Electoral Bonds | The Way Forward: Tackling the Pre-2017 System

[This article was originally published on 4 March 2024 and is being reposted after the Election Commission released the electoral bonds data on 14 March 2024.]On 15th February 2024, the Supreme Court of India finally paid much-needed tribute to that little man, a citizen, a voter whose contributions to a participatory democracy were incessantly disparaged by the political establishments in recent times. It is evident from the fact that during the hearings in the Electoral Bonds petition, the government did not hesitate to cast doubts over citizens’ ‘Right to Know’ about the sources of funding of a political party. They rather claimed it openly by causally remarking ‘What is the need to know?’ By holding a well-informed voter as the foundation of a participatory democracy, the apex court not only did complete justice to the citizen’s fundamental Right to Know but it also accentuated the basic concept of purity and the need for free and fair elections. Exposure to public scrutiny is one of the known means for getting clean, courageous and credible persons to govern the country. An ordinary voter whose individual vote is very important, has every right to question and seek answers from the government of the day for any action or inaction. The Supreme Court judgment considered several crucial aspects of the Scheme that made it deeply problematic for transparency and accountability. At the heart of Electoral Bonds was the anonymity clause. While this anonymity helped the companies and individual donors protect their identities, it resulted in a surge in the share of unknown sources of income and hence, in more opacity in political finance. Direct corporate donations mostly remained stagnant as bonds became a more popular mode of donation.Between FY 2016-17 to 2021-22, ADR found that 31 recognised political parties declared donations worth Rs 9188.35991 cr from Electoral Bonds (55.90%), Rs 4614.53 cr from the corporate sector (28.07%) and Rs 2634.74509 cr from other sources (16.03%). Electoral Bonds were referred to as ‘unknown’ sources of income because the general public had no idea about their sources, however, the SC in its judgment pointed out that the beneficiary parties could take advantage of the gaps in the Scheme to know the details of their contributors. This asymmetric transparency was a problem. Justice Sanjiv Khanna in his judgment reiterated the observations of the 255th Law Commission report that financial superiority can result in electoral advantage. Big donors/companies and other interest groups can influence policy-making or a political party’s decision-making once it comes to power, if the party’s election campaign is disproportionately funded by big corporate donors, and not individual citizens. When the first cycle of sale and purchase of electoral bonds was opened in March 2018, 85% of the bonds were purchased in the denomination of Rs 1 crore. This trend continued throughout the existence of the Scheme. Between March 2018 to January 2024, 15,631 electoral bonds worth Rs 15,631 cr were purchased in this denomination, which is more than 94% of the total bonds sold during all thirty phases. Electoral bonds were being purchased by huge conglomerates to build the coffers of the party of their choice. This diluted the principle of one person one vote and violated the right to equal political participation. The Scheme promoted the interests of corporations over the common man.The petitioners highlighted how Electoral Bonds interfered with free and fair elections. Not only did they hurt the level-playing field but substantially widened the margin between the parties receiving them. Bonds were largely received by parties in power at the centre and states. Among National Parties, the BJP’s share of bonds was 74% while among National & State parties both, the share was 57%. It is fairly understandable for a party in power to receive more funds in comparison to opposition parties, however, Electoral Bonds increased this gap disproportionately.Between FY 2004-05 to 2013-14 when the INC was in power at the centre, the total income declared by the Congress was Rs 3388.776 cr while the BJP declared Rs 2302.205 cr. Between FY 2014-15 and 2022-23, the party in power – the BJP declared a total income of Rs 14,666.557 cr while the Congress declared Rs 4158.041 cr. The SC in its judgment established the close relationship between money and politics including the importance of money for entry to politics. In this regard, Electoral Bonds had the potential to choke funds to new and young political parties and create more entry barriers for them. Even though the electoral bonds and unlimited anonymous corporate donations have been held unconstitutional, it is important to look at the political funding system that existed before. Indeed, one major defect has been cured by the Supreme Court but now is the time to focus on the lacunae that existed in the pre-2017 system. Political parties’ finances still need attention as there are many issues in the manner party finances are reported. The current laws do not measure up to the existing realities and are rather leading to the subversion of democracy. Prior to Electoral Bonds, individuals or companies could donate to political parties either by making direct contributions or through Electoral Trusts (a scheme introduced in 2013). Section 29(C)(a) of Representation of People’s Act,1951 only mandates donations of Rs 20,000 and above to be reported by the parties in their annual financial statements submitted to the Election Commission. This kind of reporting leaves scope for the manipulation of funds and rather leads to incomplete or non-disclosure of information to voters. It is not difficult for parties to hide the information about donations received under the garb of income below Rs 20,000. Electoral Trusts: These Trusts permit contributions to political parties only through banking channels, disclose the details of political contributions to beneficiary parties through the regular filing of annual reports and the link between the political party and the donor can be traced by the Election Commission, though not disclosed to the public. ADR’s analysis of trusts’ annual reports since FY 2013-14 brings forth some observations that need to be addressed to make this route of funding better. Not all trusts submit their annual reports regularly, and some of these trusts continue to declare nil contributions - between FY 2013-14 and 2022-23, two Electoral Trusts have declared that they have not received any donations since the year of their registration or whose reports are not available in the public domain, while four Electoral Trusts have declared receiving contributions only once since registered. This raises a question on the continuation of the registration of such electoral trusts that fail to fulfil their primary objective of distributing contributions received by them to the political parties concerned.Additionally, not only the funds contributed to electoral trusts are dominated by one particular trust (Prudent Electoral Trust declared Rs 1,696.9025 cr while the next trust declared only Rs 99.05 cr between FY 2017-18 to 2022-23) but the funds disbursed from electoral trusts to political parties are also skewed in favour of the ruling party by a huge margin. Contributions to the BJP are at least three to ten times more than contributions to all other parties put together by Prudent in these financial years. Thus, the shortcomings of this Scheme also require attention. Unknown sources of funding: Apart from electoral bonds, the other prevailing unknown sources of income include voluntary contributions below Rs 20,000 and the sale of coupons. The law does not require political parties to report voluntary contributions below Rs 20,000. Between FY 2017-18 and 2021-22, National Parties declared Rs 1156.077 cr from such sources. Since the last 17 years, BSP declared that the party did not receive any donations above Rs 20,000 and has not been filing details of such contributions to the ECI. This implies that 100% of the party’s donations have been coming from unknown sources. In the time of cashless transactions, parties should also accept donations below Rs 20,000 only digitally so that every contribution is accounted for by them. The sale of coupons printed by the party itself, is one of the ways devised by parties to collect donations and there is no cap or limit as to how many coupons can be printed or the total quantum. The only source of information regarding the coupon system is the party itself. In the five years between FY 2017-18 to 2021-22, National parties collected Rs 955.812 cr from these coupons. It is, therefore, necessary that such sources of income are also brought within the purview of regulation and are accounted for; no party should be permitted to use the absence of regulations in this regard to its advantage. Unlimited election expenditure by political parties: The current law i.e. Section 77 of the RP Act,1951 only prescribes a ceiling on election expenditure for the expenditure incurred by a candidate whereas the political parties have been given a free hand to spend any amount of money. In 1999, the 170th Law Commission report termed this form of escape route by keeping the political parties outside the purview of any legal sanction as a ‘mere eye-wash’. To avoid the active public scrutiny of their election expenses, political parties adopt dilatory tactics regarding submissions of election expenditures. Another issue is the mismatch in the funds allocated by parties to their MPs, as declared by them in their election expense submission, and funds received by the MPs from their parties, as declared by them in their expense submissions. Despite the repeated reminders sent by the Election Commission, political parties do not submit their election expenditure statements within the stipulated amount of time. The website of the Election Commission of India provides scanned copies of reminders sent to the political parties for defaulting in their submission. Under or non-reporting of election expenditure cannot be scrutinized if unavailable within a limited time as the expenditure reports are submitted after several months have elapsed and the public loses interest. Search and seizure of freebies: The distribution of freebies including cash, liquor, gold, other precious metals, drugs and other narcotic substances in elections or immediately preceding the elections is a hard reality deeply ingrained in the current scenario. The rival contestants are outbidding each other in the distribution of freebies. Vagueness in provisions relating to freebies and inadequate steps taken by the Election Commission on search and seizure during the election period has disarrayed Indian elections. On 26 March 2019, the total seizure reported by the ECI at the end of elections was a monstrous Rs 3475.76 crore with drugs/narcotics topping the list at Rs 1279.90 crore followed by precious metals (gold etc.) at Rs 987.11 crore, Rs 844 crore worth of cash, Rs 304 crore worth of liquor and other items or freebies worth Rs 60 crore. Foreign funding taken by the BJP and INC in 2009: In March 2014, the Delhi High Court had held both the Congress and the BJP guilty of taking foreign funding from Vedanta and its subsidiaries i.e. M/s Sterlite Industries Ltd. And M/s Sesa Goa Ltd. in violation of FCRA, 1976. However, the government with a nod from the opposition amended a repealed piece of legislation with the sole objective of condoning the illegalities committed by these two political parties. The changes made in the FCRA Act 2010 and repealed FCRA 1976 passed through the Money Bill was not just incidental but it was a carefully deliberated move on the part of the government after the BJP and the Congress let themselves off the hook of the Delhi High Court judgment. No law governing internal functioning and regulation of political parties: Despite the 3 June 2013 Central Information Commission (CIC) order, political parties have blatantly refused to come under the ambit of the RTI Act, 2005. There is no way to penalize the office bearers of political parties in case of any default or contravention. The major onus of framing and administering the rules and regulations has fallen on the Election Commission whose guidelines and directions are repeatedly disregarded by the parties. Mere formal reprimands rather leave more scope for parties and candidates to adopt to corrupt ways to collect, accumulate and distribute more money. Model Code of Conduct issued by the Election Commission of India is also observed more in breach than in compliance. In such a situation it has become increasingly difficult to hold political parties accountable. This accountability within parties was recommended by the Law Commission of India in its 170th report when it stated, “It is the political parties that form the government, man the Parliament and run the governance of the country. It cannot be dictatorship internally and democratic in its functioning outside.” Laws are not being applied for their purpose by the enforcement agencies: In June 1954, the Former Vice President Shri. Sarvepalli Radhakrishnan had asserted: “If I have one advice to give and if I am presumptuous enough to give any advice to the officers of the audit and accounts, it is this: ‘Do not shrink from the truth for fear of offending men in high places. Despite the major lacunae in the current laws, certain provisions under law command culpability and apply certain sanctions like Section 13A of the Income Tax Act, 1961 and Section 29 (C) of the RP Act,1951 which lays down a proviso stating cancellation of tax exemption to political parties if they fail to submit their financial statements. However, these provisions have never been enforced by either the Election Commission of India or the CBDT/Income Tax Department. Penal provisions under the Indian Penal Code and other specific statutes like the Prevention of Corruption Act, 1988 etc are rarely exhausted. These provisions were added with a specific purpose significant to the fact that political party finances have a propensity of getting murkier, especially given the fact that there is no law directly dealing with political parties’ liability. The present system not only coerces but also to a great extent tolerates this manipulation and multiplication of unregulated or under-regulated money and lobbying where a sort of quid pro quo transpires between political parties and other beneficiaries. In 1996 the Supreme Court without any hesitation had accepted that most politicians are not interested in honest money funding for elections. Honest money entails accountability. While the politicians want money for election, more importantly, they want money for themselves - to spend to hoard, to get rich. And this they can do only if the source of money is black. Indeed, the brilliant ruling of the court in ADR’s petition challenging the Finance Act,2017 not only endorses purity in elections but the verdict also saved the democracy from being converted into a mobocracy. In its verdict, the court has recognised that the relevance of information is not only to hold the government accountable but to also secure the goal of self-development and therefore, it is expected that more such reforms will be brought by the highest court of the land. (Shivani Kapoor is the Program Lead and Manager – Legal – at Association for Democratic Reforms. Shelly Mahajan is the Program and Research Officer – Political Party Watch – at ADR. This is an opinion article and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)

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Electoral Bonds | The Way Forward: Tackling the Pre-2017 System

Exposure to public scrutiny is one of the known means for getting courageous and credible people to govern.

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