Legal views split on disclosure of political donations by India Inc

Before the amendment the Act required a company to disclose any amount contributed to any political party along with the particulars of the amount donated and the name of the receiving party

The implications of the Supreme Court’s verdict on the electoral bonds scheme on India Inc’s annual disclosures about political donations and bond purchase remain unclear, with legal experts divided on the issue.

The apex court in its Thursday order declared the 2017 amendment to Section 182 of the Companies Act, which mandated non-disclosure of particulars on political contributions, as “unconstitutional”.

“Harmonised reading of the SC judgment with constitutional provisions would mean any financial statement of companies would now require a disclosure. This would, however, be applicable to donations made after February 15, 2024, when the SC’s order came into effect,” said Mukesh Butani, founder and managing partner, BMR Legal. 

Prior to the amendment, the Act required companies to disclose any amount contributed to a political party, along with the particulars of the amount donated and the name of the recipient. The Act then also limited the amount a company could donate in a single financial year to 7.5 per cent of the company’s average net profit during the previous three financial years.

Section 182 of the Companies Act was amended through the Finance Act in 2017 and it did away with the cap on the amount that could be donated by a company and also the requirement to disclose the recipient of the donation.

Some experts believe that with Section 182 no longer applicable, companies will have to disclose these contributions in their profit and loss statements for 2023-24, even for donations made before February 15.

Ankit Singhi, partner at Corporate Professionals, advised companies to now remain “mindful of the limit of 7.5 per cent of average net profit of three financial years before making political contributions” and that “such contributions, along with the details of political parties, shall be disclosed in the financial statements starting from FY24.” 

However, Anjali Jain, partner at Areness law firm, flagged uncertainty about whether the judgment would apply retrospectively to contributors. “If so, the current MCA (Ministry of Corporate Affairs) portal would need to be updated to align with these requirements.” Jain said, adding that the judgment is probably going to have a “prospective effect”.

The Supreme Court has asked State Bank of India to provide detailed particulars of all political contributions made via electoral bonds during the specified period. “It is unlikely that the corresponding contributors would also be required to bring such disclosures to the front,” Jain added. 

Despite the uncertainty, some experts believe companies may still disclose these contributions in their financial statements in the spirit of transparency. 

“Companies would have to approach the MCA to seek clarification on disclosure requirements this year, so that there is no confusion,” Butani added.   

The MCA did not respond to an email query on this issue.