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In India, the conduct of elections to the Houses of Parliament and state legislatures is mainly regulated by the 1951 Representation of the People Act. Section 29B of the 1951 Act prohibits all political parties registered with the Election Commission from accepting any contribution from a “foreign source.” Moreover, section 3 of the 2010 Foreign Contribution (Regulation) Act bars candidates, legislative members, political parties and party officeholders from accepting foreign contributions. In response to a 2014 High Court of Delhi decision finding a violation of the 1976 Foreign Contribution (Regulation Act) where political parties accepted contributions from local companies that were majority owned by a foreign corporation, the controlling Bharatiya Janata Party government passed a retroactive amendment through a 2016 Finance Bill that excludes from the definition of “foreign sourced” contributions from local companies even though a foreign company owns more than half their shares, provided certain direct investment requirements are met.
I. Foreign Contributions to Elections
In India, the conduct of elections of the Houses of Parliament and state legislatures is mainly regulated by the 1951 Representation of the People Act. Section 29B of the 1951 Act “prohibits all political parties registered with Election Commission to accept any contribution from a foreign source”:
29B. Political parties entitled to accept contribution.—Subject to the provisions of the Companies Act, 1956 (1 of 1956), every political party may accept any amount of contribution voluntarily offered to it by any person or company other than a Government company:
Provided that no political party shall be eligible to accept any contribution from any foreign source defined under clause (e) of section 2 of the Foreign Contribution (Regulation) Act, 1976 (49 of 1976).
The 1976 Foreign Contribution (Regulation) Act was replaced by the 2010 Foreign Contribution (Regulation) Act, which was passed to “regulate the acceptance and utilization of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilization of foreign contribution or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto.”
Section 3(1) of the 2010 Act lists persons and entities barred from accepting foreign contributions, including candidates for election, members of any legislature, political parties or party officeholders, organizations of a political nature, and associations or companies engaged in the production or broadcast of audio news, audiovisual news, or current affairs programs. No person or resident in India, and no citizen of India resident outside the country, is allowed to accept any foreign contribution or acquire or agree to acquire any currency from a foreign source on behalf of any political party, any person referred to in Section 3(1), or both. Delivery of currency from a foreign source is also prohibited under the Act:
(b) No person, resident in India, shall deliver any currency, whether Indian or foreign, which has been accepted from any foreign source, to any person if he knows or has reasonable cause to believe that such other person intends, or is likely, to deliver such currency to any political party or any person referred to in sub-section (1), or both.
(c) No citizen of India resident outside India shall deliver any currency, whether Indian or foreign, which has been accepted from any foreign source, to—
(i) any political party or any person referred to in sub-section (1), or both; or
(ii) 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 a political party or to any person referred to in sub-section (1), or both.
(3) No person receiving any currency, whether Indian or foreign, from a foreign source on behalf of any person or class of persons, referred to in section 9 [designate a person or class of person from receiving foreign contributions], shall deliver such currency—
(a) to any person other than a person for which it was received, or
(b) 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 a person other than the person for which such currency was received.
Offenses and penalties are laid out in Chapter VIII of the Act. Section 35 of the Act stipulates that “[w]hoever accepts, or assists any person, political party or organisation in accepting, any foreign contribution or any currency or security from a foreign source, in contravention of any provision of this Act or any rule or order made thereunder, shall be punished with imprisonment for a term which may extend to five years, or with fine, or with both.” Offenses by companies are set forth by section 39 of the Act:
39. Offences by companies.—(1) Where an offence under this Act or any rule or order made thereunder has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act or any rule or order made thereunder has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
II. Foreign Corporate Contributions to Elections
In 2014, the High Court of Delhi issued a decision that found that India’s two main political parties, the Bharatiya Janata Party (BJP) and Indian Congress party, were in violation of the ban on foreign contributions in the 1976 Foreign Contribution (Regulation) Act by accepting cash from two local companies owned by London-listed mining group Vedanta Resources Plc between 2004 and 2012. The court found that:
For the reasons extensively highlighted in the preceding paragraphs, we have no hesitation in arriving at the view that prima-facie the acts of the respondents inter-se, as highlighted in the present petition, clearly fall foul of the ban imposed under the Foreign Contribution (Regulation) Act, 1976 as the donations accepted by the political parties from Sterlite and Sesa accrue from “Foreign Sources” within the meaning of law.
In the 1976 Act, a foreign company is partly defined as a “foreign source” if “a company within the meaning of the Companies Act, 1956, (1 of 1956) if more than one-half of the nominal value of its share capital is held, either singly or in the aggregate, by one or more of the following” including “corporations incorporated in a foreign country or territory.” By that definition, the Delhi High Court ruled that “multiple donations from the London-based natural resources giant Vedanta (among a few others) provided to both parties ran afoul of the law on the books.” Since more than one-half of their share capital was held by a foreign company “the donations in favor of the political parties are to be construed as emanating from a 'Foreign Source' and fall within the prohibition imposed by the Act.”
In response to the decision, the BJP as part of a 2016 Finance Bill enacted a retroactive amendment to the 2010 Foreign Contribution (Regulation) Act in order to redefine the term “foreign source” to include a proviso:
Provided that where the nominal value of share capital is within the limits specified for foreign investment under the Foreign Exchange Management Act, 1999, or the rules or regulations made thereunder, then, notwithstanding the nominal value of share capital of a company being more than one-half of such value at the time of making the contribution, such company shall not be a foreign source[.]
According to Milan Vaishnav, a senior fellow of the Carnegie Endowment for International Peace:
To be fair, reasonable people can disagree as to the appropriate definition of what a foreign company ought to be. But the government was not interested in a reasoned, fact-based debate; in fact, it was not interested in a debate at all. To the contrary, what it—and the Congress opposition –[sic] desired was for their legal woes to go away with the stroke of a pen and without too many people taking notice. And what better way that an obscure clause in the Finance Bill, which as a “money bill” does not even need approval from the upper house of Parliament? With the passage of the 2016 Finance Act, the parties breathed a momentary sigh of relief. But in their rush to cover up their tracks, the offending parties slipped and committed an amateur mistake. That is because several of the foreign donations the BJP and Congress received pre-dated 2010, the date of the amended FCRA legislation. As the Delhi High Court order makes clear, the two national parties were actually found to be in violation of the original FCRA statute that dates back to 1976 (which was repealed and re-enacted by the modified 2010 statute). If “illegal” donations from foreign sources were received before 2010, redefining things as of 2010 actually does little good. One has to go back further.
Due to the change made in 2016, foreign funds received by political parties after September 26, 2010, were validated while funds before that date could still come under scrutiny. Therefore, in the 2018 Finance Act, the government introduced another amendment to cover “the period beginning August 5, 1976—the date the original FCRA law came into being.”
In any case, these changes effectively allow “for an intersection of the FEMA and the FCRA whereby it allows a company which is compliant with the foreign direct investment sectoral caps prescribed by the DIPP [Department of Industrial Policy and Promotion] and the RBI [Reserve Bank of India], to freely contribute to any person (as defined under the FCRA) in India without adhering to the restrictions thereon since they are excluded from the definition of ’foreign source,’ as defined under s.2(1)(j).”
The Supreme Court of India is currently in the process of hearing several petitions “that challenge the constitutional validity of a number [sic] legislative changes that have altered the landscape of campaign financing in India.”
Another change that has come under some criticism is an amendment made through the 2017 Finance Act, which amended section 29-C of the 1951 Representation of the People Act to exempt electoral bonds from the reporting of more than twenty thousand rupees in contributions from a person or a company:
29C. Declaration of donation received by the political parties.—(1) The treasurer of a political party or any other person authorised by the political party in this behalf shall, in each financial year, prepare a report in respect of the followings namely:—
(a) the contribution in excess of twenty thousand rupees received by such political party from any person in that financial year;
(b) the contribution in excess of twenty thousand rupees received by such political party from companies other than Government companies in that financial year.
Provided that nothing contained in this sub-section shall apply to the contributions received by way of an electoral bond.
Changes to other laws by the 2017 Act also impacted transparency of contributions received by political parties:
Similarly, section 13A of the Income Tax Act 1961 provides for exemption of all voluntary contributions received by a political party from payment of income tax. But such exemption is conditional on the recipient party maintaining such books of accounts and other documents as would enable the officers of the I-T department to properly deduce the income received by it and also maintaining a record of such contributions and the names and addresses of donors as well as amounts above ₹20,000. This provision also says that if the party fails to submit the report as stipulated in Section 29C of the RPI Act 1951, it will not get the tax exemption. The Finance Act, 2017 amended both these Acts and exempted electoral bonds from the purview of section 29 C of the RP Act 1951 as well as section 13 A of the IT Act 1961. This means the income received by way of electoral bonds is not required to be disclosed in the report which goes to the Election Commission. Further, political parties are not required to maintain any record of the same or the names and addresses of donors of these bonds. This is the essence of the bonds scheme.
The Election Commission of India (EC), an autonomous constitutional authority responsible for administering election processes in India, has criticized the “BJP government’s electoral bond scheme and its decision to allow foreign funding of Indian political parties” and has told the Supreme Court in an affidavit that it will have “serious repercussions on the transparency aspect of political funding of political parties.” The Commission also reportedly stated to the Court that:
[i]n a situation where contributions received through electoral bonds are not reported, on perusal of contribution report of political parties, it cannot be ascertained whether the political party has taken any donation in violation of section 29 B of the Representation of People Act, 1951, which prohibits the political parties from taking donations from government companies and foreign sources.
Foreign Law Specialist
 Representation of the People Act, No. 43 of 1951, https://indiacode.nic.in/bitstream/123456789/2096/3/ a1951-43.pdf#search=THE REPRESENTATION OF THE PEOPLE ACT, 1951, archived at https://perma.cc/ 645L-63PY.
 Samya Chatterjee, Campaign Finance Reforms in India: Issues and Challenges, ORF Issue Brief No. 47, 4 (Dec. 2012), https://www.orfonline.org/wp-content/uploads/2013/02/IssueBrief_47.pdf, archived at https:// perma.cc/G7EG-BV53.
 Representation of the People Act, § 29B.
 Foreign Contribution (Regulation) Act, No. 42 of 2010, https://indiacode.nic.in/bitstream/123456789/2098/ 1/201042.pdf#search= Foreign Contribution Regulation Act, archived at https://perma.cc/6DBP-63CB.
 Id. § 3(1).
 Id. § 3(2)(a).
 Id. § 3(2)(b)(c)- § 3(3).
 Id. § 35.
 Id. § 39.
 Association for Democratic Reforms & ANR. v. Union of India & ORS, W.P.(C) 131/2013 (Del.) (Mar. 28, 2014), http://lobis.nic.in/ddir/dhc/PNJ/judgement/27-03-2014/PNJ28032014CW1312013.pdf, archived at https://perma.cc/23HX-TKQ4.
 Shyamantha Asokan & Sruthi Gottipati, Vedanta Donations to Indian Parties Ruled Illegal by Delhi Court, Reuters (Mar. 28, 2014), https://www.reuters.com/article/us-india-election-donations/vedanta-donations-to-indian-parties-ruled-illegal-by-delhi-court-idUSBREA2R0XU20140328, archived at https://perma.cc/LX92-7QY8.
 Association for Democratic Reforms & ANR v. Union of India & ORS, para. 73.
 Foreign Contribution (Regulation) Act, No. 49 of 1976, § 2(e)(vi), http://www.legislative.gov.in/sites/ default/files/A1976-49.pdf, archived at https://perma.cc/GB6U-K99P.
 Milan Vaishnav, Don’t Believe the BJP and Congress Claims That They’re Cleaning Up Poll Funding, Carnegie Endowment For Int’l Peace (Feb. 6, 2018), https://carnegieendowment.org/2018/02/06/don-t-believe-bjp-and-congress-claims-that-they-re-cleaning-up-poll-funding-pub-75458, archived at https://perma.cc/LKS2-3SGZ.
 Vaish Associates Advocs., Between the Lines . . . , 2 (Mar. 2016), https://s3.amazonaws.com/documents .lexology.com/9fbfd64b-8849-46ef-8c61-dbe3979a45ef.pdf, archived at https://perma.cc/5ASY-SAZG.
 Finance Bill, No. 18 of 2016, § 233, https://www.indiabudget.gov.in/budget2016-2017/ub2016-17/fb/bill.pdf, archived at https://perma.cc/7ZW7-QNNX.
 Vaishnav, supra note 15.
 Finance Act, No. 13 of 2018, § 220, http://egazette.nic.in/writereaddata/2018/184302.pdf, archived at https://perma.cc/UE8P-RNKW.
 Vaishnav, supra note 15.
 2016 Amendment to the FCRA, Corp. L. Rep., (Dec. 7, 2016), http://corporatelawreporter.com/2016/12/07/ 2016-amendment-to-the-fcra/, archived at https://perma.cc/R6KS-NXAM.
 Anuj Srivas, In Supreme Court, EC Criticises Modi Govt’s Electoral Bonds and Foreign Funding Tweaks, Wire (Mar. 27, 2018), https://thewire.in/law/supreme-court-election-commission-modi-electoral-bonds-foreign-funds, archived at https://perma.cc/C8UF-LSMU.
 Finance Act, No. 7 of 2017, http://www.civilaviation.gov.in/sites/default/files/MoL&J (Legislative Deptt) The Finance Act .pdf, archived at https://perma.cc/6GF3-GDJS.
 Electoral Bonds: Secretive and Opaque, Hindu Bus. Line (Mar. 22, 2018), https://www.thehindubusiness line.com/opinion/electoral-bonds-secretive-and-opaque/article23323002.ece, archived at https://perma.cc /P6K5-HPUP.
 Srivas, supra note 22.
 Aashish Aryan, Election Commission Expresses Reservations on Donations via Electoral Bonds, Bus. Standard (Mar. 28, 2019), https://www.business-standard.com/article/current-affairs/election-commission-expresses-reservations-on-donations-via-electoral-bonds-119032701069_1.html, archived at https://perma.cc/W93X-95RS/.
Last Updated: 12/30/2020