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Govt’s Electoral Bonds Scheme Lets Shell Firms Give Black Money to Political Parties, EC Tells SC

Govt’s Electoral Bonds Scheme Lets Shell Firms Give Black Money to Political Parties, EC Tells SC

The Election Commission told the Supreme Court that electoral bonds hamper transparency in political funding, and it had informed the law ministry about flaws in the scheme in May 2017 itself.

New Delhi: Contradicting the Narendra Modi government's stand in Supreme Court, the Election Commission on Wednesday stated in an affidavit that electoral bonds would affect transparency in political funding, thereby leading to "black money" in elections through "shell companies."

A petition filed by the Association of Democratic Reforms had challenged the validity of the scheme of Electoral Bonds is scheduled to be taken up by the Supreme Court on April 2, just over a week after which the first phase of the Lok Sabha election would begin.

The central government had earlier told the court that electoral bonds will promote transparency and accountability in funding and donations received by political parties in India.

However, the poll body told the apex court that it had informed the law ministry about flaws in the scheme in May 2017 itself.

The letter sent to the Ministry of Law and Justice on May 26, 2017 - which was annexed with the affidavit - specifically raised point-by-point issues with the amendments, the EC said.

After the amendment made to Section 29C of the Representation of Peoples Act 1951(RPA), political parties need not report to ECI the donations received through electoral bonds.

The ECI has described this a "retrograde step as far as transparency of donations is concerned" and called for withdrawal of the amendment.

“In a situation where contributions received through electoral Bonds are not reported, on perusal of the Contribution Reports of the political parties, it cannot be ascertained whether the political party has taken any donation in violation of provisions under Section 29-B of the Representation of People Act, 1951, which prohibits the political parties from taking donations from Government Companies and Foreign Sources," reads the ECI affidavit.

In its letter to the law ministry, ECI said it had also flagged the amendments made to Companies Act, 2013 that would encourage donations by “shell companies”.

It cited that the amendment to Section 182 of the Act exhausted the restriction that contribution can be made only to the extent of 7.5% of net average profit of three preceding financial years, enabling even newly incorporated companies to donate via electoral bonds.

"This opens up the possibility of shell companies being set up for the sole purpose of making donations to political parties, with no other business consequence of having disbursable profits," the ECI letter to law ministry stated.

The amendment made to the Foreign Contribution Regulation Act, 2010 allows parties to receive funding from foreign companies that own a majority stake in an Indian company.

The EC has pointed out that this was a shift from the existing law which barred receipt of donations from foreign sources. This shift, according to the EC would “allow unchecked foreign funding of political parties” and could lead to Indian policies being heavily influenced by foreign companies.

The EC also cited that it had informed the Law Ministry that many political parties presented a large portion of the donations received by them as less than Rs 20,000 considering that in such a scenario a record of details of the donor need not be maintained. It had, therefore, proposed an amendment to the Representation of People Act to reduce the limit of anonymous/ cash donations to Rs 2,000.

The Central government through a counter affidavit filed couple of weeks ago stated that the electoral bond schemes will bring in more transparency in political funding. It justified that the anonymity of the scheme was intended to protect the privacy of the donor.

Electoral bonds were introduced by amendments made through the Finance Act 2017 to the Reserve Bank of India Act 1934, Representation of Peoples Act 1951, Income Tax Act 1961 and Companies Act.

On January 2, 2018, the Centre notified the scheme for electoral bonds, which are in the nature of bearer instruments like a Promissory Note capable of being purchased by an Indian citizen or a body incorporated in India. The identity of the donor will be known only to the bank, which will be kept anonymous.

Petitoners have prayed for an immediate stay of the scheme, stating that 95% of the electoral bonds sold so far have been in favour of one political party, that is the ruling BJP.

The petitoners argue that most of the bonds that have been purchased since 2018 have been of the denominations of 10 lakh and 1 crores, indicating that it is not common citizens but corporates that have been purchasing these bonds while enjoying complete anonymity accorded by the scheme.