Press Release: Background Note on Electoral Bonds for Public Dissemination and Voter Awareness in view of the upcoming SC hearing on Electoral Bonds matter on 24th March 2021

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Mar 22, 2021, 4:34:35 AM3/22/21

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Press Release

22nd March 2021

Dear Friends,

Association for Democratic Reforms (ADR) and Common Cause filed a petition in the Supreme Court on 4th September 2017, challenging the Finance Act, 2017 which was enacted as a Money Bill that introduced the Electoral Bond Scheme, 2018 for the purpose of electoral funding. The Act has also removed the previous limit of 7.5% of the company’s average three-year net profit for political donations. A company is no longer required to name the political parties to which such contributions are made. The donors’ name is also not revealed to the public. These amendments will result in opaqueness, heighten the odds of conflict of interest and also drastically increase black money and corruption. It will also lead to the creation of shell companies and rise of benami transactions to channelize the undocumented money into the political and electoral process in India.

On 5th March, 2019, ADR and Common Cause filed the first application for stay against the sale/purchase of electoral bonds for Lok Sabha 2019 elections. In the stay application ADR had contended that enormous amounts of corporate funding would be received by political parties during the general elections and this would play a critical role in the elections. In response to ADR’s application, the Supreme Court in its interim order dated 12th April, 2019 directed all political parties to submit details of donations received via electoral bonds to the Election Commission of India in a sealed cover on or before 30th May 2019.

The Supreme Court in its interim order dated 12th April 2019 had observed:

“The rival contentions give rise to weighty issues which have a tremendous bearing on the sanctity of the electoral process in the country. Such weighty issues would require an in depth hearing which cannot be concluded and the issues answered within the limited time that is available before the process of funding through the Electoral Bonds comes to a closure, as per the schedule noted earlier.”

It is to be noted though the matter related to electoral bonds has been listed on the Supreme Court's website on several occasions (more than 15 times since the interim order), however, no date of hearing was provided.

On 29th November 2019, ADR and Common Cause filed a second application for stay against the sale/purchase of electoral bonds to bring on record certain vital documents which have surfaced through RTI applications filed by various RTI activists and had a strong bearing on the instant case.

On 26th October 2020, ADR and Common Cause filed a third application for an urgent listing of the petition before the Supreme Court of India, during the period of the State Assembly election to Bihar in October 2020 The application for an urgent hearing was also filed because the petition was last heard by the Supreme Court on 20-01-2020 even though very significant questions concerning democratic functioning of the country are raised in the petition which requires urgent adjudication.

On 9th March 2021, ADR and Common Cause filed a fourth application for stay on any further sale of electoral bonds before the upcoming state elections in West Bengal, Tamil Nadu, Kerala, Puducherry and Assam as it would further increase the illegal, illicit and anonymous political funding.

The matter is now listed for hearing by the Supreme Court on the 24th March 2021.

The issues raised by ADR related to electoral bonds have been compiled in form of a detailed background note (attached), the executive summary of the same is given below:

Electoral Bonds and Opacity in Political Funding

Executive Summary

A. About Electoral Bonds

According to the Electoral Bond Scheme, 2018, electoral bond is a bond issued in the nature of a promissory note, which shall be bearer in character. A bearer instrument is one, which does not carry the name of the buyer or payee, no ownership information is recorded and the holder of the instrument (i.e. political party) is presumed to be its owner.

The Scheme, which was notified on January 2, 2018, allows individuals (who are citizens of India) and domestic companies to donate these bonds — issued in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore — to political parties of their choice, which have to redeem them within 15 days. The amount of bonds not encashed within the validity period of fifteen days shall be deposited by the authorised bank to the Prime Minister Relief Fund (PMRF). So far, 144 bonds amounting to a total of Rs 20.2833 cr (0.31%) were deposited in the PMRF. Thus, 99.69% of the bonds purchased during the fifteen phases were encashed by the political parties within the validity period.

Only those political parties which fulfill the criteria mentioned in the Electoral Bond Scheme, 2018 are eligible to receive electoral bonds. The section 29C of The Representation of the People Act, 1951 has been amended to remove the obligation of political parties to keep a record of the identity of donors who give any sum of money through Electoral Bonds or report the same to the Election Commission of India (ECI) annually.

B. ADR’s data analysis of Electoral Bonds

A total of 12,924 Electoral Bonds worth Rs 6534.78 cr have been sold in fifteen phases between March 2018 to January 2021. 12,780 bonds worth Rs 6514.50 cr were redeemed during this period. 55.43% of the total value of electoral bonds were purchased in two months alone – March and April 2019 – the period of general elections.
92.046% or Rs 6015 cr of the total value of bonds purchased were in the denomination of Rs 1 crore indicating that these bonds are being purchased by corporates rather than individuals.
Between FY 2017-18 & 2018-19, political parties received a total of Rs 2,760.20 cr from electoral bonds. A whopping 60.17% or Rs 1,660.89 cr of this was received by a single party which is the ruling political party.
As per the annual audit report of BJP submitted with the Election Commission, the party had received Rs 210 crore worth contribution in the form of electoral bonds for FY 2017-18. This was a whopping 95% of all the electoral bonds purchased in 2017-18. For FY 2018-19, BJP had received Rs 1,450 cr worth electoral bonds and INC had received Rs 383 cr worth electoral bonds.
Given the anonymity provided to donors and political parties by the Electoral Bond Scheme, it has emerged as the most popular mode of donations to political parties. More than 52% of the total income of National Parties and 53.83% of the total income of Regional Parties analysed by ADR for FY 2018-19 came from donations received through electoral bonds.
For the FY 2019-20, the ADR analysis of the political parties whose audit/donations reports are available in the public domain so far, found that 8 political parties namely AITC, BJD, JDS, TDP, AIADMK, SAD, DMK & JDU declared receiving a total of Rs 311.37 cr from donations via electoral bonds.
National parties have received the maximum corporate donations of Rs 881.26 cr in the FY 2018- 19. The amount was Rs 563.19 cr in FY 2016-17 and Rs 573.18 cr in the FY 2014-15 (during which the 16th Lok Sabha elections were held). Between FY 2012-13 and 2018-19, donations from corporates to National parties increased by 974%.

C. Why the Electoral Bond Scheme, 2018 is arbitrary, unconstitutional and problematic?

The Finance Act 2017, which introduced the system of electoral bonds for the purpose of electoral funding, was passed as the Money Bill. The amendments brought through the Act do not require political parties to mention the names and addresses of those contributing by way of electoral bonds in their contribution reports filed with the Election Commission of India annually. This will have a major implication on transparency in political party finances and will fundamentally alter the perception around political donations.
Electoral bonds infringe the citizen’s fundamental ‘Right to Know’. Such an unreasonable and irrational restriction on information at the cost of larger public interest is a severe blow to the very fundamentals of transparency and accountability. Making the political class even more unanswerable and unaccountable by withholding crucial public information goes against the very spirit of ‘Democracy and Rule of law’.
Moreover, while electoral bonds provide no details to the citizens, the said anonymity does not apply to the government of the day, which can always access the donor details by demanding the data from the State Bank of India (SBI). This implies that the only people in dark about the source of these donations are the taxpayers. It may also be noted that the printing of these bonds & SBI commission for facilitating the sale and purchase of the bonds is paid from the taxpayers' money by the central government.
Electoral bonds have surely emerged as a vital instrument to both endorse and encourage opacity by not only opening the floodgates of indefinite and mysterious donations but also legitimizing the illicit money in our electoral and political process, to the tune of more than Rs 6500 cr.
Various Central agencies like Reserve Bank of India’s (RBI), ECI, even the Law Ministry and various MPs of the Rajya Sabha had not only shown their apprehension but had also given repeated warnings to the government against the Electoral Bond Scheme stating that it has the potential to increase black money circulation, money laundering, cross-border counterfeiting and forgery. These institutions had strongly opposed the mechanism of electoral bonds and made serious reservations against it and termed it as a “bad precedent”. Not only were the objections disregarded, but even the suggestions made to make the Scheme less vulnerable to fraud were ignored by the government.
The Finance Ministry has broken its own rules by approving the unscheduled and illegal sale of electoral bonds for State Assembly elections on many occasions.
Electoral Bonds are to be issued for a period of 10 days in the months of January, April, July and October and additional 30 days are provided during an election year. However, in February, 2019, before the Lok Sabha,2019 elections, the Finance Ministry had fixed a total period of 45 days for issuing the bonds in the month of March, April and May. Whereas the days fixed for issuing the bonds in the month of March and May were to be related to the period of 30 days allowed for an election year. The Supreme Court in its interim order dated 12^th April, 2019 had ordered deletion of additional 5 days given by the Ministry for the sale and purchase of bonds.
Sale and Purchase of EBs during Bihar Assembly Elections, 2020: The issuance of electoral bonds by the State Bank of India, between October 19 and 28 (phase XIV), just ahead of the Bihar Assembly elections is also a case in point. The Scheme notification dated 02.01.2018 stipulates sale of electoral bonds in January, April, July and October. However, after the 13^th phase in January 2020, the window for sale of bonds was not opened in April and July, but was opened in October, right before the Bihar elections. Clearly, the donations made through electoral bonds play a crucial role for the election campaigns of the political parties, reiterating that access to information regarding funding of political parties is integral to independent and informed exercise of vote and in ensuring free and fair elections.
The fact that a majority of the bonds were received by a single party and a huge proportion of these bonds were purchased and redeemed (by parties) during the time of elections severely impacts the level-playing field, a central component of contemporary democracy.
In a situation where donations received through electoral bonds are not reported, it can never be ascertained whether a political party has taken any donation in violation of provisions of the Representation of the People Act, 1951 which prohibits the political parties from taking donations from government companies and foreign sources.
ADR had examined the eligibility of the political parties that submitted details to ECI in sealed cover complying with SC’s interim order, the findings of the analysis raised several questions on the execution of the Scheme:

Of a total of 69 registered unrecognised parties that submitted details to ECI in sealed cover, the vote share details of only 43 parties were available to assess their eligibility to receive electoral bonds.
Only 1 registered unrecognised party of the 43 parties analysed was found eligible to receive electoral bonds, as per the eligibility criteria mentioned in the Electoral Bond Scheme, 2018.
There is no list of political parties eligible to receive donations through electoral bonds, as per the eligibility criteria mentioned in the Scheme, available in the public domain or on the website of the ECI. In a reply to ADR’s RTI application dated 10th October, 2019, ECI responded that it has not compiled any such list.
Clearly, there seems to be no scrutiny by any authority at any stage prior to redemption of electoral bonds by political parties not eligible to encash bonds under the Electoral Bond Scheme, 2018.

D. Recommendations of ADR

ADR proposes that the Electoral Bond Scheme, 2018 should be entirely scrapped.
In the case of continuance of the Scheme, the principle of anonymity of the bond donor enshrined in the Electoral Bond Scheme, 2018 must be done away with. All political parties which receive donations through electoral bonds should declare in their contributions reports the total amount of such donations received in the given financial year, along with the detailed particulars of the donors as against each bond; the amount of each such bond and the full particulars of the credit received against each bond. The procedures and reporting framework for the above must be standardized to ensure that a true picture of the financial position of the political parties is revealed to the general public.
A list of all political parties eligible to receive donations through electoral bonds as per the eligibility criteria mentioned in the Electoral Bond Scheme, 2018 should be compiled and regularly updated on the basis of the vote share secured by the parties in the last General Election to the House of the People or the Legislative Assembly of the State contested. This list must be made available in the public domain through the websites of the ECI, the SBI and hard copies of the same shall also be available at the 29 branches of SBI authorised for the sale of electoral bonds.
Express penalties, apart from losing tax benefits, should be imposed on political parties for any non-compliance with the disclosure provisions.
Political parties that remain inactive over a prolonged period, do not take part in any election and continue to receive donations through electoral bonds should be de-listed by the ECI from time to time to ensure that such parties are unable to benefit from the Electoral Bond Scheme, 2018.
The ECI should be entrusted with the responsibility to oversee that no political party ineligible to receive donations through electoral bonds in accordance with the Electoral Bond Scheme, 2018 is able to encash these bonds.
All National and Regional political parties must provide all information on the funds received through electoral bonds under the Right to Information (RTI) Act. Full details of all donors should be made available for public scrutiny under the RTI.
Scrutiny of financial documents submitted by parties to be conducted annually by a body approved by Comptroller and Auditor General (CAG) and the Election Commission.
Political parties in compliance with the Central Information Commission’s order dated 3^rd June, 2013 must be brought under the ambit of RTI Act, 2005.

In view of the upcoming State Assembly elections in Puducherry, Kerala, West Bengal, Assam and Tamil Nadu, the next window of sale and purchase of electoral bonds is likely to be opened in April 2021, as per the notification of the Electoral Bond Scheme, 2018. Hence, ADR has been pursuing the urgent hearing of the matter on electoral bonds.
In view of the Supreme Court hearing on 24th March 2021, ADR has compiled the aforementioned background note on electoral bonds and the concerns around it for public dissemination and voter awareness. In addition to English and Hindi languages, the background note has also been translated into Gujarati and Bengali languages with the assistance from our state co-ordinators. We are in the process of getting the text available in other regional languages and the same shall be available on our website in the coming days, to spread awareness about the Electoral Bond Scheme, 2018 and highlight the major issues with the same.

To access the background notes in English, Hindi, Bengali and Gujarati, please visit our website here.

To check our explainer video on electoral bonds, click here.

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Prof Jagdeep Chhokar