ELECTORAL BONDS: SHATTERING THE SAFEGUARDS OF INDIAN DEMOCRACY

We need real campaign finance reform to loosen the grip of special interests on politics.” — Tom Daschle

India is a Multi-Party Parliamentary Democracy and political parties are considered to be a Central component. Political parties receive donations of hundreds of crores. These donations are contributed by individuals, corporate entities, supporters, and organizations, among others. The funds received are used for campaigning, managing party offices, participating in elections, reaching out to electorates, etc.

Although political financing is vital to run a party, it has been a long cause of corruption. The political financing system in India lacks transparency enabling donors to have a wide influence over political parties.

In 2017, the Union Government introduced a new mechanism of political funding known as Electoral Bonds (hereinafter referred to as “Bonds”). The idea behind these electoral bonds is to provide a transparent mechanism to fund political parties, curb the menace of black money in elections and provide anonymity to donors while making donations.

Contrary to the Government’s claim, transparency activists have been vehemently opposing these bonds stating that it only legitimizes opacity.

Electoral Bonds

Electoral Bonds are interest-free bearer instruments used for donating money to political parties. Being a bearer instrument, they do not carry particulars related to the buyer.

A person who is a citizen of India or incorporated or established in India can purchase the bonds without any limit. The bonds are issued by specified branches of the State Bank of India (SBI) in denominations of Rs. 1000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakh, and Rs. 1 crore. There is a mandatory requirement to fulfill KYC norms at the bank by the purchaser.

The window for purchasing bonds is limited. They can be bought during the first 10 days of every quarter. However, a 30-day additional period is provided in the year of the Lok Sabha elections. These Bonds carry a maturity period of 15 days. Political parties have to encash the bond within this period failing which the entire amount gets transferred to the Prime Minister’s National Relief Fund (PMNRF).

Parties who are registered under Section 29A of the Representation of the People Act, 1951 and have secured not less than 1 % of votes polled in the previous general or State elections are eligible to receive donations through these bonds.

Controversy over Electoral Bonds

  1. Withholding transparency:

If corruption is a disease, transparency is a central part of its treatment.

Kofi Annan

Transparency is a core principle of good governance. Earlier, political parties were required to disclose details of the donors who had donated an amount of more than Rs. 20,000 in their annual reports filed with the Election commission. Now, Under Section 29C of the Representation of the People Act, 1951, political parties are no longer required to disclose details of the donors contributing by way of Electoral Bonds. The anonymity provided to donors will create a major roadblock to transparency. 

  1. Infringement of citizen’s fundamental ‘Right to Know’:

When the public’s right to know is threatened, all other public rights are threatened.” 

— Christopher Dodd

“Right to Know” is a fundamental right under “Right to Speech & Expression” as provided by Article 19(1)(a) of the Constitution of India. By providing anonymity to donors the bonds infringe citizens’ “Right to Know.” The Supreme Court in Shreya Singhal v. Union of India (2015) struck down section 66A of the Information Technology Act of 2000 because it violated the citizens ‘Right to Know’ guaranteed under Article 19(1)(a) of the Constitution. So, citizens have every right to know which individual, company, or organization has funded which party and to what extent.

  1. No anonymity to Government:

While the bonds do not provide details of donors to citizens, they do not withhold anonymity from the Government. SBI being a public bank, the Government may be in a position to find out the names of the donors by demanding information from the bank. The ruling government will always be in a position to target donors of opposition parties.

  1. Donations via Shell Companies:

Earlier, companies were required to declare their political contributions in their Profit & Loss a/c. After the amendment under Section 182 of the Companies Act, 2013, the said requirement is reduced to only showing a total amount under the head. This will again compromise transparency. The amendment has opened up the possibility of shell companies being set up for the sole purpose of making donations to political parties.

  1. Influence of foreign companies in Indian Politics:

With the added proviso to Section 2(1)(j)(vi) of the Foreign Contribution (Regulation) Act, 2010, the avenue of foreign contributions is open to Indian political parties. The amendment has allowed unchecked foreign funding to political parties in India. The implication is that Indian policies could one day be influenced by foreign companies. 

Election Commission of India’s view on Electoral Bonds:

In Association for Democratic Reforms and Anr. v.Union of India and Ors., the Election Commission has said in the Supreme Court that they are not against Electoral Bonds, but rather do not approve of anonymous donations made to political parties. The Commission is of the view that these amendments will carry serious repercussions on the transparency of political funding. It has also expressed its concerns over shell companies being set up to make political funding.

Reserve Bank of India’s (RBI) views on Electoral Bonds:

Although the RBI is not against electoral bonds they have some reservations about it. The RBI is of the view that bonds might be misused. To minimize the inherent scope, they suggested certain safeguards to the Government to be incorporated in the Scheme out of which most have been accepted by the Government.

The RBI was concerned about the bonds being issued in script format and recommended that the bonds be granted through the electronic form (Demat), which would still facilitate anonymity as required by the Government. It also suggested that a facility for multiple transfers before the proceeds are eventually credited to a political party’s designated bank account should be made. The RBI further promised that it would remain the sole custodian of information relating to such bonds if it was made in electronic format. Nevertheless, the Government chose to issue Bonds in Scrip form.

Supreme Court’s Observations on Electoral Bonds:

In Association for Democratic Reforms (supra), the Supreme Court required that all political parties submit details of donations received through electoral bonds to the Election Commission. Further, it asked the Finance Ministry to reduce the window for purchasing electoral bonds from 10 days to 5 days. In another case of Association for Democratic Reforms & Anr. v. Union Of India Ors (2021), the Supreme Court refused to grant a stay on the issue of Electoral Bonds citing that certain safeguards had already been set up by the Court.

Conclusion

Free and fair elections are the foundation of every healthy democracy. Although, the Electoral Bonds are introduced to provide a transparent & systematic mechanism of political funding they contain serious issues that need to be addressed by the Government and the Supreme Court. Though the issue related to Bonds is still pending before the Supreme Court, an interim safeguard is necessary till the Supreme Court decides on the legitimacy of such Bonds. Till then the sanctity of our electoral process shall remain behind an opaque window. 

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