Landmark Ruling: Supreme Court declares Electoral Bond Scheme unconstitutional in unanimous decision, citing violation of right to information The Constitutional bench, comprised of five judges, invalidates scheme and related amendments to RPA, IT, and Companies Act
15, Feb 2024 | CJP Team
On February 15, in what one can call a watershed moment, the Supreme Court of Indian struck down the Electoral Bonds Scheme of 2017, holding the same to be unconstitutional. While pronouncing the unanimous verdict of the five-bench constitutional bench, Chief Justice of India DY Chandrachud held that anonymous electoral bonds are violative of the right to information under Article 19(1)(a) of the Constitution.
As per a report in LiveLaw, the CJI stated “Crucial aspect of expansion of right to information is that it is not confined to state affairs but also includes information necessary for participatory democracy. Infringement to the right to information is not justified by the purpose of curbing black money.”
The constitution bench, also comprising Justices Sanjiv Khanna, BR Gavai, JB Pardiwala and Manoj Misra, had dealt with two major issues in the said case- whether the non-disclosure of information on voluntary contributions to political parties in accordance to the electoral bond scheme and the amendments to Section 29C of Representation of the People Act, Section 183(3) of the Companies Act, Section 13A(b) of the Income Tax Act should be held violative of the right to information under Article 19(1)(a) of the Constitution, and second, whether unlimited corporate funding to political parties as envisaged by the amendment to Section 182(1) of the Companies Act violates the principle of free and fair elections.
Observing the scheme to be unconstitutional, the bench also quashed the amendments made to the Income Tax Act and the Representation of People Act which had made the donations anonymous. In furtherance to this, the bench observed that the amendment to Section 182 of Companies Act becomes otiose in view of the unconstitutionality of the electoral bonds scheme.
While delivering the judgment, CJI said “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 bench further held that the union was unable to satisfy the court on the restrictive means test and that means other than electoral bonds can be used to achieve the purpose of curbing black money.
The CJI stated “Union has been unable to establish the measure adopted in clause 7(4)(1) of the electoral scheme is the least restrictive measure.”
Furthermore, the court directed that the issuing bank, i.e., the State Bank of India, shall forthwith stop the issue of electoral bonds and will have to furnish the details of donations through electoral bonds and the details of the political parties which received the contributions. The said details have been directed by the Court to be submitted to the Election Commission of India (ECI) by March 6, which shall then be published by the ECI on their official website by March 13. In view of the principle of proportionality, the political parties have been directed by the Supreme Court to thereafter refund the Electoral bonds amount to the purchaser’s account.
With this, the Court observed that while the privacy of donors is important, transparency in political funding cannot be achieved by granting absolute exemptions. Notably, a total of two judgments have been written in the case, with the lead judgment having been penned down by CJI Chandrachud and a concurring judgment with a slightly different opinion by Justice Khanna. The judgment authored by CJI Chandrachud was on the behalf of Justices Gavai, Pardiwala, and Misra as well.
What are electoral bonds?
In the month of February 2017, as the Union Budget was unveiled, the Former Finance Minister Arun Jaitley voiced his unease about the glaring absence of a transparent mechanism for financing political parties. He lamented that even after seven decades of independence, this vital component crucial to ensuring equitable and just elections continued to elude the nation.
To tackle this challenge head-on, he had introduced the Electoral Bonds Scheme with an aim to “cleanse the system” and revolutionize political funding.
An electoral bond is like a promissory note. The Union unveiled the Electoral Bond Scheme, 2018 through a notification sent out on 2 January 2018. Interestingly, an electoral bond does not reveal the identity of the buyer or payee, adding an element of secrecy to donor transactions. Anyone who is a citizen of India or incorporated/established in India can acquire bonds individually or team up with other individuals for this clandestine contribution. Authorized branches of the State Bank of India hold the privilege to issue these electoral bonds. To partake in this covert transaction, one must either visit an authorized SBI branch in person or make use of their online portal.
However, the privilege of electoral bonds is restricted to only a political party, which had secured more than 1 percent of votes in the previous general election to the Legislative Assembly. The party must also encash the issued bond within15 days, discrepancy in doing this will lead to the donation of the amount to the Prime Minister Relief Fund.
Challenges to the scheme
Shortly after the amendments were unveiled, in January 2018, a coalition of Non-Governmental Organizations—Association for Democratic Reforms and Common Cause—alongside the Communist Party of India initiated legal proceedings in the Supreme Court to contest the amendments. The petitions contended that the Finance Acts were deceptively enacted as money bills to evade thorough examination by the Rajya Sabha. This contentious issue is intertwined with broader debates surrounding the use of money bills under Article 110. Petitioners also argued that the scheme perpetuated a culture of secrecy in political funding and sanctioned widespread electoral malpractice on an unprecedented level.
Procedural background
On April 12, 2019, a panel headed by Chief Justice Ranjan Gogoi and comprising Justices Deepak Gupta and Sanjiv Khanna instructed all political parties to provide information about their donations, donors, and bank account numbers in a sealed cover to the ECI. The panel chose not to halt the implementation of the scheme but emphasized that these significant matters would need careful consideration
Subsequent to the Order, the petitioners made their way to the Court time and again. They first presented an urgent plea in November 2019, and then returned for another attempt in October 2020 just before the buzz of the Bihar elections.
In the beginning of 2021, Association for Democratic Reforms made a move by approaching the Court to halt the scheme before a fresh round of bond sales. The application was thoroughly reviewed by a Bench led by Chief Justice S.A. Bobde flanked by Justices A.S. Bopanna and V. Ramasubramanian. On March 26, 2021, the Bench decisively rejected any stay on the scheme application, dismissing concerns about foreign corporate influence on electoral processes as “misconceived.” Furthermore, they firmly advised against repetitive applications seeking identical relief from the Court.
The case was referred to a five-judge Constitution Bench led by the CJI Chandrachud, accompanied by Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala, and Manoj Misra. On October 3, 2023, the Bench gathered to deliberate over the case for a course of three days. The petitioners presented concerns about the electoral bonds scheme fostering corporate funding and black money, and corruption. They asserted that voters deserved insight into political parties’ financial sources as it illuminated the very essence of those parties’ policies and perspectives. On the other hand, the Union put forth an unexpected defense – claiming that this cloak-and-dagger scheme was devised to protect donors’ confidentiality and right to privacy from potential retaliation by ungrateful political entities they chose not to support.
The main issues before the bench were as follows:
- Is the electoral bond scheme constitutional?
- Does the electoral bond scheme violate the voters’ right to information?
- Can the Scheme allow anonymity with the view to protect donors’ right to privacy?
- Does the electoral bond scheme threaten the democratic process, and free and fair elections?
The petitioners’ team, consisting of Senior Advocates Prashant Bhushan, Nizam Pasha, Kapil Sibal, Vijay Hansaria, Sanjay Hegde and Advocate Shadan Farasat put forth compelling arguments, such as:
1. Suppression of Right to Information and lack of transparency
Arguments have been put forth in the courtroom questioning the Electoral Bond scheme’s infringement upon citizens’ fundamental right to information under Article 19 a regarding political parties. Bhushan drew upon precedent from previous court rulings to emphasize that if individuals are entitled to knowledge about candidates, then they unequivocally possess the right to transparency concerning political party funding as well.
In an assertion before the Supreme Court, Solicitor General of India Tushar Mehta emphasized the paramount importance of safeguarding the confidentiality of bond buyers. He underscored that this protection is crucial in preserving donors’ privacy and guarding against retaliation or victimization by any opposing political factions. Additionally, he asserted that only the receiving party should have access to donor information. Rebutting this, Shadan Farasat stated, “Right to privacy of individuals cannot extend to shadow the entire political system and affect the public interest.”
2. Provides pathways to shell companies
Under the proposed scheme, the government revoked the limit od 7.5 percent annual profit limit for company donations to political parties and has allowed for Indian subsidiaries of foreign companies to make contributions, shell companies could also be utilized for making donations. In fact, with amendments to the FCRA, a circumstance wherein a loss-making company that does not operate for business purposes, or does no business can also dole out funds.
3. Adds to the problem of corruption
Sibal argued that the proposed scheme instead of combating the issue of corruption provides leeway to circumvent getting prosecuted under the Prevention of Corruption Act (PCA) and Prevention of Money Laundering Act, PMLA. The anonymity promised by the scheme leads to a situation wherein it become difficult to trace the corrupt components and to determine the transaction that may have transpired.
4. Allocation of donations is inequitable
Bhushan pointed towards the discrepancy that the electoral bonds are creating. The donated amount may exceed the allocated budget for candidates for the Lok Sabha. Moreover, the difference between the amount donated to one party may exceed the donations to the other, affect our democracy negatively.
Substantiating this, in an article for BBC, Soutik Biswas mentions, “Prime Minister Narendra Modi’s ruling Bharatiya Janata Party (BJP) appears to be the main beneficiary, cornering three-quarters of the bonds in 2019-20, compared with just 9% for the main opposition Congress.”
5. Paves way for backdoor lobbying and quid pro quo
Bhushan revealed that circumstantial evidence that points to illicit kickbacks funnelled through electoral bonds from corporations to the ruling political parties in exchange for lucrative favours. Such a case can deduced from the circumstances befalling the Vedanta Limited. This particular corporation, amid reports of financial crunch, made hefty donations to electoral and then was subsequently declared to be the preferred bidder for several mining licences. Bhushan banks on several vase studies to illustrate that the scheme serves as a cloak for clandestine corporate lobbying efforts.
6. Usage of the electoral bonds cannot be determined
Sibal contended that the title “Electoral Bond” is deceiving, for once withdrawn, the funds can be utilized without any accountability or transparency regarding their usage by political parties.
Sibal mentioned, “There is nothing in the scheme which connects the donations made to the participation in the electoral process. It’s a means for political parties to be enriched.”
Deliberating on this, the CJI inquired if there was any spending required. Sibal, in support of his argument stated that, “None! You can spend this money, however. You can build your office. You can set up a whole internet network throughout the country.”
7. Trading of electoral bonds
Sibal stated that there may develop a system operating to trade electoral bonds. With regards to trading, the CJI observed that although trading is restricted there is no way to ensure a complete termination. A person could assume the position of an aggregator and may distribute the bond to multiple people.
What does the Election Commission of India say about the Electoral Bond Scheme?
The Election Commission of India (ECI), one of the respondents in the above-mentioned petitions, presented a and affidavit opposing the Electoral Bond Scheme (EBS). The affidavit painted a vivid picture of how the scheme undermines transparency in political finance. It alleged that the ECI had sent a cautionary letter to the Union Government on May 26, 2017, emphasizing the potential adverse effects on transparency in political finance and funding. Moreover, it argued that shielding political parties from disclosing contribution details would shroud foreign funding information in secrecy. The affidavit raised concerns about unchecked foreign funding influencing Indian policies through foreign companies.
Subsequent to this, on April 1, the Union government put forward a rejoinder stating that the EBS marked an initiative towards electoral reform, aiming to uphold transparency and accountability in political funding. The government asserted that cash donations had been causing an unchecked influx of black money into political parties’ funds, but with only one authorized bank—the State Bank of India—issuing these bonds and thorough KYC details required for transactions, such issues would no longer pose a threat to political funding.
Electoral Bonds in numbers by ADR
In seventeen phases spanning from March 2018 to July 2021, a whopping total of Rs 7380.638 crore adorned in the form of 14,363 Electoral Bonds found their way into the political arena. The sum of Rs 7360.3545 crore was redeemed by claiming ownership of 14,217 bonds during this period. 49.075% of the resplendent electoral bond treasure was fervently acquired within two months: March and April 2019 as part of the grand general elections.
In the ever-evolving Indian political landscape, a staggering 2,628 political parties now exist as of September 30, 2020 – flourishing from the count of 1,500 back in January 2017. This surge triggers thoughts about the potential impact of electoral bonds and clandestine corporate contributions. Most intriguingly, many among these swelling ranks have no intention to partake in elections; raising suspicions of involvement in money laundering or transforming illicit funds into legitimate assets through their party status
Critiques of Electoral Bonds
Association for Democratic Reforms (ADR) informs that the lack of transparency is “unconstitutional and problematic” because it conceals from the taxpayers the source of donations. Moreover, the bonds advertised as being completely anonymous are not clandestine entirely. The SBI keeps the record of donors and done, making it easily accessible to the ruling parties.
Additionally, as per ADR, electoral bonds contain unique alphanumeric characters that remain invisible to the naked eye and can only be revealed under ultraviolet light. Despite the government’s insistence on their inclusion for security purposes, numerous experts have discredited this claim. Investigations by ‘The Quint’ and various other sources have exposed the true intent behind these hidden features – a covert means for the ruling government to clandestinely monitor donors. The supposed anonymity of these bonds does not extend to the government, which retains access to donor details through SBI. This leaves the Indian public and opposition parties in unilluminated uncertainty regarding the origins of these contributions.
Milan Vaishnav, belonging to Carnegie Endowment for International Peace, a think-tank situated in Washington, says that electoral bonds had “set the fight for campaign finance reform back by decades.” He also mentions that, “With electoral bonds, government has essentially legislated opacity” while talking about transparency.
Vidhi Centre for Public Policy adds, “The introduction of the electoral bond scheme is part of what appears to be a growing trend away from transparency and accountability, two values which were already sparse in relation to Indian political parties.”
For opposition parties, the electoral bond scheme represents a veil shrouding large anonymous donations to political parties, posing a direct threat to the heartbeat of democracy. The CPI(M) petition echoed these sentiments, emphasizing the critical need for transparency in political funding within a thriving democracy. Since its inception in 2018 following crucial amendments, the Electoral Bonds Scheme has seen an overwhelming influx of anonymous contributions that strike at the heart of our democratic essence.
According to the revelation made by the Former Election Commissioner of India Mr. SY Quraishi in an interview, “While buying an electoral bond, one needs to finish their KYC details. The serial number of the bond, matched with the KYC details, will clearly reveal who donated how much money to which political party.”
What does ADR Recommends as an advocate for democracy?
The organization advocates for the complete elimination of the scheme, emphasizing transparency in political funding. In case the scheme persists, ADR suggests that –
- The anonymity of bond donors should be eradicated. They propose that all political parties receiving electoral bond donations disclose detailed information about each donation in their financial reports to provide full transparency to the public eye.
- A list of all political parties eligible to receive donations through electoral bonds should be available. This list must be regularly updated based on the vote share secured by the parties in the last General Election to the Legislative Assembly contested. It must be made available in public domain through various mediums including websites, SBI branches authorized for sale of electoral bonds, and hard copies for easy access and transparency.
- The ECI should be the guardian of integrity, ensuring that only eligible political parties should be empowered to cash in on the electoral bonds as per the rules laid out in the Electoral Bond Scheme of 2018.
- With a view to promise transparency, every National and Regional political party should provide details about the funds they receive via electoral bonds through the Right to Information Act. A including full disclosure of donors’ identities should be open for the public under the lens of RTI
For reference:
The pdf of the electoral bonds scheme can be viewed here:
A synopsis of the writ petition filed by Association for Democratic Reforms can be viewed here:
Written Submissions on behalf of Senior Advocate Kapil Sibal can be viewed here:
Counter affidavit filed by the ECI in the matter can be viewed here:
Rejoinder by Ministry of Finance in the matter can be viewed here:
A synopsis of the writ petition filed by CPI(M) can be viewed here:
(The backgrounder to this article has been researched by CJP’s legal interns team including Karishma Jain)
Related:
Electoral Bonds: A Democracy’s Trojan horse
Is India’s democracy being sold through electoral bonds?
SC expresses concern over the possible misuse electoral bonds, reserves its order on the matter
Centre Allowed Electoral Bonds Sale for 15 More Days Despite Official Objection: ADR
