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Bonds with a Bonding

Peter Mundackal Peter Mundackal
20 Nov 2023

“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.”  These are excerpts from the Budget speech on 1st February 2017 delivered by the then Finance Minister late Arun Jaitley.  He was announcing introduction of a new device to ensure transparency in electoral funding. Called ‘Electoral Bonds’, which the Finance Minister qualified as “interest free” bearer instruments, it is payable to the bearer on demand, similar to promissory notes.  Indian citizens, or a body incorporated in India, can purchase electoral bonds in order to make anonymous donations to political parties.  

Bonds are available in several denominations from Rs. 1000 to 1 crore.  These can be bought from authorised branches of the State Bank of India during the first working days in the months of January, April, July and October.  These can be used only to donate to political parties registered under Section 29A of Representation of the People Act-1951 and parties should have secured at least 1% votes polled in the last general election to the Parliament or State Assembly.  Also, the parties must encash the bonds within 15 days of receipt, to meet their election expenses. In order to popularise investing in bonds and discourage cash donations, Jaitley brought down the ceiling of anonymous cash donations from Rs. 20,000 to Rs. 2,000.  To facilitate smooth implementation of the bonds scheme, Jaitley amended the Foreign Contributions (Regulation) Act-2010, Representation of People Act-1951, the Income Tax Act-1961 and Companies Act-2013.  

The paradox, however, is that despite the declared objective of bringing about transparency in electoral funding, neutral observers are of the view that the scheme is not all that transparent and is heavily favouring the ruling party and is “distorting democracy”.  The Indian Express  of April 1, 2022, in its editorial ‘Bond Identity’, says: 

“However, in actual practice, the electoral bonds scheme has left a lot to be desired.  For one, it has not improved transparency in electoral funding.  Worse still, it is being argued that this scheme has rigged the game in favour of the ruling party.  That is because, while a donor’s identity is hidden from the public view, it is possible for the ruling party to know since these bonds are issued by a government-owned bank (State Bank of India).  This advantage with the ruling party allows the possibility for the government of the day to either extort money or victimise those individuals/entities that fund the Opposition.  The fact that the BJP has cornered more than 75% of all such bonds issued to date gives credence to this criticism.  Another key area of concern is that the government, as part of the introduction of the electoral bonds had removed the cap on how much money a company could donate.  A quick closure in these matters is necessary to ensure transparency in campaign financing, critical to the integrity of the electoral process”.             

In 2017, two NGOs, Common Cause and Association for Democratic Reforms (ADR), sought a stay on the scheme on the ground that it had been brought “illegally” as Money Bills, bypassing Rajya Sabha.  In March 2021, a three-judge Bench headed by the then CJI S.A. Bobde, dismissed a prayer to stay the sale of fresh bonds ahead of Assembly polls in West Bengal, Tamil Nadu, Kerala, Assam and Puducherry.   (This dismissal is no surprise; refer to my article “There are Judges and Judges”, pages 20-21 of IC of 11-17 July 2022).  In April 2022, advocate Prashant Bhushan sought an urgent hearing of the constitutional challenge to the scheme that had been pending since 2017.  Then CJI N.V. Ramana assured the petitioners that the court would take up the matter.  S.Y. Quraishi, former Chief Election Commissioner, in one of the discussions on TV, had commented adversely on the inordinate delay of the Supreme Court, of over 5 years, to take up this matter.   

Currently, a five-judge Bench of the Supreme Court, headed by Chief Justice D.Y. Chandrachud and consisting of Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala and Manoj Misra, is hearing the petition filed by ADR, CPI(M), Congress leader Jaya Thakur and a PIL by one Spandan Biswal.  Following are some of the quotes from the arguments of Kapil Sibal and Prashant Bhushan who are appearing for the petitioners:  

“Electoral process must provide a level-playing field to all stakeholders”; “Nature of the scheme protects criminals from being prosecuted; there is an element of ‘quid pro quo’; “Electoral Bonds promote corruption.  Even shell companies can donate;  unlike before, there is no limit now; earlier there was a limit of 7.5% of  annual profits to donate to such companies.”

“It destroys democracy, because it does not provide a level-playing field”; “ Since 2017, when it was introduced, EB has far exceeded all other methods; in just 5 years, one party has got more than ten times of what parties in opposition have received!”; “Bring an amendment that no political party can take a donation through non-banking channels; all transactions should be through banking channels.”  

S. Y. Quraishi, in an article titled “Transparency at stake” in the Indian Express of 4 November 2023, argues that it is not for maintaining anonymity about the donor, but to conceal potential of quid pro quo for the Government, because “corporates have, for decades, made donations to political parties, and often, the same donors have funded rival parties.… The argument that donors seek secrecy seems spurious.  Perhaps, it is the government that wants secrecy”. 

He further observes that the amendments to the four Acts, mentioned above, brought about  significant change, “allowing a company to donate 100% of its profits to a political party….”  Referring to the argument of the Solicitor General that “the citizens have no right to know the donors’/recipients’ identities”,  Quraishi observes: “This statement would behove a banana republic, not the world’s largest democracy aspiring to be a vishwaguru”. Quraishi goes on to suggest  elimination of private funding and introducing  public funding for political parties.  He estimates that funds required would not exceed Rs.10,000 crore every five years.  

Regulating political funding is very challenging the world over.  It is regulated in two ways, by stipulating a limit on individual donations and by mandatory disclosure of the source of funding.  Major democracies have struggled to design a regulatory regime that addresses these challenges, but with varying degrees of success.  USA is the best proof that transparency in poll funding is among the hardest challenges faced by democracies.  Now that the Supreme Court is seized of the matter, let us hope that it will come out with a solution acceptable all.  

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