Even as the debate on demonetisation finds the BJP and the Congress on the opposite sides, they came together last Monday before the Supreme Court’s J.S.Khehar, Arun Mishra and A.M.Khanwilkar JJ, to take a common stand in a pending litigation.

What promised to be a landmark hearing in the first half of the day, proved to be a damp squib, with both, surprisingly withdrawing their appeals against the Delhi High Court judgment on the FCRA and political funding of 2014. 

The High Court had directed the Central Government and the Election Commission to “relook and reappraise” the parties’ receipts to identify foreign contributions, which are banned under the law.

In this edition of Debriefed, we seek to look at the intriguing questions which this case poses.

1. What did the petition in the Delhi High Court allege?

The petitioner, the Association of Democratic Reforms (ADR), alleged the violation of the Foreign Contribution (Regulation) Act of 1976 (FCRA) [pdf] by political parties including the BJP and the Congress. 

The 1976 Act stood repealed with the coming into force of FCRA of 2010, on September 26, 2010. Therefore, ADR sought investigation into foreign contributions upto 2009, which they claimed were illegal under the repealed law.

Specifically, ADR contended that donations made by Sterlite Industries India Ltd and Sesa Goa Ltd to the political parties during the period upto 2009 were illegal.  Sterlite and Sesa are companies registered in India under the Companies Act, and more than 50 per cent of their issued share capital is held by Vedanta Resources, a company registered in England and Wales.  More than 50 per cent of controlling shares in Vedanta is held by Anil Aggarwal, an Indian citizen.

Now Section 4 of the 1976 Act imposes a prohibition on election candidates, as well as journalists, judges, members of any Legislature, and political parties or its office-bearers from accepting a “foreign contribution”.

Section 2(c) of the Act defined “foreign contribution” as donation made by any “foreign source”.

Section 2(e) (iii) of the Act defined “foreign source” to include, inter alia, a foreign company within the meaning of section 591 of the Companies Act, 1956. 

Sub-clause (vi) of this provision covered donations by the companies mentioned in ADR’s petition. 

This sub-clause reads,

“A company within the meaning of the Companies Act, 1956, if more than one-half of the nominal value of its share capital is held, either singly or in the aggregate, by corporations incorporated in a foreign country or territory”.

Therefore, ADR submitted before the High Court that though Sterlite and Sesa are companies registered in India, more than one-half of their share capital is held by Vedanta, a company incorporated in the U.K., and thus their contributions to political parties would invite the bar of Section 4.

2. What did the Delhi High Court rule?

The High Court concluded that Vedanta is unquestionably a foreign company by virtue of the fact that it is incorporated outside India, that is, in the U.K., and has established its place of business in India and operates through its subsidiary companies like Sterlite and Sesa. 

Therefore, it held that prima-facie, the acts of the BJP and the Congress, clearly fell foul of the ban imposed under the 1976 Act, as the donations accepted by them from Sterlite and Sesa were from “foreign sources”.

3. What was the amendment brought by the Finance Act, 2016?

The 2010 Act, which replaced the 1976 Act, continued with the same definition of “foreign source”, and also retained the bar on receipt of foreign contributions by political parties.

However S.236 of the Finance Act of 2016 [pdf] amended the 2010 Act by inserting a proviso to the effect that as long as the foreign company’s ownership of an Indian entity is within the foreign investment limits prescribed by the Government for that sector, the company will be treated as “Indian” for the purposes of the FCRA.

More important, the proviso takes retrospective effect only from 2010, and not 1976, the year when the parent FCRA was enacted.  Hence, notwithstanding the amendment, introduced by the Finance Act of 2016, the Delhi High Court’s 2014 judgment is still valid, and has not become infructuous.

4. Why did the parties withdraw the SLPs, when it is still a sword of Damocles over them?

Interestingly, during the hearing Justice Khehar agreed that the 2016 amendment has an effect on the 1976 Act also.  He felt persuaded by the BJP counsel, Shyam Divan’s argument. 

But Justice Khehar qualified it saying his tentative view depends on what the ADR’s counsel would argue, when their turn comes. However, the political parties withdrew their SLPs, before ADR’s turn came.  Hence, ADR’s counsel, Jayant Bhushan – who substituted for his brother, Prashant Bhushan – didn’t get an opportunity to challenge this view.

Shyam Divan argued that the High Court did not look at the 2010 Act, and that holding the parties guilty of violating a repealed Act, is too much of a stretch. That the High Court should have refused to entertain the PIL on a repealed legislation at the threshold itself was his other contention.  Although the parties could be held  guilty under the 1976 Act, the prosecution of persons responsible for accepting the foreign contribution has to be under the 2010 Act, as the 1976 Act stood repealed. 

All these contentions could not be challenged by Jayant Bhushan, because of the premature withdrawal of the SLPs.

Obviously, both the BJP and the Congress stood to gain by buying more time.  Their pleas to grant them more time, when they realised that they could not rely on the FCRA amendment brought about by the 2016 Finance Act, were rejected by the bench, which insisted on disposing it on Monday itself. The counsel could not satisfy the bench how the amendment of the 2010 Act is applicable to the donations made to these parties upto 2009.

The counsel for the BJP and the Congress, Shyam Divan and Kapil Sibal, could be seen conversing with each other, before the decision to withdraw the SLP, was jointly conveyed to the bench.

Faced with an adverse order from the bench, the counsel for both the parties found it wiser to withdraw their SLPs. 

The 2014 judgment of the High Court was not stayed by the Supreme Court even when the appeals were pending.  The High Court had directed the Union Home Ministry to take action against the parties in six months.  In view of the pendency of the appeals before the Supreme Court, the ADR did not move the High Court for charging the ministry with contempt of court.  Now, it appears, the door is open to initiate action for contempt of court.

Lastly, the respondent before the Supreme Court, the Union of India, maintained a mysterious silence on the withdrawal of the SLPs while the other respondent, ADR, requested the court not to allow the withdrawal.

5. What lies ahead? Is there hope that the petitioner would succeed?

Well, it appears that the Government would try to bail out the political parties, by bringing in a suitable amendment. But it is not at all clear how the  Government could retrospectively amend a repealed Act!

At best, the Government can try amend the 2010 Act by inserting an amendment clause, which takes effect from 1976.  But that would be legally vulnerable.

ADR, with Prashant Bhushan as its counsel, is sure to keep the heat on these parties.  If the parties fail to get relief from the High Court, they will surely return to the Supreme Court with fresh SLPs. 

6. What is the punishment prescribed for violation of FERA, 1976?

Section 23(1) of that Act prescribes imprisonment for a term which may extend to five years, or with fine, or with both for persons found assisting a political party in accepting any foreign contribution from a foreign source. 

There are no consequences for the parties.

7. What is the stand of the Election Commission, a respondent in the High Court, in this case?

The EC washed its hands off, saying it is not an investigating authority, and has no penal powers, even if the parties are guilty of violating the 1976 Act.  Its standing counsel in the Supreme Court, Amit Sharma claims that the EC wrote to the Ministry of Home Affairs, after the Delhi High Court order, requesting investigation, as directed.

Sharma also claims that he raised an objection, when both the parties withdrew their SLPs on November 29, and requested the bench to go ahead with the hearing, by rejecting the request, as the matter could be decided one way or the other.  But the bench thought the non-compliance with the High Court’s directions by the Central Government, could be met by filing contempt petitions.

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