New Delhi: Donations to political parties by foreign-owned companies in India will soon be legalized—retrospectively from 2010—under government proposals that will benefit the ruling Bharatiya Janata Party (BJP) and opposition Congress.

In a move that could have a major impact on the manner in which political parties are funded in India, finance minister Arun Jaitley has proposed a retrospective amendment to the Foreign Contribution (Regulation) Act, 2010 or FCRA.

Under the proposed amendment—part of the budget proposals presented on 29 February—a donation by a company which has majority foreign ownership will no longer be treated as “foreign source" as long as it conforms to the sectoral foreign investment cap and conditionality.

The amendment, once passed, could put to rest all the legal cases currently being fought by BJP and the Congress party.

They have been accused of violating FCRA while receiving donations from foreign-owned companies.

News website The Wire first reported this on 2 April.

The finance bill seeks to amend the definition of what will constitute a foreign source of funding retrospectively with effect from 26 September 2010 to state that: “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."

Currently, any company in India with foreign investments of over 50% is considered as a “foreign source."

At present, under FCRA, political parties are barred from receiving foreign funding, as are election candidates, elected legislatures, reporters, editors, owners, printers and publishers of registered newspapers, judges and government employees.

The amendment will go through once the Finance Bill, 2016 gets Parliament’s nod in May, during the second half of the budget session.

“This is a very important amendment because without this amendment Indian companies which are subsidiaries of foreign companies are treated as foreign source and consequently any contribution made by such Indian companies is treated as foreign contribution although the company making the contribution is a company incorporated in India," said Lalit Kumar, Partner at law firm J Sagar Associates.

“Therefore, only those Indian entities which are registered under FCRA could receive contribution from such Indian subsidiaries and entities that are not registered under the FCRA cannot receive the contribution. That will change now with this proposed amendment," he said.

While the Aam Aadmi Party (AAP) was quick to oppose the government’s move, demanding the withdrawal of the amendment, BJP defended the proposal.

“As far as election funding is concerned, what is important is to ensure that there is transparency as to what is the source of funding and the legitimacy of such funds. These are not compromised in any manner as per the proposed changes,’’ said G.V.L. Narasimha Rao, national spokesperson for BJP.

Rao also rejected the criticism levelled by AAP that the amendment was being introduced to bypass the judicial process, saying: “This criticism is not valid because Parliament is supreme in making laws. It has happened in the past also that issues were under court’s observation and Parliament made laws. Law making is the sole preserve of the legislature.’’

AAP said: “This development will encourage black money in politics and will further harm the country’s democracy, if this FCRA amendment is allowed to be passed in Parliament. The AAP appeals to all the non-BJP, non-Congress parties to ensure the defeat of this amendment in Parliament and expose the unholy nexus of these two parties, which do not want transparency in political funding."

A senior leader of the Congress party said that the opposition party is yet to take a stand on the issue.

“We have not been consulted or our views sought on this issue. The government has decided this unilaterally. We need to get more details before commenting on the issue,’’ the Congress leader quoted above said.

Lawyer Prashant Bhushan, representing the Association for Democratic Reforms (ADR)—a New Delhi-based not for profit organisation that works in the field of electoral reforms in both the Delhi high court and the Supreme Court—against Indian political parties accepting foreign funding (which ADR said was illegal as per Indian laws), said that the government had not yet filed its response on the issue of alleged violation of foreign funding laws in the Supreme Court.

ADR moved the Delhi high court in 2013 alleging that both BJP and Congress violated the FCRA when they accepted donations from Indian subsidiaries of the British mining company Vedanta, owned by Indian-born billionaire Anil Agarwal.

“All along the government was contemplating retrospectively amending the provision to absolve themselves of the foreign funding violation," he added.

Bhushan was referring to a Delhi high court ruling on 28 March 2014, which found the Congress and BJP violating provisions banning foreign donations under the Foreign Contributions Regulations Act, 1976.

This ruling was challenged by both political parties in 2014 and now awaits a hearing in the apex court. “The acts of the respondents (INC and BJP)...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 (Vedanta subsidiaries) accrue from ‘Foreign Sources’ within the meaning of law," the Delhi High Court ruled.

The case is likely to be heard in the Supreme Court next on 12 July. On 10 August last year, the court had asked the government to file its response at the earliest. Mint reported that the court gave the government three weeks to respond.

Those campaigning to ban foreign funding of political parties fear the proposed amendment may now nullify the case. “The Supreme Court case may not survive as it is," Bhushan said.

However, the amendment will not close the issue of foreign funding violations.

“We will be challenging the validity of the amendment before the Supreme Court as the case is pending there," Bhushan added.

ADR had moved the Delhi high court last year seeking an independent body to govern FCRA violations, also, in order to prevent any misuse of the law. That case shall be heard on Monday.

Jagdeep Chhokar, founder-member of ADR, said, “If FCRA is being diluted, it is to help the BJP and the Congress. Political parties will now become clearly open to the influence of foreign elements which will upset the integrity of a democratic country like India. The judicial process is being subverted and there is an attempt to block it."

“If it comes to Parliament, it will be in the form of a one-line amendment. It has been 31 days since the budget was introduced and no one had a clue about this. It shows that the intent of the government is to get this passed quietly,’’ he said adding that if the bill gets passed, ADR will mount a legal challenge against it.

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