Electoral Bonds Scheme; Lack Of Transparency In Election Funding In India

Naik Naik & Company


Established in 2004, Naik Naik & Co. started out as a niche media practice which has metamorphosed into a full-service law firm. Headquartered in Mumbai with a pan-India presence, we advise and perform across all aspects of corporate, disputes, banking and finance, and intellectual property law. Our sectoral focus is our differentiator and we can boast of strong industry sector expertise for over two decades. Our practice is anchored in quality service, professionalism, and integrity.
During the presentation of the Union Budget in 2017, the then Union Finance Minister Arun Jaitley emphasized upon the longstanding issue of lack of transparency in political party funding...
India Tax
To print this article, all you need is to be registered or login on Mondaq.com.

During the presentation of the Union Budget in 2017, the then Union Finance Minister Arun Jaitley emphasized upon the longstanding issue of lack of transparency in political party funding, stating that even after 70 years of Independence, a clear and transparent method had not been established. He introduced the Electoral Bonds Scheme as a measure aimed at enhancing transparency and integrity in the political funding system, with the objective of cleansing the existing framework.

An electoral bond functions similarly to a promissory note, serving as a bearer instrument payable to the holder. However, unlike a typical promissory note that discloses information about both the payer and payee, an electoral bond maintains anonymity and confidentiality regarding the parties involved in the transaction.

On January 2, 2018, the Ministry of Finance in the Department of Economic Affairs notified the Electoral Bond Scheme 2018. This Scheme authorized certain branches of the State Bank of India (SBI) to sell electoral bonds. The bonds are available in denominations of INR 1,000, INR 10,000, INR 1,00,000, INR 10,00,000, and INR 1,00,00,000. Sales of these bonds occur for a period of 10 days in January, April, July, and October each year. The purchaser's identity remained confidential, with the exception of the SBI, which is required to document the buyer's Know Your Customer (KYC) details and shall be disclosed only when demanded by a competent court or upon the registration of criminal case by any law enforcement agency. Political parties that received more than one percent of the votes in the most recent general election to the House of the People or a Legislative Assembly are eligible to receive donations through electoral bonds.

The Finance Act of 2017 introduced amendments to several statutes. Summarising notable changes below:

1. Under the Representation of the People Act, 1951 – exempted political parties from the obligation to publish contributions received through electoral bonds in "contribution reports", which typically disclose contributions exceeding INR 20,000.

2. Under the Reserve Bank of India Act, 1934 – permitted the Union government to "authorise any scheduled bank to issue electoral bonds.

3. Under the Income Tax Act, 1961 – exempted political parties from the requirement to maintain detailed records of contributions received through electoral bonds.

4. Under the Companies Act, 2013 – eliminated the upper limit on the amount of donations a company could make to a political party. Previously capped at 7.5 percent of a company's net profits averaged over three years.
These Amendments were sought by the petitioners to be declared as unconstitutional. The Amendments and the Scheme are challenged on the ground that the non-disclosure of information about electoral contributions is violative of the right to information of the voter which is traceable to Article 19(1)(a) of the Constitution.

Anonymity Of Donors

Maintaining the anonymity of the donor is a crucial and primary characteristic of the Scheme. The Union, in their oral submissions to the SC, explained that the disclosure of information of a donor in any manner which enables competing political parties to access such contribution details would "victimize or disincentivise" the donor from making any contributions. The Union further stated that the Scheme may not be perfect but is a progressive step to encourage contributions through monies disclosed to tax authorities as opposed to the previous practise of contributions in cash which resulted in funding of political parties through black money. Under the Scheme, though the contributions are not publicly disclosed, they would be mentioned in the tax filing by both the contributors and the recipient political party with tax exemptions to incentivise the contributions through banking channel.

Despite constitutional measures to ensure political equality, the fact that political funding affects the electoral process as it aids election campaigning or canvassing and can influence persons such as uninformed voters by enabling political parties with greater funding to have better exposure. The influence of money on electoral politics extends beyond its impact on election results; it also extends to governmental decisions. In India, there's no legal distinction between campaign funding and electoral funding. Funds donated to political parties aren't solely allocated for electoral campaigns but are also utilized for constructing party offices and compensating party workers. Moreover, contributions to political parties aren't confined to a specific period preceding elections; they can be made year-round and can be expended for purposes beyond election campaigning.

Financial contributions to a political party may create the potential for quid pro quo arrangements due to the interconnectedness of money and politics. Such arrangements could involve influencing policy changes or granting favours, such as licenses, to the donor. Access to information regarding political funding empowers voters to evaluate whether there exists a correlation between financial contributions and policymaking.

Though a central characteristic of electoral bonds is the anonymity of the donor, the de jure anonymity of the donors does not translate to de facto anonymity. There are loopholes in the Scheme. Clause 12 of the Scheme states that the bonds can be encashed only by a political party by depositing it in the designated bank account. The donor could physically hand over the bond to an office bearer of the political party or to the legislator belonging to the political party, or it could be sent to the office of the political party with the name of the donor, or the donor could after depositing the electoral bond disclose the particulars of the contribution to a member of the political party for them to cross-verify. In this light, the Supreme Court opined that the Scheme, to the extent of the provisions that infringe a voter's right to information by anonymizing contributions through bonds unjustly violates of Article 19(1)(a).

The Apex Court concluded that the Scheme and the Amendments therein are unconstitutional.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

See More Popular Content From

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More