* 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
