Adrija Chakraborty
Abstract:
The Electoral Bond Scheme was approved and legislated by the virtue of Finance Act 2017. The announcement of the scheme happened on 2017 Budget speech and it came into effect on 2018 after the amendment of three legislations i.e. RBI Act, Income Tax and Representative of peoples Act.. This scheme was scraped down by the Hon’ble Supreme court in the Judgement of Association for Democratic Reforms & Anr. v. Union of India & Ors. (2024)1. The Hon’ble Apex Court unanimously viewed that the scheme pierced through the very spirit of the constitution as it allowed anonymous contribution from donors such as corporate entities which led to the curtailment of Right to Information under Article 19(1)(a)of the Constitution of India.’ The first Petition Challenging the Electoral Bond Scheme was in 2019 after this scheme was incorporated. The scheme was enacted to put an end to money laundering and black money. Unfortunately the scheme had failed as the amendment favored anonymous contribution in political Parties ‘ accounts and lacked flow of information and accountability.’ In this review paper we aim to understand the repercussions of the amendment made in 2017 to effectuate the electoral Bond Scheme.
What is Electoral Bond?
The Electoral Bond are more like a promissory note which can be purchased by the corporate entities or body corporates and individuals across India from the recognized branches of State Bank of India. These Bonds are interests free. These bonds were to be purchased in the multiples of 1000, 10,000, 1 lakh and 10 lakh. The political parties could withdraw the encashment during a particular period from authorized banks and the name of the donor was hidden. This challenged the constitutional mandate of right to information.
Provisions in Companies Act 1956 & 2013 related to Political Contributions before Amendment:
The earlier provision under sec. 293 A of Companies act 1956 4 for political contribution was strict and restrictive in nature. It was added through an amendment in 1985. It prohibited government companies as well as companies which came into existence for less than three immediate financial years to contribute to any political party for any political reasons. The companies contributing under this provision could only contribute upto 5% of the average net profits in three immediate financial years. The contravention of this section by any company was punishable with fine which could have amount to thrice the amount so contributed.
Before the amendment of 2017 of Sec 182 of Companies Act 20135, included non obstante clause. It states that a company other than a government Company existing for less than 3 fmancial years can contribute to the political party directly or indirectly any amount provided that such an amount shall not exceed 7.5% of average net profits during the immediately proceeding years. This contribution should be authorized by passing resolution in the meeting of the Board of Directors.
Recent Amendments effecting Electoral Bond:
The sole purpose of introducing electoral Bond and amendment of certain provisions in Income Tax Act, RBI Act , Companies Act 2013, was to prevent the illegal money pave into the system of politics. The amended statutes failed establish accountability and transparency. As part of the Finance Act, in 2017, the Central Government was given authority to insert Section 31(3) to the RBI Act6 that allowed any scheduled bank to provide Electoral Bonds. The revisions in turn allowed electoral bonds to be used as an additional method for funding politics. The introduction of a new proviso, disclosing donations received through electoral bonds was exempt from the political parties under the Representation of the People Act’s Section 29C(1).7 Under this amendment, the parties could accept donations in the open without disclosing the names of the donors, because there were no reporting requirements regarding such contributions. In the Income Tax Act, Section 13 A8 was amended by adding the phrase ‘other than contributions by way of electoral bonds’ to clause (b) of the first proviso, which exempted such donations from disclosure, and required donations in excess of Z 2,000 to be made through checks
Significant changes to Section 1829 of the Companies Act 2013 included eliminating of the 7.5% limit on corporate donations related to the average net profits of the past three years and the repeal of a requirement to inform political contributions by companies. These changes allowed firms to make unlimited donations anonymously which triggered debate on increasing corporations power in politics. This amendment is contrary to sec 136 10of the act which gives right to shareholders in a company to demand for financial statements of the company.
The Foreign Contribution Regulation Act, 2010 sec 211 was amended to extend the term “foreign source” to enable the foreign companies owning Indian subsidiaries to donate in cash or kind to political parties. Under this amendment, the foreign associations acquired new opportunities to influence the Indian politics through the money contributions.
Electoral Bonds Case:
In a landmark judgment in February this year, the Supreme Court of India struck down the Electoral Bond scheme. In a Constitution bench, five judges, including Chief Justice D.Y. Chandrachud, unanimously announced the scheme unconstitutional. The court found out that anonymous donations made through electoral bonds violated voters’ entitlement to know about political funding under Article 19(1) (a)12 of the Constitution. The bench ruled that anonymous aid threatened transparency and citizens’ rights to know the financiers of their political parties. The State Bank of India was directed to cease accepting or issuing electoral bonds immediately and provide complete details on all such bonds purchased after April 2019. 13All those parties that had purchased electoral bonds had to submit their records to Election Commission, who was supposed to make that public through the website. People who purchased electoral bonds which were not cashed after being ruled had no right to ask for reimbursements.
Conclusion :
In 2024, the Supreme Court overturned the Electoral Bonds Scheme, this stepping up the paramount role of transparency in political finance. By ruling anonymous donations unconstitutional, the Court upheld the constitutional right to information (Article 19(1)(a)) of voters, and underscored the importance of informed choices to democratic governance. The ruling nullified structures that had enabled corporations to influence to excess and made room for potential exchange of favours, creating space for more transparent electoral finance. It is a turning point in this unending struggle to ensure accountability and regain the citizens’ trust of India’s electoral setup.14
Notes:-
1Association for Democratic Reforms & Anr. v. Union of India & Ors. 2024 INSC 113
2 Art. 19 , Indian Constitution 1950
3 Krishna N. Das, What Were India’s Electoral Bonds and How Did They Power Modi’s Party?, Reuters (Feb. 16, 2024), https://www.reuters.com/world/india/what-were-indias-electoral-bonds-how-did-they-power-modis-party-2024-02-16/.
4 sec. 293 A , Companies act 1956
5 Sec 182 , Companies Act 2013
6 Section 31(3) to the RBI Act
7 Section 29C(1), the Representation of the People Act, 1951
8 Section 13 A Income Tax Act
9 Id. at 4
10 sec 136, Companies Act 2013
11 Sec 2, The Foreign Contribution Regulation Act, 2010
12 Id. at 2
13 Express Web Desk, Top Quotes from Supreme Court Verdict on Electoral Bonds Scheme, Indian Express (Feb. 15, 2024), https://indianexpress.com/article/india/supreme-court-verdict-on-electoral-bonds-scheme-highlights-9162719/
14 Astha Rajvanshi, Why India’s Supreme Court Eliminated Anonymous Political Donations, time, Feb, 2019 https://time.com/6696481/india-electoral-bonds-supreme-courtt
