Do transparency and anonymity go together?

The Finance Minister has redefined these terms and now there’s a completely opaque system of political funding in place.

ByJagdeep S. Chhokar
Do transparency and anonymity go together?
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This is the question that the Finance Minister has placed squarely in the public domain since February 1, 2017, when he presented the Budget 2017 in Parliament. The Finance Minister seems to think they, do but some other people seem to disagree with him.

It all started when the Finance Minister read out the following two paragraphs as part of his Budget Speech:

164. India is the world’s largest democracy. Political parties are an essential ingredient of a multi-party Parliamentary democracy. Even 70 years after Independence, the country has not been able to evolve a transparent method of funding political parties which is vital to the system of free and fair elections. An attempt was made in the past by amending the provisions of the Representation of Peoples Act, the Companies Act and the Income Tax Act to incentivise donations by individuals, partnership firms, HUFs and companies to political parties. Both the donor and the donee were granted exemption from payment of tax if the accounts were transparently maintained and returns were filed with the competent authorities. Additionally, a list of donors who contributed more than Rs 20,000/- to any party in cash or cheque is required to be maintained. The situation has only marginally improved since these provisions were brought into force. Political parties continue to receive most of their funds through anonymous donations which are shown in cash.

165. An effort, therefore, requires to be made to cleanse the system of political funding in India. Donors have also expressed reluctance in donating by cheque or other transparent methods as it would disclose their identity and entail adverse consequences. I, therefore, propose the following scheme as an effort to cleanse the system of funding of political parties:

(a) In accordance with the suggestion made by the Election Commission, the maximum amount of cash donation that a political party can receive will be Rs 2000/- from one person.

(b) Political parties will be entitled to receive donations by cheque or digital mode from their donors.

(c) As an additional step, an amendment is being proposed to the Reserve Bank of India Act to enable the issuance of electoral bonds in accordance with a scheme that the Government of India would frame in this regard. Under this scheme, a donor could purchase bonds from authorised banks against cheque and digital payments only. They shall be redeemable only in the designated account of a registered political party. These bonds will be redeemable within the prescribed time limit from issuance of bond.

(d) Every political party would have to file its return within the time prescribed in accordance with the provision of the Income-tax Act. Needless to say that the existing exemption to the political parties from payment of income-tax would be available only subject to the fulfillment of these conditions. This reform will bring about greater transparency and accountability in political funding, while preventing future generation of black money.

The title of the above two paragraphs was “Transparency in electoral funding.”

The same day, in the customary post-budget media interaction, he said the following about the electoral bonds:

[T]here is a provision of electoral bonds which requires an amendment to the RBI Act. A notified bank will be issuing those bonds. Any donor can buy those bonds using cheque or digital money. These bonds can be given to the political party. Every recognised political party will have to notify one bank account in advance to the Election Commission and these can be redeemed in only that account in a very short time. These bonds will be bearer in character to keep the donor anonymous [emphasis added].

Since the clarification during the media interaction was about the paragraph titled “Transparency in electoral funding,” the issue of transparency and anonymity going together came into being.

After the media interaction came the introduction of the Finance Bill 2017 in Parliament. It was only when the Finance Bill became public that it came to be known what exactly were the changes in law that the government proposed to bring ‘transparency in electoral funding.”

Analyses of the provisions of the Finance Bill, particularly those pertaining to the proposed amendments to the Income Tax Act and the Representation of the People Act showed that the so-called reduction of the limit from Rs 20,000 to Rs 2,000 meant “(i)n effect, nothing!”.

As if this was not enough, on March 20, 2017, the Finance Minister presented the country with the “Notice of Amendments” to the Finance Bill 2017. This turned out to be remarkable document, possibly unique, as it contained “the introduction of amendments to as many as 40 laws through the Finance Bill”. Amending 40 pieces of legislation with one document of 30 pages, while preventing it being discussed in the Rajya Sabha, is in itself a feat that the Finance Minister can claim a distinction for.

The relevant part of the “Notice of Amendments” for the purpose of this piece is a section titled “AMENDMENTS TO THE COMPANIES ACT, 2013”. This section, on page 5 of this list, makes amendments to Section 182 of the Companies Act 2013 as follows:

  • Sub-section (1) of Section 182 of the Companies Act 2013 had a proviso which said that a company could not contribute more than “seven and a half per cent. of its average net profits during the three immediately” preceding years to any political party. The “Notice of Amendments” to the Finance Bill has removed this restriction of 7.5 per cent. Theoretically and legally, a company can now contribute any amount it likes to a political party, provided of course it can convince its shareholders. How this will play out in privately held companies is anyone’s guess.
  • The second amendment of interest is to sub-section (3) of Section 182 of the Companies Act 2013. This sub-section required that a company making donations to political parties shall disclose “particulars of the total amount contributed and the name of the party to which such amount has been contributed” in its profit and loss account. The “Notice of Amendments” to the Finance Bill removes this requirement of disclosing the name of the political party. Now a company making a donation to a political party will not need to disclose the name of the party.

The combined effect of the above two amendments to the Companies Act 2013 is that a company can donate any amount, without any restriction, to any political party(ies) without having to disclose how much has it contributed to each one of them and without disclosing the names of political parties.

These two amendments make the receiver also anonymous.

When these two amendments to the Companies Act 2013 proposed in the “Notice of Amendments” to the Finance Bill 2017, are looked at in conjunction with the amendments proposed to the Income Tax Act and the Representation of the People Act, in the Finance Bill 2017 itself, we find that there is now anonymity at both ends, the donor end and the receiver end.

How did we get here?

The issue of the ill-effects of large scale donations made to political parties by large business houses and the dangers of allowing money power to play almost a deterministic role in the electoral processes in India was highlighted in the report of the High Powered Expert Committee on Companies and MRTP Acts, submitted on August 29, 1978. This committee recommended that Section 293A of the Companies Act 1976, which prohibited contribution by companies to political parties, be further strengthened. As a result, Section 293A was amended, with these amendments coming into force with effect from May 24, 1985. The amended Section 293A of the Companies Act 1976 was recast as Section 182 when the Companies Act was re-enacted in 2013, as Companies Act 2013. And it is this Section 182 of the Companies Act 2013 which now stands amended as a result of the “Notice of Amendments” to the Finance Bill of 2017.

Subsequently, the Representation of the People Act was amended in 2003 by adding Section 29B to say, “Subject to the provisions of the Companies Act, 1956 (1 of 1956), every political party may accept any amount of contribution voluntarily offered to it by any person or company other than a Government company…”.

Potential outcome of the recent amendments

The recent amendments to the Income Tax Act, the Representation of the People Act, and the Companies Act, taken together, have the potential to change the fact of political financing in the country. The risk of allowing companies to contribute funds to political parties have been pointed out since as far back as 1975 when Justice M.C. Chagla, then Chief Justice of Bombay High Court, wrote, in a case where a proposal by the Tata Iron and Steel Company to make contributions to political parties was under being adjudicated, “… It is our duty to draw the attention of Parliament the great danger inherent in permitting companies to make contributions to the funds of political parties. It is a danger which may grow apace and which may ultimately overwhelm and even throttle democracy in the country. Therefore, it is desirable for Parliament to consider under what circumstances and under what limitations companies should be permitted to make these contributions” (emphasis added).

So far, the collective wisdom of Parliament had been that the most appropriate “circumstances” and “limitations” were that

(a) companies should be required to disclose how much money have they given to which political party, and

(b) companies should not be allowed to contribute more than a specified percentage of their profits to political parties. The rationale for these two, presumably, was the following. For (a), it was possibly felt that once it was known, publicly, which company has contributed how much to which political party, it would be possible for anyone interested, including citizens at large, to make assessments whether that particular party was unduly favouring the contributing company while making decisions on public policy wherever the party was in a position to influence public policy. And for (b), the possible rationale might have been that no company should be in a position to dominate, and therefore control, the finances of a political party.

Going by the actual actions taken, as opposed to what has been said, during the entire budget process, there has been a complete reversal of the above approach and policy. Whether it is the proposed electoral bonds, or the removal of the 7.5 per cent ceiling and removing the requirement of disclosing the name of the political party to whom a company will donate, complete secrecy will now prevail and no one will know which company has contributed how much money to which political party.

With the new regime of completely opaque political funding in place, the apprehensions expressed by Justice M.C. Chagla in 1975 will actually come true. The observations of Justice Chagla were so prescient that they are worth reproducing in full:

Now, democracy is a political system which ensures decisions by discussion and debate, but the discussion and debate must be conducted honestly and objectively and decisions must be arrived at on merits without being influenced or actuated by any extraneous considerations. On first impression, it would appear that any attempt on the part of anyone to finance a political party is likely to contaminate the very springs of democracy. Democracy would be vitiated if results are to be arrived at not on their merits, but because money played a part in the bringing about of those decisions. The form and trappings of democracy may continue, but the spirit underlying democratic institutions will disappear. History of democracy has proved that in other countries democracy has been smothered by big business and money bags playing an important part in the working of democratic institutions and it is the duty not only of politicians, not only of citizens, but even of a Court of law, to the extent that it has got the power, to prevent any influence being exercised upon the voter which is an improper influence or which may be looked at from any point of view as a corrupt influence. The very basis of democracy is the voter and when in India we are dealing with adult suffrage it is even more important than elsewhere that not only the integrity of the representative who is ultimately elected to Parliament is safeguarded, but that the integrity of the voter is also safeguarded, and it may be said that it is difficult to accept the position that the integrity of the voter and of the representative is safeguarded if large industrial concerns are permitted to contribute to political funds to bring about a particular result.

It is now left to the voters (citizens) to safeguard their own integrity!

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