UPSC MAINS 2019: Electoral Bonds Scheme: key objections vs government’s arguments

electoral bonds


Electoral Bonds Scheme: key objections vs government’s arguments

electoral bondsTopic in Syllabus: General Studies Paper 2: Indian Polity



The Supreme Court will deliver its order on Friday on an interim plea to stay the government’s controversial Electoral Bonds Scheme on funding for political parties.


More about on news:

  • Attorney General of India told the court recently that “voters don’t need to know where money of political parties come from”.
  • The petitioners have stated that the Electoral Bonds Scheme has “opened the floodgates to unlimited corporate donations to political parties and anonymous financing by Indian as well as foreign companies which can have serious repercussions on the Indian democracy”.
  • The scheme, they have said, has “removed the caps on campaign donations by companies and have legalised anonymous donations”.
  • This poses a “serious danger to the autonomy of the country and are bound to adversely affect electoral transparency, encourage corrupt practices in politics, and have made the unholy nexus between politics and corporate houses more opaque and treacherous and is bound to be misused by special interest groups and corporate lobbyists”.


Objections raised by petitioners:

  • With the removal of the 7.5% cap on the net profits of the last three years of a company, corporate funding has increased manifold, as there is now no limit to how much a company, including loss-making ones, can donate.
  • This opens up the possibility of companies being brought into existence by unscrupulous elements primarily for routing funds to political parties through anonymous and opaque instruments like electoral bonds.
  • The contribution received by any eligible political party in the form of electoral bonds will be exempt from income-tax as per Section 13A of the Income Tax Act.
  • Ordinary citizens will not be able to know who is donating how much money to which political party, and the bonds “increase the anonymity of political donations”.
  • The requirement to disclose in the profit and loss account the name of the political party to which a donation has been made, has also been removed.
  • The petition alleges that the bonds have been kept “secretive” for the benefit of big corporate houses.
  • The amendments made to Companies Act 2013 exclude the requirement of disclosure of names of political parties to whom contributions have been made.
  • The petitioner apprehends that this will lead to “private corporate interests taking precedence over the needs and rights of the people of the State in policy considerations”


Regulations on Election funding:

  • In 2003, the Representation of People Act 1951 was amended and sections 29B and 29C inserted. Section 29B says political parties may accept contributions of any amount from any person or company except from a government company or foreign source.
  • Section 29C says that every political party which receives such funding should prepare a report on contributions above ₹20,000 from individuals and companies and submit the same to the Election Commission before the income tax returns are filed.
  • If any party fails to do this, it will not get tax exemption for that year under the Income Tax Act.
  • Similarly, section 13A of the Income Tax Act 1961 provides for exemption of all voluntary contributions received by a political party from payment of income tax.
  • This provision also says that if the party fails to submit the report as stipulated in Section 29C of the RPI Act 1951, it will not get the tax exemption.
  • The Finance Act, 2017 amended both these Acts and exempted electoral bonds from the purview of section 29 C of the RP Act 1951 as well as section 13 A of the IT Act 1961.
  • The electoral bonds scheme has been designed in such a way as to keep the identity of the donor absolutely confidential.
  • Para 7(4) of the notification says that the authorized bank will not disclose any information about the purchaser of the bonds to any authority for any purpose.
  • The bank will not know who the recipient of the bonds is. The Government seems to think this is the best way to deal with the questions that arise in relation to political funding.


Electoral bonds:

  • The electoral bonds scheme was announced in Union Budget 2017 with an aim for increasing transparency in political funding.
  • It makes India first country in the world to have such unique bonds for electoral funding.
  • These bonds are bearer instrument in nature of promissory note and interest-free banking instrument.
  • It aims at rooting out current system of largely anonymous cash donations made to political parties which lead to generation of black money in the economy.
  • These electoral bonds can be bought for any value in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh or Rs 1 crore after fulfilling all existing Know Your Customer (KYC) norms and making payments from bank account.
  • It will not carry name of payee.
  • The bond deposited by any eligible political party to its account shall be credited on the same day.
  • No payment shall be made to any payee political party if bond is deposited after expiry of validity period.
  • Eligible political parties can encash electoral bonds only through their bank accounts.
  • Electoral Bonds may be purchased by only citizen of India.
  • An individual can buy Electoral Bonds, either singly or jointly with other individuals.
  • Electoral Bonds are valid for fifteen calendar days from the date of issue.
  • Only registered political parties, that have secured not less than 1% of votes polled in last election of Lok Sabha or legislative assembly of state, will be eligible to receive electoral bonds.
  • The cash donation has been capped at Rs. 2000 and beyond that donations are via electoral bonds.


Election Commission opinion:

  • In its affidavit to the Supreme Court filed on March 25, the EC said that it had written to the Union Ministry of Law and Justice in April 2017 that “certain provisions of the Finance Act, 2017 and corresponding amendments carried out in the Income-Tax Act, the Representation of the People Act, and the Companies Act will have serious repercussions/ impact on the transparency aspect of political finance/ funding of political parties”.
  • The EC also said in the affidavit 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”, and if information on the money received through such bonds is not reported,
  • EC said that “it cannot be ascertained whether the political party has taken any donation in violation of provisions” of the Representation of the People Act, which “prohibits the political parties from taking donations from government companies and foreign sources”.
  • The Commission also flagged the issue of laws being changed to allow political parties to receive contributions from foreign companies, which would “allow unchecked foreign funding of political parties in India which could lead to Indian policies being influenced by foreign companies”.
  • The EC told the Supreme Court that electoral bonds, contrary to government claims, wreck transparency in political funding.
  • Besides detailing how donations received through electoral bonds would cause a “serious impact” on transparency in funding of political parties, the EC also ripped apart amendments made to various key statutes through the two consecutive Finance Acts of 2016 and 2017.


Electoral Funding and Electoral Bonds:

  • Anybody can buy the Electoral Bond and can donate it anonymously, and party will have to encash it within 14 days.
  • All donations to the party will be accounted in balance sheets but the donor name won’t be exposed. This is to ensure that donor could face serious consequences from the political opponents. But through this move Voter, Election Commission of India, Income Tax department would remain in dark.
  • Electoral Bonds will allow corporate houses to make anonymous donations via banking channels. And thus, Electoral Bond has not addressed the issue of corporate funding of election. Anonymous donations by corporate houses would further limit the oversight and accountability.


Why the identity of the donor is kept anonymous?

  • The Centre has stated that the right of the buyer to purchase bonds without having to disclose his preference of political party is in furtherance of his right to privacy.
  • Keeping the identity of the donor anonymous is also an extension to his right to vote in secret ballot.
  • “This is necessary because once this disclosure is made, past experience has shown, donors would not find the scheme attractive and would go back to the less-desirable option of donating by cash”, the affidavit quotes Finance Minister as saying.
  • CJI Ranjan Gogoi, however, contested his theory that the anonymous scheme ensured that all money which went into poll funding was white. “If the identity of the donor is unknown, your entire exercise to eliminate black money becomes a futile exercise. Black money only becomes white,” the CJI observed.


How would transparency be maintained according to the Centre?

  • The Centre says that bonds can be purchased only from the State Bank of India. They can be bought by a donor with a KYC-compliant account.
  • The bonds will be available for purchase only for a period of 10 days in the beginning of each quarter, in the months of January, April, July and October. They can be bought for any value, in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh or Rs 1 crore. The name of the donor will not be mentioned in the bond.
  • The face value of the bonds shall be counted as income by way of voluntary contributions received by an eligible political party, for the purpose of exemption from Income-tax under Section 13A of the Income Tax Act, 1961.
  • Centre has also harped on the point that political party will have to file returns before the EC as to how much money has come through electoral bonds, which will provide accountability.


Supreme Court judgment;

  • The Supreme Court turned down a plea for interim stay on electoral bonds.
  • Though the apex court ordered all political parties who have received donations through electoral bonds till May 15, must submit details to the Election Commission of India in a sealed cover before May 30.
  • The Supreme Court also directed the finance ministry to reduce window of purchasing electoral bonds from 10 days to five days in April-May.
  • The court further said it would examine in detail the changes made in law and ensure that balance does not tilt in favour of any party.


Sample Question:

What do you understand by Electoral Bonds? Discuss how these Electoral Bonds will provide transparency and accountability in electoral funding?

electoral bonds SCHEME