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Elections In India: Political Funding Or Politics Of Funding

Funding for any election, whether for a Municipal Council, State, Nation, or even ICAI is a burning issue.

Recently, the five judge-bench of the Supreme Court of India (SC) struck down the anonymous Electoral Bond Scheme (EBS) as unconstitutional and directed the State Bank of India (SBI) to stop issuing electoral bonds immediately. SC held that electoral bonds violate the right to information under Article 19(1)(a) of the Indian Constitution, which guarantees the freedom of speech and expression. SC held that voters have the right to know who funds political parties and their campaigns under Article 19(1)(a) of the Indian Constitution.1


1 https://www.newindianexpress.com/explainers/2024/Feb/25/explainer-ctrl-delete-electoral-bonds

So, what was EBS?

Electoral Bonds were like promissory notes. They were interest-free bearer instruments, payable to the bearer on demand. These bonds could be purchased by any citizen of India or entities incorporated or established in India. These bonds could be donated to any political party registered under Section 29A of the Representation of the People Act, 1951 and which secured not less than 1 per cent of votes polled in the last general election to the House of the People or the Legislative Assembly of the State. Only SBI was authorised to issue these bonds. They were issued four times in a year, i.e., January, April, July, and October, for 10 days in a month (open for 30 days in Lok Sabha Election Years) with a validity of 15 days only. The bonds were in the denominations of ₹1,000, ₹10000/-, ₹1 lakh, ₹10 Lakh and ₹1 crore. A buyer could maintain anonymity as his name was not revealed publicly, and he could donate bonds to any political party, which could encash the same with SBI.

Along with the EBS, the SC also struck down amendments to the Representation of the People Act, 1951 (RPA), the Income-tax Act, 1961, and the Companies Act, 2013, which were brought to facilitate corporate donations to political parties.2


2 https://forumias.com/blog/electoral-bonds-scheme-explained-pointwise/#gsc.tab=0

The government introduced EBS with objectives such as transparency in election funding, protection of donors’ anonymity, political accountability, and reduction of black money in politics. The bonds were issued only by SBI to KYC-validated individuals, besides corporates, etc. Earlier, the amount of money that a party could accept in cash from anonymous sources was ₹20,000, which was reduced to ₹2,000 with the introduction of EBS. This was done to reduce the use of black money in elections.

However, the EBS was criticised and challenged on many grounds. It was alleged that EBS compromised the citizen’s ‘Right to Know’, which is part of the right to information under Article 19 (1) of the Constitution.

One of the major concerns was the removal of the clause of the Companies Act 2013, which limited the donations in aggregate in any financial year by a company to the extent of seven and a half per cent of its average annual profits during the three immediately preceding financial years. As a result, a company could donate any amount without adequate profits, raising significant risks of pumping black money into political funding through shell companies. The companies did not require shareholders’ approval for political funding; therefore, Board of Directors could fund any political party of their choice. Donations received by a political party through electoral bonds were not required to be reported under section 29C of the Representation of the People Act 1951. This, too, compromised the transparency of political donations. Thus, EBS was perceived to compromise the free and fair election process, which the SC considers to be a part of the basic structure of the Indian Constitution. Well, with the direction of SC, SBI has made public the full details of the donors and the beneficiary political parties. However, nothing seems to have changed with such disclosures, except allegations and counter allegations. The ban on EBS without an alternative may fuel cash funding of elections, as the Lok Sabha elections require huge funding.

There are many suggestions for the way forward. The Indrajit Gupta Committee on State Funding of Elections has supported partial state funding of recognised political parties3. State funding has proved its effectiveness in a number of countries like Germany, Japan, Canada, Sweden etc.2 A National Electoral Fund can be set up to which all donors can contribute. The funds can be allocated to various political parties in the proportion of votes they secure in the election. The Law Commission of India, in its 255th Report, has recommended capping the entire donation received through anonymous sources at ₹20 crores or 20 per cent of the total funding of a political party3. With increased digitization, a complete ban on cash donations can be imposed to curb the menace of anonymous donations. Companies making political funding should obtain shareholders’ approval in general meetings and disclose them prominently in their financial reports. Various recommendations of the Venkatachaliah Committee Report (2002) for strict regulatory frameworks for auditing and disclosure of party income and expenditure may be implemented forthwith.


3 However, the Venkatachaliah Commission rejected the idea of State Funding for elections.

Some global practices may be considered, such as restrictions on the donations that a political party can accept and the mandatory disclosure of the source of the donations by the Publicity Act (USA), Elections and Referendums Act 2000 (UK), and the EU regulations. France banned corporate funding in 1995 and capped individual donations at 6,000 Euros. Brazil and Chile have also banned corporate donations after several corruption scandals related to corporate funding emerged2.

Corruption and corrupt practices, such as using illicit money in political campaigning, exercising undue influence, and political rigging, are common in elections of almost every nation, and India is no exception.

In this context, a recent (4th March 2024) seven judge-bench decision of the SC in the case of Sita Soren is worth noting, wherein it was held that “An MP/MLA can’t claim immunity from prosecution on a charge of bribery in connection with the vote or speech in the legislative house.” The SC further stated, “Corruption or bribery by a member of legislature erodes probity in public life,” adding, “Accepting bribes itself constitutes the offence.”4


4 https://www.oneindia.com/india/supreme-court-overrules-1998-narsimha-rao-judgment-mps-mlas-lose-immunity-from-prosecution-3765427.html?story=4

Blatant violations of the model code of conduct and good practices propounded by the election commission/authorities are followed more in breach than in compliance in any election. Haven’t we experienced spending beyond the authorised amount in campaigning or the use of unethical practices in the big housing society’s elections, or elections of Municipality, or in some cases of ICAI elections also? We, as enlightened citizens, should vote for clean candidates and clean the political system. The dictionary definition of ‘Politics’ is “a methodology and activities associated with running a government or an organisation.” However, today, it has become a dirty word and a synonym for wrongdoing.

Let us rise to the occasion and be vocal for fair and free elections. Let us begin by exercising our vote judiciously in the upcoming Lok Sabha Election. If the Nation survives, we survive. Therefore, “Nation First” should be our mantra.

Jai Hind!

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Thank You!

With Best Regards,

Dr CA Mayur B. Nayak
Editor