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Amarjit Chopra, former President of the Institute of Chartered Accountants of India (ICAI), shared his views with ETCFO regarding India’s electoral bond scheme, from its 2017 inception to its Supreme Court challenge. He evaluates the roles of the Election Commission, SEBI, MCA, SBI, and the government in this contentious issue, highlighting the need for transparency and ethical practices in political donations.
“There is nothing wrong with electoral bonds subject to not being bearer instruments and being restricted to a specified percentage of company profits, with proper disclosures made without naming the political parties,” Chopra asserts.
The finance veteran underscores the implications for corporate governance and suggests reforms for better oversight. He also stresses that the removal of the 7.5 per cent profit cap and lack of donor transparency were critical flaws.
“The Election Commission had the critical role in ensuring that political donations were meant primarily to fund the elections and meeting the administrative expenses of political parties,” Chopra adds. He calls for SEBI, MCA, and ICAI to create uniform disclosure norms and emphasizes that political donations should be approved by the board and made only through banking channels.
Q. Can you provide an overview of the recent electoral bond issue, highlighting key events from its inception to the present? Additionally, how do you assess the roles played by diverse stakeholders, such as the Election Commission of India, SEBI, MCA, the State Bank of India, and the government in regulating and supervising this matter?
Amarjit Chopra: Till 2017, before the concept of Electoral Bonds was implemented through legislation by the Govt of India, most of the political donations were believed to be in cash. There was a limit on political donations to the extent of 7.5 per cent of the profits of the company. The stated objective of the introduction of Electoral Bonds was to eliminate cash donations and bring in greater transparency in the matter of political donations. An amendment was carried out in the Companies Act to remove the ceiling of 7.5 per cent of profits which any company could have donated to political parties in a year. State Bank of India, the largest public sector bank in the country, was made the collecting agency with the stipulation that it would issue an electoral bond to the payer entity which would be a bearer document. The bearer of the document could deliver it to any political party. But the same had to be encashed by the political party within 15 days of the issuance of such a bond. There was to be no disclosure of the names of the donors. The Right of Information was not to apply to these transactions.
The law on electoral bonds was challenged in the Supreme Court on the grounds of obscurity with regard to names of donors and right of information not being applicable to it. Apprehensions were also expressed that the contributions to political parties may also be on account of certain unethical grounds.
In February 2024, the Supreme Court called for the information from SBI which showed electoral bonds worth Rs. 12,769 crores were encashed by political parties between April 2019 to January 2024. The electoral bonds were purchased by corporates, individuals, etc. SBI also disclosed before the Supreme Court the names of the majority of the contributors and the political parties which encashed the same. The information revealed some kind of money trail. It also established that all the political parties without exception were beneficiaries of the electoral bonds with the ruling party at the centre being the major beneficiary thereof. It was not surprising because previously also the govt at centre under different political parties used to garner the maximum contributions because of obvious reasons.
Having heard the various arguments and on examination of the information furnished to the Court, the Supreme Court struck down the law on electoral bonds and declared the same as unconstitutional and also struck down the amendment removing the limit of 7.5 per cent of profits to be contributed by the companies.
As regards the role of various stakeholders, I would like to give benefit of doubt to SBI to the extent that they were merely given a role of collecting agency under an Act which also provided for the secrecy of the names of purchasers of electoral bonds and also of the political parties which got these encashed. SBI discharged that role meticulously. In fact, the government should have contended before the Court that whatever the bank did, was under a law passed by the Parliament. So far as SEBI and MCA are concerned, firstly they could have persuaded the govt not to remove the limit of 7.5 per cent when the limit was proposed to be removed and secondly should have issued guidelines for proper disclosures in financial statements with regard to the quantum of purchase of electoral bonds without disclosing the names of political parties to whom these were handed over for encashment. This was critical as the disclosure practices followed by various entities are observed not to be uniform.
To me the role of the Election Commission was most important. The Election Commission had the critical role in ensuring that political donations were meant primarily to fund the elections and meet the administrative expenses of political parties. They could have sought that exemption for disclosure of names of donors would not be applicable to information to be filed with the Election Commission. And such information filed could have been examined by them to ensure that such donations were not disproportionate to the turnover and profitability of the company.Amarjit Chopra, former President of the Institute of Chartered Accountants of India (ICAI),
The government should have ensured that the stated objective for electoral bonds was met. There should have been checks and balances that an entity having enjoyed the tax benefit for contribution could not have traded it with another entity/person either in cash or by cheque. But it appears that such transactions did take place which not only could have caused loss to revenue but may have been unethical as well.
Q. From the perspective of corporate governance in India, what are the implications of the electoral bond scheme for India Inc.? How should regulators like SEBI and MCA address concerns regarding transparency, accountability, and the potential influence of corporate donations on political processes?
Amarjit Chopra: I am not privy to proceedings of the Board Meetings of various companies both listed and unlisted which made political contributions through the purchase of electoral bonds. So I may not be able to comment whether these contributions were approved by the various boards or not. However, needless to say that going through the financial and the cash flow statements, the Audit Committee members would have been aware of it and the matter should have been brought to the knowledge of the Board. And in case it was done without the knowledge of the Board, it reflects poorly on corporate governance. Going by the record of contributions through electoral bonds by certain corporates it is evident that the contributions in those cases were disproportionate to their size and revenue.
In my view SEBI and MCA need to ensure that political contributions after being approved by the board of directors be made only through banking channels. In case the lawmakers feel that there is a need to enhance the limit of 7.5 per cent, the same may be enhanced keeping in view the requirements of corporates to plough back the profits and ensuring adequate returns to shareholders in the form of dividends. Also, the companies should declare that no such contributions are made under any fear or to earn favour from any political party.…
Q. Considering the role of the State Bank of India as the sole authorized entity to issue electoral bonds, what steps do you believe SBI should have taken to ensure the integrity and fairness of the electoral bond system? In hindsight, what could have been done differently to mitigate risks and uphold governance standards?
Amarjit Chopra: As stated earlier State Bank of India played the role assigned to it by the govt of India under law. Accepting the donations, issuance and encashment of electoral bonds within the specified time period and at the same time maintaining the secrecy of donors were the functions assigned to it under the law which it performed. Unless any deficiency can be pointed out in these functions performed by the bank, to my mind any criticism of theirs would be uncalled for.
Q. How can regulatory frameworks be strengthened to prevent the exploitation of shell companies for political donations, ensuring transparency and accountability? Furthermore, what insights can be derived from examining the companies that have made significant donations, and what does this pattern suggest about governance and corporate integrity?
Amarjit Chopra: Before making any suggestion let me make it clear that I am supportive of political donations by corporates till such time that the government starts funding political parties. But the donations have to be through banking channels only. No instrument created for this objective should be a bearer document as it can give rise to unethical practices. Also, the contribution should not exceed a specified percentage of profits of the company and must be approved by the Board. Whether the names of the political parties to whom the contributions are made need to be disclosed or not, is a matter of debate. There needs to be consensus on this. The issue needs to be examined legally as well.
It would be in the fitness of things that SEBI, MCA and ICAI come together to provide uniform disclosure norms for political donations. Let political donations be a separate line item in financial statements if these exceed a specified percentage of the total expense of the corporate. The political parties need to affirm in their financial statements that no political donations are received on grant of any favour to the corporate or by exercising any undue influence or coercion.…
Q. Do you think the Supreme Court could have done something differently?
Amarjit Chopra: I do not think that I am in a position to comment upon the judgement of the Supreme Court. But with all humility at my command, I sincerely feel that instead of declaring the electoral bonds as illegal, the Supreme Court could have directed the government to modify the scheme prospectively in a manner that the deficiencies in the scheme of electoral bonds would have been removed. The political donations have already been made based upon the law at a particular point of time, any retrospective implementation of the same is not possible. It may be with regard to donations being in excess of 7.5 per cent of the profits of the company or with regard to trading of electoral bonds in the market.
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