Explainer | Delete using Ctrl: Election-related Bonds

“Political gifts provide the donor a place at the table. In a historic ruling on February 15, Supreme Court Chief Justice D Y Chandrachud declared the electoral bond program unlawful, saying that “this access also translates into influence over policy-making.” The CJI’s scathing remarks highlight the idea of the unholy relationship between political parties and money power, as well as how electoral relationships and anonymous contributors may have had a significant impact on election results.

After many parties contested the legitimacy of the 2017-introduced electoral bonds program, it took the Supreme Court seven years to declare it unconstitutional. The State Bank of India (SBI) was ordered by the court to immediately cease issuing election bonds. Notably, the five-judge Constitution bench maintained the right of voters to know who is supporting political parties and their campaigns under Article 19(1)(a) of the Constitution, even as they rejected the plan.

One of the main petitioners opposing the plan, Jagdeep S. Chhokar of the Association for Democratic Reforms (ADR), claims that the ruling, which comes on the eve of the Lok Sabha elections, has the potential to change the political landscape of the nation. Chhokar has fought a protracted struggle, having first petitioned the court in 2017 to contest the legality of the program that permits total anonymity in political donations.

Speaking to this publication, Chhokar said that the bond scheme corrupted the political system and that the Supreme Court unequivocally declared in its ruling that fair competition between different political parties is an important aspect of democracy.

In its decision, the court unequivocally said that one of the main features of democracy is the equal playing field between different political parties. It further noted that the Constitution does not apply to anything that tampers with the level playing field. That’s a crucial discovery that affects many aspects of our political structure. The findings indicate that the unequal distribution of wealth is undermining the concept of fair play,” he said. The opinion is supported by Vipul Mudgal, director and CEO of Common Cause, one of the case’s co-petitioners.

“We brought the lawsuit because, in terms of donor openness, the plan represented a step backward. But by protecting public’ access to information above donor or individual privacy, the court made the proper decision, Mudgal told this newspaper.

On February 15, 2024, the Supreme Court rendered a decision on a number of petitions contesting the legality of the Election Bonds program.
The electoral bond decision requires political willpower.
The largest beneficiary is BJP.

Data demonstrates how the program radically altered India’s political fundraising landscape. Nearly 56% of the proceeds from the election bonds were given to the governing BJP between March 2018 and March 2023. By comparison, the main opposition party, the Congress, received a mere 9.3% of the vote in the same time frame. When the bond plan was established in 2017–18, the BJP got Rs 210 crore. The party received a substantial rise of Rs 1,450.89 crore in 2018–19, Rs 2,555 crore in 2019–20, Rs 22.38 crore in 2020–21, Rs 1,033.70 crore in 2021–22, and Rs 1,294.14 crore in 2022–23. By contrast, the Election Commission’s statistics shows that the Congress received Rs 5 crore in 2017–18, Rs 383.26 crore in 2018–19, Rs 317.86 crore in 2019–20, Rs 10.07 crore in 2020–21, Rs 236.09 crore in 2021–22, and Rs 171.01 crore in 2022–23. Using electoral bonds, the BJP received seven times more funding than the Congress in FY 2022–2023.

When the Lok Sabha elections were last conducted in 2019–20, the BJP was able to raise a maximum of Rs 2,555 crore. By the way, the 2019 Lok Sabha election set a record for being the most costly in history, costing an astounding Rs 60,000 crore. But in the same time, Congress only got Rs 317.86 crore. The Supreme Court further noted in its decision that between 2018–19 and 2021–2022, the revenue from electoral bonds made up 58% of the national political parties’ overall revenue. The ADR data also reveals that, between 2018 and 2023, the BJP obtained the majority of its electoral ties. The BJP alone received Rs 719.80 crore of the Rs 850.40 crore contributed to national parties in 2022–2023.

In February, the Center informed the Parliament that since 2018, bonds valued at more over Rs 16,518 crore have been auctioned. Despite the government’s continued insistence, data refute the idea that electoral bonds increase transparency. The percentage of national parties with unclear sources of money rose from 66% in 2015 to 72% in 2019–2022, according to ADR statistics. In his ruling, Judge Sanjiv Khanna said that electoral bonds worth Rs. 1 crore accounted for 94% of the total amount of contributions, indicating the “quantum of corporate funding.”

On February 15, 2024, the Supreme Court rendered a decision on a number of petitions contesting the legality of the Election Bonds program.
The electoral bonds program must end right now since it is unconstitutional: High Court
Election bonds: what are they?

It’s a promissory note-style bond that will be issued as a bearer financial instrument and won’t have the buyer’s or payee’s name on it. The Modi administration launched the electoral bond system in 2017, which enabled people and businesses to anonymously give an unlimited amount of money to political parties. The concept was hailed as an electoral reform initiative. The program, which was promoted as an alternative to cash contributions, was said to increase openness and keep black money out of the system by Arun Jaitley, the finance minister at the time. It made it possible for individuals, organizations, or businesses to purchase electoral bonds from SBI and give them to any political party of their choosing.

Multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore are available for purchase for the interest-free bonds. The bonds might be accepted by political parties that received at least 1% of the total votes in the most recent Lok Sabha or assembly elections.

Modifications

The electoral bonds system was announced in 2018, despite its introduction in 2017. The legislation were introduced by the government using the money bill process, avoiding Rajya Sabha scrutiny. Additionally, the government quickly amended the Income Tax Act and the Representation of the People Act to make the contributions anonymous.

The Foreign Contribution Regulations Act (FCRA), the Reserve Bank of India Act, and the Companies Act were also amended by it. Chokkar notes that the restriction on corporations’ ability to give up to 7.5% of their profits to political parties without providing full disclosure was eliminated by the revisions. Furthermore, anonymous donations to political parties by foreign corporations and even shell firms were permitted under the revised FCRA.

This poses a danger to the integrity and security of the nation since it allows foreign entities to seize control of the Indian democratic system. It is very dangerous for foreign firms to give to political parties using shell companies. Additionally, it permits foreign corporations to establish subsidiaries in India solely for the purpose of serving as a conduit for funding political parties, according to Chokkar.

According to Chokkar, the government has made many regulation adjustments since the program’s launch. In years when there are state elections, the government would permit the selling of bonds for an extra 15 days in November 2022 via an official gazette. The RBI regulation stated that in the year of the Lok Sabha elections, the Central government may only designate an extra thirty days. According to Chokkar, bond sales for state elections were permitted as of 2018.

For the parliamentary elections, the bonds were introduced. But the administration made many changes to the regulations. According to the regulations, bond sales are only permitted during the first ten days of January, April, July, and October. But as he notes, “They sold the bonds right before two state elections in May and November of 2018.”

On February 15, 2024, the Supreme Court rendered a decision on a number of petitions contesting the legality of the Election Bonds program.
Never accepted a financial offer from electoral bonds: RBI and ECI red flags for CPI(M)

The Reserve Bank of India (RBI) and the Election Commission of India (ECI) expressed doubts about the electoral bond plan even prior to its adoption. The RBI believed that lifting the corporate contribution limit would make it easier for people to establish shell corporations to donate to political parties. Regarding anonymous corporate sponsorship, the ECI voiced concerns, stating that it would have “a serious impact on the transparency of political finance/funding of political parties.” According to Mudgal, the government permitted corporate control by eliminating the ceiling on corporate investment. The danger is that everything will be funded by large sums of money, and the parties will push their agenda. My ~5k or 2k would not be needed by anybody. They are unwilling to further my agenda,” he said.

deadline of March 13

Subhashini Ali, a member of the CPI(M) Politburo, said the SC’s deadline of March 13 to release the identities and information of all political party contributors would assist reveal any agreements between political parties and business sponsors. The SBI has been ordered by the court to provide the EC with the specifics of their encashment from April 12, 2019, by March 6. By March 13, the EC is required to post the information that SBI supplied on its website. The only political organization that refused to take contributions via electoral bonds, according to Ali, is the Communist organization of India (Marxist), one of the petitioners who filed the case against the system in 2018.

The plan that the Supreme Court knocked down because it undermines democracy has been defended by the BJP. The court said that this might imply that very significant concessions are being made in return for this money, which is being provided in an opaque way. People who are concerned about improving the voting process will thus begin to draw links as soon as the identities and sums are made public, according to Ali.

The most recent batch of electoral bonds, valued at over Rs 570 crore, were sold at 29 venues nationwide between January 2 and January 11, 2024, according to an RTI request. According to Mudgal, parties should have already used the funds for their campaigns since elections are quickly approaching. After the donor list is made public, Ali claims that the receiving parties have a moral obligation to reimburse the funds.

On February 15, 2024, the Supreme Court rendered a decision on a number of petitions contesting the legality of the Election Bonds program.
Stalin and EPS applaud the electoral bonds ruling by the SC.
Consequences of the SC ruling

According to Chokkar, the ruling would establish a precedent for political parties and has wider ramifications. The administration had maintained that although individuals have a right to know where their candidates’ money comes from, they do not have a right to know where political parties get their money. However, the Supreme Court made it quite evident that political parties play an as, if not more, significant role in the election process than do candidates. As a result, the public has a right to know how political parties are funded. He predicted that this ruling will be used in a number of ways and provide a solid precedent for future election-related disputes.

The court also invalidated the changes made to the Companies Act, the Representation of the People Act, and the Income Tax Act, which was another noteworthy decision. Political parties were required to disclose any contributions over Rs 20,000 prior to the modifications. Additionally, corporations were only allowed to give a maximum of 7.5% of their net income from the three years prior to the contribution cap.

The court stated: “Loss-making enterprises were unable to contribute prior to the modification. The amendment does not acknowledge the negative effects of permitting quid pro quo contributions from businesses that are losing money. Due to its inability to distinguish between businesses that are profitable and those that are losing money, the change to Section 182 of the Companies Act is obviously arbitrary.

Debt vs equity trusts

The Supreme Court recommended reviving the Electoral Trust program, which was first implemented by the UPA administration in 2013, in addition to doing away with electoral bonds. In contrast to electoral bonds, the trusts had an annual reporting obligation to the ECI on the contributions made by both people and corporations, as well as their party donations. Although there is a belief that the trusts will be more transparent since they must keep records of their revenues, disbursements, and expenses as well as books of account, others claim that there are many loopholes.

The RBI voiced opposition to the plan on January 2, 2017, allowing scheduled banks to issue electoral bonds.

The plan worked against the RBI’s exclusive right to issue bearer securities with the potential to become legal tender. The statement said that if electoral bonds are issued in significant numbers, they have the potential to erode public confidence in central bank-issued banknotes.

The Know Your Customer requirement will reveal the name of the person or entity buying the bearer bond, but it won’t reveal the identities of the intermediary individuals or organizations. This would have an effect on the 2002 Prevention of Money Laundering Act’s tenets.

Alternatively, the goal of instituting electoral bonds may be fulfilled by demand draft, electronic and digital payments, and checks. It was claimed that there is no particular need to introduce a new bearer bond in the form of electoral bonds.

On August 4, 2017, the RBI submitted a counterproposal. It said that the RBI itself may be used by the Center to contemplate issuing the electoral bonds on a transitory basis.

Nonetheless, the electoral bond plan’s draft stated that scheduled commercial banks would be able to issue electoral bonds in addition to the RBI.

On September 14, 2017, the RBI protested, stating that allowing a commercial bank to issue bonds would negatively affect public opinion and the legitimacy of India’s financial system.

It raised the concern that bearer bonds may be misused by shell corporations as a means of money laundering. The RBI suggested that electronic election bonds be issued as it would be more safe, less expensive, and less likely to involve money laundering.

The Central Board’s RBI committee expressed its concerns, pointing out that election bonds can be seen as both supporting and aiding money laundering.