Ahead of Polls in 4 States, SC Needs to Prioritise the Challenge to Electoral Bonds

It is very unfortunate that cases involving challenges to rules of electoral funding that can derail democracy have such a low priority in the Supreme Court.

Funds held by political parties has now become the most important determinant for winning elections, thanks to the first-past-the-post system.

Voters know that only one candidate will win and only one political party will form the government, and therefore, they do not want to waste their vote by voting for people or parties that have no chance of winning. The assessment of which parties have some chance of winning is made on the basis of their visibility, which is mostly purchased by money by way of advertising, hoardings, paid workers and now even political rallies which people are asked to join for money.

Recognising this, Election Law places a limit on the expenditure by candidates in elections. Unfortunately, there is no such limit on spending by political parties – with the result that parties often spend much more per candidate than the candidate themselves. Even the limit on spending by candidates is circumvented by spending unaccounted money in cash. 

In November 2018, when demonetisation was brought about, one ostensible purpose as stated by the prime minister was to move towards a cash-less society. While poor people cannot be expected to do all their transactions through banks, at least political parties and candidates could have been obligated to do so. However, instead of doing that, the government through Finance Bill, 2016 and Finance Bill, 2017 (by circumventing the Rajya Sabha where the government did not have a majority) amended four Acts, which had exactly the opposite effect. 

Also read: Demonetisation and the Art of Tackling India’s Black Economy

Firstly, it amended the Foreign Contribution Regulation Act (FCRA), by making it legal for foreign companies to donate to political parties through their subsidiaries in India.

This was done after the BJP and the Congress were held guilty of receiving foreign contributions under the unamended Act; and despite the fact that the main purpose of FCRA was to prevent political parties, candidates and public servants from receiving foreign funds.

The second amendment was brought about in the Companies Act, wherein the cap of 7.5% of annual profits (in last three years) which could be made by companies as donation to political parties, was removed.

The third amendment was to the Income Tax Act by way of which the requirement of donor companies to disclose details about the political parties to which such a donation is made was done away with. 

However, the most damaging amendment was brought about in the RBI Act that introduced a non-transparent way of donating unlimited amounts to political parties even through banking channels by purchasing electoral bonds. Electoral bonds or EBs are like bearer bonds which could be given to political parties. The identity of the person who purchases these bonds is not known to the public or even to the Election Commission, but is known to the State Bank of India and through them, the government.

These four amendments together have not only increased the role of money in elections, but have disproportionately diverted political funding to the party in power.

More than 95% of the initial tranche of electoral bonds went to the BJP, and even thereafter, the vast bulk of it has gone to the BJP. That these donations are being made largely by corporates is clear from the fact that more than 99% of the bonds have been purchased in denominations of 1 crore and 10 lakh. How much of this consists of kickbacks for favourable policies and decisions for companies is unknown.

RTIs have revealed that both the Election Commission of India and the Reserve Bank of India had strongly objected to the introduction of electoral bonds. RBI in its letter stated that “globally there are hardly any precedents in recent times for issuance of bearer bonds” and that, “we are concerned 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. This can subject the RBI to a serious reputational risk of facilitating money laundering transactions.” 

Also read: RTI Reveals Electoral Bond Scheme Passed After Only ‘Informal Discussion’ Among Officials

Similarly, the Election Commission in its letter dated May 26, 2017, brought the attention of Ministry of Law and Justice to the amendments introduced through Finance Act 2017 and stated that these amendments, “Will have a serious impact on Transparency aspect of political finance/funding of political parties”.

The Election Commission stated that it is evident from the Amendment in Section 29C of the Representation of People Act, 1951 “that any donation received by a political party through an electoral bond has been taken out of the ambit of reporting under the Contribution Report as prescribed under Section 29C of the Representation of Peoples Act, 1951, and therefore, this is a retrograde step as far as transparency of donations is concerned and this proviso needs to be withdrawn”. 

With respect to the removal of 7.5% cap on political funding by companies, the EC stated that the move “would lead to increased use of black money for political funding through shell companies.”

Thus, these amendments, cumulatively, not only allow unlimited donations by corporates to political parties, they even allow foreign companies that get contracts (like Dassault which manufactures the Rafale aircraft) to donate through their subsidiaries, and even allow them to do so anonymously through electoral bonds. Since only the government can come to know the identity of the donors, it is not surprising that the large majority of the donations are coming to the ruling party at the Centre.

Also read: Electoral Bonds: ‘No Public Interest’ in Revealing Details of Political Donors, Says Top RTI Body

The Association for Democratic Reforms and Common Cause had filed a writ petition before the Supreme Court challenging the validity of these retrograde amendments.

The Supreme Court while hearing the matter on April 12, 2019, took note of the importance of issues raised in the petition and stated in its order that, “..the rival contentions give rise to weighty issues which have a tremendous bearing on the sanctity of the electoral process in the country. Such weighty issues would require an in-depth hearing…”

The Supreme Court, thereafter, directed all political parties to give details of all donations received by these political parties through EBs in sealed cover by May 30, 2019. 

However, the matter has not been heard thereafter, despite several applications for staying the EBs, which are now being brought out before every state election. In fact, RTI replies have shown that illegal and additional sale of EBs (i.e. in violation of Electoral Bond Scheme, 2018) was allowed twice in 2018 by the Central government right before crucial state elections in Karnataka and Chhattisgarh, Madhya Pradesh, Rajasthan etc.

Despite another application seeking urgent listing before the recent Bihar election and multiple applications for a stay on the Electoral Bond Scheme, 2018, the Supreme Court has neither heard nor listed this important case. The next tranche of EBs is supposed to be coming out in April in time to fund the elections to West Bengal, Tamil Nadu, Kerala, and Assam.

ADR has again filed an application to restrain the sale of these EBs with an application for urgent listing. 

It is very unfortunate that cases involving challenge to these new rules of electoral funding – by which unlimited anonymous and even foreign donations can flow to political parties, and mainly the ruling party, and which effectively destroy the level playing field, and derail our democracy – have such low priority with the Supreme Court. Perhaps, it is a sign of the times that we live in.