SBI fails to comply in the electoral bond scheme case despite SC Ruling Judgement Primer: Electoral Bonds Scheme of 2017
11, Mar 2024 | Legal Researcher
On February 15, a five judge constitutional bench of the Supreme Court (SC) struck down the Electoral Bonds Scheme of 2017, and held 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. The right of the voter to know who and what lies behind electoral finances was held to be above the right to privacy of powerful corporations and political parties.
Reading out parts of the 232-page judgement, adjudged historic even though it was delivered over six years after the Electoral Bonds Scheme had been challenged in 2017, the CJI DY Chandrachud stated in open court
“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.” (Para 22; Para 65 Part F, Page 55 of the Concurrent Judgement of CJI Chandrachud, Justices BR Gavai, Pardiwala and Manoj Mishra).
Now that India’s largest public sector bank has, on March 5, 2024, a day before it had to ensure compliance with the SC Order of February 15 has pleaded for over 110 days to deliver, the lead petitioner, and the ADR has filed a contempt petition against the SBI. The Supreme Court on March 5, 2024 dismissed the SBI’s application for extension and has directed them to disclose the details by the close of business hours March 12, 2024.“While we are not inclined to exercise the contempt jurisdiction at this time, we place SBI on notice that this Court may be inclined to proceed against it for wilful disobedience if SBI does not comply with the directions by the timelines indicated in this order.”
The majority concurring judgement delivers its conclusions and directions at Page 149 Part H
“219. In view of our discussion above, the following directions are issued:
- The issuing bank shall herewith stop the issuance of Electoral Bonds;
- SBI shall submit details of the Electoral Bonds purchased since the interim order of this Court dated 12 April 2019 till date to the ECI. The details shall include the date of purchase of each Electoral Bond, the name of the purchaser of the bond and the denomination of the Electoral Bond purchased;
- SBI shall submit the details of political parties which have received contributions through Electoral Bonds since the interim order of this Court dated 12 April 2019 till date to the ECI. SBI must disclose details of each Electoral Bond encashed by political parties which shall include the date of encashment and the denomination of the Electoral Bond;
- SBI shall submit the above information to the ECI within three weeks from the date of this judgment, that is, by 6 March 2024;
- The ECI shall publish the information shared by the SBI on its official website within one week of the receipt of the information, that is, by 13 March 2024; and
- Electoral Bonds which are within the validity period of fifteen days but that which have not been encashed by the political party yet shall be returned by the political party or the purchaser depending on who is in possession of the bond to the issuing bank.
The issuing bank, upon the PART H 152 return of the valid bond, shall refund the amount to the purchaser’s account. (Para 219)”
Justice Sanjiv Khanna judgement is a separate judgement running into 74 pages and while concurring with the majority view on the unconstitutionality of the Schemes on several crucial counts, is even more specific and direct in its directions. At pages 213-218 of the judgement, Justice Sanjiv Khanna elaborates these aspects thoroughly.
He then goes further.
In examining one accept that was argued but not pressed by the lead petitioner, Association for Democratic Reforms (ADR), Justice Khanna outlines the coercive elements at the heart of the scheme that require further examination and study. This includes the argument that there should be a cap on the quantum of donations and further, that the law should stipulate that the funds thus collected through electoral bonds should be utilised for political purposes alone given that the income of the political parties is exempt from income tax
“74. In consonance with the above reasoning and on application of the doctrine of proportionality, proviso to Section 29C (1) of the Representation of the People Act 1951, Section 182(3) of the Companies Act 2013 (as amended by the Finance Act 2017), Section 13A(b) of the Income Tax Act 1961 (as amended by the Finance Act 2017), are held to be unconstitutional. Similarly, Section 31(3) of the RBI Act 1934, along with the Explanation enacted by the Finance Act 2017, has to be struck down as unconstitutional, as it permits issuance of Bonds payable to a bearer on demand by such person. (Para 74)
“75. The petitioners have not argued that corporate donations should be prohibited. However, it was argued by some of the petitioners that coercive threats are used to extract money from businesses as contributions virtually as protection money. Major opposition parties, which may come to power, are given smaller amounts to keep them happy. It was also submitted that there should be a cap on the quantum of donations and the law should stipulate funds to be utilised for political purposes given that the income of the political parties is exempt from income tax. Lastly, suggestions were made that corporate funds should be accumulated and the corpus equitably distributed amongst national and regional parties. I have not in-depth examined these aspects to make a pronouncement. However, the issues raised do require examination and study. (Para 75)”
Justice Khanna further elaborates on the interim order of the Supreme Court in this matter, delivered on March 26, 2021.
“76. By an interim order dated 26.03.2021, this Court in the context of contributions made by companies through Bonds had prima facie observed that the voter would be able to secure information about the funding by matching the information of aggregate sum contributed by the company as required to be disclosed under Section 182(3) of the Companies Act, as amended by the Finance Act 2017, with the information disclosed by the political party. Dr. D.Y. Chandrachud, Hon’ble the Chief Justice, rightly observes in his judgment that this exercise would not reveal the particulars of donations, including the name of the donor. (Para 76)
“77. By the order dated 02.11.2023, this Court had asked for ECI’s compliance with the interim order of this Court dated 12.04.2019. Relevant portion whereof is reproduced below:
“In the above perspective, according to us, the just and proper interim direction would be to require all the political parties who have received donations through Electoral Bonds to submit to the Election Commission of India in sealed cover, detailed particulars of the donors as against the each Bond; the amount of each such bond and the full particulars of the credit received against each bond, namely, the particulars of the bank account to which the amount has been credited and the date of each such credit.” (Para 77)
“The intent of the order dated 12.04.2019 is that the ECI will continue to maintain full particulars of the donors against each Bond; the amount of each such Bond and the full particulars of the credit received against each Bond, that is, the particulars of the bank account to which the amount has been credited and the date of each such credit. This is clear from paragraph 14 of the order dated 12.04.2019 which had directed that the details mentioned in paragraph 13 of the order dated 12.04.2019 will be furnished forthwith in respect of the Bonds received by a political party till the date of passing of the order. (Para 77)
“78. In view of the findings recorded above, I would direct the ECI to disclose the full particular details of the donor and the amount donated to the particular political party through Bonds. I would restrict this direction to any donations made on or after the interim order dated 12.04.2019. The donors/purchasers being unknown and not parties, albeit the principle of lis pendens applies, and it is too obvious that the donors/purchasers would be aware of the present litigation. Hence, they cannot claim surprise. (Para 78)
“79. I, therefore, respectfully agree and also conclude that:
- the Scheme is unconstitutional and is accordingly struck down;
- proviso to Section 29C(1) of the Representation of the People Act, Section 182(3) of the Companies Act, 2013, and Section 13A(b) of the Income Tax Act, 1961, as amended by the Finance Act, 2017, are unconstitutional, and are struck down;
- deletion of proviso to Section 182(1) to the Companies Act of 2013, thereby permitting unlimited contributions to political parties is unconstitutional, and is struck down;
- sub-section (3) to Section 31 of the RBI Act, 1934 and the Explanation thereto introduced by the Finance Act, 2017 are unconstitutional, and are struck down;
- the ECI will ascertain the details from the political parties and the State Bank of India, which has issued the Bonds, and the bankers of the political parties and thereupon disclose the details and names of the donor/purchaser of the Bonds and the amounts donated to the political party. The said exercise would be completed as per the timelines fixed by the Hon’ble the Chief Justice;
- Henceforth, as the Scheme has been declared unconstitutional, the issuance of fresh Bonds is prohibited;
- In case the Bonds issued (within the validity period) are with the donor/purchaser, the donor/purchaser may return them to the authorised bank for refund of the amount. In case the Bonds (within the validity period) are with the donee/political party, the donee/political party will return the Bonds to the issuing bank, which will then refund the amount to the donor/purchaser. On failure, the amount will be credited to the Prime Ministers Relief Fund. (Para 79)
Brief Background
The electoral bond scheme was first introduced in 2017 through the Finance Act, 2017, with the sole purpose of funding political parties while maintaining anonymity of donors and purchasers of the bonds. The apparent aim of the scheme was to curb black money by reducing cash money in the election funding and “to cleanse the system of political funding in the country.”
Electoral bond is similar to a promissory note that is issued to the purchaser of the bond in various denominations (1,000, 10,000, 1,00,000, 10,00,000 and 1,00,00,000) by the selected branches of the State Bank of India, the only authorised bank to issue electoral bonds. Thereafter, the purchased bond has to be encashed by the eligible political party through a designated bank account with the authorised bank. The identity of the purchaser of the bond will remain privy to the authorised bank, and needs to be kept confidential and anonymous. It is argued by the government that donor privacy is required to protect the donor from political witch hunt for supporting a political party or a cause.
Prior to the introduction of the scheme, the Union Government also amended various provisions of the laws to remove the cap on political funding by the companies, and to do away with the requirements of disclosing particular details of the funding provided and received by the companies and political parties, respectively. The Finance Act, 2017, introduced as a money bill, amended the Representation of People Act, 1951 (RoPA), the Companies Act, 2013, the Reserve Bank of India Act, 1934, and the Income Tax Act, 1961. None of these amendments were thoroughly discussed or deliberated upon in Parliament nor the opinions of citizens sought. In essence the scheme was steamrolled through the Legislature.
How the Finance Act was amended
The amendment by the Finance Act, 2017, omitted the first proviso to Section 182(1) of the Companies Act, which, before the amendment, restricted a company’s total contribution to a political party to 7.5% of its average net profit calculated on the basis of the last three (consecutive) financial years. In addition, it amended Section 182(3) of the same Act to do away with the requirement to disclose the details about the particular amount and name of the party that the company contributed to from its profit and loss account. After the amendment, only the total contribution donated to political parties needs to be disclosed without providing particular details or name of the parties. Similarly, amending Section 29C of the Representation of People Act (RoPA), it exempted the political parties from disclosing the particular details of the donations received through electoral bond.
How the RBI Act was amended
Making changes to the RBI Act, Parliament unilaterally –without deliberation– amended Section 31 of the said Act, to allow the Central Government to authorise any scheduled bank to issue electoral bond. Earlier, only the RBI or the Central Government as authorized by the RBI Act were allowed to draw, accept, make, or issue any bill of exchange or promissory note. Lastly, it changed Section 13 of the Income Tax Act to exempt political parties from keeping and maintaining a record of (voluntary) contribution and the name and address of the person who has made such contribution, if the said contribution was received through electoral bond.
Scheme and amendment to Laws challenged
The Electoral Bonds Scheme was immediately challenged as unconstitutional on the grounds that it promotes unlimited corporate funding of the elections, increasing money power and corruption in the elections, and violating the right to information of the voters by ensuring anonymity of significant political funders and donors.
The lead petition challenging the Scheme was first filed on September 4, 2017 by Association for Democratic Reforms and Common Cause. Though interim orders were passed in 2019 and 2021, the final judgement took over six years in coming and was finally delivered on February 15, 2024. The Judgement struck down the scheme and the amendments brought in through the Finance Act, 2017, as unconstitutional.
Who has benefitted most from the electoral bond scheme?
According to the RTI data analysed by Association for Democratic Reforms, one of the petitioners in the case that challenged the validity of the scheme, 28,030 electoral bonds worth Rs. 16,518 crores were sold from March 2018 to January 2024. Indian Express reported that since the beginning of the scheme in 2017 till the financial year 2023 more than half of the funds collected through electoral bonds have gone to the ruling Bharatiya Janata Party (BJP), which received bonds worth Rs. 6565 crores while the Indian National Congress came a distant second with Rs. 1123 crores. TMC, BJD, and DMK, received bonds worth Rs. 1093 crores, 774 crores, and 617 crores, respectively. Smaller parties received substantially lesser share in the scheme, with the bottom five parties receiving less than Rs. 100 crores each during the same duration.
Challenge to the electoral bond scheme
Though the petition was filed as early as 2017 by ADR and Common Cause, the list of petitioners increased with Communist Party of India (Marxist), Jaya Thakur and Spandan Biswal also challenging the scheme. The Supreme Court clubbed the petitions and started hearing the case in a substantial manner only in 2023.
On October 16, 2023, the three judge bench of the Supreme Court consisting of Chief Justice of India, Justice J B Pardiwala, and Justice Manoj Misra maintained that, “In view of the importance of the issue which is raised and having due regard to the provisions of Article 145(3) of the Constitution, we are of the considered view that the batch of petitions be listed before a bench of at least five-Judges.”
The Constitution bench comprising of Chief Justice of India, J B Pardiwala, Manoj Misra, B R Gavai, and Sanjiv Khanna finally heard the matter in which the scheme was found to be unconstitutional.
Grounds behind Scheme being struck down
Initially the petition challenged the introduction of Finance Bill 2017 as a money bill, through which the electoral bond scheme first came into existence, alleging that the nature of Bill revealed that it encompassed areas beyond financial matters. The SC did not go into the question of the passage of the Finance Bill as a money bill in this judgement, and decided the matter on the merits of the case concerning the scheme per se.
When the Union raised the objection that the court cannot look into the legality of Electoral Bond Scheme as it is covered under the ambit of economic policy, the Chief Justice rejected the argument, saying, “The Union of India has itself classified the amendments as an “electoral reform”. Thus, the submission of the Union of India that the amendments deal with economic policy cannot be accepted.” (Paras 41-42, Part D, Page 41)
Close nexus between money and power
Using the law and society approach the judgement notes that money creates entry-barriers to politics by limiting the candidates and political parties, especially parties representing the cause of marginalised communities, who can participate in the electoral fray. Though not having a directing bearing on the case, the bench also pointed out the dichotomy present in the existing legal regime as enunciated in Section 77 of the Representation of People’s Act said,
“Part E. The close association of politics and money
- The law does not bar electoral financing by the public. Both corporates and individuals are permitted to contribute to political parties. The legal regime has not prescribed a cap on the financial contributions which can be received by a political party or a candidate contesting elections. However, Section 77 of the RPA read with Rule 90 of the Conduct of Election Rules 196161 prescribes a cap on the total expenditure which can be incurred by a candidate or their agent in connection with Parliamentary and Assembly elections between the date on which they are nominated and the date of the declaration of the result. The maximum limit for the expenditure in a Parliamentary constituency is between Rupees seventy five lakhs to ninety five lakhs depending on the size of the State and the Union Territory.62 The maximum limit of election expenses in an Assembly constituency varies between rupees twenty eight lakhs and forty lakhs depending on the size of the State.63 However, the law does not prescribe any limits for the expenditure by a political party.
Section 77 stipulates that the expenditure incurred by “leaders of a political party” on account of travel for propagating the programme of the political party shall not be deemed to be election expenditure. Thus, there is an underlying dicohotomy in the legal regime.
The law does not regulate contributions to candidates. It only regulates contributions to political parties. However, expenditure by the candidates and not the political party is regulated. Be that as it may, the underlying understanding of the legal regime regulating electoral finance is that finance is crucial for the sustenance and progression of electoral politics. (Para 46)
47. It is believed that money does not vote but people do. However, studies have revealed the direct and indirect influence of money on electoral politics. The primary way through which money directly influences politics is through its impact on electoral outcomes. (Para 47)
The judgement also observed that
“The ability of a company to influence the electoral process through political contributions is much higher when compared to that of an individual…Contributions made by individuals have a degree of support or affiliation to a political association. However, contributions made by companies are purely business transactions, made with the intent of securing benefits in return.” (Para 212, Page 147)
The Union Government argued that the 7.5% cap that was put on companies’ donation to political parties was removed to prevent corruption and growth of shell entities, as the companies who wanted to donate more would otherwise resort to illegal means.
The bench debunked such claim, and said that the argument is counterproductive, for
“If the ostensible object of the amendment, as contended by the learned Solicitor General, was to discourage the creation of shell companies, there is no justification for removing the cap on contributions which was included for the very same purpose: to deter shell companies from making political contributions”. (Para 207, Page 144)
Right to Informational Privacy of donors vs Right to Information of voters
The most contentious issue that the scheme raised was regarding the right to (informational) privacy of donors vs right to information of voter, both being fundamental rights under the Constitution.
Importantly, the SC revealed another discrepancy in the argument of the Union with regard to the role of privacy in the scheme.
It questioned the stand taken by Solicitor General of India, Tushar Mehta, and observed that the then Finance Minister,
“Mr. Jaitley stated that the main purpose of the Scheme is to curb black money in electoral financing and this purpose could be achieved only if information about political donations is kept confidential. That is, donor privacy is a means to incentivize contributions through the banking channel. However, Mr. Tushar Mehta argued that protecting donor privacy is an end in itself.” (Para 108, Page 80)
The judgement further noted that the scheme only grants de jure and not de facto confidentiality vis-à-vis the political party, it is still open to the political party to coerce persons to contribute.
The CJI led concurrent judgment argued that when the question before the court is to balance between the two rights, it must apply double proportionality standard, that is, to deploy the said standard to “both the rights (as purposes) to determine if the means used are suitable, necessary and proportionate to the fundamental rights.” (Paras 161,162,163 at Pages 115-116)
Referring to Puttaswamy judgement, the bench noted that
“this Court did not trace the right to privacy only to Article 21. This Court considered privacy as an essential component for the effective fulfillment of the all entrenched rights.” (Paras 132-134 at Pages 96-98 onwards)
Thus, right to privacy is to be read along with other fundamental rights and not to their exclusion. Furthermore, the bench significantly noticed that
“the right to privacy of political affiliations does not extend to contributions which may be made to influence policies.” (Para 167 at Page 118)
On the right to information of voters, the SC relied on the series of judgments, including Union of India v. Association for Democratic Reforms, PUCL vs Union of India, State of Uttar Pradesh v. Raj Narain, and S P Gupta vs Union of India, to argue that just as the voters have right to information about the credentials and electoral expenditure of the candidates, the same would also apply to political parties, as they are also political units.
The bench held that a voter has a right to information which is essential for them to exercise their freedom to vote. Additionally, the order read that the purpose of curbing black money is not traceable to any of the grounds in Article 19(2). (Para 77 at Pages 62-63)
Ensuring free and fair elections
The 232 page final judgement referred to the basic principles of republican and democratic form of government and free and fair election, citing the precedents of Kesavananda Bharati v. State of Kerala, Indira Nehru Gandhi v. Raj Narain, Kuldip Nayar v. Union of India, and PUCL v. Union of India.
The bench emphasised that the integrity of the election process is pivotal for sustaining the democratic form of government, and
“permitting unlimited corporate contributions (including by shell companies) authorizes unrestrained influence of companies on the electoral process. This is violative of the principle of free and fair elections and political equality captured in the value of ‘one person one vote’”. (Paras 95, 96, 97 at Pages 73-74)
“97. Second, the Constitution ensures that socio-economic inequality does not perpetuate political inequality by mandating reservation of seats for Scheduled Castes and Scheduled Tribes in Parliament118 and State Assemblies. (Para 97)
“98. The Constitution guarantees political equality by focusing on the ‘elector’ and the ‘elected’. These two constitutional precepts foster political equality in the following two ways. First, the Constitution mandates that the value of each vote is equal. This guarantee ensures formal political equality where every person’s vote is accorded equal weightage. Second, the Constitution ensures that members of socially marginalized groups are not excluded from the political process. This guarantee ensures (a) equality in representation; and (b) equality in influence over political decisions. (Para 98)
99. However, political inequality continues to persist in spite of the constitutional guarantees. One of the factors which contributes to the inequality is the difference in the ability of persons to influence political decisions because of economic inequality. In a politically equal society, the citizens must have an equal voice to influence the political process. We have already in the preceding section elucidated the close association of money and politics where we explained the influence of money over electoral outcomes. However, the influence of money over electoral politics is not limited to its impact over electoral outcomes. It also spills over to governmental decisions. It must be recalled here that the legal regime in India does not distinguish between campaign funding and electoral funding. The money which is donated to political parties is not used by the political party only for the purposes of electoral campaign. Party donations are also used, for instance, to build offices for the political party and pay party workers. Similarly, the window for contributions is not open for a limited period only prior to the elections. Money can be contributed to political parties throughout the year and the contributed money can be spent by the political party for reasons other than just election campaigning. It is in light of the nexus between economic inequality and political inequality, and the legal regime in India regulating party financing that the essentiality of the information on political financing for an informed voter must be analyzed. (Para 99)
100. Economic inequality leads to differing levels of political engagement because of the deep association between money and politics. At a primary level, political contributions give a “seat at the table” to the contributor. That is, it enhances access to legislators. This access also translates into influence over policy-making. An economically affluent person has a higher ability to make financial contributions to political parties, and there is a legitimate possibility that financial contribution to a political party would lead to quid pro quo arrangements because of the close 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 contributor. The money that is contributed could not only influence electoral outcomes but also policies particularly because contributions are not merely limited to the campaign or pre-campaign period. Financial contributions could be made even after a political party or coalition of parties form Government. The possibility of a quid pro quo arrangement in such situations is even higher. Information about political funding would enable a voter to assess if there is a correlation between policy making and financial contributions. (Para 100)
Manifestly arbitrary nature of the scheme
Employing the test of proportionality and manifest arbitrariness, both the concurring judgements concluded that the scheme and the accompanying amendments failed the test of proportionality and is found to be arbitrary, thus violating Article 14 and 19(1).
They noted that electoral bond scheme is neither the least restrictive means employed to curb black money nor proportionate or connected to the objective being sought to be achieved.
The order highlighted that
“The statutory amendments and the Scheme are manifestly arbitrary because
- large scale corruption and quid pro quo arrangements would go unidentified due to the non-disclosure of information about political funding;
- they enable capture of democracy by wealthy interests; and
-
they infringe the principle of ‘one person-one vote’ because a selected few overpower the voice of the masses because of their economic wealth”.
Conclusion
On the basis of these conclusive reasons, the court struck down the electoral bond scheme and the accompanying amendments made to the Representation of People Act, the Income Tax Act, and the Companies Act.
Furthermore, it directed SBI to disclose the details of donors to Election Commission of India (ECI) by March 6, 2024, and ordered ECI to publish the details of the same by March 13, 2024. Justice Khanna’s sole separate judgement had put the responsibility on the ECI to disclose details of bonds’ funds
The order detailed that the information should include the name of the purchaser of the bond, denomination of the bond purchased, and details about the encashment of each bond by political parties. It also directed un-encashed bonds to be returned back to the bank.
In a late surprise move, the SBI on March 5, a day before the deadline, informed the SC that there is a practical difficulty complying with the March 5 deadline, as the process of verifying the data and determining the identity of the purchaser in a complex process which would require more time.
It has asked SC for an extension till June 30, 2024 to comply with its order, by which time the 2024 Lok Sabha election would be over, thereby depriving the citizens of their fundamental right to informed voting.
The judgement may be read here:
(The author is part of the CJP’s Legal Research Team)
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[1] Introduction of the Scheme of Electoral Bond, Department of Economic Affairs, Ministry of Finance, 2 January 2018. https://www.dea.gov.in/sites/default/files/Electoral%20Bonds_Press%20RELEASE_2-1-2018.pdf
[2] https://adrindia.org/sites/default/files/Updated_Data_on_Electoral_Bonds_Part_1.pdf
[3] Damini Nath and Anjishnu Das, “57% vs 10%: BJP vs Congress share in electoral bond funds”, Indian Express, 16 February, 2024. https://indianexpress.com/article/political-pulse/bjp-congress-electoral-bonds-funds-9162973/
[4] Writ Petition (Civil) No.880/2017, Item No. 801. https://main.sci.gov.in/supremecourt/2017/27935/27935_2017_1_801_47700_Order_16-Oct-2023.pdf
