Electoral Bonds : Citing Reports Of RBI, ECI Objections, ADR Moves SC For Stay Of Scheme [Read Petition]

In the light of recent media reports that the Central Government went ahead with the electoral bonds scheme ignoring the serious objections raised by Reserve Bank of India(RBI) and Election Commission of India(ECI), the NGO Association for Democratic Reforms(ADR) filed an application in the Supreme Court seeking stay of the controversial scheme.ADR had filed a writ petition in 2017 challenging the provisions of Finance Act 2017 which paved the way for anonymous electoral bonds.Over last week, a series of reports by journalist Nitin Sethi on electoral bonds came in Huffington Post, which were based on official documents obtained by Commodore Lokesh Batra through Right to Information.In the stay application, the ADR states that these reports revealed that the RBI gave repeated warnings to the government against the electoral bond scheme stating that it has "the potential to increase black money circulation, money laundering, cross-border counterfeiting and forgery."No special advantage by Electoral Bonds : RBIElectoral bonds are in the nature of bearer bonds, which can be transferred like currency. Since the only legal authority empowered to issue bearer bonds is the Reserve Bank of India, an amendment was made in the RBI Act to enable the issue of electoral bonds by an "scheduled bank notified by the Central Government". This was done by inserting sub-section (2) in Section 31 of the RBI Act through Finance Act 2017. On the basis of communications from RBI, ADR states that the central bank had flagged concerns over electoral bonds, which were described by it as "opaque financial instruments". The RBI said that amending Section 31 will seriously "undermine a core principle of central banking legislation". Since the bonds are transferable any number of times like currency, its inherent anonymity can be exploited for money laundering, expressed the RBI. "While the person/entity buying the bearer bond will be as per Know Your Customer parameters, the identities of the intervening persons/entities will not be known. Thus, the principles and the spirit of the Prevention of Money Laundering Act (PMLA) 2002 get affected", said the RBI Chief General manger in a letter sent to the Joint Secretary of Finance Ministry on January 30, 2017. The RBI added that if the intention of the Government was to ensure that political funding is routed through formal banking channels so as to flush out black money, the same can be achieved through "a normal cheque, demand draft or any electronic or digital mode of payment". "There is no special need for, or advantage by, the creation of an Electoral Bearer Bond, that too by disturbing an established international practice", RBI said opposing the amendment to Section 31. But these concerns were summarily rejected by the Finance Ministry on January 31, by saying "RBI has not understood the proposed mechanism of having pre-paid instruments for the purpose of keeping the identity of the donor secret, while ensuring the donation is made only out of fully tax paid money of a person".The RBI's concern that the anonymity of the scheme is a blessing for potential money launderers was left unaddressed. On the next day, February 1, the then Finance Minister Arun Jaitley introduced the proposal for the scheme in the Lok Sabha, and the same was eventually made into law by the passing of Finance Act in March 2017.Concerns raised by former RBI Governor Urjit PatelThe ADR then refers to communications sent by the former RBI Governor Urjit Patel to the then Finance Minister Arun Jaitley stating that the "issue of EBs as bearer instruments in the manner currently contemplated has the possibility of misuse more particularly through use of shell companies". The Committee of Central Board of the RBI urged the government to issue the bonds in demat form, instead of physical form, so as to reduce misuse."Not only were the objections raised by the RBI disregarded, but even the suggestions made to make the scheme less vulnerable to fraud were ignored", ADR says in the petition filed through Advocate Prashant Bhushan.Retrograde step : ECIThe objections raised by the Election Commission of India are highlighted in the application for stay.By virtue of the amendment made to Section 29C of the Representation of Peoples Act 1951(RPA), political parties need not report to ECI the donations received through electoral bonds. The ECI has described this a "retrograde step as far as transparency of donations is concerned" and called for withdrawal of the amendment. The ECI said that if contributions are not reported, it will not be possible to ascertain if political parties have taken donations from government companies and foreign sources, which are prohibited under Section 29B of RPA. The amendments made to Companies Act 2013 were also flagged by the ECI. The amendment to Section 182 of the Act took away the restriction that contribution can be made only to the extent of 7.5% of net average...

Electoral Bonds : Citing Reports Of RBI, ECI Objections, ADR Moves SC For Stay Of Scheme [Read Petition]

Manu Sebastian

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