Supreme Court Verdict On Electoral Bonds A Good Start To Bringing Transparency In Political Funding

The landmark verdict, delivered unanimously on Thursday by a five-judge Constitution Bench headed by Chief Justice of India DY Chandrachud, invoked the Right to Information and applied the test of proportionality to declare the Electoral Bonds scheme unconstitutional.

The Backdrop

The Electoral Bonds Scheme was introduced by late Finance Minister Arun Jaitley in the Union Budget 2017-18 with the claim that it was intended to bring transparency in political funding, curb black money and contribute to ensuring elections are free and fair.

Under the Electoral Bonds scheme, the State Bank of India would issue bonds to companies and individuals, which they could donate to any political party of their choice. The latter would then encash the bond(s) to fund mostly, but not limited to, their electoral expenses.

The scheme, however, became controversial in the wake of the legislative amendments that followed to operationalise electoral bonds.

The Representation of the People Act of 1951 was amended to exempt political parties from reporting to the Election Commission details of funds received through electoral bonds. The Income Tax Act was amended to free corporate bodies from the obligation of maintaining account of names and details of donors.

Amendments were also made to the Companies Act to do away with the provisions that required companies to disclose who they donated funds to as well as removing the cap on corporate contributions. Companies were earlier allowed to donate up to 7.5 per cent of their net profit to political parties. Loss making companies were also allowed to donate.

As a result, contrary to the claims and intent of the government, the scheme became controversial with criticism of being opaque and subversive. Even the Reserve Bank of India and the Election Commission had expressed reservations about the scheme. It was challenged in the Supreme Court by elections watchdog Association for Democratic Rights.

In its verdict on Thursday, the Supreme Court also declared all the above legislative amendments associated with the scheme as unconstitutional. It ordered the State Bank of India to stop issuing the bonds with immediate effect and share all information relating the bonds sold and the donors and recipients of those bonds with the Election Commission by March 13.

The decision of the Supreme Court was welcomed by most legal and constitutional experts, political parties and civil society groups, who saw it as presenting an opportunity for meaningful reform in political funding.

Right To Information Vs Right To Privacy

Under the Electoral Bonds scheme, any entity could buy a bond with its own money or someone else’s money. Once bought, the bond could be traded because of the cover of anonymity and the bearer of the bond could deliver it to the party of its choice. Such a practice helped blur the sources of funding.

The government had all along defended its decision arguing that the donor had a right to privacy under the Constitution. The Supreme Court overruled the argument saying while information about a donor’s political affiliation or proclivity was protected under the Right to Privacy, it can not infringe on the voters’ Right to Information. CJI Chandrachud pointed out that there were other ways to protect the donor’s right to privacy.

The Indian Constitution guarantees right to freedom of speech and expression, and that right can not be duly exercised by the citizens while voting if they don’t have the right to know the sources of political funding, the Constitution Bench argued.

CJI Chandrachud also observed that the removal of the cap on corporate contribution – wherein companies, including loss-making ones, could donate any amount – could increase corporate influence over political parties and encourage quid-pro-quo arrangements between the two sides. That is not only detrimental to democracy, but also violates the right to equality of Article 14 of the Constitution, he argued.

The Supreme Court also rejected the government’s argument that the scheme could help curb black money, saying there were better ways to pursue that goal.

Concerns Over Money Laundering

Before the inception of the Electoral Bonds scheme, the Reserve Bank of India as well as the Election Commission had expressed concerns over possible misuse of the instrument. In 2017, OP Rawat, who was then the Chief Election Commissioner, had written to the law ministry, highlighting how the electoral bonds could help cover illegal donations and turn black money into white through shell companies. There could be a mushrooming of shell companies for this purpose, it warned.

The RBI also had similar concerns. In letter to finance ministry dated January 30, 2017, the RBI said that the proposed electoral bonds would effectively be a type of bearer bond -- a financial instrument that is opaque and whose ownership can not be easily traced.

“Bearer instruments have the potential to become currency and if issued in sizeable quantities can undermine faith in banknotes issued by RBI,” the letter said. “The bonds are bearer bonds and are transferable by delivery. Hence who finally and actually contributes the bond to the political party will not be known.”

The scheme would allow "unauthorised and non-sovereign entities to issue bearer bonds", thus undermining the very basis and authority of the central bank.

The advice of the RBI as also the note of caution from the Election Commission were, however, ignored by the government. Then Finance Minister Arun Jaitley chose to go ahead with the plan and announce in the Union Budget 2017-18.

Uneven Dispersion:

Since inception, a total of 28,030 electoral bonds worth Rs 16,518 crore have been sold. The ruling Bharatiya Janata Party has been biggest beneficiary, receiving Rs 6,566 crore, of 57 per cent of the total kitty. Opposition Congress party is a distant second recipient with Rs 1,123 crore, or just 10 per cent of the total. Trinamool Congress was placed third with Rs 1,092 crore (see chart).

Not only that the dispersion of the electoral bonds has been highly skewed, what has been worrying is that the share of donation from unknown sources has been rising. It rose from an average of 66 per cent between 2014-15 and 2016-17 to 72 per cent during the three year period of FY 2018-19 and 2021-22, according to the Association for Democratic Rights.

What Next?

Even when electoral bonds are gone, there is little reason to believe the influence of money over politics will wane soon. But the Supreme Court verdict has certainly put the spotlight back on electoral reforms. It’s time some of the proposals on political funding made in the past were revived.

One such proposal relates to setting up an electoral trust with contributions from corporates and individuals and a well-thought-out institutional mechanism to distribute the funds among candidates or parties contesting elections. The other is to opt for a system of state funding of elections, meaning a fund is created by the government with taxpayers’ money for the purpose of funding electioneering. In short, any meaningful alternative should not allow corporates to directly donate funds to political parties.

Be that as it may, bringing transparency to political funding is just one aspect of free and fair elections. There are several other reforms that would be needed to make India a vibrant electoral democracy and they are overdue.