The Curious Case of Electoral Bonds
Political Funding, Democracy & the Rule of Law
Vipul Mudgal*
Much of politics is about omissions and commissions. But what is kept hidden can sometimes reveal more than what is hyped. Two such omissions mark the controversial Electoral Bonds Scheme, now scrapped as unconstitutional. First, it was passed in Parliament avoiding a statutory debate, and second, the State Bank of India (SBI) concealed its data even after the Supreme Court ordered a complete disclosure. The information tumbled out only after the Association for Democratic Reforms (ADR) and Common Cause, the original petitioners in the matter, filed and won a contempt of court petition against the SBI.
In February 2024, the historic and somewhat surprising judgment confirmed what many people had suspected— that the Electoral Bonds legalised corruption by allowing secret and unlimited corporate funding to political parties.1 The court said while striking down the scheme that the anonymity of donors violated the citizens’ right to know and that a secretive scheme like this could lead to underhand deals between anonymous donors and ruling parties. The court confirmed that the scheme provided an undue advantage to parties in power against their rivals.
The tax-free and anonymous Electoral Bonds were introduced as part of the Union Budget of 2017 with the stated objective of attracting clean money into politics. The then Finance Minister Arun Jaitley was upbeat when he said in his budget speech that donations made through banking channels will infuse transparency in political funding. A lot of hype was created around this aspect of the scheme while concealing that every bond carried a unique number invisible to the naked eye. This fact was revealed only after Poonam Agarwal, an investigative journalist, bought a bond of her own volition and did a forensic examination using ultraviolet light. Until then, it was not known that the bonds could be tracked by the authorities making the donors vulnerable and that the ruling party at the centre had a way of knowing
The tax-free and anonymous Electoral Bonds were introduced as part of the Union Budget of 2017 with the stated objective of attracting clean money into politics.
Out of a total amount of Rs 16,492 crore redeemed through the bonds, the BJP received Rs 8,252 crore which was more than what was received by 20 others.
who was supporting whom and to what extent.
No Level-Playing Field
No wonder the ruling BJP garnered the lion’s share of the funds collected through Electoral Bonds and the rest was divided among almost all other important parties, according to the news website Scroll. Out of a total amount of Rs 16,492 crore redeemed through the bonds, the BJP received Rs 8,252 crore which was more than what was received by 20 others.2 The main opposition party, the Indian National Congress (INC), got under 10 per cent followed by the Trinamool Congress or TMC. The other parties ruling in the states also got generous donations. The actual amounts were much larger as parties and candidates in India are known to receive payments in cash or kind.
It became quite apparent that the purchase of the bonds may have been linked to actions or raids by federal authorities.
The judgment was also substantial because a Constitution Bench of the Supreme Court passed it. It directed the SBI to disclose all data in its possession and came down heavily when the bank dragged its feet under one pretext or the other. The bank officials pleaded for an unreasonable amount of time to ‘decipher and match’ a large number of datasets involved. The civil society petitioners, ADR and Common Cause, later filed an instant contempt of court petition against SBI for its wilful non-compliance with the court’s order. Acting on the petition, the Court ordered immediate disclosures by the bank by the next day, March 12, 2024.
However, once made public, the disclosures showed that the bulk of the bonds could have been trade-offs for favours like receiving lucrative government contracts or for influencing policies. It became quite apparent that the purchase of the bonds may have been linked to actions or raids by federal authorities. Several investigative media reports later confirmed that dozens of companies bought Electoral Bonds after facing actions by the ED, CBI, or tax authorities.3 But before we come to that, let us examine the bizarre sequence of events related to the Electoral Bonds Scheme as they unfolded.
Many Red Flags Raised
The first red flag went up when the bonds were introduced in Parliament, along with five statutory amendments, under the ruse of a budgetary provision meant for matters of financial governance. This novelty circumvented the requirement of a debate in Rajya Sabha, the Upper House of Parliament, where the ruling BJP did not have a majority then. The Speaker of Lok Sabha, the Lower House, cleared the way for its passage by rejecting the Opposition’s demands for a wider debate and deliberations through parliamentary committees. In effect, a consequential decision like this was neither discussed adequately nor contested.
The second red flag was raised when the subsequent rules removed the upper limit of political donations by private companies irrespective of whether they were running into profits or losses. This opened floodgates of corporate funding to parties. Earlier, only profitmaking companies could donate up to 7.5 per cent of their average profits of the past three years to parties of their choice. However, the new rules allowed even loss-making companies
to donate their entire worth, including capital and reserves. This encouraged floating of shell companies whose raison d’etre was to fund political parties. Even the court commented: “…it is more plausible that loss-making companies will contribute to political parties with quid pro quo...”
One of the most egregious aspects of the scheme was that it opened a backdoor for foreign companies to fund Indian elections. The new amendments to the Foreign Contributions Regulation Act (FCRA) allowed foreign companies with Indian subsidiaries to fund political parties, effectively opening Indian democracy to international lobbyists. This was bizarre as Prime Minister Narendra Modi has been blaming foreign powers for trying to undermine India’s autonomy and national security.
It was noteworthy that the Court refused to buy the government’s plea that the scheme’s objective was to bring clean money into politics merely because it was
Many donations were made by the contractors or businesses closer to the dates of getting licenses, leases, contracts or clearances worth hundreds of crores of rupees, equal to billions of dollars.
It has now been revealed that at least 14 out of 30 donors had faced raids by enforcement agencies, described as ‘hafta vasooli’ by some opposition politicians.
routed through the banks and that the donors deserved privacy. The judgment upheld that the voters’ right to know must prevail over the donors’ right to privacy. It was important for the voters to know the facts, it said, to be able to make informed choices in the elections.
Connecting the Dots
The disclosures opened a pandora’s box of kickbacks, quid pro quo and suspected misuse of enforcement agencies. Many donations were made by the contractors or businesses closer to the dates of getting licenses, leases, contracts or clearances worth hundreds of crores of rupees, equal to billions of dollars. In some cases, the Bonds seemed to have been purchased as payoffs for favourable policy changes. A money trail can now be linked to suspicious favours and omissions.
Some donations flagrantly violated the laws governing private companies. For instance, the Companies Act allows political donations by companies which have been in existence for more than three years but at east 20 donations were made by entities that were barely a few months, or even a few days, old.
Yet another shocking exposure was that the federal agencies raided or investigated individuals or companies for serious offences but the charges were mysteriously stalled or dropped after donations were made through Electoral Bonds. The same agencies have been unusually tough and prompt against politicians of BJP’s rival parties. A case in point is the arrests of chief ministers of Delhi and Jharkhand, Arvind Kejriwal of the Aam Aadmi Party (AAP) and Hemant Soren of Jharkhand Mukti Morcha (JMM), respectively, under charges of corruption which could best be described as vague. Both the elected Chief Ministers and a few of Delhi’s cabinet ministers were booked under stringent offences like money laundering, meant primarily for terrorists and drug mafias.
It has now been revealed that at least 14 out of 30 donors had faced raids by enforcement agencies, described as ‘hafta vasooli’ by some opposition politicians.4 The Congress party has charged that the raids by multiple federal agencies were conducted to first target the entities and then coerce them into making donations.
There was also an extraordinary twist in the tale. Actions in several serious cases of corruption were dropped against at least 23 out of 25 politicians who switched over to the BJP deserting their own parties, most probably to escape action.5 The BJP has denied the charge and claimed that the enforcement agencies are doing their job without interference.
Business As Usual?
The exposures also reveal the real cost of doing business in India and the lack of accountability of its regulatory agencies. The promotors of donor companies were allowed to maintain secrecy from their shareholders, which undermined principles of the free market. Some revelations are shocking even by India’s slack regulatory standards. It turns out that seven large pharmaceutical companies whose drugs failed quality tests, a serious and punishable offence, donated millions of dollars through Electoral Bonds apparently to escape action.6 One such company which donated in bonds three times of its annual profits after tax has stated in its annual report and its annual general meeting that the bonds were purchased to protect
The BJP has already announced that it will reintroduce such a scheme which is likely to bring the political executive on a collision course with the judiciary.
the interests of all stakeholders or to ‘sort out’ tax-related issues.7
The biggest single donor who bought the Electoral Bonds worth Rs 1,368 crore was not one of India’s Fortune-500 companies but a shadowy and virtually unknown business called Future Gaming and Hotel Services. Its owner, known as the “Lottery King” of India, went on an ‘electoral bonds buying spree’ within 10 days of the federal government alerting the states of the company’s “frauds” and “irregularities”.8 The largest portion of its donations went to the TMC and the Dravida Munnetra Kazhagam (DMK) the ruling parties in West Bengal and Tamil Nadu, followed by at least four other regional parties, besides the Congress and the BJP.
The second biggest donor, Megha Engineering and Infrastructure Ltd, bought bonds worth Rs 980 crore, the biggest portion of which went to the BJP, followed by Bharatiya Raksha Samiti (BRS), then the ruling party in Telangana. The company was awarded projects worth thousands of crores of rupees in roughly the same period.
In a recently submitted report, the Comptroller and Auditor General (CAG) submitted a scathing report on one of the company’s projects where the original agreed cost went up by 400 per cent at the time of the project’s completion.9
While a handful of investigative journalists are still connecting the dots, the revelations in the past few months have farreaching consequences for India’s electoral funding, its free and fair elections, and its claims about the ease of doing business. The revelations also show that BJP could be using the same tactics of receiving kickbacks and indulging in money laundering which it accuses the opposition politicians of doing. Far from going on the defensive, the BJP has already announced that it will reintroduce such a scheme which is likely to bring the political executive on a collision course with the judiciary.
However, the issue of Electoral Bonds is far from over even for now as the Supreme Court has admitted a new PIL on April 23, 2024, seeking a court-monitored probe into the disclosures made so far, particularly the overwhelming instances of apparent quid pro quo between political parties, private companies, and officials of investigating agencies. It is concerning that these disclosures have come soon after the Democracy 2024 report of the V-Dem Institute described India as one of the worst autocracies in the last 10 years.10 The only saving grace is that a series of exposes after the landmark court order has put the spotlight on corruption soon after a deeply polarised election campaign. India’s fight against corruption will certainly get a boost if the Supreme Court decides to form a court-monitored SIT to look into the Electoral Bonds Scheme.
References
- ADR India. (n.d.). ELECTORAL BONDS AND OPACITY IN POLITICAL FUNDING. ELECTORAL BONDS AND OPACITY IN POLITICAL FUNDING. Retrieved July 23, 2024, from https://bit.ly/3Smuk9c
- Rajendran, D., & Sharma, S. (2024, March 19). Not just electoral bonds, the BJP is biggest beneficiary of all forms of political finance. Scroll.in. https://bit.ly/3Yy4oLN
- Newslaundry. (2024, March 15). Raid to electoral bond pipeline: How companies raided by central agencies went on to purchase electoral bonds. Newslaundry. https://bit.ly/4cRMMPa
- Economic Times. (2024, March 15). Hafta vasooli, shell companies & kickbacks: Congress claims poll bond details open a can of worms. The Economic Times. https://bit.ly/3yae83S
- Tiwary, D. (2024, April 3). Since 2014, 25 Opposition leaders facing corruption probe crossed over to BJP, 23 of them got reprieve. The Indian Express. https://bit.ly/3Wwggwf
- Barnagarwala, T. (2024, March 18). Seven firms that failed drug quality tests gave money to political parties through electoral bonds. Scroll.in. https://bit.ly/4cQfdNb
- https://bit.ly/4bTCkFC
- Sarin, R. (2024, March 15). After Centre alerted states on his fraud in 2019, Donor No 1 Santiago Martin went on electoral bonds buying spree. The Indian Express. https://bit.ly/4dav20Z
- Srinivas, V. (2024, January 10). KLIS: Re-engineering Quadrupled Project Cost, Says CAG. Deccan Chronicle. https://bit.ly/3y7lfds
- V-Dem Institute. (2024, March 10). Democracy Winning and Losing at the Ballot. V-Dem. https://bit.ly/3LBMwYA
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