Tales On Disqualification Of Elected Representatives For Government Contracts And The Corporate Camouflage

PROLOGUE

Elections are believed to be manifestations of public conscience and a forerunner to the much hyped method of governance- Democracy.But then those obvious questions pop in: When do these elections get insulated with public manifestations and establish the actual will of the people? Is it when the public do so lately misguided in the selection of their representative by covering-up the quality of the candidate who contest in elections and allowing him to rule the country eventually?Or is it when the actual and accurate information are set out to the public,to make the choice deliberate? If this is a mere academic dialog, all of us would prefer, the second context as our opinion, by virtue of the veil of ignorance. But this is not the answer or reflection we are receiving from the biggest democratic process in our country.

It goes without saying that India has always been on locus for being a country with cultural, religious and linguistic diversities, in enforcing corruption free elections. However these are only apprehended grey areas in the process. In reality there are far more un-fettered delinquencies.The most recent one in that line is the candidate’s ‘corporate camouflage’. The relation between political parties and corporates have been in the limelight for quite some time now. Nevertheless the discussions were unequivocally centered on the issues like, financing of political parties by corporates and corporate funding in election campaignings[1]. The attention was never inits true spirit directed towards the candidates contesting elections with corporate memberships or shares. The Act of 1951[2] is now widely been conversed for not reflecting these perversions happening in the political sphere.

This article is an attempt to unveil the truth about corporate camouflages happening in our elections.

THE ESSENCE OF “CORPORATE CAMOUFLAGE”.

Accountability is an indispensable ingredient in achieving greater well being in any given situation. It hit the top when there is a proper mechanism to accomplish the desired effect. There are several grounds for disqualifying a candidate from being chosen as and for being a member of both Houses of the Parliament and State Legislatures. One prominent ground for disqualification is misusing ones position as elected representative in availing benefits form the State[3]. However, the existing laws are silent on certain misuses, especially when it is done under the cover of a different legal identity other than the legal persona of the candidate himself. There are growing instances where, the candidates who are contesting elections as well as those who are already been elected, use these shadow identities of a different legal or natural person to avail the benefits from government. One such practice is, holding of controlling positions or shares in the corporate entities, and executing contracts with appropriate government.

‘Corporate Camouflage’ therefore, denotes the phenomena where a candidate or an elected member of the house avail the benefits from an appropriate government in the form of government contracts under the veil of a corporate entity; and thereby using it as a cover to evade or defeat the provisions of law.

EXTANT ON DISQUALIFICATION

The prevailing provision on disqualification for government contracts is enumerated under section 9A of chapter III,of the Act of 1951, which is replicated here in extenso:

“CHAPTER III.—Disqualifications for Membership of Parliament and State Legislatures

9A. Disqualification for Government contracts, etc.—A person shall be disqualified if, and for so long as, there subsists a contract entered into by him in the course of his trade or business with the appropriate Government for the supply of goods to, or for the execution of any works undertaken by, that Government.

Explanation.—For the purposes of this section, where a contract has been fully performed by the person by whom it has been entered into with the appropriate Government, the contract shall be deemed not to subsist by reason only of the fact that the Government has not performed its part of the contract either wholly or in part.”

The literal interpretation of the provision provides that, if any person has a government contract for the supply of goods or for the execution of any work in the course of his trade or business and if it is subsisting he shall be disqualified.The quandary here is whether the disqualification contemplated under the section applies to both "pre-existing" and "supervening" contracts alike or impute only supervening contracts. Another aspect of this question would be,whether such contracts need to be in the name of the candidate alone or can it be extended to body corporates where the candidate has controlling positions?

The first question has now been almost settled by the Hon’ble Supreme Court in Election Commission of India vs Bajrang Bahadur Singh and Ors[4]where it was stated that“the disqualifications under Sections 9A and 10 of the Act are akin to the disqualifications contemplated under clauses (a) to (d) of Article 191(1) where the period of disqualification is co-terminus with the currency of the event which renders a person ineligible both for being chosen as or for being a Member of the Legislature. Nonetheless on the acquisition of the disqualification by a legislator, he ceases to be a legislator forthwith by operation of law. However, the cessation of the disqualifying factor cannot put such a person back in the legislature without his being elected once again, of course such person is entitled to contest any election under the R.P. Act, the moment the disqualifying factor ceases to exist as the disqualification is co-terminus with the disqualifying event.”[5]

However, the question pertaining to the scope of such disqualification as to whether it can be attracted to a third party contract (considering the exceptions to the rule of ‘privity of contract’ prevailing in India), where such contract is executed for the benefit of the candidate (returned), remains open with Judiciary swaying and conditioning its opinion with an ‘yes or no’ retorts on the basis of the evidences elevated before it; Meanwhile the legislature preserve it’s pious silence.

Before going any further on these lines, it is pertinent to have an idea about the law in question.India has integrated election laws under the heading of Representation of the People Act, 1950 for the administration of elections and 1951 for the conduct of elections, supplemented with the Registration of Electors Rules, 1960 and Conduct of Elections Rules, 1961 respectively.

The original provision which governed the subject of disqualification was section 7(d) of the Representation of the People Act, 1951, where it was stated that,

“A person shall be disqualified for being chosen as, and for being, a member of either House of Parliament or of the Legislative Assembly or Legislative Council of a State........... d) if, whether by himself or by any person or body of persons in trust for him or for his benefit or on his account, he has any share of interest in a contract for the supply of goods to, or for the execution of any works or the performance of any services undertaken by the appropriate Government.”

Section 7(d) of the Act was amended in the year 1958 and later the original chapter III was substituted in its entirety by the Representation of the people (amendment) Act, 1966[6], substituting with section 9A.

Under the original provision, it was possible to disqualify a person from contesting election or from being the member of parliament or state legislature as the case may be, if there is a contract entered by the candidate himself or by any person or body of persons in trust on behalf of the candidate or for his benefit or if he has any share or interest in the contract so executed with the appropriate government. The Legislative intentions in substituting section 7 (d) were believed to be legitimate at that time[7], considering the economy of India back then. However situations have changed considerably over time.

JUDICIAL MIND ON CORPORATE CAMOUFLAGES

In Magai Lal vs K.R.Pawarand another[8], an appeal was filed by Sh. Mangi Lal Joshi under Section 116A of the Act of 1951 against dismissing his election petition under Section 81 of the Act challenging the election of the respondent Sh. Krishnaji Rao Pawar, to the Legislative Assembly of Madhya Pradesh from the General-Dewas Assembly Constituency No. 256 in the bye-election held in June 1968.One of the contention raised by the appellant was that the respondent had a subsisting contract with the State within the scope of Section 9A of the Act of 1951 and therefore appealed the Hon’ble Court to disqualify the candidate from election. The allegations for disqualification of the respondent was on the ground that he was the Chairman of the Board of Directors of the Dewas Senior Electric Supply Company Private Limited and that the Company has executed a contract for the generation and supply of electricity to the State Government. While answering the question of disqualification of the returned candidate,the Hon’ble Supreme Court has observed that section 9A“[o]nly covers contracts which have been entered into by a person in the course of his trade or business with the appropriate Government for the supply of goods to or for the execution of any works undertaken by that Government……. It is not possible to describe the business of the Company to be the trade or business of the Chairman of the Board of Directors. A Company registered under the Indian Companies Act, it is settled beyond dispute, is a separate entity distinct from its shareholders. The Chairman of the Board of Directors of the Company while functioning as such cannot be said to be engaged in his trade or business as contemplated by Section 9A of the Ac[t].”

Poignantly the ratio was derived by relying on the decision of the Madhya Pradesh High Court in Satya Prakash v. Bashir Ahmed Qureshi[9], where the question was disputed under section 7(d) of the Act of 1951. The Hon’ble High Court observed therein that the language of Section 7(d) cannot be attracted for a mere beneficial interest in a contract entered into by some other person or body on behalf of the candidate. Therefore the disqualification cannot be extended to the shareholder of a company which had entered into a contract with the Government. The rationale was grounded on the basis that the scope of Section 7(d) had been narrowed down after the Amendment in 1958, in order to restrict the disqualification to cases where the person himself had entered into a contract and thereby excluding all other contracts relating to "the performance of any services undertaken by" the Government from the mischief of the clause.[10]

Recently a matter of like nature was disputed[11] before the Allahabad High Court (Lucknow Bench), where the petitioner of that case Sh. Uma Shankar Singh(a sitting MLA of Uttar Pradesh Legislative Assembly from Rasara (Ballia)) had executed government contracts in the disguise of one C.S. Infra construction Company Ltd. which was earlier functioning as a firm in the name of 'Chhatra Shakti Construction Company' with the sh. Singh as its sole proprietor.  From the narratives of the case it is evident that, Sh. Uma Shankar Singh prior to the elections converted his sole proprietorship/ firm to a company to evade the disqualification and sought the protection of the ruling of Supreme Court in aforesaid and like judgments.

Unfortunately, these are not rare or single instances where such camouflages are used to surpass disqualification. According to the press release report on Register of Members’ Interest of Rajya Sabha MPs by the Association of Democratic Reforms (ADR)[12], it has been highlighted that, out of 170 MPs participated in the survey, 66MPs have declared that they have financial interest under Directorship, shareholding etc., 18 MPs have affirmed that they have some financial interest in the form of Remunerative Directorship of a company. Out of the total number of 66 MPs, 18.8 percentage of them have controlling positions in the companies. However there was no particular mentioning about the nature of business undertaken by the company to scrutinise whether they are running on any government contracts.But then, it is an unwritten fact that all the big and small companies round up the business by winning government contracts as it provides branding and platforms to the companies.Nevertheless, the list is not exhaustive as the report itself says that it is limited only to Rajya Sabha MPs. Besides that 75 MPs and others including MLAs from state legislatures were also not part of the survey. But howsoever little the indications may be,it is enough to establish the truth so well that the corporate camouflages are buying the idea of well-informed elections in India.

The only declaration that shall be furnished by the political parties under the Act of 1951 is regarding the donation received by them from the companies in each financial year[13]. The requirement that every candidate contesting the election shall declare their assets, liabilities and pending criminal cases occurred as a result of a landmark judgement in 2001 where the court have observed that “a candidate’s background should not be kept in the dark as it is not in the interest of democracy.”[14]Consequently, Rule 4A was added to the Conduct of Election Rules, 1961, mandating the candidate to file an affidavit[15] stating pending cases and charges along with an additional affidavit[16] declaring the asset and liabilities. Option 7 (iii) of Form 26 demands a declaration on details of investment in bonds, debentures/shares and units in companies/mutual funds and others.However, the current law cushions the punishment by making the maximum sentence for false declaration or concealing of information(which is categorised under electoral offences)very nominal (imprisonment up to six months or fine or rarely both)[17]. Needless to say, there is no legal compulsion to disclose the candidate’s directorship/ chairmanship in any companies or the nature of the business undertaken.

EPILOGUE TO THE PROBLEM

India has modeled her election laws by aspiring perfection from nook and crack of the world around. However, failed miserably in many occasions while embracing the philosophies of accountability and safeguarding the trust of public in the democratic process.  But these perspectives can be reconciled. There are some best practices found in other jurisdictions which can curb the glitches that defeat our drive towards corruption free elections.

The Commonwealth of Australia has envisioned[18], that any person who has any direct or indirect pecuniary interest in any agreement with the Public Service of the Commonwealth as a member and in common with the other members of an incorporated company shall be incapable of being chosen or of sitting as a senator or a member of the House of Representatives. Similarly the Canadian laws [19]debars a person to be a member of the House of Commons and to sit or vote,who undertakes or executes any contract or agreement with or for the Government of Canada on behalf of the Crown either personally or by the interposition of any trustee or third party.

Laws in these lines, if enacted in India can be an antidote to the situation like corporate camouflages. As discussed earlier presently there is no mechanism in India, to mandate a person from not holding any managerial positions in a company or corporation other than Government undertakings, before contesting elections. In the absence of any such legal frame work for ensuring accountability of public figures like MPs and MLAs,evoking the true spirit of democracy will remain a myth.

The juris doctrines are reserved about bringing back an old (repealed) law into action. However under Section 6 (a) of the General Clauses Act, 1897, the power of the legislature is not classified in reviving an old law with a new proposition for addressing the changed circumstances.

The prevailing section 10 of the Act of 1951 is incorporated to dress up the situation when a candidate is holding positions in a company or corporations where the appropriate government has twenty five percent share in the capital of such company. However, the provision is silent about private companies who undertakes government contracts. Considering the recent trend in preferring private entities for commissioning government contacts on the basis of their overall business performance as well as execution capabilities, it is pertinent to include the holdings of these entities under the sway of current provisions.

The regulation under Section 10 of the Act of 1951, if extended to private entities, with an additional regulation to bring to naught the third party interpositionsincluding, artificial legal entities under Section 9A of the Act,would remedy the camouflage issues.

Abreakthrough in the provisions dealing with disqualification is highly a quintessential need of the time, as the current amendments to company law[20] has given a leeway for One Person Companies. If the ruling of the Supreme Court and Section 9A of the Act of 1951 outlast as it is, the desideratum of corruption free elections in Indiawill be jeopardised, as presently the law itself is acting as a torchbearer for these camouflages.

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[1]Samya Chatterjee and Niranjan Sahoo “Corporate Funding of Elections:The Strengths and Flaws” ORF ISSUE BRIEF; February 2014; M.K. Venu “Time to Institutionalise Funding of Political Parties” The Wire- 17/04/2016 (https://thewire.in/29984/time-to-institutionalise-funding-of-political-parties/) E BRIEF # 69

[2]Representation of the People Act, 1951

[3]Article 103(1) (a) and 191(1) (a) of Indian Constitution, Section 9A &10 Representation of the People Act, 1951.

[4](2015) 12 SCC 570

[5] Para 34,38, (2015) 12 SCC 570

[6]page no.438, http://lawmin.nic.in/legislative/textofcentralacts/1966.pdf

[7]Prakash Khandre v. Dr. Vijay Kumar Khandre & Others, (2002) 5 SCC 568

[8]Para. 9,AIR 1971 SC 1943

[9]AIR1963MP316

[10]Para 8,AIR1963MP316

[11] Uma Shanker Singh vs.Principal Secretary to his Excellency the Governor of U.P. Lucknow and Ors.MANU/UP/0799/2015, 2015(5) ALJ 225. The matter is now referred and pending before Hon’ble Election Commission of India for further decision.

[12]Winners Lok Sabha 2014”Analysis of Criminal and Financial background details of winners” http://adrindia.org/research-and-report/election-watch/lok-sabha/2014/lok-sabha-2014-winners-analysis-criminal-and-finan

[13]Representation of the People Act, 1951, Section 29C

[14] Union Of India (UOI) V. Association For Democratic Reforms And Another; With People's Union For Civil Liberties (PUCL) And Another V. Union Of India (UOI) And Another, 2002 AIR 2112.

[15] Form 26 appended to Conduct of Election Rules, 1961

[16] Order dated March 27, 2003 of Election Commission of India, subsequently amended and modified in August 2012.

[17] Representation of the People Act, 1951,Section 33A read with 125A

[18] Commonwealth of Australia Constitution Act, 1900,Section 44- Disqualification.

[19] Parliament of Canada Act (R.S.C., 1985, c. P-1),Section 34 Division B-Conflict of Interest; http://laws-lois.justice.gc.ca/eng/acts/p-1/ which was subsequently replaced by an amendment in 2004.

[20]Companies Act, 2013, Section 2(62)