India's two main political parties broke laws by accepting cash from companies owned by London-listed mining group Vedanta Resources Plc, the Delhi High Court has ruled.
Foreign donations to political parties is banned in India.
The judgment comes 10 days before India holds a general election, in which the ruling Congress party and the opposition Bharatiya Janata Party (BJP) will go head-to-head in a contest where corruption is one of voters' top concerns.
Sterlite Industries India and Sesa Goa, two companies then registered in India but whose controlling shareholder was Vedanta, donated 87.9 million rupees ($1.47 million) in total to Congress between 2004 and 2012, according to data gathered by the Association for Democratic Reforms (ADR).
Sesa Goa donated 14.2 million rupees to the BJP over the same period, the Association said.
The ADR brought the case against the two parties, and not the companies.
Sterlite Industries India also donated 70 million rupees to the BJP, according to the company's annual 2009-10 report.
Vedanta, which is the controlling shareholder, merged the two companies last year.
"The acts of the respondents ... clearly fall foul of the ban imposed under the Foreign Contribution (Regulation) Act, 1976 as the donations accepted by the political parties from Sterlite and Sesa accrue from "Foreign Sources"," Judges Pradeep Nandrajog and Jayant Nath wrote in their decision.
Ministry and election commission 'must act'
India's government can prosecute people under the Foreign Contribution (Regulation) Act.
The court directed the home ministry and the election commission to investigate all donations to the parties by the two companies (as well as any other groups with similar foreign ownership structures) and act within six months.
Party officials and lawyers who facilitate such transactions can be jailed for up to three years for violating the laws on foreign donations.
Lawyers for Congress and the BJP had argued that the donations could not be classed as foreign, partly because the two smaller companies were registered under India's Companies Act, and partly because Vedanta's largest shareholder is billionaire Anil Agarwal, an Indian citizen.
Pinky Anand, a BJP member and lawyer for the case, said the party would appeal against the ruling using those arguments.
"Frankly, what is the objective of this law?" Ms Anand said.
"It's to prevent illegal money coming in, not legal money coming in. This money has been declared, it hasn't walked in."
Congress party spokesman Sanjay Jha said the funds were received, "from an electoral trust by an Indian company based in India."
"There has been no violation," Mr Jha said.
He added that the party would study the court order.
The Congress party has been at the helm of India's coalition governments since 2004, although it is widely expected to be defeated in the upcoming elections.
Vedanta's legal head, Ajit Yadav, did not respond to requests for comment.
