The documents, which were viewed by The Hindu, show that the Law Ministry recommended the imposition of a 6% vote share requirement or the removal of the vote share requirement entirely

In the process of vetting the Centre’s electoral bonds scheme in December 2017, the Law Ministry repeatedly objected to the Finance Ministry’s stipulation that political parties must have a 1% vote share in Lok Sabha or State Assembly elections in order to be eligible for the scheme, documents obtained through an RTI query by activist Anjali Bhardwaj show.

The documents, which were viewed by The Hindu on Tuesday, show that the Law Ministry recommended the imposition of a 6% vote share requirement (similar to the requirement for recognised State and national parties) or the removal of the vote share requirement entirely. The Chief Election Commissioner (CEC) also objected to the vote share requirement as discriminatory, while political parties themselves were not consulted.

However, the Finance Ministry chose to ignore these concerns and insisted that only registered political parties which had “secured not less than one percent of votes polled in the last general election to the House of the People or the Legislative Assembly, as the case may be, shall be eligible to receive the bond.”

According to the latest data from the Election Commission of India, there are eight recognised national political parties, 52 recognised State parties and 2,487 unrecognised parties registered with the commission. A 6% vote share is one condition for recognised parties. It is not clear how many of the unrecognised parties have a 1% vote share.

In May 2017, the Finance Ministry wrote to all State and national parties asking for their comments on the electoral bond scheme mentioned in then Finance Minister Arun Jaitley’s budget speech in February 2017. Only four parties — the Congress, Bahujan Samaj Party, Communist Party of India and the Shiromani Akali Dal — responded, with most of them asking for a draft of the proposed scheme.

The documents obtained through Ms. Bhardwaj’s RTI application show that in June, some early drafts of the scheme only referenced “registered political parties” as eligible to receive the bond, while another said the party would need to be a National/State political party.

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On August 5, a draft incorporated the 1% vote share stipulation for the first time. On August 21, the draft was presented to Prime Minister Narendra Modi. After that meeting, a proposal to circulate the draft to all national and State parties or to open it for public comment was scrapped.

On September 22, in a meeting with the Economic Affairs Secretary, CEC A.K. Joti raised concerns that individual candidates and new political parties would not be able to receive donations under the scheme and warned that the “somewhat discriminatory” provision might be challenged in the courts.

When the draft went for vetting in December, the Law Ministry recommended an amendment to a 6% vote share requirement, saying that the scheme should be aligned with the RPI Act. “The provision of making donations through EBs to registered parties with 1% criteria will create huge administrative problems of issuance and monitoring of EBs,” it added.

The DEA Secretary replied: “we have to retain the formulation of 1% votes”.

The Law Ministry then pointed out that under the RPI Act, “every political party may accept any amount of contribution voluntarily offered to it” and cautioned that putting a 1% vote share condition would override a substantive provision of the Act. When Mr. Garg reiterated the Finance Ministry’s insistence on the provision, the Law Ministry cleared the draft, saying it had been vetted “as per the policy decisions” of the Finance Ministry.

No explicit approval

The documents obtained through RTI include the back-and-forth correspondence between the Reserve Bank of India and the Finance Ministry, which show that the central bank never actually gave the government its explicit consent to go ahead with the electoral bond scheme as envisaged. Instead, the government had to resort to using the RBI’s “indirect approval”.

Then Governor of the RBI Urjit Patel repeatedly wrote to then Finance Minister Arun Jaitley in September 2017 voicing his growing concern about the government’s moves to allow bodies other than the RBI to issue the electoral bonds, and its decision to allow the issuance of physical scrips as opposed to purely digital ones.

In a letter to Mr. Jaitley on September 14, 2017, Mr. Patel wrote: “You would kindly agree that allowing any other entity other than the central bank to issue bearer bonds, which are currency like instruments, is fraught with considerable risk and unprecedented even with conditions applicable to electoral bonds.”

He further said that taking such an action would have an adverse impact on the scheme and would also hurt the credibility of the Indian financial system and the central bank. He also repeated the RBI’s suggestion that the bonds be issued only in digital form.

It was the then Economic Affairs Secretary Subhash Chandra Garg who replied to Mr. Patel, on September 21, 2017, assuring him that adding the part about scheduled commercial banks was just an “enabling provision” and that “it is only RBI which will issue bonds on commencement of the Scheme”. He further rejected the suggestion that the bonds be only digital, saying that this would erode a major purpose of the bonds, which is to provide anonymity to the donor.

Unconvinced by this answer, Mr. Patel once again wrote to Mr. Jaitley on September 27: “Issue of currency is a monopoly function of the central authority, which is why Section 31 of RBI Act barred any person other than RBI from issuing bearer instruments. It is a matter of concern that the central government amended Section 31 of the RBI Act despite the Bank’s suggestion to the contrary, thereby diluting the monopoly power of the central bank.”

Once again, it was Mr. Garg and not Mr. Jaitley who replied, saying that while the RBI’s concerns had been recorded, the government had made its final decision. Interestingly, Mr. Garg said that allowing the RBI to issue the bonds in electronic demat form would give the central bank information about donors and the political parties they were donating to.

“The fact that information of this aspect will be with the Bank (the RBI), would make the scheme a non-starter,” Mr. Garg wrote. Currently, the scheme provides for this information to be available to the State Bank of India, a government-owned bank.

Mr. Garg in two separate letters — on October 5, 2017, and October 24, 2017— asked Mr. Patel to send the draft notification of the electoral bond scheme. The RBI did not send its version of the draft notification and therefore did not convey its agreement to the provisions of the scheme.

Without the RBI’s active consent, the Ministry of Finance was forced to look for more indirect ways to imply the central bank’s approval. So, the Ministry referred to the minutes of the meeting of the Committee of the Central Board of the RBI on October 11 in which it was said that “if the government decides to issue electoral bonds in scrip through SBI, the Bank (RBI) should let it be”.

This was immediately taken as the central bank’s “indirect” approval, with Mr. Garg noting that “the RBI has indirectly agreed for electoral bonds to be issued, if issued by SBI, as recorded in the CCB minutes”. Thereafter, the government stopped seeking the central bank’s inputs on the matter and instead turned to SBI for its cooperation.

The government’s eagerness to get the SBI on board with the scheme was such that it overruled several of the Law Ministry’s initial objections and instead complied with SBI’s demands. For example, SBI wanted the bonds to be called ‘promissory notes’ since bonds attracted a stamp duty. The Department of Legislative Affairs (DLA) in the Ministry of Law and Justice said the electoral bonds did not qualify as promissory notes, but was overruled.

Similarly, the SBI wanted to be reimbursed for the net cost for issuing the bonds, a provision the DLA deleted. The Budget department of the Ministry of Finance said that “since SBI is insisting”, the provision could be reintroduced.

The DLA also deleted the provision saying that the operational guidelines for the scheme would be issued separately by the authorised banks. The Budget division said: “SBI is insisting on its inclusion and it has no legal implication. For facilitating SBI, we may re-include this provision.”