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Electoral Bond Scheme: A Landmark Judgment by the Supreme Court of India


Writ Petition (C) No. 880 of 2017
Association for Democratic Reforms & Anr. �Petitioners


Union of India & Ors. �Respondents

  1. Electoral Bond Scheme[1]:
    • The Electoral Bond is a bond issued in the nature of promissory note which is a bearer banking instrument and does not carry the name of the buyer. The Bond may be purchased by a person who is:
      1. a citizen of India; or
      2. incorporated or established in India. 'Person' includes:
        1. an individual;
        2. a Hindu undivided family;
        3. a company;
        4. a firm;
        5. an association of persons or a body of individuals, whether incorporated or not;
        6. every artificial juridical person, not falling within any of the above categories; and
        7. any agency, office, or branch owned or controlled by such a person.
      Therefore, an individual can buy bonds either singly or jointly with other individuals.
    • An Electoral Bond can only be encashed by an eligible political party. A political party, to be eligible to receive an electoral bond, has to be registered under Section 29A of the Representation of the People Act, 1951 ("RP Act"), and ought to have secured not less than one per cent of the votes polled in the last general election to the House of the People or the Legislative Assembly of the State.
    • The bonds are issued in denominations of INR. 1000, 10,000, 1,00,000, 10,00,000 and 1,00,00,000.
    • The bond is valid for fifteen days from the date of issue. No payment will be made to a political party if the bond is deposited after the expiry of fifteen days. If the bond is not encashed within fifteen days, it will be deposited by the authorised bank with the Prime Minister's Relief Fund.
    • An eligible political party can encash a bond only through a bank account with an authorised bank. The scheme has notified the State Bank of India as the bank authorised to issue and encash bonds.
    • The bond issued is non-refundable. The information furnished by the buyer is to be treated as confidential by the authorized bank. It shall be disclosed only when demanded by a competent court or upon the registration of criminal case by any law enforcement agency.
    • The value of the bonds shall be considered as income by way of voluntary contributions received by an eligible political party for the purpose of exemption from Income Tax under Section 13A of the Income Tax Act, 1961 ("IT Act") and are not eligible for trading.
  2. Challenge:
    The Petitioners instituted aforesaid proceedings under Article 32 of the Constitution of India sought the declaration that the Electoral Bond Scheme and the following provisions be declared unconstitutional:
    • Section 135 of the Finance Act 2017 and the corresponding amendment in Section 31 of the Reserve Bank of India Act;
    • Section 137 of the Finance Act 2017 and the corresponding amendment in Section 29C of the RP Act;
    • Section 11 of the Finance Act 2017 and the corresponding amendment in Section 13A of the IT Act; and
    • Section 154 of the Finance Act 2017 and the corresponding amendment to Section 182 of the Companies Act.
    The Petitioners also challenged the introduction of the Finance Act as a Money Bill under Article 110 of the Constitution.[2]
  3. Issues:
    The Hon'ble Supreme Court accordingly framed the following issues:
    1. Whether unlimited corporate funding to political parties, as envisaged by the amendment to Section 182(1) of the Companies Act infringes the principle of free and fair elections and violates Article 14 of the Constitution; and
    2. Whether the non-disclosure of information on voluntary contributions to political parties under the Electoral Bond Scheme and the amendments to Section 29C of the RP Act, Section 182(3) of the Companies Act and Section 13A(b) of the IT Act are violative of the right to information of citizens under Article 19(1)(a) of the Constitution.
  4. Submissions and Arguments advanced by the Petitioners[3] (in brief):
    1. There is no rational basis for the introduction of electoral bonds as cash donations are still permitted even after the introduction of the Electoral Bond Scheme.
    2. The Central Government ignored the objections which were raised by both the RBI and the ECI to the Electoral Bond Scheme.
    3. The statutory amendments and the Electoral Bond Scheme which mandates non-disclosure of information of electoral funding are unconstitutional as:
      1. They defeat the purpose of introducing provisions mandating disclosure of information on political funding in the RP Act and the Companies Act which was to enhance transparency in electoral funding.
      2. They violate Article 19(1)(a) which guarantees to the voter the right to information concerning the affairs of the public and the government.
      3. They violate Article 21 because the non-disclosure of information of political contributions promotes corruption and quid pro quo arrangements.
    4. They violate the rights of shareholders of Companies who are donating money to political parties by preventing disclosure of information to them.
    5. The funds contributed to the Electoral Bond Scheme can be used in any manner and their use is not restricted to electoral campaigns.
    6. The amendments and the Electoral Bond Scheme skew free and fair elections by permitting unlimited contributions to political parties by corporate entities and removing the requirement of disclosure of information about political funding.
    7. Freedom of a voter in the negative connotation refers to the freedom to cast their vote without interference and intimidation.
    8. The presumption of constitutionality should not apply to statutes which alter the ground rules of the electoral process.
    9. Corporate funding per se is violative of the Constitution because corporate entities are not citizens and thus, are not entitled to rights under Article 19(1)(a);
    10. The Electoral Bond Scheme severs the link between elections and representative democracy because those elected are inclined to fulfill the wishes of the contributors and not the voters. This could be through direct quid pro quo where an express promise is made to enact a policy in favour of the donor and indirect quid pro quo where there is an influence through access to policy makers.
    11. The Scheme promotes information asymmetry where the information about political donations is not disclosed to voters, but the Central Government is privy to such information through the State Bank of India which is the authorized bank under the Scheme.
    12. Non-disclosure of information about political funding denies shareholders the right to choice that flows from Article 21.
    13. Political parties have a right to know the funding sources of rival political parties to enable them to critique it before the public.
    14. The Scheme does not effectively curb black money. Clause 14 of the Electoral Bond Scheme prohibits de jure trading of the bonds.
    15. The presumption of constitutionality does not apply in full rigour to electoral laws because the incumbent legislators have a vested interest in shaping the laws that would make it easier for them to be re-elected.
  5. Submissions and Arguments advanced by the Respondents i.e., Union of India[4] (in brief):
    1. The Electoral Bond Scheme allows any person to transfer funds to political parties of their choice through legitimate banking channels instead of other unregulated ways such as direct transfer through cash.
    2. ihe Scheme ensures confidentiality of the contributions made to political parties. The benefit of confidentiality to contributors ensures and promotes contribution of clean money to political parties.
    3. iitizens 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.
    4. The influence of contributions by companies to political parties ought not to be examined by this Court. It is an issue of democratic significance and should be best left to the legislature.
    5. The legal framework prior to the enactment of the Electoral Bond Scheme was mostly cash-based which incentivized infusion of black money into political parties, and consequently, into the electoral process in India.
    6. vhe Electoral Bond Scheme has been enacted in pursuance of a legitimate state interest - to shift from cash driven, unregulated and unaccounted cash based political donations to a regulated, digital, and legal political donation framework.
    7. The right to information only operates against information in the possession or in the knowledge of the state. It cannot operate for seeking information not in the knowledge or possession of the state.
    8. vonors to a political party often apprehended retribution from other political parties, therefore the scheme will maintain their confidentiality.
    9. Maintaining anonymity of donations to political parties is a part of the concept of secret ballot because it enables a person to make political choices without any fear of victimization or retaliation.
    10. The amendments to the RBI Act, RP Act, and the IT Act are intended to curb donations made by way of cash and other means to political parties and secure the anonymity of donors.
    11. xhis Court has recognized that the legislature has a wide latitude in matters concerning economic policy. Further, the mere possibility that the law might be abused cannot be a ground for holding the provision procedurally or substantially unreasonable.
    12. The fact that one party receives substantially more support through donations than other parties cannot in itself be a legal ground to challenge the validity of the Electoral Bond Scheme.
    13. The amendment to Section 182 of the Companies Act removes the limitation of seven and a half percent of the net profits on the amount contributed by political parties. The removal of the contribution limit was intended to disincentivize creation of shell companies.
  6. Analysis or Reasoning for the Judgment (in brief):
    • The scheme may promote to quid pro quo arrangement by a party with party in power.
    • Violation of right to information under Article 19(1)(a) of the Constitution, the court held that the scheme by permitting anonymous political donations infringed upon the fundamental right to information under Article 19(1)(a) of the Constitution. It pointed out that such a right is not only restricted to fulfilling the freedom of speech and expression but plays a key role in furthering participatory democracy by holding the government accountable. Thus, it is not just a means to an end but an end in itself.
    • Unlimited corporate donations violate free and fair elections, 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. However, through the Finance Act, 2017, crucial changes were introduced including the removal of the prior cap on the amount that companies can donate to political parties 7.5% of the average profits of the preceding three fiscal years. Additionally, the requirement for companies to disclose the names of the political parties to which contributions were made in their Profit and Loss (P&L) accounts was also eliminated.
    • Amendment to Section 29C of RP Act is quashed, initially, the said section required parties to declare all contributions higher than ₹20,000, and specify whether they were received from individual persons or companies. However, the Finance Act, 2017, amended this provision to create an exception wherein such a requirement would not apply to donations received through electoral bonds. The court held that the proviso to Section 29C(1) of the RP Act (as amended by Section 137 of Finance Act 2017), is in violation of Article 19(1)(a) and unconstitutional.
    • The Electoral Bond Scheme fails to meet the balancing prong of the proportionality test.
    • The Electoral Bond Scheme does not fulfill the least restrictive means test. The Electoral Bond Scheme is not the only means for curbing black money in Electoral Finance. 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.
    • A voter has a right to information which is essential for them to exercise their freedom to vote. Electoral Bonds promotes political equality.
  7. Judgment [5]:
    • The 5 Judges bench of the Supreme Court unanimously struck down the Electoral Bond Scheme.
    • The Electoral Bond Scheme, the proviso to Section 29C (1) of the RP Act, Section 182(3) of the Companies Act, and Section 13A (b) of the Finance Act 2017) are violative of Article 19(1)(a) and unconstitutional.
    • The deletion of the proviso to Section 182(1) of the Companies Act permitting unlimited corporate contributions to political parties is arbitrary and violative of Article 14.
  8. Directions:
    The apex court also issued the following directions:
    1. The issuing bank shall herewith stop the issuance of Electoral Bonds;
    2. SBI shall submit details of the Electoral Bonds purchased since the interim order of this Court dated 12 April 2019 till date to the ECI. The details shall include the date of purchase of each Electoral Bond, the name of the purchaser of the bond and the denomination of the Electoral Bond purchased;
    3. SBI shall submit the details of political parties which have received contributions through Electoral Bonds since the interim order of this Court dated 12 April 2019 till date to the ECI. 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;
    4. SBI shall submit the above information to the ECI within three weeks from the date of this judgment, that is, by 6 March 2024;
    5. The ECI shall publish the information shared by the SBI on its official website within one week of the receipt of the information, that is, by 13 March 2024;
    6. Electoral Bonds which are within the validity period of fifteen days but that which have not been encashed by the political party yet shall be returned by the political party or the purchaser depending on who is in possession of the bond to the issuing bank. The issuing bank, upon the return of the valid bond, shall refund the amount to the purchaser's account.
  1. On 2 January 2018, the Ministry of Finance in the Department of Economic Affairs notified the Electoral Bond Scheme 2018 in exercise of the power under Section 31(3) of the RBI Act.
  2. The issue of the scope of Article 110 has been referred to a seven-Judge Bench and is pending adjudication (Roger Mathew v. South Bank of India, CA No. 8588/2019)
  3. Pg 24-36 of the judgment
  4. Pg 36-40 of the judgement
  5. Para 216 of the Chief Justice's judgement.

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