On 2 November, the Supreme Court of India asked the Election Commission of India to submit details of electoral bonds received by political parties, giving the poll panel 2 weeks to furnish the data. The order came in the hearing of petitions challenging the validity of electoral bonds. The Supreme Court of India started hearing the petitions on 31st October and reserved its judgement.
The electoral bonds are used by donors to make financial contributions to political parties. The government of India issued a notification in 2018 launching electoral bonds for donations to the political parties. These bonds provide anonymity to the donors. One of the main aims behind launching the bonds was to eradicate the black money infusion into politics.
The electoral bonds are issued by banks, which means the funds donated to political parties go through the banking system, even though the identity of the donor is not disclosed. Therefore, it ensures that only legitimate money is donated to parties. However, those who have filed petitions against such bonds claim that these bonds do not provide a level playing field to the political parties. It is claimed BJP corners the majority of bonds.
What are electoral bonds?
On 2nd January 2018, the government of India introduced the Electoral Bond Scheme. The idea was to enhance the transparency in political funding and stop using black money in politics. The Electoral Bonds are interest-free bearer instruments that are available in various denominations. Indian citizens and incorporated Indian entities can buy these bonds from specific State Bank of India branches.
As per the notification issued by the Government of India, one has to adhere to KYC norms to purchase Electoral Bonds. Once bought, these bonds have to be donated to registered political parties within a 15-day window. The purchase period for the bonds occurs in January, April, July and October. However, during General Elections, there is a provision for an additional 30-day extension period for purchasing and making donations to the political parties.
The eligible political parties that receive donations via such bonds can encash the bonds through designated bank accounts. The donations through Electoral Bonds promote a more transparent and accountable system for political contributions.
The name and other information of the donor are not men mentioned on the instrument and thus electoral bonds are said to be anonymous. But the party that receives the bonds knows who donated them, as they have to delivered physically.
Is there a cap on the number of electoral bonds that a person or a company can purchase?
As per the rules, there is no cap on the number of electoral bonds that a person or a company can purchase. These bonds are available in Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs one crore denominations.
To make it possible to use electoral bonds for donations, the Government of India brought amendments to four Acts via the Finance Act of 2016 and 2017. These Acts were the Representation of the People Act of 1951 (RPA), and the Companies Act, of 2013. The Income Tax Act, 1961. And the Foreign Contributions Regulation Act, 2010 (FCRA), through the Finance Acts of 2016 and 2017.
Though there is no cap on the number of bonds someone can buy, no corporate company can make donations to more than 75 per cent of their total profit or 10 per cent of their total revenue in a single financial year.
Who can receive funding via electoral bonds?
As per the regulations, the political parties that have secured at least 1 per cent votes in the recent Lok Sabha or State Assembly elections and are registered under the Representation of People’s Act can get a designated account from the Election Commission of India (ECI) to get the donations via electoral bonds. Once received, the political party can encase the amount within 15 days from the day the bonds were bought. In case the party fails to encash the bonds within the timeline, the money will get deposited in the Prime Minister’s Relief Fund.
Arguments against Electoral Bonds
The Supreme Court has been hearing the arguments against the Electoral Bond Scheme. The pleas against the scheme have challenged its constitutionality. They have argued that this scheme is a potential threat to democracy in India. The key points in the arguments against the bonds included the violation of the right to information, the possibility of backdoor lobbying and the potential use of shell companies for donations to the political parties. Furthermore, the pleas raised concerns over the anonymity of the bonds and the promotion of corruption by protecting criminals from prosecution.
The scheme’s critics have also raised concerns over the name “electoral bonds” as they claimed the money could be used by the political parties for any purpose as there are no specific spending limits. Furthermore, they argued that although the government has reduced the disclosure threshold of the donations, that might not reduce the use of cash in politics. For those who are unaware, those who donate any amount under Rs 20,000 are not obliged to disclose that they have donated to a political party. There have been demands to reduce the threshold further to Rs 2,000 to give more transparency to the political donations by individuals and corporations.
One of the arguments that made headlines is the so-called uneven playing field. The critics have argued that since the scheme was launched, around 74 per cent of the donations via electoral bonds went to the ruling party, BJP. The other political parties, including Congress, Trinamool Congress and others, received only a small portion of the total amount. They argued that it led to an uneven playing field as the BJP will have more money to spend on political campaigns.
Additionally, as the scheme differentiates between corporate donors and individual citizens, the latter might have their voices overpowered by the former in democracy, which could be concerning.
Another point that was raised is that the scheme is “unfair” to the donors as the political parties are not bound to disclose where they spent the donations received by electoral bonds. During the arguments, the Supreme Court also raised apprehensions about the possibility of trading of electoral bonds, though it is not allowed.
In the end, it was contended that the main aim. However, the government suggested that to reduce the influence of black money was to “redirect non-anonymous funding from traditional banking channels to anonymous Electoral Bonds”, which essentially “created an alternative white money channel”, for the political funding. The critics claimed that these arguments collectively raised significant doubts about the impact of the scheme on political funding, transparency, and the integrity of the electoral process in India.
Arguments in favour of Electoral Bonds
The union government has rejected the arguments against the scheme, stressing that it is designed to bring transparency in funding of political parties. Solicitor General of India Tushar Mehta said that there are enough safeguards built into the scheme. He noted that as parties are getting funds through the banking system, it means only clean money is donated to them. He warned that if the scheme is scrapped, it will result in the return to days of funding of parties by cash, which makes preventing black money into the political system impossible.
He explained that the scheme has various measures to ensure transparency, such as the requirement for both donors and political parties to have designated accounts and branches. While the identity of the donors is not disclosed, he explained that it is known to the banking system, as there are KYC (Know Your Customer) requirements, which include providing Aadhar numbers and addresses.
The solicitor general justified the 1% vote threshold for political parties to receive funds through the bonds, stating that it is intended to prevent the formation of fake parties solely for the purpose of claiming exemptions.
Mehta highlighted another safety feature built into the scheme, the validity of only 15 days for the bonds. He asserted that the 15-day limit reduced the potential for quid pro quo deals as donors are required to give the bonds within this period. Moreover, to further minimize the risk, if the bonds are not encashed within the stipulated timeframe of 15 days from the date of issue, the amount goes to the PM Relief Fund, and the donor can’t recover it.
While opponents object to the confidentiality of donors in the electoral bond scheme, SG Mehta said that maintaining the secrecy of donors was essential and that the bonds were designed with stringent confidentiality measures. Breaching this confidentiality would leave digital footprints and result in criminal liability for those involved. He said that the investigative agencies could access the details only with a court order.
He said no transparent political donation scheme will work if there is no confidentiality. If it is publicly disclosed who donated to which party, it will result in retribution and victimisation of the donor from other political parties. And if therefore the confidentiality clause is removed, the donors will opt to donate through cash instead.
SG Mehta said that the Electoral Bonds Scheme had been framed in such a manner that it ensured the confidentiality of the donor entirely until the court ordered otherwise. Only the political party that receives the donation will know the identity of the donors, and others will not know it.
The court asked to know about the right of voters to know the donors of the parties, Tushar Mehta said it is not realistic to expect voters to make decisions based on campaign contributions from specific individuals or organizations. Instead, voters base their decisions on factors like ideology, principles, leadership, and the efficiency of a political party, he said. The SG added that businesses may support political parties that create a favourable environment for their operations, but this doesn’t necessarily involve a quid pro quo arrangement where financial contributions lead to political favours.
He said, “Purity of election is supreme over the right to vote. Voter votes not based on which party is funded by whom, voter votes based on ideology, principle, leadership, efficiency of the party.”
Explaining further why the donor identity needs to be kept confidential, SG Mehta said that there are five crucial considerations in the realm of electoral financing. These considerations include the imperative to reduce the reliance on cash in the electoral process, the promotion of authorized banking channels for campaign contributions, the incentive of confidentiality for donors using these channels, the paramount need for transparency in electoral financing, and the prevention of any form of kickbacks or quid pro quo between those in power and financial benefactors.
SG Mehta also invoked the right to privacy, which has been upheld by the apex court, to justify why the donors have the right to keep their identity undisclosed. He referred to the KS Puttaswamy judgment, in which the court had recognized the fundamental right to informational privacy. He emphasized the need to balance the right to know and the right to informational privacy, arguing that the right to informational privacy could be asserted against the general right to know.
Mehta said that while the public had a right to know, it should be limited to cases of genuine public interest, and curious or prying inquiries should not infringe upon an individual’s privacy. He pointed out that information about which company had purchased how many bonds and which political party had received how many bonds was already in the public domain. Any additional disclosure beyond this might encourage a return to cash-based political funding, which would not be in the legitimate state’s interest.
Adding to the arguments, Attorney General for India R Venkatramani said that there should be specific and direct arguments against the scheme and not broad statements which may resemble a political debate. Stating that the government was moving from an unregulated system to a regulated system, he added that one cannot say that they would look at each statute in isolation and call them into question. The AG further argued that the scheme doesn’t violate any existing right of any person.
What the court said
While the Supreme Court has reserved its verdict, the court suggested that an alternative system could be devised for political donations to remove the “flaws” in the current system. However, the apex court made it clear that it would not suggest going back to the cash-only system, adding that the deficiencies in the existing system should be addressed.
“We do not want to go back to a cash-only system. We are saying do it in a proportionate, tailor-made system which overcomes the serious deficiencies of this electoral bond system,” the Court said. The Court also made it clear that only the legislature or the executive can undertake such an exercise and the Court will not step into that arena.
The court said, “You can still devise a system which balances out in a proportional way. How it is to be done is for you to decide. We will not step into that arena, that is not part of our function”. Responding to the five crucial considerations mentioned by SG Mehta, the CJI said, “The balance has to be drawn by the legislature and by the executive; not by us. We are quite conscious of that.”
Responding to the arguments by petitioners that the scheme has not stopped black money flowing into parties as cash donations are not banned, CJI said that the validity of the scheme was not necessarily linked to its success in reducing black money and that the main objective was to enhance transparency. He said, “On a constitutional level, this argument will not stand. The fact that they have been unable to or they did not dry all cash sources – is not a ground to challenge the validity of the scheme.”
Justice Khanna emphasized that the electoral bond system aimed to ensure money came through regular banking channels with Know Your Customer (KYC) requirements, which was not the case with cash donations. He also pointed out that the scheme aimed to protect the identity of donors for various reasons.
Electoral Bonds made significant changes in political donations
In 2018, the BJP-led government under Prime Minister Narendra Modi introduced the Electoral Bond Scheme to promote transparency and legitimacy in political party funding in India. The Ministry of Finance developed this scheme, which uses bearer instruments and strict Know Your Customer (KYC) norms, to create a robust and responsible framework for political contributions.
Political parties in India can effectively use funds during elections due to accessible and inclusive political contributions. The electoral bonds’ tax treatment promotes financial transparency, and their integrity is ensured by banning trading. Additionally, the scheme redirects unutilized funds to the Prime Minister Relief Fund, demonstrating responsible financial transactions and reducing the influence of black money in politics. This is a significant step towards strengthening India’s democratic foundation.
