Supreme Court Declared Electoral Bond Scheme Unconstitutional

PWOnlyIAS March 16, 2024 12:10 4469 0

Recently, a constitutional bench of the Supreme Court strike down the electoral bonds scheme and declared it unconstitutional.

Supreme Court Declared Electoral Bond Scheme Unconstitutional

Context: Recently, a constitutional bench of the Supreme Court struck down the electoral bonds scheme and declared it unconstitutional.

A five-judge bench of Chief Justice of India D Y Chandrachud, and Justices Sanjeev Khanna, B R Gavai, J B Pardiwala and Manoj Misra had reserved its judgment in the matter on November 2 last year.

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Supreme Court Observations on the Electoral Bond Scheme

Supreme Court stated that anonymous electoral bonds violate the Right to Information and Section 19(1)(a).
Financial support via electoral bonds to political parties can lead to a quid pro quo arrangement.
Look For Alternative: The electoral bonds scheme is not the only scheme to curb black money.
Infringement to the right to information is not justified by the purpose of curbing black money.
Amendment to the Companies Act which allows blanket corporate political funding is unconstitutional
Selective Anonymity and Confidentiality: The court said that the scheme provides for “selective anonymity” and “selective confidentiality” as the details of electoral bonds are available with the State Bank of India (SBI) and can also be accessed by the law enforcement agencies.
Right to Know Source of Funding: The court criticized the government’s contention that voters do not have the right to know the source of funding of political parties.
Need for a New Balanced System: The court added that the Union government should consider designing a new system that balances proportionality and paves the way for a level playing field.
Data Disclosure by Election Commission: Supreme Court directed Election Commission of India (ECI) to produce data on electoral bonds’ contributions till September 30, 2023.
The court also directs SBI to furnish the details of electoral bonds encashed by the political parties to the Election Commission of India (ECI).

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Electoral Bonds Scheme

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Electoral Bond Data Published by ECI Publishing the List

Election Commission of India (ECI) recently, publishes details of electoral bond data. On March 12, Supreme Court’s directed SBI to share the electoral bond data with the ECI.

Electoral Bond Purchaser: Purchasers of electoral bonds encompass a range of entities such as Grasim Industries, Megha Engineering, Piramal Enterprises, Torrent Power, Bharti Airtel, DLF Commercial Developers, Vedanta Ltd., Apollo Tyres, Lakshmi Mittal, Edelweiss, PVR, Keventer, Sula Wine, Welspun, and Sun Pharma. Click here to access complete list of Electoral Bond Purchaser.

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Electoral Bond Receiver: Accordingly, political parties that have redeemed electoral bonds include the BJP, Congress, AIADMK, BRS, Shiv Sena, TDP, YSR Congress, DMK, JDS, NCP, Trinamool Congress, JDU, RJD, AAP, and the Samajwadi Party. Click here to access complete list of Electoral Bond Receiver.

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Restoring Status Quo of Restricting Political Donations

Supreme Court struck down several amendments made through The Finance Act, 2016, and The Finance Act, 2017, to facilitate corporate donations to political parties.

Amendment to Finance Act, 2017: It amended The Representation of the People Act, 1951 (RPA), The Income-tax Act, 1961, and The Companies Act, 2013.
- It allowed electoral bonds to cut through many of the restrictions on political party funding by completely doing away with the donation limit for companies, and removing the requirements to declare and maintain a record of donations through electoral bonds.
Amendment to Section 29C of RPA, 1951: The requirement to declare all donations in excess of Rs 20,000 would not apply to donations received through Electoral Bonds.
Amendment to Section 182 of Companies Act, 2013: It removed the requirements to declare and maintain a record of donations through electoral bonds.

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What are Electoral Bonds? – Understanding India’s Electoral Bond System for Political Funding

About: Electoral bonds are instruments that are used to donate funds to political parties in India.
The Concept of the bond was introduced with the Finance Bill, 2017. Later, in 2018, the government notified the Electoral Bond Scheme to alternate cash donations and to ensure transparency in political funding.
Before the scheme was introduced the political parties had to make public all donations above Rs 20,000.
- Also, no corporate company was allowed to make donations amounting to more than 7.5% of their total profit or 10% of revenue.

Electoral bonds Scheme

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Key Elements of India’s Electoral Bond Scheme 2018 for Political Donations

Donor eligibility: They may be purchased by a person, who is a citizen of India or incorporated or established in India.
- A person can buy bonds, either singly or jointly with other individuals.
- Every donor has to provide his/her KYC details to purchase the Electoral Bonds while the donor’s name would be kept confidential.
Receiver eligibility: Only the Political Parties registered under Section 29A of the Representation of the People Act, 1951 and which secured not less than one per cent of the votes polled in the last General Election to the House of the People or the Legislative Assembly of the State, shall be eligible to receive the Bonds.
Authorized bank: These bonds shall be encashed by an eligible Political Party only through a Bank account with the Authorized Bank.
- State Bank of India (SBI) was authorized to issue and encash Bonds through its 29 Authorized Branches (as per the list enclosed) in May 2019.
- The bonds are issued by SBI in denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and Rs 1 crore.
Validity: They shall be valid for fifteen calendar days from the date of issue.
- And, the Electoral Bond deposited by an eligible Political Party in its account shall be credited on the same day.

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Analyzing Pros and Cons of Electoral Bonds in Political Funding

Arguments in favour

Arguments against

Enhanced Transparency: Promotes transparency through engagement with election authorities and the public.
Preservation of Donor Anonymity: Allows confidential donations by individuals and organizations.
Accountability Assurance: Donations are credited to disclosed party bank accounts, ensuring explanations of fund utilization.
Discouragement of Cash Transactions: Requires payments through designated banks, reducing cash use.

Limiting Transparency: Hinders voters’ ability to know the source of funding, reducing political accountability.
Limited Anonymity: Government can access donor details, limiting true anonymity.
Potential for Crony-Capitalism: May facilitate the inflow of black money and favor-seeking by businesses.
Non-Election Use: Critics argue that the name “Electoral Bond” is misleading, as the money can be used for any purpose, and there is no requirement for parties to use it for elections.
Unauthorized Donations: Hinders tracking of contributions from prohibited sources, affecting transparency.
Unlevel Playing Field: The scheme disproportionately benefits ruling parties, as most bonds are purchased by corporates and received by the ruling party
Loopholes: Corporate entities may still need to disclose donations, and caps on company contributions are eliminated, creating potential loopholes.

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Association of Democratic Reforms (ADR’s) Report Reveals Electoral Bonds’ Dominance in Political Funding

The Association of Democratic Reforms (ADR), a Delhi-based NGO, has published a report on electoral bonds and political party donations between 2016-17 and 2021-22. Key highlights of the report:

Total Donations: During this period, seven national and 24 regional political parties received a cumulative donation of ₹16,437.63 crore.
Dominance of Bonds: These emerged as the primary source of political party donations, constituting 55.9% of the total donations received.
Corporate and Other Sources: Corporate sector donations contributed to 28.07% of the total, while the remaining 16.03% came from other sources.
Significant Increase in Donations: For national parties, there was a substantial 743% increase in donations received through electoral bonds between 2017-18 and 2021-22, whereas corporate donations increased by a smaller margin of 48%.

Electoral Bond

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Way Forward

National Commission to Review the Working of the Constitution (2001): Recommended state funding of elections as an anti-corruption measure if certain transparency conditions are met.
- State Funding of Election: State funding of elections implies the use of public funds to support the electoral expenses of political parties and candidates.
- Aim: To reduce the reliance on private donations and curb the influence of unaccounted money in politics.
Chilean Experiment – Reserved Contributions: Under it, the donors could transfer the money they wished to donate to parties to the Chilean Electoral Service.
- The Electoral Service would then forward the sum to the party without revealing the donor’s identity.
Disclosure Requirements: The government may reconsider and modify provisions of the Electoral funding to ensure full disclosure and transparency.
The government should ensure that the funds being collected by the political parties are accounted for clean money from the appropriate channels without any obligation of give and take.
There is a need for effective regulation of political financing along with bold reforms to break the vicious cycle of corruption and erosion of quality of democratic polity.

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Frequently Asked Questions

Electoral bonds are interest-free bearer instruments that are essentially used to donate money anonymously to political parties. The scheme was first announced in the 2017 Union Budget speech.

It promotes transparency by requiring donors to provide KYC details while keeping their names confidential, ensuring accountability in political funding.

It may be purchased by Indian citizens or entities incorporated in India.

Only political parties registered under Section 29A of the Representation of the People Act, 1951, and meeting the criteria of having secured not less than one per cent of the votes polled in the last General Election to the House of the People or the Legislative Assembly of the State are eligible to receive electoral bonds.

These are issued in denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore.

These are valid for fifteen calendar days from the date of issue.

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Supreme Court Declared Electoral Bond Scheme Unconstitutional

Supreme Court Observations on the Electoral Bond Scheme

Electoral Bond Data Published by ECI Publishing the List

Restoring Status Quo of Restricting Political Donations

What are Electoral Bonds? – Understanding India’s Electoral Bond System for Political Funding

Key Elements of India’s Electoral Bond Scheme 2018 for Political Donations

Analyzing Pros and Cons of Electoral Bonds in Political Funding

Association of Democratic Reforms (ADR’s) Report Reveals Electoral Bonds’ Dominance in Political Funding

Way Forward

Frequently Asked Questions

What are electoral bonds?

How do electoral bonds enhance transparency?

Can anyone purchase electoral bonds?

Who can receive electoral bonds?

What denominations are available for electoral bonds?

How long are electoral bonds valid?

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