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Why Public Company Shareholders Must Care About Electoral Bonds

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.

Are electoral bonds then scuttling and compromising the personal rights of the shareholders?

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.

Also Read: Here’s Why Electoral Bonds Are a Danger to Democracy

Why is This Important?

A person is legally entitled to her political beliefs as guaranteed by India’s Constitution (Article 14, 19, 21).

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.

The shareholders collectively could choose to vote down the resolution of the donation made or individually choose to divest holdings for personal, political beliefs.

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.

"“Money power does influence democracy in a big way. One wonders whether the debt to democracy has ended in a virtual death of democracy!” " - Arun Agrawal to The Quint. Here’s a Look at the Main Arguments:

1. Right to Know Where Your Money Is Going

Publicly listed companies function by inviting and accepting funds from the general public, making the latter an important stakeholder with a real interest in the game.

“Public companies ought to have standards of transparency and accountability in corporate governance,” reads the petition accessed by The Quint.

Also Read: Are Electoral Bonds Constitutional? Here’s What You Need to Know 

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.”

2. Denying Information Amounts to a Denial of the Right to Free Expression, Personal Liberty

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.

If you knew your money was being invested in a particular political party, you might have withdrawn your investment.

The shareholder should be able to have an option to know about company donations to decide where his/her money will be invested.

3. The Falling Share Price

If too many donations are made, naturally the share price will take a hit.

It is entirely unfair that the shareholder should suffer for the caprices of the promoter/managements decision on their political belief.

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.”

3. Some People Are More Equal: Management Making Decisions for Shareholders is Unjust

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.

Also Read: The Problem With the Supreme Court Order on Electoral Bonds

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.

On what to expect next, Agrawal says on a grim note, “The writs were filed in 2017 and 2018 and should have been taken up early and decided so that democracy is not distorted.”

Also Read: Electoral Bonds: No Stay by SC, Parties to Reveal Donations to EC

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