Ashok Lavasa Seeks Court-Monitored Probe, CAG Audits and Spending Cap for ‘Shell’ Political Parties

The news

New Delhi. Former Election Commissioner and former Union Finance Secretary Ashok Lavasa argues in an op-ed in The Hindu, “The murky world of political party finance”, that the Election Commission of India (ECI) should scrutinise political parties and political finance rather than legitimate voters. Parties, he notes, appear in the Constitution only in the Tenth Schedule yet enjoy unparalleled tax exemption; like shell companies, there are “shell political parties”. A recent BBC investigation revealed extraordinary donations to six Registered Unrecognised Political Parties (RUPPs) — parties registered with the ECI under Section 29A of the Representation of the People Act (RPA), 1951, but without enough votes or seats to be recognised as a State or National party. An Association for Democratic Reforms (ADR) report of July 18, 2025 found a 223% rise in RUPPs’ declared income in FY2022-23, and that only 739 of 2,764 RUPPs had filed financial records for the year with the ECI. In an August 9, 2025 press note, the ECI said it had “delisted” 334 of 2,854 RUPPs. Delisting, Mr. Lavasa notes, is not deregistration, which the ECI is not generally empowered to do: such parties can still receive contributions under Section 29B of the RPA, with tax treatment under Section 13A of the Income-tax Act. He recalls that T.N. Seshan, as CEC, put all parties on notice in an order of October 16, 1994, and introduced paragraph 16A of the Symbols Order, 1968, to suspend or withdraw recognition for Model Code violations — a power that sits “rather harmlessly” unused. Citing Venkatesh Nayak of the Commonwealth Human Rights Initiative, he writes that 22 parties had ₹18,742.31 crore for the 2024 general election and still held ₹14,848.46 crore after spending ₹3,861.57 crore. Over a decade the exchequer “lost” ₹11,813 crore through tax exemptions on political donations. Declared donations rose from ₹714 crore (43 parties) in 2015-16 to ₹7,203 crore (27 parties) in 2023-24, yet only 41.76%, ₹28,287 crore over nine years, was claimed as tax-exempt. Recalling electoral bonds, struck down by the Supreme Court in 2024, he urges a court-monitored probe, ECI-ordered audits of party accounts by the Comptroller and Auditor General under Article 324, a cap on party election spending with tax exemption limited to it, automatic deregistration of non-contesting RUPPs and a digital disclosure portal. The syllabus link is GS2 on the RPA, electoral reforms and constitutional bodies.

Static syllabus linkage

1. The RPA regulates parties through registration and disclosure, but gives the ECI no general power to deregister. Section 29A of the Representation of the People Act, 1951, inserted in 1989, provides for registration of associations of citizens as political parties with the ECI, on an undertaking of allegiance to the Constitution, socialism, secularism and democracy, and to the sovereignty, unity and integrity of India. Section 29B permits parties to accept voluntary contributions from any person or company other than a government company. Section 29C requires a party to report to the ECI every contribution above ₹20,000 from any person or company in a financial year, and failure to report disentitles it from income-tax relief. In Indian National Congress v. Institute of Social Welfare (2002), the Supreme Court held that the ECI cannot deregister a party under Section 29A except in limited situations, such as registration obtained by fraud, or where the party ceases to bear allegiance to the Constitution or is declared unlawful by the government. This is why the ECI “delists” rather than deregisters inactive parties.
2. Tax exemption for parties and donors rests on conditions of disclosure. Section 13A of the Income-tax Act, 1961 exempts a registered party’s income from house property, other sources, capital gains and voluntary contributions, provided it keeps books of account, records donations above ₹20,000, has its accounts audited by a chartered accountant, files its Section 29C report and does not accept any cash donation above ₹2,000, a limit introduced by the Finance Act, 2017. Donors get deductions under Section 80GGC for individuals and Section 80GGB for companies. The Income-tax Act, 2025, which replaces the 1961 Act from April 1, 2026, renumbers these provisions; the op-ed uses the familiar 1961 reference. Section 182 of the Companies Act, 2013 allows a company other than a government company, and not less than three years old, to contribute to parties, and requires disclosure in its profit and loss account.
3. The electoral bonds judgment made voters’ right to information the test of party funding law. In Association for Democratic Reforms v. Union of India (February 15, 2024), a five-judge Constitution Bench unanimously struck down the Electoral Bond Scheme, 2018 and the related amendments made by the Finance Act, 2017 to the RPA, the Income-tax Act and the Companies Act. It held that anonymous political donations violate voters’ right to information under Article 19(1)(a), which includes information about the funding of parties. It also struck down the removal of the earlier cap on corporate donations, 7.5% of average net profits of the preceding three years, as manifestly arbitrary. The State Bank of India was directed to stop issuing bonds and to furnish purchase and redemption details to the ECI for publication. Bonds could be encashed only by registered parties that had secured at least 1% of the votes in the last Lok Sabha or Assembly election.
4. The ECI’s powers over parties flow from Article 324 and the Symbols Order. Article 324 vests the superintendence, direction and control of elections in the ECI. In Mohinder Singh Gill v. Chief Election Commissioner (1978), the Supreme Court described the Article as a reservoir of power where the law is silent, and in Kanhiya Lal Omar v. R.K. Trivedi (1985) it upheld the Election Symbols (Reservation and Allotment) Order, 1968, issued under Article 324 and the Conduct of Election Rules. Paragraph 6 of the Symbols Order classifies parties as recognised and unrecognised for the allotment of symbols, and paragraph 16A lets the ECI suspend or withdraw recognition for violating the Model Code of Conduct. Foreign contributions to parties are prohibited by the Foreign Contribution (Regulation) Act, 2010. The Indrajit Gupta Committee (1998) recommended partial State funding of elections in kind, and the Law Commission’s 255th Report (2015) on electoral reforms examined political finance.

Why UPSC loves this

1. Electoral reform is a perennial GS2 question. The syllabus names the “salient features of the Representation of People’s Act” and asks about constitutional bodies such as the ECI. Mains has asked about State funding of elections, the role of money power and the case for bringing parties under the RTI Act. The electoral bonds judgment of 2024 has made political finance a standard topic, and this op-ed supplies fresh, specific data on RUPPs and tax exemptions.
2. Prelims tests the provisions, not the amounts. Expect statements on Section 29A registration, Section 29C disclosure above ₹20,000, the ₹2,000 cash limit, the prohibition on donations from government companies and foreign sources, and the difference between recognised and unrecognised parties. The Symbols Order and Article 324 are frequent targets, as are the facts of the electoral bonds ruling.
3. Essay and GS4 use political finance to discuss integrity. Topics on ethics in public life, crony capitalism and the health of democracy turn on who funds politics. The image of ‘shell’ parties is precisely the kind of concrete illustration an essay needs, provided it is used with balance.

Analysis

1. The weakest link is not recognised parties but the thousands of registered parties that never contest. Registration under Section 29A is easy, and it brings two valuable privileges: the right to accept donations and a tax exemption for the party and its donors. When 2,764 RUPPs exist and only 739 file their financial records, the system has created thousands of vehicles with tax-exempt status and almost no oversight. The ECI’s delisting of 334 parties is a sign that it knows the problem, but delisting, as Mr. Lavasa shows, leaves donation eligibility intact. The fix does not require new constitutional power; Parliament could simply make tax exemption conditional on active contesting and timely filing. The counter-view is that easy registration protects political pluralism and that a small party should not be punished for losing elections.
2. The numbers point to hoarding, not just spending. The CHRI figures cited are striking: 22 parties had ₹18,742.31 crore for the 2024 election, spent ₹3,861.57 crore and still held ₹14,848.46 crore afterwards. Political finance is usually discussed as a problem of expensive campaigns, but these accounts suggest that parties accumulate far more than they spend. Accumulated reserves give an incumbent or well-connected party a permanent advantage over challengers, which is a question of fair competition rather than only of corruption. The absence of any cap on party expenditure, unlike the cap on candidates under Section 77 of the RPA, is why such wealth can be deployed without limit. A cap on party spending, which the ECI has recommended, would address the imbalance, though enforcement against in-kind and third-party spending would be difficult.
3. The unclaimed tax exemption is a puzzle that deserves an answer, not an assumption. Only 41.76% of declared donations over nine years were claimed as tax-exempt by donors. Mr. Nayak asks what incentive drives people to donate without tax relief, and the implication is that some donors prefer not to be visible. But there are innocent explanations too: many small donors do not bother to claim deductions, and some donations may come from entities that cannot claim them. The data establishes a question, not a conclusion. The right response is the one the op-ed proposes, uniform, audited disclosure, so that the pattern can be examined with evidence rather than inferred.
4. CAG audits under Article 324 are the most ambitious and the most contestable proposal. Mr. Lavasa invokes the ECI’s residuary power under Article 324 to order audits of party accounts by the CAG. Audit by a constitutional auditor would be far more credible than accounts certified by a chartered accountant of the party’s choosing. But the Supreme Court has also held that Article 324 operates only where Parliament’s law is silent, and the RPA and Income-tax Act already provide an audit scheme, so an ECI order would almost certainly be challenged. The CAG’s mandate, under Article 149 and its 1971 Act, is to audit government accounts, not those of private associations. A statutory amendment would be the more durable route, though parties themselves would have to pass it.
5. The ECI’s credibility depends on where it spends its authority. The op-ed closes by asking the ECI to spend its energy on purifying the electoral environment “rather than on chasing genuine electors off the electoral rolls”, a reference to the controversy over the special intensive revision of rolls; a separate op-ed in The Indian Express notes that Mr. Lavasa and former CEC S.Y. Quraishi have questioned the fairness of that revision. The argument is about priorities: a regulator that is vigorous against voters but passive against parties invites the charge of asymmetry. Seshan’s 1994 order shows that the ECI has the tools and once had the will. Paragraph 16A has rarely been used, and the ECI has not enforced the CIC’s 2013 RTI order either. Institutions gain authority by using it evenly, and the ECI’s standing would rise if it were seen to scrutinise the powerful as closely as the ordinary elector.

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