The on-going electoral bonds saga in the Supreme Court has another angle to it – shareholder rights.
So far, the public interest petition against the scheme argued for the public’s right to know how political parties are being funded.
Read more here.
But if we flip this – even the shareholders of the companies donating to political parties have a fundamental right to know how funds invested in public companies are being used by political parties.
After all, it is their money that is being donated.
To answer this question, we turn to a petition filed by shareholder Arun Kumar Agarwal and argued by Surren Uppal.
“In an era of ethical investing the fundamental right of all the shareholders is prima facie being violated,” Arun Agrawal told The Quint.
So if and when a publicly listed company donates money to a political party without disclosing the name of the party, it is a violation of the shareholder’s fundamental right to know and decide about funding the ideology of the party through his investment.
Before the amendments made by the Finance Act in 2017, the name of the political party was disclosed to the shareholders in the balance sheet and it was voted upon at an annual general meeting. There was also a ceiling of 7.5 % of the net profits of the previous three years, which could be donated.
“Public companies ought to have standards of transparency and accountability in corporate governance,” reads the petition accessed by The Quint.
With its opacity, the new rules for electoral bonds defy the principles “governing public institutions or any other entity in which the public may have a real and substantial interest.”
When these companies withhold important details on political contributions, it puts shareholders in a position “where ideologies, past conduct, policy orientations or preferences that they might be opposed to in-principle, are being funded by their own investments as a result of the impugned provisions to the electoral bond scheme,” goes the argument in the petition.
The shareholder should be able to have an option to know about company donations to decide where his/her money will be invested.
If too many donations are made, naturally the share price will take a hit.
Additionally, the petition argues that the management could potentially make money off the donations, while the shareholder would lose money on his investment as there would be a diversion of money from the profits.
This would also violate “the right to equality before law and equal protection of law guaranteed under Article 14 of the Constitution of India.”
One of the ways we, the people, participate in our economic progress is by investing in such companies. This is a valuable source of finance for our country.
By excluding shareholders from the decision-making, “the provisions dehumanise and reduce shareholders to financing drones and unwittingly makes them a party to the crony capitalism which benefits the rich and the politically powerful.”
The management is unjustifiably empowered over the ordinary shareholders by usurping more power while also clouding the “transparency and accountability in the exercise of such power” says the petition.
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