At least 20 firms bought electoral bonds within 3 years of incorporation, a punishable offence: Data

  • April 10, 2024
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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At least 20 firms bought electoral bonds within 3 years of incorporation, a punishable offence: Data

Subject: Polity

Section: Elections

Context:

  • Despite a legal prohibition against companies less than three years old making political contributions, including through electoral bonds, data indicates that at least 20 such new firms purchased electoral bonds totalling about ₹103 crores.

Details:

  • Many of these companies were established during economically challenging times in India, such as the 2019 recession and the COVID-19 pandemic, and proceeded to buy substantial amounts of electoral bonds shortly after their incorporation.
  • Historically, the restriction on new companies (less than three years old) making political donations has been in place for nearly four decades, aiming to prevent shell companies from channelling funds to political parties.
  • Despite amendments over the years, including those related to the cap on the amount a company could donate, this age restriction was maintained to combat the potential misuse of funds, including money laundering and the use of black money.
  • Concerns are being raised by the Election Commission of India and the Reserve Bank of India regarding the removal of the cap on donation amounts and the potential for electoral bonds to be used for money laundering and funnelling black money into the political system. The issue highlights discrepancies in the enforcement of legal provisions meant to prevent new companies from influencing political finance through substantial contributions.

About the Electoral Bond scheme and Supreme Court verdict on it:

When were Electoral Bonds (EBs) introduced?
  • It was introduced with the Finance Bill (2017).
  • On January 29, 2018, the Narendra Modi-led NDA government notified the Electoral Bond Scheme 2018.
How to use electoral bonds?
  • The bonds will be issued in multiples of Rs 1,000, Rs 10,000, Rs 100,000 and Rs 1 crore (the range of a bond is between Rs 1,000 to Rs 1 crore). These will be available at some branches of SBI.
  • A donor with a KYC-compliant account can purchase the bonds and can then donate them to the party or individual of their choice.
  • Now, the receiver can encash the bonds through the party’s verified account. The electoral bond will be valid only for fifteen days.
  • The 29 specified SBI branches are in cities such as New Delhi, Gandhinagar, Chandigarh, Bengaluru, Bhopal, Mumbai, Jaipur, Lucknow, Chennai, Kolkata and Guwahati.
When are the bonds available for purchase?
  • The electoral bonds are available for purchase for 10 days in the beginning of every quarter.
  • The first 10 days of January, April, July and October has been specified by the government for the purchase of electoral bonds.
  • An additional period of 30 days shall be specified by the government in the year of the Lok Sabha elections.
Electoral bonds: Conditions1. Any party that is registered under section 29A of the Representation of the Peoples Act, 1951 (43 of 1951) and has secured at least one per cent of the votes polled in the most recent General elections or Assembly elections is eligible to receive electoral bonds.

  • The party will be allotted a verified account by the Election Commission of India (ECI) and the electoral bond transactions can be made only through this account.

2. The electoral bonds will not bear the name of the donor. Thus, the political party might not be aware of the donor’s identity.

Are electoral bonds taxable?
  • In February 2017, the then finance minister Arun Jaitley said that the donations would be tax deductible.
  • Hence, a donor will get a deduction and the recipient, or the political party, will get tax exemption, provided returns are filed by the political party.
Restrictions that were done away with after the introduction of the electoral bond scheme
  • Earlier, no foreign company could donate to any political party under the Companies Act
  • A firm could donate a maximum of 7.5 per cent of its average three-year net profit as political donations according to Section 182 of the Companies Act.
    • As per the same section of the Act, companies had to disclose details of their political donations in their annual statement of accounts.
  • The government moved an amendment in the Finance Bill to ensure that this provision would not be applicable to companies in case of electoral bonds.
  • Thus, Indian, foreign and even shell companies can now donate to political parties without having to inform anyone of the contribution.
What does the Supreme Court have to say on electoral bonds?
  • On April 12, 2019, the Supreme Court asked all the political parties to submit details of donations received through electoral bonds to the ECI.
  • Prioritizing voters’ right to information regarding political parties’ sources of funding, the Supreme Court  on February 15, 2024, struck down the Electoral Bonds Scheme (EBS).

Restrictions that were done away with after the introduction of the electoral bond scheme:

  • Earlier, no foreign company could donate to any political party under the Companies Act
  • A firm could donate a maximum of 7.5 per cent of its average three-year net profit as political donations according to Section 182 of the Companies Act.
    • As per the same section of the Act, companies had to disclose details of their political donations in their annual statement of accounts. Statement-2 is incorrect as this provision has done away with the amendment.
  • The government moved an amendment in the Finance Bill to ensure that this provision would not be applicable to companies in case of electoral bonds.
  • Thus, Indian, foreign and even shell companies can now donate to political parties without having to inform anyone of the contribution.
At least 20 firms bought electoral bonds within 3 years of incorporation Polity