Somasekhar Sundaresan: When law stifles giving and sharing

WITHOUT CONTEMPT

When the law of nature lets its writ loom large, with such infinite wrath as the killer tsunami betrayed, man-made law has to give way. Today, we are at such a juncture.

If a sovereign desires to pick up the pieces and rebuild, rather than be consigned to the rubble of history, it would also need laws that aid reconstruction and remove hurdles. Reconstruction requires a lot of money, a lot quickly.

Sadly, the level of distrust in society of state-managed funds such as the Prime Minister's National Relief Fund is still high. Moreover, how the PM Fund actually deploys resources, and what impact it has after trickling down through several layers to the grassroots, is neither well-known nor blindly trusted.

This is where private initiative to raise funds and undertake relief work plays an important role. While the government could focus on the big picture, non-government organisations (NGOs) could make a greater impact, more dramatically than the government.

In the past one week, several companies have risen to the challenge by committing funds for reconstruction efforts. While some have made donations on their own, others have agreed to match their employees' contributions.

While a lot of money is needed, quite a bit of private money awaits deployment - money that prefers being used directly in the affected areas to being routed through the perceived long trickle of the PM Fund.

But laws hamper the NGOs' ability to raise money quickly. Under Section 293 of the Companies Act, if a public company or its subsidiary desires to donate to charity, it can only donate Rs 50,000, or five per cent of its average net profit for the past three years, whichever is higher.

To donate any higher amount, a company would need shareholders' approval through an ordinary resolution (simple majority vote) passed in a general meeting. The law is the same for donations in kind.

These limits can render corporate donations to a pittance. Surely, shareholders would not mind a reasonably higher amount being donated, without their permission.

The Companies (Donations to National Funds) Act, 1951, which enables donation to funds designated by the central government, but necessitates a special resolution (three-fourth majority vote).

Section 293-B of the Companies Act waives these restrictions for donation to funds relating to national defence. The PM Fund has been notified as a recipient under this section.

Although tsunami relief can be creatively classified as a national defence function, this provision still does not enable contribution of private money to private hands to work at the grassroots.

Holding a general meeting requires at least 21 days' notice, and other preparations included, one needs at least a month. Postal ballots have proven to be far more time-consuming.

Therefore, the earliest time by when private money can be raised for NGO work is end-January 2005, which could prove to be too late for a disaster of this scale.

There is also the Foreign Contribution (Regulation) Act, 1976, which further constricts the ability of well-networked private sector companies to raise funds from foreign sources for relief work.

Accepting "foreign contributions" requires either permission of the central government, or registration with the central government, which again can be time-consuming.

This is a sweeping law. Even Indian companies with more than 51 per cent foreign ownership are defined as "foreign sources".

The provision of any Indian or foreign currency, or foreign shares of other securities by a foreign source, regardless of value, is a "foreign contribution". And so is the provision of any article valued at more than Rs 1,000.

What is needed is quick legislative action in the form of temporary suspension of laws for a limited period of time, wherever the law permits such suspension.

Wherever the law enables government to enhance the permissible limits of donation, the government should dramatically enhance the limits.

And more urgently, a small and focused administrative crack team empowered to grant permissions under all laws administered by various arms of the government, ought to be set up to provide approvals and registrations on a war footing.

(The author is a partner of JSA, Advocates & Solicitors. The views expressed are personal)