign Contribution' has been defined under Section 2(c) of the Act as under:- "2. Definitions- (1) In this Act, unless the context otherwise requires,- ** ** ** (c)"foreign contribution" means the donation, delivery or transfer made by any foreign source- (i) of any article, not being an article given to a person as a gift for his personal use, if the market value, in India, of such article, on the date of such gift, does not exceed one thousand rupees, (ii) of any currency, whether Indian or foreign; (iii) of any foreign security as defined in clause (i) of section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973). Explanation: A donation, delivery or transfer of a....
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....rry on its activities in India." 27. The interpretation of the term 'Foreign Source' as defined under Section 2(e) of the Act lies at the heart of the present controversy and begs for judicial consideration. 28. It is the case of the petitioner that the donations made by Sterlite and Sesa to the political parties during the period when Foreign Contribution (Regulation) Act, 1976 was in vogue would be foreign contributions because Sterlite and Sesa are a 'Foreign Source' within the meaning of Section 2(e)(vi) of the said Act. It has been argued that though the donors are companies registered in India under the Companies Act, 1956, however, significantly, more than one-half of their share capital is held by Vedanta - a company incorporated in the United Kingdom. Therefore, in view of the mandate of clause (vi) of Section 2(e) the donations in favour of the political parties are to be construed as emanating from a 'Foreign Source' and fall within the prohibition imposed by Section 4 of the Act, which bans acceptance of foreign contributions by Political Parties. 29. Per Contra, it is contended by the respondents that the donations made by Sterlite and Sesa i....
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....sible sources from which foreign contribution could flow. 33. The enactment by the legislature of an umbrella provision with plenary amplitude is reflective of the intent of the legislature that a wide coverage be given to the term 'Foreign Source' to advance the objects of the Act and suppress the mischief/evils it was designed to remedy. 34. At this juncture it would be apposite to take notice of the preamble of the Act, which unequivocally spells out the solemn object of the legislation: - "An Act to regulate the acceptance and utilization of foreign contribution or foreign hospitality by certain persons or associations, with a view to ensuring that parliamentary institutions, political associations and academic and other voluntary organizations as well as individuals working in the important areas of national life may function in a manner consistent with the values of a sovereign democratic republic, and for matters connected therewith or incidental thereto." 35. As observed by us even earlier, the Foreign Contribution (Regulation) Act, 1976 was enacted by the parliament to serve as a shi....
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....pter. Section 591 reads as under:- "591. Application of sections 592 to 602 to foreign companies (1) Sections 592 to 602, both inclusive, shall apply to all foreign companies, that is to say, companies falling under the following two classes, namely: - (a) companies incorporated outside India which, after the commencement of this Act, establish a place of business within India; and (b) companies incorporated outside India which have, before the commencement of this Act, established a place of business within India and continue to have an established place of business within India at the commencement of this Act. (2) Notwithstanding anything contained in sub-section (1), where not less than fifty per cent of the paid up share capital (whether equity or preference or partly equity and partly preference) of a company incorporated outside India and having an established place of business in India, is held by one or more citizens of India or by one or more bodies corporate incorporated in India, or by one or more citizens of India and one or more bodies corporate incorporated in India, whether singly or in the aggregate, such company shall comply with such of the provisions of this....
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.... Vedanta is incorporated outside India i.e. in the United Kingdom and has established its place of business in India, as it operates in the territory of India through its subsidiary companies like Sterlite and Sesa. 45. However, the pertinent question arising for consideration is : Whether clause (2) of Section 591 qualifies the meaning of 'Foreign Company' as laid down under clause (1) and brings out Vedanta from the conception of a 'Foreign Company' within the meaning of Section 591 of the Companies Act, 1956? 46. It would be incumbent upon us to microscopically analyse Section 591(2) of the Companies Act, 1956. "591. Application of sections 592 to 602 to foreign companies- xxxxxxx (2) Notwithstanding anything contained in sub-section (1), where not less than fifty per cent of the paid up share capital (whether equity or preference or partly equity and partly preference) of a company incorporated outside India and having an established place of business in India, is held by one or more citizens of India or by one or more bodies corporate incorporated in India, or by one or more citizens of India and one or more bodies corporate incorporated in India, whether ....
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....oreign country, but the business was being essentially transacted in the territory of India and the ownership also vested in citizens of India. The provisions of the Companies Act, 1956 had a restricted application to the 'Foreign Companies' operating in India and this circumstance perhaps may have impelled many Indian nationals to have got companies incorporated abroad to operate their business within the territory of India. With a view to bring such 'Foreign Companies' within the regulatory framework to a much greater extent and exercise more effective control thereon, the Companies (Amendment) Bill, 1972 proposed insertion of a provision which provided for the equivalence of such 'Foreign Companies' with the companies incorporated in India, for the purpose of compliance of the obligations comprised in the Companies Act, 1956. 52. Thus, upon the satisfaction of certain conditions contained in clause (2) of Section 591, 'Foreign Companies' are required to comply with the provisions of Companies Act, 1956 just like any company incorporated in India and it would not suffice to merely comply with the limited range of provisions [Sections 592-602] that....
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....a is a 'Foreign Company' within the meaning of Section 591 of the Companies Act, 1956 and therefore, Vedanta and its subsidiaries - Sterlite and Sesa are a 'Foreign Source' as contemplated under Section 2(e)(iii) of the Foreign Contribution (Regulation) Act, 1976. However, in view of the operation of clause (2) of the Section 591 of the Companies Act, 1956, Vedanta would be required to comply with the provisions of the Companies Act, 1956 like a company incorporated in India. 57. We may hasten to point out that even if the submissions of the Respondents in this regard were to be accepted by this Court and Vedanta and its subsidiaries like - Sterlite and Sesa were not held to be a 'Foreign Source' within the meaning of Section 2(e)(iii) of the Foreign Contribution (Regulation) Act, 1976, yet there would be no escape from the applicability of Section 2(e)(vi) of the Foreign Contribution (Regulation) Act, 1976. 58. It would be relevant to advert our consideration to the said provision. 2. Definitions- (1) In this Act, unless the context otherwise requires,- xxxxxx (e) "foreign source" includes- xxxxxxx (vi) a company within the meaning of the Companies A....
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....itaghur Paper Mills Co. Ltd. that the court may take the aid of dictionaries to ascertain the meaning of a word in common parlance, where the word has not been statutorily defined or judicially interpreted 65. Black's Law Dictionary, Ninth Edition, defines the word - 'corporation' in the following terms:- "corporation, n. (l5c) An entity (usu. a business) having authority under law to act as a single person distinct from the shareholders who own it and having rights to issue stock and exist indefinitely; a group or succession of persons established in accordance with legal rules into a legal or juristic person that has a legal personality distinct from the natural persons who make it up, exists indefinitely apart from them, and has the legal powers that its constitution gives it. Also termed corporation aggregate; aggregate corporation; body corporate; corporate body. See COMPANY. [Cases: Corporations] - incorporate, vb. corporate, adj. "A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law.... [I]t possesses only those properties which the ....
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....mpany; amongst others. 70. We have already highlighted in the earlier part of our judgment that the legislature in its wisdom has defined the term 'Foreign Source' in a wide and an expansive manner with a view to suppress the mischief. This Court cannot impose artifices and thereby restrict the natural/ordinary meaning of the words contained in the definition, lest it would frustrate the legislative intent and render the provision redundant. We see no reason why an entity such as a company would not fall within the ambit of the term 'corporation' employed in the Foreign Contribution (Regulation) Act, 1976. 71. Analysis of the meaning that has been ascribed to 'corporations' in various law lexicons and other legislations operating in our country, establishes beyond a pale of doubt that a 'corporation' incorporated in a foreign country or territory for the purpose of Section 2(e)(vi)(c) includes within its fold, companies incorporated outside the territory of India, such as Vedanta; which is incorporated in the United Kingdom. 72. It is not disputed by the respondents that more than one-half of the nominal value of the share-capital of Sterlite and ....