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Impact on transparency of political parties funding: EC on electoral bonds in 2019

Feb 16, 2024 01:25 PM IST

In 2017, the EC wrote to the law ministry, asking for amendments to the Income Tax Act and Companies Act to increase transparency of funding of political parties

New Delhi: Over the years, the Election Commission of India (EC) has, on multiple occasions criticised the electoral bond scheme. In a 2019 counter affidavit to the apex court, the ECI had reiterated its previous stance that the electoral bond scheme has a “serious impact” on the transparency of funding of political parties. This stance was communicated by the poll body to the law ministry in May 2017, months before the electoral bond scheme was notified and implemented by the finance ministry in 2018.

The Election Commission of India. (File photo)
The Election Commission of India. (File photo)

In the letter dated May 26, 2017, the then director of expenditure at the EC, Vikram Batra, had written to the secretary of the legislative department in the ministry of law and justice, expressing concerns about the amendments to different acts to enable to the electoral bond scheme.

“I am directed to draw your attention to the Finance Act 2017, which has introduced certain amendments in the Income Tax Act, the Representation of the People Act (ROPA)1951 and the Companies Act, 2013 and will have serious impact on Transparency aspect of political finance/funding of political parties,” Batra had written in a letter with the subject “Amendments in the Finance Act 2017”.

The EC had said that the amendment to ROPA, through which an electoral bond is not required to be reported under the Contribution Report, is a “retrograde step as far as transparency of donations is concerned”. The poll body also said that when contributions through electoral bonds are not reported, the body cannot ascertain if any party has received donations from government companies or foreign sources, which is prohibited under Section 298 of the ROPA.

Also Read: National Election Fund an alternative: Ex-CEC Krishnamoorthy after SC verdict

The poll body had also said that the two amendments to Section 182 of the Companies Act --- removing the limit of 7.5% of profits in the preceding three financial years for political contributions; and removing the obligation for firms to declare their political contributions in their profit and loss statements --- would lead to shell companies being set up solely for the purpose of making donations to political parties, and “compromise transparency”.

“[T]he Commission has expressed its apprehension that the abolition of the relevant provision of Sec 182 would lead to increased use of black money for political funding through shell companies. The Commission is of the view that the earlier provisions ensured that only profitable companies with a proven track record could provide donations to political parties and accordingly, it is recommended that this provision may be Re-introduced,” the letter said.

The letter called for a provision in the Companies Act that would require companies to declare their party-wise contributions in their profit and loss account to maintain transparency in political fundraising.

In another letter dated March 15, 2017, the poll body had written to the law ministry, asking for amendments to the Income Tax Act and Companies Act to increase transparency of funding of political parties. In its 2019 counter affidavit, the EC reiterated this stance.

Also Read: SC strikes down electoral bonds scheme, ECI to make donations public by March 13

In its 2019 counter affidavit, filed by the then law director Vijay Kumar Pandey, the poll body also said that the amendments to the Foreign Regulation Contribution Act, 2016, through Finance Act, 2016, allowed foreign companies with majority stake in Indian companies to donate to political parties, as long as they followed FEMA guidelines related to foreign investment in their respective sector. The EC criticised this amendment and said that “this would allow unchecked foreign funding of political parties in India which could lead to Indian policies being influenced by foreign companies”.

In its counter affidavit, the poll body had reiterated its longstanding demand for electoral reforms to make the Indian elections more transparent. One of the 22 proposals that the poll body had submitted to the government in July 2004, which were referred to the Rajya Sabha Parliamentary Standing Committee on Personnel, Public Grievances, Law and Justice in 2005, had said that political parties should be mandated to maintain their accounts and get them audited by agencies specified by the Commission. “The audited accounts should be available for the information of the public” for the “scrutiny of the general public and all concerned”, the EC had said in 2004. Similar proposals were submitted by the poll body to the government in December 2016 as well.

More than a year after the EC sent its 2017 letters to the Legislative Department, in December 2018, Rajya Sabha MP Mohammed Nadimul Haque (TMC) had asked in parliament if the Election Commission had “raised concerns on the issue of electoral bonds” and “the steps taken by Government to address the concerns”. In response, the then minister of state for finance, P. Radhakrishnan, had said in a written reply, “The Government has not received any concerns from Election Commission on the issue of Electoral Bearer Bonds.”

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