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Electoral bonds case: Supreme Court begins hearing case that goes to ‘the root of democracy’

On Day 1 of the hearings on the constitutionality of 2018 electoral bond scheme, senior advocate Prashant Bhushan argued that anonymous donations are promoting corruption and eroding the democratic values of this country because the disclosure of money is not just anonymous against the donor and donee but also against the rest of the society.

TODAY, senior advocate Prashant Bhushan began his argument in the electoral bonds matter by saying “this case goes to the very root of our democracy”.

A Supreme Court Constitution Bench headed by Chief Justice of India Dr D.Y. Chandrachud and also comprising Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala and Manoj Misra are currently hearing a challenge to the constitutionality of the 2018 electoral bond scheme.

Bhushan: Any shell company can donate to political parties

Bhushan has challenged the amendments brought in through the Finance Bill, 2017 to the Representation of the People Act, 1951, Income Tax Act, 1961, the Companies Act, 2013 and Foreign Contribution (Regulation) Act, 2010 through which the electoral bond scheme was introduced.

Under the unamended Section 29C of the Representation of the People Act, if a political party received contributions in excess of twenty thousand rupees from a single person in a financial year, they were required to report such donations.

The amendment removed the reporting requirements if the contributions are made through electoral bonds.

Under the Companies Act, donations to a political party by a corporation could not exceed the ceiling limit of 7.5 percent of the average net profit during the three immediately preceding financial years.

The 2017 amendment removed a proviso under Section 182 of the Companies Act which mandated this requirement.

Another amendment to the Companies Act, which Bhushan has also challenged, relates to Section 182(3), whereby earlier the name of the political party to which a donation was made, along with the particulars of the amount, had to be disclosed.

Now, the name of the political party to which the donation was made need not to be disclosed. Only the total amount of the donation has to be disclosed.

Another amendment was made to Section 13A of the Income Tax Act, 1961. Before the amendment, as per Section 13A, any income by way of voluntary contributions to a political party was not included in the total income of an individual in the calculation of income tax, provided that the political party maintained a record of such contributions, including the names and the addresses of the persons who made such contributions.

Now, political parties do not have to maintain a record of such contributions if it is received in the form of electoral bonds.

Under the Foreign Contribution (Regulation) Act, foreign contributions were prohibited to political parties and public servants. Bhushan said that post the amendment, the government has “effectively” allowed foreign donations.

Bhushan while referring to these amendments stated that wherever the electoral bonds have been introduced, they have been omitted from disclosure to the public.

Justice Khanna asked if the State Bank of India (SBI) allows non-resident Indians to purchase electoral bonds.

Bhushan answered in the affirmative. He explained that non-resident Indians have only to provide a ‘know your customer’ (KYC) to purchase an electoral bond, which is the same requirement as Indian citizens.

Bhushan took it a step further and explained that since no disclosure is required, any company— non-resident or resident-Indian owned or controlled or foreign— may open a subsidiary company in India and donate any amount to any political party. 

He added: “Because they have now opened a route by making this amendment that the limit of 7.5 percent of the annual profits have been totally removed. So, even if you are a loss-making company or even if you are a company that does no business, a pure shell company, [you will be allowed to purchase electoral bonds].”

Bhushan’s arguments

Bhushan challenged the electoral bond scheme on three grounds.

First, the lack of disclosure defeats people’s right to be informed about the sources of funding of political parties.

Explaining this argument, he said, “The right to information has been held to be a fundamental right under Article 19(1)(a)… This court said that every citizen has a fundamental right to know about the assets and liabilities of every [electoral] candidate, [including their] criminal antecedents.”

Bhushan relied on the Anjali Bharadwaj versus Union of India (2019) judgment in which the Supreme Court held that political parties are instrumentalities of the State.

The quoted paragraph of the judgment states: “Much before the enactment of the Right to Information Act, which came on the statute book in the year 2005, this court repeatedly emphasised the people’s right to information to be a facet of Article 19(1)(a) of the Constitution. It has been held that the right to information is a fundamental right and flows from Article 19(1)(a), which guarantees right to speech. This right has also been traced to Article 21 which concerns the right to life and liberty.”

Another judgment on which Bhushan relied is Union of India versus Association for Democratic Reforms (ADR) (2002). Incidentally, ADR is one of the petitioners in the present case.

In this case, the Supreme Court mandated the disclosure of assets and liabilities, criminal antecedent and education background of candidates by way of an affidavit.

The court held that the requirements of these disclosures flow from Article 19(1)(a).

The paragraph quoted by Bhushan states: “Now we would refer to various decisions of this court dealing with citizens’ right to know which is derived from the concept of ’freedom of speech and expression’. The people of the country have a right to know every public act, everything that is done in a public way by the public functionaries. Members of Parliament (MPs) and legislative assembly (MLAs) are undoubtedly public functionaries. 

Public education is essential for the functioning of the process of popular government and to assist the discovery of truth and strengthen the capacity of an individual in participating in the decision-making process. The decision-making process of a voter would include his right to know about public functionaries who are required to be elected by him.”

Second, Bhushan argued that electoral bonds are an “anonymous” and “opaque” instrument that promote corruption in the country. This violates Article 21.

He added: “There is a good reason to believe that these bonds have been given by way of kickbacks to the parties in power. Almost all bonds have been received only by the parties in power.”

Bhushan told the court that “50 percent of the [electoral] bonds have been received by the ruling party at the Union level and the rest have been received by the ruling party in states.”

Going into the details of the statistics on electoral bonds, Bhushan informed the Bench that not even 1 percent of the electoral bonds have been received by the political parties in Opposition.

He added that virtually all bonds have been purchased by corporations or companies because the bonds are in the denomination of ₹1 crore and above.

Bhushan stated, “Ninety-five percent of the denominations are ₹1 crore or above.”

Third, Bhushan claimed that the electoral bonds scheme “destroys and disturbs democracy in the country”.

Explaining this submission, he said: “The bonds do not allow a level-playing field between political parties which are ruling versus political parties which are in the Opposition or between political parties and independent candidates.”

Bhushan presented another statistic here. He said: “The contribution by way of electoral bonds to just the one party [Bharatiya Janata Party or BJP] is more than ₹5,000 crore in a period less than five years.”

He claimed that since the scheme was introduced in 2017, the contributions made to the political parties through electoral bonds have exceeded any other method of donation.

What is the scheme of the electoral bonds?

According to the 2018 scheme notified by the Union Ministry of Finance, an electoral bond is defined as: “A bond issued in the nature of a promissory note which shall be a bearer banking instrument and shall not carry the name of the buyer or payee.”

The scheme was notified by amending Section 31 of the Reserve Bank of India Act, 1934.

As per the scheme, the bonds can be issued in the denominations of one thousand, ten thousand, one hundred thousand, ten hundred thousand and one crore rupees.

Under the scheme, only those political parties registered under Section 29A of the Representation of the People Act, and who have secured not less than 1 percent of the votes polled in the last general election to the House of the People or the legislative assembly, shall be eligible to receive the bond.

Ruling party received 10 times more amount than permissible for its candidates

Bhushan stated that the Lok Sabha legislature has fixed the spending on each candidate to less than ₹1 crore per Lok Sabha constituency. He added that if a total is to be done on the amount that can be spent on all candidates, it will come out to be less than ₹500 crore in Lok Sabha elections.

In just these five years, one party which has received the bulk of the political funding by way of electoral bonds is getting more than ten times the maximum permissible expenditure on election by its candidates,” Bhushan claimed.

To this, Justice Gavai asked: “What is the value of the permissible limit?”

Bhushan replied: “₹70 lakh or so. Though this limit is not adhered to. We know that … spending more than the limit is a corrupt practice. But the election commission says ‘no we cannot catch them’.

If government wanted to reduce cash contribution, they could have passed a simple amendment

Bhushan countered the arguments of the State which claimed that introducing electoral bonds would reduce cash transactions since the bonds could only be purchased through a bank.

According to the press release by the Reserve Bank of India on January 2, 2018: “The government has notified the scheme of electoral bonds to cleanse the system of political funding in the country.”

Bhushan argued that if this was the stated aim, the State could have introduced a simple amendment saying “no political party or candidate shall be allowed to spend or take money from non-banking channels”.

Bhushan also pointed out the objections of the Election Commission of India (ECI) when the scheme was introduced. 

The ECI, in the context of the amendments made through the Finance Act, pointed out that they will have a “serious impact on the transparency aspect of political funding”.

The ECI also warned that this may lead to shell companies being established for the sole purpose of donating to political parties.

The ECI termed these amendments as “retrograde steps” and suggested that they should be withdrawn.

Donations received by political parties through electoral bonds 

As per the audit report referred to by Bhushan, the BJP has received a donation of ₹5,271 crore out of the grand total of ₹9,191 crore  made through electoral bonds till 2021–22.

About ₹952 crore has been received by the Indian National Congress, ₹767 crore by Trinamool Congress, ₹383 crore by Telangana Rashtra Samithi, ₹330 core by Yuvajana Sramika Rythu Congress Party, ₹112 crore by Telugu Desam Party, ₹111 crore by Shiv Sena, ₹63 crore by Nationalist Congress Party, and ₹48 crore by Aam Aadmi Party.

Since the financial year 2021–22, electoral bonds worth ₹3,500 crore have been purchased. This data has been compiled by the Association of Democratic Reforms.

Sibal’s arguments 

Senior advocate Kapil Sibal argued against the use of corporate money to fund political parties. 

He argued that the shareholders in a company work within the framework of the memorandum of understanding (MoU). Allowing shareholders’ money to be donated to political parties goes against the MoU, Sibal argued.

Sibal told the court that donations in the form of electoral bonds by shareholders are done without the consent of or consultation with other shareholders.

However, the CJI intervened and said that the court is not hearing the matter on the legality of the corporate donations per se.

Sibal also argued that electoral bonds have “no purpose”.

He said: “There is nothing in the scheme which connects the donations made to the participation in the electoral process. It is a means for political parties to be enriched.”

Sibal added: “I make a donation of ₹10 crore to a political party through electoral bonds… The party can give it to a mainstream media channel and propagate my ideology or give a present to someone. I have no control over it.”

The CJI added: “There are no spending requirements.”

Sibal replied: “This is the most serious issue”.

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