A parliamentary standing committee has recommended raising the limit of donations a company can make to the political parties in a year from 5 percent to 7.5 percent of the average net profits in three immediate past financial years.

It said the limit needed to be raised "in view the fact that the number of political parties in the country has increased and such donations are not made every financial year."

The committee headed by former finance minister Yashwant Sinha gave the suggestion as part of its report submitted to parliament on Tuesday on the scrutiny of the Companies Bill, 2009 brought by the government based on a concept paper of a panel headed y J J Irani of Tata Sons for a new comprehensive compact law, replacing the present law amended seven times.

It also suggested that the contributions should be limited to the political parties "registered" with the Election Commission and sought removal of a sub-clause for contributions to "any person for a political purpose" as it has scope of misuse.

On another provision empowering the board of directors of a company to donate to charitable funds in excess of 5 percent of net profits of last three years, the committee wants a cap on such contributions and that too only with the consent of shareholders by a special resolution.

Also, the committee says such donations should go to only the "bona fide" charitable institutions that "have neither attracted any restraints from any regulatory authorities, including the Revenue Department of Government, in the past nor have defaulted in filing the requisite annual returns and statements with the Government."

The Committee has also sought restoration of the existing provision in the present law regarding contributions made to the National Defence Fund. It has been omitted without any justification, the committee underlined.
The Bill that will now come up for discussion and passage in the next winter session proposed from November 8 provides for liberal and speedy incorporation of companies, including one-person company and stringent provisions to curb misuse or diversion of the company funds for non bona fide purposes.

According to the Committee report, the government has accepted its suggestions in 500 cases and even come out with revised provisions in 125 cases.

The Bill's prime purpose is to modify the Companies Act of 1956 to be in consonance with the changes in the national and international economy, so as to make it compact, deleting the provisions that became redundant over time and by regrouping scattered provisions on specific subjects.

It also re-writes various provisions of the Act to enable easy interpretation, delinks the procedural aspects from the substantive law and provides greater flexibility in rule making to enable adaptation to the changing economic and technical environment. The Bill provides a framework for responsible and accountable self-regulation obviating the government approval-based regime and has provisions to protect interests of stakeholders and investors, including small investors and facilitate speedy winding up process based on international practices. Only those running the companies can vouch that it is very easy to set up a company but too cumbersome, complicated and time-consuming procedure if one wants to wind up a company in India.