Delhi HC finds BJP and Congress guilty of violating FCRA


Court :
High Court of Delhi

Brief :
The bench comprising of Justice Pradeep Nandrajog and Justice Jayant Nath on a writ petition filed in public interest found political parties BJP and Congress to be guilty of violating Foriegn Contribution (Regualtion) Act, 1976 by accepting foreign fundings.

Citation :
(1975) 3 SCC 862 Anandji Haridas & Co.(P) Ltd. v. Engg. Mazdoor Sangh (1990) 4 SCC 366 Shashikant Laxman Kale v. Union of India (1911) AC 641 Keates v. Lewis Merthyr Consolidated Collieries Ltd AIR 1953 SC 58 D.N Banerjee v. P.R Mukherjee (1981) 2 SCC 585 Sonia Bhatia v. State of U.P.

* IN  THE  HIGH  COURT  OF  DELHI  AT  NEW  DELHI

 

     Judgment Reserved on: February 28, 2014

%     Judgment Delivered on: March 28, 2014

 

+     W.P.(C) 131/2013

 

 ASSOCIATION FOR DEMOCRATIC 

 REFORMS AND ANR     ..... Petitioners

   Represented by: Mr.Prashant Bhusan and 

      Mr.Pranav Sachdeva,  

      Advocates.

 

      versus

 

 UNION OF INDIA AND ORS    ..... Respondents

   Represented by: Mr.L.Nageshwar Rao and 

      Mr.Rajeev Mehra, ASG with 

      Mr.Sumeet Pushkarna, CGSC, 

      Ms.Aditi Mohan, Ms.Sara 

      Sundaram, Mr.Aditya  

      Malhotra, Mr.D.Abhinav Rao, 

      Mr.Mayank Pandey and  

      Mr.Girish Kosaraju, Advocates 

      for UOI.

      Mr.P.R.Chopra, Advocate for 

      R-2.

      Mr.V.P.Singh, Senior Advocate

      instructed by Mr.K.C.Mittal, 

      Ms.Ruchika Mittal and  

      Mr.M.I.Choudhury, Advocate 

      for R-3.

      Ms.Pinky Anand, Senior  

      Advocate instructed by  

      Mr.Sybhashish Soren, Mr.Anil 

      Soni and Mr.Aayush Chandra, 

      Advocates for R-4.

 

W.P.(C) 131/2013       Page 1 of 33

 

CORAM:

HON'BLE MR. JUSTICE PRADEEP NANDRAJOG

HON'BLE MR. JUSTICE JAYANT NATH 

 

PRADEEP NANDRAJOG, J. 

 

1. Filed in public interest, the petitioner asserts that there is a blatant

violation of the Foreign Contribution (Regulation) Act, 1976 (hereinafter

referred to as „FCRA‟) by political parties which include the Respondent

No.3 and the Respondent No.4. It is asserted that Section 29(b) of the

Representation of People Act, 1951 prohibits political parties from taking

donations from Government Companies as also from a foreign source.   The

petitioner asserts that FCRA prohibits acceptance of foreign contributions by

political parties as per the mandate of Section 4(1)(e) thereof.  

2. Since the writ petition drew attention to donations made to political

parties for the period up to the year 2009, we record at the outset that our

concern is not with the Foreign Contribution (Regulation) Act, 2010 which

has come into force on September 26, 2010.  Our discussion of the legal

position would be with respect to the Foreign Contribution (Regulation) Act,

1976.  

3. By way of illustration, the petitioner relies upon the annual report of

Vedanta Resources plc, a company incorporated under the Companies Act,

1985 and registered in England and Wales with registration No.04740415 as

also the annual report of M/s Sterlite Industries India Ltd. (hereinafter

referred to as Sterlite), a company registered in India under the Companies

Act, 1956 evidencing donation made by Sterlite to political parties in India.

The petitioner also refers to a company by the name of M/s Sesa Goa Ltd.

(hereinafter referred to as Sesa), which is incorporation in India under the 

W.P.(C) 131/2013       Page 2 of 33

 

Companies Act, 1956 but controlling shareholding whereof is owned by

Vedanta Resources plc.  The said company has also made donations to

political parties. The petitioner brings home with reference to the annual

report of Vedanta Resources plc that it owns 55.1% of the issued share

capital of Sterlite.  The petitioner would concede that Sh.Anil Aggarwal, an

Indian National and a citizen of India holds more than 50% issued share

capital of Vedanta Resources plc.  As regards the Respondent No.3 the

petitioner brings out that two Government Companies: State Trading

Corporation and Metals & Minerals Trading Corporation of India have

donated money to the Respondent No.3, a fact admitted to by Sh.Motilal

Mehra, the Treasurer of the party in his communication dated September 29,

2008 to the Election Commission of India.  Section 293(a) of the Companies

Act, 1956 is alleged to have been violated by the Respondent No.3 when it

accepted donations from the State Trading Corporation and Metals &

Minerals Trading Corporation of India. 

4. The Respondent No.3 admits that `1,00,000/- each paid by State

Trading Corporation  and Metals  & Minerals Trading Corporation of India

finds a mention in the return submitted by its Treasurer to the Election

Commission of India, but seeks to explain that the donations were actually

made to the National Student Union of India (NSUI)  as a part of a national

campaign form Centenary Celebration of Satyagaraha which was sponsored

by said two Corporations, which were conceded to be Government

Companies.  In other words, the defence is one of it being an inadvertent

mistake.  A donation required to be entered in the account of NSUI has been

erroneously entered in the account of the Respondent No.3.  

5. We shall be discussing the effect thereof at the end of our decision, 

W.P.(C) 131/2013       Page 3 of 33

 

but would highlight at this stage that with respect to petitioner‟s pleading

concerning the two Government Companies, the parties were not at variance

on any question of law or fact.  The only question would be to consider

whether the defence of inadvertent mistake is plausible.  

6. The major concern would be the interpretation of FCRA keeping in

view the admitted fact that Sterlite  and Sesa are companies registered in

India under the Companies Act, 1956  and more than 50% of their issued

share capital  is held by Vedanta Resources plc a company incorporation

under the Companies Act, 1985 and registered in England and Wales with

registration No.04740415;  the controlling shares whereof i.e. more than

50% of the issued share capital is held by Sh.Anil Aggarwal  an Indian

National and a citizen of India.  

7. The understanding of the anatomy of a legislation would require a

cognizance to be taken of the attending circumstances in wake of which the

legislation was enacted.  The Foreign Contribution (Regulation) Bill, 1973

was introduced in the Parliament which finally culminated into the Act

No.49 of 1976 being passed.  

8. The parliamentary debates that ensued on the Bill on the floor of the

House in the Lok Sabha and the Rajya Sabha provide valuable insights and

bring to fore the circumstances engulfing our nation which necessitated the

legislation. 

9. We are conscious that any interpretation flowing from the speeches

made in the parliamentary debates by individuals cannot be a safe guide of

the legislative intent of the entire house and therefore cannot be dispositive

of the matter to halt the Court in its solemn pursuit of deciphering the true

legislative intent. However, it assumes significance that it is permissible 

W.P.(C) 131/2013       Page 4 of 33

 

under the law of our land to refer to the text of such debates and place

reliance thereon to the limited extent viz. for discerning the state of affairs

prevalent in the society at the point of time when the Bill was introduced

and the mischief/evils which were sought to be suppressed by such a

legislative enactment.

10. In the judgment reported as AIR 1951 SC 41 Chiranjit Lal

Chowdhury v. Union of India the Supreme Court pertinently observed:-  

“…legislative proceedings cannot be referred to for the purpose

of constructing an Act or any of its provisions, but I believe that

they are relevant for the proper understanding of the

circumstances under which it was passed and the reasons

which necessitated it.” 

 

11. In the decision reported as (1975) 3 SCC 862 Anandji Haridas & 

Co.(P) Ltd. v. Engg. Mazdoor Sangh the Supreme Court clarified that no

external evidence such as Parliamentary debates, reports of the committees

of the legislature or even the statement made by the Minister on the

introduction of a measure or by the framers of the Act is admissible to

construe those words. It is only when the statute is not exhaustive or where

the language is ambiguous, uncertain, clouded or susceptible of more than

one meaning or shades of meaning that external evidence as to the evils, if

any, which the statute was intended to remedy or the circumstances which

led to the passing of the statute may be looked into for the purpose of

ascertaining the object which the legislature had in view in using the words

in question 

12. In the decision reported as (1990) 4 SCC 366 Shashikant Laxman

Kale v. Union of India the Supreme Court recognized the vital distinction

between the use of material (external aids) for the purpose of finding the 

W.P.(C) 131/2013       Page 5 of 33

 

mischief dealt by the Act and the circumstances which necessitated the

passing of such legislation as distinguished from its use for finding the

meaning of the Act. The former course was held to be permissible.

13. In this regard it would be relevant to recount the words of Lord

Atkinson in the decision reported as (1911) AC 641 Keates v. Lewis Merthyr

Consolidated Collieries Ltd.:- 

“In connection of statutes it is, of course, at all times and under

all circumstances permissible to have regard to the state of

things existing at the time the statute was passed and to the

evils, which as appears from the provisions, it was designed to

remedy.”  

 

14. The said observations have been cited by approval by the Supreme 

Court in its judgment reported as AIR 1953 SC 58 D.N Banerjee v. P.R

Mukherjee and (1981) 2 SCC 585 Sonia Bhatia v. State of U.P.

15. The practice of referring to travaux preparatories such as

parliamentary history - debates, Statement of Object and Reasons appended

to the Bill etc. as evidence of the circumstances which necessitated the

passing of a piece of legislation and reliance upon the Constituent Assembly

debates in interpreting the provisions of the Constitution has been

consistently approved by the Supreme Court since time immemorial and is

evinced by line of decisions : AIR 1956 SC 246  A Thangal Kunju Musaliar

v. M Venkatachalam Potti; (1969) 1 SCC 839 A.V.S Narasimha Rao v. State

of A.P; AIR 1993 SC 477 Indira Sawhney v. Union of India; (2001) 7 SCC

126 S.R Chaudhuri v. State of Punjab; and (2003) 7 SCC 224 Karnataka

Small Scale Industries Development Corporation Ltd. V. Commissioner of

Income Tax.

16. The debates which took place on the floor of the two Houses of 

W.P.(C) 131/2013       Page 6 of 33

 

Parliament upon the introduction of the Foreign Contribution (Regulation)

Bill, 1973 provide valuable insights into the turbulent state of affairs

prevalent in our nascent democracy as shaped by the events across the globe.

A reading of the text of the debates reveals that newly independent countries

like India, amongst many others, were latently under a relentless siege by

the Foreign Powers despite end of the colonial era and imperialist regime.

The modus operandi seemed to have now undergone a novel change.

Though the said Foreign Powers were no longer involved in subjugating the

territories of the newly independent colonies, yet a vicious onslaught of

political and economic subjugation was conceived and executed through

their instrumentalities, which practice has been popularly termed as „NeoColonialism‟.

 

The reasons are not hard to seek. The predominant object

ostensibly being to gain economically and cripple the economies of the

developing and the underdeveloped Third-World Countries till eternity.

Interestingly, the other compelling reason which impelled the Foreign

Powers to exhibit a keen interest in the affairs of newly independent nationstates

 

stemmed from the „Cold-War‟ that virtually polarised the war-torn

world into two power blocs premised upon clear cleavage of ideology. The

Western Bloc led by the United States of America comprised of the NATO

and others, whereas, the Eastern Bloc was spearheaded by the Soviet Union

and its allies in the Warsaw Pact. The Western Bloc countries shared a

capitalistic outlook and desired a world order in such terms. Per Contra, the

Eastern Bloc countries had gravitated towards a socialistic political

ideology. Thus, commenced an era of unceasing conflict of rival ideologies

that also engulfed within its fold the newly independent „Non-Aligned

Countries‟ like-India. Each bloc zealously attempting to win-over the 

W.P.(C) 131/2013       Page 7 of 33

 

allegiance of such countries, for creation of a world order in accordance with

its ideology. Mobilizing the public opinion through Trade Unions and

Voluntary Groups, circulating publications to spread propaganda,

orchestrating coupes or even assassinations became the order of the day.

Political Parties and pliant public functionaries were influenced by these

Foreign Powers to toe their lines and in return were handsomely rewarded in

myriad forms, which included bribes, extending lavish hospitality,

sponsorship of education of their relatives in reputed Universities abroad

and even securing attractive career opportunities in Multi-National

Corporations. It has perhaps been eloquently stated in a decision of this

Court reported as 68 (1997) DLT 553 P.V Narsimha Rao v. Central Bureau

Of Investigation:- 

“What is the best way to win political foes? Persuasion?

Understanding? Love? Compassion? Dale Carnegie's

sermons? …secret of success lies, at least with regard to some,

in mastering the art of transferring one's own bulging wallets

into the eager pockets of others.” [Emphasis Supplied]

 

17. In this regard it may be profitable to take a note of the observations in

V.K.R.V.Rao and Dharm Narain‟s Foreign Aid and India‟s Economic

Development, wherein it has been pertinently observed on page 72:- 

“India‟s policy of non-alignment with power blocs enabled

it to receive foreign contributions from both the blocs.

Eventually, with too much money coming in, with no selfdiscipline,

 

regulation, transparency or public

accountability, and with some groups building empires in

the name of contribution.”

 

18. In the debates on the floor of the two Houses of Parliament reference

to an enquiry conducted by the Intelligence Bureau can also be found, as per 

W.P.(C) 131/2013       Page 8 of 33

 

which it was revealed that the Political Parties in India were funded by

Foreign Powers for the elections held in the year 1967. Various

distinguished Members of the House extensively referred to materials,

including reporting‟s, contained in prestigious newspapers of the United

States of America such as the New York Times, confirming the subversive

activities undertaken by the CIA in the Third-World Countries with a view

to further American hegemony and tilt the balance of power. Similar

developments witnessed in other parts of the globe such as - Chile, Angola,

Bangladesh, Japan, Netherlands, Italy were also the subject matter of debate

before the House. Deep concern was unanimously expressed by all Members

cutting across party lines that in the recent past the Foreign Powers were

alarmingly successful in wielding their satanic influence to corrupt public

life and create a class of citizens having „extra-territorial loyalty‟. It was

gathered from experience, domestic as well as international, that such covert

operations were executed through the aid of seemingly innocuous

organisations like - Research Foundations, Religious and Cultural Societies,

Voluntary Associations and Multi-National Corporations. It had dawned that

India had denigrated into a playground for the world powers; who were

coining ingenious means to latently push across huge sums of money

through puppet organisations and destabilize the country. The Members of

the House unanimously supported the Aim and Object(s) of the legislation

and the mischief of pervasive foreign influence on our polity that it sought to

suppress.

19. It would be beneficial for our purpose to cite some extracts from the

speech delivered by Shri Khurshed Alam Khan on the floor of Rajya Sabha

on 9

th

 March 1976 which are luminous and throw light upon the attending 

W.P.(C) 131/2013       Page 9 of 33

 

circumstances necessitating the introduction of the Bill.  

“Sir, I rise to support the Bill as amended by the Select 

Committee. In fact, this Bill has not been introduced too soon.

Originally it was introduced on the 24

th

 December, 1973, and

the Select Committee has taken considerable time in redrafting

the Bill.

The nation is today poised for a take-off and we are determined

to reshape our destiny and our economy. Nourished by the new

economic programme, which has received spontaneous and

overwhelming support, the nation has acquired a new purpose

and a new reality. 

 

Sir, there was a time when territorial domination and spheres

of influence of the imperialist powers and big powers were the

order of the day. But now money seems to be the best way of

interference in the domestic affairs of the country. But it is now

a well-known and universally accepted fact that neocolonialism

 

is a clever substitute for the old type of crude

colonialism. This is usually backed by the generous foreign

contributions in various shapes, foreign hospitality.…

 

... Sometimes these contributions assume the shape of

foundations and chain of institutions and under the garb of

other cultural activities. The foreign exchange deficits and

requirements of developing countries and poor countries that

particularly do not have oil resources these days have added to

the dimension of this problem. Even our trade unions are not

spared by the people who are interested in financing their

activities in other countries. … 

 

The CIA‟s doings all over the world have very clearly indicated

as to what could be done by foreign money and foreign

interference. Take, for instance, the investments of

multinational corporations and firms. If you examine carefully

their total investment and their remittances of profits during the

last ten years, you would observe that their remittances will be 

`100 crores more than their investment during the same period

and at the same time, they are over-generous in the matter of 

W.P.(C) 131/2013       Page 10 of 33

 

entertainment and expense accounts which are very well

understood and well accepted… 

 

Sir, it is almost a regular feature of some societies and

organisations to receive generous grants and aid from foreign

agencies. No patriotic and no self-respecting Indian will

appreciate this generosity on the part of the foreign agencies.

Sometimes it is done in a very subtle way and it is done under

the pretext of helping literary activities. This is a very subtle

way of doing it and we have, therefore, to be very careful. We

must stop all such inflow of foreign money and we must see that

these undesirable sources of money dry up for ever and as soon

as possible. Surely, such an aid is neither for good purposes

nor in the interest of the country or the people. All such

societies and all such persons must be exposed. Contributions

in the name of research and exchange programmes, etc., must

be discouraged as they have always a motive behind them…

 

We are passing through a very important phase of life, in our

chequered history, and the new economic programme is the

beginning of an enormous task to bring about social and

economic changes in the country. We have to be careful in this

regard. There are still about 540 foreign companies in this

country and their operations must be watched very carefully. In

order to improve their prospects, they are also indulging in a

lot of hospitality and aids of various types of agencies which

are not working in the national interest… 

 

Sir, the nation is on the move and prepared to face any

challenges. The new era leads us from darkness to light, from

uncertainty to stability and from lack of coincidence to selfreliance.

This

situation

has

brought

about

the

transformation

in

 

our

 

national life. Therefore, all loopholes, wastages and

interference, whether political or through the power of money,

should be stopped and done away with as early and as

effectively as possible…” 

 

20. Therefore it can be safely gathered that amidst a spate of subversive 

W.P.(C) 131/2013       Page 11 of 33

 

activities sponsored by the Foreign Powers to destabilize our nation, the

Foreign Contribution (Regulation) Act, 1976 was enacted by the Parliament

to serve as a shield in our legislative armoury, in conjunction with other

laws like the Foreign Exchange Regulation Act, 1973, and insulate the

sensitive areas of national life like - journalism, judiciary and politics from

extraneous influences stemming from beyond our borders.

21. As a matter of fact, the architects of our great nation, in their profound

wisdom and foresight, sounded a note of caution even before we attained

Independence from the British colonial rule. The Father of the Nation

Mahatma Gandhi, in the magazine „Harijan‟ wrote :  „We know what

American aid means. It amounts in the end to American influence, if not

American rule added to the British.‟   (Harijan, April 26, 1942)

22. John D.Montgomery in his book titled Foreign Aid in International

Politics, 1

st

 Ed. 1969, whilst explaining the nuances of foreign contributions

and aids has remarked on page 7  

“… Both foreign contribution and foreign aid can have

different effects in diplomacy. It could serve to create a

„national presence‟ by the foreign contributor. It has the

potential of procuring international favours, and even influence

or impose political ideology…”.

 

23. In this backdrop, it would be fruitful to analyze the relevant statutory

provisions that are germane to the adjudication of the vexing questions

raised before us in the present lis.

24. Section 4 of the Foreign Contribution (Regulation) Act, 1976

(hereinafter referred to as the „Act‟) imposes prohibition on certain classes

of persons from accepting foreign contribution.  It reads as under:- 

“4. Candidate for election, etc., not to accept foreign 

W.P.(C) 131/2013       Page 12 of 33

 

contribution-

 

(1) No foreign contribution shall be accepted by any- 

 

(a) candidate for election, 

 

(b) correspondent, columnist, cartoonist, editor, owner, printer 

or publisher of a registered newspaper,

 

(c) Judge, government servant or employee of any corporation, 

 

(d) member of any Legislature,

 

(e) political party or office-bearer thereof.

 

Explanation: In clause (c) and in section 9, "corporation"

means a corporation owned or controlled by government and

includes a government company as defined in section 617 of the

Companies Act, 1956 (1 of 1956).

 

(2) (a) No person, resident in India, and no citizen of India

resident outside India, shall accept any foreign contribution, or

acquire or agree to acquire any currency from a foreign

source, on behalf of any political party, or any person referred

to in sub-section (1), or both. 

 

(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 

W.P.(C) 131/2013       Page 13 of 33

 

(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 association,

referred to in sub-section (1) of section 6, shall deliver such

currency-

 

(i) to any association or organisation other than the association

for which it was received, or

 

(ii) 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 an association other than the association for

which such currency was received.”

 

25. The term „Foreign Contribution‟ has been defined under Section 2(c)

of the Act as under:- 

“2. Definitions- (1) In this Act, unless the context otherwise

requires,- 

xxx

 

(c)"foreign contribution" means the donation, delivery or

transfer made by any foreign source-

 

(i) of any article, not being an article given to a person as a gift

for his personal use, if the market value, in India, of such

article, on the date of such gift, does not exceed one thousand

rupees,

 

(ii) of any currency, whether Indian or foreign;

 

(iii) of any foreign security as defined in clause (i) of section 2 

W.P.(C) 131/2013       Page 14 of 33

 

of the Foreign Exchange Regulation Act, 1973 (46 of 1973).

 

Explanation: A donation, delivery or transfer of any article,

currency or foreign security referred to in this clause by any

person who has received it from any foreign source, either

directly or through one or more persons, shall also be deemed

to be foreign contribution within the meaning of this clause.” 

 

26. Section 2(e) of the Act defines „Foreign Source‟ as under:- 

“2. Definitions- (1) In this Act, unless the context otherwise

requires,- 

Xxx

 

(e) "foreign source" includes-

 

(i) the government of any foreign country or territory and any

agency of such government,

 

(ii) any international agency, not being the United Nations or

any of its specialized agencies, the World Bank, International

Monetary Fund or such other agency as the Central

Government may, by notification in the Official Gazette, specify

in this behalf,

 

(iii) a foreign company within the meaning of section 591 of the

Companies Act, 1956 (1 of 1956), and also includes 

 

(a) a company which is a subsidiary of a foreign company, and

 

(b) a multi-national corporation within the meaning of this Act.

 

(iv) a corporation, not being a foreign company, incorporated

in a foreign country or territory,

 

(v) a multi-national corporation within the meaning of this Act,

 

(vi) a company within the meaning of the Companies Act, 1956 

W.P.(C) 131/2013       Page 15 of 33

 

(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, namely,-

 

(a) government of a foreign country or territory,

 

(b) citizens of a foreign country or territory,

 

(c) corporations incorporated in a foreign country or territory,

 

(d) trusts, societies or other associations of individuals

(whether incorporatedor not), formed or registered in a foreign

country or territory,

 

(vii) a trade union in any foreign country or territory, whether

or not registered in suchforeign country or territory,

 

(viii) a foreign trust by whatever name called, or a foreign

foundation which is either inthe nature of trust or is mainly

financed by a foreign country or territory,

 

(ix) a society, club or other association of individuals formed or

registers outsideIndia,

 

(x) a citizen of a foreign country,but does not include any

foreign institution which has been permitted by the

CentralGovernment, by notification in the Official Gazette, to

carry on its activities in India.”

 

27. The interpretation of the term „Foreign Source‟ as defined under

Section 2(e) of the Act lies at the heart of the present controversy and begs

for judicial consideration.

28. It is the case of the petitioner that the donations made by Sterlite and

Sesa to the political parties during the period when Foreign Contribution

(Regulation) Act, 1976 was in vogue would be foreign contributions because 

W.P.(C) 131/2013       Page 16 of 33

 

Sterlite and Sesa are a „Foreign Source‟ within the meaning of Section

2(e)(vi) of the said Act.  It has been argued that though the donors are

companies registered in India under the Companies Act, 1956, however,

significantly, more than one-half of their share capital is held by Vedanta - a

company incorporated in the United Kingdom. Therefore, in view of the

mandate of clause (vi) of Section 2(e) the donations in favour of the political

parties are to be construed as emanating from a „Foreign Source‟ and fall

within the prohibition imposed by Section 4 of the Act, which bans

acceptance of foreign contributions by Political Parties.

29. Per Contra, it is contended by the respondents that the donations

made by Sterlite and Sesa in favour of the political parties cannot be

construed as a „Foreign Contribution‟ as they are not a „Foreign Source‟

within the meaning of Section 2(e) of the Act. The respondents emphasized

that the said companies are incorporated in India under the provisions of the

Companies Act, 1956. The fact that more than one-half of their share-capital

is held by Vedanta - a company incorporated in the United Kingdom is not

disputed, however, it was pointed out that more than one-half of sharecapital

 

of Vedanta is in fact held by Mr.Anil Agarwal; who is a citizen of

India. In this regard much reliance was placed by the respondents upon

Section 2(e)(iii) of the Act to contend that even Vedanta is not a „Foreign

Company‟ within the meaning of Section 591 of the Companies Act, 1956 in

view of the operation of clause(2) of Section 591 and therefore its

subsidiaries – Sterlite and Sesa cannot be construed as a „Foreign Source‟ to

attract the rigour of the Act.

30. It would be relevant to note that the term „Foreign Source‟ is not

exhaustively defined under the Act and it assumes significance that the 

W.P.(C) 131/2013       Page 17 of 33

 

legislature has chosen to employ the word- „includes‟, which signifies that

the entries contained in the said provision are only illustrative of what could

constitute a „Foreign Source‟. 

31. The reason for providing an „inclusive definition‟ seems to be that the

legislature, at the time of enacting the Act, was not in a position to

exhaustively foresee the myriad means through which foreign contributions

could be channelized into India. The debates have also recognized that such

operations are covert in their innate nature and the foreign powers are

known to have operated behind the cloak of „dummy-organisations‟ and

adopt ingenious means to perforate the polity of nations. With a view to

address such a mischief, enacting an „inclusive definition‟ seems to provide

the best remedy since it lends the necessary flexibility to bring within its

purview certain situations which do not stand expressly covered therein, lest

loopholes of law may be explored and exploited in future.

32. A bare perusal of the provision also reveals that not only has the term

„Foreign Source‟ been defined in an inclusive manner, furthermore, nine

clauses are comprised therein that deal with a wide spectrum of possible

sources from which foreign contribution could flow.

33. The enactment by the legislature of an umbrella provision with

plenary amplitude is reflective of the intent of the legislature that a wide

coverage be given to the term „Foreign Source‟ to advance the objects of the

Act and suppress the mischief/evils it was designed to remedy. 

34. At this juncture it would be apposite to take notice of the preamble of

the Act, which unequivocally spells out the solemn object of the legislation:- 

“An Act to regulate the acceptance and utilization of foreign

contribution or foreign hospitality by certain persons or 

W.P.(C) 131/2013       Page 18 of 33

 

associations, with a view to ensuring that parliamentary

institutions, political associations and academic and other

voluntary organizations as well as individuals working in the

important areas of national life may function in a manner

consistent with the values of a sovereign democratic republic,

and for matters connected therewith or incidental thereto.”

 

35. As observed by us even earlier, the Foreign Contribution (Regulation)

Act, 1976 was enacted by the parliament to serve as a shield in our

legislative armoury, in conjunction with other laws, and insulate the

sensitive areas of national life like - journalism, judiciary and politics from

extraneous influences stemming from beyond our borders. 

36. The respondents have unanimously planked their submissions on a

conjoint reading of Section 2(e)(iii) of the Foreign Contribution (Regulation)

Act, 1976 and Section 591(2) of the Companies Act, 1956 to contend that

since a citizen of India - Mr.Anil Agarwal holds more than one-half of

share-capital of Vedanta (a company incorporated in the United Kingdom),

Vedanta is not a „Foreign Company‟ within the meaning of Section 591 of

the Companies Act, 1956 and neither Vedanta nor its subsidiaries – Sterlite

and Sesa can be treated as a „Foreign Source‟ within the meaning of the

Foreign Contribution (Regulation) Act, 1976.

37. For the purpose of analyzing the argument it would be beneficial to

reproduce the relevant provisions pressed into service by the respondents:- 

“2. Definitions- (1) In this Act, unless the context otherwise

requires,- 

(e) „foreign source‟ includes-

xxx 

xxx

 

 

W.P.(C) 131/2013       Page 19 of 33

 

(iii) a foreign company within the meaning of section 591 of the

Companies Act, 1956 (1 of 1956), and also includes-

 

(a) a company which is a subsidiary of a foreign company, and

 

(b) a multi-national corporation within the meaning of this

Act.”

 

38. It is evident that Section 2(e)(iii) of the Foreign Contribution

(Regulation) Act, 1976 treats „Foreign Company‟ within the meaning of

Section 591 of the Companies Act, 1956, its subsidiaries and multi-national

corporations as a „Foreign Source‟ for the purpose of the Act. The term

„Foreign Company‟ is not defined in the Foreign Contribution (Regulation)

Act, 1976, however it prescribes that a „Foreign Company‟ within the

meaning of Section 591 of the Companies Act, 1956 would be treated as a

„Foreign Source‟ for the purpose of the Act.

39. Therefore, it would be necessary to have a glimpse at the contours of

Section 591 of the Companies Act, 1956 for the purpose of unraveling the

legislative prescription contained in Section 2(e)(iii) of the Foreign

Contribution (Regulation) Act, 1976.

40. Part XI of the Companies Act, 1956 under the caption „Companies

Incorporated Outside India‟ has Sections 591 to 608 as a part of the Chapter. 

Section 591 reads as under:- 

 “591. Application of sections 592 to 602 to foreign

companies

 

(1) Sections 592 to 602, both inclusive, shall apply to all

foreign companies, that is to say, companies falling under the

following two classes, namely:—

 

(a) companies incorporated outside India which, after the 

W.P.(C) 131/2013       Page 20 of 33

 

commencement of this Act, establish a place of business within

India; and

 

(b) companies incorporated outside India which have, before

the commencement of this Act, established a place of business

within India and continue to have an established place of

business within India at the commencement of this Act.

 

(2) Notwithstanding anything contained in sub-section (1),

where not less than fifty per cent of the paid up share capital

(whether equity or preference or partly equity and partly

preference) of a company incorporated outside India and

having an established place of business in India, is held by one

or more citizens of India or by one or more bodies corporate

incorporated in India, or by one or more citizens of India and

one or more bodies corporate incorporated in India, whether

singly or in the aggregate, such company shall comply with

such of the provisions of this Act as may be prescribed with

regard to the business carried on by it in India, as if it were a

company incorporated in India.”

 

41. In the present era of globalization fostered by treaties warranting the

removal of trade barriers and other cognate measures, it is an established

tenet of jurisprudence in all advanced nation - states that a corporation, duly

incorporated in one country, is recognized as a corporation in others and it

would be contrary to the accepted policy of nations to try and prevent a

company incorporated in one country from carrying on business in another,

without being incorporated there. Needless to state, as a concomitant of

sovereignty it is, however, open to a country to regulate the activities of a

„Foreign Company‟ within the limits of its territorial jurisdiction. 

42. The principle underlying these provisions is that a company,

incorporated outside India, however in a sense „domiciled‟ within the

territory of India by establishing a place of business therein, should be 

W.P.(C) 131/2013       Page 21 of 33

 

brought within the regulatory framework of the Companies Act, 1956 and in

public interest be saddled with some rudimentary obligations.  Section

591(1) of the Companies Act, 1956 defines „Foreign Company‟ as

companies falling under the following two classes, namely:-

(a)  companies incorporated outside India which, after the commencement

of this Act, establish a place of business within India; and

(b)  companies incorporated outside India which have, before the

commencement of this Act, established a place of business within India and

continue to have an established place of business within India at the

commencement of this Act.

43. It may also be worthwhile to notice that the recently encated

Companies Act, 2013 distinctly defines „Foreign Company‟ under section

2(42) in the following terms- 

“2. In this Act, unless the context otherwise requires,—

 

xxx

 

(42) “foreign company” means any company or body corporate

incorporated outside India which—

 

(a ) has a place of business in India whether by itself or through

an agent, physically or through electronic mode; and

 

(b ) conducts any business activity in India in any other

manner.” 

 

44. In light of the legislative mandate flowing from clause (1) of Section

591 of the Companies Act, 1956, Vedanta is unquestionably a „Foreign

Company‟ by virtue of the fact that Vedanta is incorporated outside India

i.e. in the United Kingdom and has established its place of business in India, 

W.P.(C) 131/2013       Page 22 of 33

 

as it operates in the territory of India through its subsidiary companies like

Sterlite and Sesa.  

45. However, the pertinent question arising for consideration is :  Whether

clause (2) of Section 591 qualifies the meaning of „Foreign Company‟ as

laid down under clause (1) and brings out Vedanta from the conception of a

„Foreign Company‟ within the meaning of Section 591 of the Companies

Act, 1956? 

46. It would be incumbent upon us to microscopically analyse Section

591(2) of the Companies Act, 1956.  

“591. Application of sections 592 to 602 to foreign companies-

 

xxx

 

(2) Notwithstanding anything contained in sub-section (1),

where not less than fifty per cent of the paid up share capital

(whether equity or preference or partly equity and partly

preference) of a company incorporated outside India and

having an established place of business in India, is held by one

or more citizens of India or by one or more bodies corporate

incorporated in India, or by one or more citizens of India and

one or more bodies corporate incorporated in India, whether

singly or in the aggregate, such company shall comply with

such of the provisions of this Act as may be prescribed with

regard to the business carried on by it in India, as if it were a

company incorporated in India.” 

 

47. It would be relevant to note that Section 591 of the Companies Act,

1956 in its original form did not contain the above-highlighted clause and in

fact clause (2) was subsequently added to Section 591 of Companies Act,

1956 vide a legislative amendment by Act 41 of 1974 with effect from

February 01, 1975.    

W.P.(C) 131/2013       Page 23 of 33

 

48. Therefore, interestingly, it would be pertinent to highlight that when

the Foreign Contribution (Regulation) Bill, 1973 was prepared by its

draftsmen and reference to Section 591 of Companies Act, 1956 was made,

clause (2) of Section 591 was not even in existence in the statute book and

therefore not within their contemplation. However, by the time the Foreign

Contribution (Regulation) Bill, 1973 was actually passed by the parliament

in the year 1976, clause (2) of Section 591 Companies Act, 1956 was in

place.

49. A careful analysis of Section 591(2) reveals that if more than one-half

of the share-capital of a company incorporated outside India and having an

established place of business in India (A „Foreign Company‟ within the

meaning of section 591(1) of Companies Act, 1956) is held by one or more

citizens of India or by one or more bodies corporate incorporated in India, or

by one or more citizens of India and one or more bodies corporate

incorporated in India, whether singly or in the aggregate, such company

shall comply with such of the provisions of this Act as may be prescribed

with regard to the business carried on by it in India, as if it were a company

incorporated in India. 

50. Therefore, by virtue of the fulfilment of the conditions prescribed in

clause (2) of Section 591 of the Companies Act, 1956, a fiction of law

operates, and even a „Foreign Company‟ as defined is clause (1) is obliged

to scrupulously comply with all the provisions of the Companies Act, 1956

as if it were a company incorporated in India and not merely comply with

sections 592 to 602 of the said Act.

51. The sublime philosophy and rationale for introduction of clause (2)

seems that it was being experienced that some „Foreign Companies‟ 

W.P.(C) 131/2013       Page 24 of 33

 

operating in India were foreign only namesake, i.e., only by virtue of

incorporation in a foreign country, but the business was being essentially

transacted in the territory of India and the ownership also vested in citizens

of India. The provisions of the Companies Act, 1956 had a restricted

application to the „Foreign Companies‟ operating in India and this

circumstance perhaps may have impelled many Indian nationals to have got

companies incorporated abroad to operate their business within the territory

of India. With a view to bring such „Foreign Companies‟ within the

regulatory framework to a much greater extent and exercise more effective

control thereon, the Companies (Amendment) Bill, 1972 proposed insertion

of a provision which provided for the equivalence of such „Foreign

Companies‟ with the companies incorporated in India, for the purpose of

compliance of the obligations comprised in the Companies Act, 1956.

52. Thus, upon the satisfaction of certain conditions contained in clause

(2) of Section 591, „Foreign Companies‟ are required to comply with the

provisions of Companies Act, 1956 just like any company incorporated in

India and it would not suffice to merely comply with the limited range of

provisions [Sections 592-602] that are required to be complied by a „Foreign

Company‟.

53. The purport and intent of clause (2) of Section 591 of the Companies

Act, 1956 does not seem to qualify or whittle down the meaning of „Foreign

Company‟ which is laid down under clause (1) of the said provision. The

litmus-test for determining whether a company is a „Foreign Company‟ is

contained in clause (1) alone viz. incorporation outside the territory of India.

The effect of clause (2) is rather to impose a greater burden of compliance

on „Foreign Companies‟ having place of business in India, which are 

W.P.(C) 131/2013       Page 25 of 33

 

essentially held by citizens of India. The said burden is equivalent to the

burden cast upon a company incorporated in India. As highlighted earlier,

clause (2) was added to section 591 to address the growing tendency

amongst Indian nationals to incorporate companies outside the territory of

India and operate through their aegis within the territory of India,

successfully circumventing many obligations envisaged under the

Companies Act, 1956 which were applicable only to the companies

incorporated in India. 

54. The nationality of a company is determined exclusively on the

touchstone of the situs of its incorporation and there exists a profusion of

judicial authorities to this effect. The nationality of its shareholders or

directors have no bearing upon the nationality of a company, the company

being a distinct jural entity having an existence independent of its

constituents. Reliance may be placed on the decision of the House of Lords

reported as (1902) A.C 484 Janson v. Driefontein Consolidated Mines,

Private Limited. In our considered view, there is nothing contained in the

language of Clause (2) of Section 591 which affords an interpretation that it

militates against the recognized principle of law that the nationality of a

company is premised on the situs of incorporation de hors the nationality of

its constituents.

55. In this regard it would be apposite to cite the view of an eminent

author - C.R.Dutta in his celebrated treatise on Company Law, wherein he

has expressed the view that a company incorporated in England having

shareholders who are all Indian citizens would be construed as „Foreign

Company‟ [C.R Dutta-„The Company Law‟, 6

th

 Edition, 2008-Volume 4;

Page7087]. 

W.P.(C) 131/2013       Page 26 of 33

 

56. Thus, in ultimate analysis, we are of the considered view that Vedanta

is a „Foreign Company‟ within the meaning of Section 591 of the

Companies Act, 1956 and therefore, Vedanta and its subsidiaries - Sterlite

and Sesa are a „Foreign Source‟ as contemplated under Section 2(e)(iii) of

the Foreign Contribution (Regulation) Act, 1976. However, in view of the

operation of clause (2) of the Section 591 of the Companies Act, 1956,

Vedanta would be required to comply with the provisions of the Companies

Act, 1956 like a company incorporated in India.

57. We may hasten to point out that even if the submissions of the

Respondents in this regard were to be accepted by this Court and Vedanta

and its subsidiaries like – Sterlite and Sesa were not held to be a „Foreign

Source‟ within the meaning of Section 2(e)(iii) of the Foreign Contribution

(Regulation) Act, 1976, yet there would be no escape from the applicability

of Section 2(e)(vi) of the Foreign Contribution (Regulation) Act, 1976. 

58. It would be relevant to advert our consideration to the said provision. 

 

2. Definitions- (1) In this Act, unless the context otherwise

requires,- 

(e) "foreign source" includes-

 

xxx

 

xxx

 

(vi) 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, namely,-

 

(a) government of a foreign country or territory,

 

W.P.(C) 131/2013       Page 27 of 33

 

(b) citizens of a foreign country or territory,

 

(c) corporations incorporated in a foreign country or territory,

 

(d) trusts, societies or other associations of individuals

(whether incorporated or not), formed or registered in a

foreign country or territory.” 

 

59. It would be pertinent to note that the term „corporations‟ has not been 

defined under the Foreign Contribution (Regulation) Act, 1976.  

60. Section 2(2) of the Foreign Contribution (Regulation) Act, 1976

prescribes that the words and expressions used in the said Act and not

defined therein, but defined in the Foreign Exchange Regulation Act, 1973

(46 of 1973), shall have the meanings respectively assigned to them in that

Act.  Furthermore, Section 2(3) mandates that the words and expressions

used in the Foreign Contribution (Regulation) Act, 1976 and not defined in

the said Act or in the Foreign Exchange Regulation Act, 1973 (46 of 1973),

but defined in the Representation of the People Act, 1950 (43 of1950), or the

Representation of the People Act, 1951 (43 of 1951), shall have the

meanings respectively assigned to them in such Act.

61. However, we find that the term - „corporation‟ is not defined in either

of the statutes referred above. Even the General Clauses Act, 1897 does not

assign meaning to the term „corporation‟.

62. Therefore, this Court must traverse beyond in order to ascertain the

true meaning and import of the term „corporation‟, which has not been

defined under the Foreign Contribution (Regulation) Act, 1976 or the

statutes prescribed therein.

63. It has been pertinently observed in the decision reported as (1914) 1 

W.P.(C) 131/2013       Page 28 of 33

 

KB 641 Camden (Marquis) v. IRC:- 

“It is for the court to interpret the statute as best it can. In so 

doing the court may no doubt assist itself in the discharge of its

duty by any literary help which it can find, including of course

the consultation of standard authors and references to well

known and authoritative dictionaries.”

 

64. The Supreme Court has held in the decision reported as 1985 Supp

SCC 280 State of Orissa v. Titaghur Paper Mills Co. Ltd. that the court may

take the aid of dictionaries to ascertain the meaning of a word in common

parlance, where the word has not been statutorily defined or judicially

interpreted 

65. Black‟s Law Dictionary, Ninth Edition, defines the word „corporation‟

in

the

following

terms:-

 

“corporation, n. (l5c) An entity (usu. a business) having

authority under law to act as a single person distinct from the

shareholders who own it and having rights to issue stock and

exist indefinitely; a group or succession of persons established

in accordance with legal rules into a legal or juristic person

that has a legal personality distinct from the natural persons

who make it up, exists indefinitely apart from them, and has the

legal powers that its constitution gives it. Also termed

corporation aggregate; aggregate corporation; body

corporate; corporate body. See COMPANY. [Cases:

Corporations] - incorporate, vb. corporate, adj. "A corporation

is an artificial being, invisible, intangible, and existing only in

contemplation of law.... [I]t possesses only those properties

which the charter of its creation confers upon it." Trustees of

Dartmouth College v. Woodward, 17 U.S. (4 WheaL) 518, 636

(1819) (Marshall,J.).” 

 

66. The term „Corporation‟ has also been defined in the Concise Law

Dictionary by P.Ramanatha Aiyar, Third Edition, in somewhat similar 

W.P.(C) 131/2013       Page 29 of 33

 

terms.

“…Artificial persons established for prescribing in perpetual 

succession certain rights, which, if conferred on certain natural

persons, would fail in process of time. A corporation is an

artificial being, invisible, intangible and existing only in

contemplation of law. Being, the mere creature of law it

possesses only those properties which the charter of its creation

confers upon it, either expressly or as incidental to its very

existence. They enable a corporation to manage its own affairs,

and to hold property without the perplexing intricacies, the

hazardous and endless necessity, or perpetual conveyances for

the purpose of transmitting it from hand to hand.

 

It is a body corporate legally authorized to act as a single

person. [Art. 19(6)(ii), Const]…” 

 

67. Section 2(7) of the Companies Act, 1956 defines „corporation‟, as

under:- 

“2. Definitions.—In this Act, unless the context otherwise

requires,— 

xxx

 

(7) “body corporate” or “corporation” includes a company

incorporated outside India but does not include—

 

(a) a corporation sole; 

 

(b) a co-operative society registered under any law relating to

co-operative societies; and

 

(c) any other body corporate not being a company as defined

in this Act which the Central Government may, by notification

in the Official Gazette, specify in this behalf;”

 

68. The new Companies Act, 2013 defines a „Corporation‟ under section

2(11). 

W.P.(C) 131/2013       Page 30 of 33

 

 

“2. In this Act, unless the context otherwise requires,—

 

xxx

 

(11) “body corporate” or “corporation” includes a company

incorporated outside India, but does not include—

 

(i ) a co-operative society registered under any law relating to

co-operative societies; and

 

(ii ) any other body corporate (not being a company as defined

in this Act), which the Central Government may, by

notification, specify in this behalf;”

 

69. Thus, it is unequivocal that the term „corporation‟ ordinarily includes

within its meaning entities like a company; amongst others. 

70. We have already highlighted in the earlier part of our judgment that

the legislature in its wisdom has defined the term „Foreign Source‟ in a wide

and an expansive manner with a view to suppress the mischief. This Court

cannot impose artifices and thereby restrict the natural/ordinary meaning of

the words contained in the definition, lest it would frustrate the legislative

intent and render the provision redundant. We see no reason why an entity

such as a company would  not fall within the ambit of the term „corporation‟

employed in the Foreign Contribution (Regulation) Act, 1976.

71. Analysis of the meaning that has been ascribed to „corporations‟ in

various law lexicons and other legislations operating in our country,

establishes beyond a pale of doubt that a „corporation‟ incorporated in a

foreign country or territory for the purpose of Section 2(e)(vi)(c) includes

within its fold, companies incorporated outside the territory of India, such as

Vedanta; which is incorporated in the United Kingdom.  

W.P.(C) 131/2013       Page 31 of 33

 

72. It is not disputed by the respondents that more than one-half of the

nominal value of the share-capital of Sterlite and Sesa is held by Vedanta. It

has already been held by us in the preceding paragraph that Vedanta is a

corporation incorporated in a foreign country or territory within the meaning

of Section 2(e)(vi)(c) of the Foreign Contribution (Regulation) Act, 1976.

Therefore, this leads to the irresistible conclusion that the present case is

also squarely covered under Section 2(e)(vi)(c) of the Foreign Contribution

(Regulation) Act, 1976.

73. 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.

74. The response by the Union of India which was supported by the

Respondent No.3 and Respondent No.4 being found to be based on a wrong

understanding of the law, we dispose of the writ petition issuing two

directions.  The first direction would concern the donations made by State

Trading Corporation of India and Metals and Minerals Corporation of India

shown in the books of accounts of the Respondent No.3 in respect whereof

the stand taken is that the donations were actually made to National Students

Union of India (NSUI) and that inadvertently the two donations were

entered in the accounts of Respondent No.3.  The first and the second

respondent would investigate the matter with respect to the justification

given to find out whether the same is a stray incident and possibly a mistake

or otherwise.  Depending upon the decision taken further action would be 

W.P.(C) 131/2013       Page 32 of 33

 

taken as per law.  The second direction would concern the donations made

to political parties by not only Sterlite and Sesa but other similarly situated

companies/corporations.  Respondents No.1 and 2 would relook and reappraise

 

the receipts of the political parties and would identify foreign

contributions received by foreign sources as per law declared by us

hereinabove and would take action as contemplated by law.  The two

directions shall be complied within a period of six months from date of

receipt of certified copy of the present decision.

75. There shall be no order as to costs.   

 

           (PRADEEP NANDRAJOG) 

        JUDGE

 

 

                (JAYANT NATH)

                JUDGE

 

MARCH 28, 2014 

skb/mamta 

W.P.(C) 131/2013       Page 33 of 33

 

Vineet Kumar
on 31 March 2014
Published in Others
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