Law Ministry Warned Modi Govt on Electoral Bonds, Reveals Report

In another shocking set of revelations about the controversial electoral bonds scheme, Huffpost India reported that the Law Ministry had signed off the scheme as proposed by the Narendra Modi government while recording the government’s strategy as illegal and unconstitutional. Alongside, it has also been established that the State Bank of India had resorted to misinformation and falsehood while responding to RTI inquires.

After introducing the idea of electoral bonds during the 2017 Union Budget and subsequently tabling the Finance Bill for the same purpose, Arun Jaitley, then Finance Minister and Corporate Affairs Minister had held meetings with his officials in March 2017 to discuss the necessary amendments to the provisions of the Companies Act, 2013, for unveiling the scheme. The report stated that one of the file noting obtained through RTI replies reads as, “It was, inter alia, decided that section 182 of the Companies Act, 2013 (Prohibition and restrictions regarding political contributions), may be amended, keeping in view the various steps being taken by the government to bring transparency in electoral funding.”

Reportedly, the changes proposed to Section 182 removed a “provision capping the upper limit of corporate donations to 7.5% of net profits averaged over three years,” while allowing corporations to “hide the name of the political party to which they were donating”.

Also watch: Everything You Need to Know About Electoral Bonds

As per the report, according to another file noting during the meeting, it emerged that the ministry decided to include changes to Section 182 of the Companies Act after a course of “informal discussions”. These “informal discussions,” the report argues, are illegal as it violates a 2013 Supreme Court judgement on how official minutes must be recorded, and breaches the Manual of Office Procedure of the Ministry of Personnel, Public Grievances and Pensions.

But the justification of the ministries has been that the political donations provide tax benefits to the Consolidated Fund of India. Corporate Affairs Ministry in its minutes of the meeting on March 16, 2017, justified the Finance Bill by noting that all political contributions “made by companies under section 182 are eligible for deduction from the total income for the purpose of income tax calculations under section 80GGB of the Income Tax Act. Removal of the upper cap of 7.5% has potential implications on tax revenues of the Government.”

Law Ministry’s apprehensions on Money Bill

The report highlights how the central government bypassed the Rajya Sabha for amending the provisions of the Companies Act by introducing the bill as a money bill.

As per the RTI replies, on March 16, 2017, when the Corporate Affairs Ministry wrote to the Law Ministry asking “whether the proposed changes in section 182 of the Companies Act may be made through official amendment in the Finance Bill, 2017,” the Law Ministry had replied stating that the amendments proposed in Section 182 are “not the provisions directly dealing with all or any of the matters enumerated there under clause (a) to (g) of Article 110(1) in a strict sense it may not be considered as a money bill.”

As per Article 110 of the Indian Constitution, a money bill deals with receipts, expenditures, taxes or borrowings by the government which stands to impact the Consolidated Fund of India.

But, the Law Ministry signed off the proposal stating that “as the amendments proposed are having a bearing on regulation of income tax under the Income Tax Act, 1961, and revenue flowing into the Consolidated Fund of India it may be made through official amendment in the Finance Bill, 2017.” The note concluded by asking the ministry to avoid considering such practice and advised to adopt the extant regular legislative practice and procedure in future.

Also read: Elections 2019: EC Says Electoral Bonds to have Serious Impact on Transparency

During the financial year (FY) 2018-19, according to an analysis by Association for Democratic Reforms, the BJP claimed it received 75% or Rs 1,450 crore through electoral bonds, out of its total income of Rs 2,410 crore, while Congress received Rs 383 crore and Trinamool Congress got Rs 97 crore through electoral bonds.

SBI’s false responses to RTI inquires

The Huffpost India report revealed that the State Bank of India has responded evasively and in some cases falsely, in its answers to 13 questions filed by transparency activist Venkatesh Nayak, in an RTI request in December 2019. The report stated that Nayak’s questions were crafted to get “a sense of just how the electoral bond scheme has been utilised by donors since it was first announced in February 2017 and implemented in March 2018, when the first tranche of bonds were sold.” Another clutch of questions pertained to “the numbers of electoral bonds printed, sold and purchased, the date-wise record of when these bonds were redeemed, how long SBI maintained the paper trail of redeemed and forfeited bonds, and the physical locations where these redeemed bonds were held.”

Also read: Electoral Bonds: SBI Branches Deny Information Under RTI About Buyers

On the question of how many bonds of each denomination had been sold in 2018 and 2019, the bank replied that the information is not available, which according to the report is untrue. The report revealed that the SBI maintains this data, shares it periodically with the Finance Ministry, and takes instructions on issues regarding printing of these bonds. This was established after review of documents obtained through RTI by another transparency activist, Commodore (retired) Lokesh Batra .

SBI has also denied to provide information on a date-wise record of transactions involving the sale of electoral bonds by every branch by stating it would “disproportionately divert the resources of the Bank,” despite providing the same information to Finance Ministry on a regular basis.

On the request to provide information on the recurring costs of the electoral bond scheme, SBI claimed, “The information sought by the applicant is the information of commercial confidence in nature, disclosure of which would harm the competitive position of the bank. Hence denied as it is exempted under section 8(1)(d) of the RTI Act.” This response, according to the report is farcical as “SBI’s position is untenable as the bank has a full monopoly over the electoral bonds scheme” and that the information is collated and provided to the Finance Ministry.