One such opaque arrangement involved the use of small, nondescript group companies as pass-throughs, as the case of Kolkata-based Madanlal Ltd shows.
Madanlal Ltd bought electoral bonds worth a total of ₹186 crore. Its website says it’s a part of the MKJ Group and Keventer Group. Two other companies of these groups—MKJ Enterprises and Keventer Foodpark Infra Ltd—separately bought electoral bonds worth ₹192 crore and ₹195 crore, respectively. Each of these three firms are among the top 10 buyers of electoral bonds, but none of their donations seem to be prudently aligned with their underlying businesses’ profits. Madanlal’s extent of disproportion is especially glaring—in 2021-22, its total income was just ₹3 crore.
Its annual reports don’t disclose where the money to buy electoral bonds came from; an email questionnaire sent to the company also remained unanswered. What is known is that Madanlal bought its bonds on 8 and 10 May 2019, right before the last two stages of the 2019 general elections—that saw voting for 118 seats, including 17 from West Bengal—took place on 12 May and 19 May.
A director of Madanlal is Radhe Shyam Khetan, who is also a director in MKJ Enterprises. Data from the Ministry of Corporate Affairs shows that through various companies, or directors therein, links can also be traced to the Keventer Group. With the electoral bond scheme, these connections started mattering more.
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Without disclosures
Before 2017, the Companies Act allowed companies to donate to political parties, but within limits. Companies could donate up to 7.5% of the three-year average of their net profit. Effectively, companies needed to be cumulatively profitable over three years to be able to make donations. Companies also had to specify the names of the political parties to which they had donated. When the electoral bonds scheme was launched, amendments through the Finance Act, 2017, did away with both the profitability and disclosure requirements.
Which is what brought companies like Madanlal into play. Between 2016-17 and 2019-20, Madanlal posted a cumulative net loss of ₹2.62 crore. Under the old regime, Madanlal could not have made donations to any political party. But under the electoral bonds scheme, it could donate using its own funds. It could also donate on behalf of others, without any limits, which it seemingly did.
The first indication is the sharp rise in its revenues, the timing of which overlaps with the launch of the electoral bonds scheme on 1 March, 2018. Madanlal’s revenues jumped from ₹20 crore in 2016-17 to ₹150 crore in 2018-19, and to ₹297 crore in 2019-20, before crashing to ₹3 crore in 2021-22. In its annual reports, the big revenue jumps are recognized as “other operating income” and no further explanation is provided. Interestingly, even as revenues soared, profits barely budged. Its 2019-20 annual report, says it is “primarily engaged in trading in stainless steel and allied products”.
Madanlal Ltd had purchased the electoral bonds in May 2019. In the old disclosure regime, it would have found a mention in the company’s 2019-20 statements. But the company’s 2019-20 annual report is silent on these purchases, as there was no legal requirement to do so by that time.
Without limits
If revenues soar, but profits remain flat, expenses must have risen in parallel, and this is what we find in Madanlal’s case, too. When ‘normal’ companies scale sharply in terms of revenues, accompanied by a bump in expenditure, it is typically because they have had to buy more raw materials, or hire more people to earn those extra revenues. This is the extra cost of doing more business.
In Madanlal’s case though, almost all the jump in its expenses came from just one item, tucked away under the innocuous head, ‘other expenditure’. One of the sub-heads under ‘other expenditure’ is ‘donations’, which amounted to 75% of total expenditure in 2017-18, 85% in 2018-19, and 96% in 2019-20.
More interestingly, while the electoral bonds data, which starts from 12 April 2019, shows Madanlal bought bonds amounting to ₹186 crore, the company’s annual reports show it spent ₹440 crore on ‘donations’ between 2017-18 and 2019-20. Given that the electoral bonds scheme started on 1 March 2018, it is possible that more bonds were purchased. In either case, where Madanlal received the money from is not disclosed.
Like Madanlal, there are several companies whose purchases of electoral bonds show a mismatch with their running scale of operations and profitability. Of the 1,263 buyers, we were able to match 771 companies with the database of the corporate affairs ministry database. Of these 771, CMIE had financial data for 329 companies whose electoral bond purchases amounted to ₹9,185 crore. For 10 of those, electoral bond purchases exceeded their cumulative profit between 2016-17 and 2022-23, which wouldn’t have been possible in the older regime.
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