Introduction: (00:09)

Hello, everyone! My name is Shivani Kapoor and I am a Program Officer at ADR. Welcome to the eighth episode of our podcast series. This episode will focus on ‘Finance Act, 2017.’ In this section, we will be discussing two major amendments brought by the Finance Act, 2017 and its implications on political party finance.

 

Finance Act of 2017: Background and Over-view: (00:36)

The Finance Act, 2017 was passed as Money Bill with a primary objective to curb the ever-growing menace of deep-rooted corruption and black money circulating within the political class.  However, on the face of it these amendments have not only legitimized electoral corruption at a huge scale but it is also a blatant abuse of money power by opening doors to unchecked, unknown and unlimited political donations. Two major amendments introduced by Finance Act, 2017 were: 

1. system of electoral bonds to be issued by any scheduled bank for the purpose of electoral funding.
2. removal of previous limit of 7.5% of the company’s average three-year net profit for political donations with the result that a company is no longer required to name the parties to which such contributions are made.

The consequence of these amendments is that now the contribution reports of political parties need not mention the names and addresses of those contributing by way of electoral bonds or details of donations given by corporate giants to the political parties. This will have a major implication on transparency in political party finances as the political parties are not required to file contributions received through electoral bonds. Election Commission regularly displays political party’s contribution reports on its website through which citizens get to know about the contributions made to various political parties and the source of such contribution. But with the introduction of these two amendments, Election Commission and the citizens of the country will not get to know the vital information regarding political contributions.

On 3rd October, 2017 ADR along with Common Cause filed a petition in the Supreme Court challenging the amendments brought through the Finance Act, 2017. On 5th March, 2019 ADR filed an application for stay against the sale/purchase of electoral bonds for Lok Sabha 2019 elections.  In the stay application ADR had contended that enormous amount of corporate funding would be received by political parties during the general elections and this would play a critical role in the elections. In response to ADR’s application, the Supreme Court in its interim order dated 12th April, 2019 while refusing to stay the sale of EBs, directed all political parties to submit details of donations received via Electoral Bonds to the Election Commission of India in a sealed cover on or before 30th May 2019. On 29th November 2019, ADR filed another application to bring on record certain vital documents which had surfaced through RTI applications filed by various activist/citizens including ADR. Though the Supreme Court stated that it is a grave matter requiring serious deliberations, no further hearing has been held after April 2019.

 

What are Electoral Bonds: (04:08)

In order to understand the problem of increasing opacity in political funding, let us first see what exactly are electoral bonds:

• As per the Electoral Bond Scheme, 2018 an electoral bond is a bond issued in the nature of promissory note. It can be purchased by a person who is a citizen of India or entities incorporated or established in India.
• The bonds under this scheme shall be available for purchase by any person for a period of ten days each in the months of January, April, July and October. In the year of general elections, an additional period of thirty days shall be specified by the Central Government
• The bonds are issued in multiples of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakhs and ₹1 crore.
• These are available at specified branches of State Bank of India and any KYC-compliant account holder can buy these bonds.
• Donors can donate the bonds to their party of choice which can then be encashed by the party's verified account within 15 days.
• The bond does not carry the name of the buyer or the payee.
• The political party does not have to disclose the name of the donor. Neither does the donor entity have to state to which party it has donated.
• Only eligible political parties with 1% vote share are eligible to buy Electoral bonds.
• The contribution received by any eligible political party in the form of electoral bonds is exempted from income tax as per Section 13A of the Income Tax Act.

 

 

Why use of Electoral Bonds for political donations is a cause of concern: (05:58)

• Electoral bonds have surely emerged as a vital instrument to both endorse and encourage opacity by not only opening the floodgates of indefinite and mysterious donations but also legitimizing the illicit money in our electoral and political process. As per a report released by ADR on 11^th June, 2020, a total of 12,452 bonds of more than Rs 6210.39 crore were purchased during the thirteen phases between March 2018 and January 2020.

• Electoral bonds infringe the citizen’s fundamental ‘Right to Know’. Such an unreasonable and irrational restriction on information at the cost of larger public interest is a severe blow to the very fundamentals of transparency and accountability. Making the political class even more unanswerable and unaccountable by withholding crucial public information goes against the very spirit of ‘Democracy and Rule of law’.

• Since the bonds are bearer instruments and have to be physically given to the political parties for them to encash, parties will know who is donating to them. It is only the general citizens who will not know who is donating to which party.

• Data obtained from SBI reveals that there is hardly any demand for electoral bonds of smaller denomination while 99.9% of bonds sold in terms of amount are of Rs 10 lakh & Rs 1 crore denomination. As per ADR’s report 5690 bonds (46.22%) and 4831 bonds (39.24%) of a total of 12, 312 Electoral Bonds redeemed during the thirteen phases, were in the denomination of Rs 1 crore and Rs 10 lakhs, Highest number of bonds i.e 2058 in the denomination of Rs 1 crore and 1866 bonds in the denomination of Rs 10 lakhs were redeemed during phase IX in April 2019. This anomaly clearly implies that common citizens are not buying these bonds and these are being bought only by high and mighty or big corporates to protect their interests or for quid pro quo.

• Only the Ruling party will be the biggest beneficiary of electoral bonds.  This is substantiated by the annual audit reports for FY 2017-18, wherein 95% of the total Electoral Bonds were received by BJP.

• Electoral bonds carry unique alphanumeric characters hidden in the top-right corner of the bonds. It is visible only under ultraviolet light, and invisible to the naked eye. Even though the government has claimed that the alphanumeric characters are embedded for security reasons but this argument has been debunked by many experts. Series of articles reported by ‘The Quint’ and many other reports clearly state that such a feature existing in the bonds are for the obvious reason that the ruling government wants to keep a concealed track on the donors.

• Moreover, electoral bonds on one hand provide no details to the citizens, but the said anonymity does not apply to the government of the day, which can always access the donor details by demanding the data from SBI. This implies that the only people in dark about the source of these donations are the taxpayers. Even the Former Chief Election Commissioner of India Mr. S.Y Quraishi in an interview had stated; “While buying an electoral bond, one needs to furnish their KYC details. The serial number of the bond, matched with the KYC details, will clearly reveal who donated how much money to which political party.”

• There seems to be no scrutiny by any authority at any stage prior to redemption of Electoral Bonds by political parties. Even political parties which fail to meet the required eligibility criteria specified under the Scheme have received donations through Electoral Bonds. As per ADR’s report, out of 43 Registered Unrecognised political parties whose required vote share details were available, only one party meets the eligibility criteria.

• After the introduction of EBs, the government has lied, broken its own rules right from unscheduled and illegal sale of expired bonds to bogus claims that the donors asked for secrecy in electoral bonds due to fear of political retribution.

• Various Central agencies like Reserve Bank of India’s (RBI), ECI, even the Law Ministry and various MPs of the Rajya Sabha had not only shown their apprehension but had also given 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. These institutions had strongly opposed the mechanism of Electoral Bonds and made serious reservations against it and termed it as a “bad precedent”.

 

Unlimited and anonymous Corporate donations: (11:50)

Let us now come to the second amendment brought through Finance Act,2017.

• Prior to the amendment, there existed a cap on the donations permitted up to 7.5% of net profits of the last 3 years for the companies. Before 2013 amendment of the Company Law, this limit was 5.5%. Corporate funding in India was completely banned till 1985. But now with this new amendment, the limit for contributions that a company may make to political parties has been completely revoked.

 

• The requirement of a company to disclose the details and names of the political parties to which a contribution has been made has also been removed. Only the total amount of donations to political parties has to be disclosed without naming the political party.

 

• The companies are no longer required to disclose the break-up of contributions made to different political parties. The result of this would be that now corporate funding will increase manifold as there is no limit to how much the companies can donate.

 

Why unlimited and anonymous corporate donations is a matter of grave concern: (13:00)

We have already reached a stage where all forms of corporate donations to political parties should be banned because it is for citizens to elect their government, not the companies.

 

• With the removal of the 7.5% cap on the net profits of the last 3 years of a company, corporate funding has now increased manifold as there is no limit on the amount a company can donate. Even loss-making companies now qualify to make donations of any amount to political parties out of their capital or reserves.
• Further, there is a grave possibility of companies being brought into existence by crooked elements primarily for routing funds to political parties through anonymous and opaque instruments like electoral bonds. This has further increased the opacity of funding of political parties, and the danger of quid pro quo and if any benefits are passed on to such companies or their group companies by the elected government.
• It will also lead to the creation of shell companies and rise of benami transactions to channelize the undocumented money into the political and electoral process in India.
• It is a known fact that corporate financiers use their clout to get lucrative contracts and get laws and policies made in their favour often at the cost of public interest. That is why many corporates are keen to fund political parties.

 

Why ADR has challenged the Finance Act, 2017 on the grounds of being unconstitutional and arbitrary: (14:38)

 

• If the primary objective of the Finance Act, 2017 was to curb corruption and black money, introduction of EBs and uncontrolled anonymous corporate donations can only be termed as the biggest mockery of free and fair elections. Such illegal and illicit ways of funding will have serious repercussions on the Indian democracy. Instead of making the political parties answerable and accountable, these amendments have only caused annoyance, inconvenience, obstruction to the citizens at large by withholding crucial public information from them regarding electoral funding.

 

• Freedom of speech and expression includes right to acquire & disseminate information. It enables citizens to contribute to social, political and moral issues. It is the only vehicle of political discourse, for a democracy it is an indispensable and a non-negotiable requirement.

 

• True democracy cannot exist unless all citizens have a right to participate in the affairs of the country. This right to participate in the affairs of the country is meaningless unless the citizens are well informed on all sides of the issues. Free and fair elections entail those who come on merit. One-sided information, disinformation, misinformation and noninformation all equally create an uninformed citizenry.

 

• In a situation where donations received through Electoral Bonds and companies are not reported, it can never be ascertained whether a political party has taken any donation in violation of provisions of the Representation of the People Act, 1951 which prohibits the political parties from taking donations from Government Companies and Foreign sources.

 

• As per the information availed through RTI filed by ADR it was found that only 20out of 96 political parties had submitted the required details in sealed cover to the ECI on or before 30th May, 2019. Remaining 76 parties had submitted details after 30th May, 2019 inspite of the clear instructions given by Supreme Court in its interim order dated 12th April, 2019.

 

• The reluctance and attitude of political parties to bring any form of reform within their functioning is no hidden secret. In fact, such continuous averseness of the existing political establishments to introduce transparency and accountability within parties has only permitted corruption to percolate further in the electoral process. Over a period, we have observed burgeoning election expenditure, political party funding, and inadequate reporting and disclosure laws. Sometimes black money is generated by business houses and individuals to evade corporate and income taxes, later it is pumped back to political parties and candidates to garner favourable policy decisions. In our current electoral and political system, those who are willing and are able to utilize black money, dominate politics.

 

 

Conclusion: (18:21)

There cannot be a better observation to conclude and comprehend with today’s situation than the one given by Supreme Court way back in 1996 while dealing with the issue of purity in elections and abuse of money power. The court had observed;

“Most politicians are not interested in honest money funding for elections. Honest money entails accountability. Honest money restricts spending within legally sanctioned limits. Honest money leaves little scope for the candidate to steal from election funds.. 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. The corrupt politician groomed to become the corrupt minister, and, in turns the corrupt minister set about seducing the bureaucrat. THINK OF ANY problem our society or the country is facing today, analyse it, and you will inevitably conclude, and rightly, that corruption is at the root of the problem. Prices are high. Corruption is the cause. Quality is bad. Corruption is the cause. Roads are pockmarked. Corruption is the cause. Nobody does a good job. Corruption is the cause. Hospitals kill. Corruption is the cause. Power-failures put homes in darkness, Corruption is the cause. Businesses go into bankruptcy. Corruption is the cause. Cloth is expensive. Corruption is the cause. Bridges collapse. Corruption is the cause. Educational standards have fallen. Corruption is the cause. We have no law and order. Corruption is the cause. People die from poisoning, through food, through drink, through medicines. Corruption is the cause. The list is endless. The very foundation of our nation, of our society, is now threatened. And corruption is the cause…”

 

Therefore, in order to fix the system, to contain corruption and to bring complete transparency and accountability in political party finances, need of the hour is “every single penny collected and spent by political parties should be accounted for.” That is the ONLY solution.

 

That’s all for today’s episode. I hope you all found this useful and interesting. If you like our work, make sure you subscribe to the podcast on our website: adrindia.org and don’t forget to write to us at [email protected] with your feedback. We will be back in two weeks with another amazing episode. Please stay tuned and thank you for listening.

 

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