Without Disclosures

BEFORE 2017, the Companies Act allowed companies to donate to political parties, but within limits. Companies could donate up to 7.5% of the three-year average of their net profit. Effectively, companies needed to be cumulatively profitable over three years to be able to donate. They also had to specify the names of parties to which they had donated. The electoral bonds scheme did away with both profitability and disclosure requirements.

It brought companies like Madanlal into play. Between 2016-17 and 2019-20, the firm posted a cumulative net loss of ₹2.62 crore. Under the old regime, Madanlal could not have donated to a political party. But the electoral bonds scheme allows it to donate using its own funds, and to donate on behalf of others, without limits, which it possibly did.

The first indication is the sharp rise in its revenues, the timing of which overlaps with the launch of the electoral bonds scheme on 1 March 2018. Madanlal’s revenues increased from ₹20 crore in 2016-17 to ₹150 crore in 2018-19 and to ₹297 crore in 2019-20, before crashing to ₹3 crore in 2021-22. In the annual reports, the big revenue jumps are recognized as “other operating income” and no further explanation is provided. Interestingly, even as revenues soared, profits barely budged. According to Madanlal’s 2019-20 annual report, it is “primarily engaged in trading in stainless steel and allied products”.

Since the electoral bonds were purchased in May 2019, in the old disclosure regime, they would have found a mention in the company’s 2019-20 statements. But the 2019-20 annual report of Madanlal is silent on purchases of electoral bonds, as there was no legal requirement to do so by that time.