Syllabus
GS Paper 2 – Salient features of the Representation of People’s Act
GS Paper 4 – Information sharing and transparency in government, Right to Information; challenges of corruption
Applications where to apply?
When asked about
– Electoral Funding
– Electoral Reforms
– Right to Information
– Free and Fair Elections
Context
A five-judge bench of the Supreme Court gave its verdict on the legality of the electoral bonds scheme on Thursday (February 15), holding it “unconstitutional”.
Source
The Indian Express | Editorial dated 16th February 2024
Electoral Bonds Scheme
The Electoral Bond Scheme was a scheme introduced in India in 2018 to regulate political funding. It allowed donors to purchase bearer bonds from specified branches of the State Bank of India (SBI), which could then be donated to registered political parties. The scheme was struck down as unconstitutional by the Supreme Court of India on February 15, 2024.
Features of the Electoral Bond Scheme
- Bearer bonds: Electoral bonds were bearer instruments, meaning that they were not registered in the name of the buyer or seller. This anonymity was a key feature of the scheme, as it was intended to reduce the influence of special interests on political parties.
- Denominations: Bonds were available in denominations of ₹1,000, ₹10,000, ₹1,00,000, ₹10,00,000, and ₹1,00,00,000.
- Purchase: Bonds could only be purchased through KYC-compliant channels, such as cheque or digital payment.
- Redemption: Bonds could only be redeemed by registered political parties within 15 days of purchase.
Issues raised by the Court in its verdict
- Violation of Right to Information (RTI) under Article 19(1)(a): The court held that information on the funding of political parties is essential for voting, and economic inequality contributes to political inequality. The scheme violates the right to information under Article 19(1)(a), which guarantees freedom of speech and expression.
- Legitimacy of restricting RTI to curb black money: The court ruled that curbing black money is not a legitimate reason to restrict the right to information (RTI). Even assuming it is legitimate, the scheme is not proportional to the objective. The court set forth a proportionality test, stating that the infringement of fundamental rights is not justified to curb black money in electoral financing.
- Protection of donor privacy: The court considered whether the right to donor privacy includes information about a citizen’s political affiliation. It concluded that the right to informational privacy includes political affiliation, extending to contributions to political parties. However, it doesn’t extend to contributions made to influence policies, only to those made as genuine political support.
- Constitutionality of unlimited political contributions by companies: The court ruled that unlimited political contributions by companies are unconstitutional. It stated that the ability of companies to influence the political process through contributions is much higher compared to individuals. Contributions made by companies are viewed as business transactions made with the intent of securing benefits in return.
RBI’s objections
In January 2017, the RBI first objected to the proposal to enable other banks to issue electoral bearer bonds for donations to political parties before the Finance Act 2017 was enacted.
- Multiple issuers of bearer instruments: The RBI objected to the proposal of enabling other banks to issue electoral bearer bonds, arguing that it would allow multiple non-sovereign entities to issue bearer instruments. This, according to the RBI, could undermine faith in banknotes issued by the Central Bank.
- Impact on money laundering prevention: The RBI expressed concerns about the lack of transparency regarding the identities of intervening persons/entities in the purchase of bearer bonds, which could impact the principles of the Prevention of Money Laundering Act 2002.
- Alternative payment methods: The RBI suggested that the intention of ensuring electoral contributions are paid out of tax-paid money could be achieved through existing methods such as cheques, demand drafts, and electronic/digital payments. It argued that there was no special need for introducing a new bearer bond in the form of electoral bonds.
- Adverse impact on public perception: The RBI warned that permitting commercial banks to issue bonds could have an adverse impact on the public perception of the scheme and the credibility of India’s financial system, including the central bank. It raised concerns about the potential misuse of bearer bonds by shell companies for money laundering transactions.
ECI’s objections
- Impact on transparency of political finance: The Election Commission of India (ECI) raised concerns about the serious impact electoral bonds would have on the transparency of political finance and the funding of political parties.
- Exclusion from reporting under the Representation of the People Act: The ECI objected to the amendment in the Representation of the People Act 1951, which excluded donations received by political parties through electoral bonds from reporting requirements. It considered this amendment to be a retrograde step in terms of transparency and recommended its withdrawal.
- Deletion of disclosure provisions in the Companies Act: The ECI recommended against the deletion of provisions in the Companies Act requiring companies to disclose the particulars of the amounts contributed to specific political parties. It suggested that companies should declare party-wise contributions in their profit and loss accounts to maintain transparency in financial funding.
- Reintroduction of caps on corporate funding: The ECI recommended reintroducing provisions prescribing caps on corporate funding to prevent the increase in the use of black money for political funding through shell companies. Unlimited corporate funding, according to the ECI, could lead to increased use of black money in political financing.
Supreme Court Verdict on Amendments to Political Funding Laws
The amendments were made through The Finance Act, 2016, and The Finance Act, 2017, before the EBS was introduced in January 2018.
Representation of the People Act, 1951
- Original Provision (Section 29C): Political parties were required to disclose all donations exceeding Rs 20,000, specifying whether they were from individuals or companies.
- Amendment by Finance Act, 2017: Introduced an exception exempting donations made through Electoral Bonds from the disclosure requirement.
- Supreme Court’s Ruling: Struck down the amendment, reinstating the requirement to disclose donations exceeding Rs 20,000. The Court emphasized that this threshold effectively balanced voters’ right to information with donors’ right to privacy.
Companies Act, 2013
- Original Provision (Section 182): Companies were restricted to donating a maximum of 7.5% of their average net profits from the preceding three financial years. They were also required to disclose the amount contributed to political parties along with details.
- Amendment by Finance Act, 2017: Removed the cap on donations and eliminated the requirement to disclose specific amounts and the recipient party.
- Supreme Court’s Ruling: Struck down the amendment, stating that unlimited corporate contributions could unduly influence the electoral process, violating the principle of free and fair elections. The original provision aimed to curb corruption in electoral financing was reinstated.
Income-tax Act, 1961
- Original Provision (Section 13A(b)): Political parties had to maintain records of all donations exceeding Rs 20,000, including donor details.
- Amendment by Finance Act, 2017: Exempted donations made through Electoral Bonds from the record-keeping requirement and introduced new provisions regarding donation methods.
- Supreme Court’s Ruling: Held that exempting donations via Electoral Bonds from record-keeping violated voters’ right to information under Article 19(1)(a) of the Constitution. Both the amendment to Section 13A(b) and the new Section 13A(d) were struck down.
In summary, the Supreme Court’s verdict restored the pre-2017 status quo, reinstating transparency and accountability in political funding by nullifying the amendments made by the Finance Acts of 2016 and 2017.
Conclusion
The Electoral Bond Scheme was a controversial experiment in regulating political funding in India. While it aimed to reduce the influence of special interests, it was ultimately struck down by the Supreme Court due to concerns about transparency and equality.
RELATED TOPICS
Representation of the People Act, 1951
The Representation of the People Act, 1951 is an act of the Parliament of India that governs the conduct of elections to the Lok Sabha and Rajya Sabha (the two houses of the Parliament of India), as well as the Legislative Assemblies and Legislative Councils of the states and union territories of India. It is considered to be one of the cornerstones of Indian democracy.
Key provisions of the RPA, 1951:
- Eligibility to vote: The Act lays down the eligibility criteria for voting in elections. Indian citizens who are 18 years of age or older on the first day of January of the year in which the election is held are eligible to vote.
- Electoral rolls: The Act provides for the preparation and maintenance of electoral rolls, which list the names of all eligible voters in each constituency.
- Conduct of elections: The Act lays down the procedure for the conduct of elections, including the nomination of candidates, the polling process, and the counting of votes.
- Election offences: The Act lists various election offences, such as bribery, booth capturing, and impersonation, and prescribes penalties for such offences
The RPA, 1951 has played a crucial role in ensuring the smooth and fair conduct of elections in India. It is a landmark piece of legislation that has helped to strengthen Indian democracy.
References
ECI.
Practice Question
Critically examine the Electoral Bond Scheme, 2018. Analyze the Supreme Court’s verdict on the scheme in light of its implications for political funding reform in India. [250 words]