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Electoral Bonds, Eligible Political Parties, Donors and Related Concerns

Context:

  • The Bhartiya Janta Party (BJP) received nearly 54% of its income from electoral bonds.
  • Recently, the Supreme Court declared the electoral bonds scheme to be “unconstitutional”.

About Electoral Bonds

Meaning and Working of Electoral Bonds

  • EBs are like promissory notes that can be bought by any Indian citizen or company incorporated in India from specified branches of the SBI.
  • A citizen or corporation can then donate the same to any eligible political party of their choice.
  • Political parties who received such EBs from donors can then encash them through the party’s designated bank account with the authorised bank.
  • EBs are valid for 15 days from the date of issue.
  • EBs are interest-free.

Denominations in which EBs can be bought

  • EBs are issued by the SBI in multiples of ₹1000, ₹10000, ₹1 Lakh, ₹10 Lakh, and ₹1 crore.
  • They can be issued/purchased for any value (no upper limit) in denominations as mentioned above.
  • It can be bought through digital payment/cheque and not through cash.

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Key Features of Electoral Bonds

  • EBs are issued by: 29 specified branches of the SBI in cities such as New Delhi, Gandhinagar, Lucknow, Bhopal, Chennai, Guwahati, etc.
  • Eligible political parties: EBs can only be received by those political parties which are registered under section 29A of the Representation of the Peoples Act, 1951 and secured not less than 1% of the votes polled in the last general election to the House of the People or a Legislative Assembly.
  • Eligibility of donors: Donors must fulfil KYC norms and have a valid bank account.
  • Anonymity of Donor:
    • EBs do not carry the name of payee/donor.
    • So, the identity of the donor is anonymous and is known only to the bank.
  • Availability of EBs:
    • EBs are available for purchase for 10 days in the beginning of every quarter.
    • The first 10 days of January, April, July, and October have been specified by the government for the purchase of EBs.
    • Additional period of 30 days can be specified by the government in the year of Lok Sabha elections.

Electoral Bonds Scheme Amended Important Laws

  • Foreign Contribution Regulation Act, 2010 (FCRA): amendments made in this act now allow foreign companies owning majority stakes in Indian companies to donate to political parties.
  • Representation of People Act, 1952 (RPA): amendments made in this act exempts political parties from reporting donations received through EBs to the Election Commission.
  • Companies Act, 2013:
    • Previously, a corporate firm could donate a maximum of 7.5% of its average three year net profit as political donations according to Section 182 of the Companies Act.
    • Section 182 also provided that the companies had to disclose details of their political donations in their annual statement of accounts.
    • Amendments made in this act now ensure that above-mentioned section-182 provisions would not be applicable to companies in case of electoral bonds.

Government Arguments Related to Electoral Bonds (EBs)

  • Curbing Black Money: The scheme aimed to reduce black money in politics by funnelling donations through formal banking channels, ensuring transparency and accountability.
  • Donor Anonymity: Protecting donors’ privacy was considered a legitimate aim, encouraging more contributions without fear of repercussions, based on the fundamental right to privacy.
  • Right to Information Limits: The government argued that voters’ right to information extends only to data the state possesses, implying that anonymity under the scheme does not infringe on this right since the state does not have access to donor identities.
  • Safeguards for Investigations: In cases of criminal investigations, details about electoral bond donations could be disclosed under a court order, providing a safeguard against misuse while maintaining donor anonymity.

Supreme Court’s Verdict

  • Struck Down Electoral Bonds Scheme: On the principle that the scheme violated the voters’ right to information about political funding, as protected under Article 19(1)(a) of the Constitution.
    • Right to know supersedes anonymity in political party funding.
  • Invalidated Legal Amendments: The Court also invalidated amendments made to the Representation of the People Act, the Companies Act, and the Income Tax Act that facilitated the electoral bonds scheme and permitted unlimited political donations by corporations.
    • These amendments were found to compromise the transparency and integrity of the electoral process.
  • Identified Corruption and Quid Pro Quo Concerns: The Court expressed concern that the scheme and amendments enabled corruption and quid pro quo arrangements, allowing corporations to exert undue influence on the electoral process in exchange for policy changes or licences.
  • Emphasised Democratic Principles: The Court stressed that economic inequality in political contributions undermines democratic principles, particularly the ethos of ‘one person, one vote’, and jeopardises free and fair elections.

Concerns Highlighted by the Institutions

Reserve Bank Of India

  • RBI objected to other banks issuing electoral bonds, arguing it would enable “multiple non-sovereign entities to issue bearer instruments” which could “undermine the faith in banknotes”.
    • Also arguing it would damage public perception and the credibility of the financial system and central bank.
  • RBI argued anonymity of intermediate transactions would violate money laundering prevention principles.
  • RBI suggested using cheques, drafts, or electronic payments instead, as the goal of using tax-paid money could be achieved without bearer bonds.
  • RBI warned of potential misuse by shell companies for money laundering and forgery.

Election Commission of India

  • Lack of transparency:
    • Anonymous donations through EBs prevent reporting under the Representation of the People Act, hindering transparency.
    • Deletion of party-wise disclosure requirements in Companies Act removes crucial information on funding sources.
  • Increased risk of black money:
    • Unlimited corporate funding through EBs could facilitate the use of shell companies and black money for political funding.
  • Recommendations:
    • Remove anonymity clauses and enforce reporting of EB donations.
    • Reinstate party-wise disclosure requirements for corporate donations.
    • Reintroduce cap on corporate funding to limit black money usage.

3 Key Laws Invalidated By the Supreme Court

Legislation Original Provision Finance Act, 2017 Amendment Supreme Court Verdict
Representation of the People Act, 1951 (Section 29C) Required political parties to report donations over Rs 20,000. Exempted donations received through Electoral Bonds from this requirement. Struck down the amendment, emphasising the balance between voters’ right to information and donor privacy.
Companies Act, 2013 (Section 182) Limited corporate donations to 7.5% of net profits over the past three years and required disclosure of donation details and recipient parties. Removed the cap on corporate donations and the requirement to disclose recipient parties and donation amounts. Invalidated the amendment, noting that unlimited corporate contributions could unduly influence the electoral process.
Income-tax Act, 1961 (Section 13A) Excluded voluntary contributions over Rs 20,000 from a political party’s total income, requiring the record of such contributions to include donor details. Amended to exclude donations via Electoral Bonds from the record-keeping requirement and introduced a new section mandating donations over Rs 2,000 to be made through specified methods, including Electoral Bonds. Overturned these changes, ruling that they violated voters’ right to information as protected under Article 19(1)(a) of the Constitution.

Concerns Related to Electoral Bond

  • Lack of Transparency: Donors and recipients remain secret, raising concerns about undue influence and policy decisions influenced by hidden interests.
  • Potential for Undue Influence: Anonymity allows for “quid pro quo” situations where donors influence policy in their favour.
  • Unequal Playing Field: Benefits larger parties as they attract larger anonymous donations.
  • Misuse of State Machinery: Ruling parties might have leverage through access to donor information via SBI.
  • Impact on Policy Decisions: Policies might favour big donors, skewing governance towards their interests.
  • More than 90% High-Denomination Bonds: Raises concerns about large, potentially undisclosed donations.
  • Global Standards Not Met: Lacks transparency compared to global norms demanding full disclosure.
  • Money Laundering Risk: Anonymity facilitates potential use for laundering illicit funds.
  • Precedent for Opaque Funding: Sets a worrying precedent for further financial opacity in political systems.
Key Highlights of the ADR’s Report
  • Between 2016-17 and 2021-22, seven national and 24 regional parties received a total donation of ₹16,437.63 crore.
  • Out of the total donations, 55.9% was from the electoral bonds, 28.07% was received from the corporate sector and 16.03% from other sources.
  • For national parties, there was a 743% increase in donations from electoral bonds between 2017-18 and 2021-22, while corporate donations rose only 48%.
  • The total donations declared by the BJP is more than three times the total donations declared by all other national parties, the report said.
  • More than 52% of the BJP’s total donations came from electoral bonds worth ₹5,271.97 crore.  The Congress declared the second highest donations from bonds of ₹952.29 crore (61.54% of its total donations) followed by the Trinamool Congress that got ₹767.88 crore (93.27%).

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