SC declares electoral bonds scheme ‘unconstitutional’

The Supreme Court on Friday struck down the electoral bonds scheme, which provides blanket anonymity to financial contributions to political parties, and amendments made to the law allowing rich corporations to make unlimited political donations “unconstitutional and manifestly arbitrary”.

A five-judge Bench headed by Chief Justice of India DY Chandrachud, in a unanimous judgment, held that the electoral bonds scheme and preceding amendments made to the Representation of People Act, Companies Act and the Income Tax Act violate the voters’ right to information about political funding under Article 19(1)(a) of the Constitution.

The apex court ordered the State of Bank of India to stop issuance of electoral bonds herewith.

The bank was directed to submit details of bonds purchased from April 12, 2019, till date to the Election Commission of India (ECI). On April 12, 2019, the top court had ordered the ECI to submit, in a sealed cover, the records of bonds purchased till then. The “details” would include date of purchase of each bond, the name of the buyer and the denomination of the bond. The bank would make a full disclosure to the ECI of political parties that had received contributions and encashed the electoral bonds from April 12, 2019.

The bank would furnish the information to the ECI by March 6, 2024. The poll body, in turn, has to publish the entire information given by the State Bank of India on its website by March 13, 2024.

• Also read: Electoral bonds collect over ₹16,500 crore in 30 tranches

Electoral bonds, with a validity period of 15 days and yet to be encashed, would be returned by political parties or purchasers to the bank, which must refund the amount to the purchasers’ accounts.

The lead opinion authored by Chief Justice Chandrachud said the absolute non-disclosure of the source of political funding through electoral bonds promoted corruption and a culture of quid pro quo with the ruling party to introduce a policy change or for bagging a licence. The scheme and the amendments authorised “unrestrained influence of corporates in the electoral process”.

The scheme allowed the inflow of “huge contributions” by companies and multinational corporations with major business stakes in the country, overawing or even concealing the relatively small financial contributions of the ordinary Indian - the student, the daily wage worker, the artist or a teacher - who believes in the ideologies of a political party without expecting any substantial favours in return.

“Would we remain a democracy if the elected do not heed to hue and cry of the needy? We ask ourselves whether the elected would truly be responsive to the electorate if companies which bring with them huge finances and engage in quid pro quo arrangements with parties are permitted to contribute unlimited amounts,” Chief Justice Chandrachud noted.

He said the scheme and the amendments promoted “economic inequality” by giving corporations with money power an unsurpassable advantage over citizens in electoral process and political engagement.

“This is violative of the principle of free and fair elections and political equality captured in a value of ‘one person, one vote’,” Chief Justice Chandrachud observed.

The judgment belled the cat on the deep nexus between money and politics. It said “contributions made by companies are purely business transactions made with the intent of securing benefits in return”.

• Also read: The largest electoral trust gave 71% of its donations to BJP in FY23 

The court dismissed the argument of the government that anonymity of political donors afforded by electoral bonds incentivised financial contributions through banking channels.

The court agreed that the fundamental right to privacy extended to a person’s political affiliation. However, it said, there should be a balance between informational privacy and the voters’ right to information.

Chief Justice Chandrachud drew a clear distinction between donations by corporates for favours and contributions by individuals as a mark of their political beliefs.

“Not all contributions are made to alter public policy. Contributions are also made by people to political parties which are not substantially represented purely with the intent of extending support… Contributions made for quid pro quo are not an expression of support,” the Chief Justice distinguished.

The court rubbished the government’s claim that the scheme was meant to curb the injection of black money into the electoral process.

It said “curbing of black money” was not a reasonable restriction under Article 19(2) of the Constitution to the exercise of the voters fundamental’ right to information about political funding enshrined in Article 19(1)(a).

Chief Justice Chandrachud asked the Centre how the “absolute” non-disclosure of the sources of political funding introduced in the electoral bonds scheme had a rational nexus with curbing black or unregulated money.

“Clause 7(4) of the scheme completely exempts information on the purchasers of electoral bonds. This information is never disclosed to the voters. The purpose of securing information about political funding cannot be fulfilled by absolute disclosure,” the Chief Justice pointed out.

Applying the “double proportionality standards”, the court said the clause was unconstitutional as it did not balance the conflicting right to information of voters and informational privacy of the contributors to their political affiliations.

The judgment said the entire electoral bonds scheme had hinged on the anonymity provided under Clause 7(4). Without the clause, the scheme was not indistinguishable from other modes of financial contributions like cheques, direct debit or electronic transfers. Sans the clause, the scheme had to fall.

The judgment referred to how amendments were introduced in Section 29C of the Representation of People Act, Section 13A of the Income Tax Act and Section 182 of the Companies Act via Finance Act 2017, introduced as a money Bill circumventing the Rajya Sabha, to pave the way for blanket anonymity in financial contributions through the electoral bonds’ route notified in January 2018.

These provisions, prior to the amendments, had maintained a balance between informational privacy on the political affiliations of donors and the right to know of the voters. They were “less restrictive” any day.

The original Section 29C required political parties to publicly disclose contributions in excess of ₹20,000, received even through cheques and electronic clearing system. The amendment had allowed a complete exemption for political parties to publish contributions received through electoral bonds. The amended Section 13A freed parties from the obligation of keeping a detailed record of contributions received through electoral bonds.

Before the amendment, Section 182 had mandated that companies could donate only up to 7.5 per cent of three years of their net aggregate income. The amendment lifted this cap and made room for unlimited and anonymous corporate donations to political parties.

The pre-amendment provision had banned government companies from making contributions to prevent their entry into the political fray. It had also classified companies between loss-making and profit-making ones.

“The underlying principle was that it was more plausible that loss-making companies would contribute to political parties with a quid pro quo and not with income tax benefits in mind. The amendment to Section 182 does not recognise that the harm of political contributions by loss-making companies for quid pro quo is higher. The amendment is arbitrary for not making a distinction,” Chief Justice Chandrachud held.

COMMENT NOW