Case Comment


Company Law

By:
Sri Krishna Kumar & Aman Singh
 Case Comment on:

In Re: Adani Exports Ltd. & Ors.


Citation:
2005 125 Comp Cas 686 CLB
 Facts in brief

 The company had made contributions of `25,000 to
Gujrat Pradesh Youth Congress and a sum of ` 15
lakhs to All India Youth Congress Committee.
 These contributions were shown as "Miscellaneous
Expenses" without any details, in the Profit and Loss
account of the respective years.
 In terms of Section 293A(4), these contributions
made should have been specifically disclosed in the
Profit and Loss Account of the respective years,
which the Company had failed.
 The Registrar of Companies issued a show cause notice
to the Company as to why the Company and the officers
in default should not be prosecuted in terms of Section
293 A(5) of the Act for non disclosure.
 The company filed an application before the ROC for
compounding the offence and it also filed a writ petition
before Gujarat High Court praying for restraining the
ROC from initiating any penal action against the
company and other officers of the company.
 The High Court, while granting the interim stay, directed
the ROC to dispose of the compounding application filed
by the company and its officers. The Registrar of
companies dismissed the compounding application.
 The company filed the present application to the ROC who
in turn forwarded the same to the Regional Director. The
Regional Director advised the ROC to forward the said
application to this Board stating that the offence against
the officers in default was not compoundable in view of the
provisions of Section 293A(5) of the Act.
 Sections referred:

The Companies Act, 1956
 Section 293A

 Section 293A(4)

 Section 293A(5)

 Section 629A
 Sections explained:

 Section 293A deals with political contributions.

 293A(1) prohibits certain companies from making any political contribution

 293A(2) prescribes limits of political contributions by other companies.

 293A(3) elaborates what could be considered to be a political contribution.

 293A(4) reads " Every company shall disclose in its Profit and Loss Account
any amount or amounts contributed by it to any political party or for any
political purpose to any person during the financial year to which the account
relates; giving particulars of the total amount of contributed and name of the
party or person to which or to whom such amount has been contributed.
 293A(5) reads: "If a company makes any contribution in
contravention of the provisions of this section: (a) The Company
shall be punishable with fine which may extend to three times the
amount so contributed; and (b) Every officer of the company who
is in default shall be punishable with imprisonment for a term
which may extend to three years shall also be liable to fine.”
 629A reads: If a company or any other person contravenes any
provision of this Act for which no punishment is provided
elsewhere in this Act or any condition, limitation or restriction
subject to which any approval, sanction, consent, confirmation,
recognition, direction or exemption in relation to any matter has
been accorded, given or granted, the company and every officer
of the company who is in default or such other person shall be
punishable with fine which may extend to five thousand rupees,
and where the contravention is a continuing one, with a further
fine which may extend to five hundred rupees for every day after
the first during which the contravention continues.
 Issues

 Scope of Section 293A(5) – whether it applies to the
whole section or only to a few sub Sections.

 Whether the company is liable under Section 293A(5)

or Section 629A?
 Contentions in brief

 Company:
The penal provisions contained in Sub-section (5)
relates only to contribution made in contravention of
Section 293A(2).

 Registrar:
293A(5) applies to the whole of section.
 Judgement

 The court held that:
Wherever the penal provision is intended to cover the
whole Section the penal provision commences with " If
default is made in complying with the provisions of
this Section-----“

Sub Section 5 does not specify anything as such. So the

applicability of this subsection has to be ascertained
from the wording of this sub Section .
 Section 293A deals with both contribution and
disclosure, naturally the contribution occurring first and
the disclosure later. But in this sub section, while the
word "contribution" is mentioned, the word "disclosure "
is absent.
 The quantum of political contribution is dealt with in
Sub-section (2) and since Sub-section (5) specifically
mentions contravention of the provision relating to
‘CONTRIBUTION’, it has to be held that this sub
section would apply only to contravention of Section
293A(2) and not to default in complying with provisions
of Sub-section (4) in the absence of any mention about
disclosure in Sub-section (5).
 Punishment

 The court held that the provisions of Section 629A
would apply. Hence every officer in default is
punishable with a fine of `5000 each.

 The application was disposed of.

 Critical Analysis

 Political contributions y companies permissible
under Indian law are governed by the
Representation of Peoples Act,1951(RPA),the
Companies Act,1956 and the Foreign Contribution
(Regulation) Act, 1976(FCRA).
 Section 29B of RPA (2003 Amendment) permitted
political parties to accept contributions from Indian
companies ,where contributions of more than Rs.
20000 have to be declared by the political party to the
Election Commission.
 It is the duty to draw the attention of Parliament to the great
danger inherent in permitting companies to make contributions
to the funds of political parties. It is a danger, which may grow
space and which may ultimately overwhelm and even throttle
democracy in the country. Therefore, it is desirable for
Parliament to consider under which circumstances and what
limitations companies should be permitted to make these
contributions.
 So the company must be obligated to disclose the contributions
made by them to any political party or any person for political
purpose in its profit and loss account, under separate heads
mentioning amount donated to the party and party’s name.
 Case Laws

 Similar sentiments were echoed in the cases of Jayanti R.
Koticha vs Tata Iron & Steel Co. Ltd (1957 AIR 1958
Bombay 155 DB) and Indian Iron & Steel Co. Ltd (1957 27
Com. Cases 361).
 Recently, in Nira-Radia Tapes scandal the contributions
made by the corporate houses to the political parties
gained much noteriety.
 The alleged Satyam-Maytas case was also the crux of
another scandal. Followed by the assumption that if Tata
group had contributed to 2009 election campaign of Mr.
A.Raja, would it involve coercive action.
 Conclusion

 Disclosure follows contributions.
 A contribution in contravention of subsection [1] or
subsection[2] of Section 293 is punishable under
subsection[5] of the Section 293A .
 Contravention of subsections [1] and [2] of Section
293A provides cause to the revenue or Registrar of
Companies to prosecute the wrong doer but
subsection [4] only requires the company to make a
disclosure .