Electoral Bond Scheme

Are you interested in understanding the recent Supreme Court verdict on the Electoral Bond Scheme (EBS)? Chartered Accountant Vikas Jain breaks down the complexities of the judgment in a clear and concise question-and-answer format. This blog post will provide you with valuable insights into:

• The core provisions of the EBS and the Finance Act amendments
• The reasoning behind the Supreme Court's decision
• The implications for political donations in India
• The future of political financing in the wake of this judgment

Join CA Vikas Jain as he sheds light on this critical issue and empowers you to stay informed!

Ques1: What is the Electoral Bond Scheme?

Ans: The Electoral Bond Scheme (EBS) was a government scheme under which electoral bonds could be purchased instead of cash to donate to political parties.

Ques2: What were the provisions related to donations to political parties in Section 182 of the Companies Act 2013 as amended by the Finance Act 2017?

Ans: The Finance Act 2017 made changes to Section 182 of the Companies Act 2013, which included:

• Removing the maximum limit on political contributions by companies.
• Companies not being required to disclose the names of donors in their financial statements.

Ques3: What provisions were made related to donations to political parties in Section 182 of the Companies Act 2013 after the amendment by the Finance Act 2017?

Ans: After the amendment by the Finance Act 2017, political donations were to be made only through banking channels or instruments issued under a scheme for political contributions, such as electoral bonds.

Ques4: The Supreme Court has recently given a verdict on the Electoral Bond Scheme. Can you tell our viewers what the Supreme Court has emphasized in its verdict?

Ans: On February 15, 2024, the Supreme Court declared the Electoral Bond Scheme and certain amendments to Section 182 of the Companies Act, 2013 unconstitutional.

The Supreme Court emphasized the following in its verdict:

• Voters' right to information: The Electoral Bond Scheme did not allow voters to know who was donating to political parties, which violated their right to information under Article 19(1)(a) of the Constitution of India.
• Transparency in elections: The Electoral Bond Scheme reduced transparency in political funding, which could increase the influence of money in elections.
• Accountability: The Electoral Bond Scheme did not make political parties accountable to their donors.

Ques5: What was declared unconstitutional in the verdict related to the Electoral Bond Scheme?

Ans: The removal of limits on political contributions and the non-disclosure of donor names in financial statements were deemed unconstitutional by the Supreme Court.

Ques6: What limits were placed on political contributions before the Finance Act of 2017?

Ans: Before the Finance Act of 2017, the aggregate value of contributions to political parties by companies could not exceed 7.5% of the average net profits over three years.

Ques7: How did the Finance Act of 2017 change the limits on political contributions?

Ans: The Finance Act of 2017 removed the maximum limit on political contributions by companies.

Ques8: Why did the Supreme Court consider the removal of limits on political contributions unconstitutional? What is your opinion on this?

Ans: The Supreme Court considered the removal of limits as "manifest arbitrariness," as it failed to recognize the potential harm of allowing unlimited contributions without proper scrutiny.

Ques9: What were the requirements related to the disclosure of political contributions in financial statements before the Finance Act of 2017?

Ans: Before the Finance Act of 2017, companies were required to disclose the names of each party against the total amount contributed to political parties.

Ques10: Has the Supreme Court declared the disclosure of donor names unconstitutional in the verdict related to the Electoral Bond Scheme? What is your opinion on this?

Ans: The Supreme Court upheld the right of information of voters under Article 19(1)(a) of the Constitution of India.

Ques11: Section 182(3A) of the Finance Act of 2017 prescribed certain methods for making political donations. Can you tell our viewers about those methods?

Ans: After the Finance Act of 2017, political contributions were to be made only through banking channels or instruments issued under a scheme for political contributions, such as electoral bonds.

Ques12: What will be the future of the Electoral Bond Scheme according to the Supreme Court's verdict? What is your opinion on this?

Ans: The Supreme Court declared the Electoral Bond Scheme unconstitutional.

Ques13: To whom did the Supreme Court direct the disclosure of details of contributions received through electoral bonds? Can you tell our viewers about this?

Ans: The Supreme Court directed the State Bank of India (SBI) and the Election Commission of India (ECI) to disclose details of contributions received through electoral bonds.

Ques14: Has the Supreme Court given any instructions regarding the non-encashed amounts of electoral bonds? Can you tell our viewers about this ?

Ans: Yes, the Supreme Court directed the refund of non-encashed amounts of electoral bonds to the donor.

Ques15: My next question is, does this Supreme Court judgment put any burden on companies for past political donations? What is your opinion on this?

Ans: No adverse implications were expected for donor companies, as the burden of disclosure was put on the Election Commission of India.

Ques16: What information did the Supreme Court suggest companies include in their financial statements regarding past political donations?

Ans: The Supreme Court suggested that companies include details of contributions made along with the names of political parties for each previous financial year, along with the current financial year.

Ques17: What is the principle of "manifest arbitrariness" mentioned in the Supreme Court's judgment? Can you explain it to the viewers?

Ans: The principle of "manifest arbitrariness" can be used to strike down a provision when the legislature fails to make a classification recognizing degrees of harm, and the purpose is not in line with constitutional values.

Ques18: How was the principle of "manifest arbitrariness" applied in the context of political contributions?

Ans: The removal of limits on political contributions ignored potential harm and violated the principle of free and fair elections, leading to its declaration as unconstitutional.

Ques19: What was the purpose of Section 182 of the Companies Act?

Ans: Section 182 was enacted to curb corruption in electoral financing.

Ques20: Did the amendments to Section 182 of the Companies Act allow unlimited corporate donations to political parties? What do you think about this?

Ans: The amendments allowed companies to contribute unlimited amounts to political parties without proper scrutiny or accountability. This raised concerns about potential quid pro quo arrangements and the undue influence of corporations in elections.

Ques21: Did the Supreme Court highlight any harms associated with unlimited corporate donations to political parties? What is your opinion on this?

Ans: The Supreme Court observed that such donations could facilitate the incorporation of shell companies solely for making political contributions, thus violating the principle of free and fair elections. Additionally, it raised concerns about corporate social responsibility and the potential misuse of company resources.

Ques22: Why did the Supreme Court rule against removing limits on political contributions? What is your opinion on this?

Ans: The removal of limits was deemed violative of the Constitution of India and "manifestly arbitrary" for failing to recognize the potential harm of allowing unlimited corporate donations. It could lead to an uneven playing field in elections and undermine democratic principles.

Ques23: Did the Supreme Court's verdict differentiate between donations from companies and individuals?

Ans: Yes. The verdict acknowledged that individual contributions could be seen as a form of support or affiliation to a political association. However, corporate contributions were viewed as purely business transactions with the intent of securing benefits, raising concerns about undue influence.

Ques24: Why did the Supreme Court consider donations from loss-making companies to be more harmful?

Ans: It was deemed more likely that loss-making companies would contribute to political parties with a quid pro quo arrangement, rather than for income tax benefits. This raised concerns about potential corruption and a lack of transparency.

Ques25: What did the Supreme Court say about the consequences of anonymous political donations made by "secret donors"?

Ans: The ruling quashed anonymous political donations and amendments permitting unlimited corporate donations to political parties. Transparency in political funding is crucial for maintaining public trust and ensuring accountability.

Ques26: Did the Supreme Court suggest any corporate responsibilities regarding political donations? Can you elaborate for our viewers?

Ans: Yes. The Supreme Court advised companies to:

• Ensure that political donations do not deplete essential company resources.
• Maintain transparency by disclosing contributions in their financial statements.
• Develop internal policies for responsible political donations, considering potential ethical implications.

Ques27: How does the Supreme Court's verdict protect the right to information of shareholders and voters?

Ans: By emphasizing transparency in disclosing political donations in financial statements, the verdict protects the right to information of shareholders and voters. This allows them to make informed decisions about the companies they invest in and the political parties they support.

Ques28: Did the Supreme Court suggest any specific actions companies should take regarding past political donations?

Ans: The Supreme Court advised companies to disclose details of past political donations in their forthcoming annual reports. This would ensure transparency and accountability.

Ques29: Why is it important for companies to mention past political donations in their financial statements?

Ans: Disclosing past political donations ensures transparency and accountability. It aligns with constitutional values and the right to information of shareholders and voters. Additionally, it allows for scrutiny of a company's political spending.

Ques30: How will this Supreme Court verdict on transparent political donations affect political donations in India?

Ans: The ruling aims to enhance transparency by requiring disclosures of political donations in financial statements. This empowers shareholders and voters with essential information about how companies are using their resources and the potential influence of money in politics. It may lead to more ethical and responsible political financing practices.

Ques31: The Supreme Court raised concerns about the Electoral Bond Scheme. Can you share some of these concerns with our viewers?

Ans: The Supreme Court addressed concerns regarding the Electoral Bond Scheme, including:

• Lack of transparency: The scheme did not reveal the identities of donors, hindering accountability.
• Potential abuse of corporate resources: Companies could make excessive donations without proper oversight.
• Undue influence: Anonymous donations could lead to an uneven playing field in elections and potentially influence policy decisions.
• Need for accountability: The scheme lacked mechanisms to ensure political parties were accountable for the source of their funds.

The Supreme Court's verdict emphasizes the importance of transparency and accountability in political financing. It is a significant step towards ensuring a more ethical and democratic electoral process in India.