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Constitutionality of the Electoral Bond Scheme

Constitutionality of the Electoral Bond Scheme
Association for Democratic Reforms v Union of India

Citation: 2024 INSC 113
"The Supreme Court held that the Electoral Bond Scheme was unconstitutional for violating the right to information of voter."

Petitioner: Association for Democratic Reforms; Common Cause; Communist Party of India (Marxist)

Lawyers: Advocate Prashant Bhushan; Senior Advocate Kapiil Sibal; Advocate Shadan Farasat; Advocate Nizam Pasha; Senior Advocate Vijay Hansaria

Respondent : Union of India; Election Commission

Lawyers: Attorney General R. Venkataraman; Solicitor General Tushar Mehta; Advocate Amit Mishra; Advocate Kanu Agarwal

Case Details
Case Number:
Writ Petition (Civil) No. 880/2017
Next Hearing: November 1, 2023
Last Updated: March 21, 2024

Key issues
  1. Is the electoral bond scheme constitutional?
  2. Does the electoral bond scheme violate the voters� right to information?
  3. Can the scheme allow anonymity with the view of protecting donors� rights to privacy?
  4. Does the electoral bond scheme threaten the democratic process and free and fair elections?

Case Description
After 70 years of independence, "the country has not been able to evolve a transparent method of funding political parties, which is vital to the system of free and fair elections," said former Union Finance Minister Arun Jaitley when delivering the 2017�18 Union Budget. In order to "cleanse the system" of political money, he suggested the Electoral Bonds Scheme.

The same as a promissory note, an electoral bond. It is a bearer instrument that the holder may cash at any time. An electoral bond offers the parties total anonymity and secrecy because it has no information about them whatsoever, in contrast to a promissory note, which provides the payer's and payee's identities.

The legal framework to introduce the Electoral Bond Scheme
The Finance Act, 2016 went into effect on May 14, 2016. It changed the definition of "foreign source." in Section 2(1)(j)(vi) of the Foreign Contribution Regulation Act, 2010 (FCRA) to permit foreign corporations with a majority stake in Indian enterprises to make political party donations. Before the Foreign Exchange Management Act of 1999 and the Foreign Corrupt Practices Act forbade foreign corporations from making donations to political parties.

The Representation of the People Act, 1951 (RoPA), the Reserve Bank of India Act, 1934, the Income Tax Act, 1961, and the Companies Act, 2013 were revised on March 31, 2017, by the Finance Act, 2017.

By amending Section 13A of the Income Tax Act, Section 11 of the Finance Act, 2017 exempted political parties from maintaining a comprehensive record of donations received via electoral bond.

The RBI Act's Section 31 was modified by Section 135. The Union administration was able to issue electoral bonds by "authorizing any scheduled bank to issue."

A proviso to Section 29C of RoPA was created by Section 137, which exempted political parties from disclosing donations made through electoral bonds in their "Contribution Reports." Contributions from businesses and individuals "in excess of twenty thousand rupees" are disclosed via these reports to the parties.

Section 182 of the Companies Act, 2013 was changed by Section 154, removing the cap on the amount of money a business might give to a political party. Up until recently, businesses could only give 7.5 percent of their net revenues over a three-year period.

Objections to the Amendments:
The Communist Party of India (Marxist) and two non-governmental organizations, the Association for Democratic Reforms (ADR) and Common Cause filed cases in the Supreme Court contesting the modifications shortly after they were enacted in September 2017 and January 2018. Initially, the petitions contended that the Finance Acts were improperly approved as money bills in order to evade the Rajya Sabha's closer examination. This issue is linked to the more general challenge under Article 110 regarding the usage of money bills.

Additionally, petitioners claimed that the plan authorized "non-transparency in political funding" and "huge scale" election malfeasance India's Election Commission over the Electoral Bonds Program.

One of the respondents, the Election Commission of India (ECI), submitted an affidavit on March 25, 2019, objecting to the Electoral Bond Scheme. According According to the declaration, the plan runs counter to the objective of political money openness. Furthermore, it stated that on May 26, 2017, the ECI sent a letter to the Union Government alerting it to the potential "repercussions/impact on the transparency aspect of political finance and funding." \

They further argued that keeping political parties' donation information secret would prevent them from disclosing information about foreign funding. "Unchecked foreign funding of political parties in India, which could lead to foreign companies influencing Indian policies," the document said.

The EBS was "a pioneer step in bringing electoral reforms to ensure that the spirit of transparency and accountability in political funding is maintained," according to a response filed by the Union government on April 1, 2019. The Union asserted that there was an "unregulated flow of black money" into political organizations since the groups mostly accepted cash donations. The State Bank of India is the only authorized bank that is permitted to issue these bonds, therefore the Union guaranteed that these problems would no longer impede the funding of politics. Additionally, sharing KYC information guarantees accountability.

The Supreme Court challenge:
All political parties were instructed by a bench consisting of Chief Justice Ranjan Gogoi, Justices Deepak Gupta and Sanjiv Khanna, to submit information on donations, donors, and bank account numbers to the ECI in a sealed cover by April 12, 2019. Because "such weighty issues would require an in-depth hearing," the Bench decided against placing a delay on the scheme's execution.

The petitioners repeatedly addressed the Court after this Order. Before the In the Bihar elections in October 2020, an urgent hearing request was made in November 2019.
Before the start of a new round of bond sales in early 2021, ADR petitioned the Court for a stay on the plan.

A bench consisting of Justices A.S. Bopanna, V. Ramasubramanian, and Chief Justice S.A. Bobde gave this application careful consideration. The Bench rejected a stay on the scheme's implementation on March 26, 2021. They said that it is "misconceived" that "foreign corporate houses may purchase the bonds and try to influence the election process in the country." Additionally, the Bench strongly advised against the petitioners contacting the Court, saying that "repeated applications seeking the same relief."

The petitioners contacted the court during mention on October 16, 2023. requesting that the matter be heard before the general elections in 2024. A five-judge Constitution Bench was assigned to hear the matter after Chief Justice D.Y. Chandrachud's bench, which also included Justices J.B. Pardiwala and Manoj Misra, noted the "importance of the issue."

A five-judge Constitution Bench, consisting of Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala, and Manoj Misra, was chaired by Chief Justice CJI Chandrachud and heard arguments over a three-day period on October 31, 2023. The petitioners said that the electoral bonds program led to a rise in corporate fundraising, the flow of illicit money, and corruption. They maintained that since a political party's financing source influences its policies and viewpoints, citizens have a right to know about them.

The Union said that the plan was created to protect donors' right to privacy and secrecy, since they would have otherwise been vulnerable to retaliation from political parties they did not support.

The Constitution Bench reserved decision on November 2, 2023.

The Court unanimously invalidated the Union's 2018 Electoral Bonds (EB) Scheme on February 15, 2024. The Bench determined that the Scheme infringed upon voters' constitutionally guaranteed access to knowledge as stated in Article 19(1)(a). The Court further ordered an immediate halt to the sale of electoral bonds. SBI was instructed to provide the ECI with information about all of the electoral bonds it has bought after April 12, 2019.

This will contain information on the buyer as well as the political parties to whom the bonds were distributed. In addition, the Court mandated that the ECI post the data that SBI had supplied on its official website within a week of receiving it (i.e., by March 13, 2024).

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