Supreme Court Strikes down Electoral Bond Scheme to be “Unconstitutional and Arbitrary”
Manas Dasgupta
NEW DELHI, Feb 15: In a historic judgment, the Supreme Court on Thursday struck down the electoral bonds scheme which provides blanket anonymity to financial contributions to political parties, and amendments made to the law allowing rich corporations to make unlimited political donations “unconstitutional and manifestly arbitrary.”
A five-judge Constitution Bench headed by Chief Justice of India D. Y. Chandrachud, in a unanimous judgment, held that the electoral bonds scheme and preceding amendments made to the Representation of People Act, Companies Act and the Income Tax Act violate the voters’ right to information about political funding under Article 19(1)(a) of the Constitution.
The apex court held that the scheme violated the citizens’ right to information. The electoral bonds scheme, the CJI said was unconstitutional and arbitrary and it might lead to a quid pro quo arrangement between political parties and donors.
The apex court ordered the State of Bank of India, to stop issuance of electoral bonds forthwith. The bank was also directed to submit by March 6 details of bonds purchased from April 12, 2019 till date to the Election Commission of India (ECI). On April 12, 2019 the top court had ordered the ECI to submit, in a sealed cover, the records of bonds purchased till then. The “details” would include date of purchase of each bond, the name of the buyer and the denomination of the bond. The bank would make a full disclosure to the ECI of political parties which had received contributions and encashed the electoral bonds from April 12, 2019.
The bank would furnish the information to the ECI by March 6, 2024 and the poll body, in turn, has to publish the entire information given by the State Bank of India on its website by March 13, 2024. Electoral bonds, with a validity period of 15 days and yet to be encashed, would be returned by political parties or purchasers to the bank, which must refund the amount to the purchasers’ accounts.
The lead opinion authored by Chief Justice Chandrachud said the absolute non-disclosure of the source of political funding through electoral bonds promoted corruption and a culture of quid pro quo with the ruling party to introduce a policy change or for bagging a licence. The scheme and the amendments authorised “unrestrained influence of corporates in the electoral process.”
The bench also comprising Justices Sanjiv Khanna, BR Gavai, JB Pardiwala and Manoj Misra, held that the stated objective of fighting black money and maintaining the confidentiality of donors cannot defend the scheme. Electoral bonds, the court said, were not the only way to curb black money.
The five-judge bench came up with a unanimous decision. “We have arrived at a unanimous decision. There are two opinions, one by myself and another by Justice Sanjiv Khanna. Both arrive at the same conclusion. There is a slight variance in the reasoning,” the Chief Justice of India said.
The electoral bonds scheme was introduced in 2018 with the stated objective of blocking black money from entering the political system. The then Finance Minister Arun Jaitley had said the conventional practice of political funding in India was cash donations. “The sources are anonymous or pseudonymous. The quantum of money was never disclosed. The present system ensures unclean money coming from unidentifiable sources. It is a wholly non-transparent system,” he had then said. On the confidentiality clause, he had said the disclosure of the donors’ identity would make them go back to the cash option.
An electoral Bond is a financial instrument for making donations to political parties as has been first pronounced by the Finance Minister in the Union Budget 2017-18.
According to the Electoral Bond Scheme, 2018, an electoral bond is a bond issued in the nature of a promissory note, which shall be bearer in character. A bearer instrument is one which does not carry the name of the buyer or payee, no ownership information is recorded and the holder of the instrument (i.e. political party) is presumed to be its owner.
The scheme allows individuals – who are citizens of India – and domestic companies to donate these bonds – issued in multiples of ₹ 1,000, ₹ 10,000, ₹ 1 lakh, ₹ 10 lakh, and ₹ 1 crore – to political parties of their choice.
These bonds have to be redeemed by the political parties within 15 days. A person being an individual can buy bonds, either singly or jointly with other individuals.
No limit exists on the number of electoral bonds that a person (including corporate entities) can purchase. The amount of bonds not encashed within the validity period of 15 days shall be deposited by the authorised bank to the Prime Minister’s National Relief Fund.
Soon after the scheme was implemented, multiple parties challenged it in court. These included CPM, Congress leader Jaya Thakur and non-profit Association for Democratic Reforms. They argued that the confidentiality clause came in the way of the citizen’s right to information.
Advocate Prashant Bhushan, appearing for ADR, said the bonds promote corruption as they are opaque and anonymous. “The bonds do not allow a level-playing field between political parties which are ruling versus political parties which are in the Opposition or between political parties and independent candidates.” He also said ever since this scheme was introduced, contributions made through this donation method had exceeded all other modes.
In fact, the Election Commission, too, had opposed the scheme when it was brought, calling it a “retrograde step” with regard to transparency in political funding.
The government had gone all out to defend the scheme in the Supreme Court. Solicitor General of India Tushar Mehta had said it was a deliberate attempt to ensure that funding received by political parties was clean money. He had said disclosing the donor’s identity could disincentivise the whole process. “Suppose, as a contractor, I donate to the Congress Party. I do not want the Bharatiya Janata Party (BJP) to know because it might form a government,” he had said. When the court asked how this confidentiality can be reconciled with the voters’ right to information, Mr Mehta had replied that voters do not vote on the basis of who is funding which party but on ideology, principles, leadership and efficiency of a party.
Countering the right to information argument, Attorney General of India R Ventakaramani had said there “can be no general right to know anything and everything without being subjected to reasonable restrictions.” “Secondly, the right to know as necessary for expression can be for specific ends or purposes and not otherwise,” he had said.
The Supreme Court also struck down the amendments made to company and tax laws to bring the scheme into effect. Earlier, companies needed to be at least three years old to donate and had to disclose the amount and name of the party to which it was donating. These conditions that ensured transparency in corporate donations were done away with under the new law.
“A company has graver influence on the political process than contributions by individuals. Contributions by companies are purely business transactions. Amendment to Section 182 Companies Act is manifestly arbitrary for treating companies and individuals alike,” the court said.
“Before the amendment, loss making companies were not able to contribute. The amendment does not recognise the harm of allowing loss-making companies to contribute due to quid pro quo. The amendment to Section 182 Companies Act is manifestly arbitrary for not making a distinction between loss making and profit making companies,” the court added.
The lead opinion authored by Chief Justice Chandrachud said the absolute non-disclosure of the source of political funding through electoral bonds promoted corruption and a culture of quid pro quo with the ruling party to introduce a policy change or for bagging a licence. The scheme and the amendments authorised “unrestrained influence of corporates in the electoral process”.
The scheme allowed the inflow of “huge contributions” by companies and multinational corporations with major business stakes in the country, overawing or even concealing the relatively small financial contributions of the ordinary Indian – the student, the daily wage worker, the artist or a teacher – who believes in the ideologies of a political party without expecting any substantial favours in return.
“Would we remain a democracy if the elected do not heed to hue and cry of the needy? We ask ourselves whether the elected would truly be responsive to the electorate if companies which bring with them huge finances and engage in quid pro quo arrangements with parties are permitted to contribute unlimited amounts,” Chief Justice Chandrachud noted.
He said the scheme and the amendments promoted “economic inequality” by giving corporations with money power an unsurpassable advantage over citizens in electoral process and political engagement. “This is violative of the principle of free and fair elections and political equality captured in a value of ‘one person, one vote’,” Chief Justice Chandrachud observed.
The judgment belled the cat on the deep nexus between money and politics. It said “contributions made by companies are purely business transactions made with the intent of securing benefits in return.” The court dismissed the argument of the government that anonymity of political donors afforded by electoral bonds incentivised financial contributions through banking channels. The court agreed that the fundamental right to privacy extended to a person’s political affiliation. However, it said, there should be a balance between informational privacy and the voters’ right to information.
Chief Justice Chandrachud drew a clear distinction between donations by corporates for favours and contributions by individuals as a mark of their political beliefs. “Not all contributions are made to alter public policy. Contributions are also made by people to political parties which are not substantially represented purely with the intent of extending support… Contributions made for quid pro quo are not an expression of support,” the Chief Justice distinguished.
The court rubbished the government’s claim that the scheme was meant to curb the injection of black money into the electoral process. It said “curbing of black money” was not a reasonable restriction under Article 19(2) of the Constitution to the exercise of the voters fundamental’ right to information about political funding enshrined in Article 19(1)(a).
Chief Justice Chandrachud asked the Centre how the “absolute” non-disclosure of the sources of political funding introduced in the electoral bonds scheme had a rational nexus with curbing black or unregulated money. “Clause 7(4) of the scheme completely exempts information on the purchasers of electoral bonds. This information is never disclosed to the voters. The purpose of securing information about political funding cannot be fulfilled by absolute disclosure,” the Chief Justice pointed out.
The judgment said the entire electoral bonds scheme had hinged on the anonymity provided under Clause 7(4). Without the clause, the scheme was not indistinguishable from other modes of financial contributions like cheques, direct debit or electronic transfers. Sans the clause, the scheme had to fall.
The judgment referred to how amendments were introduced in Section 29C of the Representation of People Act, Section 13A of the Income Tax Act and Section 182 of the Companies Act via Finance Act 2017, introduced as a money Bill circumventing the Rajya Sabha, to pave the way for blanket anonymity in financial contributions through the electoral bonds’ route notified in January 2018.
These provisions, prior to the amendments, had maintained a balance between informational privacy on the political affiliations of donors and the right to know of the voters. They were “less restrictive” any day.
The original Section 29C required political parties to publicly disclose contributions in excess of ₹ 20000, received even through cheques and electronic clearing system. The amendment had allowed a complete exemption for political parties to publish contributions received through electoral bonds. The amended Section 13A freed parties from the obligation of keeping a detailed record of contributions received through electoral bonds.
Before the amendment, Section 182 had mandated that companies could donate only up to 7.5% of three years of their net aggregate income. The amendment lifted this cap and made room for unlimited and anonymous corporate donations to political parties.
The pre-amendment provision had banned government companies from making contributions to prevent them from entering the political fray. It had, moreover, classified between loss-making companies and profit-making ones.
“The underlying principle was that it was more plausible that loss-making companies would contribute to political parties with a quid pro quo and not with income tax benefits in mind. The amendment to Section 182 does not recognise that the harm of political contributions by loss-making companies for quid pro quo is higher. The amendment is arbitrary for not making a distinction,” Chief Justice Chandrachud held.
Reacting to the judgment, BJP’s Ravi Shankar Prasad said electoral bonds were introduced to bring more transparency to the process of donations to political parties and to protect the identity of donors who feared harassment. “We respect the Supreme Court order. A detailed, structured response will be given after studying the order,” he said.
The Association of Democratic Reforms (ADR) pointed out that the scheme did not require political parties to mention the names and addresses of those contributing by way of electoral bonds in their contribution reports filed with the Election Commission annually. Activists have questioned transparency in political party finances. The bonds infringe the citizen’s fundamental ‘Right to Know’.
While electoral bonds provide no details to the citizens, the government can always access the donor details by demanding the data from the State Bank of India (SBI), the ADR pointed out. “The ECI had stated on record that any donation received by a political party through an electoral bond has been taken out of the ambit of reporting and therefore, is a retrograde step and needs to be withdrawn,” the ADR has said.
