India's Electoral Bond Scheme: A Landmark Judgement on Transparency and Accountability

On February 15, 2024, the Supreme Court of India in Association for Democratic Reforms & Anr. v. Union of India, declared the Electoral Bond Scheme(EBS), introduced in 2017, as unconstitutional in a landmark judgment. The scheme, introduced by the then Finance Minister, the late Arun Jaitley, aimed to bring transparency and anonymity to political funding in India. The scheme enabled individuals and corporations to make anonymous political contributions by purchasing electoral bonds, a form of promissory note which did not carry the name of the purchaser. However, the court found the scheme to be violative of various fundamental rights enshrined in the Indian Constitution including the right to information, freedom of speech and expression, and equality and could result in quid pro quo arrangements between donors and political parties. 

The Electoral Bond Scheme allowed anonymous donations to political parties through bearer bonds issued by India’s largest public sector bank, State Bank of India (SBI). These tax-free, time-limited bearer bonds could be purchased by individuals and companies during certain windows of time throughout the year and deposited in designated accounts of eligible political parties.Like banknotes, electoral bonds are bearer securities. Amounts of ₹1,000 (S$12), ₹10,000 (S$120), ₹100,000 (S$1,200), ₹1 million (S$12,000), and ₹10 million (S$120,000) are available for purchase. Individuals, groups, and corporate entities have the option to purchase them and donate them to their preferred political parties, who can redeem them interest free after 15 days.  The names of those donating via EBs have been exempted from being revealed. 

The scheme aimed to curb the flow of black money in political funding while protecting the identity of donors. The court, while acknowledging the legitimate aim of the EBS to curb the circulation of black money in political funding, emphasized that this objective cannot be achieved at the expense of fundamental rights. The judgment stressed the importance of transparency and accountability in ensuring a healthy democracy. The government will likely need to introduce a new framework that addresses the concerns raised by the court while ensuring legitimate sources of funding for political parties.  It necessitates a rethinking of political funding mechanisms in India, prioritizing transparency and accountability while safeguarding the integrity of the electoral process.

Reasons for the Judgment : 

1. Violation of Right to Information: The court held that the EBS's anonymity violated donors' constitutionally protected right to information guaranteed under Article 19(1)(a) of the Constitution. By providing information about the financial sources of political parties, which may have an impact on their positions and programmes, voters can make well-informed decisions.
2. Enhanced corruption risk: Anonymity may make it easier for parties and funders to strike deals in exchange for favors, which would encourage corruption.
3. Undue Influence of Money Power: The plan created worries about the possibility of undue influence of money power on the democratic process by permitting unrestricted corporate donations through anonymous conduits. This might put the idea of free and fair elections in jeopardy by putting companies in a position where they control political discourse and policy decisions instead of the people.
4. Unrestricted Corporate Influence: The scheme permitted corporations to make unlimited contributions, including shell corporations that may provide them an unfair advantage over individual donors. This violated the electoral process's equality principle and raised the possibility of undue influence and jeopardizing the idea of "one person, one vote."
5. Undermined free and fair elections: The lack of transparency could lead to undue influence of wealthy individuals and companies on political parties, creating an uneven playing field.
6. Discriminated against small donors: Large donors who could afford to buy expensive bonds were the main beneficiaries of the plan.

The Judgment :

The five-judge Constitution bench, headed by Chief Justice of India held “the information about funding to a political party is essential for a voter to exercise their freedom to vote in an effective manner.” The Finance Act, 2017, which amended the Reserve Bank of India Act, 1934 (RBI Act), the Representation of People Act (RP Act), the Companies Act, and the Income Tax Act (IT Act), was challenged by the petitioners as being unconstitutional. The Scheme, which introduced anonymous financial funding to political Parties, was also challenged.  The court determined that the amendments violated both Article 14 of the Constitution (the right to equality) and Article 19(1)(a) of the Constitution, which guarantee fundamental access to information.

The amendments were : 

1. Section 31 of the RBI Act, enables the Central Government to approve the issuance of electoral bonds by any scheduled bank.
2. Political parties are not required to submit any reporting requirements to the Election Commission of India (ECI) about any financial contributions received through electoral bonds, as per Section 29C of the RPA as amended by the Finance Act of 2017. 
3. Section 13A(b) of the IT Act was amended to exempt monetary donations from income tax up to ₹2,000 if they are received in a means other than by check, bank draft, electronic clearing system, or EBs. Additionally, according to section 13A of the modified IT Act, political parties are exempt from keeping track of contributions made through electoral bonds. 
4. The Finance Act of 2017 made changes to Section 182 of the Companies Act of 2013, eliminating the previous requirement that donors disclose specifics about the amount they contributed to political parties in their profit and loss accounts. Instead, donors were only required to disclose the amount they contributed, without providing information about the political party to which the contribution was made.

The court held that it is arbitrary and violative of Article 14 to delete the proviso to Section 182(1) of the Companies Act, permitting unlimited corporate funding to political parties.

As generally held in other cases, that the right to information about the candidates contesting in an election is part of the right to freedom of expression under Article 19(1)(a), the bench tried to apply the same idea to include the right to information about the political parties under the same Constitutional provision. The Union of India (UoI), defended the guarantee of anonymity to corporate donors by arguing that it aimed to reduce the impact of black money on elections, despite the fact that Article 19(2) does not list "public interest," which could have supported the purported campaign against black money. Nonetheless, the Constitution Bench determined that, among the rights recognized by Article 19, only Article 19(1)(g), which protects the right to engage in any profession, trade, or business, is subject to limitations based on the public interest.

Directions issued by the court: 

The SBI is now restricted from making any further issuance of electoral bonds. The court said “SBI must disclose details of each electoral bond encashed by political parties which shall include the date of encashment and the denomination of the electoral bond.” That is, the court directed the SBI, the authorized financial institution under the scheme, to submit the details of electoral bonds purchased and details of the political parties that received these monetary instruments from April 12, 2019 till date to the Election Commission which will publish the information on its official website by early March.  Further electoral bonds that are within the 15-day validity period but has not reached the political party should be returned to the recipient by the political party, and SBI should return the money to the recipient's account.

Conclusion : 

According to the Constitution Bench, EBS is not the least restrictive way to fulfill the goal of reducing the influence of black money on elections. Additionally, they held that donations made through alternative electronic transfer methods are the least restrictive for amounts under Rs. 20,000, whereas contributions made through the Electoral Trust are the least restrictive for amounts beyond Rs. 20,000. Thus, it was established that there are better EBS substitutes that have a negligible effect on the right to information.

While the Supreme Court's judgment is a positive step towards strengthening transparency and accountability in Indian politics, several challenges like crafting new regulations, effective implementation and enforcement of new regulations and raising public awareness about the importance of transparency in political funding have arisen. 

Overall, the Supreme Court's decision represents a significant step towards ensuring greater transparency and accountability in Indian politics. However, it remains to be seen how the government responds to the judgment and what reforms it proposes to address the concerns raised by the court.

The Supreme Court's judgment on the EBS serves as a reminder of the delicate balance between transparency, accountability, and individual rights in a democracy. The future of political funding in India hinges on crafting a system that upholds these principles while fostering a fair and inclusive electoral process.

It's important to note that this is a complex issue with various perspectives. While some view the judgment as a positive step towards curbing corruption, others might raise concerns about potential limitations on political speech and funding. It's crucial to engage in informed discussions and consider all viewpoints to move forward with effective reforms.

Written by: Swetha SS