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Modi Govt's Electoral Bond Scheme Has Serious Impact On Transparency In Political Funding : ECI Tells SC [Read Affidavit]

Manu Sebastian
27 March 2019 2:34 PM GMT
Modi Govts Electoral Bond Scheme Has Serious Impact On Transparency In Political Funding : ECI Tells SC [Read Affidavit]
Anonymous corporate donations could lead to the increased use of black money for political funding through shell companies, expressed the ECI.
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Disagreeing with the version of the Central Government, the Election Commission of India has told the Supreme Court that the 'Electoral Bonds Scheme' has a serious impact on transparency in political funding.

The counter-affidavit filed by the ECI today in the Supreme Court in response to the PILs challenging electoral bonds reveals that it had expressed concerns way back in May 2017 itself, immediately after the passage of the Finance Act 2017, which had brought in the crucial legislative amendments for laying the foundation for the scheme.

The letter sent to the Ministry of Law and Justice on May 26, 2017 - which is annexed with the affidavit- specifically raised point by point issues with the amendments.

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 is 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 profit of three preceding financial years, enabling even newly incorporated companies to donate via electoral bonds.

"This opens up the possibility of shell companies being set up for the sole purpose of making donations to political parties, with no other business consequence of having disbursable profits", said the ECI letter.

Also, the amendment to Section 182(3) abolished the provision that companies should declare their political contributions in their profit and loss accounts. Now, this requirement is diluted to only showing the total expenditure under the head. This would "compromise transparency" and could lead to the "increased use of black money for political funding through shell companies" expressed the ECI.

 ECI had urged the Ministry to ensure that only profitable companies with proven track record should be permitted to make political donations.

In the counter affidavit affirmed by Vijay Kumar Pandey, Director(Law) of  ECI, it is said that the ECI had informed the Ministry through the letter that these amendments will have "serious repercussions/impact on the transparency aspect of political finance/funding of political parties".

It has also taken a stand against the amendment to Foreign Contributions Regulation Act with permitted acceptance of donations from foreign companies with retrospective effect. "This would allow unchecked foreign funding of political parties in India which could lead to Indian policies being influenced by foreign companies", said the ECI.

The ECI added that it had suggested amendments to RPA Act to make reporting compulsory even for cash donations less than the existing limit of Rs.20,000, if the total cash contributions exceeds 20 crores or 20 percentage of total contributions, whichever is lesser. It further suggested that reports of contributions of political parties should be uploaded in the website of ECI.It had also suggested that anonymous contributions above or equal to Rs.2000 should be prohibited, instead of the present limit of Rs.20,000.

The ECI's stand is in variance from the claims of the Central Government, which had filed counter-affidavit two weeks ago stating that the electoral bond schemes will bring in more transparency in political funding. The anonymity of the scheme was intended to protect the privacy of the donor, stated the centre. 

The petitions have been filed by political party Communist Party of India(Marxist), and NGOs Common Cause and Association for Democratic Reforms(ADR),which challenge the scheme as "an obscure funding system which is unchecked by any authority". The petitioners voiced the apprehension that the amendments to Companies Act 2013 will lead to "private corporate interests taking precedence over the needs and rights of the people of the State in policy considerations"

Electoral bonds were introduced by amendments made through the Finance Act 2017 to the Reserve Bank of India Act 1934, Representation of Peoples Act 1951, Income Tax Act 1961 and Companies Act. On January 2, 2018, the Centre notified the scheme for electoral bonds, which are in the nature of bearer instruments like a Promissory Note capable of being purchased by an Indian citizen or a body incorporated in India. The identity of the donor will be known only to the bank, which will be kept anonymous.

The bonds can be purchased only from the State Bank of India for any value, in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh or Rs 1 crore during notified days. The name of the donor will not be there in the bond. The bond will be valid for 15 days from the date of issue, within which it has to be encashed by the payee-political party. 

Yesterday, the petitioners had sought for immediate stay of the scheme, stating that 95% of the electoral bonds sold so far have been in favour of one political party, that is the current ruling party. They also stated that most of the bonds that have been purchased since 2018 have been of the denominations of 10 lakh and 1 crores, indicating that it is not common citizens but corporates that have been purchasing these bonds while enjoying complete anonymity accorded by the scheme.

The Court has agreed to hear the matter on April 2.

Read ECI Affidavit

Read ECI Letters to Ministry

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