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  • Apex court declares electoral bonds as unlawful

    Published on February 15, 2024

    Our Legal Correspondent

    New Delhi: In historic judgement the Supreme Court has struck down the electoral bonds scheme for political funding. A 5-judge bench of the apex court said that the scheme violates the citizens’ right to information. Supreme Court also asked State Bank of India to stop issuing these bonds at once and provide details of donations made through this mode to the Election Commission of India. The apex court held that the stated objective of fighting black money and maintaining the confidentiality of donors cannot defend the scheme. Electoral bonds are not the only way to curb black money, the supreme court said.

    In fact, electoral bonds were introduced in the 2017 Union Budget by the then union finance minister Arun Jaitley. The scheme, was then notified by the first Modi Government on January 2, 2018.  Electoral bonds were pitched as an alternative to cash donations made to political parties as part of efforts to bring in transparency in political funding. Only the political parties registered under Section 29A of the Representation of the People Act, 1951 and which secured not less than 1 per cent of the votes polled in the last elections to the Lok Sabha or a state legislative assembly were eligible to receive electoral bonds.

    According to the Ministry of Finance, “The purchaser would be allowed to buy an electoral bond(s) only on due fulfilment of all the extant KYC norms and by making payment from a bank account. It will not carry the name of the payee. Electoral Bonds would have a life of only 15 days during which they can be used for donating only to the political parties registered under section 29A of the Representation of the Peoples Act, 1951 (43 of 1951) and which secured not less than one per cent of the votes polled in the last general election to the House of the People or a Legislative Assembly.”

    Later, amendments removed the cap on corporate donations and disclosure obligations. They are promissory notes in denominations from ₹1,000 to ₹1 crore, available only from the State Bank of India. Donors remain anonymous, known only to the bank. Bonds can be encashed by the political parties with Election Commission-registered bank accounts. The aim is to bring transparency to political funding and prevent fund misuse, amending various legislations for accountability and transparency in political financing.

    Numerous amendments to various legislations, including the Foreign Contribution Regulation Act, Representation of the People Act, Income Tax Act, and the Companies Act, with the claim of bolstering accountability and transparency in political financing.

    as per the annual audited report submitted to the Election Commission by the Bharatiya Janata Party (BJP) has received the bulk of money through electoral bond. The saffron party received nearly ₹1,300 crore through electoral bonds in 2022-23. The party’s total contributions received stood at ₹2,120 crore in the 2022-23 fiscal, of which 61 per cent came from electoral bonds.

    The funding from electoral bonds to the Congress was ₹171 crore in 2022-23, down from ₹236 crore in 2021-22.

    In an affidavit submitted on October 29, the central government addressed pleas challenging the electoral bonds scheme. Attorney General R Venkataramani stated that “citizens do not possess a general right to know the sources of electoral bonds.”

    Attorney General argued that the “right to know” should have reasonable restrictions and be exercised for specific purposes. The government argued against a “general right to know everything for undefined ends,” expressing concerns about the broad scope of such a right.

    The electoral bonds case was initiated in 2017 by the Association for Democratic Reforms (ADR) along with multiple petitions, including Communist Party of India (Marxist), Congress leader Jaya Thakur, and concerned individuals. The litigants questioned the legitimacy of amendments in the Finance Act of 2017 and the Finance Act of 2016.

    The petitioners argued that these changes allow unlimited, unchecked funding for political parties, with a bias toward the ruling government. Electoral bonds, mainly issued in high denominations, raise concerns of corporate dominance over individual donors, and the anonymity for donors further fuels suspicion. Transparency issues exist, as funds transferred to political parties make it challenging to track corporate contributions, infringing upon citizens’ right to information and creating corruption risks, exacerbated by recent changes to the Companies Act.

    In 2023, Senior counsel Prashant Bhushan, representing ADR, argued on October 10 last year that adjudication is necessary before using the electoral bond scheme in the 2024 general elections. He contended that anonymous funding through electoral bonds encourages corruption and violates citizens’ right to a corruption-free nation.

    There were conflicting stances between the government and the Election Commission in court regarding political funding. The government aimed to maintain donor anonymity, while the EC advocated for transparency by revealing donor names. The Supreme Court is set to begin hearing the batch of pleas on October 31.

    Further, details from an RTI filed by activist Lokesh Batra revealed that the Ministry of Finance implemented changes to the scheme without consulting the Election Commission, which is responsible for overseeing elections. The Election Commission was merely “informed” about the changes and never gave its consent. Communication with the Election Commission regarding the issuance of electoral bonds in December 2022 was last-minute and led to dissatisfaction.

    Additionally, the Reserve Bank of India (RBI) had expressed disagreement with several aspects of the scheme, including concerns about money laundering. The then RBI Governor Urjit R. Patel had warned the government about the potential misuse of electoral bonds but the government did not pay any heed. RBI favoured issuing physical bonds and wanted to be the scheme’s executor, rather than a commercial bank, but these suggestions were rejected by the ministry. The lack of consultation with these critical institutions has raised transparency and accountability concerns in the electoral bonds scheme.

    In today’s unanimous judgement a constitution bench led by Chief Justice of India DY Chandrchud struck down the electoral bonds scheme on the grounds that it violates the citizens’ right to information. The Chief Justice also directed that the State Bank of India must stop issue of these bonds at once and provide details of donations made through this mode to the Election Commission of India. The apex court has also directed the poll body to publish this information on its website by March 13, this year.  


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