A little over a month after electoral bonds were struck down as unconstitutional by the Supreme Court (SC) on February 15, Union finance minister Nirmala Sitharaman—in a media interview on April 19—said that the Bharatiya Janata Party (BJP) intends to bring back the scheme in some capacity if it returns to power in the 2024 general elections. Even though the party, as per Sitharaman, still has “to do a lot of consultation with stakeholders and see what is it that we have to do to make or bring in a framework which will be acceptable to all” and the “Centre has not yet decided whether to seek a review of the SC ruling”, legal experts and activists feel the electoral bond story is far from over.
Not only do the corporations and political parties have the funding routes from the pre-2017 era (before the controversial scheme was introduced) at their disposal, there exist alternatives too, besides the possibility of the electoral bond scheme even taking a new form, experts say, adding that direct donations with disclosure under the Companies Act, 2013, electoral trusts registered with the Central Board of Direct Taxes (CBDT), in-kind contributions subject to disclosure requirements, forming Political Action Committees (PACs), and policy advocacy are some of the ways in that direction.
“While these alternatives exist, they are subject to various legal and regulatory constraints, including restrictions on foreign funding, limits on campaign expenditures, and disclosure requirements,” says Diljeet Titus, managing partner of Titus & Co, a commercial law firm based in New Delhi. “Corporates must navigate ethical considerations and reputational risks associated with engaging in political funding activities as the choice of political funding mechanism depends on the corporate’s objectives, risk tolerance, and commitment to transparency and compliance with applicable laws and regulations,” he adds.
Titus also talks about PACs (prevalent in the United States) which can be established to pool financial resources and support candidates or causes aligned with their interests, adding that they operate independently of political parties but can exert influence through campaign contributions and advocacy efforts. “Policy advocacy and lobbying efforts like funding think tanks, research institutions, or advocacy groups that promote policies favourable to the corporate sector can also influence government policies and legislation,” he further explains.
Another route can be corporate trusts, which legal experts say are not directly used for political funding. However, corporations may use the funds in the trusts subject to legal and regulatory scrutiny to donate to political causes or candidates, offering them a means of contributing to political causes.
Meanwhile, conceptualised by the United Progressive Alliance (UPA) government in 2013, electoral trusts have been the primary route of donation for corporates to political parties before the launch of the electoral bond scheme in 2018. For instance, as per an analysis done by the Association for Democratic Reforms (ADR), an apolitical and non-partisan nonprofit organisation working on electoral and political reforms for over 25 years, the Progressive Electoral Trust established by the Tata Group in 2013 donated a total of Rs 455.15 crore to the BJP, Indian National Congress (INC), and the All India Trinamool Congress (AITC) combined, and was one of the top two donors to the three parties that received the maximum donations in the financial year 2018-2019. The trust donated Rs 356.535 crore to the BJP (48.04% of total funds received by the party), Rs 55.629 crore to the INC (37.44% of total funds received by the party), and Rs 42.986 crore (97.12% of the total funds received by the party).
Similarly, Prudent Electoral Trust donated a total of Rs 39 crore (26.25%) to the INC and Rs 67.25 crore (9.06%) to the BJP. Known as Satya Electoral Trust before 2017, it is among the largest electoral trusts in India that gets nearly over 90% of all corporate donations to electoral trusts.
Transparent funding
Launched in 2018, electoral bonds could be purchased by citizens of India or entities incorporated within the country from specified branches of the State Bank of India (SBI). Contributions made through this scheme received full tax exemption, while the identities of the donors remained confidential, safeguarded by both the bank and the recipient political parties.
However, on February 15, a five-judge Bench of the Supreme Court, headed by Chief Justice DY Chandrachud, unanimously struck down the scheme as unconstitutional. They found it “violative of RTI (Right to Information)” and of voters’ right to information about political funding under Article 19(1)(a) of the Constitution. They also pointed out that it “would lead to quid pro quo arrangements” between corporations and politicians.
Experts feel the scheme can be made effective for transparent funding by way of several reforms. They list out measures like enhancing transparency, public funding by way of a National Election Fund, designating a regulatory authority such as the Election Commission of India (ECI) for disclosure of donor identities, and requiring donors to declare the reason for their financial contribution after a certain threshold to minimise the potential for undisclosed corporate interests influencing political parties, strengthening the role of ECI to oversee the issuance, redemption, and utilisation of electoral bonds, establishing an independent audit mechanism to monitor the flow of funds through bonds and verifying the adherence to disclosure norms, among others.
In a news report published in The Indian Express, former chief election commissioner SY Qureshi said that one way to cleanse electoral funding is to remove private funding completely, introduce public funding for political parties, and establish a National Election Fund for all donors, which should be allocated to parties according to their electoral performance. However, he cautions against state funding of elections and emphasises funding political parties.
“State funding of elections is often mentioned as a solution, to which I don’t subscribe, as it is impossible to keep tabs on the money spent in elections. It will also lead to the rise of non-serious candidates, who will find it tempting to make some quick bucks at public expense. What I have been suggesting is the funding of political parties, not elections, based on their electoral performance,” he clarified.
According to Prof Jagdeep Chokhar of ADR, the term ‘state funding’ is misleading, it should be called ‘public funding’ and it has to be seen whether it can be ensured that political parties do not take money other than public funding and national election fund. Chokhar stresses on the need for every payment and expenditure be digitally done to ensure transparency as India has been heading to become a digital economy since demonetisation.
“It’s a problem when corporate donations start dominating political decision-making, not when they do so out of belief in the philosophy or programmes or policies of a party. That’s why transparency is absolutely fundamental and it is not necessarily a value in itself. It helps the voter to know whether a particular donation or payment of money is meant for supporting the party or is meant for getting a favour done,” Chokhar says.
On the role of electoral trusts as a medium for political donations, experts reckon they are of semi-transparent nature and emphasises that corporate donations should be completely accounted for.
“ETs (electoral trusts) play a crucial role in political funding by providing a structured mechanism for corporate and individual donations to political parties and candidates and help maintain the integrity of the political process by promoting transparency and accountability in funding political activities,” says Titus. Former CEC Qureshi said that while there are 18 such trusts, they, too, suffer from a lack of transparency as they provide just one layer of separation between firms and parties.
“I feel the most viable solution is to establish a National Election Fund. Corporates and other private entities could be solicited to donate to this fund with income tax concessions already available for political donations. That would take away the alleged fear of the corporates of harassment from rival parties (read ruling parties). Incidentally, for 70 years they have been donating without any reprisal, which seems to be a new phenomenon—real or imaginary,” Qureshi wrote.
As the SC has also declared amendments to the Companies Act, 2013, the Representation of People Act, 1951, and the Income Tax Act, 1961, unconstitutional, Rishi Agarwal, CEO of TeamLease, a regulatory technology company, says that direct donations from individuals, businesses, and corporations will rise and that political parties may revert to the pre-2017 era of election funding. To revamp the scheme, Agarwal also lists out measures like revisiting the cap on corporate political contributions instead of removing it altogether and requiring to take the net average of the preceding three financial years, legislating to allow only a profit-making company to make contributions using bonds and prohibiting loss-making entities from purchasing.
Privacy concerns
Experts say that the SC ruling may become a deterrent for corporations to make political funding as the scope of vindictiveness is not ruled out by experts and analysts considering that their identities have been revealed.
“The corporations wanted their identity not to have been revealed to avoid any kind of coercion to donate or not to donate by political parties. However, the SC in its judgment held that the right to privacy of political affiliation does not extend to contributions made to influence policies, it only extends to contributions made as a genuine form of political support,” observes Shashank Sharma, a Delhi-based advocate practising in matters related to taxation, economic offences and criminal law. “Every single penny given to the political parties should be known to the voter,” says Maj Gen (retd) Anil Verma of ADR, adding that the vindictiveness aspect is being carried a bit too far and given too much importance as the corporates were donating even before the electoral bond scheme. There’s no free lunch and corporations give money to political parties for policy changes. It is quite clear.”
Titus says measures such as adoption of disclosure of threshold requirements can ensure transparency for significant donations while respecting the privacy rights of smaller contributors, adding time-limited disclosure such as during critical periods like elections to ensure transparency without indefinitely exposing corporate donors to scrutiny and anonymised reporting of data such as categorising contributions by industry or sector, providing insight into the sources of political funding without revealing specific donors can also be considered.
Chokhar of ADR says that it is expected and also accepted that political parties will do this. “But is it too much to expect that our political parties, which are the major political force in the country will behave in a responsible manner and not do this?” he asks.
Existing mechanism
Legal experts say that for political funding, there is an existing legal framework in place to which the corporations will have to adhere to. Advocate Ranjana Roy Gawai says the judgment will have no impact on corporate funding of elections as there are laws in place. “One is under the Companies Act, another one is Foreign Contribution Regulation Act (FCRA). The third one is the People’s Representation Act. If we read all these three Acts together, then we can see the harmonious outcome which is that with full disclosure, you (corporates) can make political contributions or political donations complying with the provisions of the Companies Act which particularly provides the company under Indian Companies Act can make the political donations but to the extent permissible under the law.” “Secondly, under FCRA, any foreign company can make contributions for that, it will have to apply and seek permission from the Ministry of Home Affairs after making the full disclosure,” Gawai adds.
Notably, amendments were made to the Finance Bill, 2018 to bring changes to FCRA, 1976 and FCRA, 2010 (that bans overseas corporations from funding political parties) to exempt political parties from the scrutiny of funds they have received from abroad with retrospective effect (since 1976) following the Delhi high court holding two national parties, the BJP and the Congress, guilty of receiving foreign funds on PIL filed by ADR and former secretary with the Central government EAS Sarma. The HC directed the MHA and the Election Commission (EC) to take action within six months. The plea is pending before the Supreme Court.
She further says, “Under RoPA, any person can make political donations or contributions, however, by giving the full disclosure identifying it with Aadhaar. So it will have no impact, on the contrary, whatever the drawbacks of electoral bonds were, based on which the Supreme Court has declared it unconstitutional, were only on the aspects of transparency.”
“The companies that now intend to make political contributions will have to do so directly to the political party via bank transfer (cheques, online transaction, etc) or they can also opt for electoral trust,” points out Shashank Sharma.
Section 182 of the Companies Act, 2013, lays down the prohibitions and restrictions on political contributions. Section 182(3) mandates the companies to disclose the contribution in their profit and loss account, the name of the political party to whom the contribution is made along with the amount.
The Finance Act, 2017 amended The Representation of the People Act, 1951 (RoPA), The Income-tax Act, 1961, and The Companies Act, 2013. The amendments allowed electoral bonds to cut through many of the restrictions on political party funding by completely doing away with the donation limit for companies, and removing the requirements to declare and maintain a record of donations through electoral bonds.
Section 29C of the RoPA Act requires political parties to prepare a report detailing the donations received by them in a financial year. Parties are required to declare all contributions higher than Rs 20,000 in this report, and specify whether they were received from individual persons or from companies.
