Declaration of Electoral Bonds as “Unconstitutional”

Context: 

This article is based on the news “Supreme Court strikes down electoral bonds scheme: ‘unconstitutional’, ‘arbitrary and violative of Article 14” which was published in the Indian Express.  The Supreme Court struck down the electoral bonds scheme asserting that the scheme violates the right to information under Article 19(1)(a) of the Constitution.

Background Of Electoral Bonds

• The electoral bonds were announced in the 2017 budget speech and notified by the government in 2018.
• It is an interest-free bearer instrument that would be used to donate money anonymously to political parties.
• This scheme was challenged shortly after it was notified in January 2018, by a number of parties, including the Communist Party of India (M), Common Cause and the Association for Democratic Reforms (ADR).
• In the past six years since the first petition was filed, six Chief Justices of India took office and twice- in 2019 and in 2021- the Supreme Court refused to stay the legislation.

Legal Timeline of Electoral Bonds: Court Proceedings and Judgments

• April 12, 2019: A three-judge SC bench issues an interim order directing political parties receiving donations through electoral bonds to submit details of the bonds to the Election Commission of India (ECI).
• March 2021: The SC, dismisses a plea to stay the sale of fresh electoral bonds, disputing the petitioner’s claim of “complete anonymity” for bond purchasers. The court mentions that operations under the scheme are not beyond scrutiny and highlights previous orders for safeguards.
• April 2022: The SC assures petitioners that the Court would take up the matter to hear the constitutional challenge to the electoral bonds scheme.
• Nov 2023: The Supreme Court reserved its judgement in response to a batch of pleas challenging the validity of the electoral bonds scheme.

About Electoral Bonds

• Electoral bonds are instruments in the nature of a promissory note or bearer bond which can be purchased by any individual, company, firm or association of persons provided the person or body is a citizen of India or incorporated or established in India.
• Introduction: It was introduced through the Finance Act, 2017, which in turn amended three other statutes – the RBI Act, the Income Tax Act and the Representation of People Act – to enable the introduction of such bonds.
• Key Features:
  • Denominations: The bonds are sold in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore, and State Bank of India is the only bank authorised to sell them.
  • Donor Anonymity: Donors remain anonymous, known only to the bank.
  • Donation Process: Donors can buy and subsequently donate bonds to a political party, which can encash the bonds through its verified account within 15 days.
  • Purchased Limits: There is no limit on the number of bonds an individual or company can purchase.
  • Unused Funds: If a party hasn’t cashed any bonds within 15 days, SBI deposits these into the Prime Minister’s Relief Fund.

Parameters Adopted By Supreme Court for Evaluating the Electoral Bond Case

• Whether the electoral bond scheme could violate the fundamental right to information under Article 19(1)(a) of the Constitution?
• Whether unlimited corporate funding violates free and fair elections?

Supreme Court’s Decision on Electoral Bonds

• Unconstitutionality of Electoral Bonds Scheme: In the case, Association for Democratic Reforms and Anr vs Union of India Cabinet Secretary and ors, SC held an unanimous view that the electoral bonds are “unconstitutional”.
• Violation of Right to Information: The Court held that the electoral bonds scheme due to its anonymous nature is violative of right to information and thus hits free speech and expression under Article 19(1)(a) of the Constitution.
• Quashing of Amendments: The court also quashed the scheme as well as amendments made to the Income Tax Act and the Representation of People Act which had made the donations anonymous.
  • The court further ruled that the amendment to the Companies Act which allows blanket corporate political funding is unconstitutional.

• Direction to the Electoral Bonds Issuing Body, ie. State Bank of India (SBI)

• • Immediate Cessation of Issuance: The SBI is directed to halt the issuance of electoral bonds with immediate effect.
  • Disclosure to Election Commission: SBI is required to submit a report to the Election Commission of India (ECI) on political parties funded through electoral bonds from April 12, 2019.
    • SBI must report to the ECI the dates and values of cashed electoral bonds by March 6, 2024.
  • Publication of Information: The ECI must publish the received information from SBI on its website by March 13.
  • Handling of Uncashed Electoral Bonds: Political parties holding electoral bonds that are still within the 15-day validity period but have not been cashed are required to return these bonds to the purchaser or SBI. 
    • Upon receiving the valid bonds back, SBI will refund the amount to the purchaser’s account.

Rationale Behind Supreme Court Judgement On Electoral Bond Case

• Access and Influence: Political contributions enhance access to legislators which translates to influence over policy making.
• Quid Pro Quo Risks: There is also a legitimate possibility that financial contributions to a political party would lead to quid pro quo arrangement due to the nexus between money and politics. 
• Violation of Right to Information and Article 19 (i)(a): The electoral bonds scheme prevents voters from being informed about which individual, company, or organisation has funded which party and to what extent. 
  • Right to information is not confined only to state affairs but also includes information necessary for participatory democracy. Political parties being relevant units in the electoral process, their funding information is essential for electoral choices.
  • The anonymity imparted by electoral bonds are violative of the right to information and Article 19(1)(a) of the Constitution.
• Economic Inequality Concerns: Economic disparities affect political engagement, and the lack of transparency in electoral bond donations can influence policymaking and foster quid pro quo arrangements.
• Inadequate Measure: The court ruled that electoral bonds which are aimed at reducing black money, fail to ensure political funding transparency due to their absolute exemptions.
• Limitations on Privacy Rights: Right to privacy for political affiliation does not extend to contributions made to influence public policy and applies only to contributions below the threshold.
• Corporate Funding and Political Influence: Amendments allowing unlimited corporate funding is deemed unconstitutional due to the disproportionate influence of businesses over politics. 
  • Deletion of Section 182 from Companies Act, which differentiated between loss-making companies and profit-making companies for the purpose of political contribution is arbitrary and violative of Article 14.
• Doctrine of Proportionality: The scheme fails the restrictive means test, indicating that alternative methods could achieve the stated objective of curbing black money without infringing on informational rights.

Conclusion

• There is a need to strike a balance between transparency and anonymity. Many jurisdictions achieve this by allowing anonymity for small donors while mandating disclosures for larger contributions.
  • For instance, in the UK, political parties must report donations exceeding £7,500 in a calendar year from a single source. Similar limits in the US and Germany are $200 and €10,000, respectively. 
  • This approach aims to protect small donors from potential victimisation and address concerns about quid pro quo arrangements with larger contributors.
• Effective regulation of political financing along with bold electoral reforms can break the vicious cycle of corruption and erosion of quality of democratic polity.

News Source: LiveLaw and IE

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