Secrecy shrouding electoral bonds

Challenged before Supreme Court, Prashant Bhushan’s argument

M Sridhar Acharyulu, 1 November 2023

The secrecy is shrouding electoral bonds scheme of Government of India. It is in violation of Article 19(2) of Constitution of Bharath and Right to Information under right to speak. It is not under the attack on RTI Act. It destroys the right to information beyond the RTI and Article 19(2) of the Constitution of Bharath. The Government should understand that the Elector Bonds will violate the Citizen’s Right to Information.  Whether it is a scheme or scam? It needs to be examined by the Supreme Court. A renowned senior advocate Prashant Bhushan started argument on 31st October, before the Constitution bench of Chief Justice of India DY Chandrachud, Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra in the batch of petitions challenging this so called ‘scheme’.

The Electoral Bond Scheme was introduced by means of amendments to four key legislations—the Foreign Contribution Regulation Act, 2010 (FCRA), Representation of the People Act, 1951 (RPA), Income Tax (IT) Act, 1961 and the Companies Act, 2013.

Bhushan contested the government’s claim that there were reasonable restrictions under Article 19(2). He maintained that the grounds mentioned under Article 19(2) did not apply to funding political parties, as knowing which entities funded political parties did not infringe upon any of the restricted grounds.

Bhushan underscored the critical implications of this lack of transparency. He argued that it potentially violated citizens’ fundamental right to information under Article 19(1) (a). Citizens, he asserted, had a legitimate interest in understanding the financial sources of political parties to ensure they were not influenced by vested interests.

Bhushan highlighted the following points:

  1. The State Bank of India, which was under the Union, issued these bonds.
  2. Further, law enforcement agencies, which were again under the Union, while investigating, could know the details of the bonds.
  3. Thus, while the Government knew where the donations were coming from and which party they were going to, citizens were kept in the dark about it.
  4. He further added that due to these bonds being bearer bonds, they were entirely transferable.
  5. Once an individual or entity purchased a bond, they could effortlessly hand it over to another person who could then donate it to a party.
  6. Consequently, political parties that received these bonds might remain oblivious to the original donor’s identity.
  7. Or, the parties may even pretend to not knowing where the donations came from.

Benefit only ruling parties

Prashant Bhushan explained that 99% of Electoral Bonds went to the ruling parties in the Centre and in the States while the opposition parties were left with less than 1% of bonds. He added that total donations declared by BJP by means of Electoral Bonds was more than three times the total donations of Electoral Bonds declared by all other national parties put together. This is a complicate problem. Bhushan described the case as one that goes to the very roots of the Indian democracy.

Facilitates Kickbacks

The point is that while ruling parties are benefitted, opposition parties get very less. Bhushan pointed out that most bonds were issued in denominations of 1 crore, indicating that corporations and similar entities predominantly acquire them. Furthermore, the majority of these bonds were directed toward ruling parties at the central level, with minimal allocation to opposition parties. He asserted that electoral bonds had been systematically distributed as kickbacks to parties in power and there was circumstantial evidence to prove the same.

He stated that more than 50% of these bonds had been received by the ruling party at the Centre, with the remaining share going to ruling parties in different states. He added that virtually no bonds, less than 1%, had found their way to opposition parties that are not currently in power, raising concerns about the fairness of political competition.

Bhushan submitted–

Party wise electoral bonds declared in audit reports in last 5 years- BJP: 5271 crores. This was only up till 2021 to 2022. After that, more than 3500 crores worth of more bonds have been purchased. BJP’s  total is 5217 crores out of a grand total of 9191 crores…The central ruling party has received more than 50%, almost 60% of the total contribution…The total donations declared by BJP is more than three times the total donations declared by all other national parties put together.”

Secrecy of electoral bonds

He argued that this anonymity of electoral bonds had raised suspicions of corruption and that donors may use these bonds to provide kickbacks to political parties in exchange for favourable policies, legislations, and other benefits, and the secrecy surrounding these donations made it difficult to trace any quid pro quo agreements.

At this juncture, the CJI said–

Another point you may want to also explore is that this is not an anonymised donation in relation to a donee. It’s anonymised donation in relation to the rest of society. The donee may or may not but could know of the sources.

Bhushan said that financial superiority translated into an electoral advantage, and the party in power had a significant edge in securing greater funding through electoral bonds due to its capacity to offer quid pro quo thereby contradicting democratic principles.

He said–

Earlier you could be prosecuted for corruption if you had given donations to a political party who in turn had given you some favours in terms of mining contracts etc. But now because no one will know as to who has donated, whether you’ve received quid pro quo- it is promoting corruption.

Lack of transparency with four changes:

Foreign Companies Now Permitted to Fund Political Parties Under FCRA: In 2016, the Finance Act amended Section 2(1)(j)(vi) of the FCRA. In doing so, this amendment redefined the concept of a “foreign source” and allowed foreign companies to donate to Indian political parties through their subsidiaries registered in India. Prior to this amendment, foreign companies were strictly prohibited from contributing to political parties under both the FCRA and the Foreign Exchange Management Act, 1999.

A retrospective amendment

Delhi High Court had held that both the Bhartiya Janata Party (BJP) and the Indian National Congress (INC) had received foreign contributions through subsidiaries of foreign companies. It was challenging this amendment.  To overcome this legal challenge, a retrospective amendment had been incorporated into the FCRA through the Finance Act. This amendment stated that if the donation was made by a subsidiary of a foreign company, it would not be treated as a foreign source.

Political Parties Don’t Need To Reveal Contributions Made By Electoral Bonds: In 2017, the Finance Act amended Section 29C of the RPA. These changes introduced a proviso to the section, which earlier mandated the publication of “Contribution Reports” revealing contributions exceeding Rs 20,000 from both companies and individuals. As per the amendment, the political parties were absolved from the obligation to disclose contributions received through electoral bonds. Further, anonymous cash donations to political parties which were earlier capped at Rs 20,000 were now capped at Rs 2,000 post amendment. Challenging the same, Bhushan underlined that the government’s rationale for this change was twofold. Firstly, they claimed it was aimed at reducing the use of cash in political funding. Secondly, they argued that by reducing the disclosure threshold from Rs 20,000 to Rs 2,000, they were promoting greater transparency in the political funding process. He pointed out that the reduction in the disclosure threshold from Rs 20,000 to Rs 2,000 might not effectively curb the use of cash in politics. Previously, political parties would declare that they received a certain amount in small donations below Rs 20,000. Now, they could make the same declaration for donations below Rs 2,000, effectively shifting the goalposts without addressing the core issue. Further, he stated that anonymising donations made through Electoral Bonds would not promote transparency in any way.

Bhushan in his argument says ‘a more direct approach to combat the use of cash in political funding’ is needed. He suggested that political parties could be required to accept donations exclusively through banking channels and prohibited from accepting cash donations altogether. This, he argued, would have been a more effective way to tackle corrupt practices and enhance transparency.

Amendment in Companies Act Would Allow “Shell Companies” To Fund Parties: Section 154 of the Finance Act amended Section 182 of the Companies Act, 2013, effectively removing the upper limit on corporate donations to political parties. Previously, companies were restricted to donating up to 7.5 percent of their net profits over the previous three years.

As per the contention of Bhushan ‘that implications of these changes were far-reaching’. He pointed out that this alteration allowed even loss-making companies or those with no substantial business activities, essentially “shell companies,” to make unlimited donations to political parties.

Obscured the sources

Bhushan says that this change effectively obscured the source of funding for political parties and curtailed the public’s right to be informed about the origins of these contributions. He highlighted that foreign companies or their subsidiaries, even if they held 100 percent of shares, were not classified as foreign sources of funding as long as they operated within the purview of the Foreign Exchange Management Act (FEMA). This legal loophole potentially enabled foreign entities to fund Indian political parties without transparency or disclosure. To illustrate the gravity of these changes, Bhushan cited examples such as Vedanta Ltd., a multinational mining company that had reportedly donated a significant amount to political parties via electoral bonds. He stated that intriguingly, this occurred at a time when Vedanta Limited secured various mining licenses and contracts, raising concerns of political favouritism. In addition, investigative reports highlighted instances where electoral bonds appeared to function as covert kickbacks to influence government decisions and policies, with companies using them to navigate legal issues, such as excise problems.

Parties Exempted Under Income tax Act from Disclosing Contributions: Most important highlighted is that Section 11 of the Finance Act, 2017 amended Section 13A of the Income Tax Act, 1961, exempting political parties from their obligation to keep a detailed record of contributions received through electoral bonds. This was another way as per him to hide the sources of donations from parties.

Bhushan stated – “Everywhere electoral bonds have not only been introduced, they have been exempted from disclosure under the Companies Act, Income Tax Act, Representation of People Act etc. It has on one hand introduced an opaque instrument – by which nobody can come to know other than the government. It is only the government which will know who contributed to whom.

Advocate Nizam Pasha Argues “Manifest arbitrariness”

Advocate Nizam Pasha, in his arguments, asserted that the Electoral Bond scheme exhibited elements of manifest arbitrariness. He contended that arbitrary legislation was characterized by a lack of fairness, reasonableness, discrimination, transparency, and attention to public welfare. In this context, he drew the attention of the court to the eligibility criteria for purchasing Electoral Bonds, emphasizing that even foreign entities could purchase the bonds through subsidiaries established in India. This approach, he stated, contrasted with other financial regulations where beyond a certain percentage, if a company had foreign ownership, it was treated like a foreign source and prohibited from investing in Indian sectors. This, he stated, resulted in absurdity.

He said–

We don’t permit investments by an entity which has 51% foreign shares in let’s say media because we don’t want foreign control of our media. But we have no problem in allowing such a company to purchase bonds and transfer it to political parties- an entity that runs the country! The government and the legislative policy don’t permit a company incorporated in certain jurisdictions to even enter into procurement contracts with the government. But for funding political parties and thereby having a say in the electoral politics of the country – there is no problem? Just the comparison points out the legislative absurdity.”

He stated that the amendment to FCRA placed all Indian corporate entities on a similar footing as foreign entities. He underlined that while certain Indian sectors were prohibited from foreign investments- like atomic energy, defence, space; a foreign company was allowed to fund a political party.

He exemplified this further and said–

This is prohibited in the context of business but permitted in context of political parties. Please see this press note of 2020 by which it has been stipulated that any country which shares a land border with India – investment from such a country is treated on a different footing from investment on any other country. An investment from China into a manufacturing entity will not be treated at par as investment from elsewhere. But if the same country then purchases electoral bond, that is permitted.

Pasha added that if the security of the state was impacted merely by a foreign company investing in its manufacturing sector, how could it not be impacted if the same foreign investment was coming into political parties.

He said–

We are having an issue in Press currently of a news organisation receiving funds from China. So, by this standard a country like China cannot invest into businesses in India through a separate route but it can fund a political party on a principle of quid pro quo?

To this, the CJI remarked–”It’s a matter of policy. You are saying that a company in China since China shares a land border- they cannot bid for a contract but they can buy an electoral bond… it’s policy.

However, Pasha submitted that policy was subject to doctrine of manifest arbitrariness if it was absurd.

(Based on arguments before Supreme Court by reports of Padmakshi Sharma in Livelaw)

Prof. M. Sridhar Acharyulu
Prof. M. Sridhar Acharyulu
Author is Dean, Professor of law at Mahindra University at Hyderabad and former Central Information Commissioner. He published a number books in English and Telugu.


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