By Bharti Verma
Published on: February 15, 2024 at 17:30 IST
The Indian government introduced electoral bonds as a means of funding political parties, aiming to bring financial transparency in political funding. However, the scheme has been a subject of controversy, with debates surrounding its anonymity, transparency, and legal implications.
The recent news headlines were made regarding electoral bonds due to the judgement of Association for Democratic Reforms & Anr. v. Union of India & Ors, in this Comprehensive Article we will be in depth analysing the judgment passed by the Supreme Court of India on electoral Bonds.
What Are Electoral Bonds?
Electoral bonds are essentially bearer bonds akin to promissory notes, available in various denominations. These bonds can be purchased from authorized branches of the State Bank of India (SBI), the only bank authorized to issue them. They are interest-free and, notably, allow the buyer to remain anonymous, as their details are not recorded during the purchase process. The bonds come with a short validity period of 15 days, during which they can be donated to registered political parties.
In 2017, the Modi government, aiming to curb anonymous cash donations, introduced electoral bonds through the Finance Act.
How do Electoral Bonds Operate?
The lifecycle of an electoral bond involves three key stages:
- Purchase: Individuals or companies can acquire electoral bonds using Know Your Customer (KYC)-compliant accounts. This ensures a level of accountability while still preserving the buyer’s anonymity.
- Donation: Within the stipulated 15-day validity period, the electoral bond can be donated to any eligible political party that meets specific criteria. This process enables financial support to political entities without revealing the donor’s identity.
- Encashment: Upon receiving the electoral bond, the political party deposits it in a designated bank account, and the corresponding value is credited. This allows parties to convert the bonds into usable funds for their activities.
Challenge to Electoral Bond Scheme
The electoral bond scheme faces a barrage of legal challenges in the Supreme Court, with critics questioning its constitutionality and compatibility with the right to information. Detractors argue that the scheme, far from enhancing transparency, violates established norms and weakens the democratic fabric.
Legal battles are centered around the assertion that the scheme violates transparency norms, and its impact on the democratic process is detrimental.
The government staunchly defends the electoral bond scheme, asserting that it has successfully reduced cash donations and bolstered transparency.
Association for Democratic Reforms & Anr. v. Union of India & Ors : Case Analysis
The constitution bench, comprising Chief Justice DY Chandrachud and Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra, delivered a unanimous verdict after hearing a batch of cases challenging the electoral bonds scheme over three days. The court reserved the judgment in November, and the highly-anticipated decision was announced on February 15 2024
While Chief Justice Chandrachud delivered the lead judgment, Justice Khanna presented a concurring opinion with a slightly different reasoning. Both opinions addressed critical questions regarding the violation of the right to information and the potential impact on the principles of free and fair elections.
The use of electoral bonds has been a subject of intense debate, with proponents and opponents presenting compelling arguments surrounding the impact .
They key arguments against Electoral Bonds:
The arguments made by the counsels against the electoral bonds were surrounded by following key arguments:
- Anonymity’s Corporate Shield: Detractors argue that the anonymity feature of electoral bonds provides a shield for corporate donors, concealing their influence on political parties and potentially fostering undue sway in political decision-making.
- Lack of Transparency within Companies: Critics point out that the electoral bond scheme falls short on accountability by not disclosing the identity of the original buyer within companies, creating a potential blind spot in understanding the flow of funds.
- Undermining Democratic Processes: Another significant contention is that the scheme, by allowing significant financial influence in politics, weakens the democratic process and tilts the playing field in favor of those with financial prowess.
The Key arguments made in Favor of Electoral Bonds:
The arguments made by the counsels in support of the electoral bonds were surrounded by following key arguments:
- Substituting Opaque Cash with Verifiable Bonds: It was argued that the scheme argue that electoral bonds replace opaque cash donations with verifiable bonds, thereby increasing transparency in the political funding landscape.
- Anonymity as a Safeguard: Proponents emphasize that the anonymity feature protects donors from potential harassment and intimidation, encouraging more individuals and entities to contribute to the political process without fear of repercussions.
- Reduction in Anonymous Cash Donations: The government’s defense highlights that the scheme has successfully reduced instances of anonymous cash donations, aligning with the broader objective of curbing illicit financial flows into the political arena.
Why Supreme Court Declared Electoral Bonds as Unconstitutional?
The supreme Court observed the following factors while pronouncing the Judgement which are as following:
1. Curbing Black Money as a Justification:
- The Court rejected the government’s argument that Electoral Bonds were introduced to curb black money in political funding.
- They stated that this objective doesn’t fall under the permissible grounds enshrined in Article 19(2) of the Constitution, which allows restricting fundamental rights under specific circumstances.
- This implies that restricting information access (through anonymity with Bonds) requires a stronger justification than simply curbing black money.
2. The Proportionality Test:
- The Court applied the proportionality test, which requires any restriction on fundamental rights to be:
- Legally authorized: Aiming to achieve a legitimate objective.
- Necessary: No other less restrictive measure can achieve the same objective.
- Proportionate: The restriction itself doesn’t go beyond what’s necessary.
- The Court concluded that the Electoral Bonds scheme failed the proportionality test.
- Specifically, it was deemed not the least restrictive option to achieve the objective of curbing black money.
3. Alternative Means Available:
- The judgement highlighted alternative methods to achieve the same goal:
- For donations below ₹20,000, electronic means without anonymity were considered sufficient.
- For higher contributions, donations through already existing electoral trusts with less anonymity were seen as a better option.
- These alternatives provided similar effectiveness in curbing black money while having a lesser impact on the right to information.
4. Impact on the Right to Information:
- Chief Justice Chandrachud specifically emphasized the importance of the right to information in ensuring transparency in electoral funding.
- He pointed out that the lack of transparency associated with Electoral Bonds significantly infringed on this right.
- The alternative methods, by allowing some level of traceability, were deemed more respectful of the right to information while still achieving the stated objective.
Chief Justice Chandrachud, in his lead judgment, underscored the essential nature of information about political party funding for the effective exercise of voting rights. He argued that political contributions grant contributors access to legislators, influencing policymaking, and possibly leading to quid pro quo arrangements.
The court held that the electoral bond scheme and related provisions infringe upon the right to information under Article 19(1)(a) and are, therefore, unconstitutional.
The court rejected the government’s argument that Clause 7(4)(c) of the scheme balanced the right to information and informational privacy. Chief Justice Chandrachud asserted that this provision tilted the balance in favor of informational privacy, and the government failed to establish that it is the least restrictive measure.
As a result, amendments to the Income Tax Act, the Representation of Peoples Act, and the Companies Act were also deemed unconstitutional.
Directives Issued by the Supreme Court:
The following directives were issued by the Supreme Court:
1. Stop Issuing Electoral Bonds: The apex court directed the issuing bank, the State Bank of India, to immediately halt the issuance of electoral bonds. This move signals a decisive step to put an end to the use of these bonds as a means of political contributions.
2. Disclosure of Details: The State Bank of India has been mandated to furnish comprehensive details of electoral bonds purchased since April 12, 2019, to the Election Commission of India. This includes crucial information such as the dates of purchase, the names of purchasers, and the denominations of the electoral bonds.
The State Bank of India has been assigned a clear timeline for the submission of the aforementioned information. The deadline for this crucial submission is set for March 6, 2024, ensuring a swift and timely disclosure.
3. Political Party Contributions: In a bid to enhance transparency in political party financing, the bank is obligated to provide detailed information about political parties that have received contributions through electoral bonds. This encompasses specifics such as the dates of encashment and the denominations of the electoral bonds.
4. Public Disclosure: To foster a culture of openness and public awareness, the Election Commission of India has been directed to publish the received information on its official website by March 13, 2024. This ensures that the details of electoral bond transactions are accessible to the public.
5. Return of Unused Bonds: A notable directive pertains to the return of unused electoral bonds. Political parties are instructed to return any bonds that remain unused within the 15-day validity period to the purchasers. In turn, the issuing bank, State Bank of India, is mandated to refund the amount to the purchaser’s account.
Conclusion
The Supreme Court’s decision to strike down the electoral bonds scheme and question the amendment to Section 182 of the Companies Act represents a significant milestone in the pursuit of transparent and fair elections. The ruling underscores the judiciary’s commitment to upholding the constitutional principles of transparency, equality, and the right to information in the context of political funding. This verdict is likely to have far-reaching implications for electoral finance reform in India, setting a precedent for ensuring fairness and accountability in the democratic process.