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Report No. 255

(b) On Disclosure

2.28.7. Disclosure is at the heart of public supervision of political finance and requires strict implementation of the provisions of the RPA, the IT Act, the Company Act, and the ECI transparency guidelines, effective from 1st October 2014, bearing No. 76/PPEMS/Transparency/2013 dated 29th August, 2014 and 19th November 2014, which need to be given statutory backing. This is especially important given the Commission's recommendations that the current absence of expenditure caps for parties and contributions remain unchanged.

2.28.8. The primary provision governing disclosure of election expenses for candidates in the RPA is Section 78 and Rules 86-90 of the Election Rules. A new section, section 77A needs to be inserted (similar to the comparative practices referred above) to provide for candidates disclosing (a) any individual contributions received by them and (b) any contribution by the political party from the date of notification of elections, regardless of whether the donation is in cash, cheque, or in kind.

2.28.9. Similarly, Section 78 should also be amended in light of the proposed amendment to section 77A above, and the reference to more than one returned candidate should be removed.

2.28.10. The primary provision governing disclosure for political parties in the RPA is Section 29C and Rule 85B, which requires political parties to report contributions only in excess of Rs. 20,000 and the ECI's transparency guidelines which stipulate that all cash contributions be duly accounted for. As the abovementioned analysis by ADR on the sources of political funding for parties reveals, more than 75% of parties sources of funds are unknown while only 9% of their funding is said to comprise donations over Rs. 20,000.

2.28.11. Evidently, writing multiple cheques below Rs. 20,000 each can easily evade this Rs. 20,000 disclosure limit (and even otherwise, the nondeductibility of income tax does not serve as a sufficient deterrent). Even otherwise, donor incentives created by tax exemptions do not always outweigh the disincentive caused by the loss of anonymity, especially in a situation where donors or companies or trusts donate to multiple parties.

Hence, it is imperative to require the disclosure of all contribution amounts, subject to a cap of Rs. 20 crore or 20 per cent of the total contribution, whichever is lesser as discussed below, whether in cash or cheque or kind. Further, the limit should apply to contributions given cumulatively by a person or company throughout the year. Even if these measures are unable to stem the flow of black money, it is hoped they will improve transparency and make the process of evasion more difficult.

2.28.12. Further, parties claim that part of this 75% unaccounted funding comes from small donors contributing amounts such as Rs. 50 or Rs. 100, making it difficult to keep account of the same. Similarly, hundi or bucket collections at public rallies are also said to form part of parties' funding corpus, and are also not disclosed on grounds of practical difficulty. However, such levels of anonymity are used as means of avoiding disclosure.

2.28.13. While the Commission agrees that there are undoubtedly cases where parties collect a part of their funding from anonymous small donors and hundi/bucket collections at public rallies, the anonymity should be limited. The Commission suggests that only up to Rs. twenty crore or twenty per cent of the total contribution of a political party's entire collection (whether cash/cheque), whichever is lesser, can be anonymous. Apart from this, the details and amounts of all donations and donors (including PAN cards, wherever applicable) need to be disclosed by political parties, regardless of their source or amount.

2.28.14. Additionally, the auditing provisions should be enforced across all the levels of political parties, including the national, regional, local, and sub-local levels. It is pertinent to note that the Law Commission had recommended the insertion of a new Section 78A in its 170th Report in 1999 on the "Maintenance, audit, publication of accounts by political parties". As per the proposed Section 78A(1):

"Each recognised political party shall maintain accounts clearly and fully disclosing the sources of all amounts received by it and clearly and fully disclosing the expenditure incurred by it. The accounts shall be maintained according to the financial year. Within nine months of each financial year, each recognised political party shall submit its accounts, duly audited by an accountant (as defined in the Explanation below sub-section (2) of section 288 of the Income-tax Act, 1961), to the Election Commission.

The Election Commission shall publish the said accounts in accordance with such general directions as may be issued by the Election Commission in this behalf. The accounts shall also be open for inspection by the members of the public in the office of the Election Commission and they shall also be entitled to obtain copies of such accounts or any part thereof in accordance with such instructions as the Election Commission may issue in that behalf."108

108. Law Commission of India, Reform of Electoral Laws, Report No. 170, May 1999 ("LCI, 170th Report"),
<http://www.lawcommissionofindia.nic.in/lc170.htm>, at para 4.2.6.

2.28.15. This is similar to ECI's auditing and accounting guidelines stating that all books of accounts need to be audited and certified by qualified, practicing Chartered Accountants annually, with a copy of the Auditor's Report. The Commission recommends inserting a new section 29C (replacing the current provision), along these lines, to require parties to maintain and submit audited accounts annually.

2.28.16. Finally, separate provisions should be inserted, along the lines of the comparative practice discussed above, requiring:

(a) All parties to submit the names and addresses of all their donors (regardless of the amounts or source of funding) for contributions greater than Rs. 20,000 through a new section 29D, RPA. A maximum of up to Rs. 20 crore or 20% of the party's entire collection, whichever is lower, can be anonymous;

(b) The ECI to upload all the annual returns of the parties (under section 29E) and the district election officer to upload the election and contribution expenses of candidates (under section 78A) and keep the same on record for public inspection for three years.

(c) Parties to submit election expense accounts within a specified period after every Parliamentary or State election, pursuant to the Supreme Court's judgment in Common Cause v. Union of India, AIR 1996 SC 3081 and the ECI's notifications on election expenses and transparency guidelines through a new section 29F.



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