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Report No. 170

Chapter II

Insertion of Section 78A (Maintenance, audit and publication of accounts by political parties)

4.2.1. This proposal drew unanimous approval from all the participants at the seminars as well as from several persons, parties and organisations which responded to the Law Commission's working paper. There was no dissenting voice. On the contrary, Shri K. K. Venugopal, Senior Advocate, observed that while the Law Commission has rightly recommended the introduction of section 78A, it had not provided for the consequences of non-compliance with the said provision or for the consequences that flowed if it was found that any false statement had been made in the accounts submitted by a political party.

He stressed the necessity of publication of such accounts by the Election Commission which would enable any individual or party to point out the falsity of any of the particulars in the accounts. In this connection, he referred to section 13A of the Income Tax Act which was inserted on 1.4.1979.

The said section provides that the income received by a political party under the head "Income from house property" or "income from other sources" or "any income by way of voluntary contributions received by it from any person" shall not be included in the total income of the previous year of such political party provided that (a) such political party keeps and maintains such books of accounts and other documents as would enable the assessing officer to property deduce its income therefrom; (b) in respect of each such voluntary contribution in excess of ten thousand rupees, such political party keeps and maintains a record of such contribution and the name and address of the person who has made such contribution and (c) the accounts of such political party are audited by an accountant as defined in the Explanation below sub section (2) of section 288 of the said Act.

The explanation appended to the section says that for the purpose of the said section "political party" means an association or body of individual citizens of India registered with the Election Commission of India as apolitical party under paragraph 3 of the Election Symbols (Reservation and Allotment) Order 1968 and includes a political party deemed to be registered with that Commission under provision to sub paragraph (2) of that paragraph. (It, however, appears that para 3 of the said Symbols Order has been omitted by Notification No.OM 21(E) dated 23.2.1992 with effect from 25.3.1992)

Mr. K.K. Venugopal pointed out that until Shri H.D. Shourie of the "Common Cause" filed a Public Interest Petition in the Supreme Court(the decision in which case is reported in 1996 (2) SCC 752) the said provision was not being followed by the parties or enforced by the Income Tax Department. As a matter of fact, except the two Communist parties and two other political parties, no other political party had complied with the said section nor did they file their return of income stating that they had complied with the three conditions specified in the said section.

Mr. Venugopal was of the opinion that such a failure would attract penalty provided by section 276-CC of the Income Tax Act. Mr. Venugopal further pointed out that even though the Supreme Court directed in the aforementioned decision that the Secretary to the Ministry of Finance should conduct an investigation and inquiry against each of the defaulting political parties and initiate necessary action against them according to law, no action whatsoever appears to have been taken so far nor any party or person had been prosecuted.

All this proves the old adage that "some men are more equal than others". While a small income-tax payer who fails to file his return is prosecuted and penalised, the political parties which are in receipt of huge funds which they spend on elections and other occasions are not being touched. The parties too do not appear to have realised that if they themselves do not follow the law, not only it sets a bad example to others, they will not have the face to tell others to abide by law.

4.2.3. The necessity of such a requirement was indeed emphasised by the Supreme Court in its recent decision in Gajanan Bapat v. Dattaji Meghe (1995 (5) SCC 347) where it observed pertinently as under:

"We wish, however, to point out that though the practice followed by political parties in not maintaining accounts of receipts of the sale of coupons and donations as well as the expenditure incurred in connection with the election of its candidate appears to be a reality but it certainly is not a good practice. It leaves a lot of scope for spoiling the purity of election by money influence. Even if the traders and business men do not desire their names to be published in view of the explanation of the witnesses, nothing prevents the political party and particularly a national party from maintaining its own accounts to show total receipts and expenditure incurred, so that there could be some accountability.

The practice being followed as per the evidence introduces the possibility of receipts of money from the candidate himself or his election agent for being spent for furtherance of his election, without getting directly exposed, thereby defeating the real intention behind Explanation 1 to section 77 of the Act. It is, therefore, appropriate for the legislature or the Election Commission to intervene and prescribe by Rules the requirements of maintaining true and correct account of the receipt and expenditure by the political parties by disclosing the sources of receipts as well.

Unless this is done, the possibility of purity of election being soiled by money influence cannot really be ruled out. The political parties must disclose as to how much amount was collected by it and from whom and the manner in which it was spent so that the court is in a position to determine "whose money was actually spent" through the hands of the party. It is equally necessary for an election petitioner to produce better type of evidence to satisfy court as to "whose money it was" that was being spent through the party.

Vague allegations and discrepant evidence may only create a doubt but then the charge of corrupt practice cannot be held to be proved on mere lurking suspicion or doubts. However, undesirable and objectionable the practice might be, the fact remains that the evidence led by the election petitioners in this case doe not establish the charge levelled by them at all."

4.2.4. We have already pointed out hereinbefore the provisions of the German Law on Political Parties of 1967, Section V whereof creates a statutory obligation upon all the political parties to maintain clear and correct accounts, have them audited and submit the same to the President of the German Bundestag. These accounts are directed to be circulated by the Bundstag as "Bundstag Papers".

The Law further requires that the Bundstag shall examine whether the statement of accounts is in accordance with the requirements of the said law and that the result of such scrutiny shall be recorded in the report in accordance with the paragraph 5 of the said article (article 23). The German law provides in great detail the particulars which such accounts should contain including the sources from which amounts are received and the items upon which expenditure has been incurred. It is absolutely essential that there should be a law on the same lines. Rules can be made elaborating and elucidating the requirements in the proposed section 78A in the light of and keeping in mind the several provisions in the said German Law.

4.2.5. This proposal was also supported by Shri P.P. Rao, Senior Advocate, Shri N. Ram(Editor, Frontline) and Shri C.R. Irani (Editior, The Statesman), Shri Inderjit, Senior Journalist, Shri Shivraj V.Patil(former Speaker, Lok Sabha), Dr. K. L. Shivaramakrishnan (Centre for Policy Research) and Shri H. K. Dua, senior journalist, among others. Even in the responses received by various persons and organisations pursuant to the circulation of the 'working paper', there has been no dissenting voice.

4.2.6. Accordingly, the Law Commission reiterates that a new section as proposed in the working paper (section 78A) should be inserted in the R.P.Act of 1951. It is further recommended that the provision as suggested should be numbered as sub-section (1) and sub-sections (2), (3) and (4) as proposed hereinafter should also be inserted in the said section.

(2) A political party which does not comply with any of the requirements of sub-section (1) shall be liable to pay a penalty of Rs. 10,000/- for each day of non-compliance and so long as the non-compliance continues. If such default continues beyond the period of 60 days, the Election Commission may de-recognise the political party after affording a reasonable opportunity to show cause.

(3) If the Election Commission finds on verification, undertaken whether suo motu or on information received, that the statement of accounts filed under sub-section (1) is false in any particular, the Election Commission shall levy such penalty upon the political party, as it may deem appropriate besides initiating criminal prosecution as provided under law.

(4) Any orders passed under sub-sections (2) or (3) shall be directed to be published in the press and other media, for public information."



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