By Aryan
In February 2017, the then Union Finance Minister Arun Jaitley during his Budget speech voiced his concern that even after 70 years of independence, “the country had not been able to evolve a transparent method of funding political parties which is crucial to the system of free and fair elections.” The Supreme Court has currently reserved its judgment on the legality of this scheme. In this article we are going to analyse the socio - legal and economic impacts of the Electoral Bond scheme on our democratic setup and whether it was able to produce a more transparent system with regard to its original objectives and also the practices of political funding followed in other countries.
ELECTORAL BOND SCHEME FRAMEWORK
The Electoral Bond scheme originally introduced in 2017 and was implemented by way of notification in the year 2018. An Electoral Bond is similar to a Promissory Note[1] with the difference that the donor and donee remain anonymous in this transaction. Any person who is a “citizen of India or a company incorporated or established in India” can buy bonds “singly or jointly with other individuals.” Only authorised branches of the State Bank of India (SBI) are allowed to issue electoral bonds. One may apply to purchase an electoral bond in person at an authorised branch of SBI or apply online on its website.[2] Only a political party registered under Representation of People Act[3] which secured more than 1 percent of polled votes in the “last general election to the House of the People or the Legislative Assembly, as the case may be,” can encash the bond.
AMENDMENTS LEADING TO ELECTORAL BOND SCHEME
In the effort “to cleanse the system of funding of political parties,” the Electoral Bond Scheme was introduced through amendment to 4 key legislations – The Foreign Contribution and Regulations Act 2010(FCRA), The Representation of People Act 1951(RoPA), Income Tax Act 1961 and The Companies Act 2013.
The Finance Acts of 2016 and 2017 introduced under the ambit of money bills under Article 110 of the Constitution of India brought these sweeping changes in the legal landscape thereby bypassing the examination of these bills by the Rajya Sabha.
Section 29B of the Representation of People Act, 1951 prohibits political parties from receiving political donations from foreign sources. In fact the Hon’ble HC of Delhi found the illegalities committed by both the parties INC and BJP as well in the aforesaid heading. But interestingly the laws regarding the subject were altered to bypass the judgment and precedent on the present issue. Section 233 of the Finance Act drastically changed the definition of foreign source in the FCRA 2010. It amended Section 2(1)(j)(vi) of the FCRA which defines a foreign source as company having more than one half of share capital jointly held by Government, citizens and corporation of foreign country and consequently added a proviso in the end which tinkered with its core definition thus making even the foreign donors who had small shares in Indian companies and organizations eligible for political funding, altering the status quo. Through this amendment the foreign companies despite having their significant base located in the foreign country, but a small share in Indian companies or subsidiaries would allow them to buy the bonds. But the irony here is that the FCRA 2020 amendment made funding rules for NGOs (which actually do meaningful work on field) more stringent[4] in accordance with its requirements.
Section 11 of The Finance Act 2017 altered Section 13A of The Income Tax Act in such a way so as to exempt the political parties from their dutiful obligations to keep a detailed record of contributions received through Electoral Bonds :-
“(b) In respect of each voluntary contribution other than contribution by way of electoral bond in excess of twenty thousand rupees, such political party keeps and maintains a record of such contribution and the name and address of the person who has made such contribution.”
Section 134 of the Finance Act 2017 amended Section 31 of the Reserve Bank of India Act 1934 which related to the issuance of demand bills and notes in the economy. It inserted clause 3 in the aforementioned Section 31 at the end which gave the Union Government the leeway to authorise any scheduled bank to issue electoral bonds as per its notice.
The Section 137 of the Finance Act 2017 introduced provision to Section 29C of the Representation of People Act 1951 which is related to the Declaration of donations received by political parties. Clause (b) of this Section stated that :-
“(b) the contribution in excess of twenty thousand rupees received by such political party from companies other than Government companies in that financial year.”
This Clause made the political parties to compulsorily reveal their contribution from different sources if it was in excess of Rupees Twenty Thousand before the amendment. But after the insertion of the aforesaid provision the system related to contribution became completely opaque. The said proviso is structured as :-
“Provided that nothing contained in this sub-section shall apply to the contributions received by way of an electoral bond.”
Section 154 of the Finance Act 2017 also at last amended Section 182 of the Companies Act 2013 removing the upper limit on how much a company can donate to a political party. Section 182 relates to the prohibitions and restrictions regarding political contributions to political parties. The first provision regarding the upper limit before the amendment was constructed as :-
“Provided that the amount referred to in sub-section (1) or, as the case may be, the aggregate of the amount which may be so contributed by the company in any financial year shall not exceed seven and a half per cent of its average net profits during the three immediately preceding financial years”
The upper limit of 7.5 % was breached thereby allowing companies to contribute to political parties without any checks and red flags by the EC henceforth rendering it powerless to govern authority because of lack of transparency and absence of trails of these illegal transactions. These concerns were raised by the EC itself in 2018 in a letter addressed to the Ministry of Law and Justice delineating the ill effects of the scheme on the transparency of the funding of political parties and the possibility of opening up of shell companies [Companies which do not have a business of disbursable profits] for the sole purpose of funding political parties. The then Minister of Finance vehemently denied the receiving of any such letter or warning by EC on the floor of parliament.
CONCERNS PUT FORWARD BY NGOs AND GOVERNMENT BODIES
Soon after the 2017 Finance Act was passed, the Association for Democratic Reforms (ADR) and CPI – M as well as Common Cause filed a PIL against the scheme. They alleged that the scheme legitimized “electoral corruption” on a huge scale and legitimized illegal funding from foreign sources. They argued that the absence of the source of funding violates the voter’s right to information[5] under Article 19(1)(a) of the Constitution to make well thought choices. They argued that original stated objectives sought to be achieved by the scheme were not being met by the status quo of amendments at present.
On 25 March 2019, the Election Commission of India filed an affidavit raising strong objections to the Electoral Bond Scheme. The ECI also mentioned about the aforesaid letter in the affidavit raising concerns about transparency in the current system. The ECI also warned about the Contributions Report[6] opaqueness, highlighting that without a guarding system, the amount and the identity of the donors will remain hidden which can have significant repercussions on the democratic system of our country. The plea filed by ADR also mentioned concerns by the RBI about its potential to increase black money in circulation, money laundering, cross border counterfeiting and forgery. The RBI termed Electoral Bonds as “opaque financial instruments” since they can be transferred any number of times, their inherent anonymity can be exploited for money laundering. The RBI Chief General Manager in a letter addressed to the Joint Secretary of the Finance Ministry on January 30, 2017 said that, “While the person/entity buying the bond will be as per know your customer (KYC) parameters, the identities of the intervening persons will not be known. Thus, the principle and spirit of PMLA 2002 gets affected.”
REPLY BY GOVERNMENT OF INDIA
The Union Government claimed that under the “old system” a major proportion of electoral funds used to get circulated in the form of cash which increased the risk of black money coming into the economy. But under the current system, the identity of donor remains anonymous and there is only one authorised channel for the buying and selling of bonds which thereby increases accountability. In 2021, the bench headed by CJI SA Bobde did not entertain the plea saying that the sale of bonds in 2018, 2019 and 2020 happened without any impediments and the safeguards suggested by the RBI had already been incorporated. But in 2023, the ADR has filed a fresh plea again just before the General election (2024) before the case being to a Five judge constitution bench noting the gravity of matter. The Union Government made some interesting arguments while defending the anonymity of donors. The Union Government relied on the Puttaswamy judgment[7] (which it had fought tooth and nail against) giving superiority to the confidentiality of the donor against the Right to information of the voter. It also argued that there has to be some reasonable restrictions on the voter’s right to know under Article 19 and hence the anonymity of donor. It also highlighted the doctrine of separation of powers and argued that the Supreme Court cannot review every piece of legislation the Government passes through parliament.
ECONOMIC VALUE OF THE TOTAL DONATIONS RECEIVED AND SIMILAR MACHINERY AKIN TO POLITICAL FUNDING FOUND IN OTHER COUNTRIES
According to the submissions filed by the Association for Democratic Reforms between 2016-17 and 2021-22, a total of Rs. 9,188.35 cr. has been received from electoral bonds alone (leaving aside unknown and known sources of incomes for the parties) out of which the BJP has a lion share of Rs. 5271.9751 crore, while all other national parties together amassed Rs. 1783.9331 crore. Also the share of income from unknown sources for national parties rose from 66% in FY15 – FY17 to 72% in the FY19 – FY22 period.
In democracies like UK, Australia and USA there is a specific rule in place for the donors to reveal their identity and the amount they donated. In U.K. there is a cap on money received by political parties and if that gets breached, the political parties are to compulsorily reveal the identities of the donors and the information is available to the voters in the public domain.
In a nutshell, the Electoral Bond Scheme has done worse than improving the stark situation. The amendments leading to the scheme reveal shady intention on the part of Government from the beginning and this requires a careful glance by the Supreme Court as this issue squarely falls in the judiciary’s domain as well.
The author of this article is Aryan, a first-year BALLB student at Jamia Millia Islamia University, Delhi
[1] The Negotiable Instrument Act, 1881 (Act 01), s. 4
[2]“Electoral Bonds and Electoral Trusts”, The Indian Express, Nov. 09, 2023, available at: https://indianexpress.com/article/explained/explained-politics/electoral-bonds-electoral-trusts-9018591/ .
[3] The Representation of the People Act, 1951 (Part IVA), s. 29A
[4] Noel Harper v. Union of India, (2023) 3 SCC 544.
[5] Union of India v. Association Democratic Reforms, 5 SCC 294.
[6] The Representation of People Act, 1951 (Part IVA), s. 29C
[7] K.S. Puttaswamy v. Union of India, (2017) 10 SCC 1.
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