With electoral bond data being released, will corporates disclose details of their purchases to their shareholders?

Six years after the electoral bonds scheme was launched as a mechanism to cleanse the system of political funding, the Supreme Court held it as unconstitutional and manifestly arbitrary, mandating the disclosure of all details of bond purchases and their redemptions by political parties. In the process, this has brought donations by corporate houses to political parties out in the open.

An analysis by the Association for Democratic Reforms (ADR), a non-profit organisation, which was also one of the petitioners in the case, revealed that out of the total 18,871 bonds worth Rs 12,155.51 crore purchased between April 12, 2019, and February 15, 2024, 16,631 were bought by corporate and business houses and 2,240 bonds by individuals.

In all, corporate and business houses purchased electoral bonds worth Rs 11,780.0297 crore or 96.91% of the total, while individuals bought bonds worth Rs 375.48 crore or 3.09% of the entire pool.

The top 25 corporate donors come from diverse sectors, including lottery, infrastructure, real estate, telecom, health, and pharma. Lottery firm Future Gaming and Hotel Services was the largest buyer; it purchased bonds worth `1,368 crore, followed by Megha Engineering & Infrastructures that spent `966 crore on bonds, and Qwik Supply Chain, which bought bonds worth `410 crore.

Other big corporate players that purchased electoral bonds include Vedanta Ltd (Rs 400.6 crore), Haldia Energy (Rs 377 crore), Essel Mining and Industries (`224.5 crore), Western UP Power Transmission Company (Rs 220 crore), Bharti Airtel (Rs 198 crore) and DLF Commercial Developers (Rs 130 crore).

The electoral bonds scheme was announced in the Union Budget 2017-18 by the then finance minister Arun Jaitley. The bonds could be purchased for any value as bearer instruments through the State Bank of India, without revealing the name of the donor, thereby enabling anonymity.

While speculation abounds over possible quid pro quo, experts point out that the donors followed the due process for donating to political parties via these bonds.

“While electoral bonds have suddenly come into the eye of the storm, this whole subject is not new. Political parties have always required money for their work and also to fund elections. In the past, sources of money have been primarily dubious and the country has tried to channelise cleaner, more transparent and more accountable funding of political parties. This is done across the world,” says Rishi Agrawal, Co-Founder and CEO of compliance management software firm TeamLease RegTech.

He points out that even in the past, the Companies Act allowed donations by companies to political parties, although it was subject to certain conditions and contained a maximum ceiling of 7.5% of average profits of the previous three years. Moreover, it had to be approved by the board of directors of the company and had to be disclosed in the P&L accounts. A penalty as high as five times the donated amount could be levied in case of non-disclosure by the company.

Now, with the veil of anonymity lifted from these bonds and many of their purchasers being listed companies, it remains to be seen how corporates go about making disclosures to shareholders on these purchases. Some firms had already reported these bond purchases under miscellaneous expenses in their annual reports.

“Many companies that purchased electoral bonds disclosed it in their profit and loss statements in headings such as political donations or notes to accounts or hid it under other headings. There are also companies that did not disclose the

Purchase of these bonds. With the data now public, all companies are likely to disclose the purchases in their annual reports this financial year,” said Shriram Subramanian, Founder & MD of proxy advisory firm InGovern.

For shareholders, annual reports in the coming months could be worth scrutinising to assess the quality of these disclosures.