Electoral Bonds Scheme Struck Down by Supreme Court; Asks ECI To Publish Contributions Received by Parties through EBs
Moneylife Digital Team 16 February 2024
In a significant order, the Supreme Court on Thursday, while striking down the electoral bonds (EBs) scheme as unconstitutional, directed State Bank of India (SBI), the issuer bank, to stop issuing EBs. The apex court also directed SBI to submit details of electoral bonds purchased from 12 April 2019 to date to the election commission of India (ECI).
 
In the order, the SC says the fundamental right to privacy includes citizens' right to political privacy affiliation. "It is quite possible that contribution beyond Rs20,000 could also be support and not for quid pro quo... Union of India has been unable to establish that 7(4) is the least restrictive means to curb right to information," the bench says.
 
The bench also ordered ECI to publish on its official website by 13 March 2024 the details of the political parties which have received contributions through EBs since April 2019.
 
Further, the apex court says that the electoral bond scheme is “not the only means for curbing black money” in electoral financing, and there are other alternatives which substantially fulfil the purpose and impact the right to information minimally when compared to the impact of electoral bonds on the right to information.
 
Saying that financial contribution to a political party could lead to quid pro quo arrangements, the bench led by chief justice DY Chandrachud ruled that by anonymising contributions to the political parties, the electoral bonds scheme infringes upon the right to information of the voter provided under Article 19(1)(a) of the Constitution.
 
Pronouncing judgement on pleas challenging the validity of the electoral bonds scheme, the bench says, "There is also a legitimate possibility that financial contribution to a political party would lead to quid pro quo arrangements because of the closed nexus between money and politics. Quid pro quo arrangements could be in the form of introducing a policy change or granting a license to the person making a financial contribution to the political party in power. The electoral bond scheme and the impugned provisions to the extent that they infringe upon the right to information of the voter by anonymising contributions through electoral bonds are violative of Article 19(1)(a)."
 
Saying that political contributions give a seat at the table to the contributor, i.e., it enhances access to legislators, and this access also translates into influence over policy-making, chief justice Chandrachud added that the information of funding of political parties is essential for the effective exercise of the choice of voting.
 
"One of the factors that contributes to political inequality is the difference in the ability of people to influence political decisions because of economic inequality. Economic inequality leads to deferring levels of political engagement because of the deep association between money and politics," he says.
 
The SC held it 'manifestly arbitrary' to permit unlimited political contributions by the companies, saying that contributions made by companies are purely business transactions made with the intent of securing benefits in return.
 
In sum, the apex court declared the amendment to the Income Tax (I-T) Act introduced by the Finance Act 2017, the amendment to the Companies Act 2013 and the amendment to the Representation of People Act as unconstitutional.
 
Justice Sanjiv Khanna authored a separate but concurring verdict. “I have also applied proportionality standards but with slightly different variations. My conclusions are the same,” justice Khanna says.
 
In November 2023, a five-judge Constitution bench headed by CJI Chandrachud and comprising justice Sanjiv Khanna, justice BR Gavai, justice JB Pardiwala, and justice Manoj Misra reserved its verdict on pleas challenging the validity of the electoral bonds scheme after hearing the arguments for three days in a row.
 
The petitioners before the apex court had argued that the electoral bond scheme violates the citizen's fundamental right to information under Article 19(1), and it enables backdoor lobbying, promotes corruption and eliminates a level playing field for political parties in the opposition.
 
Senior counsel Prashant Bhushan, who represented the Association for Democratic Reforms (ADR), the petitioners, says, "Kudos to the SC for striking down anonymous electoral bonds and also the unlimited funding by corporations of political parties. (The) SC has also directed disclosure of bonds encashed so far, who gave to whom? This will have a far-reaching impact on our electoral democracy and polity."
 
 
In 2017, ADR and Communist Party of India (Marxist—CPI(M)—filed a writ petition challenging provisions of Finance Act 2017 and Finance Act 2016, both passed as money bills. It says, "(passing of the Acts as money bill have) opened doors to unlimited political donations, even from foreign companies and thereby legitimising electoral corruption at a huge scale, while at the same time ensuring complete non-transparency in political funding."
 
Data obtained under RTI (right to information) by commodore Lokesh Batra (retd) shows that during the 30 phases between March 2018 and January 2024, SBI sold EBs worth Rs16,518.10 crore. Denomination-wise, nearly 95% of these electoral bonds sold were of the highest value Rs1 crore.
 
 
On 2 January 2018, the ministry of finance notified the EB scheme. As per the scheme, an electoral bond is a bond issued in the nature of a promissory note, it may be purchased by a person who is a citizen of India or entities incorporated or established in India. The bonds are issued in multiples of Rs1,000, Rs10,000, Rs1 lakh, Rs10 lakh and Rs1 crore. These are available at specified branches of SBI, and any account holder compliant with know-your-customer (KYC) norms can buy these bonds. Donors can donate the bonds to their party of choice, which can then be encashed by the party's verified account within 15 days. The bond does not carry the name of the buyer or the payee. The political party does not have to disclose who it has received the bond from in its account. Neither does the donor entity have to state to which party it has donated. Also, as per the scheme, only eligible political parties with 1% vote share are eligible to buy electoral bonds.
 
The plea filed by ADR also stated that the Reserve Bank of India (RBI had given repeated warnings to the government against the electoral bond scheme, stating that it has the potential to increase black money circulation, money laundering, cross-border counterfeiting and forgery. This has been revealed in replies received under the Right to Information (RTI) Act by transparency activists commodore Lokesh Batra (retd) and Anjali Bhardwaj.
 
However, concerns raised by RBI were dismissed by the ministry of finance in a note dated 30 January 2017, which is signed by the revenue secretary and carries the signature of Arun Jaitley, the then finance minister. The note procured under RTI states: "It appears to me that the RBI has not understood the proposed mechanism of having pre-paid instruments for the purpose of keeping the identity of the donor secret while ensuring that donation is made only out of fully tax-paid money of a person. Since there will be a time limit for redeeming the pre-paid instruments and since there will be a limitation of redeeming such bonds only in the designated accounts of registered political parties, the fear of such bearer instruments being used as currency is totally unfounded. Also this advice has come quite late at a time when the Finance Bill is already printed. We may, therefore, go ahead with our proposal.”
 
"Not only were the objections raised by the RBI disregarded, but even the suggestions made to make the scheme less vulnerable to fraud were ignored. The only suggestion which was accepted was regarding restricting the validity of these electoral bearer bonds to 15 days. The documents obtained through the RTI Act show that the central bank never actually gave the government its explicit consent to go ahead with the electoral bond scheme as envisaged. Instead, the government had to resort to using the RBI’s 'indirect approval' as recorded in a handwritten noting by the secretary (EA) dated 21 November 2017 and also carrying the signature of the finance minister," the petition filed by ADR says.
 
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Comments
Kamal Garg
2 months ago
Finally one more clever misdeed of Arun Jaitley's brainchild has been shown the dustbin.
amodi
2 months ago
Ours is agreat country where matters get resolved when the damage is fully done and its consequences become irrtreivable as is also evident from many judgements holding elections and splits in political partiess invalid. It shall be commendable if the courts find some way of indemnifying such losses by itself or some other sources.
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