Electoral bonds: Dubious shell companies would divert black money to political parties, ECI warned GoI a year ago

Arun Jaitley

A Right to Information (RTI) reply has revealed that the Election Commission of India (ECI) had warned the Ministry of Law and Justice, Government of India (GoI), way back in May 2017 that the electoral bond system, introduced by Finance Minister Arun Jaitley in February 2017, for donations to political parties would open floodgates for dubious shell companies mushrooming across India to redirect black money into political parties' coffers.
In its reply dated May 2, 2018 to a plea by a Pune citizen, Vihar Durve, the ECI had sent across a letter, signed by ECI director Vikram Batra, which revealed ECI's strong reservation over an amendment to the Companies Act, 2013, which seeks to remove the provision of the "limit of 7.5% of the average net profits in the preceding three financial years on contributions by companies".
"This", according to Batra's letter, "Opens up the possibility of shell companies being set up for the sole purpose of making donations to political parties, with no other business of consequence having disbursable profits." The letter added, the ECI believed "that the abolition of the relevant provision would lead to increased use of black money for political funding through shell companies."
The letter added, "The Commission is of the view that the earlier provisions ensured that only profitable companies with a proven track record could provide donations to political panics and, accordingly, it is recommended that this provision may be reintroduced."
Batra's letter, which drew attention to the Finance Act 2017, which had introduced amendments in the income Tax Act, the Representation of the People Act, 1951, and the Companies Act, 2013, said, all of it together would have "serious impact on transparency aspect of political finance/funding of political parties."
The letter said, the amendment in the Representation of People (RP) Act, I951, kept "any donation received by a political party ... out of the ambit of reporting under the Contribution Report as prescribed under the Act, calling it "a retrograde step as far as transparency of donations is concerned", insisting, "this proviso needs to be withdrawn."
The letter underlined, "In a situation where contributions received through electoral bonds are not reported, on perusal of the Contribution reports of the political parties, it cannot be ascertained whether the political party has taken any donation in violation of provisions under Section 29B of the RP Act, l951, which prohibits the political parties from taking donations from government companies and foreign sources."
Also referring to the amendment to Income Tax Act, whereby, "no donation exceeding Rs 2,000 can be received by a political party otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through electoral bond", the letter said, ironically, the limit for receipt of anonymous donations by political parties still remained at Rs 20, 000 under the RP Act, I951.
Pointing out that "the RP Act needs to be amended to reduce the limit of anonymous/cash donations to Rs 2,000 so as to bring these two Acts in consonance with each other", the letter also took objection to a second amendment to the Companies Act, which abolished the provision that firms must declare their political contributions in their profit and loss statements.
It said, "This requirement is now reduced to only showing a total amount under this head, which again, would compromise transparency", wanting the amendment be dropped.