Decoding the Electoral Bearer Bond Scheme 2018

[Sharanya Shivaraman is a student (Class of 2019) at ILS Law College, Pune]

In his budget speech 2017-2018 in February last year, Finance Minister Arun Jaitley addressed the issue of transparency in political contributions. His announcement regarding the introduction of electoral bonds generated significant debate and speculation. The Electoral Bond Scheme, 2018 was subsequently launched on January 2, 2018 with the first issue of the Scheme opening in March 2018. In this post, I propose to examine the impact of this scheme on corporate contributions to political parties, the changes to the existing regime of political donations and what this means for transparency in electoral funding.

Working of electoral bonds

Any person, who is a citizen of India or incorporated or established in India, individually or jointly can purchase an electoral bond. There is a qualification for political parties which can receive contributions. Political Parties registered under section 29A of the Representation of the People Act, 1951 which secured not less than one per cent of the votes polled in the last general election to the Lok Sabha or the Legislative Assembly of the State shall be eligible to receive contributions through electoral bonds.

Departing from the system of monetary contributions, the electoral bonds scheme allows for monetary remittance using banks as an intermediary. An interesting feature of the scheme is that  the bond will be valid only for a period of 15 days from the date of issuance. The bonds will be available “for any value, in multiples of Rs.1,000, Rs.10,000, Rs.1,00,000, Rs.10,00,000 and Rs.1,00,00,000”. The minimum amount for which a bond can be purchased is Rs. 1000, but there is no limit on the maximum contributions.

Shift in current regime of corporate contributions to political parties

Political funding in India is in dire need of a major overhaul. The opaque system of political contributions has to be remedied by ensuring that there is effective disclosure and transparency as far as these contributions are concerned. To this effect, section 182(3) of the Companies Act 2013 states:

Every company shall disclose in its profit and loss account any amount or amounts contributed by it to any political party during the financial year to which that account relates, giving particulars of the total amount contributed and the name of the party to which such amount has been contributed.

Further, the Representation of the People Act and the Income Tax Act contain provisions which grant exemption from payment of income tax only if the accounts are transparently maintained and returns are appropriately filed. Additionally, all national and state level political parties are required to make annual declarations of contributions received from individuals and companies of any amount in excess of Rs. 20,000. The cap on maximum cash contribution from a single person has been capped at Rs. 2000 after the previous budget session.

However, the current shift in the regime has been a major setback augmenting the lack of transparent framework for political contributions. The amendment to Income Tax Act under section 13A seeks to exclude donations received through electoral bonds from the above provisions of disclosure. An analogous amendment to the Representation of the People Act exempts electoral bonds from the scrutiny of the Election Commission and the Income Tax Act, making it no longer necessary to report details of donations received through electoral bonds. The Election Commission even called the amendment in section 29C of the Representation of the People Act, 1951 “a retrograde step as it would compromise transparency of political funding.

Another major aspect of the Electoral Bond Scheme is that the bonds issued under the scheme are bearer bonds which do not carry the name of the donor. While keeping the donor under the scheme anonymous, the instrument also does not carry the name of the payee. The corporate-political party nexus, which was envisioned under the regime of cash donations as completely anonymous, is not corrected but rather realised under the electoral bonds system whereby there is a concession from possible disclosures. The amendment to Companies Act to align it with the electoral bonds scheme merely states under section 182(3) that “Every company shall disclose in its profit and loss account the total amount contributed by it under this section during the financial year to which the account relates.” However, the requirement of disclosing the details of such contributions and recipients of such contributions has simply been omitted. 

It is to be noted that these changes are situated in the context of convoluted reforms on election funding and multiple procedural irregularities while passing the Finance Bill itself. Further, the recent amendment to Foreign Contribution Regulation Act, 2010, which exempts scrutiny on foreign funding to political parties, forms the backdrop of election funding as an opaque activity. The involvement of banks as an intermediary in electoral bonds leaves behind an accessible trail of information.  This, one may argue, is a better situation juxtaposed with the absence of any record of contribution in case of pure cash transactions. However, whether introduction of electoral bond scheme does enough to cleanse political funding and the murky quid pro quo regime surrounding corporate transactions, remains unanswered.

Sharanya Shivaraman 

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