While not relenting to the petition to stay political funding through electoral bonds, the Supreme Court on Friday brought several checks on the scheme to bring transparency in campaign financing.
The apex court in an interim order directed all political parties to furnish details of the amount of the bond and bank account of donors to the Election Commission by May 30.
The bench comprising CJI Ranjan Gogoi and Justices Deepak Gupta and Sanjiv Khanna also directed parties to provide receipts of total amounts received till May 15 and identities of all donors in a sealed cover to the poll panel.
EC vs Centre
Rejecting the Centre’s request not to interfere with the scheme or review its efficacy before the general elections are over, the apex court adjudged that it would examine in detail how the Income Tax law, electoral guidelines, and banking regulations were contravened to implement the electoral bonds scheme, to ensure the balance does not tilt in favour of any political party.
The Centre and the EC had taken opposite stands in the Supreme Court on Wednesday over political funding.
The government wanted to maintain the anonymity of donors of electoral bonds scheme, which it implemented in January 2018. EC, on the other hand, batted to curb the impact that electoral bonds and unlimited foreign corporate donations would have on transparency.
It moved to file an affidavit on March 28, raising legitimate concerns of interference from foreign corporate powers or pumping in black money via shell companies through the bonds, to sway Indian politics and the outcome of the upcoming polls.
On Wednesday, the EC told the top court that it is not opposed to electoral bonds but to the anonymity of donations. “We are not opposed to the electoral bonds scheme, but we are opposed to anonymity, we want full disclosure and transparency,” advocate Rakesh Dwivedi had said.
Petitioners and government’s response
In response to three petitions filed in the SC—one of the CPIM and two of NGOs—the election body said political parties are “major stakeholders in a democracy and they should be held accountable to the public”.
Advocate Prashant Bhushan appearing for petitioner Association for Democratic Reforms challenged the validity of the scheme and sought that either the issuance of electoral bonds be stayed or names of donors be made public. “It is just a new channel to donate money to political parties anonymously,” he said.
Despite the fact that BJP’s income share from electoral bonds was Rs 210 crore (out of a total Rs 220 crore donation for all national parties), Attorney General KK Venugopal seems to think that voters need not know where political parties get their money from. RTI activists do and have expressed their curiosity, but several their requests to rectify this have been rejected.
Venugopal admitted before the court though that electoral bonds were introduced to eliminate black money, saying “it is a fact” that black money plays a part in elections. “Every illegal method to woo voters is adopted, that is the way of life,” he said. “Political leaders travelling in helicopters, huge money spent. Where is this money coming from? It is black money.”
Responding to flak over the lack of transparency in the donations BJP accepted for this year’s elections, Finance Minister Arun Jaitley, in a series of tweets, defended the scheme he had helped to design.
Electoral bonds are especially suspicious because their secrecy leads to total anonymity—no information of their purchasers is made public. Neither the parties nor the SBI, their designated seller, need to reveal the donors’ identities.
But how was this made possible?
Introducing the electoral bonds scheme on January 2, 2018, the government had described it as an “electoral reform” as the country “leaps towards a cashless-digital economy”.
It replaced electoral trusts used under the UPA government, which are tax-free arrangements whereby money from large companies is corporated to be passed on. Trusts must submit annual audit reports with the names of all contributors to the revenue and EC offices.
An alternative to cash donations made to political parties, electoral bonds are in the nature of bearer instruments, like a Promissory Note that any Indian citizen or a body incorporated in India is capable of purchasing. A person can buy electoral bonds, either singly or jointly, with other individuals.
According to the Economic Times, the identity of the donor will be known only to the bank. Some have hailed this as ideal for businesses, which wish to cover election expenses rather than pay towards year-long propaganda efforts.
Registered political parties under Section 29A of the Representation of the People Act, 1951, that have secured not less than 1% of the votes polled in the last election of the Lok Sabha or legislative assembly will be eligible to receive electoral bonds. SBI is the only lender authorised to issue such bonds, validity of which extends to 15 days after issuance.
A government affidavit on March 14, 2019, in the apex court clarified that electoral bonds were introduced to promote transparency in political funding and donations ecosystem. The anonymity of the scheme was intended to protect the privacy of the donor, it claimed.
The ADR, on the other hand, has claimed that certain amendments to the Finance Act virtually derailed guidelines laid down by EC on August 29, 2014, requiring political parties to file reports on contributions received, their audited annual accounts and election expenditure statements.
How law was contravened
Detailing how donations received through electoral bonds would impinge on the transparency in the funding of political parties, the EC in its affidavit listed electoral reforms that allegedly make it easier for political parties to elude accountability.
The EC took apart amendments made to key statutes of the Finance Act of 2017, that likely made the law more susceptible to abuse by political parties. The Finance Act of 2017 amended various laws, including the People (RP) Act of 1951, the Income Tax Act 2016, and the Foreign Contribution (Regulation) Act of 2010.
In a letter dated May 26, 2017, the EC informed the Ministry of Law and Justice that “by insertion of proviso to Section 29C of the Representation of the People Act, 1951, vide Section 137 of the Finance Act, 2017, it is evident that any donation received by a political party through an electoral bond has been taken out of the ambit of reporting under the Contribution Report as prescribed under Section 29C of the Representation of the People Act”.
It essentially allows political parties to skip recording donations received by them through electoral bonds in their contribution reports to the EC. “This is a retrograde step as far as transparency of donations is concerned,” EC said, leaving the poll panel with no way of ascertaining whether the donations were received illegally by the political party from government companies or foreign sources.
The EC said the amendment introduced by the government in the Income Tax Act allows anonymous donations. Donors to political parties need not provide their names, address or PAN if they have contributed less than Rs 20,000, which many political parties are exploiting in their audits.
The EC also flagged the Finance Act of 2016, highlighting how it had amended the Foreign Contribution (Regulation) Act to “allow donations to be received from foreign companies having majority stake in Indian companies…,” marking a shift from the existing law that barred receipt of donations from foreign sources.
The election watchdog had brought this issue to the Law Ministry’s notice in May 2017.
The FCRA amendment reportedly also lifts the cap on contributions by companies (not more than 7.5% of the net average profit of three preceding financial years), thus enabling newly incorporated companies to donate generously via electoral bonds.
Why should you care?
Electoral bonds are a threat to democracy, and its anonymity clause merits constitutional scrutiny.
All political parties—national and regional—are “expected to observe transparency as well as accountability with respect to funds raised as well as expenditure incurred by them…,” as per EC guidelines.
The election body is constitutionally empowered to take “appropriate action” to get political parties to make their income and expenditure “available for the perusal of the general public … to bring about transparency and accountability”.
The poll panel has “time and again voiced the importance of declaration of donation received by political parties” and their expenditure of the same, its affidavit read. But the electoral bonds scheme has made it very increasingly difficult for the EC to tackle this problem, and the SC must work accordingly and swiftly before it’s too late.
Meanwhile, the sale of electoral bonds will continue legally through the polls, which some critics have called questionable. However, the court on Friday directed the Finance Ministry to reduce the window of purchasing electoral bonds from 10 days to five days in April-May.
Prarthana Mitra is a Staff Writer at Qrius.
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