This Article is written by Charul Mishra, a student pursuing B.A. LLB from Symbiosis Law School, Hyderabad. In this article, the author has dealt with the introduction of the Electoral Bond Scheme, 2018, and the controversy related to it.

Introduction

Electoral bonds were introduced by the Modi government as an alternative to cash donations made to political parties but the instrument is now at the center of a controversy over allegations that it is not only skewed towards the ruling party but flouts the concept of free and transparent elections. According to the report given by the Association for Democratic Reforms also known as ADR for the financial year 2019, political parties have declared income/donations worth Rs 1, 931 crores through these bonds. The Bharatiya Janata Party received around 75 percent of the donations which is Rs 1,451 crores while the congress received around 20 percent of the donations i.e. Rs 383 crore and TMC received 5 percent of the donations i.e. Rs 97 crore.

The study points out that donations and funds are the primary sources of income for the groups. The BJP and Congress registered a high concentration of donations in their profits, with donations accounting for nearly 97 per cent, 60.08 per cent respectively of their profits. The BSP stated that most of its revenue came from bank interest while the revenue from fees and subscriptions came from Communist Party of India’s (Marxist) interest. Research by ADR shows that income for BJP increased by 134.59 per cent during this time, while income for Congress increased by 360.97 per cent. TMC’s revenue soared by an incredible 3,628.47 per cent, which is the largest income rise for any party in the century.

What are Electoral Bonds?

Electoral Bonds are like Promissory Notes which can be purchased by any individual who is an Indian Citizen or a body corporate which is established or incorporated in India. The Individual or the body corporate can donate the purchased Electoral Bond to any eligible political party of his or her choice. The Concept of the electoral bond was introduced with the Finance Bill, 2017. On January 29, 2018, the Narendra Modi led NDA government notified the Electoral Bond Scheme, 2018 which was made to alternate cash donations and to ensure transparency in political funding.

According to the Narendra Modi Government, electoral bonds were introduced to ensure that “all the donations made to a political party would be accounted for in the balance sheets without exposing the donor details to the public and electoral bonds would keep a tab on the use of black money for funding elections”. Using Electoral Bonds is very easy according to the scheme. Only those parties can receive the electoral bonds who are registered under Section 29A of the Representation of People’s Act, 1951 (Act 43 of 1951), and have secured at least one per cent of votes in last Lok Sabha elections are allowed to receive electoral bonds.

These Bonds can be purchased by the individual donors or the body corporate digitally or through cheque. For encashing the donated money, the qualified political parties are allotted verified accounts by the Election Commission. Only this account can be used for all the electoral bond transactions. These Electoral accounts are issued by select branches of State Bank of India. The 29 specified State Bank of India Branches are in cities such as New Delhi, Gandhinagar, Chandigarh, Bengaluru, Bhopal, Mumbai, Lucknow, Chennai, Kolkata, and Guwahati.

The Electoral Bonds are available for purchase for 10 days at the beginning of every quarter of the year i.e. in January, April, July, and October. The First 10 days of these months have been specified by the government in the year of Lok Sabha elections. Apart from this, the then finance minister Arun Jaitley said that the donations would be tax-deductible and a donor will get a deduction, and the receiver i.e. the political party, will get tax exemption, as long as returns are filed by the political party.

Further, the bonds will be issued in multiples of Rs 1,000, Rs 10,000, Rs 100,000 and Rs 1 crore while the denomination is between Rs 1000- Rs 1 Crore which till the validity of 15 days. Before 2017, the denomination was up to the donation of Rs 20,000 but after 2017, the government capped the limit up to Rs 2000. The Money can be encashed by that particular party through the issued Bank Account under the permission of the authorized banks within that particular period. Every Donor has to provide his/her KYC details to the respective to purchase the Electoral Bonds while the Donor’s name would be kept confidential.

Controversy concerning Electoral Bonds

Even before the Finance Act implemented Electoral Bonds, the Reserve Bank of India opposed it and argued that Electoral Bonds could promote money laundering. Even after these suggestions, they launched the Electoral Bond. According to RTI records, the Finance Ministry overruled RBI’s views, stating that the central bank had not grasped the proposed process and that RBI’s repeated views were overruled simply because the Finance Bill had “already been published”.

Nonetheless, several analysts contended that the implementation of the scheme could fund all opposition parties and could give the ruling party a massively unfair advantage. But the Electoral Bond scheme favours various other observers. Regarding the anonymity of the name of the donor, they note that they would find it difficult to raise funds with total donor openness because donors and supporters would fear a backlash from the strengthened political forces they are fighting against. Electoral bonds strike the balance for these obstacles and new entrants.

It is reported that  RBI’s concern about money laundering was addressed by adding, Clause 11 to the electoral bond scheme. It stipulates that the donor may only use banking channels, such as cheque or ECS, which completely preserve audibility and leave a trail, and that is why there would be no money laundering problem. The electoral bond scheme is also subject to KYC legislation by RBI. Legal and natural citizens who wish to donate to the political party of their choice must adduce to the authorized bank documentation proving their identity (PAN / TAN / Aadhar card). These features of the scheme and KYC directions were created to avoid money laundering and to preserve the audibility of funds. They are a non-trivial barrier to any money laundering risk.

Repeated warnings by the Reserve Bank of India (RBI) about the bearer-shaped electoral bond scheme with the potential to increase the circulation of black money, money laundering, cross-border counterfeiting, and forgery were ignored by the government of Prime Minister Narendra Modi, as it was more interested in preserving donor identity, the responses of the Ministry of Finance to the right to information (RTI). Likewise, the Election Commission still had significant concerns about the system but still dismissed its views. The recently released documents indicate that before the program was implemented, it had regularly addressed certain questions with the government in writing. A file note revealed that Subhash Chandra Garg, the finance ministry’s Secretary of the Department of Economic Affairs, had taken RBI’s defiance to mean indirect approval in the matter since it didn’t disregard the scheme in its entirety.

A look at the correspondence between then RBI Governor Urjit Patel and then Finance Minister Arun Jaitley reveals that the central bank’s reservations regarding the scheme have been consistently overlooked by the Government. The records also reveal that, on the orders of the PMO, bonds were permitted to be redeemed within the prescribed 15-day period in the build-up to the Karnataka assembly polls. The records also revealed how then-junior finance minister P Radhakrishnan had deceived Parliament by insisting that the EC had not raised any questions about the scheme and the internal notes on how he could be bailed out of a privilege suit brought by the Opposition. Such disclosures and other details are available on financing by electoral bonds that have been used by the opposition parties to lift the issue in Parliament.

Case laws about Electoral Bonds

There is only one case that has created a controversy concerning the introduction of Electoral Bonds which is the Association for Democratic Reforms v. Union of India in 2018.

According to this case, The Government informed the electoral bonds program on 29 January 2018. Indian Communist Party (Marxist) and two NGOs i.e. Association for Democratic Reforms (ADR) and Common Cause filed a petition to contest the Electoral Bond System, 2018, before the Supreme Court. The new scheme of electoral bonds has amended four statutes, including the International Contribution Control Act, 2010, the People’s Act, 1951, the Income Tax Act, 1961, and the Companies Act, 2013. Because this bypassed oversight of the Rajya Sabha, the petitioners argued the scheme should not have been implemented. They contended that the Rajya Sabha should have thoroughly scrutinized the four amendments before the scheme came into effect. Besides, the petitioner ADR applied for a stay on the Electoral Bond Scheme because almost all donations of electoral bonds were in favour of the Union government’s leading political party. Most bonds use the denominations of 1 million and 1 Crore. This indicates that rather than individuals, the system is mainly used by entities that exploit the power of anonymity.

The NGO also stated that the amendment to the Companies Act could lead to the injection of black money by shell corporations and made political parties vulnerable to interference by foreign firms and the amendments to FCRA 2010 enabled foreign firms to own majority stakes in Indian corporations to contribute to political parties. Later, The Election Commission (EC) submitted an affidavit to the Supreme Court contending that the scheme was introduced to make the donations to Political parties transparent and that the amendment to the Representation of the People Act, 1951 dispenses with the obligation on political parties to record donations obtained via electoral bonds in their contribution reports to the Election Commission. The Election Commission alleged that the amendment to the Representation of the People Act, 1951 exempted political parties from reporting donations by electoral bonds in their contribution reports.

The Election Commission has no way to determine whether domestic or foreign companies receive donations. The amendment to the Income Tax Act allows anonymous donations up to Rs 20,000 and donors need not provide their names or PAN details. Political parties can thus avoid scrutiny by reporting funds as below Rs 20,000 and encouraging anonymous donations. The Government’s defence of the system is to encourage transparency in political donations, as it allows donors to donate with an audit trail through a checked KYC account. The Bench passed an interim order on 12 April ordering all political parties to send details of all bonds issued to the Election Commission until 15 May.

Conclusion

Well, after a huge discussion about the Electoral bonds, it is not clear whether the introduction of the Electoral bonds was a good thing or not. Because with the question related to transparency in politics there are various aspects that comply with this controversy. Through Electoral Bonds, the political donation would become transparent as the government will keep registering the donations. The amount of donation allocated would be open to review by the public and this would maintain transparency in political activities. At the same time, the confidentiality of the donors who purchase donation money to donate to the eligible Political parties has created a negative effect over the Electoral Bond Scheme, as the general public would never know about who is donating and who is not.

But if the Identities are disclosed, then it will become a danger for the Donors as they might face problems from the opposite parties who they did not donate to. Now the main thing the government needs to examine is the effect of keeping the Electoral Bond Scheme. If the Electoral bonds are well regulated and do not tilt towards  one political party or are free from any other problem, then this Scheme will be deemed successful, but if there happens to be such acts like illegal lobbying or corruption, this will make the regulation of donations given in elections worse than before. The government has to think about a new scheme which would not only help in transparent political elections but also go hand in hand with democracy and in the interest of the general public as the elections are held to form a government for the welfare of the general public of the country.

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