Guest post by Adithya Reddy

As far back as in 1963, a nine judge
bench of the Supreme Court held that corporations are incapable of possessing “citizenship”
and are therefore not entitled to claim fundamental rights under the
Constitution.  Therefore, unlike in
America where the right of a corporation to make political donations is seen as
an extension of its right of speech and expression (Citizens United Vs. FEC), an Indian corporation cannot claim to be
deprived of any fundamental right if prohibited from making political
donations. There are many reasons why permitting corporations to make political
donations may not be desirable. First, unlike in the case of a socially
responsible individual, even the most socially responsible corporation cannot,
legally, sacrifice its commercial objectives for political policies that may
conflict with such objectives. Secondly, in case of such a conflict a
corporation is always in a position to exercise greater influence on the
government which is supposed to act as the arbiter in the ensuing conflict
thereby distorting policy-making. Thirdly, and most importantly, it is
unhealthy for any democracy to allow political parties to become dependent on a
few stakeholders in society.  With lesser
legal hurdles and tax implications in dealing with large sums of money, a handful
of corporations will wield disproportionately high levels of influence on
political policy.  

The first jurist to sound a warning
bell on the issue, while ruling on Tata Iron & Steel Co’s right to amend
its Memorandum of Association to make contributions to political parties in
1957, was Justice. M.C. Chagla:

 “The very basis of democracy is the voter, and
when in India we are dealing with adult suffrage, it is even more important
than elsewhere that not only the integrity of the representative who is
ultimately elected to Parliament is safeguarded, but that the integrity of the
voter is also safeguarded, and it may be said that it is difficult to accept
the position that the integrity of the voter and of the representative is
safeguarded if large industrial concerns are permitted to contribute to
political funds to bring about a particular result.”

By expressing concern for the
integrity of the voter, Justice Chagla clearly suggests that permitting
political donations  encourages  wealthy corporations to try and influence
political policy in favour of their commercial agenda.  Despite this advice from a court of law and
similar recommendations by many expert bodies like the Santhanam Committee of
1964 and the Justice Wanchoo Committee of 1971, the newly enacted Companies Act retains a
provision from the old law that permits companies to contribute to political
parties. Section 182 of the 2013 Act in fact raises the cap on contributions in a financial year
to 7.5 per cent of the average net profits of the last three years, from 5 per
cent in the previous Act.

I am not arguing for a ban on
corporate funding of political parties as that will not drastically alter the
dynamics of crony capitalism or lower levels of quid pro-quo corruption between
corporates and politicians. In fact, when such a ban was put in place by the Indira
Gandhi government  by amending the
Companies Act, many corporate big wigs were busy buying American piper planes
for which Sanjay Gandhi was the agent. So, be it “black money” or “lobbying”,
there are ways of corrupting politicians and that is why I believe that banning
corporate financing is probably not going to make any difference.  But there is a larger and more indirect impact
of such funding that needs to be discussed more seriously at a policy level.  There is a century-old ban on direct
corporate funding for politics in the United States and an American Court of
Appeals has found this to be good law even as recently as February, 2013 in US
Vs. Danielczyk.
In that case, one P.
Danielczyk, Jr., Chairman of Galen Capital Corporation co-hosted a fundraiser
for Hillary Clinton’s presidential campaign. He and another Galen officer
allegedly had Galen reimburse attendees for $156,400 in campaign donations.
Both
were charged with illegally soliciting and reimbursing campaign contributions
in violation of several federal statutes, including U.S.C. § 441 b(a), which
bans corporate direct contributions to candidates for federal office.
Danielczyk filed motions to dismiss the charges on several grounds, including arguing
that § 441b(a) is unconstitutional. The District Court allowed the
motions holding that “if corporations and
individuals have equal political speech rights, then they must have equal
direct donation rights.” In a unanimous decision, the Court of Appeal for the 4th circuit reversed the
District Court’s judgment and upheld the ban on corporate donations.

 A significant rationale for this position is what the American Courts
have called the “anti-distortion” principle. This principle emphasizes  the distortive effect corporate financing can
have on general public discourse and government choices in matters involving
conflict of interest between various stake holders. Though this rationale was
rejected in a 2010 decision by the American Supreme Court (Citizens United Vs. FEC) in the context of independent corporate
expenditure for political causes, it was best described by Justice Marshall of
the US Supreme Court in a 1990 case as “the corrosive and distorting effects of
immense aggregations of wealth that are accumulated with the help of the
corporate form and that have little or no correlation to the public’s support
for the corporation’s political ideas.” The rationale is based on the
incapability of an impersonal corporation to relate to larger political goals.

Recently, while upholding a statutory
ban on corporate contributions to political parties and candidates, the Montana
Supreme Court very interestingly relied on the report of a History Professor to
find that Montana’s economy depended mainly on corporations in other states and
therefore “corporate dominated campaigns will only work in the essential
interest of outsiders with local interests of secondary consideration.”
Wouldn’t this rationale also apply to corporate funding of a regional party
ruling a state like Bihar or Orissa which has few or no large corporations
within the state?

How
difficult is it to envisage situations of conflict of interest between
corporates and individuals or groups who would not be able to make the same kind
of donations? And considering the fact that 26 of the top 50 companies which
made political donations to the previous ruling party (Congress) at the centre are
associated with mining of natural resources in one way or the other, how is the
government going to act as a neutral arbiter in such cases of conflict? There
are so many commercial ventures involving public-private partnerships which
often involve negotiating terms and resolving disputes between the
government-owned partner and the private company. The latter could well be a
regular donor to the political party that runs the government which owns the
former. Similarly, there’s little point in introducing an elaborate, pro-owner
land acquisition bill when one side in the dispute is always likely to have a
greater influence on the government which is the implementing authority.

There
can be no greater evidence of a corporations’ inability to relate to political
goals or policies than the fact that almost every corporate donor gives large
funds to parties on various sides of the political spectrum at the same time.
How can the same entity donate both to the ruling party and the principle
opposition party whose only political goal is to unseat the former from power,
during the same period? Can a corporation point to a specific policy or
achievement of a political party which prompted it to make the donation? Can
there be any motive other than to keep its commercial objectives hindrance-free,
irrespective of the political dispensation in power?

The oft-suggested alternative to meet
political parties’ large financial requirements is state funding.  While state funding is certainly a reasonable
alternative, there is a genuine concern that dependence on one dominant source
of funding, be it from corporates or the state, will cause political parties
and politicians to remain distant from their members, cadre and the general
public. In today’s situation it is difficult to say if there is any
‘cadre-based’ party left in the country. Encouraging funding from the “grass
roots” has been the thrust of election financing reform in many Western
Countries. Concerned about the dependence of UK’s three major political parties
on a handful of large donors, in 2006 the Government ordered an enquiry by Sir
Hayden Phillips, a former civil servant. One of Sir Phillip’s major
recommendations was to link state funding to small donations collected by a
political party from individuals. He proposed a matched funding scheme that
would give parties £ 10 for each qualifying donation of £ 10 or more from any
individual in any year. For a donation to be eligible for matched funding, the
donor would have to be on the electoral register. In Canada, federal and provincial
tax credits for political donations and legal provisions for issuing tax
receipts have supported efforts to solicit small donations and have made “big
money in little sums” a reality.

Alternatives and details of policy
can always be discussed and debated. For instance,  financial dependence on one or a few large
sources can be permitted if the interests of the recipient are so intertwined
with that of the donor that there can be no scope for conflict. That such
commonality of interest can never be achieved between a public figure and a
corporate is best illustrated by the fact that even Mahatma Gandhi had to
compromise his ideals. Gandhi was rebuffed by his mill-owner ‘patron’ GD Birla
for complaining that people were buying mill-produced Khadi,mistaking it for the
homespun kind/version. According to American historian Leah Renold, Gandhi did
not wish to precipitate the issue because he was financially dependent on
Birla.

(Adithya Reddy is a lawyer practicing before the High Court of Madras)