Why in news?

The Election Commission of India’s (ECI’s) ongoing drive to clean up the electoral space has now gone “beyond RUPPs” (registered unrecognised political parties) to cover recognised national and State parties

Highlights:

• The EC has delisted or declared as inactive 537 registered unrecognised political parties since May for failing to comply with various rules and misusing the Income Tax exemption given to them.
• While the Income Tax Act allows cash donations of up to ₹2,000 only, the Representation of the People Act, 1951 requires parties to submit details to the EC of donations of above ₹20,000 each.

Electoral bonds scheme

• Electoral bonds are money instruments like promissory notes that can be bought by companies and individuals in India from the State Bank of India (SBI) and donated to a political party, which can then encash these bonds. The electoral bond does not bear the name of the donor and is, in effect, anonymous.
• The scheme was first announced by former Finance Minister Arun Jaitley during the 2017 budget session and was notified in January 2018. It was introduced to”cleanse the system of political funding in the country” by eradicating the “menace of unaccounted money coming into the country’s economy through political funding”. The government contended that it would make political donations transparent while also protecting the identity of the donor.
• Under the scheme, bonds are available for purchase at any SBI branch in multiples of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh and ₹1 crore and can be bought through a KYC-compliant account. There is no limit on the number of electoral bonds that a person or company can purchase.
• Every party registered under section 29A of the Representation of the Peoples Act, 1951 (43 of 1951) and having secured at least one per cent of the votes polled in the most recent Lok Sabha or State election has been allotted a verified account by the Election Commission of India. The donor can donate the bond to a party of their choice, which can cash it within 15 days, only through the allotted account.
• The bonds go for sale in 10-day windows in the beginning of every quarter, i.e. in January, April, July and October, besides an additional 30-day period specified by the Central Government during Lok Sabha election years.

Concerns about electoral corruption:

• They argued that the amendments made to multiple Acts to make way for the electoral bonds scheme would open the “floodgates” to unlimited political donations and anonymous funding of political parties by Indian and foreign companies, “legitimizing electoral corruption at a huge scale”, and would have “serious repercussions on the Indian democracy”. The Election Commission submitted that contrary to the government’s claims, donations received through electoral bonds would cause a “serious impact” on transparency.

Amendments to Finance Acts:

• In order to bring in the scheme, the Centre had made multiple amendments by way of two Finance Acts— Finance Act, 2017 and Finance Act, 2016, both passed as money bills (not necessitating the oversight of the Rajya Sabha). The petitioners challenged the amendments as being “unconstitutional”, “violative of doctrines of separation of powers” and violative of some fundamental rights. The ECI said that the amendments would pump in black money for political funding.
• Amendment to the Representation of the People Act: The government amended Section 29C of the Representation of the People Act, 1951, effectively exempting political parties from informing the ECI about the details of contributions made to them through electoral bonds. ADR argued that this would impact transparency and keep citizens from vital information about how much contribution a political party received and through what source, as the source or donor is anonymous under electoral bonds. The ECI said that would prevent it from ascertaining whether the donations were received illegally from government companies or foreign sources, calling it a “retrograde step” for transparency.
• Companies Act amendment: The petitioners also objected to the amendment to the Companies Act 2013 such that no companies are required to give details of political contributions in their annual profit and loss accounts. The petitioners argued that this would increase “opacity” in political funding and the danger of “quid pro quo” in return for benefits passed to such companies by political parties.
• They also opposed the removal of the cap or ceiling for companies to make donations. Prior to 2017, companies were only permitted to make political donations of up to 7.5 % of net profits in the previous three years. This change, ADR argued, would allow even loss-making companies to make donations and result in the creation of unscrupulous companies only to route funds to political parties. The ECI too flagged similar concerns about shell companies.
• Amendment to the FCRA Act: The petitioner opposed an amendment to the Foreign Contribution Regulation Act, 2010 (FCRA), allowing foreign companies with subsidiaries in India to fund Indian political parties, stating that it would expose “Indian politics and democracy to international lobbyists” having their own agendas. The ECI too flagged concerns about this, saying it would invite foreign corporate powers to influence Indian politics.
• Income Tax Act amendment: The ECI also raised concerns about the amendment to the Income Tax Act 1961, allowing anonymous donations only less than Rs. 20,000. The poll panel said that due to this, many political parties had started “reporting a major portion of the donations received as being less than the prescribed limit of Rs. 20,000”.
• Infringing the ”Right to Know”: The petitioner ADR argued that the amendments infringed upon the citizen’s fundamental ‘Right to Know’, which various Supreme Court judgements have interpreted as part of the freedom of speech and expression. The plea said that the opacity and anonymity made political parties more “unanswerable and unaccountable” to the citizens at large.
• Derailing of ECI guidelines: The ECI said that the amendments derailed its 2014 guidelines on disclosure of expenditure and contributions received by political parties. It added that it had “time and again voiced the importance of the declaration of donations received by political parties” for “better transparency and accountability in the election process”.

What were the RBI’s concerns?

• Former RBI Governor Urjit Patel had, in 2017, expressed concerns about the scheme in its current form. Mr. Patel had said that the issuance of the bonds in the physical form or as bearer instruments would actually not serve the purpose of transparency as they are transferable, meaning that who finally contributes to the party “may not be known”. He insisted that the bonds be issued in digital (demat) format, since physical ones could be transferred without leaving a trail, leading to possible money laundering.