Electoral Bonds: SC Reserves Judgement, Asks EC to Submit Purchase Data Till Sept 30

After three days of hearing the constitutionality of the 2018 electoral bond scheme, the Supreme Court has reserved its judgment while directing the Election Commission of India to produce data on the quantum of electoral bonds purchased till September 30 this year. 

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On the third and concluding day of hearings in a batch of petitions challenging the constitutionality of the 2018 electoral bond scheme, the Solicitor General for India Tushar Mehta continued his arguments in favour of anonymity of donors to politicians and political parties.

Yesterday, Mehta had argued that anonymity ensures that the donor does not face retribution or victimisation.

In response, the CJI had pointed out that the problem with the scheme is that it provides “selective anonymity” because the State Bank of India, which has been authorised to issue and encash electoral bonds, comes within the purview of the Union government.

Mehta’s argument focused on three issues: How the 2018 electoral bond scheme was a “deliberate attempt” to ensure that the funding received by political parties is clean money; how the government curbed unclean money from the market through de-registration of shell companies that were used as a vehicle of political funding and lastly, maintaining the confidentiality of the donor.

A Supreme Court Constitution Bench headed by Chief Justice of India Dr D.Y. Chandrachud and also comprising Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala and Manoj Misra are seized of the matter which senior advocate Prashant Bhushan characterised as one that “goes to the very root of our democracy” on Day 1 of the hearings.

Today, Mehta told the court that disclosure of a donor’s identity could disincentivise the whole process of political funding.

He said that the moment such a disclosure is made, the scheme “fails”.

When the CJI sought to press the point and remarked that the moment a contribution is made to a political party, it comes to know if it, Mehta replied: “What the donor wants is that the other party should not know.”

“Suppose, as a contractor, I donate to the Congress Party. I do not want the Bharatiya Janata Party (BJP) to know because it might form a government,” he offered.

Continuing from where he had stopped yesterday on the point of confidentiality, Mehta told the court that the decision to not disclose the identity of the donor was a decision that the Parliament thought was necessary.

He said: “The lawmakers felt that the electoral bonds scheme is the most incentivised way of black money generation and black money payment in the political process.”

What about voters’ right to information: Asks Supreme Court

Justice Gavai asked Mehta to address how the anonymity in the scheme could be reconciled with voters’ right to information.

Mehta replied that purity of election trumps the right to information of voters about political funding.

He explained: “Voters vote not based on which party is funded by whom, voters vote based on ideology, principles, leadership and efficiency of the party.”

Mehta assured the court that the 2018 electoral scheme is bonafide and the scheme is not designed for the ruling party to keep tabs on contributions to politicians and political parties.

The CJI asked Mehta if he meant that the ruling party does not know who their donors are.

Mehta replied: “Every party knows who their respective donors are.”

He added that the provision of confidentiality in the scheme protects other parties from knowing about the donations received by a particular political party. 

He termed this the “heart of the matter”.

At this point, Mehta sought to differentiate political donations from “donations we make during a pilgrimage”.

On Day 2 of the hearings, he had described political funding as “not charity” and “market driven”.

Today, to drive his point home, he said, “In Shrinathji [Temple], people may donate ₹100 crore without any name. This would be an anonymous donation. That is idealistic.”

But the CJI put a spanner in the works of his argument, “That is not idealistic because the assumption is that the Almighty knows who has put money.”

Justice Khanna remarked that everyone seems to be omniscient about the donations, except the voter who has been deprived of the information.

Considerations and counter-considerations

The CJI said that some important considerations need to be kept in mind while dealing with the constitutionality of the scheme.

First, a need to reduce the cash element in the electoral process. Second, the need to encourage the use of authorised banking channels for donations. Third, the need to incentivise the use of banking channels with confidentiality.

He added that these considerations must be balanced with the other two counter-considerations which are, the need to ensure transparency in political funding, and ensuring that the scheme does not result in legitimising kickbacks and quid pro quo between power centres and benefactors of that power.

He said that a balance has to be created by the legislature.

Justice Khanna also pointed out that there is a consideration of confidentiality which is conflicting with the consideration of the scheme legitimising kickbacks and quid pro quo. Both the two considerations must be balanced.

The CJI then read these considerations in respect to Section 182 of the Companies Act, 2013.

The CJI pointed out that the 2018 scheme has removed the requirement on the cap of net profit under the Companies Act.

Before the amendment, corporations would not donate an amount exceeding 7.5 percent of their net profit in a financial year.

The CJI averred that there was a legitimate reason why the cap was introduced under the legislation and why it has stood the test of time.

He asserted that it was because the purpose of the company was to carry business and not to donate to political parties. If the purpose is not to donate to political parties, they must donate in small amounts with an “altruistic motive”.

Mehta answered this query and clarified that a non-profit company cannot donate because that would make it vulnerable to be used as a shell company for political donations.

The CJI said: “Is the government making a statement that they will amend the Companies Act to revive profit percentage-based donations?”

Mehta responded that bringing an amendment is in the legislative domain and he cannot say anything in this regard. He also informed the court that the cap on the amount companies could donate did not work because many shell companies were created because of it. These shell companies would then be used to make political donations, thus avoiding the profit-percentage based requirement.

Mehta told the court that the purpose of the 2018 electoral scheme was to disincentivise the creation of such shell companies.

He said: “With the view to discourage creation of shell companies, we did this… If companies want to donate more than 7.5 percent of their net profit, let the discretion remain with them.”

The CJI pointed out that legislation such as the Income Tax Act, 1961 should be adequate to keep a check on the creation of shell companies through their internal mechanisms such as checking the degree of business, and examining capital flow and assets.

The CJI reiterated the concern of the court. He said that the court respects the process adopted by the government. However, the scheme has to be narrowly tailored in a manner that it balances out all the considerations stated by the court in a “proportional” manner.

Mehta pointed out that if companies wanted to donate more than the cap of 7.5 percent of their net profit in a financial year, they would use cash and this would allow black money to come into the system.

To this, the CJI said: “[But] that is not to say that unclean money is not coming to the system,” puncturing the bubble of the electoral bonds scheme being a panacea to black money-funded politics.

Scheme not guided by any ulterior motive 

Mehta sought to take the court back to the mandate of the scheme. He argued that the electoral bond scheme ensures that there is no anonymous money in politics.

He said: “The bond cannot be purchased everywhere and it cannot be deposited anywhere. Why this? The donor and the donee both must have a designated account and [in] a designated branch. Why?”

The scheme can only be purchased from the State Bank of India, he said.

He added that know your customer (KYC) requirements, including providing an Aadhaar number, are mandatory while buying an electoral bond.

“Only political parties registered under Section 29A of the Representation of the People Act, 1951 and securing not less than 1 percent votes in the last general elections to Lok Sabha or state legislative assembly… shall be eligible to receive the bond. Bond shall be encashed by an eligible political party only through a bank account in the authorised bank.

“There was an objection to the 1 percent votes requirement,” he said, referring to Dalit Panthers Party submission on Day 2 that the 1 percent votes requirement was discriminatory against parties like them, which represented the “marginalised”.

“Earlier, when exemptions were given to political parties, there was some mushrooming of parties just for exemptions. Therefore, the requirement of 1 percent votes is not unrealistically high,” Mehta reasoned.

Mehta also pointed out that since electoral bonds expire after 15 days, it acts as a check. He pointed out that the limited period in which the bond can be encashed prevents potential kickbacks. 

Electoral bonds that have not been encashed within 15 days of their purchase are automatically deposited into the Prime Minister’s Relief Fund.

Lastly, Mehta informed the court that India is a signatory to the international treaty on the “eradication of money laundering and drug money”.

He told the court that under the treaty, India is supposed to follow certain conditions in order to ensure that it continues to get financial assistance from the World Bank and other international financial institutions.

One of the conditions, Mehta stated in the court, is that clean money should be induced into the system.

Mehta told the court that his junior advocate Kanu Agarwal would present the data on donations less than ₹20,000 before the 2018 scheme.

Advocate Kanu Agarwal then briefly addressed the court to show that prior to the electoral bonds scheme, donations worth less than ₹20,000 to political parties would not be reported.

Post 2018, these dubious contributions have gone down.

He told the court that this was problematic because the law stated that donations of less than ₹20,000 need not go through the requirement of disclosure of the name of the donor or the donee.

Agarwal also informed the court that the Communist Party of India (Marxist), which is one of the petitioners, took a principled stance that they will not accept contributions through electoral bonds but they continue to accept donations in amounts less than ₹20,000.

Attorney General’s submissions

Attorney General of India R. Ventakaramani addressed the point of whether the scheme violates Articles 14, 19 and 21 of the Constitution and whether it also undermines the basic structure doctrine.

He argued that while the court must look at voters’ right to information under Article 19(1)(a), which necessitates that availability of background of an electoral candidate, such as criminal antecedents, the necessity of making information on political donations must be looked at from the concrete purpose and its relevance.

Further, he pointed out that the purpose of maintaining confidentiality (of political donations) must be assessed in accordance with the reasonable restrictions under Article 19(2).

Election Commission of India

The Election Commission of India (ECI) has opposed the 2018 electoral bonds scheme through a letter written to the Ministry of Law and Justice stating that the amendments under the Finance Bill, 2017 to the Representation of the People Act, 1951, Income Tax Act, 1961, the Companies Act, 2013 and Foreign Contribution (Regulation) Act, 2010 will have “serious repercussions/impact on the transparency aspect of political finance/funding of political parties”.

Today, advocate Amit Sharma, representing the ECI, brought the data on funds received by political parties through quantum electoral in a sealed cover.

However, the data was not updated. He said that he did not bring the updated data citing an interim Order of the Supreme Court.

The court clarified that they never ordered that the ECI should stop updating the data on the quantum of bonds.

The court has ordered the ECI to submit the data updated up to September 30 in a sealed cover within two weeks.

What has happened so far?

On Day 1, senior advocate Prashant Bhushan, representing the lead petitioner Association for Democratic Reforms, challenged the amendments brought in through the Finance Bill, 2017 to the Representation of the People Act, 1951, Income Tax Act, 1961, the Companies Act, 2013 and Foreign Contribution (Regulation) Act, 2010 through which the electoral bond scheme was introduced.

He challenged these amendments on the grounds that first, they violate Article 19(1)(a) of the Constitution because access to information is a fundamental right and the electoral bonds scheme goes against it.

Second, electoral bonds promote corruption as they are opaque and anonymous. The public does not know the source of the donation and its beneficiary.

Third, Bhushan claimed that the electoral bonds scheme “destroys and disturbs democracy in the country”.

Explaining this submission, he said: “The bonds do not allow a level-playing field between political parties which are ruling versus political parties which are in the Opposition or between political parties and independent candidates.”

Bhushan presented another statistic to support his argument, “The contribution by way of electoral bonds to just one party [Bharatiya Janata Party or BJP] is more than ₹5,000 crore in a period less than five years.”

He claimed that since the scheme was introduced in 2017, the contributions made to political parties through electoral bonds have exceeded any other method of donation.

Senior advocate Kapil Sibal warned against allowing corporations to fund political parties.

He said: “The moment you allow the corporate sector to donate, whether with transparency or without transparency, it is inconsistent with the concept of a corporate sector which is in the business of doing business”.

According to Sibal, this goes against the memorandum of association, especially when the donation is without the consultation or consent of the shareholders.

However, the CJI pointed out that the court is not dealing with the legality of corporate donations. The CJI added that the court can still consider the ‘consultation or consent’ aspect of the corporations donating to political parties.

Sibal argued that there is nothing in the scheme that shows that the donation has anything to do with the electoral process. He also pointed out that there is no cap on the amount of money that can be donated to political parties.

Advocate Shadan Farasat, appearing for the Communist Party of India (Marxist), said: “Despite being a ruling party, we have taken a principled stance to not accept any electoral bonds. We have not taken a single rupee through the electoral bonds in the last five-and-a-half years at much cost to us”.

He argued that the 2018 electoral scheme fails to pass the test of arbitrariness of Article 14 because the scheme takes away non-anonymous money and puts it as anonymous money.

Advocate Nizam Pasha also argued that the scheme is manifestly arbitrary. He told the court that since there is no possibility of taking cash while purchasing electoral bonds, the question of black money coming in the market does not arise.

On Day 2, senior advocate Vijay Hansaria took the court through different amendments made to the Companies Act, 1956. He argued that back in 1960, corporations could only donate a cap of 5 percent of their net profit or ₹25,000 in the financial year. Corporations were also obliged to disclose the amount they had donated to political parties or individual politicians.

However, with an amendment in 1969, corporate donations were completely prohibited. This ban was removed through an amendment in 1985. In 2013, Section 182 of the Companies Act provided for a donation amount of up to 7.5 percent of the net profit of a company in the financial year.

But a company which had an existence of less than three years could not donate. Moreover, the corporation had to disclose the particulars of the amount and name of the political party to which it was donating money.

According to Hansaria, all these conditions regulated corporate donations and ensured transparency. However, with the amendment in 2017, all these requirements have now been omitted.

Senior advocate Sanjay Hegde, representing a shareholder of a public-listed company, reiterated that he supports the arguments of the petitioner and asked for the court to pass directions to reduce opacity in the political funding process.

In the context of corporate donations, Hegde told the court that many companies do not even put their profit–loss statements in the public domain. Now, the law allows them to make donations in crores in complete anonymity.

An advocate representing the Dalit Panthers Party argued that the electoral bonds scheme is discriminatory because it states that only political parties that have received at least 1 percent of votes in Lok Sabha or the legislative assembly of the respective state can get donations.

He argued that this has a disparate and severe impact on the party because more than any other political party, they espouse the cause of marginalised people.

He said: “That way, this is a hostile discrimination… There is no rational nexus [why a party needs to get 1 percent vote to be eligible for donations].”

Justice Gavai said: “There is a rational nexus. A political party must have at least 1 percent votes. Tomorrow, you may have [merely] two persons [supporting you] and [still you] may claim donations.”

The CJI pointed out that a party with less than 1 percent votes could still receive donations. The court clarified that the current issue pertains to the constitutionality of the electoral bonds scheme and the petitioner is free to approach the appropriate high court.

What is the scheme of the electoral bonds?

According to the 2018 scheme notified by the Union Ministry of Finance, an electoral bond is defined as: “A bond issued in the nature of a promissory note which shall be a bearer banking instrument and shall not carry the name of the buyer or payee.”

The scheme was notified by amending Section 31 of the Reserve Bank of India Act, 1934.

As per the scheme, the bonds can be issued in the denominations of one thousand, ten thousand, one hundred thousand, ten hundred thousand and one crore rupees.

Under the scheme, only those political parties registered under Section 29A of the Representation of the People Act, and who have secured not less than 1 percent of the votes polled in the last general election to the House of the People or the legislative assembly, shall be eligible to receive the bond.

Gursimran Kaur Bakshi is a staff writer at The Leaflet