Excerpt: SC says Electoral Bonds create an information hole by allowing the donors to remain anonymous which creates a question of constitutional validity and also creates an unequal playing field. Striking down EB would not mean reverting back to the era of black money supported political campaigns. SC asks Union Government to amend the Companies Act and place a cap on profit percentage from political funding.
The ongoing Supreme Court case of Association for Democratic Reforms (ADR) v Union of India on electoral bonds scheme is being judged by a five-judge Constitution bench headed by Chief Justice of India (CJI) Dhananjay Chandrachud, comprising of Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra.
Table of Contents
Electoral bonds explained in brief
EBs were introduced in 2018 and are issued by any authorized branch of the State Bank of India (SBI). They can be purchased by any corporation or individual in India, and also by foreign identities though Indian subsidiaries.
EBs have 100% tax redemption and are sold in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore, purchased through a KYC-compliant account. There is no limit on the number of electoral bonds that one person or company can purchase. The identity of the donor is not recorded, making EBs anonymous.
Before this scheme was introduced in 2018, political parties had to make public all donations above Rs 20,000. No corporation was allowed to make a donation of more than 7.5% of their total profit and 10% of revenue.
The petitioner’s argument: Threat to democracy
Petitioners’ lawyers argued that EB opens the floodgates of unlimited and unchecked corporate donations to political parties by Indian and foreign entities while remaining anonymous from the public, ECI, and the Income Tax Department.
Opacity overturns democratic values and violates the citizen’s fundamental right to information as guaranteed under Article 19 (a). It is mandatory for candidates to disclose their backgrounds including any criminal charges as citizens have the right to know about the candidate, then they have the right to know who is funding the candidate. EB limits a citizen’s ability to make a fully informed choice when voting for a candidate and party.
It allows for backdoor lobbying with corporations donating to ruling political parties to get favors. It limits the citizen’s ability to track donations by big businesses and expose quid pro quo.
Defense for Electoral Bonds scheme
Solicitor General (SC) Tushar Mehta appeared for the Centre defending the scheme, arguing that the scheme is intended to move a cash driven political domain to formal banking channels. The confidentiality clause in the EB is the “heart and soul” of the clause as it incentivises the donors to move from a cash driven black money economy to a regulated legal economy. Mehta argues that striking down the EB scheme would mean reverting back to the pre-2018 era that was dominated by direct and untraceable cash dominated party donations.
Supreme Court remarks on confidentiality
SG Mehta started the day 2 hearing stating that confidentiality allows the donations made through bonds to protect the donors from victimization and retribution from opposing parties should donor lists become public or in the event the parties not supported by donor wins. This would push the donors to donate through cash turning white money into black money. “Even if I assume the worst case against this scheme, the money will now come in white and through the banking channels,” said Mehta.
The CJI remarked– “The purpose of ensuring that electoral funding relies less and less on cash component and more and more on accountable component is work in progress. We’re with you on that. The problem of the scheme is if it doesn’t provide a level playing field to political parties and if it suffers from opacity, as the argument for the other side is. This is not to prevent the legislature from coming out with a scheme which deals with these deficiencies.”
“What we are now doing is that in the effort of bringing white money in the process, essentially, we’re providing for a complete information hole! That is the problem. The motive may be laudable. But the question is have you adopted proportional means?”
Does the scheme meet the test of Article 14? (Right to Equality)
SC said that EB is legalizing kickback but giving money to parties and not individual candidates while under an umbrella of confidentiality. “We have no way of knowing whether this is also legalising the motive for the inflow of the fund,” It added.
SC says the scheme is only “selectively anonymous”
“The problem with the scheme is that it provides for selective anonymity. It’s not completely anonymous. It’s not confidential qua SBI or the law enforcement agencies. So, a large donor will never take the risk of buying these bonds for tendering it to a political party. All that a larger donor needs to do is to disaggregate the donation to several people who will purchase the EB with small amounts through official banking channel. A large donor will never put his head on the line by being in the books of account of SBI. This is what the scheme is capable of because it provides for selective anonymity,” said the bench.
When Mehta reiterated the problem of victimization and retribution faced by donors from a party they didn’t donate to, the bench responded, “Just one caveat- victimisation and retribution is normally by a party in power, not by party in opposition. So the figures which you’re saying -that maximum donations are to party in power- may not be logically flowing from the argument. The other issue is selective confidentiality. There are ways to get the information. It is easier for party in power to get the information. Because of this selective confidentiality, the opposition party may not know who are your donors. But donors to the opposition party can be ascertained, atleast by the investigative agencies. So they’re at a disadvantage to question you on your donations. On the other hand, the opposition parties’ donations will be questioned.”
Mehta says ruling party getting majority donation is the norm
Mehta says that donors donate to further their self interests instead of charity as it is a market driven approach where the leaders and parties in power have more chance of success.
The bench clarified that this is a political system and whoever is in power gets a bigger piece of the pie but it is concerned with the constitutional validity of the scheme.
To a concern raised by Mehta it responded,“Your submission is that if you strike down the scheme, you will go back to a situation which was prevalent earlier. But that will not be valid in itself for the reason that we are not precluding the government from coming out with a transparent scheme or a scheme which has a level playing field.”
SC asks Union to cap profit percentage from political funding
On day 3 of the hearing, SC remarked it is not asking the government to revert back to a cash-based system but to fix the serious deficiencies in the scheme by making it more proportional.
The bench remarked that in the current scheme there is no cap on contributions a company can make, even a company making losses can make donations through shell companies. To this SG Mehta remarked that shell companies are a real concern for the government and they have taken action to eliminate more than 2000 shell companies. “I can make a statement that the SC can direct that only profit making companies can purchase electoral bonds for contributing to funds for political parties.” said Mehta.
Responding to the scheme being “selectively confidential” Mehta said,“The information is stored in a layered fashion and any attempt to break into even one layer would leave a digital footprint. Moreover, the information about donors can be sought by a court or law enforcing agencies.”
Mehta produced a letter from the SBI chairman stating that donor information is strictly confidential and not even the ruling dispensation can get this information under any circumstances. He said that the government is ready to accept a direction from the court stating that any breach of confidentiality would be a crime under IPC, and information about donors can only be received through directions of the court.
To this CJI responds, “What about the voter’s right?”
SG says that voters make decisions based on ideologies, principles, leadership, and efficiency, it would be unrealistic to expect the voters to make decisions based on campaign contributions alone.
“The only person who is deprived is the voter.” says SC in response to SG saying political parties are aware of their donors.
“It’s not that there is an either or- that either you do this or go back entirely to cash. You can design another system which doesn’t have the flaws of this system- they put a premium on opacity. You can still design a system which balances out in a proportional way. How it is to be done that’s up to you, that’s not our arena.”
The court has reserved its verdict.