Electoral Bonds Unbonded (Legitimate or root of corruption)

The Genesis of Electoral Bonds:

On 14 May 2016, the Finance Act, 2016 came into force. It amended Section 2(1)(j)(vi) of the Foreign Contribution Regulation Act, 2010 (FCRA), which defines “foreign source”, to allow foreign companies who have a majority share in Indian companies to donate to political parties. Previously, foreign companies were prohibited from donating to political parties under the FCRA and the Foreign Exchange Management Act, 1999. The journey of electoral bonds began with their introduction in the Finance Bill of 2017, coming into effect with the scheme being notified on January 29, 2018, as shown below:

Various Acts relating Electoral Bonds ‘before’ the amendment.	Amendments made through Finance Act 2017.	Supreme court’s judgment.
The Companies Act, 2013. Section 182(1) placed a cap on the amount of money a company could donate in a single financial year, limiting it to 7.5% of the company’s average net profits during the previous three financial years. Section 182(3) required a company to disclose any amount contributed to any political party along with the particulars of the amount donated and the name of the receiving party	A number of changes were made to Section 182 of the Act, which details the prohibitions and restrictions a company must abide by when giving political contributions. This section was amended to remove the cap on the amount of money a company could donate to a political party. Only the total amount contributed had to be disclosed and the company would no longer be required to declare which political party it had sent a donation to, nor the specific amount.	The court struck down this amendment. Chief Justice of India D Y Chandrachud observed that “permitting unlimited corporate contributions authorizes unrestrained influence of companies in the electoral process”. The court held that this violated the right to free and fair elections, and restored the original provision which is meant to curb corruption in electoral financing.
The Income-tax Act, 1961 Section 13A(b) of The Income-tax Act says that a political party shall not include voluntary contributions as part of its total income, but it is required to maintain a record of all contributions received that are above Rs 20,000. This record must include the name and address of the person who has made the donation.	The Act amended this section to include the words “other than contribution by way of Electoral Bond”. Also, a new Section 13A(d) was added, which required that all donations exceeding Rs 2,000 must be given through certain methods, which included Electoral Bonds.	The court held that exempting political parties from maintaining a record of donations received through Electoral Bonds would violate the right to information of voters under Article 19(1)(a) of the Constitution. The court struck down both the amendment to Section 13A(b), and the new Section 13A(d).
The Representation of the People Act, 1951 Section 29C of the Act requires political parties to prepare a report detailing the donations received by them in a financial year. Parties are required to declare all contributions higher than Rs 20,000 in this report, and specify whether they were received from individual persons or from companies.	The Finance Act, 2017, amended the RP Act to include an exception to Section 29C. Section 137 introduced a provision to Section 29C of RoPA, exempting political parties from publishing contributions received through electoral bonds in “Contribution Reports.” It said that the requirement to declare all donations in excess of Rs 20,000 would not apply to donations received via these bonds	The Supreme Court struck down the amendment, and observed that the original requirement to disclose contributions of more than Rs 20,000 did an effective job of balancing voters’ right to information with the right to privacy of donors, as donations below this threshold were far less likely to influence political decisions.
Section 31 of RBI Act,1934 No person in India other than the Bank, or, as expressly authorize by this Act the Central Government shall draw, accept, make or issue any bill of exchange, hundi, promissory note or engagement for the payment of money payable to bearer on demand, or borrow, owe or take up any sum or sums of money on the bills, hundis or notes payable to bearer on demand of any such person.	Section 135 amended Section 31 of the RBI Act, which permitted the Union government to “authorize any scheduled bank to issue electoral bonds.

Further developments:

• 25 March, 2019: The Election Commission of India (ECI) filed an affidavit in the Supreme Court opposing the Electoral Bond Scheme, citing concerns over transparency and potential foreign influence in political funding.
• 1 April, 2019: The Union Government submitted a rejoinder defending the EBS as a pioneering step in electoral reforms aimed at enhancing transparency and accountability in political funding, emphasizing the role of the State Bank of India (SBI) and the requirement for KYC details to ensure accountability.
• 12 April, 2019: The Supreme Court, led by Chief Justice Ranjan Gogoi, along with Justices Deepak Gupta and Sanjiv Khanna, directed political parties to submit details of donations received through electoral bonds in a sealed cover to the ECI. The Court did not stay the scheme but noted the need for an in-depth hearing on the matter.
• November, 2019 & October, 2020: Petitioners sought urgent hearings on the matter, particularly before the Bihar elections in 2020.
• Early 2021: The Association for Democratic Reforms (ADR) sought a stay on the EBS before new bond sales. A Bench led by Chief Justice S.A. Bobde, with Justices A.S. Bopanna and V. Ramasubramanian, declined the stay, dismissing apprehensions about foreign influence as misconceived.
• 16 October, 2023: Petitioners approached the Supreme Court for an expedited hearing before the 2024 General Elections. The case was referred to a five-judge Constitution Bench by a Bench led by Chief Justice D.Y. Chandrachud, noting the importance of the issue.
• 31 October, 2023: The Constitution Bench, led by CJI Chandrachud and comprising Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala, and Manoj Misra, heard arguments over three days. The petitioners argued against the scheme, citing increased corporate funding and potential for corruption, while the Union defended the scheme’s confidentiality measures as protective of donor privacy
• 2nd November, 2023: the Constitution Bench reserved judgment.
• Eventually, on 15th February, 2024 the Electoral Bond scheme was struck down.

Violates Right to Information:

Violates the citizen's fundamental right to information under Article 19 (1)(a) which guarantees all citizens the right to “freedom of speech and expression”.

Enables backdoor lobbying and quid pro quo:

There is circumstantial evidence to prove that there were kickbacks being paid by corporations via electoral bonds to political parties in power to get favors for the corporations.

For Instance, Donations of Electoral Bonds from Vedanta Limited, a company that has been declared as the preferred bidder for various mining licenses, went up despite reports of a financial crunch. In the last five years, the company has donated Rs 457 crore to political parties through these bonds, according to a report in The Economic Times (ET).

Opens doors to shell companies:

It has been argued that since the government removed the limit of 7.5 percent of the annual profit for companies to make donations to political parties and allowed Indian subsidiaries of foreign companies to make donations.

Opaque instrument that is not entirely anonymous:

As, nobody can come to know other than the government who contributed to whom. Since the SBI comes under the government, donations to the opposition can come under scrutiny by an investigative agency, which leads to selective anonymity

Can be used for any other purpose than Elections:

The name "Electoral Bond" is a misnomer as the money can be used for any purpose after it is withdrawn since no one is asking how the parties spent the money.

Promotes corruption:

The account can be closed anytime by the political party. This scheme might protect criminals from being prosecuted under the Prevention of Corruption Act (PCA) and Prevention of Money Laundering Act (PMLA).

Eliminates level playing field for political parties in Opposition:

"More than 50 per cent have been received only by the ruling party at the Centre and the rest have only been received by the respective ruling party in States and the opposition parties received very less amount.

Unfair to the shareholder investing in Companies:

Shareholders in a company put in their money to ensure that the corporation functions within the framework of the MoU. By donating to Electoral Bonds the company without informing the shareholders is unfair practice.

No way to stop trading of electoral bonds:

Honourable CJI remarked that even as trading of electoral bonds is prohibited, there is no way to stop it. Honourable CJI also added that the person could be an aggregator of bonds and may give the bonds to ten others.

Does not reduce black money:

Advocate Farasat argued that the electoral bonds scheme did not primarily aim to reduce black money but rather aimed to reroute non-anonymous funding from normal banking channels to anonymous Electoral Bonds.

Possibility of Extortion:

Bonds sold via a government-owned bank (SBI) leaves the door open for the ruling government to know exactly who is funding other parties.This, in turn, allows the possibility for the government of the day to either extort money, especially from the big companies, or victimize them for not funding the ruling party.

Blemish Free and Fair Election:

Through an amendment to the Finance Act 2017, the Union government has exempted political parties from disclosing donations received through electoral bonds.

May promote Crony Capitalism:

The Electoral Bonds Scheme has opened the floodgates to unlimited corporate donations to political parties and anonymous financing by Indian as well as foreign companies which can have serious repercussions on the Indian democracy as donations made under this scheme by corporate and even foreign entities enjoyed a 100% tax exemption, benefiting wealthy corporations.

Unlimited corporate donations violate free and fair elections: Against Constitutionalism.

The court found that the amendment made to Section 182 of the Companies Act, 2013, permitting unlimited political contributions by companies, to be manifestly arbitrary. The provision allows Indian companies to make financial contributions to political parties under specific conditions.

Arguments in favor of electoral bonds:

• Solicitor General Tushar Mehta argued that the focus of the scheme is not to ensure “anonymity”, but to ensure “confidentiality”.
• Referring to the apex court’s decision in 2019 to recognise the right to privacy as a fundamental right, he argued that donors have a right to privacy unless the information is a source of genuine public interest, in which case people can approach the court.
• Citizens do not have a general right to know regarding the funding of political parties. Right to know is not a general right available to citizens.

Directions issued by the Supreme Court:

1. The SBI has been ordered to immediately stop the issuance of any further electoral bonds and furnish details of such bonds purchased by political parties since April 12, 2019, to the ECI by March 6. Such details must include the date of purchase of each bond, the name of the purchaser of the bond and the denomination of the bond purchased.

2. The ECI shall subsequently publish all such information shared by the SBI on its official website by 13 March 2024.

3. Electoral bonds that are within the validity period of fifteen days but have not yet been encashed by the political party will have to be returned following which the issuing bank will refund the amount to the purchaser’s account.

4. The Supreme Court has restored the status quo that existed before the Finance Act, 2017 was passed, in all of these statutes.

Honorable Supreme Court’s Observations in the case:-

1. Importance of Transparency in Political Funding: The Supreme Court observed that, “Information about funding of political parties is essential for the effective exercise of the choice of voting.”

2. Influence of Contributions on Access and Policy: The Court noted, “At a primary level, political contributions give a seat at the table to contributors, i.e., it enhances access to legislators. This access also translates into influence over policymaking.”

It was further highlighted, “There is also a legitimate possibility that financial contributions to a political party would lead to quid pro quo arrangements because of the close nexus between money and politics. Quid pro quo arrangements could be in the form of introducing a policy change or granting a license to the person making financial contributions to the party in power.”

3. Alternatives to Electoral Bonds: The Court pointed out, “The Electoral Bonds scheme is not the only means for curbing black money in electoral financing. There are other alternatives which substantially fulfill the purpose and impact the right to information minimally when compared to the impact of electoral bonds on the right to information.”

4. On the issue of transparency, the Court stated, “The deletion of the mandate of disclosing the particulars of contributions violates the right to information of the voter since they would not possess information about the political party to which the contribution was made, which is necessary to identify corruption and quid pro quo transactions in governance—information which is necessary to exercise an informed vote.”

5. Corporate Influence in Politics: Regarding the influence of corporate contributions, the Court observed, “The ability of a company to influence the electoral process through political contributions is much higher when compared to that of an individual.”