Electoral Bonds: A Key-hole Analysis

  • Reema Jain
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  • Reema Jain

    Student at Symbiosis Law School, Hyderabad, India

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Abstract

India is the largest and the most dynamic democracy in the world. In light of the aforementioned perspective, it can be noted that elections play an indispensible role in maintaining the substance and essence of democracy. Electoral reforms were introduced by the NDA-led Government through the Finance Bill, 2017 with the view that it was an effective tool for cleaning of political funding. However, the anonymity of the donors, the amendment to section 182 of the Companies Act, 2013 inter alia other factors points towards the murky side of Indian politics. This article will analyze the correlation between the ulterior motives of introducing electoral reforms and their impact on a healthy democracy.

Type

Research Paper

Information

International Journal of Law Management and Humanities, Volume 4, Issue 2, Page 419 - 423

DOI: http://doi.one/10.1732/IJLMH.26069

Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution -NonCommercial 4.0 International (CC BY-NC 4.0) (https://creativecommons.org/licenses/by-nc/4.0/), which permits remixing, adapting, and building upon the work for non-commercial use, provided the original work is properly cited.

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Copyright © IJLMH 2021

I. Introduction

Electoral reforms are a form of promissory notes that can be donated to any political party that is registered under Section 29A of the Representation of People Act, 1951 and has polled at least one percent of the votes in the last General elections or State Assembly elections. These electoral reforms bear similarities to the bank notes as they are payable to the bearer on demand and are free of interest. They can be purchased digitally or through cheque from selected branches of State Bank of India. They can be purchased by Indian citizens and corporates only. These bonds are valid for fifteen days from the date of issue only and are not valid past the expiration date.[1] These bonds are issued in the denominations one thousand, ten thousand, one lakh, ten lakhs and one crore and can be enchased directly by the political party through the bank account that has been verified by the Election Commission of India (EIC).[2] These electoral bonds were introduced in the Finance Act, 2017 which was an attempt to bypass presentation in Rajya Sabha. A Right to Information (RTI) reply to RTI activist Saurav Das made it clear that the manner in which this shady scheme was introduced was a blatant violation of rules.

II. The nexus between electoral bonds and lack of transparency

Under section 293A of Companies Act 1956, a Government Company or a company that has been in existence for less than three years were prohibited from making a political contribution to any political party or a person associated to the political party. A company could donate only an aggregate sum of average of previous three year’s average profits. The most powerful provision which is now being dismantled is that a company had to reveal the amount contributed in the profit and loss account of the company. In this manner there was no cloak of anonymity and the shareholders as well as other stakeholders were aware of the political contributions of the company. Similarly, under section 182 of the Companies Act 2013, a company is obligated to reveal the details of the contributions in the financial statement of the company. Additionally, the limit of five percent was increased to 7.5 percent without any reasonable basis.[3] However, the Finance Bill, 2017 exempted the companies to follow the procedure in case of donation through electoral bonds.[4] Through this it can be reasonably deduced that any company, including shell and foreign companies can donate any amount, thus sketching a gray area for regulation and transparency. Additionally, under Section 9 of the Companies Act 2013, a company is a separate legal entity. Therefore, making political contributions do not serve the interests of a separate legal entity, but that of its agents. In the case of Jayantilal Ranchchoddas Koticha v. Tata Iron & Steel Co. Ltd[5], an early judicial warning came when the court observed that political contributions “throttle the democracy”.

Another unreasonable amendment was made to Section 29C of the Representation of People Act, 1951 through the Section 137 of the Finance Act. Prior to the amendment, the treasurer of the political party was obligated to prepare a report of individuals or companies that donated more than twenty thousand in a financial year and furnish it before the Election Commission of India under section 139 of the Income Tax Act, 1961. This provision safeguarded the transparency of contributions and additionally made the patterns of association between the wealthy and corporates with the political parties, particularly the ruling party lucid to the public. With the amendment brought in picture, this provision does not apply to the scheme of electoral bonds. This draws a very highly probability of the ruling party acting as a puppet to the whims of wealthy in return of anonymous donations.

Further under section 13A of Income Tax Act 1961, any income that a political party receives under “Income from other sources” or “Income of house property” or any “Voluntary contributions” made by public shall not be considered as a taxable income provided that the political party keeps a record and if any voluntary contributions exceeds ten thousand rupees, then the name of that individual must be recorded. However, with the amendment the sum of ten thousand is over and above the sum received anonymously through electoral bonds. This amendment virtually obviates the need of the principal provision.

The element of foreign interference in Indian elections can be observed through the Section 236 which added a proviso to Section 2 (1)(j)(vi) of the Foreign Contribution Regulation Act, 2010. Under this provision, foreign companies were ineligible to make political contributions. Post the amendment, Foreign Companies holding majority stakes in Indian Companies could make donations, Similar contention of foreign pressure was shared by the Election Commissioner of India. [6] The aforementioned amendments were challenged in Association of Democratic Reforms v. Union of India[7], where the petitioners called for a stay on electoral bonds. The Supreme Court did not pass a stay order but directed the political parties to report where they got their funds from to the Election Commission.

As per the RTI reply, it was revealed that as of May 2020, electoral bonds worth a whopping rupees nineteen thousand crores were printed, of which bonds worth Rs. 6200 crores have been sold in thirteen phases. An amount of Rs. 1.43 crores was spent on printing “low denominations” of these bonds.[8] Despite direct involvement of public funds and indirect domino-effect on public by the anonymity of funds, the Information Commissioner holds that the revelation of the names of the donors do not serve a larger public interest. As per section 8(1)(e)(j) of the Right to Information Act 2005, public authorities are not obligated to give information if they are in “fiduciary relationship” unless there is a larger public interest which the Information commissioner does not think is the case.

The Reserve Bank of India raised concerns over the channeling of black money into Indian politics by electoral bonds which they identified as[L]egally-sanctioned instrument that would allow corporations and other legal entities to anonymously funnel unlimited amounts of money to political parties”. The opinion of RBI as requested by the Centre was that these bonds would set a “bad precedent” and further would encourage money-laundering. The Central bonds further noted that since these bonds were “Bearer bonds”, they would not allow the trail of ascertaining the ownership. Furthermore, RBI added that these bonds had the potential to undermine the bank notes it issues.[9] Despite, the opinion of the RBI, Centre went ahead and introduced electoral bonds.

III. Correlation between electoral bonds and ruling party

As per the Electoral Bonds Scheme 2018, if the electoral bonds are not cashed within fifteen days, they will be transferred to the Prime Ministers Relief Fund. It is pertinent to note that this fund is exempted from the Right to Information Act, 2005. As per the Supreme Court order in Association of Democratic Reforms v. Union of India[10], parties were asked to submit details of donations before May 30, 2020. However, political parties like Bharatiya Janata Party (BJP) which is the ruling party, submitted it after the due-date.[11] As per the report of Association of Democratic Reforms, in the period of 2016-2018, BJP got 915.59 crores from corporate houses. Corporate house contributed 93% of the total funds received.[12] It is pertinent to note that the ruling party pushed for Electoral Bond Scheme, 2018 as a Money Bill, so that it could obviate the role of Rajya Sabha. Out of the total amount of Rs.2410 crores that BJP received as donations, Rs.1450.8cr were raised through electoral bonds under the cloak of anonymity. Congress on the other hand raised only Rs.383.2 cr through electoral bonds out of the total sum of Rs.918 crores it received.[13] This clearly demonstrates how the ruling party introduced a scheme that it knew would enrich itself.

IV. Conclusion

It is therefore concluded that electoral bonds are being used to throttle democracy and hamper transparency in political funding. The Centre claims that since the donors are mandatorily KYC-compliant, there transactions leave an audit trail. However, this investigation by audit trail would be allowed only when there are serious doubts. The amendments made to the various legislations, particularly to the Companies Act, 2013 show the increasing trend of corporates contributing to political parties under a quid pro quo settlement that can have severe ramifications on the concept of free and fair elections. Electoral Scheme 2018 is a toothless monster that is further a manifestation of the ulterior motives of ruling party to lure corporate houses and encourage money laundering. Further, the anonymity of the donors severely wounds the Freedom of Information of the citizens and withholds sensitive information which is detrimental to transparency and accountability. The Centre claims that the anonymity prevents the “victimization” of donors. However, larger public interest cannot be dismantled to shield the identity of the donors.

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FOOTNOTES

[1] Electoral Bond Scheme 2018, Press Information Bureau, Ministry of Finance, Government of India (1st May, 2019, 5:22PM).

[2] Ashish Aryan, What are Electoral Bonds and what is the Controversy? Business Standard (Nov 20, 2019, 1:02PM). Available at https://www.business-standard.com/article/opinion/explained-what-are-electoral-bonds-and-why-is-there-a-controversy-119041400710_1.html.

[3] Companies Act, 2013, §182.

[4] Finance Act, 2017, §154.

[5] Jayantilal Ranchchoddas Koticha v. Tata Iron & Steel Co. Ltd., (1957) 27 Comp Cas 604.

[6] Satya Prasoon & Jai Brunner, Electoral Bond Scheme: Where do ADR, EC & Union stand on the issue?, Supreme Court Observer (22nd April, 2019). Available at https://www.scobserver.in/beyond-the-court/electoral-bond-scheme-where-does-adr-election-commission-and-union-stand-on-the-issue.

[7] Association of Democratic Reforms v. Union of India, 2019 SCC OnLine 1878.

[8] Dheeraj Mishra, Taxpayers, not Donors or Political parties are bearing the cost of printing Electoral Bonds: RTI, The Wire (14th May, 2020). Available at https://thewire.in/rights/electoral-bonds-tax-payers-cost-printing-bank-commission.

[9] Nitin Sethi, Electoral Bonds: Seeking Secretive Funds: Modi Govt overruled RBI, Huffpost India (17th Nov, 2019, 8:38 PM). Available at https://www.huffpost.com/archive/in/entry/rbi-warned-electoral-bonds-arun-jaitley-black-money-modi-government_in_5dcbde68e4b0d43931ccd200.

[10] Association of Democratic Reforms v. Union of India, 2019 SCC OnLine 1878.

[11] National Election Watch, Analysis of Electoral Bonds sold and redeemed during fourteen phases, Association of Democratic Reforms (Dec 8, 2020). Available at: https://adrindia.org/content/electoral-bonds.

[12] Daily Source, BJP gets a lion’s share of Corporate funds, Association of Democratic Reforms (10th July, 2019).

[13] Money Control staff, BJP received 1450 crs in Electoral bonds, Moneycontrol (Jan 16, 2020, 12:24PM). Available at https://www.moneycontrol.com/news/politics/bjp-received-rs-1450cr-through-electoral-bonds-in-fy19-congress-distant-second-with-rs-383cr-4822411.html.