Pseudo-Transparency Through the Electoral Bond Scheme

On January 19, the CPI(M) had filed a petition in the Supreme Court of India challenging the Electoral Bond Scheme, among other recent amendments to various existing laws. On February 2, the Supreme Court of India through a Bench comprising of Chief Justice of India, Dipak Misra and Justice A. M. Khanwilkar issued a notice on the plea to the Union Government. The Bench has also agreed to hear the petition along with two other petitions on similar topics. The two other petitions were filed by Association for Democratic Reforms and Common Cause. These petitions have been pending since 2007.

The Electoral Bond Scheme has been touted to promote transparency by ensuring the money trail is visible. This happens because donations to parties can only be made by purchasing ‘electoral bonds’ through a cheque or through an online payment. This is nothing more than a ruse. Section 2(a) defines an electoral bond as “a bond issued in the nature of promissory note which shall be a bearer banking instrument and shall not carry the name of the buyer or payee”. In 2013, the Central Information Commission found that six national political parties were ‘public authorities’ and hence were not outside the purview of the Right to Information Act. Though the petition for a Supreme Court Order on the matter is still pending, as far as the current position goes, the decision of the CIC stands.

Subsection (3) of section 3 states that “[o]nly the political parties registered under section 29A of the Representation of the People Act, 1951 (43 of 1951) and secured not less than one percent of the votes polled in the last general election to the House of the People or the Legislative Assembly, as the case may be, shall be eligible to receive the bond.” By restricting the beneficiaries of electoral bonds to only parties registered under the Representation of the People Act which has secured 1% or more of the votes cast in the previous general or assembly elections. This leaves out of its scope independent candidates and newly launched political parties.

Section 7(4) of the Electoral Bond Scheme states “the information furnished by the buyer shall be treated confidential by the authorised bank and shall not be disclosed to any authority for any purposes, except when demanded by a competent court or upon registration of criminal case by any law enforcement agency.” These words are vague on several grounds, firstly the Scheme has not defined what a ‘competent court’ is, secondly at what stage of the case the information can be provided. A criminal case has several stages beginning with the receipt of first information, stage of the investigation, filing of the charge-sheet, to the institution of the case in the court.

The 2016 Finance Act made amendments to the Foreign Contribution (Regulation) Act, 2010. The change to the FCRA relates to the definition of ‘foreign source’. Under the Act, ‘foreign source’ meant funds coming from any source where more than 50% of the entity was controlled by non-citizens. The Amendment made inserted a proviso “Provided that where the nominal value of share capital is within the limits specified for foreign investment under the Foreign Exchange Management Act, 1999, or the rules or regulations made thereunder, then, notwithstanding the nominal value of share capital of a company being more than one-half of such value at the time of making the contribution, such company shall not be a foreign source”. This means that even if a company has more than 50% shares owned by non-citizens, the company will not be considered a foreign source.

The 2017 Finance Act made other similar ‘amendments’. Section 29C of the Representation of the People Act, 1951 was amended to allow electoral bonds for amounts higher than Rs 20,000 to remain outside the scope of the report that the treasurer of a political party has to submit to the Election Commission. The Finance Act also sought to amend section 182 of the Companies Act 2013, which deals with ‘prohibitions and restrictions regarding political contributions’. The amendment deleted the first proviso to subsection 1 of section 182, which prohibited a company from ‘donating’ an aggregate sum in excess of 7.5% of its average net profits.

Section 13A of the Income Tax Act was also amended to exclude contributions made by way of electoral bonds from having the names and addresses of the contributors recorded by the political parties. It also inserts clause (d) wherein all donations made to political parties in excess of 2,000 Rupees have to be made through an account payee cheque, an account payee bank draft, electronically or through an electoral bond. Under the section prior to the amendment, failure to furnish an income return would result in the revocation of the protections under the section for the financial year. However, a proviso was added which makes this provision redundant stating that if “such political party furnishes a return of income for the previous year in accordance with the provisions of sub-section (4B) of section 139 on or before the due date under that section.”

When seen together, the Electoral Bond Scheme effectively hides the names of the ‘contributor’ as well as the party to whom the contribution is made. The scheme also discriminates against independent candidates and newly launched political parties. The amendments to the other laws have the following effects;

1. obscuring the lines of ‘foreign contribution’;

2. placing outside the scrutiny of the Election Commission contributions higher than Rs. 20,000;

3. removing restrictions on companies from ‘donating’ amounts in aggregate that are higher than 7.5% of the net profits

4. Using the Electoral Bond Scheme to exempt the names and addresses of contributors from being maintained by the party treasurer, which is still a requirement for other sources of ‘donations’ under the Income Tax Act.

5. Making it mandatory for all contributions in excess of Rs. 2,000 to be made through a cheque, electronically, bank draft or electoral bond.

6. Obscuring the requirements to furnish income returns under the Income Tax Act.

When seen in its entirety, these laws will excessively strengthen existing national parties, and particularly incumbent governments who have won by large margins.