Electoral Bond Scheme and Related Issues

In a momentous ruling that resonates across the corridors of power, the Supreme Court (SC) of India has unequivocally declared the Electoral Bond (EB) scheme unconstitutional. The scheme was introduced by the Government of India on January 2, 2018 to facilitate transparent political funding through amendments to several key acts, including the Representation of the People Act, 1951 (RPA); the Companies Act, 2013; the Income Tax Act, 1961; and the Foreign Contributions Regulation Act, 2010 (FCRA). These amendments had been incorporated into the Finance Act of 2016 and 2017.

Electoral Bonds

As per the scheme, electoral bonds are interest-free bearer bonds or money instruments available in denominations ranging from Rs 1,000 to Rs 1 crore, and could be purchased by both individuals and companies from authorised branches of the State Bank of India (SBI). These bonds were used for making donations to political parties. Electoral bonds were designed to maintain anonymity, as the name and other details of the donor were not recorded on the instrument. Moreover, there is no cap on the number of electoral bonds that a person or company can purchase.

Political parties eligible to receive electoral bonds are those which secured at least one per cent of the votes polled in the last Lok Sabha or State Assembly elections and are registered under the Section 29A of the RPA Act, 1951. The ECI verifies the accounts of these political parties.

Electoral bond amounts are deposited into the verified accounts of political parties within 15 days of purchase. Political parties have a stipulated period of 15 days to encash the electoral bonds. If not encashed within this period, the bond amount is directed to the Prime Minister’s Relief Fund (PMRF).

Electoral bonds are not available for purchase throughout the year. They are available for a period of 10 days in every four-month interval (January, April, July, and October). Additionally, during the Lok Sabha election years, the bonds are available for a period of 30 days.

Electoral bonds were introduced as a newer mechanism, superseding the previous Electoral Trusts Scheme, and have seen a significant increase in political funding compared to electoral trusts.

Established by the UPA government in 2013, Electoral Trusts are entities formed by companies registered under Section 25 of the Companies Act, 1956. Any citizen of India, company registered in India, firm, Hindu Undivided Family, or association of persons living in India can donate to an electoral trust. Electoral trusts are required to submit yearly reports to the Election Commission of India (ECI) detailing contributions from individuals and companies, as well as donations made to political parties. Donors’ information, such as PAN (for residents) or passport numbers (for NRIs), is collected at the time of contributions.

Electoral trusts must donate 95 per cent of contributions received in a financial year to political parties registered under the RPA Act, 1951. It provides transparency on both contributors and beneficiaries, allowing the public to know who is funding which party.

Need to Introduce the Electoral Bonds Scheme

The government claimed that electoral bonds are introduced to ensure that all political donations would be accounted for in the balance sheets of political parties without disclosing the identity of the donors to the public. The rationale behind this move was to curb the use of black money in funding elections, as donors would no longer need to resort to cash donations, which could potentially be unaccounted for.

The introduction of electoral bonds led to the removal of several restrictions on political donations. Previously, foreign companies were prohibited from donating to political parties under the Companies Act. There were limits on the amount of political donations a company could make, as well as requirements for disclosure of such donations in the annual statements of accounts. It allowed Indian, foreign, and shell companies to donate to political parties without disclosing the contributions.

Criticism

Despite the government’s assertions, electoral bonds have been subject to significant controversy. Critics argued that the scheme compromises transparency in political funding. Since both the purchaser of the bond and the recipient political party are not required to disclose the donor's identity, shareholders and voters remain unaware of the sources of political funding. This lack of transparency raises concerns about the influx of black money and the potential for undue influence from corporate interests in the political process. Opponents of the electoral bond scheme alleged that it was designed to benefit big corporate houses by allowing them to donate money anonymously, thus undermining the democratic process. Civil rights societies have expressed concerns that the anonymity of donors threatens the transparency and accountability of political parties.

The Supreme Court of India became involved in evaluating the legality and implications of electoral bonds following their introduction. In April 2019, the court directed all political parties to submit details of donations received through electoral bonds to the ECI. The ECI expressed reservations about anonymous donations and emphasised the importance of transparency and disclosure in political funding. The Reserve Bank of India (RBI) also reportedly criticised the scheme, warning that it could undermine faith in Indian banknotes and encourage money laundering.

Contributions Received by Political Parties

Total funds generated through electoral bonds from March 2018 to January 2024 is Rs 16,518.11 crore. It has been noticed that over 50 per cent of total contributions received by parties is through electoral bonds. The percentage of contributions received by some regional parties through electoral bonds has even exceeded 90 per cent. Almost half of the funds in electoral bonds come from corporate sources, with the remainder coming from various other sources.

Issues Linked with the EB Scheme

Despite government assertions that the scheme promotes transparency and does not facilitate black money, critics argue that it opens avenues for unregulated political donations. The legal battle surrounding the EB scheme has seen various twists and turns, including interim orders and pleas for judicial review.

Some key issues associated with the scheme raised by the critics are as follows:

• It violates citizens’ fundamental right to information under Article 19(1)(a) by withholding information about political party funding, leading to suspicions of corruption and undisclosed agreements.
• Both the RBI and the ECI have voiced objections to the scheme, warning about the potential misuse of shell companies to channel black money.
• There are concerns that electoral bonds facilitate backdoor lobbying, with corporations allegedly making donations to political parties in power to secure favours. This anonymity may potentially enable quid pro quo arrangements between donors and political parties.
• The name ‘electoral bond’ is misleading, as the funds can be used for purposes other than elections. The absence of spending restrictions enables political parties to use the funds for purposes beyond election-related activities.
• By providing anonymity to donors, it protects criminals from prosecution under anti-corruption laws. Additionally, reducing the disclosure threshold may not effectively reduce the use of cash in politics and could promote corruption.
• The dominance of the ruling party in receiving electoral bonds has raised concerns about the fairness and equality among political parties. Opposition parties argue that the scheme favours the ruling party, leading to an imbalance in political funding and undermining democracy.
• It provides anonymity to corporate donors while citizens making smaller donations are required to disclose their identities, potentially amplifying the corporate influence over citizens’ voices in the democratic process.
• Shareholders investing in companies may not be informed about how their money is being spent through electoral bonds, undermining their interests and accountability within corporations.
• While trading of electoral bonds is prohibited, there are concerns about the inability to stop such activities, raising questions about the scheme’s effectiveness in curbing the misuse of money and promoting transparency.

Conclusion

In conclusion, it is accurate to state that while the electoral bonds scheme was introduced with the intention of reforming political funding and curbing black money, it has faced significant criticism and remained controversial from the outset. The lack of transparency and accountability in the scheme has resulted in its constitutionality being challenged, with the SC declaring it unconstitutional before the Lok Sabha Elections.

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