Can company trusts plug trust gap?

Times of India, March 28, 2014

Several leading companies are setting up electoral trusts to ensure transparency in the funding of political parties in the poll season as the debate over corruption gets intense.

Funding of parties has always been shrouded in mystery and often caused controversies. Although companies are demanding a transparent mechanism for payments to parties, some analysts are sceptical about how much of a clean-up the concept of electoral trusts will ensure. While electoral trusts may ensure some transparency , companies will still be asked to contribute over and above payments through such trusts, they say.

Government officials confirm that 14 companies have so far set up trusts, while one has filed its application, which is being processed. They did not provide names but said several companies had registered under their various arms.

The electoral trust concept was floated in the 2009 Finance Act. It requires that companies and entities wanting to provide funding to parties set up nonprofit companies or electoral trusts. The Companies Act mandates these to disclose in their profit and loss account all contributions to parties. They are barred from receiving cash donations and foreigners can’t contribute to the trusts, which must take permanent account numbers of all resident Indian donors and passport numbers for NRIs.

“We plan to set up an electoral trust to fund the parliament elections (and give) to the parties we know better. Just setting up trusts won’t bring in transparency ,” Rahul Bajaj, chairman , Bajaj group told TOI.

“Trusts should be made mandatory to fund parties by cheque and demand draft and no cash. The EC should also make it mandatory for parties to disclose all funding details. Accounts of political parties must be audited by auditors, who may be empanelled by EC,” he said.

Some other leading companies said they too had set up Electoral trusts.

“The Mahindras have made political donations in the past ? and these were all by cheque to parties, and not individuals. The amounts were mentioned in the annual report. The Mahindra & Mahindra Electoral Trust was set up this year and funding of parties in future will be through this,” said Rajeev Dubey, president (group HR & after-market ) & member of the group executive board, Mahindra & Mahindra Ltd.

Industry groups said they backed transparency in electoral funding.

“We support transparency in electoral funding by corporates. The electoral trust can be an appropriate channel,” said Sidhartha Birla, FICCI president.

While several companies pay by cheque there’s speculation that payment through other channels are sought.

Expert said the concept of electoral trusts is a step in the right direction.

“The new concept of electoral trusts for corporate funding of parties is a great step towards bringing in transparency about the source and legitimacy of funds used for elections ,” said Richard Rekhy, CEO of consultancy fi rm KPMG.

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