Electoral Bonds Will Eradicate Black money From Political Funding And Prevent Donors Being Victimized:AG Tells SC

Attorney General K. K. Venugopal on Wednesday sought to defend the Electoral Bonds as a means of donations to political parties, advancing that they serve in eradicating black money from political funding, and to prevent the donors from being victimized.

"The argument so far has been that the scheme and the series of amendments (in the Income Tax, the Representation of People and the Companies Acts) would result in the injection of a mind-boggling amount of black money from criminal sources, the violation of the PMLA, etc, but these are simple cash contributions with an aspect that compels honest payments in cash."

"The actual objective is to remove any impediment to payments which is posed by disclosing their source and to which political party they are tendered. If you back the wrong horse, then tomorrow an industrialist who is bidding for a dam will get victimized if the opposite party came to power. At least he would believe this, regardless of whether or not this happens in real life. Your Lordships have to maintain a balance between the purpose for which the law was passed as against the content of the amendments and the impact of the amendments...", he submitted.

"As per the earlier dispensation, payment up till Rs. 20,000 were made in cash- this was taken lawfully, but a huge amount was paid by cheque by disclosing the name of the donor and the payee...We have no state funding and there is a huge amount of expenditure incurred on helicopters, distribution of food at rallies etc. The purpose of the law was to eradicate black money or at least reduce it. Those who don't want to use these Bonds can continue to use cash as before, but most of the big donors don't want their names to be revealed, otherwise repercussions would follow. Their shareholders could punish them. But now they can legitimately pay and their donations are out of white money...These are industrialists, all of whom want their party to come to power. It may lead to adverse reactions if it could not be so. The Secrecy is essential to ensure white money and legitimate payments...", continued the AG.

He drew the bench's attention to a report on the black money influx during elections between 2011 and 2014, showing that the accurate estimates of campaign spending are not found, that the average amount received at the national and state levels is only half of the reported spending, and that black money accounts for a staggering 46 % of the total expenditure for the MLAs and 43% for the MPs.

Earlier, an objection was raised in respect of the amendment in the Foreign Contribution Regulation Act by virtue of which if a subsidiary of a foreign company is registered in India and is FEMA-compliant, it would not be regarded as a foreign source for the purpose of contributions. "

The entire objective of the FCRA was to protect our political parties, candidates and public servants from foreign influence!", Advocate Prashant Bhushan had urged.

Another advocate had contended that the government may facilitate the extension of funds from State banks to companies who would then fund political parties- "there are companies with zero promoter-shareholding like ITC and Larsen & Toubro. Axis bank has almost 100% government shareholding...these companies are in a position to take such actions"

Rebutting these claims, the AG indicated that as per the 2018 Scheme, only the entities who/which are a citizen of India or incorporated or established in India may purchase the Electoral Bonds, adding that a foreigner could not be a donor. "The argument that government companies could be asked for huge donations is also not true", he stressed.

"When you purchase the bonds, the bank knows (the details of the donor) and if a case is filed or the IT department wants information, it can be revealed as to who is purchasing...Only the SBI is authorized to issue these bonds and no other bank. Its branches are also set out...Further, only the political parties registered under 29A (of the RPA) and which secured not less than 1% of the votes polled at the previous election are entitled to receive the bonds. The purpose of this is to eliminate shell companies for which there was no requirement to even participate in elections. They would convert black money into white, saying that the money was received from their voters or supporters...the RBI has said that KYC has to be filled for everyone who goes to SBI for the purchase of bonds. Any person who is fly-by-night cannot purchase these bonds...Besides, their validity lapses after 15 days so they cannot be used as a parallel economy..."

Indicating the application form for the issue of the bonds, the AG advanced that the name of the applicant, the PAN and TAN numbers, the details of identity by way of passport, Aadhaar and voter ID are needed.

"There is total transparency as to the person purchasing it though there are specific provisions for its disclosure. The instrument is non-transferable, non-tradable. Only the political party is entitled for encashment. But there is total anonymity as to the person who has purchased it and the donee cannot find out who the donor is. The IT returns will show the complete amount but not the name of the person who has donated it"

"The bank will know in whose favour the bond is given? That They are not obligated to disclose is a different thing", asked Chief Justice Ranjan Gogoi.

"The bond must have a number? Otherwise someone at the bank can start manufacturing these bonds?", quipped Justice Deepak Gupta. "How else would any disclosure be made in a court or for IT purposes?", continued the judge.

As Mr. Bhushan indicated from the Union of India's affidavit that the bond carries an alpha-numeric serial number, adding that the number could only be viewed in UV light.

"So the bank would know", confirmed the Chief Justice.

The AG shall resume his submission on Thursday.

On Wednesday, Senior Advocate Rakesh Dwivedi had presented the Election Commission's stand-

"We are not on the validity (of the bonds) or that they are not legalized. We are on transparency and against anonymity. We can't go one step forward and then two steps backward. We want reforms- the bond is fine but the anonymity has to go", he averred.

"Will you go to extent of supporting the CPI (M) (one of the petitioners) that SBI should be directed to publish details of all electoral bonds issued till date, revealing from whom to whom?", asked the Chief Justice.

In response, Mr. Dwivedi spoke of Democracy, free and fair elections and the right to vote- "the right to know the antecedents of the candidate is only half the exercise!"

"Shall we read your letter of May 26, 2017 (addressed by the ECI to the Law Ministry immediately upon the passage of the Finance Act of 2017)?", observed the Chief Justice.

By virtue of the amendment made to Section 29C of the RPA, political parties need not report to the ECI the donations received through electoral bonds. The ECI had described this a "retrograde step as far as transparency of donations is concerned" and called for withdrawal of the amendment.

Pointing out this stance of the ECI in its letter, the CJ pressed, "You say the proviso (to section 29C) needs to be withdrawn?"

The Commission had also objected to the amendment to section 13A of the IT Act which provides that for the purpose of claiming exemption for contributions received through electoral bonds, the political party need not maintain a record of the name and address of the person making it.

"This provision is not justified as per the ECI", iterated the CJ.

The amendments made to the Companies Act, 2013 were also flagged by the ECI- The amendment to Section 182 of the Act took away the restriction that donations can be made only to the extent of 7.5% of net average profit of three preceding financial years, besides abolishing the mandate for companies to declare their political contributions in their profit and loss accounts.

The ECI had warned in its letter that this would encourage the creation of shell companies for the sole purpose of making donations, with no other business consequence of having disbursable profits.

In its counter-affidavit before the apex court, The Chief Justice noted that the ECI has also opposed the amendment to the FCRA. "This would allow unchecked foreign funding of political parties in India which could lead to Indian policies being influenced by foreign companies", read Mr. Dwivedi on the judge's insistence.

"This is the stand of the ECI! That you were hesitating to read", Chief Justice Gogoi had remarked.