One such opaque scheme involved the use of small, low-profile group companies as pass-throughs, as exemplified in the case of Kolkata-based Madanlal Ltd.
Madanlal Ltd purchased electoral bonds worth in total ₹186 crores. The website states that it is part of the MKJ Group and Keventer Group. Two other companies from these groups – MKJ Enterprises and Keventer Foodpark Infra Ltd – separately purchased electoral bonds worth ₹192 crore and ₹195 crore, respectively. Each of these three companies is among the top ten buyers of electoral bonds, but none of their donations appear to be prudently in line with the profits of their underlying companies. The size of Madanlal's mismatch is particularly striking: in 2021-2022, Madanlal's total revenues were only ₹3 crores.
The annual reports do not reveal where the money to buy electoral bonds came from; an email questionnaire sent to the company also went unanswered. What is known is that Madanlal bought his bonds on May 8 and 10, 2019, just before the last two phases of the 2019 general elections – which saw 118 seats, including 17 from West Bengal, voted on May 12 and May 19 – took place.
A director of Madanlal is Radhe Shyam Khetan, who is also a director at MKJ Enterprises. Data from the Ministry of Corporate Affairs shows that links can also be traced back to the Keventer Group through various companies, or their directors. With the electoral bond system, these connections became more important.
Without revelations
Before 2017, the Companies Act allowed companies to donate to political parties, but within certain limits. Companies could donate a maximum of 7.5% of the three-year average of their net profit. In fact, companies had to be cumulatively profitable over a three-year period in order to make donations. Companies also had to provide the names of the political parties they had donated to. When the electoral bond scheme was launched, changes through the 2017 Finance Act removed both profitability and disclosure requirements.
That's what brought companies like Madanlal into the game. Between 2016-17 and 2019-20, Madanlal posted a cumulative net loss of ₹2.62 million. Under the old regime, Madanlal could not have made donations to any political party. But under the electoral bond scheme, it could donate from its own resources. It could also donate on behalf of others without restriction, which it apparently did.
The first indication is the sharp increase in revenues, the timing of which overlaps with the launch of the electoral bond program on March 1, 2018. Madanlal's revenues rose from ₹20 crore in 2016-17 to ₹150 crore in 2018-19, and upto ₹297 crore in 2019-20, before crashing ₹3 crore in 2021-2022. In the annual reports, the large increases in turnover are recognized as 'other operating income' and no further explanation is given. Interestingly, even as revenues soared, profits barely rose. Its 2019-2020 annual report states that it is “primarily engaged in trading in stainless steel and related products”.
Madanlal Ltd had purchased the election bonds in May 2019. Under the old disclosure regime, it would have found a mention in the company's 2019-2020 statements. But the company's 2019-2020 annual report is silent on these purchases, as there was no legal obligation to do so at the time.
Without limits
If revenues increase but profits remain the same, costs must have increased in parallel, and this is also what we find in Madanlal's case. When 'normal' companies scale up significantly in terms of turnover, accompanied by an increase in expenses, it is usually because they have had to purchase more raw materials or hire more people to earn that extra income. These are the additional costs that come with doing more business.
In Madanlal's case, however, almost all the increase in expenditure came from just one item, tucked under the innocuous heading: 'other expenditure'. One of the sub-headings under 'other expenditure' is 'donations', which was 75% of total expenditure in 2017-18, 85% in 2018-19 and 96% in 2019-20.
. interestingly, while the electoral bonds data, starting from April 12, 2019, shows that Madanlal has purchased bonds to the tune of ₹The company's annual reports show that it has spent Rs 186 crore ₹440 crore in 'donations' between 2017-18 and 2019-20. Since the electoral bonds scheme started on March 1, 2018, it is possible that more bonds have been purchased. In both cases, it is not disclosed where Madanlal received the money from.
Like Madanlal, there are several companies whose purchases of electoral bonds do not match their scale of operations and profitability. Of the 1,263 buyers, we were able to match 771 companies with the Ministry of Corporate Affairs database. Of these 771, CMIE had financial data on 329 companies whose purchases of electoral bonds amounted to ₹9,185 crore. For ten of these, electoral bond purchases exceeded their cumulative gains between 2016-17 and 2022-23, which would not have been possible under the older regime.
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