Electoral bonds will allow unchecked foreign funding of political parties, EC tells top court

Contradicting Modi government’s decision to introduce electoral bonds for political funding, the Election Commission on Wednesday told the Supreme Court that it had written to the Centre saying the changes made in several laws relating to the issue will have “serious repercussions” on transparency.

It also said that the changes in the FCRA 2010, will allow unchecked foreign funding of political parties which could lead to Indian policies being influenced by foreign companies.

EC, which has filed affidavit in the apex court, said that on May 26, 2017 it had written to the Ministry of Law and Justice about its views that the changes made in the Income Tax Act, the Representation of People Act and the Finance Act would be against the endeavour to have transparency in funding to political parties.

The affidavit, filed by Director (Law) of the EC Vijay Kumar Pandey, said the EC had informed the ministry that "certain provisions of the Finance Act, 2017 and the corresponding amendments carried out in the Income Tax Act, the RP Act, 1951 and the Companies Act, 2013 will have serious repercussions/impact on the transparency aspect of political finance/funding of political parties".

The reply was filed in petitions challenging the issuance of electoral bonds by the government.

Referring to its communication with the ministry, it said: "It is evident that any donation received by political party through an electoral bond has been taken out of the ambit of reporting under the contribution report as prescribed under section 29 C of the RPA.

"In a situation where electoral bonds were not reported, it cannot be ascertained whether the political party has taken any donation from government companies and foreign sources."

On changes to the Foreign Regulation Contribution Act (FCRA) 2010, it said they allowed donations to be received from foreign companies having majority stake in Indian companies provided that they follow the guidelines pertaining to foreign investment in the sector in which they operate.

"This was a change form the existing law barred donations from all foreign sources as defined under the FCRA. This would allow unchecked foreign funding of political parties which could lead to Indian policies being influenced by foreign companies," it added.

In response to ADR's plea which also sought directions that no political party should accept any donation in cash, ECI said that the Income Tax Act has been amended with a new clause stating that no cash donation exceeding Rs 2000 was received by such political party.

"ECI has been relentlessly working towards curbing the abuse of power during elections for which purpose it has time and again issued several instructions in the past to candidates as well as to political parties for furnishing the correct information relating to donations received and expenditure," it said.

The poll panel said that it has also proposed certain electoral reforms over the years for the purpose of bringing about more transparency and fairness in the electoral process in the country.

It said that all political parties (regional or national) were expected to observe transparency and accountability with respect to the funds raised and its expenditure, both during elections and otherwise, particularly when concerns have been expressed.

"Political parties are major stakeholders in a democracy and they should be accountable to the public.

A perusal of the electoral reforms clearly revealed that the EC has taken appropriate action to get the political parties to maintain proper accounts of their income and expenditure and make the same available to the general public in order to bring about transparency and accountability," it said.    

ADR's plea has sought stay on the Electoral Bond Scheme, 2018 which was notified by the Centre in January last year.

It has said amendments carried out in relevant 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 the Indian democracy".

The plea has claimed that government's decision entitles political parties to receive unlimited donations without recording its source.

It has sought striking down of amendments made through the Finance Act, 2017 and the January 2, 2018 notification issued by the Ministry of Finance, whose cumulative effect is that political parties are entitled to receive unlimited donations from individuals and corporations, including loss-making and foreign corporations, without having to record or report the sources of such funding.

The NDA government had announced electoral bonds in the earlier budget, claiming that the scheme would clean up political funding.

The move was resisted by opposition parties. EC had also expressed its reservations initially.  

(With PTI inputs)