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Unconstitutionality of Electoral Bond

A democratic government is always by the people, of the people and for the people. India is the largest democratic country. The democracy in India is supported by three pillars; the executive, the legislative and the judiciary. The legislative makes the law which is executed by the executive and the conformity of the laws with basic structure of constitution is checked by judiciary. The legislation is the only elected body where its members are elected either through direct or indirect elections and this body plays a very vital role as it represents the ideology of its electors.

In India the elections are held in every five years at both central and state level. Election campaigns are held before elections where many parties tirelessly work day and night to raise awareness, coordinate rallies, set up stages for public addresses, distribute pamphlets, print posters, display hoardings, and advertise on various platforms. These campaigns demand a lot of money and thus political party raise funds through organizations, companies many supporters etc.

Thus, electoral bond emerged as financial instruments in the Indian political landscape. Though it was argued that electoral bonds ensured transparency by routing donation through formal banking channels and mitigating influence of black money and ending up in cleansing the political funding system, but still the question on its constitutionality was never answered until a five judge constitution bench comprising Chief Justice of India D.Y Chandrachud , Justice Sanjiv Khanna, BR Gavai, JB Pardiwala and Manoj Mishra did a in depth examination of legal and ethical dimensions of electoral bond and scrutinized its impact on democratic governance.

Electoral Bond

In 2017 the government of India introduced electoral bond scheme which aimed at cleansing the age-old political funding system and curbing black money. Under this scheme ' electoral bond has been defined as a bearer instrument in the form of promissory note which is payable at the demand of bearer and is free from any interest. The bond can be purchased or issued from State Bank of India in denomination of 1000, 10000, 100000, 1000000, 10000000. It is available for a span of 10 days in month of January, April, July and October each. Any person who was a citizen of India or anybody incorporated in India was eligible for purchase of electoral bonds by giving Know your customer form.

The bond was valid for a period of 15 days from the date on which it was issued and didn't disclose the donors name in order to protect them from attack or threat of political parties. In order to receive the bonds, the parties were required to be registered under section 39A of Representation of People Act, 1951 and secured not less than 1% vote in last general election to the house of people. Further the eligible political party can encash the amount through a bank account with the State Bank of India.

Amendments due to electoral scheme

Initially foreign companies were not allowed to make any fundings to political parties as per the Foreign Exchange and Management Act, 1999. However, the Finance Act 2016 came into force which amended section 2(1) (j) (vi) of Foreign Contribution and regulation Act of 2010 defining the word foreign source in order to enable the foreign companies having majority shares in the Indian companies to donate to political parties.

Thereafter the Finance Act 2017 made amendments in Representation of People Act, Companies Act 2013, Income Tax 1995, and Reserve Bank of India Act 1931.

Section 29C of Representation of People Act mandated a political party to give a report of contribution received by it in a financial exceeding the amount of 20000 by any person or any company other than a government company. However, by virtue of proviso inserted through amendment made in 2017 electoral bond was exempted from the applicability of the section. In Companies Act, 2013 amendments were made to Section 182. The proviso imposing a cap of 7.5 percent of average net profit in 3 immediately preceding years was omitted and the company was no longer needed to disclose the name of the political party to which the contribution was made.
Further section 182 (3A) was added (more to written). Section 13A of Income Tax Act provides for provision regarding income of a political party. The amendment exempted the political party from keeping a record of contribution received through electoral bonds and the name and address of the person from whom such contribution has been received. Lastly sub clause 3 under section 31 of Reserve Bank of India Act was inserted which empowered the Central Government to authorize any scheduled bank to issue electoral bond which in this case was State Bank of India.

Shortly after the amendments, two non-governmental organization namely Association for Democratic Reforms and common cause and Communist Party of India filed petition arguing that the Finance Act was wrongfully passed as money bills in order prevent higher scrutiny by Rajya Sabha. It was further being argued that his scheme was nothing but a promotion of non-transparency in political funding and legitimized electoral corruption.

Constitutionality of electoral bond

Initially a bench led by Ranjan Gogoi, Deepak Gupta and Sanjiv Khanna refused to put a stay order on implementation of electoral bond scheme in a view that such an issue required in depth hearing but however, the bench ordered all political parties to give detail information of the donations, donors and bank account numbers to ECI. Again in 2021 the ADR approached the Supreme Court seeking stay order on the electoral scheme before fresh round of bonds can be issued.

The bench led by S.A Bobde, A.S Bopanna and V. Ramasubramania on 26th March 2021 observed that a presumption that foreign corporate houses would try to manipulate electoral process in the country by funding political parties is a misconception and thereby denied the stay order on the scheme. However, the petitioners again approached the apex court on 16th of October 2023 in the view of upcoming 2024 general elections. This time the seriousness of the matter was considered by D.Y Chandrachud, J.B Pardiwala and Manoj Misra and the matter was referred to five judge constitution bench.

On 31st October the bench heard the arguments over three days and mainly the four following issues were focused on:
  • Whether the electoral bond scheme was constitutional?
  • Did the electoral bond scheme violate the voters' right to information?
  • Whether the Scheme allow anonymity with the view to protect donors' right to privacy?
  • Did the electoral bond scheme threaten the democratic process, and free and fair elections?

The scheme was introduced by the government to promote transparency in the political funding and curbing black money. This scheme basically allowed corporations, organizations or individuals to donate money to political parties without disclosing their identity. To check the constitutionality of the scheme, Supreme Court put the scheme to test of proportionality. Where there is a conflict between two rights or any right and a law introduced then this test is considered to be the best way of resolving the dispute.

As per the test where a law introduced infringes or put restriction on any fundamental right of citizens then it must have a legitimate goal, be the suitable means to achieve that goal and must create least amount of restriction and must not have disproportionate impact on the right holder.

When the scheme was put to test it was found that curbing black money was legitimate goal. However, while testing the suitability of the means to achieve the goal the court could not deduce a reasonable nexus between donor's right to privacy and an informed electorate and curbing of black money. The court went on to rely upon an alternative that is Electoral trust which provides same level of confidentiality, help in curbing black money and maintain transparency in electoral system. All the goals of the scheme are met through this Electoral trust.

The rights under Article 19 can be reasonably restricted by state through such laws which are in interest of the sovereignty and integrity of India, security of the state, friendly relation with foreign states, public order, decency or morality, or in relation to contempt of court, defamation or incitement to an office. Applying the proportionality test made it clear that the restriction imposed by the law were not reasonable and did not satisfy any of the grounds under Article 19 (2). Thus, it failed the test of reasonable restriction and was declared unconstitutional in the light of being violative of Article (1)(a).

Apart from being unconstitutional this scheme possessed high level of risk of manipulation and influence by big entities on government policies. The government through this scheme removed the cap of 7.5% on corporate donation under section 182 and it was highlighted that the scheme treated individual and corporate funding alike. Individuals' donations showed support for the political party whereas corporate funding generally created quid pro quo relationship. In return of political funding the companies could easily get desired benefits and exercise significant influence on the political processes. This had an adverse effect on free and fair election which is heart and soul of a democracy.

On 15th February 2024 the electoral bond scheme was declared unconstitutional unanimously by the bench. The court stopped the purchase of electoral bonds, directed State Bank of India to give detailed information regarding all purchase of electoral bonds made from April 12, 2019 till date and further ordered the ECI to provide the information shared by the SBI on its official website by 13th March 2024.

The foundation of a strong democracy is laid down by free and fair elections, which are essential in a country as diverse and populous as India. It guarantees that will of people is represented by the government and promotes a sense of ownership and participation in the democratic process by allowing voters to select their representatives without the use of force, bribery, or undue influence. Furthermore, impartial and equitable elections advance equality by providing every citizen with a voice, irrespective of their financial background. Maintaining election integrity also builds public confidence in the political system, which promotes engagement and fortifies democratic institutions.

However, the Electoral bond scheme of 2018 was on the verge of ending the very foundation democracy. It somewhat meddled with free and fair elections which went on to reflect the influence of big corporations. Furthermore, the scheme had been criticized for allowing anonymous donations, which could possibly lead to undisclosed and potentially illicit contributions influencing elections. Declaring Electoral bond scheme as unconstitutional has created a need for an alternative and transparent political funding system, significant policy reforms and restoration of faith and trust of public to ensure fairer and more accountable elections.

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