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By Shravin Relan
Keywords: Unconstitutionality of Electoral Bonds, political donations
I. Introduction
The incumbent government introduced the Electoral bond scheme through its Ministry of Finance in 2018. Under the scheme, donations could be made to political parties by individuals or organizations using mechanisms available at the State Bank of India (SBI). In other words, electoral bonds are money instruments like promissory notes issued to the donors by SBI.[1] SBI acted as a mediator between the donors and the political parties as the bank was authorized to issue and encash electoral bonds.[2] One of the most integral features of the electoral bond scheme was the anonymity of the donor, as the banks were instructed that the electoral bonds would not bear the name or any other information of the donor purchasing the electoral bond. Further, under the Electoral bonds scheme, the government prescribed no maximum limit on the number or total amount of donations. To be eligible to receive via the electoral bonds scheme, it is imperative for a political party to get registered under Section 29A of the Representation of the People Act, 1951[3], and must have also secured 1% or more votes in the Lok Sabha or State Assembly Elections of the country.[4]
A. Reason behind the Electoral Bonds Scheme
The Electoral Bonds Scheme was introduced to ensure that the transactions relating to donations by individuals or organizations to political parties were conducted freely and transparently. It was thought that the confidentiality and anonymity of the donor being maintained under the scheme would incentivize the individuals and organizations to donate money to political parties without feeling the burden of being prejudiced against and judged. It was thought at the time of the introduction of the scheme that the donations would be made to political parties without hesitation about the potential misuse of funds since proper and formal banking authorities were involved and undertook the process of issuance as well as the encashment of the electoral bonds to the political parties.[5]
II. Supreme Court’s Decision to Declare the Electoral Bonds Scheme Unconstitutional
A. Violation of Art. 19(1)(a) of the Constitution of India
In a landmark decision, the bench of the Supreme Court (SC) unanimously held that the Electoral bonds scheme is unconstitutional and, thus, ultra-vires the provisions of the Constitution, such as Article 19(1)(a) of the Constitution of India.[6] The Court opined that the right to free and fair elections is a fundamental right guaranteed to the country's citizens under Article 19(1)(a) of the Constitution of India. The right to free and fair elections entails that the citizens should be guaranteed transparency and fairness while acknowledging their right to be informed of any information they may seek from the government. [7] The Electoral Bonds Scheme violates this right of citizens to be informed by providing information about the donor and political party to which funds are being donated, which would remain anonymous and confidential. [8]The Hon’ble SC applied the test of proportionality and ruled that lucrative options exist to donate funds to political parties in the form of cheques or digitally available payment apps, which are secure and do not have a severe impact on the rights of the citizens to have information.[9]
B. Impossibility in realizing the objectives of Anonymity & Confidentiality of Donors
The SC also opined that one of the purposes of the Electoral Bonds Scheme was to maintain the anonymity and confidentiality of the donor, but according to the SC, this objective could never be realized as the authorized banks always knew the identity of the donor and could very easily reveal the same on the request of the authorities in a criminal matter investigation or on the instigation of ruling political party. [10] Therefore, the only ones deprived of this information regarding the funding of political parties were the citizens of the country, who could access such information to make rational decisions in the democratic election process. The SC rejected the Electoral Bonds Scheme's purpose and said that such an objective existed only on paper and was impossible to realize. Further, the Court supported a donor's right to contribute to a political party through funds without being prejudiced or victimized for making such a choice. The Court held that the victimization and prejudice against the donors would be a violation of law and power, and thus, the necessary corrective actions should be taken against those indulging in such practices.[11]
C. Increasing the threshold of Corporate funding to Political Parties- ultra vires to Article 14 of the Constitution of India
The SC noted that by introducing the Electoral Bonds Scheme, large corporate organizations were systematically handed exorbitant power to donate large sums of money to political parties. The Court observed that providing such exorbitant powers to make donations to political parties could, in turn, influence the administration and decisions of the government in return for the donations. Such a practice could impede the nation's progress and contradict the right that the elections must be conducted in a free and fair manner and that the representatives should be liable to the citizens of the nation who have elected them in power.[12]
Further, The SC ruled that the Electoral Bonds Scheme contravened Article 14 of the Constitution of India[13]. Before introducing the scheme, the Ministry of Finance amended Section 182 of the Companies Act 2013.[14] The amendment entailed that the corporate organization could now make unlimited donations to political parties with the security of identity being concealed at all times.[15] Earlier, donations from corporate organizations were fixed up to 7.5% of the average net profit during the three immediately preceding financial years. Also, before the amendment, all donations made to political parties upwards of INR 20,000/- were mandated to be disclosed and made public.[16] According to the SC, this provision provided full disclosure and transparency in donating funds to political parties, which the Electoral Bonds Scheme took away. The SC declared the Electoral Bonds Scheme ultra vires Article 14 of the Constitution of India for being excessive and arbitrary. [17]The scheme failed to pass the tests of intelligible differentia and reasonable nexus as enshrined under Article 14 of the Constitution of India. The SC reasoned that the amendment was invalid as it would encourage individuals to set up fictitious companies whose only aim would be to donate funds to political parties. [18]The Electoral Bonds Scheme promotes and allows even loss-making companies to donate to political parties. The amendment also undermines the Board of Directors (BOD) powers to control corporate organizations' external funding activities. The scheme challenges the dynamics behind the setting up of corporate organizations and takes away the powers guaranteed to the Board of Directors under the Companies Act 2013.[19]
The SC considered that the Electoral Bonds Scheme could be used as a tool to further the disparity among the political parties concerning the funds received by them since corporate organizations and High Net-worth individuals (HNIs) are more likely to make significant donations to the ruling party at the centre to get a say in the administration and benefit from the schemes introduced by the government.[20] The ruling party would always be a significant benefactor of the scheme and also would have the advantage on their side as they could easily influence the banks to gain knowledge of what amount has been donated by a corporate organization or individuals to a rival political party, while on the other hand, opponent political parties and the citizens of the country remain clueless in this aspect. Thus, the Electoral Bonds Scheme heavily favoured the ruling party at the centre, which negates the very principles on which the Indian democracy stands and is not in alignment with the provisions and spirit of the Constitution of India.[21]
III. Suggestions by the Supreme Court
While the apex court invalidated the Electoral Bonds Scheme, the Court also felt it was necessary to make suggestions for individuals and corporate entities to make donations to political parties. The SC suggested that the scheme involving electoral trust could be brought back into the fold for making donations. Under the scheme, corporate entities set up trusts to make donations to political parties. These trusts were obligated to submit an annual report to the Election Commission of India (ECI) in light of the yearly donations made to political parties.[22] However, this mechanism is also not foolproof, & discrepancies regarding the reported amounts of donations remain; it still would be a step in the right direction to ensure transparency, accountability, and fairness in the donation process to the political parties.[23]
IV. Conclusion
While the Electoral Bonds Scheme, just like any other scheme, had its fair share of pros and cons, the SC felt its cons outbid the pros, prompting them to invalidate the Electoral Bonds Scheme. The judgment reiterated that if any scheme inherently violates the fundamental right guaranteed to the citizens under the Constitution of India, such a scheme would be struck down by the judiciary under its power of judicial review. The judgment upheld the accepted norm of the importance of the fundamental rights of the citizens of the country. Though reasonable restrictions can be imposed on the fundamental rights of the citizens, the Electoral Bond Scheme failed to pass the test of proportionality under Article 19(2)[24] and the twin test of intelligible differentia and reasonable nexus under Article 14 of the Constitution of India, which fuelled the belief of the SC that the scheme is arbitrary, excessive and ultra-vires to the provisions of the Constitution of India. The bench in the case opined that better alternatives existed that could be brought into force with immediate effect for the process of donations being made to the political parties by individuals and corporate entities. The above-mentioned causes necessitated the scrapping of the Electoral Bonds Scheme to achieve transparency and accountability in the process involved in donating funds to political parties.
References
[1] Kashyap, Gauri, ‘Constitutionality of the Electoral Bond Scheme’ (scobserver.in) <https://www.scobserver.in/reports/electoral-bonds-constitution-bench-judgement-summary/>last accessed 9th July 2024
[2] Fernandes, Jocelyn, Supreme Court strikes down Electoral Bond Scheme: What is it? Who has the most funding? and concerns explained’ (livemint.com) https://www.livemint.com/news/india/supreme-court-to-deliver-verdict-on-electoral-bond-scheme-what-is-it-who-has-the-most-funding-and-concerns-explained-11707971078066.html > last accessed 9th July 2024
[3] The Representation of the People Act, 1951, S.29A
[4] Gupta, Shikha, ‘End of Anonymous Political Donations: Supreme Court Declares Electoral Bonds Scheme Unconstitutional’ (Vidhilegalpolicy.in, 23rd April 2024) < https://vidhilegalpolicy.in/blog/end-of-anonymous-political-donations/> last accessed 9th July 2024
[5] Rai, Vinod, ‘India’s Electoral Bond Scheme: Declared Unconstitutional by the Court’ (isus.nus.edu) <https://www.isas.nus.edu.sg/papers/indias-electoral-bond-scheme-declared-unconstitutional-by-the-court/ > last accessed 9th July 2024
[6] Constitution of India, Art. 19(1)(a)
[7] 2024 INSC 113, Para 139, Pg 100
[8] ‘Electoral Bonds Violate Constitution’s Article 19(1)(a): What Is The Law’ <ndtv.com) <https://www.ndtv.com/india-news/what-is-article-19-1-a-that-supreme-court-mentioned-in-electoral-bonds-scheme-verdict-5061914> last accessed 9th July 2024
[9] Bhaumik, Aaratrika, ‘Why did the Supreme Court strike down the electoral bonds scheme? | Explained’ (thehindu.com, 15th February 2024) < https://www.thehindu.com/news/national/why-did-the-supreme-court-strike-down-the-electoral-bonds-scheme-explained/article67848657.ece> last accessed 9th July 2024
[10] 2024 INSC 113, Para 131, Pg 95
[11] ‘Anonymity in the scheme was ‘selective’, not ‘fool-proof’: Supreme Court’ (thehindu.com) <https://www.thehindu.com/news/national/anonymity-in-electoral-bonds-scheme-was-selective-not-fool-proof-says-sc/article67849823.ece> last accessed 9th July 2024
[12] Gupta, Shikha, ‘End of Anonymous Political Donations: Supreme Court Declares Electoral Bonds Scheme Unconstitutional’ (Vidhilegalpolicy.in, 23rd April 2024) < https://vidhilegalpolicy.in/blog/end-of-anonymous-political-donations/> last accessed 9th July 2024
[13] Constitution of India, Art.14
[14] Companies Act, 2013, S.182
[15] 2024 INSC 113, Para 199, Pg 140
[16] Gupta, Shikha, ‘End of Anonymous Political Donations: Supreme Court Declares Electoral Bonds Scheme Unconstitutional’ (Vidhilegalpolicy.in, 23rd April 2024) < https://vidhilegalpolicy.in/blog/end-of-anonymous-political-donations/> last accessed 9th July 2024
[17] 2024 INSC 113, Para 215, Pg 149
[18] Nariman, Fali S. ‘Why the Supreme Court eliminated electoral bonds’ (theweek.in) <https://www.theweek.in/theweek/current/2024/02/23/indian-jurist-fali-s-nariman-guest-column.html> last accessed 9th July 2024
[19] ‘Supreme Court says electoral bonds ‘unconstitutional’: Here are 5 reasons why’ (livemint.com) <https://www.livemint.com/news/india/supreme-court-says-electoral-bonds-unconstitutional-here-are-5-reasons-why-11707976394940.html> last accessed 9th July 2024
[20] 2024 INSC 113, Para 31, Pg 27
[21] Anand, Utkarsh, ‘Electoral bonds fail to provide a level playing field: Supreme court’ (Hindustan times, 2nd November 2023) < https://www.hindustantimes.com/india-news/electoral-bonds-fail-to-provide-a-level-playing-field> last accessed 9th July 2024
[22] Jain, Akshat, ‘Fewer ‘political consequences’, can help curb black money — why SC prefers electoral trusts to bonds’ (ThePrint.in, 16th February 2024) < https://theprint.in/judiciary/fewer-political-consequences-can-help-curb-black-money-why-sc-prefers-electoral-trusts-to-bonds/1968454/> last accessed 9th July 2024
[23] Anonymity in the scheme was ‘selective’, not ‘fool-proof’: Supreme Court’ (thehindu.com) <https://www.thehindu.com/news/national/anonymity-in-electoral-bonds-scheme-was-selective-not-fool-proof-says-sc/article67849823.ece> last accessed 9th July 2024
[24] Constitution of India, Art. 19(2)
Shravin Relan is a fourth-year law student at O.P. Jindal Global University. His areas of interest are Constitutional law, Human Rights, Law & Society, and Gender Justice.
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