ABSTRACT
This research paper examines the role of electoral bonds and their impacts on the political landscape of India, which introduced anonymous financial contributions to political parties. As per the Indian ethos, democracy comprises the values of freedom, acceptability, equality, and inclusivity in society and allows its common citizens to lead a quality and dignified life. Despite, all the values laid and guaranteed by the constitution of India, there exist some procedural loopholes and delayed justice because of the strong legislature. Through this paper, I will argue that the electoral bond scheme has had a negative impact on India’s political landscape. It also sets the stage for an argumentative paper that will likely explore the ways in which the scheme has contributed to corruption and undermined democratic values. Firstly, this paper explains the impact of corporate and foreign funding undermining free and fair elections. Secondly, it examines the need for transparency and access to information on financial funding in political parties.
KEYWORDS
Electoral bonds, Political funding, Anonymous donations, Transparency, right to information, Elections, Democracy.
INTRODUCTION
India unlike any other colonized country has still not been under military rule or failed to follow and cancelled its constitution. It is the world’s largest democracy following its democratic elections regularly with over 1.3 billion people. To participate in this large political exercise there exists a lot of funding made by political parties. Political funding received through donations is used as a source to finance political campaigns and meet other necessities of running its daily operations.
The political funding received through the new scheme overpowers the previous prevailing conditions of political funding as there always exists an opaque wall between funding and expenditures. The Electoral Bond became a new road map for political funding that acted as a promissory note issued like a bearer instrument, i.e., it is not a document and does not contain the name of the buyer. The scheme exhibits the following features: The Bond may be purchased only by persons who are (i) citizens of India, or (ii) incorporated or established in India. ‘Person’ includes (a) an individual; (b) a Hindu undivided family; (c) a company; (c) a firm; (d) an association of persons or a body of individuals, whether incorporated or not; (e) every artificial juridical person, not falling within any of the above categories; and (f) any agency, office, or branch owned or controlled by such a person.2 The bonds could be bought by an individual either in his/herself or in association with others.
According to the rules established by the Reserve Bank of India, the KYC requirements apply to the buyer of the bond. In case of need, the authorized bank may request additional KYC documents. Payments by way of a demand draft, Electronic Clearing System, or using a direct debit to the buyer’s account in Indian rupees are accepted. A demand draft or a cheque must be drawn in favour of the issuing bank of the place of issue and be the mode of payment. The bonds are available only from the SBI banks with denominations of Rs 1000, 10,000, 1,00,000, 10,00,000 and 1,00,00,000. The validity of the bond is fifteen days from the date of issuance. The payment will not be made to a political party if the bond is deposited after fifteen days. If the bond is not encashed within fifteen days, the authorized bank will place it with the Prime Minister’s Relief Fund
The first electoral bonds went to Parliament in the form of Bill 12 of 2017 by incorporating a few changes to the Finance Act 2017 The bill was titled ‘Transparency in the Electoral Funding’ through the suggestion of the Minister of Finance in his speech. The objections of the members of the Upper House which were raised on March 27, 2017, were related to the modifications in the Finance Bill, 2017. Shri Kapil Sibal, Shri Naresh Agrawal, Shri SukhenduSekhar Roy, Shri SitaramYechury, Shri Satish Chandra Misra, Shri V. Vijayasai Reddy, Shri D.Raja, and Dr. T. Subbarami Reddy dissented openly to the bill.5 These well-known and influential individuals brought out the main point that this bill was passed through the money bill route only because the party in power has a majority in the Lower House, and thus it silences the Upper House. As a result of this, the ‘reasons to suspect’ or ‘reasons to believe’ that would justify searching and seizing property need not be revealed since this move has seen section 132(1) of the Income Tax Act repealed. Authorities are now in the habit of raiding premises, seizing assets, and attaching assets. The members asked whether this could be applied retrospectively in 1962 but rejected it altogether. However, the finance bill got the approval of the President without any changes. As per the report of The Wire, an RTI had been filed by activist Saurav Das which was responded to by the submission of a set of documents related to the passing of the bill. A note from that document, File No. 1/1/2015-CL revealed the meeting at the Ministry of Corporate Affairs on March 8, 2017, in which the changes in the RBI act that dealt with the issuance of electoral bonds were debated. {The “Verbal exchanges about the inclusion of the said amendment of section 182 in the finance bill 2017” were characterized by only “Informal Discussions”}. The Opposition charged that the bill was presented as a “money bill” by the government in power to avoid discussions in the Rajya Sabha. They have accused the ruling party at the Centre has been the largest beneficiary of all electoral funds with around ninety-five per cent, as this fund comes from the electoral bonds.6
On February 15, 2024, the Court said the Electoral Bond Scheme and changes made to the Representation of People Act 1951 and the Income Tax Act 1961 in 2017 were against the Constitution because they hide information about how political parties get money. 3This goes against the citizens’ right to know stated in Article 19(1)(a) of the Constitution.
RESEARCH METHODOLOGY
This paper is the result of a qualitative research method in which an in-depth analysis of academic articles. This research includes both primary and secondary resources that contain academic articles and news articles. Analyses of the set of works written in this paper are the establishment of a better comprehension of the matter.
REVIEW OF LITERATURE
The importance of transparency in political funding is a well-established principle in democratic theory. According to Dahl (1998), transparency is crucial for maintaining the accountability of elected officials and ensuring that the democratic process represents the interests of the electorate rather than those of anonymous donors (Dahl, R. A. (1998). On Democracy. Yale University Press). Further, Warren (2009) argues that transparency in political financing helps mitigate corruption and fosters public trust in democratic institutions (Warren, M. E. (2009). “Democracy and Deceit: Regulating Appearances of Corruption,” American Journal of Political Science).
The electoral bond scheme was introduced in India in 2018 with the stated objectives of enhancing transparency and curbing the influence of black money in elections. However, scholars and analysts have critically examined these claims. Bhambhri (2019) contends that while the scheme intended to formalize political donations, it inadvertently undermined transparency by allowing anonymity (Bhambhri, C. P. (2019). “Electoral Bonds: A Step Towards Electoral Transparency or Opacity?” Economic and Political Weekly). Jain (2020) also highlights that the anonymity provided by electoral bonds is antithetical to the principles of democratic transparency, as it prevents voters from being fully informed about the financial influences behind political entities (Jain, A. (2020). “The Problem with Electoral Bonds,” The Hindu).
Empirical investigations into the effects of the electoral bond scheme have provided mixed results. The Association for Democratic Reforms (ADR) has published numerous reports indicating that a significant portion of political donations via electoral bonds come from corporate sources, raising concerns about potential conflicts of interest and policy capture (ADR Reports, 2018-2022). According to an analysis by Kumar (2021), the bulk of electoral bond donations tend to flow towards ruling parties, exacerbating existing political inequities and diminishing the competitiveness of elections (Kumar, R. (2021). “How Electoral Bonds Favor the Ruling Party,” Indian Journal of Public Policy).
CORPORATE FUNDING IN DEMOCRACY
Election bonds are one of the reasons behind the protest launched in the avoidance of copper donations to political parties. At that time, according to Section 182, companies were prevented from donating to campaigns more than 7.5% of their average net profit of the last three years. The ruling party took off this limit from the election bond plan, thus more capital through corporate donations is now possible. Detraction points out this might bring to an end the era of uncontrolled and unmonitored corporate funding for political parties. The lack of any demand for the companies to report their monetary sources, was not only a setback, but it also led to more confusion in the democracy. The election processes can now be heavily influenced by the corporate sector which can freely inject money into politics secretly. Activists pointed out the money that ran politics in India was majorly from the corporate sector as they bought 95% of the 2018-2022 electoral bonds issuance for Rs 16000 crores. The lack of a ceiling resulted in businesses channelling huge resources to political parties, thus providing a convenient platform to move money in the name of bonds For instance, before the 2019 general elections, it was reported that India’s biggest corporate groups donated several hundred crores to the ruling BJP. Giant state-owned enterprises were also major contributors to the party.
Without any legal restrictions, corporations could donate any amount to the required parties or candidates. This led to fears of systemic corruption and quid pro quo between the private sector and political parties playing decisive roles in forming policies. The government countered by blocking the possibility of channelling corporate money through the black market. To get such funds in the legal way — through donations only by individuals or organizations with the names of the contributors open — was seen as preferable according to some. Whereas, others said that suspension of both limits and disclosure requirements was a two-fold distortion. Notably, most democratic countries still have a relatively low bar for party donations. The US law limits the amount a company can contribute to a political committee to $5000 per year. The UK laws anticipate a balanced polity by barring foreign donations and limiting individual contributions. Germany puts a restrictive cap on private contributions in every party such that each party can only receive €1.5 million per year. Nonetheless, for example, the liberating of restrictive measures in India led to a situation of corporate ownage break-necked by the removal of the identity accounting mechanism. The Election Commission made it clear that the bonds were a direct affront to the principle of transparency in the electoral process. However, the government dismissed these objections without any consent and the scheme was implemented accordingly.
TRANSPARENCY AND ACCESS INFORMATION
The criticism against electoral bonds is the dilution of transparency in political funding. By removing the disclosure requirement, electoral bonds allowed big anonymous donations to parties. This was against the transparency norms India had set up to clean up election funding. Before, under RBI guidelines, all political contributions above Rs 20,000 had to be declared to the Election Commission in detail. This included the donor’s name, amount, address, PAN number etc. Electoral bonds scrapped this transparency clause. Parties got anonymous donations directly into their accounts without revealing donor identities. This raised serious concerns over the subversion of public transparency in elections. Critics argued anonymity prevents accountability in political funding and corrupts free and fair elections. If parties making laws and policies get black box funding, it distorts democracy and enables quid pro quo. Activists pointed out that nearly Rs 16,000 crores was donated via electoral bonds from 2018-2022 with no transparency on donor details. Removal of the transparency requirement effectively legalised anonymous donations that could include black money.
The government said transparency had to be balanced against privacy concerns. Political donors may not want their identities revealed publicly. But activists called this a false dichotomy as the right to information is fundamental to safeguarding democracy. They said if transparency is diluted, illegal money in the economy can be easily donated to parties through the shell of electoral bonds. Even foreign actors can donate anonymously which earlier laws prevented. Interestingly a Parliamentary Standing Committee that examined electoral bonds mentioned that all major democracies ensure transparency in political funding. The US, UK, France, Japan, Canada, and Germany all have a threshold above which donor details have to be declared. 6In contrast, electoral bonds allowed limitless anonymous donations directly to parties’ accounts facilitated by a public sector bank. This was termed a death blow to transparency by pushing unaccounted money into the democratic system. By removing caps and public reporting norms on party funding, electoral bonds effectively institutionalised opacity and unaccountability in Indian elections. This was the core of the petitions against it in the Supreme Court alleging violation of citizens’ right to information.
Right to Information a major ground on which electoral bonds were challenged was that they violated the fundamental right to information of citizens enshrined in the Constitution. By allowing anonymous political donations, it denied voters crucial information on parties and candidates contesting elections. Article 19(1)(a) of the Indian Constitution guarantees the right to freedom of speech and expression. The Supreme Court has interpreted this to also include the right to seek, receive and impart information on matters of public interest. Knowing the financial backing and interests behind parties and politicians is vital information for voters to make informed choices.
Opacity around funding through electoral bonds was argued to be an unconstitutional violation of the citizen’s right to know the interests shaping public representatives and policies. The removal of disclosure norms blocked crucial information to voters and weakened accountability.
For instance, if a party passes a law favouring certain corporations after receiving massive anonymous donations from them, it’s quid pro quo. However since electoral bonds conceal donor details, voters remain unaware of such influences compromising public interest.
Electoral bonds created an information black hole around critical aspects of the democratic process. Critics called it state-sponsored corruption that legalised dark money by denying public information fundamentally needed to uphold democracy.
Political funding transparency is recognised globally as essential for free and fair elections. Lack of information on funding sources, amounts and interests can enable undue and illegal influence by entities seeking to tilt the electoral playing field.
Supreme Court has in several judgments upheld transparency in elections as integral to freedom of expression and the right to vote meaningfully. But electoral bonds introduced sweeping anonymity in party financing in complete contrast to this constitutional principle.
By challenging electoral bonds for negating the right to information, critics laid the ground for the Supreme Court to review if anonymous donations constituted a reasonable restriction on Article 19(1)(a) rights. Many experts said it didn’t meet the criteria to justify blocking such vital flow of information.
Disclosure of Donor Details Ordered
The Supreme Court’s verdict on electoral bonds had a significant impact, as it ordered the government to reveal details of all donors and donations made through these controversial bonds. The Court emphasized the importance of transparency in political funding for fair elections and directed that all information about electoral bond transactions should be made public as soon as possible.
According to the ruling, the State Bank of India, which issued the bearer bonds, will need to provide detailed data to the Election Commission within 4 weeks. This includes information on who purchased how many bonds, when they were purchased, and in what denominations. Additionally, the SBI must also share data on which political parties encashed the bonds and received the donation amounts in their accounts. Although political parties are not legally obligated to do so, the Court urged them to voluntarily disclose the amounts received through bond donations.
This move towards transparency is a major step forward. The electoral bond scheme allowed for over Rs 16,000 crores of political donations without revealing the donors or the donation amounts. Now, this lack of transparency will be revealed through the systematic disclosure of who funded which party secretly until now.
The Court emphasized the citizens’ right to know crucial details about the financing of parties seeking political power. It highlighted that anonymous funding goes against democratic principles and could enable questionable deals between parties and their major donors.
By requiring disclosure, the Supreme Court’s ruling will expose dubious funding channeled through electoral bonds. Previously, any entity, including illegal sources or foreign companies, could anonymously donate unlimited sums to parties through bonds purchased at SBI branches.
Legal experts have praised the ruling for prioritizing transparency and upholding voters’ fundamental right to information regarding election funding. This decision promotes accountability in democracy by allowing scrutiny of financial influences on parties vying for public office.
The Supreme Court’s verdict striking down electoral bonds has reinstated the legal framework governing political party funding that was in place before the introduction of these controversial bonds in 2017. This signifies a significant return to transparency and accountability norms that had been weakened by electoral bonds. The rules mandating declarations of donations above Rs 20,000 are now back in effect.
Before electoral bonds were introduced, the Representation of People’s Act required parties to submit details of donors and amounts for all contributions above Rs 20,000 to the Election Commission each year. This included the name, address, and PAN details of donors. The companies law also limited corporate donations to 7.5% of average net profits over the past 3 years, preventing unlimited funding from registered companies to political parties or candidates.
Electoral bonds scrapped both of these rules, removing caps on donations and introducing opacity around donors. This opened the doors for unrestricted anonymous funding, including from foreign and illegal sources. The Supreme Court ruled that electoral bond anonymity violated the citizens’ right to information and failed to clean up political funding as claimed. Therefore, it struck down amendments made to the RPA and Companies Act to facilitate the bonds.
With this decision, the transparency in party funding that existed before 2017 has been restored. Activists consider this a major boost to India’s election transparency framework, which was undermined in the name of electoral bonds.
SUGGESTIONS
The suggestion was given to overcome the Empowerment of Regulatory Bodies i.e ECI and RBI should be strengthened. They should be given more powers and resources to monitor and audit political funding closely. Political party finances should be audited regularly and results should be made public to ensure transparency and to deter financial misuses.
CONCLUSION
he electoral bond scheme was introduced with the commendable objective of curbing black money in Indian politics and enhancing transparency in political funding. However, the implementation and actual impact of the scheme have sparked significant criticism regarding its effectiveness in promoting transparency and upholding democratic accountability.
Despite its intended purpose, the scheme has inadvertently facilitated high levels of anonymity in political donations. This lack of donor disclosure is problematic as it hinders the electorate’s ability to see who is financially supporting political campaigns and potentially influencing policy decisions. This veil of secrecy can diminish public trust in democratic institutions and processes, as it opens the door for political parties to be swayed more by the interests of wealthy donors rather than the general populace.
Moreover, the current oversight provided by regulatory bodies such as the Election Commission of India (ECI) and the Reserve Bank of India (RBI) has proven to be insufficient. These institutions require more authority and resources to carry out comprehensive audits and enforce transparency regulations effectively. Without stringent monitoring and robust oversight, the likelihood of misuse and opaque financial practices increases, further jeopardizing public confidence in the system.
To ensure that the electoral bond scheme aligns with democratic values, significant reforms are necessary. This would include making donor identities public, setting limits on anonymous and corporate donations, and introducing public funding options to lessen dependence on substantial private contributions. Such changes would greatly enhance transparency, making certain that political parties remain accountable to the voters.
In summary, while the electoral bond scheme does tackle the issue of black money, it falls short in fostering transparent political funding, which is vital for maintaining democratic integrity. Reforming the scheme with these considerations in mind
Manasa Muppalla
OP Jindal Global Law University
1st Year, 2nd semester.