By Karan Shelke, Advocate at Lex Credence on February 23, 2024
Introduction:
Recently, the Chief Justice of India (CJI) was appalled with the elections that took place in Chandigarh and labelled it as the “murder of democracy”. His further remarks were “that the greatest stabilizing force in the country is the purity of electoral process”. These remarks by the CJI gave an indication of what was to be expected in the upcoming decision on the question of the legality of electoral bonds which started gaining traction in the legal and corporate sectors since the start of the hearing before the Hon’ble 5 judges Supreme Court bench.
The legality of electoral bonds became an issue after the amendment in the Companies Act of 2013, the Foreign Contribution Regulation Act of 2010, the Income Tax Act of 1961, the Representation of the People Act of 1951, and the Reserve Bank of India Act of 1934. The friction between ethics and corporate donations in the electoral process was settled in India after corporate donations were legalized in India in the year 1956. This was subsequently overturned in 1969 and again it was legalized in 1985.
To cover varied aspects of electoral bonds and for the purpose of brevity, the article is divided into 5 parts which will address the scheme of electoral bonds, contentions of petitioners and the Union of India (UOI), judgment, and conclusion.
What are electoral bonds?
Electoral bonds are money instruments like promissory notes which can be bought by individuals, contractors, Hindu undivided families, and companies in India from the State Bank of India (SBI) and then later it can be donated to a political party of their choice on which a political party can then encash these bonds. However, the identities of donors, the denomination of the bond, and specific donations to political parties by the donors were to be kept confidential for the functioning of the scheme of electoral bonds.
Contentions raised by the petitioners:
According to the petitioners, prior to the amendments, foreign contributions to political parties and public servants were prohibited in India. The petitioners introduced a certain example to elucidate their point. E.g. Vedanta (a UK-based Company) which has an Indian subsidiary named Sterlite was donating to prominent political parties. This was declared illegal by the division bench of the Hon’ble Delhi Court in 2014 [ADR v. Union of India W.P.(C) 131/2013]. However, its effect was nullified on any future judgments after the Central Government brought the scheme of electoral bonds in 2017.
Propagation of foreign-controlled shell companies for the sole purpose of donating to Indian political parties was raised as a ground for challenging the scheme of electoral bonds. Additionally, the power to make unlimited donations irrespective of whether the company is turning a profit was also argued as being manifestly arbitrary.
According to the petitioners, for using the scheme of electoral bonds, disclosures under the Companies Act of 2013, the Income Tax Act of 1961, and the Representation of the People Act of 1951 were removed which affected the informed decision-making of the voter and thereby affecting the right to vote. Reliance was placed on two Supreme Court of India (SCI) judgments i.e. PUCL v. Union of India [(2003) 4 SCC 399] and ADR v. Union of India [(2002) 5 SCC 294].
According to the petitioners, the Central Government had access to the books of the SBI through law enforcement agencies. This raised concerns as the ruling party at the Centre may reprimand donors for contributing to parties that are not in power. As a consequence, the party in power at the Centre would get the maximum amount of donations under electoral bonds resulting in the lack of a level playing field between parties in power, opposition parties, and independent candidates. This was crucial as donations through the electoral bonds became a prominent source of funding.
According to the petitioners, the unbridled ability to make donations to political parties without making disclosures like the identities of donors, denomination of the bond, and specific donations to political parties can result in quid pro quo which is akin to crimes contemplated under the Prevention of Corruption Act where even the anticipation of bribe is also a crime. Further, even the shareholders of the company do not know the details of donations made by their company.
Contentions raised by the UOI:
According to the UOI, the scheme of electoral bonds was part of a larger scheme of removing unclean/black money from the electoral process. The other two are the digitalization of donations to political parties and the identification of shell companies for curbing the unaccounted flow of money in the Indian economy.
According to the UOI, the most prominent feature of the electoral bond scheme is the protection imparted to donors through confidentiality. Protection of donors through confidentiality can prevent castigation of donors by political parties at both Centre and State Governments. Further, the scheme of electoral bonds incentivizes donors to use banking and digital channels which will add clean/white money to the electoral process. Further, under the right to privacy, any donor can exercise this right while making donations to political parties.
After relying on the data from 2003 to 2014, it was contended by the UOI that better contribution in the form of donations from donors to the ruling political parties at Center and State Governments is a norm.
Judgment:
The SCI struck down the scheme of electoral bonds which was effectuated with amendments in multiple laws. The judgment also affirmed the decisions given in PUCL and ADR which held that information pertaining to electoral candidates is a crucial piece of information under Article 19(1)(A) for an Indian citizen to exercise the right to vote. However, the SCI in the present case went one step ahead and held that political parties are also expected to give information pertaining to financial donations to ensure a conducive atmosphere for free and fair elections in the country.
The SCI recognized the close association between money and politics. The SCI also recognized the lack of political representation that can be exasperated by economic inequalities. On the issue of the menace of unclean/black money in the electoral process, the SCI referred to the test of proportionality and held that the test has not been satisfied as there are other less restrictive measures to curb the menace of unaccounted money in the electoral process. The SCI was sharp in realizing reasons for burgeoning the popularity of electoral bonds amongst corporates and political parties. Reasons are complete tax exemptions to donor and donee, confidentiality of denomination of the bond, confidentiality to protect the identity of donors, and specific donations made to political parties. The SCI also realized the arbitrariness of allowing any corporation to make donations of up to 100% of the total profits to political parties.
While facing the dilemma of balancing the right to privacy [(9J) (2017) 10 SCC 1] under Article 21 of the Indian Constitution and the right to information, the SCI applied the double proportionality test in adjudicating the constitutionality of the scheme of electoral bonds. According to the SCI, the contention of the UOI that the scheme of electoral bonds provides information that is necessary for making an informed decision while exercising the right to vote cannot be held valid as this only partly addresses the aspect of proportionality since the voter is deprived of information pertaining to the funding of political parties.
As a consequence, the SCI declared the amendments made in the Companies Act of 2013, the Foreign Contribution Regulation Act of 2010, the Income Tax Act of 1961, the Representation of the People Act of 1951, and the Reserve Bank of India Act of 1934 for scheme for electoral bonds as unconstitutional.
The SCI issued directions asking that (i) the SBI shall stop issuing electoral bonds; (ii) The SBI shall give details of electoral bonds purchased from 12/04/2019 which will include the name of purchaser, date of purchase, and denomination of bonds to the Election Commission of India (ECI); (iii) The SBI shall submit a list containing political parties which have received donations from 12/04/2019 to the ECI; (iv) The SBI shall submit the above-mentioned details to the ECI by 06/03/2024; (v) The ECI shall publish the data given by the SBI by 13/03/2024.; (vi) Political parties who have not encashed electoral bonds can return the bond to the donor and the SBI after confirming the same has to refund the money back to the donor.
Conclusion:
The SCI judgment has reinstated the legal framework which will now mandate political parties to disclose donations exceeding Rs. 20,000 and a cap of 7.5% of the average profit of the preceding 3 fiscal years in case of making donations. Some sections of society have criticized the SCI for giving its judgment after a considerable delay. However, in hindsight, this delay proved to be a blessing in disguise for the petitioners as they were able to study the implementation and impact of the scheme of electoral bonds for more than 6 years which gave them enough data sets and a holistic perspective while arguing before the SCI. The judgment is certainly a step in the right direction which will help in creating a level playing field for all political parties and foster democratic principles.
The article represents the personal views of the author.