The Electoral Bond Fallout: Unmasking the Corporate-Political Nexus

The Electoral Bond Scheme (EBS) remains a subject of debate since the Apex Court struck it down in the case of Association for Democratic Reforms & Anr. v. Union of India & Ors (ADR case). The EBS diluted restrictions placed on corporate political financing and permitted anonymous donations, enabling big businesses to enter into a barter-like arrangement with political parties, particularly the government. Over two years since the judgement, this regulatory vacuum continues to be unaddressed, despite the increment of corporate money into the political system.

The EBS was introduced in the Parliament with the intention of “cleansing the system of political funding in India” and to bring about “greater transparency and accountability”. However, despite its lofty claims, the EBS failed to meet its objectives and left the core problems unaddressed. It weakened the existing corporate transparency safeguards, rendering the framework ineffective and fruitless.

Corporate Governance Concerns Arising from the EBS

1. Transparency and Accountability Issues

The final amendment to Section 182 of the Companies Act 2013 diluted disclosure requirements. It mandated that only the contributed amount be disclosed to shareholders, rather than the identity of the donee and the particulars of each donation. This allowed the management to veil critical contributions, undermining accountability since shareholders and investors could no longer oversee how the company’s funds were utilized. This led to an increase in unchecked misuse of managerial power, fostering cronyism and influence peddling.

For instance, a company could influence the government through donations to bypass environmental regulations or quality checks while allotting a construction project. It also risked allowing the management to secure personal gains over corporate interests.

1. Facilitating Money Laundering

The EBS raised concerns regarding money laundering as it allowed anonymous donations and removed the cap on corporate donations. The data released by the Election Commission suggested that the shell companies, mostly with no significant business operations or income, donated crores via electoral bonds. This raised red flags about the actual source of funds. Additionally, diluting the checks against the origin of funds through layered corporate structures or opaque trusts allows foreign or illicit domestic money to enter the Indian electoral system.

1. Quid Pro Quo and Bartering Arrangement

The EBS also facilitated quid pro quo and barter-like arrangements between political parties and corporations. Companies could donate substantial amounts to ruling parties in exchange for favourable policies, project allocation, license grants, or regulatory leniency, thereby fostering corruption. For example, Greenko, a renewable energy group, donated a significant amount between April 2022 and November 2023, which coincided with its signing a four-year agreement with the Telangana government to host a Formula E car race. When Greenko exited the agreement prematurely, no action was pursued against them, while donations continued.

Post-Judgement Developments: Litigation After The ADR Case

Following the judgement, the attempts to extend judicial scrutiny over the scheme’s fallout have largely failed. In August 2024, the then Chief Justice of India, Hon’ble Justice D.Y. Chandrachud, declined the plea to seek a court-monitored Special Investigation Team (SIT) probe into alleged quid pro quo arrangements between corporates, political parties and investigating agencies. In September 2024, the apex court dismissed review petitions against the February 2024 judgment by finding no error apparent on the face of the record. Hence, both these orders have effectively closed the door on further judicial reconsideration, leaving the reform to the regulatory bodies and legislature.

Ordinary criminal remedies which the court left open have fared no better: in December 2024, the Karnataka High Court quashed an FIR alleging extortion through electoral bonds as no victim had filed a complaint and subsequently in March 2025, the Delhi High Court questioned a PIL seeking a CBI probe that relied on media reports. This shows the limits of a prosecution as a check because donors rarely complain and strengthen the case for disclosure.

Impact of the Decision in ADR Case: Where the Money Went Next

Following the Apex Court’s judgement in the ADR case, electoral trusts witnessed a significant surge in funding. Approximately three-fourths of the funding (₹797.1 crore) received by the Prudent Electoral Trust in FY 23-24 came after the ADR decision. Electoral trusts are companies registered under Section 25 of the Companies Act 1956 (corresponding to Section 8 of the Companies Act 2013) for disbursing funds to political parties.

With the surge in funding through electoral trusts, the objectives of the ADR decision in addressing problems with corporate political funding have arguably been rendered counter-productive. Although trusts offer greater transparency than bonds by making donation-related information public, they become ineffective when multiple donors and parties are involved. The system was incompetent, enabling the public to trace a company’s donation to a particular political party, thereby subverting accountability. Furthermore, trusts lack appropriate anti-money laundering (AML) mechanisms, unlike KYC norms applicable to bonds, which augmented corporate governance failures by facilitating unregulated money laundering and corruption.

Thus, the existing regulatory framework governing corporate donations is inadequate to address the associated problems.

SUGGESTIONS FOR REFORMS

1. Stricter Transparency Measures

The ADR decision reinstated the old Section 182 of the Companies Act 2013 (prior to its 2017 amendment), which mandated disclosures of both the amount donated and the name of the political party in a company’s profit and loss account. While this is a positive step towards enhanced transparency, profit and loss entries are not easily searchable or comparable across companies. Therefore, stricter measures like a dedicated digital public repository containing information like the amount donated, the recipient political party, and the purpose of the donation must be maintained to ensure greater accountability. The public repository must be maintained by an independent body to ensure neutrality.

It would allow companies to shift from “Corporate Social Responsibility” (CSR) towards “Corporate Political Responsibility” (CPR)- a concept that requires businesses not only to disclose their political contributions but also to vouch for environmentally and socially beneficial policies. CPR can be enforced through appropriate amendments to the Companies Act, mandating disclosures akin to CSR reports to be published by the company. A possible objection is donor privacy, but the disclosure sought concerns corporate funds in which shareholders have a stake, not political choices of individual citizens.

1. Application of Stringent AML Measures

Corporate political funding, while a legitimate avenue for political participation, encompasses severe money laundering risks. Although the reinstated Section 182 restricts loss-making entities from donating by requiring, firstly, that donor companies have been in existence for three financial years and, secondly, that donations be limited to 7.5% of net profits, this alone is insufficient to prevent illicit activities.

To improve transparency in political funding, it is essential not only to verify the accountability of donations but also to scrutinise the legitimacy of their sources. For example, Suspicious Transaction Reporting (STR) should be made mandatory to ensure that any unusual or potentially illegal transaction, regardless of the amount, is flagged and reported to the Financial Intelligence Unit-India (FIU-IND) within seven working days. This has already been adopted in other financial sectors.

Furthermore, electoral trust should also be included in the Cash Transaction Reporting (CTR) requirements for cash donations exceeding 10 lakhs. These basic checks should prompt Enhanced Due Diligence (EDD) in high-risk situations, such as donations involving Politically Exposed Persons (PEPs) or indications of atypical funding behaviour. This would significantly reduce the risk of money laundering.

1. Imposing Checks and Balances and Penalisation for Non-Compliance

Robust checks and balances must be imposed on management actions. A shareholder resolution in the form of a special resolution can be mandated to ensure that shareholders are informed and approve of the company’s political contributions. Political donations are discretionary, non-business expenditure, so they should require the same supermajority the Companies Act 2013 requires for decisions that materially affect shareholders; this also prevents management or a controlling shareholder from authorising donations that minority shareholders oppose. Additionally, a committee of independent directors can be tasked with the duty to frame and oversee the company’s policy on political spending in alignment with both managerial goals and shareholder expectations. Furthermore, strict penalties must be enforced for non-compliance. Drawing from the UK’s model under the Political Parties, Elections and Referendums Act 2000, India should impose criminal liability on company officers and political party treasurers.

Conclusion

India continues to lack a formal mechanism to regulate lobbying, unlike the Lobbying Disclosure Act 1995 of the United States. The EBS left corporate influence in politics unchecked by permitting unlimited donations, and facilitated money laundering and corruption in the system. The Supreme Court’s dismissal of the review petition and subsequent refusal of a court-monitored SIT probe marked the end of the Supreme Court’s scrutiny. However, such an end could not stop the underlying issue: FY 2024-25 data highlights that the corporate money flowing through electoral trusts has nearly tripled the previous year’s volume.

The striking down of the EBS in the ADR case was a significant step toward addressing these issues, as it reinstated earlier mechanisms that regulated corporate political funding. However, the pre-existing mechanisms themselves require substantial reforms. This article proposes various key reforms, including the establishment of a real-time digital public repository, stringent AML measures for trust-routed donations and enhanced shareholder oversight, to restore and reinforce the corporate governance framework of the country.