How the corporate cap disappeared
Published 5 October 2026
Company donations had been capped since 1985, first at 5 percent and later at 7.5 percent of average net profit, and a company had to be at least three years old to give. The Court later read both rules as one device: the three-year condition was meant "to prevent loss-making companies and shell companies" from becoming donors. Source: Judgment, ADR v. Union of India, 2024 INSC 113 (Feb 15, 2024)
The Finance Act 2017 removed the percentage cap and the disclosure of the party named in a company's accounts, so a company, other than a government company or one under three financial years old, could give any amount to any party. The petitioners did not challenge Section 182 of the Companies Act itself or the legality of company donations. They challenged Section 154 of the Finance Act 2017, which changed it, on the ground that the change was "manifestly arbitrary" because it let loss-making companies give unlimited sums and "facilitates the creation of shell companies solely for the purposes of contributing funds to political parties". The Union's first answer was that manifest arbitrariness cannot be used against a statute at all. Source: Judgment, ADR v. Union of India, 2024 INSC 113 (Feb 15, 2024)
That answer made the Court trace how Article 14 had changed. It began as a bar on discrimination, with reasonable classification allowed. In E.P. Royappa v. State of Tamil Nadu, Justice P.N. Bhagwati called equality "a dynamic concept with many aspects and dimensions" that cannot be confined to "traditional and doctrinaire limits", and treated arbitrariness as its opposite. Later, in Indian Express Newspapers v. Union of India (1985), Justice Venkataramaiah applied manifest arbitrariness to subordinate legislation, which lacks the immunity of a statute passed by a competent legislature. The doubt was whether a statute could be tested the same way. A Constitution Bench in the Special Reference of 2012, citing McDowell, said a law could not be struck down as arbitrary without a constitutional infirmity. Then, in the triple talaq case, Shayara Bano v. Union of India, Justice Nariman held that "a finding of manifest arbitrariness is in itself a constitutional infirmity". Source: Judgment, ADR v. Union of India, 2024 INSC 113 (Feb 15, 2024)
Navtej Singh Johar (Section 377) and Joseph Shine (adultery) carried the doctrine into criminal law. In Joseph Shine, Justice Chandrachud, as he then was, said manifest arbitrariness checks state action that "has elements of caprice, irrationality or lacks an adequate determining principle", and found that the "ostensible object" of the adultery law, the sanctity of marriage, was not its real object, which was "marital subordination of women". Drawing on these cases, the Court in 2024 held it "a settled position of law that a statute can be challenged on the ground it is manifestly arbitrary". It gave two tests: whether a provision's ostensible purpose differs from its real purpose, and whether it fails to separate degrees of harm, "even if the provision does not make a classification". It added a limit. A court does not "second guess the intention of the legislature", and "there is, and ought to be, a distinction between plenary legislation and subordinate legislation" in how strict the test is. Source: Judgment, ADR v. Union of India, 2024 INSC 113 (Feb 15, 2024)
Then came the question of why corporate money mattered to elections. The Court said democracy "does not begin and end with elections": "Democracy sustains because the elected are responsive to the electors who hold them accountable for their actions and inactions. Would we remain a democracy if the elected do not heed to the hue and cry of the needy?" It recalled that in Kesavananda Bharati and in Indira Nehru Gandhi v. Raj Narain a democratic form of government was held a basic feature, and that free and fair elections follow from it. Article 324 makes the Election Commission responsible for the process, but "it is not the sole duty of the Election Commission to secure the purity and integrity of the electoral process"; other organs of government share a positive duty. The Court quoted the Law Commission's 170th Report, which said most business houses "already know where their interest lies and they make their contributions accordingly to that political party which is likely to advance their interest more". Source: Judgment, ADR v. Union of India, 2024 INSC 113 (Feb 15, 2024)
The Union's defence of the amendment was that the cap itself pushed companies to create shell companies, so removing it would discourage them. The Court answered with the record. The 1985 minister had spoken against giving loss-making companies a role. The three-year rule existed for the same purpose, so there was "no justification for removing the cap... which was included for the very same purpose". And the Election Commission had warned in 2017 that the amendment "opens up the possibility of shell companies being set up for the sole purpose of making donations to political parties with no other business of consequence having disbursable profits." Source: Judgment, ADR v. Union of India, 2024 INSC 113 (Feb 15, 2024)
The Union also argued that the amendment merely removed a distinction between companies and individuals, and between loss-making and profit-making companies, since no law caps what an individual may give. The Court disagreed on the facts of why companies give. They gave before the 2003 tax exemption, it said, so tax benefit was not the main reason: "The chief reason for corporate funding of political parties is to influence the political process which may in turn improve the company's business performance." It added that "Unlimited contribution by companies to political parties is antithetical to free and fair elections because it allows certain persons/companies to wield their clout and resources to influence policy making". Source: Judgment, ADR v. Union of India, 2024 INSC 113 (Feb 15, 2024)
On companies and individuals, the Court wrote that a company's ability to influence the electoral process is "much higher". "Contributions made by individuals have a degree of support or affiliation to a political association. However, contributions made by companies are purely business transactions, made with the intent of securing benefits in return." It cited the American decision in Citizens United v. Federal Election Commission and quoted Justice Stevens's dissent that corporations "cannot vote or run for office" and "may be managed and controlled by non-residents". It concluded that companies and individuals cannot be equated for political contributions. Source: Judgment, ADR v. Union of India, 2024 INSC 113 (Feb 15, 2024)
Loss-making companies were a separate point. The old rule had treated them differently "for good reason": it is more plausible that a company with no profit gives for a favour in return than for a tax benefit, and the amendment ignored that higher risk. The Court therefore held the amendment to Section 182 manifestly arbitrary for three reasons: it treated company and individual contributions alike, it allowed unregulated corporate influence on governance and politics against the principle of free and fair elections, and it treated profit-making and loss-making companies alike. It added that its words "must not be construed to mean that the Legislature cannot place a cap on the contributions made by individuals". Source: Judgment, ADR v. Union of India, 2024 INSC 113 (Feb 15, 2024)
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