By Mehjabeen Haider and Shraddha Ray Menon.
I certainly want campaign finance reform. I just wish this would do it in a way that would stand up to a constitutional challenge.
-Ben Nelson
After 2014, when the Delhi High Court found violations of the Foreign Contribution (Regulation) Act, 1976 by the BJP and the Congress for receiving contributions from local companies with majority ownership with a foreign company, the government (BJP) then, passed a retroactive amendment through Finance Bill 2016 which dropped “foreign sourced” contribution from the restrictive source category so long as the FDI norms under the FEMA were fulfilled.
Currently, Electoral Bonds are sanctioned under legislations which arguably make them opaque, with cleverly disguised no disclosure requirements, blurred lines on source of the funds BUT gives Corporates an opportunity to get involved with political contributions in India. The Finance Bill, 2017 introduced “Electoral bonds” as interest-free bearer instruments (like Promissory Notes) that will be available for purchase from the State Bank of India within a designated window of 10 days in every quarter of the financial year.
According to the, NDA led government, Electoral Bonds were being introduced to ensure that all the donations made to a party would be accounted for in the balance sheets, without exposing the donor details to the public. The government claimed that electoral bonds would keep a check on the use of black money for funding of elections.
How so? Apparently, in the absence of electoral bonds, the only option donors would have, would be from donating cash from their businesses, again the government claimed.
The scheme, which was notified on January 2, 2018[1], operates like and has the functions of a promissory note that can be bought by any Indian citizen or company incorporated in India from select branches of State Bank of India. The purchaser can, then donate the same to any eligible political party of his/her choice. Similar to bank notes, the Bonds are payable free of interest to the bearer on demand. These purchases are allowed digitally or through cheque.
WORKINGS OF ELECTORAL BONDS
Any party that is registered under section 29A of the Representation of the Peoples Act, 1951 (43 of 1951) and has secured at least one per cent (1%) of the votes polled in the most recent General Elections or Assembly Elections is eligible to receive Electoral Bonds. The party is allotted a verified account by the Election Commission of India (ECI) and electoral bond transactions can be made only through this account. The electoral bonds does not bear the name of the donor. Thus, the political party might not be aware of the donor’s identity.
Available for purchase, 10 days at the start of every quarter, first 10 days of January, April, July and October have been earmarked by the government for purchase of electoral bonds. It is anticipated that an additional time of 30 days will be allocated by the government in the year of Lok Sabha elections.
In February 2017, the then finance minister, Mr. Arun Jaitley had indicated that the donations would be tax deductible.[2] Hence, a donor would receive a deduction and the donee (the political party), would receive tax exemption upon returns being filed by the political party.
CONTEXTUALISING
Experts believe that if the electoral bonds scheme was in fact introduced for greater transparency and legitimacy in funding of political donations, then the restraint on allowing details of such donations to be made public, is not a clear of intent. The purchaser of the bond and the political party receiving the donation, both are not required to disclose such donor’s identity and with the need for Board Resolution evidencing grant and acceptance of the donation, the shareholders of the corporation will remain unaware of the company’s contribution. Voters right to information also remains compromised.
The opponents, further argue that keeping the identity of the donor anonymous, could lead to an influx of black money. Some allegations, include that the scheme was designed to aid donations from big corporate houses (with forging sources) without revealing their identity. There seem civil rights societies, highlighting threat to the spirit of democracy and the opposition in Congress, inferring that donations made through electoral bonds were equivalent to money laundering. How does the change tie in with concerns over Prevention of Corruption Act, 1988 (POCA) may require evaluation.
Clever modifications to Section 182 easing political contributions already guised as Electoral Bonds?
The guardrails for political contributions underwent clever modifications.
- Acceptance of the contribution by the Political Party was explicitly denoted through the Board Resolution, this reference to acceptance was removed.
- Earlier, no foreign company could donate to any political party under the Companies Act. Under section 3 of the Foreign Contribution (Regulation) Act, 2010 bars candidates, political parties, party officials, legislative members from accepting foreign contributions. Even section 29B of the Representation of the Peoples Act, 1951 prohibits accepting contributions from a foreign source;
- Maximum ceiling of 7.5% of average three year net profit towards political donations under a Board Resolution as per section 182 (Prohibitions and Restrictions regarding political contributions) of the Companies Act. This limit has been removed and Section 29-C of the Representation of the Peoples Act, 1951 was amended to exempt Electoral Bonds of more than Twenty Thousand Rupees from being reported and the declaration requirement on Electoral Bonds were completely removed;
- Disclosure requirements were removed. Section 182 required companies to disclose details of their political donations in their annual statement of accounts. Sub clause (2) also had a wider ambit of what qualified as political contribution.
- The penalty attached to the contravention of this Section was to the tune of five (5) times the amount contributed, along with imprisonment and fine upto five (5) times levied on every officer in default of the Company.
The NDA led government, through an amendment to the Finance Bill exempted Electoral Bonds from the purview of Section 182 ensure that this section proviso would not be applicable to companies in case of electoral bonds. Thus, Indian, foreign and even shell companies can now donate to political parties without having to inform anyone of the contribution.
WHAT DOES THE JUDICIARY SAY ON ANONIMITY PROVISIONED UNDER EBs
The Delhi HC had raised it’s concerns way back in 2014
Backfill
The SC of India is hearing petitions filed from 2017 challenging the change in legislation which has altered, to some degree even legitimised, campaign financing in India. NDA led government led brute force in changing the Finance Act, 2017 hastily and rampantly moved with amendments to the Reserve Bank of India Act, Companies Act, Income Tax Act, Representation of Peoples Act and Foreign Contributions Regulations Act to remove the restrictions and build more haze and repression of questionability of political contributions.
ECI, the Election Commission has, to a degree displayed it’s opposition and filed a counter-affidavit with concerns about the anonymity of the Bonds. Calling it a “retrograde step as far as transparency of donations (political) is concerned” it has called for its withdrawal.
The petitions also tabled that, the Electoral Bond Scheme was waded in through amendments made to RP Act, IT Act and RBI Act through a money bill – the Finance Act, which appear an arguably controversial exercise of the money bill provision, probably to circumvent scrutiny by the Rajya Sabha.
In the wake of aggressively rallied State Assembly Elections, Public Interest Litigator Prashant Bhushan, argued for Association for Democratic Reforms seeking stay on the fresh tranche of electoral bonds, but the EC which had initially displayed its concerns, opposed this stay of electoral bonds. EC clarified that they are not opposed to Electoral Bonds with more transparency as it breeds for unaccounted cash system. Senior Advocate Rakesh EC’s counsel wants the issue of transparency to be considered at final argument stage without an interim stay in the matter.
Mr. Bhushan’s arguments
Referring to the communications sent by the former RBI Governor, Urjit Patel to the then Finance Minister Arun Jaitley, expressing “discomfort” about EBs, Mr. Bhushan indicated that the RBI Governor had called the bonds a “fraud scheme” having implications on banking system and “possibility of misuse, more particularly through shell companies”. He emphasized that anonymous electoral bonds would be “legalized corruption”. He further submitted that instead of submitting it in a scripted form where only SBI knows the identity of the donor, the Reserve Bank should be informed of the initial subscriber.
His arguments stressed on questionability of democracy because of the form and manner the EBs are currently proposed, the electors right to know the source and background is mutilated. Removal of transparency in political funding, is in fact counter intuitive to electoral democracy.
Court’s opinion[3]
The SC Bench, including CJI SA Bobde, Justices AS Bopanna and V Ramasubramanian, dismissed the plea filed by the NGO, it refused to stay the release of the fresh set of electoral bonds from April 1 for the assembly polls in West Bengal, Kerala, Tamil Nadu, Assam and Puducherry. The Court dismissed the application led by NGO Association for Democratic Reforms seeking stay of the bonds.
The apex court believed- since the bonds were allowed to be released in 2018, 2019 and 2020 without interruption, and sufficient safeguards are there, there is no justification to stay the electoral bonds at present.”
The bench also believed that the anonymity was not absolute in nature as all transactions would happen through banking channels in accordance with KYC norms.
The court, on a side note mentioned that the beneficiary of electoral bonds will not be the ruling NDA led government, it would be any ruling Government!
The Special Editions are only for better understanding of various subject matters and only for information purposes. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein.
Endeavoured to accurately reflect the subject matter of this alert, without any representation or warranty, express or implied, in any manner whatsoever in connection with the contents of this. This isn’t an attempt to solicit business in any manner.
[1]https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1708520#:~:text=As%20per%20provisions%20of%20the,or%20jointly%20with%20other%20individuals.
[2] https://www.business-standard.com/about/what-is-electoral-bond
[3] http://www.livelaw.in/top-stories/electoral-bonds-supreme-court-assembly-elections-171763
Good insight.