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Sunday, April 11, 2021

Supreme Court could have removed secrecy around electoral bonds. Too bad it didn’t

As former finance minister Arun Jaitley said in his budget speech in 2017, without transparency of political funding, free and fair elections are not possible

Written by S Y Quraishi |
Updated: April 8, 2021 8:51:20 am
The introduction of electoral bonds through the budget was not an isolated act.

The finance ministry has launched its quarterly window for sale of electoral bonds to political parties from April 1 to 10, after the Supreme Court refused to stay the scheme last week. During the hearing, the apex court, however, flagged a new issue — the possibility of misuse of money received by political parties for activities like funding terror or violent protests — and asked the Centre whether it has any control on the end use. I wish the Court had mentioned another important and new area of dubious expenditure — buying of MLAs after the elections to overturn the public mandate.

The bench was hearing a plea by the Association for Democratic Reforms (ADR) seeking a stay on fresh sale of bonds, while its petition challenging the electoral bonds scheme is pending.

The issue has been hanging fire since February 2017 when, in his budget speech, Finance Minister Arun Jaitley made two profound statements: One, without transparency of political funding, free and fair elections are not possible, and two, that despite 70 years of concern we have failed to achieve the transparency required. After these momentous statements, one expected that the issue will be resolved. However, what he announced was the opposite of the desire expressed.

Electoral bonds were born. And transparency died. Till then every transaction of more than Rs 20,000 was reported to the Election Commission. Now even Rs 20 crore or Rs 200 crore could be donated anonymously. The reason given was that the donors want secrecy.

Why should donors want secrecy? To hide return favours, like contracts, licences and bank loans, with which some of them may abscond to foreign lands? For seven decades, corporates have been donating to all parties, often the same donors donating to rival parties. Did any ruling party ever harass a donor who donated to its rivals? Did the current ruling party do it? If not, the excuse is phoney. It is, clearly, a case of private interest in conflict with public interest in transparency.

Importantly, both the RBI and ECI, standing up to their mandates, had registered their strong protest. The ECI in a letter to the ministry of law and justice warned that electoral bonds, combined with the preceding legislative amendments, would encourage large sums of illegal donations. It will lead to mushrooming of shell companies to funnel black money into the political system through these bearer bonds.

The ECI’s counsel, however, has now submitted that the Commission is supporting electoral bonds, not opposing it. “Without electoral bonds, we will go back to the earlier cash system, which was unaccounted. Bonds is one step forward, as all transactions are through banking channels,” he said. Exactly the government line. Is this change of stand surprising?

The introduction of electoral bonds through the budget was not an isolated act. The Finance Act 2017 introduced amendments in the Reserve Bank of India Act, Companies Act, Income Tax Act, Representation of the People Act and Foreign Contribution Regulations Act to make way for electoral bonds.

There were three serious changes which did not receive the deserved attention. First, the limit of 7.5 per cent of its profits which a company could donate was not just increased but completely done away with by amending section 182 of the Companies Act, 2013. Thus a company could donate 100 per cent of its profits to a political party. Even a loss-making company could make political donations. This is a sure step to legitimise and legalise crony capitalism. Companies could now virtually run the government, as we can see happening.

The requirements for a resolution by the board of directors for a company to make donations to political parties and to declare the political donations in the profit and loss accounts were also removed. Imagine keeping the donations secret not only from the public but the owners of the company, the shareholders — ironically, all in the name of transparency.

There was more to follow. Section 29B of the Representation of the People Act, 1951 prohibits all political parties from accepting any contribution from a “foreign source.” Moreover, section 3 of the 2010 Foreign Contribution (Regulation) Act bars candidates, legislative members, political parties and party officeholders from accepting foreign contributions. When the High Court of Delhi in 2014 found Congress and BJP having accepted foreign funds in violation of the FCRA 1976, the BJP government passed a retroactive amendment through a 2016 Finance Bill which repealed the 1976 Act and replaced it with the modified 2010 statute.

If any foreign country is financing our elections, it will now be a protected secret. We have seen how foreign interference in other countries’ elections is a reality. Even the superpower, US, could not protect itself from this transgression, that too from its declared enemy number one. This is a serious concern, indeed a blot, on any democracy’s electoral system.

The Supreme Court’s concern about the possibility of misuse of funds is very pertinent. We need transparency both about the source of income and its expenditure. The EC has been demanding that a law be passed to make political parties liable to get their accounts audited by an auditor from a panel suggested by the CAG or EC and not by their party cardholders who only whitewash the accounts.

I think the best way forward is simple — don’t abolish electoral bonds if you don’t want to, just disclose the donor and the recipient. This is something the government could do in 30 seconds. Since it is futile to expect the government to do it, the Supreme Court could have easily ordered this and clinched the issue. One wishes the highest court in the land would consider this case as one of national importance and show some urgency.

Let’s not forget that it was the same Supreme Court which had done great service in 2002-3 to transparency when it made it compulsory for the candidates to declare their financial dealings and criminal cases while filing nominations. When the government tried to dilute the judgement by an enactment, the Court even declared the law ultra vires. Is it wrong to expect the same judicial standards?

An alternative is to do away with private fund collection altogether and replace it with public funding of political parties. This is not likely to be more than Rs 10,000 crore every five years, if we were to go by the entire collection all the parties make together. It’s a small price for democracy.

Another feasible option is to establish a National Election Fund to which all donations could be directed. This would take care of the imaginary fear of political reprisal of the donors. Income tax rebates would make it an attractive proposition. The Fund could then be allocated to political parties on the basis of their electoral performance.

Let’s end by reminding the finance minister of her predecessor’s opening statement in the 2017 Budget speech that “without transparency of political funding, free and fair elections are not possible”.

This column first appeared in the print edition on April 8, 2021 under the title ‘An opaque bond’. The writer is former Chief Election Commissioner of India and author of An Undocumented Wonder — The Making of the Great Indian Election

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