Vedanta gave ‘illegal’ political donations in India?
Moneylife Digital Team 27 August 2012

The Vedanta group is known to have violated laws of the land in pursuing its industrial and mining projects across India. While it does not give political donations in the UK and European Union, the Anil Agarwal-led group admitted that it has paid $8.3 million to Indian political parties since 2003

Anil Agarwal-promoted Vedanta Group, which does not give political donations either in the UK or European the Union without a board approval has, however, admitted of paying about $8.3 million to political parties in India since 2003-04. Under Section 3(1)(e) of the Foreign Contributions (Regulation) Act, 1976, “no foreign contribution shall be accepted by any political party or office bearer thereof”, and both Vedanta and those political parties that received donations may be prosecuted. While Vedanta has not provided any name, it may have given donations to all political parties that were in power since 2003.


According to a report in the Financial Express, Vedanta Resources has paid $5.69 million or about Rs28 crore just in the past three years. Quoting the company’s annual report, the newspaper said, Vedanta has paid $8.29 million to political parties since 2003-04, when it got listed on the London Stock Exchange. However, it did not make a single donation during 2006-09”.


“Reportedly, UK-based shareholder advisory group Pirc has advised Vedanta shareholders to withhold votes on its report and accounts at the annual general meeting on 28th August and protest against the practice,” the newspaper said.


Here is what Vedanta says about political donations in its annual report

“The irony of the disclosure should not be lost sight of. The company is not permitted to make such a dubious contribution in the UK and other European countries. However, the company has condescended to contribute to our own political parties for “supporting the political processes... and encourage and strengthen the democratic process!” said EAS Sarma, former Secretary to the Government of India (GoI). Mr Sarma has sent the extracts from Vedanta’s annual report to the Election Commission (EC).


Calling Vedanta’s action as “violation of the laws of the land”, Mr Sarma, requested the EC to consider imposing an outright ban on all such contributions, as is the case with the democracies of Europe.


“Vedanta is known to have violated the laws of the land in pursuing its industrial and mining projects in several states and several of its mining operations have involved serious infringements of the human rights of the local communities. The ruling parties at the Centre and in the states have often abetted Vedanta in committing such illegalities. If that is what the company has implied by saying that the donations are intended to “strengthen the democratic process”, it is certainly a matter that should worry every right thinking citizen in the country,” Mr Sarma said in a letter to VS Sampath, Chief Election Commissioner and HS Brahma and NA Zaidi, both ECs.


There is a public perception that several political parties in the country receive funds in significant amounts from private companies in return for illegal favours granted to them when they are in power. The investigations that are presently in progress on spectrum sale, allotment of captive coal blocks, irregularities in iron ore mining, may have a direct bearing on this.


According to the former secretary, donations to political parties should not amount to blatant corruption and bribery and an affront to the rule of law. Here are the three concerns raised by Mr Sarma in his letter...


1. The Vedanta group is a London-based foreign multinational company and its contributions attract the prohibition envisaged under Sections 3 & 4 of Foreign Contributions (Regulation) Act, 1976 (as amended from time to time). Under Section 3(1)(e), in particular, “no foreign contribution shall be accepted by any political party or office bearer thereof”. This stipulation applies to Vedanta and all other companies controlled by it. As such, both Vedanta and those political parties that have received the donations are liable to prosecution under this Act. ECI should quickly consult the ministry of home affairs on the legal aspects involved.


2. Sections 29B & 29C of the Representation of the People’s Act, 1951 requires that the concerned political parties should make a declaration to ECI on the donations received thus from private companies. ECI should ascertain whether the concerned parties have complied with this.


3. Section 293 A(4) of the Companies Act requires the companies making the donations to political parties to disclose the same with the details explicitly in their respective Profit & Loss Account statements. The ministry of corporate affairs should cause a verification of this and take necessary action in case there is any infringement.


“The concern cited at item (1) above assumes particular relevance in the context of the recent action taken by the ministry of home affairs to cancel the sanctions issued to several NGOs under FCRA on the questionable ground that that they have expressed dissent against dubious projects such as Kudankulam Nuclear Power Project in Tamil Nadu. It will be the height of irony if the government allows the foreign private companies to openly bribe the political parties on one side to facilitate the violation of the laws and the people’s human rights, and on the other side, the same government suppresses the voice of the people against the very same companies’ high-handedness!” Mr Sarma said.


Vedanta’s reputation received a severe blow when it ventured to mine aluminium ore in the Niyamgiri Hills of Odisha, and trampled on the rights of the Dongria Kondh tribe to whom the site is sacred. Several shareholders have sold their shares due to human rights concerns. This includes the Church of England, Joseph Rowntree Charitable Trust, the Marlborough Ethical Fund and Millfield House Foundation. The BP Pension Fund and PGGM (a pension fund from the Netherlands) have also divested their shares. The British and Norwegian governments have both condemned the project, and Martin Currie Investments has also disinvested following pressure from Survival.


For FY12, Vedanta reported a 12.9% growth in its core profits to $4.03 billion buoyed by earnings from recently acquired Cairn India and higher output in zinc, silver, and power. Core profits at $713 million from Cairn, which was acquired in December last year, accounted for most of the increase in group earnings before income, tax, depreciation and amortisation (EBITDA) of Vedanta. However, net profit attributable to the shareholders of the company dropped by over 92% to $59.8 million in FY12 from $770.8 million in the previous fiscal.


By December, Vedanta is expecting to complete group restructuring exercise, which seeks to bring all businesses, except Konkola Copper Mines in Zambia, under the fold of a new entity, Sesa Sterlite, it said.


The new entity will be created through merger of Sterlite Industries and some other subsidiaries including Vedanta Aluminium, Madras Aluminium into Sesa Goa.


ashok sen
1 decade ago
Almost all corporates pay money to political parties prior to every election.It is no secret.Most payments are made in cash,as it is not traceable.

Instead of being hypocrits, both the businessman,and the politician accept that this funding is necessary.Maybe a cap is kept,so that companies do not go berserk in donations - .015% of profits, or some such figure.

The money is to go to a central fund, from where a political party will get a %ge of the money, commensurate with the voting percentage received over the last 5 elections.

I am not postulating any theory. The idea is to make giving money, fighting elactions in a more transparent way.
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