The Dichotomy Inherent in Electoral Bonds
Electoral bonds, or interest free bearer bonds, are a means to donate funds to political parties of one’s preference. As the system of electoral bonds involves a formal banking channel, it is touted as a transparent and accountable system of political funding, in the wake of a more stringent stance against corruption.
The Ministry of Finance, Department of Economic Affairs, by notification dated 2.1.2018, in exercise of powers under Section 31(3) of the Reserve Bank of India Act, 1934 had promulgated a scheme called, ‘The Electoral Bond Scheme, 2018’. Under the Scheme, an ‘electoral bond’ is “a bond issued in the nature of promissory note which shall be a bearer banking instrument and shall not carry the name of the buyer or payee”[i]. There were several amendments made to numerous Acts, such as the Reserve Bank of India Act, 1934[ii], the Representation of Peoples Act, 1951 (hereinafter “RPA”), the Income Tax Act, 1961, the Companies Act, 2013 and the Foreign Contribution Regulation Act, 2010 in order to give effect to the Scheme.
The electoral bonds were introduced in the Budget of the Financial Year 2017 to achieve the following objectives:
1. Transparency in Political Funding
When donations were not necessarily made through banks, the source of donation was not recorded/was pseudonymous and the quantum of money was never disclosed[iii]. This opaqueness is avoided when the name of the donor is available in bank records, thereby bringing the information in the public domain.
2. Increased Participation
The anonymity of donors will increase donations, as fear of harassment from the rival parties will be eliminated.
3. Promote Cashless Transactions
The traditional way of procuring funds through cash led to a lot of money being unaccounted for, with no legitimate account of the donor. The new Scheme, through the usage of bonds, promotes cashless transactions, bolstering accountability in the system.
Functioning of Bonds
Electoral bonds can be purchased by any ‘person’[iv], who may be an Indian citizen (individually or jointly), or any corporation incorporated in India[v]. No names are printed on the electoral bond(s) that are issued. Only those political parties can avail donations via bonds, which are registered under Section 29-A of the RPA, 195[vi]1 and have secured not less than 1% of the votes in the last Lok Sabha or State Assembly elections.
As directed by the Centre, the electoral bonds are available only in branches of State Bank of India for 10 days each, in the months of January, April, July and October. An additional period of 30 days is specified by the Centre in the year Lok Sabha elections are to be held[vii]. This ensures that electoral bonds do not assume the form of a parallel currency alongside the currency currently authorised. The donor should have a KYC compliant account, using which s/he can donate funds, in the denominations of Rs. 1000, 10000, 1 Lakh, 10 Lakhs and 1 Crore, to any eligible political party. Donations made in foreign currencies are not accepted.[viii]
The recipient political parties must then encash these bonds within 15 days from the date of issue of electoral bond(s). A political party does not remain eligible to receive the payment if the bond is submitted after the validity period[ix].
(Mis)Use of Bonds
The Centre’s scheme has several allegations being leveled against it, for example, that the Scheme favours the ruling party[x] and flouts and disrespects the essence of free and transparent elections. Though donations have increased in large numbers with the introduction of this Scheme, this route has also became a catalyst for the flow of black money[xi].
A report by, Association for Democratic Reforms (ADR) indicated that the tax declarations of various political parties to the Election Commission (hereinafter “EC”) showed that funding through electoral bonds is heavily biased in favour of big, national parties, (eg, BJP). It shows that out of the total Rs. 215 Crores generated through the electoral bond route in 2017-18, the ruling party secured Rs. 210 Crores while the Opposition secured Rs. 5 Crores[xii].
The ADR has claimed that the four amendments made to the aforementioned Acts have “opened the floodgates to unlimited corporate donations to political parties and anonymous financing by Indian as well as foreign companies, which can have serious repercussions on Indian democracy[xiii].”
Moreover, the scheme is criticized as only the authorized branches of State Bank of India, owned by the Central Government, issue electoral bonds. There is, thus, the probability that the Union Government may obtain access to the list of donors and misuse it. It is also feared that shell companies may be set up by political parties to donate anonymously, opening a seemingly legalized channel for money laundering, bribery and corruption.
The 2016 amendment to the Foreign Contribution (Regulation) Act, 2010 defeats another purpose of the Scheme. The contributions made by Indian subsidiaries of foreign companies are now considered to be funding by an Indian source. Foreign funding through this route is no longer subjected to investigation by law enforcement agencies, enabling foreign companies to donate to political parties. Hence, the anonymity of the donor clause clears the path of investigation, enabling foreign companies to donate to political parties[xiv].
Anonymity of the Donor
The Scheme envisages that the name of the donor is not to be printed on the issued electoral bond. The details of the donor remain between the donor and the bank. This clause was introduced so that rival political parties do not harass the donors, also encouraging private entities to donate.
However, it has resulted in the viability of the electoral bonds being questioned. Rather than transparency, the anonymous donations are facilitating legalisation of black money. The non-disclosure of donors in the affidavits has been interpreted as a threat to democracy as the voters are not fully aware about the contesting political parties. This also leads to reduction in the accountability of the political parties, as the source and percentage of donations a party gets, plays a major role in its workings and inclinations. The anonymity of the donor, will give big corporations access to majorly fund, and indirectly control, policies of any political party.
The Supreme Court (hereinafter “SC”), over the last decade, has ensured that free, transparent and fair elections take place in the country to prevent the perversion of democratic ideals. It has been in favour of voters being given complete information about the parties contesting elections[xv], enabling voters to make an informed decision. The notification of the Electoral bond Scheme led to a lot of criticism from various corners of the socio-political landscape, leading to it being challenged in the SC.
Association for Democratic Reforms and Anr. v. Union of India and Ors[xvi]
The case was instituted in 2015 and on 3rd October 2017, a notice was sent to the Central Government and the EC, on account of a petition filed by two NGOs, namely, Association of Democratic Reforms, and Common Cause. Further, on 2nd February 2018, this petition was tagged with a petition filed by CPI(M), which too approached the Court, challenging the Centre’s electoral bond scheme. The SC delivered a judgment on the same on 12th April 2019[xvii].
The primary issue contended by the Petitioners was that the anonymity provision for a donor infringes, the citizens’ Right to Know, as guaranteed under Article 19(1)(a)[xviii] of the Indian Constitution. It infringes their right to know about the contributions made to various political parties and the source of such contributions.
The Petitioners sought directions from the Hon’ble Court to strike down amendments made through the Finance Act, 2017, as it led to-
Unlimited political funding (from big, domestic and foreign corporations/entities) since the aforementioned Act amended the cap on donations and amended provisions regarding foreign funding
Gross lack of transparency with regard to the identity of the donor
Legitimising political corruption
Election Commission’s Stance
The EC’s stand was against the clause of anonymity, but not against the concept of electoral bonds. In an affidavit[xix] submitted by the EC to the SC, it had mentioned how the concept of electoral bonds with the accompanying provision of anonymity destroyed the essence of transparency in the electoral machinery. It stated that the EC would accept the scheme once the names of the donors were revealed. Further, the EC also stated that it had warned the Ministry of Justice against the possible misuse of the vague worded scheme through a letter in 2017[xx].
The EC also highlighted the problems that the numerous amendments brought in by the Finance Act, 2016 and 2017 are likely to cause. For instance, insertion of S.29C in the RPA, 1951 along with S.137 of the Finance Act, 2017[xxi] evidently takes the donations made to the political parties outside the ambit of Contribution Report, which is required under S.29C in the RPA, 1951[xxii].
Union of India’s Stance
The Centre emphasized on the objective with which this scheme had been introduced and highlighted its need in the light of increasing menace of unaccounted money used in elections[xxiii]. Moreover, the Centre contended that the scheme would be successful only once it’s implemented and that the government be given a free hand to execute the same.
The Court passed an interim order to balance the interests of the stakeholders involved. The political parties were directed to submit the details of the donations received in a sealed cover to the EC along with the particulars of the donors, the bonds encashed, and the bank it was issued from[xxiv].
The objective behind the Scheme was the interest of the people, however, the practice has seemingly been against the interest of democracy. The resultant opacity in political funding, as discussed above, results in “lobbying and capture” of the government by big donors[xxv], making it easier for the influential industrialists to bring to power a favorable government.
Keeping in view the objectives with which it was enforced, some of the suggestions to improve the scheme are as follows:
The digitalisation of transactions will help in keeping a check over the flow of black money.
The anonymous transactions must be accessible to the EC for scrutiny. This will allow the anonymity of the donors to be maintained, while allowing the non-genuine transactions to be checked.
There should be additional safeguards for allowing donations from Indian subsidiaries of foreign companies in order to maintain the demarcation between donations from an Indian vis a vis a foreign source.
A more stringent procedure regulating donations by artificial persons needs to be arrived at. This will deter political parties from creating shell companies that are aimed at turning their black money into white money.
Another recommendation given by former Chief Election Commissioner, S.Y Quraishi, is the establishment of a ‘National Electoral Fund’[xxvi], to which all donors can contribute. These funds would then be distributed amongst political parties in proportion to their share of votes. This would allay both the concerns regarding the protection of the identities of the donors, as well as elimination of black money from political funding. It remains to be seen how the system of donation will further evolve. Further, it also remains to be seen the steps for minimization of perversion of the scheme and maximum utility as well a mechanism to punish those who benefit from the aforesaid perversion.
[i] Reserve Bank of India Act, 1934, S. 31(3).
[ii] Association for Democratic Reforms & Anr. v. Union of India & Ors., W.P. (Civil) No. 333/2015.
[iii] Arun Jaitley, ‘Why Electoral Bonds are Necessary’ (2018) Press Information Bureau, Government of India, Ministry of Finance, available at http://pib.nic.in/newsite/PrintRelease.aspx?relid=175452 (last accessed 9 June 2018).
[iv] A ‘person’ includes an individual, HUF, firm, company or any other artificial person or juridical person.
[v] ‘Electoral Bond Scheme 2018’ (2018), Press Information Bureau, Government of India, Ministry of Finance http://pib.nic.in/Pressreleaseshare.aspx?PRID=1550963.
[vi] Representation of Peoples Act, 1951, s. 29-A.
[vii] Department of Economic Affairs, Ministry of Finance, Government of India, ‘Notification’, 2 January 2018, available at http://egazette.nic.in/WriteReadData/2018/181434.pdf (last accessed 6 July 2019)
[viii] FAQs – Electoral Bond Scheme 2018, State Bank of India, https://www.onlinesbi.com/documents/27022018_2032_FAQ_Final.pdf.
[x] Association for Democratic Reforms’s Report on ‘Analysis of Sources of Funding of National Parties: FY 2017-18 (2019)’
[xi] A Patel,”BJP earned Rs 553 crore from unknown sources in 2017-18”, India Today, 25 January 2019, at https://www.indiatoday.in/india/story/bjp-rs-553-crore-unknown-sources-adr-1438812-2019-01-25 (last accessed 5 July 2019).
[xii] S.C. Agarwal, “Electoral Bonds: What’s the Controversy”, Business Today, 12 April, 2019, at https://www.businesstoday.in/current/economy-politics/electoral-bonds-what-the-controversy/story/336747.html (last accessed 15 June, 2019).
[xiv] See- Zeenat Saberin, ‘India parties now can get foreign funding, activists say not OK’ (2018) AlJazeera, accessed at https://www.aljazeera.com/indepth/features/india-parties-foreign-funding-activists-180410122808220.html (last accessed 15 June, 2019).
[xv] Union of India v. Association for Democratic Reforms (2002) 5 SCC 294.
[xvi] Association for Democratic Reforms v. Union of India Cabinet Secretary, W. P (Civil) No. 333/2015.
[xvii] W.P (Civil) No. 333/2015 with W.P (Civil) No. 880/2017, 59/2018, 434/2018.
[xviii] S.19(1)(a) of the Indian Penal Code, 1860.
[xix] W.P (Civil) No. 333/2015 with W.P (Civil) No. 880/2017, 59/2018, 434/2018, ¶ 5.
[xx] Letter No. 56/PPEMS/Transparency/2017.
[xxi] Finance Act, 2017, s. 137
[xxii] Representation Peoples Act, 1951, s.29C.
[xxiii] The Centre relied on reports of the Carnegie Endowment for International Peace which highlighted the high level of unauthorised fundings for elections in India; Para 10, W.P (Civil) No. 333/2015 with W.P (Civil) No. 880/2017, 59/2018, 434/2018.
[xxiv] Association for Democratic Reforms v. Union of India Cabinet Secretary, W. P (Civil) No. 333/2015
[xxv] G. Sampath,“The Danger of Electoral Bonds”, The Hindu, 21 November 2017, at https://www.thehindu.com/opinion/op-ed/the-danger-of-electoral-bonds/article20602008.ece (last accessed 18 June 2019).
By Anandita Bhargava and Smita Gupta, Senior Editors & Malveka Nautiyal, Associate Editor, RSRR