Legal Methods

Research Paper
Semester-I

A Research Paper on:

“Electoral Bonds”

Submitted to:
Mr. Shrikant Aithal
Professor, NMIMS School Of Law

Submitted By:
Harsh Tyagi
Roll no. B022
BA LLB ‘B’
 Introduction to Legal Methods:

Legal Methods is offered as a subject to the first-year law students so that their foundation
for the legal education can be made. Legal methods is a subject that helps students to
understand the functions of legal system. A comparative study of different legal systems can
be done through this subject. By studying legal methods, a student develops an ability to
learn, use and interpret legal language and analyze like a lawyer. Reformation in law can
only be brought if a person is adept in the legal methods subject. It can also be defined as the
analysis of principles of law, nature and structure of law, to understand various sources of
law, and also the rules and the techniques of how can law and legal rules be applied for the
betterment of the society and for the individual. Legal methods a s a subject helps in
understanding the techniques of interpreting and judging the case laws. Legal methods help
young and aspiring lawyers like us to get us indoctrinated into the legal world.

Introduction to Research paper:

Electoral bonds, or interest free bearer bonds, are a means to donate funds to
political parties of one’s preference. As the system of electoral bonds involves a formal
banking channel, it is touted as a transparent and accountable system of political funding,
in the wake of a more stringent stance against corruption. The Ministry of Finance,
Department of Economic Affairs, by notification dated 2.1.2018, in exercise of powers
under Section 31(3) of the Reserve Bank of India Act, 1934 had promulgated a scheme
called, ‘The Electoral Bond Scheme, 2018’. Under the Scheme, an ‘electoral bond’ is “a
bond issued in the nature of promissory note which shall be a bearer banking instrument
and shall not carry the name of the buyer or payee”[i]. There were several amendments
made to numerous Acts, such as the Reserve Bank of India Act, 1934[ii], the
Representation of Peoples Act, 1951 (hereinafter “RPA”), the Income Tax Act, 1961, the
Companies Act, 2013 and the Foreign Contribution Regulation Act, 2010 in order to give
effect to the Scheme.
The electoral bonds were introduced in the Budget of the Financial Year 2017 to
achieve the following objectives:
1. Transparency in Political Funding When donations were not necessarily
made through banks, the source of donation was not recorded/was pseudonymous
and the quantum of money was never disclosed[iii]. This opaqueness is avoided
when the name of the donor is available in bank records, thereby bringing the
information in the public domain.
2. Increased Participation The anonymity of donors will increase donations, as
fear of harassment from the rival parties will be eliminated.
3. Promote Cashless Transactions The traditional way of procuring funds
through cash led to a lot of money being unaccounted for, with no legitimate
account of the donor. The new Scheme, through the usage of bonds, promotes
cashless transactions, bolstering accountability in the system.
 Aim and Objectives:

 To explain what is electoral bond.

 To know its pros and cons.

 To know the controversy around it.

Research Questions:

 Why is electoral bond?

 What is controversy around it?

 Analysis:

FUNCTIONING OF BONDS
Electoral bonds can be purchased by any ‘person’, who may be an Indian citizen (individually
or jointly), or any corporation incorporated in India. No names are printed on the electoral
bond(s) that are issued. Only those political parties can avail donations via bonds, which are
registered under Section 29-A of the RPA, 1951 and have secured not less than 1% of the votes
in the last Lok Sabha or State Assembly elections. As directed by the Centre, the electoral
bonds are available only in branches of State Bank of India for 10 days each, in the months of
January, April, July and October. An additional period of 30 days is specified by the Centre in
the year Lok Sabha elections are to be held. This ensures that electoral bonds do not assume the
form of a parallel currency alongside the currency currently authorised. The donor should have
a KYC compliant account, using which s/he can donate funds, in the denominations of Rs.
1000, 10000, 1 Lakh, 10 Lakhs and 1 Crore, to any eligible political party. Donations made in
foreign currencies are not accepted. The recipient political parties must then encash these bonds
within 15 days from the date of issue of electoral bond(s). A political party does not remain
eligible to receive the payment if the bond is submitted after the validity period.

MISUSE OF BONDS
The Centre’s scheme has several allegations being leveled against it, for example, that the
Scheme favours the ruling party[x] and flouts and disrespects the essence of free and
transparent elections. Though donations have increased in large numbers with the introduction
of this Scheme, this route has also became a catalyst for the flow of black money. A report by,
Association for Democratic Reforms (ADR) indicated that the tax declarations of various
political parties to the Election Commission showed that funding through electoral bonds is
heavily biased in favour of big, national parties, (eg, BJP). It shows that out of the total Rs. 215
Crores generated through the electoral bond route in 2017-18, the ruling party secured Rs. 210
Crores while the Opposition secured Rs. 5 Crores. The ADR has claimed that the four
amendments made to the aforementioned Acts have “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 Indian democracy.” Moreover, the scheme
is criticized as only the authorized branches of State Bank of India, owned by the Central
Government, issue electoral bonds. There is, thus, the probability that the Union Government
may obtain access to the list of donors and misuse it. It is also feared that shell companies may
be set up by political parties to donate anonymously, opening a seemingly legalized channel for
money laundering, bribery and corruption. The 2016 amendment to the Foreign Contribution
(Regulation) Act, 2010 defeats another purpose of the Scheme. The contributions made by
Indian subsidiaries of foreign companies are now considered to be funding by an Indian source.
Foreign funding through this route is no longer subjected to investigation by law enforcement
agencies, enabling foreign companies to donate to political parties. Hence, the anonymity of the
donor clause clears the path of investigation, enabling foreign companies to donate to political
parties.
ANONYMITY OF THE DONOR

The Scheme envisages that the name of the donor is not to be printed on the issued electoral
bond. The details of the donor remain between the donor and the bank. This clause was
introduced so that rival political parties do not harass the donors, also encouraging private
entities to donate. However, it has resulted in the viability of the electoral bonds being
questioned. Rather than transparency, the anonymous donations are facilitating legalization of
black money. The non-disclosure of donors in the affidavits has been interpreted as a threat to
democracy as the voters are not fully aware about the contesting political parties. This also
leads to reduction in the accountability of the political parties, as the source and percentage of
donations a party gets, plays a major role in its workings and inclinations. The anonymity of
the donor, will give big corporations access to majorly fund, and indirectly control, policies of
any political party.
 Case Study:

“Association of Democratic Reforms Vs. Union of

India”

Bench of Judges:
Justice Sanjiv Khanna

Justice Deepak Gupta

Justice Ranjan Gogoi

Case Description:

The Supreme Court is deciding whether the current electoral bonds scheme facilitates
anonymous corporate funding to political parties and whether it was wrongly certified as a
Finance Act.
The Supreme Court, over the last decade, has ensured that free, transparent and fair elections
take place in the country to prevent the perversion of democratic ideals. It has been in favor of
voters being given complete information about the parties contesting elections, enabling voters
to make an informed decision. The notification of the Electoral bond Scheme led to a lot of
criticism from various corners of the socio-political landscape, leading to it being challenged in
the SC.
 Case:

The case was instituted in 2015 and on 3rd October 2017, a notice was sent to the Central
Government and the EC, on account of a petition filed by two NGOs, namely, Association of
Democratic Reforms, and Common Cause. Further, on 2nd February 2018, this petition was
tagged with a petition filed by CPI(M), which too approached the Court, challenging the
Centre’s electoral bond scheme. The SC delivered a judgment on the same on 12th April 2019.
The primary issue contended by the Petitioners was that the anonymity provision for a donor
infringes, the citizens’ Right to Know, as guaranteed under Article 19(1)(a) of the Indian
Constitution. It infringes their right to know about the contributions made to various political
parties and the source of such contributions. The Petitioners sought directions from the Hon’ble
Court to strike down amendments made through the Finance Act, 2017, as it led to-
1. Unlimited political funding (from big, domestic and foreign corporations/entities) since
the aforementioned Act amended the cap on donations and amended provisions
regarding foreign funding
2. Gross lack of transparency with regard to the identity of the donor
3. Legitimizing political corruption

Election Commission’s Stance

The EC’s stand was against the clause of anonymity, but not against the concept of electoral
bonds. In an affidavit submitted by the EC to the SC, it had mentioned how the concept of
electoral bonds with the accompanying provision of anonymity destroyed the essence of
transparency in the electoral machinery. It stated that the EC would accept the scheme once the
names of the donors were revealed. Further, the EC also stated that it had warned the Ministry
of Justice against the possible misuse of the vague worded scheme through a letter in 2017. The
EC also highlighted the problems that the numerous amendments brought in by the Finance
Act, 2016 and 2017 are likely to cause. For instance, insertion of S.29C in the RPA, 1951 along
with S.137 of the Finance Act, 2017 evidently takes the donations made to the political parties
outside the ambit of Contribution Report, which is required under S.29C in the RPA, 1951.

Union of India’s Stance

The Centre emphasized on the objective with which this scheme had been introduced and
highlighted its need in the light of increasing menace of unaccounted money used in elections.
Moreover, the Centre contended that the scheme would be successful only once it’s
implemented and that the government be given a free hand to execute the same.

Court’s Order
The Court passed an interim order to balance the interests of the stakeholders involved. The
political parties were directed to submit the details of the donations received in a sealed cover
to the EC along with the particulars of the donors, the bonds encashed, and the bank it was
issued from.
 Conclusion:

The objective behind the Scheme was the interest of the people, however, the practice has
seemingly been against the interest of democracy. The resultant opacity in political funding, as
discussed above, results in “lobbying and capture” of the government by big donors, making it
easier for the influential industrialists to bring to power a favorable government. Keeping in
view the objectives with which it was enforced, some of the suggestions to improve the scheme
are as follows: The digitalization of transactions will help in keeping a check over the flow of
black money. The anonymous transactions must be accessible to the EC for scrutiny. This will
allow the anonymity of the donors to be maintained, while allowing the non-genuine
transactions to be checked. There should be additional safeguards for allowing donations from
Indian subsidiaries of foreign companies in order to maintain the demarcation between
donations from an Indian vis a vis a foreign source. A more stringent procedure regulating
donations by artificial persons needs to be arrived at. This will deter political parties from
creating shell companies that are aimed at turning their black money into white money. Another
recommendation given by former Chief Election Commissioner, S.Y Quraishi, is the
establishment of a ‘National Electoral Fund’, to which all donors can contribute. These funds
would then be distributed amongst political parties in proportion to their share of votes. This
would allay both the concerns regarding the protection of the identities of the donors, as well as
elimination of black money from political funding. It remains to be seen how the system of
donation will further evolve. Further, it also remains to be seen the steps for minimization of
perversion of the scheme and maximum utility as well a mechanism to punish those who
benefit from the aforesaid perversion.

Bibliography/References:

 https://www.scobserver.in/court-case/electoral-bonds

 https://ezproxy.svkm.ac.in:2090/Members/SearchResult.aspx
 https://carnegieendowment.org/2019/11/25/electoral-bonds-
safeguards-of-indian-democracy-are-crumbling-pub-80428