Electoral Bond Scheme – The Paragon Of Paradox

Balakrishnan.C and Nagarjun.S have analyzed on how the Electoral bond Scheme can be a threat to democracy and the Impact it creates on Black Money and Money laundering.

EXORDIUM:

Elections are the foundation of a democratic nation, where the citizens have a right to select a candidate for proper governance. Elections are governed by Election Commission and they should be wise and judicious in carrying out fair and honest elections as they are the foundation of representative democracy. Political parties require funding to carry on the functions of the parties, where Electoral Bonds were introduced as a new source of political funding.

ELECTORAL BONDS:

Electoral bonds Scheme was introduced as a new way of funding for the political parties in India in 2017 Finance bill and was notified on Jan 2, 2018. Electoral bond is a bearer instrument, where the ownership of the bond will depend on the possession of the instrument and it is also an interest-free instrument. State Bank of India is the only bank which provides electoral bonds and the same can be issued in multiples of Rs. 1000, Rs. 10,000 Rs. 1,00,000 and Rs. 10,00,000 and also Rs. 1,00,00,000. ¹ It can be purchased by a citizen of India, or a business entity incorporated or established in India and the political parties registered under Section 29A of the Representation of People Act, 1951 and those parties who have secured not less than 1% votes in the last Lok Sabha election, or the Legislative Assembly of the State can receive those bonds and the same should be encashedby the particular party with its authorized State Bank Account. ² The validity of the bond is 15 days from the date it was issued. Bearer instruments, in general, does not record the name of the parties but in electoral bonds however, the payee is required to fulfil KYC norms at the bank. This does not promote transparency because the public would not know the details of the donors. The electoral bonds will be available for 10 days in the months of January, April, July, October and during the year of general election an additional of 30 days can be provided by Central Government.

This scheme was introduced amid the contrary stance taken byElection commission which stated that this scheme would have “serious repercussions”. This Scheme also tends to favour the ruling party as it was evident from the BJP’s annual audit report which revealed that they received 95% of funds through electoral bonds after the order from the Supreme Court to disclose the same. ³

AMENDMENTS TO LAW MADE FOR ENFORCING THE SCHEME:

Finance bills are legislative proposals which will be presentedin the Lok Sabha post the introduction of Union Budget, which can help in the implementation of the budget for that upcoming financial year. Finance bill 2017 was introduced in Lok Sabha as a money bill and when it is a money bill Lok Sabha are not obliged to accept the suggestions made in the Rajya Sabha, and the Lok Sabha rejected all the suggestions made by Rajya Sabha for this bill and the same came into effect after acquiring president’s assent. The Finance act 2017 amended various legislations for the implementation of electoral bonds scheme. Section 31 of the Reserve bank of India act was amended and a new clause of Section 31(c) was inserted which provided the central government to authorize any scheduled bank to issue the electoral bond.Section 29C of the Representation of the People Act, 1951 which deals with the duty of the political party to disclose the donor’s name who might be an individual or any other private companies when the amount exceeds Rs. 20,000 to the election commissioner. This was amended in 2017 that this subsection shall not apply to the contributions received by electoral bonds. Moreover, according to Section 13A of Income Tax act 1961, a political party must disclose the names and address of the donors if the donation exceeds Rs. 20,000. After this amendment, it exempts any donation without any cap on the amount made through electoral bonds to be tax-deductible, added to the fact that there is no requirement of disclosing the details of the donors. This Section also limits the cash donations to Rs. 2000. Moreover,Section 2(j)(vi) of the Foreign Contribution (regulation) act 2010, provided a shield to political parties, where any contributions from a foreign company that owns a majority stake in an Indian company is allowed. Adding on to this, Section 182(1) of Companies Act 2013 provided a cap on the amount that can be donated to the political parties stating that it should not exceed 7.5% of the average net profit for the last 3 years. But according to this amendment, this clause providing a cap on the amount have been taken down meaning even a loss-making company can donate their bonds to the government.

Implications:

With all these amendments made through Finance act 2017 for the electoral bond scheme, it promotes opaqueness rather than transparency which was being claimed by the government. Now, only the company and the party know how much they received through electoral bonds and election commission will not be instructed of the same which also does not allow the public to not know the source of the funding. Additionally, with amending the Foreign contribution act and companies act, foreign funding through electoral bonds are bound to increase manifold, which might create a “quid pro quo” for the government to foreign companies who donate through electoral bonds.

Therefore, the electoral bonds scheme will allow the government to receive funds easily because the companies will be motivated to donate, expecting a "quid pro quo" situation. The voters have a right to information which is necessary for making governance transparent and accountable. ⁴ In this case, the citizens do not have such information of the donors who donated through the Electoral bonds.

CONSTITUTIONALITY OF ELECTORAL BONDS:

ARTICLE 110:

Article 110 (1) states that money bill deals with matters such as taxation, expenditures, credits, consolidated funds, and such other matters given in sub-clauses (a) to (f). Itis evident that for a bill to be a money bill, it should contain “only” provisions dealing with the said matters under Article 110(1). The words “if it contains only provisions dealing with” in Article 110 means the money bill should only contain mattersgiven under the article and not otherwise. The Constitution has carefully used the expression “dealing with” in Article 110(1) and not the wider legislative form “related to” ⁵. Henceforth it is necessary to ensure that the money bill follows the conditions under Article 110. If a bill has provisions relating to sub-clause (a) to (g) of Article 110(1) and also other provisions which fall outside the said article, then that bill will not a money bill, and it will be considered a financial bill as enshrined under Article 117of the India Constitution. The Finance bill 2017 which was introduced as a money bill, was important to bring the electoral bonds scheme into action. However, amendments made to Section 182 of companies act 2013 and Section 29C of Representation of people act 1951 and to Section 2(j)(vi) of the Foreign Contribution (regulation), act 2010 which was done through this money billdid not confine to matters dealt in Article 110 and henceforth cannot be classified as a money bill.

Importance of Rajya Sabha:

The importance of Rajya Sabha was discussed in Kuldip Nayar case, where the court held, “Hence, the composition of the Upper House has become an indicator of federalism, so as to more adequately reflect the interests of the constituent States and ensure a mechanism of checks and balances against the exercise of power by Central authorities that might affect the interests of the constituent States” ⁶. Thus, Using the route of Money bill which provides the government with an opportunity to skip the bill being passed in Rajya Sabha, will affect the concept of bicameral legislature adopted by the nation.

The Rajya Sabha has a vital responsibility in nation-building, as the dialogue between the two houses of Parliament helps to address disputes from divergent perspectives. The bicameral nature of Indian Parliament is integral to the working of the federal Constitution. It lays down the foundations of our democracy. ⁷ That it forms a part of the basic structure of the Constitution, is hence based on constitutional principle. The decision of the Speaker on whether a Bill is a Money Bill is not a matter of procedure. It directly impacts on the role of the Rajya Sabha and, therefore, on the working of the federal polity. ⁸ Therefore, the passing of a financial bill claiming it to be a money bill and escaping the process of passing of the bill in Rajya Sabha is violative of Article 110 of Indian constitution and also violates the basic structure doctrine.

• Opinion of the speaker in deciding the type of a bill and judicial review of the same:

• 1. The intention of Constitutional framers:

  The concept of money bill was taken by British Parliament act 1911 and the Indian constitution made an important change from the British Parliament act, where under Section 3 of the act, it was stated that "any certificate of the house of commons given under this act shall be conclusive for all purposes, and shall not be questioned in any court of law" ⁹ and the scope of judicial review is completely taken off because the British adopt the principle of parliamentary sovereignty. While, in our country, the system followed is the supremacy of the constitution which is an essential feature of the constitution and one of the basic structure of the constitution ¹⁰, and for the same reason the Constitutional framers although they gave the speaker a clear power in deciding whether a bill is a money bill or not, did not use the words "shall not be questioned in any court of law" which gives the courts the power to review the decision taken by the speaker regarding the same. Adding on this, India has a written constitution where the constitution allows for separation of powers and prevents absolute power in the institutions which it creates, unlike the British legal system. Henceforth, it is clear that nobody is supreme before the law and only the constitution is supreme and all organs including the speaker must abide by the Constitution of India, which means the decision of the speaker is indeed open to Judicial review which is a basic structure of the constitution. ¹¹

• 2. Irregularity of procedure v. Illegality:

  The procedure inside the parliament is not to be intervened by the courts as the Indian constitution follows the Separation of powers between different bodies of the constitution. However, since the Constitution is supreme in India, the courts cannot intervene if there is an Irregularity of procedure but when the process amounts to illegality, the courts have the power to review the proceedings. If the impugned procedure is illegal and unconstitutional, it would be open to being scrutinized in a Court of law, though such scrutiny is prohibited if the complaint against the procedure is no more than this that the procedure was irregular. ¹² Therefore, when a speaker declares that a bill is a money bill when it is not, it would amount to illegality by violating Article 110 of the constitution. If the procedure is unconstitutional and illegal it would be open to being scrutinized in a Court of law. ¹³ Article 118 - 122 are under the heading of “Procedure generally”. Article 118 deals with Rules of Procedure to be made by each house of the Parliament for regulating the procedure and conduct of its business and Article 118(1) states that the rules for regulations that each house of parliament makes must be “subject to the provisions of the constitution” and 122(1) states “that the proceedings of the parliament shall not be called in question on the ground of any alleged irregularity of procedure” which means the act of the speaker which is not irregularity of procedure but illegality is not saved by Article 122. The Supreme Court in one of the cases applied the principle of “expressio unius est exclusion alterius" which means “whatever has not been included has by implication been excluded”, said that just because of prohibiting the court to intervene on the touchstone of the irregularity of procedure does not make a taboo judicial review on findings of illegality or unconstitutionality and any attempt to read a limitation into Article 122 so as to restrict the court's jurisdiction to the examination of the Parliament's procedure in case of unconstitutionality, as opposed to illegality would amount to doing violence to the constitutional text. ¹⁴

Therefore, the opinion of the speaker though it is deemed to be final the judicial review of the same by the courts is possible when there is any illegality. Considering this Financial bill as a money bill and avoiding the need of passing the bill in Rajya Sabha and also to limit the president in giving his suggestions for the bill and claiming that the decision of the speaker is final and immune to judicial review is a clear violation of Article 110 of Indian constitution.

• ARTICLE 14:

The electoral bond scheme is violative of Article 14 under the Doctrine of Manifest Arbitrariness. Manifest arbitrariness, therefore, must be something done by the legislature capriciously, irrationally and/or without adequate determining principle. ¹⁵ There were many Amendments made to various acts in finance bill 2017 for implementing the Electoral Bond Scheme. However, the amendments that were made suffers from manifest arbitrariness because the changes brought by the legislature to the companies act allows even a loss-making company or even a shell company to donate through the electoral bond scheme and the same is capricious, irrational and without any determining principle.Any legislation can be negated when there is arbitrariness in the form of manifest arbitrariness under Article 14. ¹⁶

Equality is a dynamic concept with many aspects and dimensions and it cannot be "cribbed cabined and confined" within traditional and doctrinaire limits. ¹⁷ An action is said to be Arbitrary when it has no reasonable nexus with the object of the legislation ¹⁸. The Electoral Bond Scheme which had an object to improve the transparency of political funding, the amendments made are against the object of the electoral bond scheme.The amendments promote opaqueness which is against the object of the Scheme.With amending Section 29C, not even the Election commission will have the information about the donors of the Scheme and adding to this, the Amendment made to FCRA act also allows the foreign companies which have a majority stake in India is allowed to donate and added this with the amendment to the Section 182 of the Companies Act, 2013 promotes unlimited donations from foreign companies, these amendmentscertainly contradicts with the object of the scheme and since there is no nexus between the amendment and the Scheme, they should be struck unconstitutional as they are violative of Article 14. The Amendment which is a requisite for the implementation of the Electoral Bond Scheme suffers from a violation of Article 14 which in turn makes this Scheme violative of the same.

• ARTICLE 19(1)(a):

The Electoral Bond Scheme promotes opaqueness rather than transparency which allows only the State Bank of India, donors and the receiving party of the donation know how much money that the companies have donated to that political party.Thus, this scheme suffers from “Right to Know” which is derived from the concept of “freedom of speech and expression” under Article 19(1)(a) of the constitution. The Supreme court in the case of Dinesh Trivedi M.P v. Union of India ¹⁹, "in modern constitutional democracies, it is axiomatic that citizens have a right to know about the affairs of the Government which, having been elected by them, seek to formulate sound policies of governance aimed at their welfare". The Court also observed "democracy expects openness and openness is concomitant of a free society and the sunlight is a best disinfectant” ²⁰. The information of the government is alone not enough but the voters have the right to know the source of political funds that each party receives asthey have a fundamental right of speech or expression in the election through the casting of votes and for the same reason they have the right to know about the source of political funding before they cast their votes as the source of funding is essential and that can influence the parties towards the source, for example, foreign companies in the case of electoral bonds. Thus, this information is certainly necessary, that a citizen may think over before making his choice of the candidate accordingly. While in the case of v Union of India v. Associate of democratic reforms ²¹ it was held that “the candidate’s criminal record, Assets and liabilities they and educational qualifications should be revealed before contesting in an election”, whereas the source of the political funding for every party, which every candidate represents during elections is also necessary information because the voters shouldknow the same and hence this scheme is violativeofArticle19(1)(a) of the constitution.

• Judicial review of a policy decision:

The state which has the power to legislate new laws, should ensure that it does not violate the fundamental rights of the constitution as under Article 13(2) of the constitution, where state includes Government, Parliament of India, Government and legislature of each states and any local and other authorities ²² and law includes any ordinance, order, bye-law, rule, regulation, notification, custom or usage having in the territory of India the force of law. ²³ Henceforth any law which violates the fundamental rights can be struck down by the courts. Also Judicial review is a rule and not an exception, where Judicial Review is impliedly part of Fundamental Rights under Article 13 and also Article 32. The Apex court in the case of Directorate Of Film Festivals v. Gaurav Ashwin Jain, held that “Legality of the policy, is the subject of judicial review”. ²⁴

The scope of judicial review when examining a policy of the government is to check whether it violates the fundamental rights of the citizens or is opposed to the provisions of the Constitution, or opposed to any statutory provision or manifestly arbitrary ²⁵. It is a duty of the court to ensure that any law which is of policy matter is not violative of the fundamental rights and the constitution. When that’s the case, the Court as a judiciary have absolute rights to struck down such a law if it is violative of the same. Since the Scheme suffers from the above said criterion the judicial review by the courts is possible in this situation and the scheme must be struck down for the same reasons.

THREAT ON DEMOCRACY:

Transparency and Equality are pillars of democracy. Citizens should have confident of the actions by the government and in order to earn such a trust, the government should be transparent to its citizens. This Scheme is opaque in nature which is basic violation to democracy. Principle of Transparent Political funding which is a bedrock of a responsible democracy is severally affected where, The Scheme is introduced with enactments made in various legislations where the Apex institutions like Election Commission and Reserve Bank of India would not know the source of funding that was received and since it is not accountable, only the donors know if they are donating legitimate money or not. This however, affects the basic rule and principles of democracy where, the winners are the political parties and losers are the citizens of the nation.

This Scheme also tends to be biased towards the ruling party, since all the donors would want to donate to the ruling party to expect something in favour for them. This enhances the chances for the ruling party to retain thepower because of huge donations that they would have received through the electoral bonds and does not provide a chance for the opposition party to challenge or compete against the ruling party due to difference in the amount of funding the parties have. This Scheme allows the ruling party to retain power due to the funding’s received through it and is biased towards the government. Henceforth this scheme is a major threat to democracy and affects various the basic principles of democracy.

IMPACT OF ELECTORAL BONDS:

Black money:

The electoral bonds scheme mainly leads to in inflow of black money.Theunidentified donor of the political party can dispose of their black money by means of shellcompanies thereby leading to the inflow of black money. Shell companies are mainly used for taxevasion, tax avoidance and to achieve anonymity. These shell companies exist only in paperbut not in reality and make a way for the abundant inflow of black money which can createan indispensable situation of making the shell companies work only for the purpose ofdonating to political parties. The donations made to political parties would act as a floodgatefor the creation of uncertain shell companies proliferating across India to redirect blackmoney into political partiescoffers. Even though these companies operate throughcheque transactions there’s still flow of black money due to the lack of accountability. The amendment to Section 182 ofthe Act which removed the restriction of contribution which stated that the company canmake only to the extent of 7.5% of net average profit of three preceding financial yearsindirectly enables shell companies to donate via electoral bonds. This serves as a pathway forthe loss making companies who accelerate and bundle up their unaccounted money to disposeofby investing it in the electoral bonds scheme which happens due to lack of accountability. This creates a prospect of shell companies being set only for the uniquemotive of making donations to the political parties.

Money laundering:

Adding on to this, Money laundering also plays a major role here as plenty of illegal moneytraces its path into the election process from anonymous foreign contributions. Moneylaundering happens in three stages. In this case, the first stage is placing of illegal money into the market which is done by the money launderers. The following stage is the layering stagewhich involves depositing the illegal money into the electoral bonds. Then finally comes upthe integrating stage where the black money goes into circulation. The unaccounted money of highly influential persons which are the hawala transactions are deposited in the electoralbonds scheme in order to escape from tax filings and also to benefit from the tax exemptions.This kind of anonymous donations made to the political parties legalizes money laundering. The opaqueness ruins the entire election process as the black money is brought in tocirculation to the economy mixed with the white ones. This scheme induces the act of moneylaundering among the individuals and corporate. As a whole, the entire electoral bond scheme is a fraud on its citizens and the election process.Hence this scheme does nothing towards curbing the black money instead ithelps in increasing the same and reduces the transparency in the banking system. Theseaforesaid reasons make the electoral bond scheme to function against its own ideologies andpolicies.

EPILOGUE:

Political parties need funding to function appropriately and to satisfy the various needs of the people of the country. While cash funding was criticized for being opaque and such other reasons, Electoral Bond Scheme which was introduced through finance bill 2017 amending various acts, is not less opaquewhen compared to cash funding. It is not transparent and also is biased towards the ruling party which affects the basic principles of democracy. The said Scheme suffers from the issue of constitutionality and it does not act as an alternative to cash funding as contended by the Government. Moreover,it is evident that this scheme helps in the influx of black money and the scheme also promotes money laundering. Hence, it is clear that Electoral Bond Scheme should be struck down as unconstitutional for the well-being of the democracy and for other such reasons.