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Opaque Scheme?

The electoral bonds scheme has run into rough weather ever since it began and the Court will soon be hearing petitions challenging it. They allege that it has opened the doors to unlimited, unchecked funding to political parties in the country

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The top court is likely to begin hearing a clutch of petitions challenging the electoral bond scheme soon. Its decision could impact the funding of different political parties and, therefore, is much awaited.

Electoral bonds are instruments in the nature of promissory notes which can be purchased by any Indian citizen or body incorporated in India to donate money to political parties. These bonds are issued by authorised branches of the State Bank of India in denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and Rs 1 crore. The bonds can be purchased by donors anonymously by making payment from a bank account and the political party can then encash them through a designated bank account with the authorised bank, as against the conventional practice of funding through cash. The bonds are valid for 15 days from the date of issue. 

Furthermore, only those political parties which are registered under Section 29A of the Representation of the People Act, 1951, and which secured not less than one per cent of the votes polled in the last general election to the House of the People or a Legislative Assembly are eligible to receive electoral bonds. 

The scheme was introduced by the centre in 2018 in a bid to cleanse the system of electoral funding in the country. Then Finance Minister Arun Jaitley first announced the idea of electoral bonds in his Budget Speech 2017-2018. “Even 70 years after Independence, the country has not been able to evolve a transparent method of funding political parties which is vital to the system of free and fair elections…. Political parties continue to receive most of their funds through anonymous donations which are shown in cash. An effort, therefore, is required to be made to cleanse the system of political funding in India,” he had said. 

The main changes proposed included reducing cash donation to a political party from Rs 20,000 to Rs 2,000. The speech also outlined the contours of electoral bonds to bring about clean money and substantial transparency in political funding.

Jaitley had said: “India is the largest democracy in the world. However, despite strengthening various institutions for the last seven decades, India has not been able to evolve a transparent political funding system. Elections and political parties are a fundamental feature of parliamentary democracy. Elections cost money. The round the year functioning of political parties involves large expenditure. Parties run offices throughout the country. Staff salaries, travelling expenses, establishment cost are regular expenditures of political parties. There has not been a single year where elections either for the Parliament or state assemblies have not been held. Besides expenditure of individual candidates, political parties have to spend money on election campaigns, publicity, tours, travels and election related establishments.  These expenditures run into hundreds of crores. Yet there has not been transparent funding mechanism of the political system.”

It was through the Finance Act of 2017 that electoral bonds were introduced, which in turn, amended various other statutes, including the Reserve Bank of India Act, the Income Tax Act and the Representation of People Act for enabling introduction of such bonds. The amendments also removed the ceiling of 7.5% of net profit in the past three years which a company could donate to a political party.

Under the Finance Act, 2017, a new system was introduced for electoral bonds to be issued by any scheduled bank for the purpose of electoral funding. The Finance Act was passed as a money bill, which meant that it did not require the assent of the Rajya Sabha.

Challenging the scheme, a bunch of petitions were filed before the apex court in 2019, alleging that the scheme was distorting democracy. The petitions were filed by NGOs—Association for Democratic Reforms and Common Cause. A separate petition was filed by the Communist Party of India-Marxist. The petitions challenged the amendments made to various statutes to introduce the scheme on the ground that the same had opened doors to unlimited, unchecked funding to political parties in the country.

The petitions highlighted that the ill-effects of the amendments are that the annual contribution reports of political parties do not have to mention the details of those contributing by way of electoral bonds, thereby killing transparency in political funding and creating a potential burden for the Election Commission of India. The scheme was also challenged for opening avenues of foreign contribution to Indian political parties inasmuch as it threatens India’s autonomy and democracy.

In March 2021, an apex court bench headed by then Chief Justice of India SA Bobde had dismissed an application moved by the Association for Democratic Reforms ahead of the assembly elections, demanding that any fresh sale of electoral bonds be stayed. Referring to the petitioner’s claim that the buyers of the bonds had “complete anonymity”, the top court observed that “it is not as though the operations under the scheme are behind iron curtains incapable of being pierced”.

“If the purchase of the bonds as well as their encashment could happen only through banking channels and if purchase of bonds are allowed only to customers who fulfill KYC norms, the information about the purchaser will certainly be available with the SBI which alone is authorised to issue and encash the bonds as per the Scheme. Moreover, any expenditure incurred by anyone in purchasing the bonds through banking channels, will have to be accounted as an expenditure in his books of accounts,” observed the top court. Dismissing the application, the Court noted that the sale of these bonds, which began in January 2018, continued without any impediment in 2018, 2019 and 2020. 

Ever since its introduction, the scheme has received severe criticism by many who believe that its opaque nature appears to undermine the intent behind introducing it in the first place. Critics further believe that the electoral bonds scheme removes all pre-existing limits on political donations and effectively allows well-resourced corporations to fund elections, subsequently paving the way for crony capitalism.

It is now crucial for the government to plug the loopholes in the existing laws to make the entire mechanism more accountable and transparent. 

—By Banshika Garg and India Legal Bureau

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