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PIL in SC challenges introduction of Electoral Bonds and other Finance Act Amendments

Team SoOLEGAL 4 Oct 2017 10:14am

PIL in SC challenges introduction of Electoral Bonds and other Finance Act Amendments

A Public Interest Litigation has been filed in the Supreme Court of India challenging at least five amendments made to different statutes through Finance Act 2017 and Finance Act 2016 on the ground that they have opened doors to unlimited, unchecked funding of political parties.

The petition has been filed by two NGOs – Association for Democratic Reforms and Common Cause. A Bench of Chief Justice Dipak Misra and Justices AM Khanwilkar and DY Chandrachud issued notice to the Central government and Election Commission of India yesterday.

Advocate Prashant Bhushan along with advocates Neha Rathi and Pranav Sachdeva appeared for the petitioners.

The petition has assailed five major amendments which have been brought about through Finance Act, 2017 and Finance Act, 2016.

Section 31, the Reserve Bank of India Act, 1934 through Part  III, Section 135 of the Finance Act, 2017,

Section 29C, the Representation of the People Act, 1951 through Part – IV, Section 137 of the Finance Act, 2017

Section 13A, the Income Tax Act, 1961 through Chapter III, Section 11 of the Finance Act, 2017 and in

Section 182 of the Companies Act, 2013 through Part-XII, Section 154, the Finance Act, 2017.

Section 2 of the Foreign Contribution Regulation Act, 2010 (FCRA) through Finance Act, 2016.

Amendments to Income Tax Act, RBI Act and Representation of People Act – allowing Electoral Bonds

One of the major issues raised in the petition is the introduction of Electoral Bonds through Finance Act, 2017. This has been done by way of amendments to three statutes – Income Tax Act, RBI Act and Representation of People Act.

Income Tax Act

“Section 11 of the Finance Act, 2017 has amended Section 13A of the Income-tax Act pertaining to special provision relating to exemption of incomes of political parties. Section 13A of the Income-tax Act, inter alia, provides that any income of a political party which is chargeable under the head “Income from house property” or” Income from other sources” or “Capital gains” or any income by way of voluntary contributions received by a political party from any person shall be excluded in computing the total income of the previous year of such political party…..

The Finance Act, 2017 has amended the said Section so as to provide the inclusion of electoral bonds. These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year2018-2019 and subsequent years.”

RBI Act

“Sections 133 and 134, Chapter VI, Part III “Amendments to the Reserve Bank of India Act, 1934” of the Finance Act, 2017 has amended Section 31 of the Reserve Bank of India Act, 1934 relating to issue of demand bills and notes. It is proposed to insert a new sub-Section (3) to the said Section so as to provide that the Central Government may authorise any scheduled bank to issue electoral bond as referred to in the proposed clause (d) of the first proviso to Section 13A of the Income-tax Act.”

Representation of People Act

“…clauses 135 and 136, Chapter VI, Part IV “Amendments to the Representation of the People Act, 1951” of the Act has amended Section29C of the Representation of the People Act, 1951 relating to declaration of donation received by the political parties. Sub-Section (3) of Section 29C of the Representation of the People Act, 1951, inter alia, provides that every political party shall furnish a report to the Election Commission with regard to the details of contributions received by it in excess of twenty thousand rupees from any person in order to avail the income-tax relief as per the provisions of Income-tax Act, 1961. Now the contributions received by way of “electoral bond” shall be excluded from the scope of sub Section (3) of Section29C of the said Act. It is also proposed to define the term “electoral bond” which is consequential in nature”

The petitioner has contended that the above amendments will bring about opacity in funding of political parties.

“The consequence of these amendments is that now the annual contribution reports of political parties need not disclose the names and addresses of those contributing by way of electoral bonds. This will have a major implication on transparency in political funding as now the political parties are free not to disclose contributions received through electoral bonds. Election Commission regularly displays political party’s contribution reports on its website through which citizens get to know about the contributions made to various political parties and the source of such contribution. But with the introduction of electoral bonds, Election Commission and the citizens of the country will not get to know the vital information regarding political contributions.”

Cap on corporate donations to political parties – Companies Act

The petitioners have also challenged the amendments to Section 182 of the Companies Act which earlier provided for a cap on donations made by companies to political parties.

“…the aforesaid amendment to the Companies Act, 2013 has also done away with a limiting clause for companies to make donations. Prior to the amendment, there existed a cap on the donations permitted up to 7.5 percent of net profits of the last 3 years for the companies. But the aforesaid amendment has removed the said limit for contributions that a company may make to political parties, and also the requirement of the company to disclose in its accounts the name of the political parties to which a contribution has been made. The companies are no longer required to disclose the break-up of contributions made to different political parties. The result of this would be that now corporate funding will increase manifold as there is no limit to how much the companies can donate.”

Amendment to FCRA Act, 2010

Another major challenge in the petition is to the amendments to Foreign Contribution (Regulation) Act, 2010 after a judgment of the Delhi High Court had found the BJP and the Indian National Congress guilty of accepted donations from Vedanta and its subsidiaries, registered in England and Wales. This Delhi High Court judgment was challenged in Supreme Court by both the parties but was later withdrawn by them. Thereafter the government amended the Foreign Contribution (Regulation) Act, 2010 with retrospective effect. The petitioners have contended that

“….the government amended the Foreign Contribution (Regulation) Act, 2010 with retrospective effect so that foreign companies registered in India can contribute to parties from their corporate social responsibility fund. This move of the government to amend Foreign Contribution (Regulation) Act, 2010 was aimed at bailing out the two national political parties BJP and INC from facing legal consequences for violating the Foreign Contribution (Regulation) Act, 1976 and 2010. This has made foreign funding to political parties easier as a foreign company can make a subsidiary in India and make donations to political parties.”

As per the petition

“amendments in question have opened the floodgates to unlimited corporate donations to political parties and anonymous financing by Indian as well as foreign companies which can have serious repercussions on the Indian democracy. The said amendments have removed the caps on campaign donations by companies and have legalised anonymous donations.”

It is also the petitioner’s contention that the amendments “introduced through the new Finance Act, 2017 by the Ministry of Finance, passed as a money bill thereby bypassing the Rajya Sabha, are unconstitutional and violate of doctrines of separation of powers and citizen’s fundamental right to information which are parts of the basic structure of the Constitution. The aforesaid amendments are also patently arbitrary, capricious and discriminatory as they attempt to keep from the citizens  crucial information regarding electoral funding.”

They have therefore, prayed for striking down the aforesaid amendments as unconstitutional.

The Court proceeded to issue notice to the Centre and Election Commission.

Read the petition here: 

Finance Act   Chief Justice Dipak Misra   advocates Neha Rathi   Income Tax Act  

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