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Mahesh

24/03/24 13:04 PM IST

Electoral bonds vs Electoral Trusts

In News
  • The State Bank of India (SBI) released all details of the electoral bond scheme, except donors’ bank account numbers and their Know Your Customer (KYC) details to the Election Commission (EC), which has now published it on its website.
Electoral trust
  • An Electoral Trust (ET) is a body registered under the Companies Act, 1956, solely tasked with distributing contributions received from individuals or companies to political parties.
  • Electoral trusts were set up under the Electoral Trusts Scheme, 2013 with the Centre framing rules for the eligibility and procedure for registering such trusts on January 31, 2013.
  • An electoral trust is allowed to receive voluntary contributions from individual Indian citizens, a company registered in India, a firm, or Hindu undivided family (HUF) in the form of a cheque, bank draft or electronic transfer to its bank account.
  • No foreign entity, other registered electoral trusts, or individuals who are neither citizens nor residents of India can contribute to electoral trusts.
  • An ET must distribute up to 95% of the voluntary contributions collected, with the surplus brought forward from the earlier year, to eligible political parties only.
  • The remaining 5%, with a cap of ₹3 lakh, may be used for managing its own affairs.
  • These trusts are not allowed to use any contribution for the direct or indirect benefit of its members or contributors.
  • They must also maintain accounts of the donors and their contributions, funds distributed to political parties, and expenses incurred by the trust.
  • The accounts of any ET must be audited and the report must be furnished to the Commissioner of Income Tax, including the list of contributors, list of parties that funds were distributed to, and the amounts disbursed.
Donations to political parties
  • As of date, eighteen electoral trusts are active, with the biggest being Prudent Electoral Trust, which has multiple corporate donors.
  • In 2022-23, only five ETs — Prudent Electoral Trust, Samaj Electoral Trust, Paribartan Electoral Trust, Triumph Electoral Trust and Einzigartig Electoral Trust — received contributions from corporate houses, according to the Association for Democratic Reforms (ADR).
  • Of the ₹366.49 crore received by these trusts, Prudent alone received over ₹360 crore from 34 corporations, followed by Samaj which received ₹2 crore from one company.
  • Paribartan received ₹75.50 lakh from two companies while Triumph received ₹50 lakh from two companies.
  • Eleven individuals contributed to these ETs – eight to Prudent (₹2.70 crore) and three to Einzigartig (₹8 lakh).
  • The ruling BJP received 70% of the corporate donations via electoral trusts, i.e. ₹259.08 crore, of which ₹256.25 crore was from Prudent.
  • After the BJP, the Bharat Rashtra Samithi (BRS) received the next largest share at 24.56% of the donations, i.e. ₹90 crore — all from Prudent.
  • Meanwhile, YSR Congress Party (YSRCP) received ₹15 crore, the Congress received ₹1.5 crore and the Aam Aadmi Party (AAP) netted ₹90 lakh.
  • Overall, from 2013 to 2023, Prudent Electoral Trust has raised $272 million (₹2257 crore), of which 75% (₹1693 crore) has been donated to the BJP.
  • The Progressive Electoral Trust, set up by the Tata Group in 2014, is the second-biggest electoral trust, donating ₹360 crore to the BJP and ₹65.5 crore to Congress respectively.
  • Only parties which win at least 16 seats in the Lower House qualify to receive funds from Progressive.
Electoral bonds
  • An electoral bond is a promissory note issued by authorised branches of the State Bank of India to companies or individuals wishing to donate to registered political parties.
  • Electoral bonds were notified under the Electoral Bond Scheme, 2018, following which the Centre framed rules for the issue and purchase of such bonds and on their validity.
  • As per the rules, any person who is a citizen of India, or a company or firm established or incorporated in India can purchase such electoral bonds.
  • Political parties that poll more than 1% of the total votes n the Lok Sabha or State Assembly elections and that are registered under section 29A of the Representation of the People Act, 1951, are eligible to receive these bonds.
  • These bonds do not bear details of either the donor or the payee, making it a completely anonymous contribution.
  • Sold in denominations of ₹1000, ₹10,000, ₹1 lakh, ₹ 10 lakh and ₹ 1 crore, these bonds can be purchased by interested buyers via a bank account which has fulfilled the Know Your Customer (KYC) norms set by Reserve Bank of India (RBI).
  • Payment against these bonds can be made in the form of cheque, demand draft, electronic payment or direct debit to the buyer’s account.
  • The SBI branches cannot apply any interest, commission, brokerage or other charges on these bonds. Further, electoral bonds cannot be traded.
  • As per the rules, the bonds are made available for purchase from SBI for ten days in January, April, July and October. An additional period of thirty days when it will be available during the year of Lok Sabha elections was to be specified by the Centre.
  • Once purchased, these bonds must be deposited within 15 days of issue and must be encashed by the parties within the same period.
  • Any bond not encashed within its validity period will be deposited in the Prime Minister’s Relief Fund by SBI. Funds collected via such bonds are counted as income via voluntary contributions.
Donations to political parties
  • 22,217 electoral bonds were purchased and 22,030 bonds were encashed between April 2019 and February 2024.
  • While the number of bonds purchased and encashed prior to the above-mentioned period is unclear, the EC later also released the amount encashed by political parties between March 2018 and May 2019, as declared by the parties.
  • Of the total bonds encashed since 2018, BJP ranked the highest with ₹6986 crore, followed by Trinamool Congress with ₹1397 crore, the Congress with ₹1334 crore, Bharat Rashtra Samithi (BRS) with ₹1322 crore, and Biju Janata Dal (BJD) with ₹944 crore.
  • The data also revealed the top corporate donors to be Future Gaming and Hotel Services (₹1368 crore), Megha Engineering (₹1186 crore), MK Jalan Group (₹616 crore), Sanjiv Goenka Group (₹609 crore), and Aditya Birla Group (₹545.8 crore).
  • Among individual donors, ArcelorMittal Chairman Lakshmi Mittal topped the list, donating ₹35 crore, followed by Reliance Group’s ex-board member KR Raja JT (₹25 crore), Reliance’s ‘Group controller’ Laxmidas Vallabhdas Merchant (₹25 crore), Indigo’s Managing Director Rahul Bhatia (₹20 crore), and Ajanta Group’s Managing Director Rajesh Mannalal Agrawal (₹17.5 crore.
  • Of the bonds worth ₹ 1368 crore, Future Gaming and Hotel Services, the highest electoral bond donor, contributed ₹542 crore to Trinamool Congress (TMC), ₹503 crore to Dravida Munnetra Kazhagam (DMK), ₹154 crore to YSRCP and ₹100 crore to BJP.
  • The second-largest donor, Megha Engineering (MEIL) and its group company Western UP Power Transmission Company Ltd, are BJP’s biggest donors via electoral bonds, contributing ₹584 crore and ₹80 crore respectively.
Electoral bonds vs Electoral trusts
  • Electoral trusts are required to furnish details of the companies donating to them and the parties to which they disburse funds.
  • Companies, too, have to reveal any contribution above ₹ 20,000 made to such trusts in their annual audit.
  • They also cannot contribute more than 7.5% of their profits to the parties via these trusts. The audit and contribution reports of ETs are not publicised, but are filed with the EC.
  • Due the amendments to many laws, electoral bonds circumvented the rule which mandates that political parties declare any contribution over ₹20,000.
  • Companies were also not required to limit their political contributions to 7.5% of three years of net profits.
  • This allowed companies to donate unlimited funds to any party anonymously without revealing details of such transactions.
  • While the Centre has claimed that this ensures privacy of the donors, Opposition and several associations challenging the scheme have highlighted the opacity of the entire process.
  • ETs have contributed approximately ₹2,557.74 crore to various political parties from 2013 to 2023. Steadily increasing from ₹85.37 crore to ₹366.48 crore, most contributions were disbursed via one trust, Prudent, which has disbursed 76% of its donations to the ruling BJP.
  • In comparison, political parties have received approximately ₹13,500 crore via electoral bonds between 2018 and 2024, with BJP cornering over 50% of the donations via bonds.
  • The Trust’s other top donors – its founder Bharti Group (₹205 crore), DLF group (₹192 crore), Megha Engineering (₹87 crore), Torrent Group (₹60 crore) and Haldia Energy (₹25 crore) also place on the list of the top donors in electoral bonds.
  • A key difference between the two schemes is the limited window within which companies can purchase bonds.
  • Donors can contribute to parties via electoral trusts all year long, but can purchase electoral bonds only in the four windows when SBI sells bonds in tranches.
  • Further, as mentioned earlier, any contributions over ₹20,000 received via electoral trusts have to be declared by political parties in their annual income filings.
  • However, any amount of funds received via electoral bonds are exempt from declaration as income for political parties.
  • Currently, the electoral bonds scheme stands invalidated, while the electoral trusts scheme is in force.
  • The process via which laws were amended to pass the electoral bonds scheme – the Money Bill route – is also up for scrutiny by the apex court, while the electoral trust scheme faces no such challenge.
Source- The Hindu

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