Context: The Supreme Court flagged its concern that political parties could misuse crores of rupees received as donations through electoral bonds to bankroll violent protests or even terror.
- The court asked the government whether there was any “control” over how these donations were used by the political parties.
Analysis
What are electoral bonds?
- Electoral bonds were announced in the Union Budget of 2017-18.
- The electoral bond scheme is being implemented by the Department of Economic Affairs, Ministry of Finance under the Reserve Bank of India Act, 1934.
- An electoral bond is a bearer instrument like a Promissory Note — in effect, it will be similar to a bank note that is payable to the bearer on demand and free of interest.
- A bearer instrument, or bearer bond, is a type of fixed-income security in which no ownership information is recorded and the security is issued in physical form to the purchaser.
- The holder is presumed to be the owner, and whoever is in possession of the physical bond is entitled to the coupon payments.
- Promissory Note is a signed document containing a written promise to pay a stated sum to a specified person or the bearer at a specified date or on demand.
- The bonds will be issued in multiples of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh and ₹1 crore and will be available at specified branches of State Bank of India.
- SBI is the ‘Sole Authorized Bank’ by the Government of India for selling Electoral Bonds.
- The minimum amount for donation in Electoral Bonds is Rs 1000. There is no maximum limit for donation.
- Donors, with a KYC-compliant account, can donate the bonds to their party of choice anonymously which can then be cashed in via the party’s verified account within 15 days.
- The bonds do not bear the name of the donor, and the details are not made public.
What are the other conditions?
- Every party that is registered under section 29A of the Representation of the Peoples Act, 1951 and has secured at least one per cent of the votes polled in the most recent Lok Sabha or State election will be allotted a verified account by the Election Commission of India.
- Electoral bond transactions can be made only via this account.
- The bonds will be available for purchase for a period of 10 days each in the beginning of every quarter, i.e. in January, April, July and October as specified by the Central Government.
- An additional period of 30 days shall be specified by the Central Government in the year of Lok Sabha elections.
Who is eligible to donate through Electoral Bonds?
- The Electoral Bonds under this Scheme may be purchased by a Person, who is a Citizen of India or Incorporated or Established in India.
- The definition of “Person” includes-
- an Individual;
- a Hindu Undivided Family;
- a Company;
- a Firm;
- an Association of Persons or a Body of Individuals, whether incorporated or not;
- every Artificial Juridical Person, not falling within any of the preceding subclauses; and
- any Agency, Office or Branch owned or controlled by such person.
- Not only companies but even individuals, groups of individuals, NGOs, religious and other trusts are permitted to donate via electoral bonds without disclosing their details.
- There is no limit on the number of bonds an individual or company can purchase.
- SBI deposits bonds that a political party hasn’t enchased within 15 days into the Prime Minister’s Relief Fund.
- Whether joint holding will be allowed? Electoral Bonds can be purchased either Singly or Jointly with other Individuals but not more than three Applicants per Application Form. No name(s) will be printed on the Bond.
- Can Electoral Bonds be purchased multiple times by same Applicant? Every application will be treated as fresh request for Electoral Bonds purchase and every time fresh KYC documents will be given.
- All payment for the issuance of the Electoral Bonds will be accepted in Indian Rupees only.
- Once the Electoral Bond is purchased it cannot be cancelled and no amount will be refunded to the Purchaser.
- Political Party cannot open more than one Current Account for Electoral Bond redemption.
- However, a Political Party can use this Current Account for other operations also.
- If the Political Party becomes de-notified before the next issuance of Electoral Bonds, then Bank will change the product code of their account to a regular Current Account code, so that Electoral Bonds cannot be deposited in the account.
- The electoral bonds will not bear the name of the donor. In essence, the donor and the party details will be available with the bank, but the political party might not be aware of who the donor is.
- The intention is to ensure that all the donations made to a party will be accounted for in the balance sheets without exposing the donor details to the public.
- The maximum amount of cash donation that a political party can receive is capped at ₹2,000 and that parties are entitled to receive donations by cheque or digital mode, in addition to electoral bonds.
Do you know?
- Data shows 99.9% of all electoral bonds bought so far are worth Rs 10 lakh or 1 crore.
- The bonds of Rs 1 crore are the most popular among all the electoral bond purchases so far.
- Before the introduction of the Scheme, cash donations of over Rs 20,000 could not be anonymous.
- The fact that donations through electoral bonds remain anonymous as well as tax exempt, and given most have been of high value, has raised concerns among experts.
- The amendment to Section 29C of the Representation of the People Act has made it no longer mandatory for the parties to report the details of donations received through the bonds.
- Through an amendment to the Finance Act 2017, the Union government has exempted political parties from disclosing donations received through electoral bonds.
- In other words, they don’t have to disclose details of those contributing by way of electoral bonds in their contribution reports filed mandatorily with the Election Commission every year.
RBI had warned of the pitfalls of electoral bonds
- The Reserve Bank of India (RBI) had advised the government that the electoral bonds it proposed in 2017 would not solve the problem of unaccounted-for money since the donor’s identity will be never be known.
- A person can buy these bonds from a know your customer compliant account from designated branches of the State Bank of India. These bonds are valid for 15 days.
- The problem with these instruments is that, while the information of the person who is buying the bond is known (to the bank), the donors’ identity is not known. This is because these are bearer bonds.
- A person who buys the bond, can give to it to another person who actually donates it to a political party, and there is no record of the person who takes it from the person who buys it.
- One hesitation RBI had was that it almost becomes currency. Because it is a bearer bond. So anybody can become its owner.
- The RBI said that the government’s proposal to enable scheduled banks to issue electoral bonds would result in multiple, non-sovereign entities being authorised to issue bearer instruments, which are currency-like instruments, which goes against the RBI’s sole authority to issue bearer instruments.
- The EC warned that this would allow illegal foreign funds to be routed to political parties.
- Objections were overruled and the scheme was passed in the Lok Sabha as part of the Finance Bill so that it would not have to go through the Rajya Sabha where the then-government lacked a majority.
- There is no other country in the world where such a scheme exists.
- The bank knows the purchaser of the bonds as well as the party that cashed it. The law agencies can obtain this information whenever they want. Can the ruling party use this to demand donations for itself, prevent donations to others, and use the law enforcement agencies to harass those who donate to rival parties? There is nothing in the electoral bonds scheme or existing laws to prevent this from happening.
- Equally troublesome, donation limits have been removed. In theory, a large corporate could buy the government using electoral bonds. This would not be possible in any other country.
- India continues to have spending limits but, as everyone knows, hardly any winning candidate sticks to it.
ECI’s reservations
- In Sep 2019, the Supreme Court passed interim directions, directing political parties to provide full information on each and every political donor and contributions made through electoral bonds in sealed cover to the Election Commission of India (ECI).
- In particular, the ECI, in its response filed in the court, said the provisions of the electoral bonds scheme (EBS)
- would enable the creation of shell companies for the sole purpose of making political donations and no other business,
- that the abolition of the clause that says firms must declare political contributions in their profit and loss accounts would compromise transparency, and
- the amendments to the law on foreign contributions would mean that there would be unchecked foreign funding of political parties, leading to foreign influence on India’s policy-making.
- Overall, it had recorded its unequivocal position that the EBS would help the use of black money for political funding.
Donations to National Parties
- As much as 67% of donations to national parties in 2018-19 came from “unknown sources,” an increase from 53% in the previous financial year, said a report released by the Association for Democratic Reforms.
- While parties are required to give details of all donations above ₹20,000, donations under ₹20,000 and those via electoral bonds remain anonymous.