Stay Sale of Electoral Bonds Before State Elections: Plea in SC

The plea challenging the constitutional validity of the Electoral Bonds has been pending in the Supreme Court since 2017.

The Association of Democratic Reforms (ADR) has filed its third application seeking a stay on the Electoral Bond (EBs) scheme in light of the upcoming elections in four states and one union territory next month.

The first two applications were filed in March and November 2019.

There are serious apprehensions that any further sale of Electoral Bonds before the upcoming state elections would increase "illegal and illicit funding of political parties through shell companies," the application said.

The plea listed out its apprehensions stating that the Prime Minister's Officer (PMO) ordered the special and illegal sale of EBs just before state polls in Karnataka in May 2018 in violation of the EB Scheme; another special sale window of EBs was opened between November 2018 right before the assembly elections scheduled in Chhattisgarh, Madhya Pradesh, Mizoram, Rajasthan and Telangana; Election Commission's objection and advice against the scheme.

The highlights that as per data on Electoral Bonds declared by political parties in their audit reports for the FY 2017-18 and FY 2018-19, the ruling party had received more than 60% of ₹6500 crores worth of total electoral bonds issued till date.

"That almost 99% of the EBs purchased are of value 1 crore and 10 lakh denominations which shows that it is not an individual citizen but large corporations which are purchasing these bonds with a view to receiving kickbacks from the government," the plea said citing another of its apprehension.

"Clearly, these corporations are being allowed to do make unlimited anonymous donations to the ruling political party because of impugned amendments brought about but the Finance Act, 2017 and Finance Act, 2016," it added.

Also Read: Top 9 Things To Watch Out For At The Supreme Court In 2021

What are electoral bonds?

An electoral bond is a bond issued in the nature of promissory note which an Indian citizen or entities incorporated or established in India may buy in of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakhs and ₹1 crore. These bonds are available at specified branches of State Bank of India and any KYC-compliant account holder can buy these bonds.

Donors can donate the bonds to their party of choice which can then be encashed by the party's verified account within 15 days. The bond does not carry the name of the buyer or the payee. The political party does not have to disclose who it has received the bond from in its account. Neither does the donor entity have to state to which party it has donated.

What are the concerns over Electoral Bonds?

Electoral Bonds were introduced by the Narendra Modi-government through amendments to the Finance Act, 2017. The said amendments have removed the existing cap of 7.5% of net profit in the last three years on campaign donations by companies and have legalized anonymous donations.

ADR submits that Electoral Bonds, which is exempt from disclosure under the Representation of Peoples Act, 1951, open doors to "unchecked, unknown funding to political parties" by Indian or foreign companies which may cause serious repercussions to Indian democracy.

The requirement to disclose in the profit and loss account the name of the political party to which a donation has been made is also removed. Only the total amount of donations to political parties has to be disclosed without the name of the political party," it added.

The scheme opens up the possibility of companies being brought into existence by unscrupulous elements primarily for routing funds to political parties through anonymous and opaque instruments like electoral bonds. "This has increased the opacity of funding political parties, and the danger of quid pro quo and opacity of any benefits are passed on to such companies or their group companies by the elected government," the plea said.

"Moreover, the contribution received by any eligible political party in the form of electoral bonds will be exempt from income tax as per Section 13A of the Income Tax Act," the plea further read.

Also Read: Foreign Funding For Political Parties: All You Need To Know

Case status in the Supreme Court

The ADR filed the first challenge in 2017. Since then, the matter has been listed and heard less than 20 times.

In April 2019, the Supreme Court had directed political parties to submit—in a sealed cover— detailed particulars of donors; the amount of each such bond they have donated and the full particulars of the credit received against each bond, namely, the particulars of the bank account to which the amount has been credited and the date of each such credit.

In October 2020, ahead of the Bihar elections, ADR moved an urgent plea in the top court seeking an expedited hearing. "The scheme has opened the floodgates to unlimited corporate donations to political parties and anonymous financing by Indian as well as foreign companies which can have serious repercussions on the Indian democracy", ADR's plea read.

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