Financial Express
Priyansh VermaPiyush ShuklaRajesh Kurup

Lawyers said electoral trusts allow companies to maintain an arm’s length distance while donating to political parties, at least in terms of perception.

Corporate donations to political parties may slow down a bit as a result of the scrapping of the electoral bonds scheme by the Supreme Court, but Indian companies may revert to electoral trusts, lawyers and analysts said.

Lawyers said electoral trusts allow companies to maintain an arm’s length distance while donating to political parties, at least in terms of perception. This is because trusts are supposed to be independent of the companies that create them under the law. In 2013, the United Progressive Alliance government allowed the setting up of electoral trusts to establish electoral trusts, which enable the pooling of funds, allowing multiple companies or entities to make political contributions through a single trust.

According to Election Commission of India (ECI) data, there are 18 electoral trusts in India, some of which count large corporate houses as their biggest donors.

A source at Tata Group-backed Progressive Electoral Trust said: “After the electoral bond scheme was unveiled, many wondered if the trusts created for political funding would be relevant any longer. But they remained relevant. The trusts have a formula-based approach to contribute funds to political parties. All the Tata companies donate to our trust, and based on the parties’ representation in Parliament, the funds get distributed.

“The trusts are required to maintain counterfoils with details such as name of contributor and her PAN number. Therefore, they are more transparent than the electoral bonds,” said Sanjeev Kumar, Partner, Luthra and Luthra.

However, most people who FE spoke to said that in case of multiple contributions to multiple beneficiary parties by a trust, it might still be difficult to identify who contributed how much to each party, especially since the audit and contribution reports are not public documents.

Therefore, use of unaccounted funds might continue to be rampant to meet “political expenses” that aren’t legitimate, unless the systemic loopholes are plugged, sources said.

They also called for a robust, transparent system for pooling and distribution of electoral funds.

he apex court while holding electoral bonds “unconstitutional” also reinstated a provision of the Companies Act, 2013, which states that only profitable companies can make political donations. This would make it a little more difficult for businesses and firms to camouflage their donations to political parties of their choice, but they might still find ways to route the funds without leaving a trail, the sources said.

As per section 182(1) of the Companies Act, companies’ contributions to political parties are capped at 7.5% of their average profits during the past three financial years. The electoral bonds due to the anonymity it involved, virtually allowed firms to breach this cap, itself very liberal if one goes by the ceiling on electoral expenses prescribed by the Election Commission. “The SC judgement has removed the provision for unlimited political contribution by even loss-making companies,” Manmeet Kaur, Partner, Karanjawala & Co., noted.

According to the Representation of Peoples Act (RoPA), political parties are entitled to receive funding, but any contribution above Rs. 20,000 would need to be disclosed, else the party would not be entitled to tax relief under the Income Tax Act on such amounts.

Shriram Subramanian, founder, InGovern Research Services, said: “The disclosure of corporate names (post-SC ruling) will be damaging and unfortunate. Companies may circumvent disclosure by using intermediary agencies who will pay the political parties.”

A report by Association for Democratic Reforms (ADR) said that the total funds received by national political parries via donations above Rs 20,000 during FY23 were a little over Rs 850 crore, far lower than the funds received by parties via electoral bonds. There were 12,167 such donations in the year.

Of the total funds received via declared contributions above Rs 20,000, BJP received Rs 719.9 crore, while the CongressAam Aadmi Party, Communist Party of India (M), National People’s Party (NPEP) collectively received Rs 130.6 crore. In contrast, the BJP received Rs 6,566.11 crore through electoral bonds till FY23-end, and the Congress Rs 1,123.29 crore.

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