New Firms Skate Past Rules to Inject Crores into Indian Political Funding Through Electoral Bonds

Indian political funding practices have come under scrutiny as recent data reveals a questionable pattern among some of the country’s newly incorporated firms. An examination of the purchase of electoral bonds—a form of political donation permitted under Indian law—shows that at least 20 companies bought electoral bonds within three years of their establishment, an act explicitly proscribed and subject to penal consequences.

The electoral bonds in question amount to a staggering sum of approximately ₹103 crore, and the companies involved represent a wide range of incorporation dates. Notably, five of these enterprises were less than a year old, seven had marked their first anniversary, and eight were two years into operation when they made their initial electoral bond purchases. The data uncovers a rather perplexing trend—many of these companies were founded during economically tumultuous times, either amidst the 2019 recession or in the midst of the global pandemic, and proceeded to invest heavily in electoral bonds soon after coming into existence.

This contravention traces back to legislative measures instituted almost four decades ago. Initially, the Parliament’s 1985 amendment to Section 293A of the Company Law lifted the blanket prohibition on corporate political contributions, offering a green light with strings attached—one being that companies could not be government-owned, and another that they had to have been operational for at least three years. The latter stipulation persisted through subsequent legal iterations, including Section 182 of the Companies Act, 2013, and its retention in the Finance Act, 2017 amendment, just before the inception of electoral bonds. The 2017 amendment did, however, repeal the previous cap that limited a company’s political donation to 7.5% of its average net profits over the past three financial years.

Evidence of such breaches is clearly shown in Table 1, which lists those 20 firms found purchasing electoral bonds within three years of their inception, detailing the dates of incorporation, first poll bond purchase, gap between the two, and the total value of bonds bought.

While Table 1 illustrates the names and activities of the companies individually, Table 2 offers a city-centric view, revealing that Hyderabad is home to 12 of these entities. Collectively, these 12 companies contributed a total of ₹37.5 crores, a significant proportion of which was secured by the Bharat Rashtra Samithi (BRS), with the remainder distributed among the Telugu Desam Party (TDP), the Congress, and the Bharatiya Janata Party (BJP).

A deep dive into specific cases exposes more unsettling details. Tsharks Infra Developers Private Limited and Tsharks Overseas Education Consultancy Private Limited, both with a 2023 inception date in Hyderabad, quickly directed ₹7.5 crore worth of electoral bonds towards the BRS. HH Iron and Steel Private Limited gave a generous sum of ₹15 crores to the BJP and an additional five crore to the Biju Janata Dal (BJD), skirting the three-year rule by mere days. Moreover, Askus Logistics Private Limited purchased its first bond less than two years post-incorporation, generously donating ₹22 crores among multiple parties.

The implications of this trend are far-reaching and align with concerns previously raised by the Election Commission of India regarding the potential for using such mechanisms to funnel “black money through shell companies.” The Reserve Bank of India, too, warned of the susceptibility of bearer bonds for money laundering purposes.

This list, however, is not exhaustive; it omits recently incorporated firms post-mergers and amalgamations and those not featured in the Ministry of Corporate Affairs records.

The underlying objective of the three-year rule was to deter shell companies from injecting funds into political activities, which seems to be undermined, reflecting a daunting loophole in the system.

As discussions and debates over the role of electoral bonds in political financing continue, these revelations promise to fuel further scrutiny on corporate political contributions and the integrity of electoral funding channels in India.

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