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Political Funding Under Scrutiny

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By Sanjay Raman Sinha

Almost one year and seven months after the last effective hearing took place, the five-judge Constitution bench sat down to hear the final round of submissions of parties in the electoral bonds scheme case. The hearings began on October 31. After three intense days of marathon rounds of submissions and counter submissions and pointed questions by the judges, the verdict was reserved. The case was Association for Democratic Reforms and Anr vs Union of India Cabinet Secretary and ors.

A bench of Chief Justice of India (CJI) DY Chandrachud and Justices Sanjiv Khanna, BR Gavai, JB Pardiwala and Manoj Misra deliberated on the constitutional validity of the electoral bonds scheme. Under consideration were two key issues: first, introducing the electoral bonds scheme as a Finance Act and its subsequent bypassing of the Rajya Sabha; second, the question—does the scheme facilitates unaccounted anonymous political donations by companies?

Before the hearing began, Attorney General R Venkataramani submitted in the Supreme Court that citizens do not have the right to know about the funding of political parties. This set the tone and tenor of the hearings which was to follow. As the issues were raised, arguments were put forward for and against them. It was a well-fought legal case where strongly nuanced and rationally complex reasoning were pitched in. One core issue is anonymity of the electoral bonds.  Anonymity includes donors’ identity and transactions secrecy.

When, in 2017, the then Union Finance Minister Arun Jaitley announced in his budget speech the government’s intention to launch a new mode of electoral funding which would introduce transparency in election finance, people listened with expectation and hope, and political parties with trepidation. The idea was that the persons willing to fund political parties can approach the State Bank of India to purchase limited bearer bonds in specified denominations during periods as specified by the government and use accounted (white money) and deposit these bonds in the account of political party of their choice.

The electoral bonds are issued in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and Rs 1 crore—to political parties of buyer’s choice and have to be redeemed by the parties within 15 days, failing which the amount will be deposited by the bank to the Prime Minister’s National Relief Fund. It was assumed that since the transaction is happening through a formal banking channel, the identity of the donor can be traced. Theoretically this is correct, but for all practical purposes, the donor is not under any commitment or pledge to reveal his donorship details, nor is the recipient political party. The details remain secret, but if the ruling party wants, it can ask the bank for funding details. Clearly, the ruling party can identify donors, but the Opposition parties cannot. This bias is built in the scheme and was brought to question during the hearing.

Senior advocate Kapil Sibal, representing the petitioners, held that lack of transparency regarding donor identity and transaction negatively affects citizens’ participation in the democratic process. He argued that the scheme favours the ruling party and is violative of Article 324 of the Constitution. Sibal’s argument hinged on the core principles of free and fair elections. He argued that the use of financial resources in the political process can influence decision-making of the government. Such funding doesn’t provide a level playing field for all political parties and the ruling party gets the most of the funding, he insisted. 

According to the latest Association of Democratic Reforms (ADR) data on electoral bonds for the period 2016-22, the total donations received by all political parties is of the order of Rs 9,188 crore. The Bharatiya Janata Party received 57% of the total electoral bond donations. Sibal’s panacea was to make corporate funding a must for the entire electoral process, and not only for political parties.

Not strangely for a government which introduced the scheme to promote transparency in elections, the charges of anonymity are bearing heavy. It was thus no surprise when its legal officer Solicitor General Tushar Mehta requested the bench to refrain from using the terms “anonymity” and “opacity” to describe the scheme, contending that the scheme only ensured “confidentiality” which could be opened by the Court’s instruction. Importantly, Mehta stressed the point that donations’ confidentiality is necessary to protect the donor from retribution they may face from another political party if their funding to a particular party is made public.

The CJI, however, remarked: “The problem with the scheme is that it provides with selective anonymity. It’s not completely anonymous. It’s not confidential qua the State Bank of India. It’s not confidential qua the law enforcement agency.” Related to the issue of anonymity is the charge of the use of black money in the scheme.  

During the second day of the hearing, the Supreme Court questioned if the scheme was legalising “kickbacks” made to political parties. “We’re providing for a complete information hole!” the CJI remarked.

The ADR, a petitioner, in one of its report has stated: “Electoral bonds have surely emerged as a vital instrument to both endorse and encourage opacity by not only opening the floodgates of indefinite and mysterious donations, but also legitimizing the illicit money in our electoral and political process to the tune of more than Rs 6,500 crore.” Mehta countered the point in Court, submitting that the electoral bonds scheme was a part of a broader effort of the government to curb black money in the country.

Major General Anil Verma (retd), president, ADR, speaking to India Legal expressed key concerns regarding the electoral bonds scheme. He said: “It is opaque, donors are anonymous, may be used for converting black money into white by formation of shell companies, round tripping of funds through global networks, even foreign funding may be coming, leads to quid pro quo arrangements between political parties and corporates. Loss making companies can also donate via electoral bonds, enhances crony capitalism, further skewing the level playing field for smaller political parties. These apprehensions were also expressed by the Election Commission of India, the Reserve Bank of India and eminent citizens, but were overlooked and the electoral bonds scheme was bulldozed through the Parliament as a money bill.”

The risk of the creation and use of shell companies for political donation purposes is also a core issue. It is feared that the bonds can become a vehicle for money laundering. Before introducing the electoral bonds through the Finance Act 2017, companies were allowed to donate at the most 7.5% of their profits. But now, any company, either profit-making or loss-making, can contribute. Also, the Indian subsidiaries of foreign companies can make donations. This was made possible after passing the Finance Act, 2017, which amended the Income Tax Act, the RBI Act and the Representation of People Act. This introduction and subsequent passing of modified electoral bonds scheme as a Finance Act and bypassing the Rajya Sabha is a core issue of the case. The petitioners have challenged the amendments introduced by the Finance Act 2017.

TS Krishnamurthy, former chief election commissioner, while speaking to India Legal said: “The issue is not whether it was introduced rightly as Money Bill. The issue is whether it is promoting transparency in public funding of parties. Considering how political parties are functioning in India, funds should not be given directly to political parties. There are countries where parties are allowed to collect funds only from its own members and their families. Unless we ban political parties from collecting funds for their electoral activities our democracy will not be quality democracy.”

During the arguments, advocate Prashant Bhushan pointed out that the amendment in the form of Money Bill allowed even loss-making companies or inactive companies (“shell companies”) to make unlimited donations to political parties. However, supporting the move, Mehta said that some companies in the past wanted to donate more than the cap limit of 7.5%, which led to the creation of shell companies. Now removal of the cap would help in disincentivising the shell companies. Mehta also said that through this scheme of the central government, those paper political parties will be curbed which have been doing the business of converting black money into white and getting exemption in income tax by taking cash in the name of donations.

Krishnamurthy opined and prescribed a solution: “I have always held the view that electoral bonds are not fully transparent. In my opinion it is not healthy to allow corporations to donate directly to political parties as it would affect neutrality of political parties in policy formulations. We need a system of public funding of elections without being tainted by a nexus between political parties and corporate donors. One suggestion could be to route all donations through a National Election Fund with 100% income tax exemptions.”

The role of political parties is also under the scanner. The Chief Information Commissioner’s (CIC) decisions of 2008 and 2013, declaring political parties as public authorities were not implemented by the national political parties. The CIC bench had said: “Political parties are important public institutions and play a critical role in heralding transparency in public life. They continuously perform public functions which define parameters of governance and socio-economic development in the country. The people of India must know the sources of income and expenditure of the political parties.”

As per the regulations, the political parties that have secured at least 1% votes in the recent Lok Sabha or state assembly elections and are registered under the Representation of the People Act can get a designated account from the Election Commission to get the donations via electoral bonds. Mehta said that through the electoral bonds scheme, those paper political parties will be curbed which have been doing the business of converting black money into white and getting exemption in income tax by taking cash in the name of donations. A suggestion was put forward to identify and curb these rogue political parties.

With the attorney general telling the Supreme Court that citizens don’t have the right to know about the funding of political parties, it has reopened the age-old question of the right to know versus privacy.

“Under Article 14, the public has a right to know; the anonymity provided by electoral bonds infringes on the voter’s access to information about the sources of political parties’ finances and ability to ascertain any possibility of quid pro quo,” Verma stressed. Very tellingly, the attorney general’s assertion that the right to know was a peripheral right was shot down by the chief justice himself .

The CJI said: “There is no right to privacy expressly recognised under the Constitution, but we read it in right to life, dignity, preambular values, etc… Declaring an aspect as a part of a declared right does not impinge on separation of powers.”

At the end of all submissions, the Supreme Court directed the Election Commission to obtain and submit in sealed covers the details of funds received by all political parties through electoral bonds till September 30, 2023. 

Till then, many fingers are crossed.

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