Legality Of Electoral Bonds
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This Blog is written by Ashutosh Agarwal from National Law University, Delhi. Edited by Anshika Porwal.
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INTRODUCTION
The term ‘electoral bonds’ was largely an unknown one until 2017 when the National Democratic Alliance government introduced it during the Union Budget announcement. The government introduced the Finance Bill 2017 to bring in the electoral bond scheme, a new method for funding of political parties in our democracy. So, the question arises, why this new method when there are existing methods to fund a political party. Political parties need substantial amounts of cash for their regular activities and, more importantly, to fight and win elections.
The government wanted to do away with malpractices such as black money, money laundering, and illegal funding of political parties, and hence introduced the electoral bond scheme. However, since its inception, it has attracted much flak for its anti-democratic nature and the way it was implemented by going against the advice and wishes of institutions like the Reserve Bank of India and Election Commission of India.
ELECTORAL BONDS – HOW DO THEY WORK
Electoral bonds pave the way for an Indian citizen, a company incorporated or established in the country, to fund a political party according to their wish anonymously. An electoral bond is just a financial instrument, like a banknote, and payable to bearer when demanded. In order to allocate an electoral bond to a political party, only two conditions are required to be fulfilled. Firstly, the political party is required to be recognized under Section 29A of the Representation of the Peoples Act, 1951. Secondly, the said party should have gathered at least 1% of the total votes of the last held elections, either parliamentary or assembly elections.
In order to obtain an electoral bond, one needs to visit one of the specified branches of State Bank of India within the first ten days of the first month in each financial quarter (January, April, July, October) and purchase it through bank draft or some digital payment method. The bonds can only be purchased in some specific pre-determined denominations and then can be donated to political parties, who are required to encash them within 15 days.
One of the prime features of electoral bond that attract people is its anonymity. There are very little paperwork and procedure involved in obtaining an electoral bond and then allocating it to a political party. However, the donor has to fulfill KYC obligations but has no obligation to reveal the source of his/her donations.
THE REAL PICTURE
Several Amendments
With the Finance Bill 2017, the government-initiated proceedings for electoral bonds. In the year 2018, the Electoral Bond Scheme was notified as a cash alternative for political funding. However, to implement the scheme, it was observed that multiple legislations were amended by the government to make the scheme work in the current politico-legal environment. They were the Section 31 Reserve Bank of India Act, Section 29C of the Representation of People Act, Section 13A of the Income Tax Act, Section 182 of the Companies Act, and Foreign Contribution Regulation Act. One of the significant concerns regarding such drastic amendments to the above essential legislations was that the opinion of the Rajya Sabha was not taken as the amendments to the said pieces of legislation were passed as money bills, thereby bypassing the Rajya Sabha. Moreover, provisions like the removal of a limit of 7.5% for corporate donations, along with allowing foreign entities to donate increases the controversial nature of the Electoral Bond Scheme.
Reserve Bank of India’s Opinion
It all began in the year when Reserve Bank of India was asked about comments and its opinion about the Scheme four days before the union budget was scheduled to be presented in the Parliament. The Reserve Bank, in its reply, posted objects to the proposed amendment in the Reserve Bank of India Act to make way for the Electoral Bonds Scheme. The central bank also stressed the fact that such a move would not introduce transparency in political funding but would promote secrecy, thus supporting its highly anonymous nature, which can be used to increase corrupt practices. The RBI was quoted as,
“The bonds are bearer bonds, and are transferable by delivery. Hence, who finally and actually contributes the bond to the political party will not be known.” [1]
The government ignored RBI’s advice on the nature of the electoral bind scheme, citing that RBI’s opinion came at a very late time when the Financial Bill has already been printed. One can clearly see the willingness and hurry of the government to present the bill.
Election Commission
After rejecting RBI opinion, it raised objections towards amending section 29c of the illustration of the humans act, 1951 According to the letter sent to the law ministry, the commission was concerned about the removal of reporting of donations received by any political party under the electoral bond scheme as per the Section 29C. Therefore, such a step discouraging transparency and democratic values, as against the advertised transparent nature of the scheme. There were concerns about funding through shell companies too by the Election Commission, as the letter stated:
“...lead to increased use of black money for political funding through shell companies.”
Not only that, but the government also went onto lengths to decline about it receiving any such letter from the election commission. During the 2018 winter session of the Parliament, a response by the Minister for the State of Finance, Pon Radhakrishnan to a query by Mohammad Nadimul Haque, clearly denied about any letter a year earlier, thereby misleading the house.
Ministry of Law and Justice
It has been alleged that the government took an undemocratic route of bypassing the upper house of the Parliament when it introduced the Finance Bill 2017. Such approval was given by the Law Ministry to bypass Rajya Sabha as a “one-off exception” which was revealed through documents as a reply to an RTI filed by activist Saurav Das.
Bending rules
It has been noticed that there was a presence of direct intervention from the Prime Minister’s Office for bending the rules about allowing the issue of electoral bonds during the first ten days of the first month of each quarter as specified. The said time limit of four ten-day windows was imposed to keep money laundering and corruption in check. However, it has been reported that under the direction of PMO, the Finance Ministry allowed the sale of electoral bonds out of the specific period for the same. When checking the dates of these unscheduled sale periods, it came to light that they were aptly placed just before the Karnataka State Assembly elections in May 2018. Another such window in 2018 was opened in November, just before the state assembly elections in Chhattisgarh, Madhya Pradesh, Telangana, Mizoram, and Rajasthan.
Ministry of Finance also received flak when it allowed State Bank of India to bend the rules and allow donating of expired bonds worth ten crore rupees. According to the law, such expired bonds should have been given towards the National Disaster Relief Fund. Moreover, during discussions over the Electoral Bond Scheme, the Ministry of Law and Justice, along with the Chief Election Commissioner (CEC), objected to the 1% vote share requirement, as stated in the Electoral Bond Scheme. Both of them demanded the share should be 6%, which is in line with the Representation of People Act, 1951, and 1% would create administrative problems concerning issuance and monitoring of electoral bonds.
CASE LAW
Not many cases regarding electoral bonds have been filed in Indian courts till now. Association for Democratic Reforms v. Union of India [2] is one such case where ADR, along with the Communist Party of India (Marxist) and Common Cause, filed a case in the Supreme Court of India. The petitioners contested that since the process of implementing the Electoral Bond Scheme bypassed Rajya Sabha in a situation where it held every right to examine the crucial amendments to the various legislations. Moreover, it objected to the scheme as all the donations coming through were towards the ruling party, which is the BJP. From March 2018 to October 2019, seven electoral bond issues occurred, in which 94.5% of donations received by the Bhartiya Janata Party were from bonds. To date, the Supreme Court has not put up any stay on the issue of electoral bonds, and the case is still under consideration.
CONCLUSION
Till now, the highly ambitious Electoral Bond Scheme of the NDA-led government has to show its promised benefits of eradicating malpractices like corruption in political funding scenario in India. It has been more than three years since its introduction, and all that it has gathered is negative criticism for the government and its misuse of the democratic powers it has been vested upon by the people of its country. It is a scheme that benefits everyone, even the political parties that are not in power and are in opposition. Everyone needs money to function, and this scheme does that by providing a massive influx of cash, which is extremely difficult to trace back to its source. On the other hand, it is justified to say that the scheme might have just furthered upon the vague and doubtful nature of political funding in India and thus having a direct effect on the democratic values of the country along with the process of free and fair election which are guaranteed by the Constitution of India.
REFERENCES
[2] WP (C) 333/2015