Hindu Business Line: Bhubaneswar: Tuesday,
August 16, 2016.
Electoral
trusts were set up to bring transparency in political donations. Instead, they
have been used to dodge disclosure, writes Visvaksen P.
Over the
first week of January 2009, residents of the small, poll-bound town of
Thirumangalam in Tamil Nadu, woke up to newspapers. Even households that had
never subscribed, or were illiterate, found a crisp copy at their porch, each
of them stuffed with currency notes and a party symbol. “I have five votes in
my family,” a leaked American diplomatic cable quotes a voter as saying. “So I
should get 25,000, which will pay for my daughter's marriage.”
Cash for
votes is a way of political life in India. Former Prime Minister Atal Bihari
Vajpayee once said in Parliament, “Every legislator starts his career with the
lie of the false election return he files,” acknowledging the constant
violation of campaign expenditure ceilings by political parties.
While the law
specifies an upper limit on how much a candidate can spend, it does not
regulate the spending of political parties on the candidate’s behalf. This
loophole leads to inflated campaign bills. One estimate pegs the cost of the
India’s last General Elections in 2014 at close to 30,000 crore, about 10 times
what it was in 1996.
Most of the
money spent by parties on their campaigns is untraceable as they claim to
receive close to 75 per cent of their funding in the form of cash donations of
up to ₹20,000 that do not need to be disclosed. And even if there is a sliver
of accountable funding, regulatory loopholes ensure that the money trail can be
obfuscated.
One such
avenue is an electoral trust, a supposedly independent and transparent entity
through which an individual or a company can donate to political parties. But
an investigation by BusinessLine over three months showed that the trusts have
ended up as a conduit for political donations and channelling money, often
untraceable, from companies to parties.
According to
the Ministry of Corporate Affairs, there are 25 such electoral trusts operating
in India at the moment. Only 18 of them are present on the list of trusts
published by the Election Commission (EC). None of them has a website or
publicly listed contact details. BusinessLine reached out to most of them, but
just one responded.
During the
2014 elections, six national political parties declared ₹622 crore as donations.
About 40 per cent of that, about ₹250 crore, came from two sources Satya
Electoral Trust and General Electoral Trust.
The Satya
Electoral Trust has received donations from multiple companies such as the
Bharti Group, DLF and Hero MotoCorp. Though registered, the Trust has disclosed
little. BusinessLine wrote to Mukul Goyal, a director at the Trust, and called
at his office, but got no response.
General
Electoral Trust (GET), on the other hand, is untraceable. The trust has never
filed a report detailing the contributors and recipients of its funds, and
neither is it registered with the Election Commission. Set up in 1998, General
Electoral Trust is virtually a ghost in the system. Though media reports have
associated the Trust with the Aditya Birla Group, the latter’s spokesperson
insisted that the GET operates independently, outside of the Group’s purview.
According to
a senior bureaucrat who previously served on the EC,“Trusts were created to
introduce an additional layer between political parties and companies so that
people cannot know who has given money to whom.”
Close a
leak and another sprouts
The electoral
trust system can be traced back to a public interest litigation filed by
activist HD Shourie on behalf of the NGO Common Cause in 1995. On New Year’s
Eve that year, the Supreme Court issued notices to political parties in the
country, asking them to account for their income and expenditure in accordance
with the Income Tax Act. Though the law has required such filings for over a
decade and a half, few had complied.
Within a
fortnight of the order, the finances of political parties became a matter of
public record. The case concluded with a landmark judgement that coerced
parties into regular disclosures by linking them to their campaign ceiling and
income tax exemptions. Simply put, the parties could continue to avoid being
taxed and spend as they saw fit on behalf of their candidates, as long as the
spending could be accounted for.
Two months
after the Common Cause judgement, the Tata Group pioneered a new method of
political contribution. They set up the Electoral Trust, an independent entity
that would channel funds from Tata Group companies to political parties without
any mention of the original donor company’s name on the balance sheets of the
parties. The trust also sheltered companies from the scrutiny of their
shareholders. Though their annual reports include details on political
contributions, the beneficiary column now just had the name of the trust,
instead that of political parties.
Over the next
decade, according to data compiled by the Association for Democratic Reforms
(ADR), a NGO, several other leading corporate houses set up electoral trusts.
ADR’s analysis of data released by the EC shows that between 2004-05 and
2011-12, six of these trusts functioning without any regulatory oversight allowed
companies to contribute more than ₹100 crore to various political parties. Of
this, nearly ₹50 crore was donated in the run-up to the 2009 General Elections.
Half-hearted
regulation
In July 2009,
Pranab Mukherjee presented the first budget of the UPA’s second innings in
office. Lost amidst the massive allocations to the food security and employment
guarantee schemes, was a measure that proposed to make donations to electoral
trusts tax-exempt. In 2013, the Central Board of Direct Taxes (CBDT) formally
notified the electoral trust scheme.
While the tax
exemptions granted to the trusts were enshrined in law, disclosure norms
remained mere guidelines, with no penal provision. “India is one of the very
few countries that provide 100 per cent tax exemption to corporate political
donations. It should follow naturally that you also impose a penalty for
non-disclosure which the law doesn’t provide for,” says Jayaprakash Narayan, a
former MLA in Andhra Pradesh who campaigned extensively for electoral reforms.
Narayan
points out that this “is a very corrupt system running on black money in which
there is a lot of extortion of companies by political parties.” And that is
why, adds Harsh Srivastava, a former consultant to the Planning Commission,
“Everybody should have a trust.” The head of Corporate Affairs at Feedback
INFRA says a trust “allows for systematic distribution of funds and shields the
company from shareholder and political backlash generated by their donations.”
The year
after the new regime was introduced, the number of corporate-backed electoral
trusts doubled.
The trust
and its incarnations
The Tatas’
Progressive Electoral Trust (which replaced the earlier Trust after the 2009
law) is probably the poster child of this approach towards campaign finance. It
donates the funds it receives from group companies on the basis of a formula.
“Before the election, one half of the distributable funds are disbursed to
political parties on the basis of the seats held by them,” explains Dinesh
Vyas, Trustee of Progressive Electoral Trust. “After the election, the
remaining funds are distributed on the basis of percentage of seats won.” The
trust’s adherence on its formula-based approach appears to be so stringent that
it donated ₹27 lakh to the Trinamool Congress on the basis of its performance
in the 2009 Lok Sabha elections, barely a year after party supremo Mamata
Banerjee led a high-profile campaign against the proposed Nano car factory in
West Bengal.
But not all
electoral trusts are made equal. Satya Electoral Trust, for example received donations
from multiple corporate groups including DLF and Indiabulls. But it is
impossible to ascertain which company’s money has ended up with which party and
whether the companies influenced that division of funds based on the limited
public disclosures the trust is required to make by law.
The Public
and Political Awareness Trust, operated by the UK-based Vedanta Group, presents
another example of how electoral trusts can be used to dodge regulatory norms.
The trust donated ₹35 crore to the Bharatiya Janata Party between 2003-04 and
2012-13 according to disclosures made by the party to the EC. It received its
corpus from companies like Sesa Goa and Sterlite Industries which have majority
foreign stake-holding and are therefore ineligible to donate to Indian
political parties.
In March, the
Delhi High Court ruled that parties had violated the Foreign Contribution
Regulatory Act in receiving these funds and ordered the Home Ministry to take
action within six months. Though an appeal in the Supreme Court is pending, the
Government has effectively nullified the verdict through Clause 233 of the 2016
Union Budget, which retrospectively legalised foreign contributions to
political parties.
A ghost in
the system
Mohandas Pai,
former CFO of Infosys and investor, describes electoral trusts as being ‘less
than the full measure’ required for clean political finance. “Companies should
invest in the democratic process by giving to all parties. But instead they use
means like electoral trusts to give to one party over another, which is morally
and ethically wrong. A company cannot have politics.”
And yet if
the functioning of the General Electoral Trust is any indication, the political
compulsions of the company can be at odds with the independence of a trust.
Despite the Trust’s claimed independence from the Aditya Birla Group, its
address on several political parties’ donor reports is listed as the same
Chruchgate Reclamation premises that houses the Group headquarters.
Additionally, documents filed by the BJP with the EC reveal that the trust has
made at least one donation under a PAN belonging to UltraTech Cement, an Aditya
Birla company.
“Normally it
is the company that decides who to donate to,” says Julio Ribeiro, former
Commissioner of Mumbai Police, who has been a trustee at General since its
inception. “There is a committee of the Birlas that makes a recommendation and
the trustees sanction it.”
A Right To
Information request filed by BusinessLine revealed that the Trust does not
exist as far as the EC is concerned. A separate RTI filed by activist Venkatesh
Nayak earlier this year also showed that the Trust hasn’t registered with the
CBDT. Ribeiro acknowledged that the Aditya Birla Group is aware that General Electoral
Trust is not registered, insisting that they were told it was “not necessary.”
He also stated that, according to the Group, the EC’s disclosure requirements
were for political parties and did not apply to electoral trusts. Ribeiro added
that since the Trust did not claim tax exemptions, it was not required to
disclose its contributions. BusinessLine was unable to verify whether General
had paid tax on its contributions. When contacted, officials at the CBDT agreed
to respond to queries, but hadn’t till the time of going to the press.
Who will
guard the guards?
While some of
the trusts may be violating the guidelines laid down by the EC and the CBDT,
the real problem here is the toothless regulation. “The IT Act has been amended
to provide for tax relief on donations to the electoral trusts. However, there
is no disclosure provision under the Representation of People Act (RPA)
corresponding to the changes in the income tax laws,” notes a March 2015 report
of the Law Commission which was looking into the subject of electoral reforms.
In effect, this means that while the rights of the trusts are enshrined in law,
their responsibilities towards transparency are mere lines in the sand.
“Additionally,
the only penalty prescribed for non-submission of an annual report of
contributions to the ECI… is that ‘adverse notice shall be taken’ of the
failure to comply with the instructions.” The report recommended amendments to
the RPA that would ensure that errant trusts lost tax benefits and faced fines
and prospect of a ban.
Like a vast
majority of the other recommendations contained in the report, the proposals
are nowhere close to implementation. “There is no penal action possible as of
now,” says the former Election Commission official quoted earlier. “The politicians
did not create such a provision knowing very well that this is a layer that has
been created so that the opaqueness is increased and people don’t know who is
giving to whom.”
However, the
official also insists that the Election Commission’s hands aren’t entirely
tied. “It depends on how proactive the EC is. Some former Commissioners have
taken the view that Article 324 (which defines the powers of the EC)
encompasses all the aspects where the law is not there so it can be applied
wherever there is a vacancy.” The Election Commission declined to comment on
this issue and simply referred to a copy of the official guidelines instead.
Speaking to a
news magazine at the height of the Common Cause case, petitioner HD Shourie
said that he had initiated the litigation simply because “he wanted to know why
political parties weren’t following the rules.”
As he would
have realised, when rules are framed by those they are meant to regulate, there
will always be ways to get around them.
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