Before getting into the details of the judgment, it is in
order here to first recapitulate the scheme. On January 2, 2018, the government
of India notified the electoral bond scheme. Under it, the State Bank of India is
authorized to issue electoral bonds in the denominations of Rs 1000, 10000, 1
lakh, 10 lakh, and I crore and to encash them. It is a kind of promissory note
issued by SBI promising to pay the indicated sum to its bearer. They will be
sold for 10 days in January, April, July, and October of each year. It being a
bearer banking instrument, does not carry the name of the buyer or payee. Any
citizen or company can purchase these bonds from SBI and donate them to any political
party. Political parties that secured more than one percent votes in the last
general election to the House of the People or a Legislative Assembly are only
eligible to accept such donations. Once a donee receives the bonds, they have
to encash them by lodging with SBI through a bank account within 15 days of
receiving it. The scheme thus affords donor anonymity to everyone except SBI,
for it must record the Know Your Customer (KYC) details of the buyer of the
bond.
It is to provide this unique feature of donor anonymity to
the electoral bonds that the government made the following amendments to the
existing provisions under different laws:
- According to Section 13A of the Income Tax Act, political parties were earlier required to maintain a record of contributions above Rs 20000 received from whatever source. The Finance Act 2017 amended this provision to the effect that donations received through electoral bonds are exempted from this provision, which means, parties are now not required to maintain any record of what they receive through bonds.
- Under Section 29C of the Representation of the People Act, 1951, parties were earlier required to prepare a report on contributions over Rs 20000 received from any person/company in a financial year. With the amendment made to this provision under the Finance Act 2017, contributions received through electoral bonds need not be included in the report.
- Similarly, under Section 182(3) of the Companies Act, companies are required to disclose details of contributions made to political parties —name of the political party and the amount given—in their Profit and Loss account. It also imposed a cap on companies’ contributions to political parties: they can only donate up to 7.5% of the average net profits of the previous three years. Now, with the amendment under the Finance Act 2017, this cap has been eliminated and companies are simply required to indicate the total amount given to political parties in a financial year.
The government defended the amendments and scheme as a whole
by arguing: one, that it enables any person/company to donate to political
parties of their choice through banking channels and thereby minimize
unregulated contributions in cash; two, that the anonymity offered by the
scheme ensures that the donors need not fear retribution or coercion from
parties to which they have not contributed; and three, that the use of banking
channels will curb the role of black money in election funding. Intriguingly,
it has also argued that citizens did not have a general right to know the
funding of political parties.
However, the court opined that the scheme promoted “economic
inequality” which can “lead to differing levels of political engagement because
of the deep association between money and politics”. Observing that it gives
donors a “seat at the table” and allows them to influence policy, the court
averred that the voter must have access to information to assess whether “a
correlation between policy-making and financial contributions” exists.
The Court also dismissed the government’s claim that the
scheme was meant to curb the injection of black money into the electoral
process stating that “curbing of black money” is not a reasonable restriction
to the exercise of the voter’s fundamental right to information about political
funding enshrined in Article 19 (1) (a). Further, the court opined that the scheme “is not the only means for curbing black money
in Electoral Financing” and “there are other alternatives which substantially fulfill
this purpose and impact the right to information minimally when compared to the
impact of electoral bonds on the right to information”.
The Court also set aside the government’s submission that the
mechanism of confidentiality under the scheme is “foolproof” and “unbreachable”
pointing out that anonymity ascribed by law does not mean that anonymity is practiced
in reality.
Referring to the way that amendments were made to Sec 29C of the Representation of People Act, Section 13 A of the Income Tax Act, and Section 182 of the Companies Act through the Finance Act 2017 that was introduced as a Money Bill to facilitate anonymity for contributions through electoral bonds, the court observed that they are violative of Article 19 (1) (a) and unconstitutional. The court held that “the deletion of the proviso to Section 182(1) of the Companies Act, permitting unlimited corporate funding to political parties, is arbitrary and violative of Article 14”. For, “the ability of a company to influence the electoral process through political contributions is much higher when compared to that of an individual”. Thus, the Supreme Court has declared the Electoral Bonds Scheme unconstitutional.
The Bench also directed the SBI: i) to stop issuing electoral bonds, ii) to submit details of the Electoral Bonds purchased from 12 April 2019 till date along with the date of purchase of each Bond, the name of the purchaser, and the denomination of the Bond purchased to the Election Commission of India, iii) to submit the details of political parties which have received contributions through Electoral Bonds since 12 April 2019 to date to the ECI along with the details of each Electoral Bond encashed by political parties, the date of encashment and the denomination of the Electoral Bond, iv) to submit the said information to the ECI within three weeks from the date of this judgment.
Further, the Court has also directed the Election
Commission to publish the information shared by SBI on its website within one
week of its receipt. Simultaneously, political parties are directed to return
the bonds that are not yet encashed by them to the purchaser.
Reacting to the pronouncement of the Supreme
Court, enthusiasts of transparency hailed it as a landmark judgment. However, this
judgment can hardly help in bringing transparency into electoral funding since unaccounted-for
cash is now likely to play a greater role.
**
3 comments:
The reasons given by the Supreme Court are well highlighted here . However It is enlightening to reiterate here some of the points revealed by legal luminaries like Kapil Sibal and Prasanth Bhushan on the implications of this scheme, if continued. this is necessary to unlearn / detoxify the impression that was induced in the minds of many common and a few learned activists that the Supreme Court judgment has stopped Govt's efforts to stop black money circulation for winning elections.
if we read the objections raised by RBI and Election Commission of India raised about this scheme (ignored in the blog) it is quite evident that the ruling Govt has promoted the scheme that allows untransparent transactions in the name of transparency and amassed a huge sum of about Rs 6500 Crore fund within these 4 years from 2018
Thank you very much for the interesting comments, Dr Ramachandra.
In a way, the post is saying that has the scheme been continued, the very reasons—‘economic inequality’, quid pro quo arrangements, violation of voters’ right to information about political funding under 19 (1) (a), etc—for which the SC struck down the scheme would have continued to impact the free and fair elections.
That said, we must also realize that the judgment cannot bring transparency into future electoral funding, for cash is now certain to play a key role in electoral funding.
It doesn’t however mean that SC’s judgment prevented Govt’s efforts to control black money funding the elections. It only means that a new system has to be launched by the government immediately so that black money’s role in elections can be controlled without infringing the voters’ right to information.
Coming to your second remark, it is true that RBI wrote to the government stating that the issuance of bearer instruments by banks militated against RBI’s sole authority for issuing bearer instruments. Similarly, the Election Commission too wrote a letter to the government stating that the scheme would have a “serious impact on the transparency of political finance/funding of political parties”. The government, of course, went ahead with its scheme and indeed launched it in 2018. That is history. But the result of it is: that ruling parties at the centre and State legislatures collected huge sums vis-à-vis other parties. That is perhaps, the undercurrent of the scheme!
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