NEW DELHI: The Supreme Court on Thursday scrapped a seven year-old election funding system that allows individuals and companies to donate money to political parties anonymously and without any limits, ahead of the Lok Sabha elections in April-May.
The decision is seen as a setback for Prime Minister Narendra Modi’s Bharatiya Janata Party, which has been the largest beneficiary of the system it introduced in 2017.
The system, called ‘Electoral Bonds,’ was challenged by opposition members and a civil society group on grounds that it hindered the public’s right to know who had given money to political parties.
The government said donors had a right to privacy.
Under the system, a person or company can buy these bonds from the state-run State Bank of India and donate them to a political party of their choice.
A five-judge bench headed by Chief Justice DY Chandrachud said that the system is “unconstitutional.” It said the electoral bonds violate the right to information and freedom of speech and expression under the Constitution.
The court directed SBI to not issue any more of these bonds.
The bench was ruling on a batch of pleas challenging the legal validity of the Central government’s electoral bonds scheme At the beginning of the judgment, Chief Justice of Indian DY Chandrachud said there are two opinions, one by himself and another by Justice Sanjiv Khanna and both arrive at the same conclusion.
A five-judge Constitution bench delivered two separate and unanimous verdicts on the pleas challenging the electoral bonds scheme, delivering a major blow to the central government.
Pronouncing the verdict, CJI Chandrachud said the electoral bonds scheme is violative of freedom of speech and expression under Article 19(1)(a) of the Constitution.
The Supreme Court said infringement to the Right to Information is not justified to curb black money.
The top court bench said the fundamental right to privacy also includes citizens’ right to political privacy and affiliation.
The bench also held as invalid the amendments made in various laws, including the Representation of Peoples Act and the Income Tax laws.
The Supreme Court ordered the State Bank of India or SBI to disclose to the Election Commission the names of the contributors to the six-year-old scheme.
The bench directed that the issuing bank shall stop issuance of electoral bonds and the SBI shall submit details of electoral bonds purchased since April 12, 2019, till date to the Election Commission of India.
The Supreme Court said information about corporate contributors through electoral bonds must be disclosed as the donations by companies are purely for quid pro quo purposes.
The court held that amendments in the Companies Act permitting unlimited political contributions by companies are arbitrary and unconstitutional.
The electoral bonds scheme, which was notified by the government on January 2, 2018, was pitched as an alternative to cash donations made to political parties as part of efforts to bring transparency in political funding.
The bench, also comprising Justices Sanjiv Khanna, B R Gavai, J B Pardiwala and Manoj Misra, said, “The deletion of the proviso to Section 182(1) of the Companies Act, permitting unlimited corporate funding to political parties is arbitrary and violative of Article 14”.
Giving reasons, it said that the “ability of a company to influence the electrical process through political contribution is much higher when compared to that of an individual”.
“A company has a much graver influence on the political process, both in terms of the quantum of money contributed to political parties and the purpose of making such contributions. Contributions made by individuals have a degree of support or affiliation to a political association. However, contributions made by companies are purely business transactions made with the intent of securing benefits in return. The amendment to Section 182 is manifestly arbitrary for treating political contributions by companies and individuals alike”.
The apex court said, “Companies before the amendment to Section 182 could only contribute a certain percentage of the net aggregate profits. The provision classified between loss-making companies and profit-making companies for the purpose of political contribution and for good reason… the underlying principle of this distinction was that it is more plausible that law-making companies will contribute to political parties with a quid pro and not for the purpose of income tax benefits”.
“The provision as amended by the Finance Act of 2017 does not recognise that the harm of contributions by loss-making companies in the form of quid pro quo is much higher. Thus, the amendment… is manifestly arbitrary for not making a distinction between profit-making and loss-making companies for the purposes of political contribution.”
The court pointed out, “The purpose of Section 182 is to curb corruption and electoral financing. For instance, the purpose of banning a government company from contributing is to prevent such companies from entering the political fray by making contributions to political parties. Amendment to Section 182 by permitting unlimited corporate contributions authorises unrestrained influence of companies in the electoral process. This is violative of the principle of free and fair elections and political equality captured in the value of one person, one vote.”
The court asked ECI to publish the information shared by the SBI on its official website within one week of receiving the information, that is by March 13, 2024.
Cong: Verdict Reinforces Power Of Votes Over Notes
The Congress on Thursday welcomed the Supreme Court verdict striking down the electoral bond scheme and said it will reinforce the power of votes over notes.
In a post on X, its general secretary (communications) Jairam Ramesh said: “The Supreme Court has held the much touted Electoral Bonds scheme of the Modi sarkar as violative of both laws passed by Parliament as well as the Constitution of India.
The long-awaited verdict is hugely welcome and will reinforce the power of votes over notes, he said.
Sibal: Electoral Bonds Verdict Can’t Be Set Aside With An Ordinance
Rajya Sabha MP Kapil Sibal, who was the senior lawyer for the petitioners in the electoral bond case, says the government cannot set aside the judgment with an ordinance.
He says the electoral bonds scheme was a scam and the Opposition should now make this as its main election issue.
On the judgment, he said it is a historic verdict. It tries to restore the concept of free and fair elections, which is the basic structure of the Constitution. It tries to bring about transparency in the electoral system, tries to bring about accountability, sets aside all the amendments that had been made by my late friend Arun Jaitley that were intended only to aggrandise the political party in power at the Centre, which is the BJP. In many senses, this is perhaps one of the most historic decisions this court has rendered.
As regards the striking aspects of the judgment, Sibal says: The first thing is they have held that the Right to Information under Article 19(1)(a) is fundamental to democracy. Relying upon the KS Puttaswamy and the other judgments, the Supreme Court has said a citizen has the right to know who contributed how much money to the political party in power. When you are contributing this kind of money through these bonds … obviously, the contributions are huge and there could be an element of quid pro quo and therefore the citizen has a right to at least have that information. So, in a sense, it is taking forward the concept underlying Article 19(1)(a), which is the right to information in the electrical process to ensure that there is a level playing field.
The second is that the amendments protected the political party and the donors from income tax. It also protected the political party from disclosing or allowed the political party not to disclose the funding it had received through electoral bonds.
The third is that there was no limit to funding … Under the previous law, it was only 10% of the average profits of a company for the last three years that could be funded through the individuals concerned or the entities concerned to the political parties. That limit was removed so you could contribute as much as you wanted and even a loss-making company could continue (funding) under the electoral bond scheme. Even companies that were set up outside India, their Indian subsidiaries, they too could contribute. So, all those amendments have been set aside as violative of Article 14.
Sibal argues that the scheme skewed the entire electoral process and it had nothing to do with black money because the use of black money is rampant … In fact, it represented a scheme through which the donors, the big industrialists, could bond with the political party in power. That is the bonding scheme. It had nothing to do with elections.
QUID PRO QUO: How will we know at this point? Sibal says the judgment is quite clear. This information has to be given by the political party to the State Bank of India (SBI), which within three weeks of this judgment will give it to the Election Commission (EC). And within one week thereafter, the EC has to publish it on its website. Then, we will get to know the extent of the bonds given by the donors, who was the purchaser of the bond and to what extent it was given. And then once we know the purchasers of the bond, we will know the kind of favours the purchasers have gotten because that will be available in the public domain.
So, we will know what the quid pro quo is. Then what we can do after that is a separate issue. But this information will be available and, of course, as you remember Modi ji (Prime Minister Narendra Modi) always asks, ‘Where are the scams of the BJP, where are those scandals of BJP?’ Most of them are still under the carpet because they ensured that none of these scams are investigated at any stage. But here is a scam that is out in the open. And perhaps the biggest scam in the history of India.
Sibal says the scheme itself is a scam. The Supreme Court has struck it down. There is no element of proportionality. There is no element of reasonableness. It is a scam without a doubt. Now, to what extent this scam was made on the basis of a quid pro quo is the next step but that is something that needs to be investigated. They will not investigate because you know the ED (Enforcement Directorate) and the CBI (Central Bureau of Investigation) under their direction. We will have to do it.
Ex-CEC Quraishi Hails SC As Democracy’s Guardian Angel & Last Refuge In A Troubled Democracy
Former Chief Election Commissioner S Y Quraishi on Thursday hailed the Supreme Court for living up to its role of democracy’s guardian angel in striking down the electoral bonds scheme. He describes how the faith in the Supreme Court was wavering lately. “Now I add that it is the last refuge in a troubled democracy,” he stressed.
He says the Court rejected almost every argument of the government’s lawyers with the hard-hitting remarks like “Constitution does not turn blind eye only because there is a possibility of misuse.” He described February 15 as a golden day in India’s history.
The former CEC noted that the Supreme Court has struck a decisive blow on behalf of democracy, which it has held as the basic structure of the Constitution. The five-member Constitution Bench, in a unanimous verdict, upheld every challenge to every aspect in the electoral bonds case, declaring the scheme unconstitutional. It ordered the SBI to stop issuing electoral bonds immediately and submit all information of the bonds sold, and the names of all the donors and recipients, to the Election Commission of India (ECI).
He said in retrospect, the launch of the scheme through the Union budget of 2017 was itself intriguing. The late finance minister, Arun Jaitley, started with two promising statements: “Without transparency of political funding, free and fair elections are not possible”. And: “For the last 70 years, we have failed to achieve this transparency”. Our natural expectation was that his third sentence will achieve what he seemed to have set out to do.
Instead, he introduced a scheme that reeked of secrecy and opacity. The excuse was that donors want secrecy as they are afraid of reprisals (obviously from the ruling dispensation). Add to it, the amendment of Section 29(C) in RPA 1951, which has immunised donations through electoral bonds from scrutiny by the ECI, which allows corporates to transfer unaccounted money. The introduction of electoral bonds was not an isolated action. The Finance Act of 2017 introduced amendments to several laws, including the Reserve Bank of India Act, Companies Act, Income Tax Act 1961, Representation of the People Act, and Foreign Contribution Regulation Act, to pave the way for electoral bonds.
Quraishi says three significant changes did not receive adequate attention. Firstly, the limit of 7.5 per cent of profits that a company could donate was not just raised but completely eliminated, allowing a company to donate 100 per cent of its profits to a political party. Even loss-making companies could now make political donations, potentially legitimising crony capitalism. It was heartening to see the SC comment on it. Moreover, Section 29B of the Representation of the People Act, 1951, prohibits political parties from accepting contributions from foreign sources, and Section 3 of the 2010 Foreign Contribution (Regulation) Act restricts foreign contributions to candidates, legislative members, political parties, and party office-holders. When, in 2014, Delhi High Court found that Congress and BJP had accepted foreign funds in violation of the FCRA 1976, the BJP government passed a retroactive amendment via a 2016 Finance Bill, replacing the 1976 Act with the modified 2010 statute. This move effectively shields any foreign financing of elections from scrutiny. This is a matter of great national concern.
He says: Significantly, independent institutions like the RBI and ECI had raised serious doubts before the inception of the scheme. According to documents furnished by Huffington Post, the RBI had expressed its concerns to the government on the scheme by underlining that it would allow “unauthorised and non-sovereign entities to issue bearer bonds”, in turn undermining the “core principle of central banking legislation” (RBI Act). Additionally, it said the scheme would encourage money laundering and the introduction of electoral bonds was worthless since “existing banking instruments like cheque and demand drafts” could achieve the same purpose. However, the government remained unmoved in its path to achieve opaque political funding, ironically in the garb of transparency.
The former CEC talks of the available options to cleanse the electoral funding. He says one option is to eliminate private funding altogether and introduce public funding for political parties. Another option would be to establish a National Election Fund to which all donors could contribute. The funds could be allocated to parties based on their electoral performance. This would eliminate the so-called concern about donors’ reprisals. During the hearing, the apex court, however, flagged a new issue — the possibility of misuse of money received by political parties for activities like funding terror or violent protests, and asked the Centre whether it has any control on the end use.
On two occasions, however, the Supreme Court had refused to stay the electoral bonds scheme as requested by a plea filed by the Association for Democratic Reforms. This had created despondency and apprehensions about the course the case would take. There were disturbing moments when constitutional bodies like the ECI and RBI took a u-turn on their earlier opposition to the scheme. I was appalled to hear the argument of the Solicitor General that citizens have no right to know the identity of donors/recipients. The Attorney General told the SC, in his written submissions, that the citizens’ right to know is subject to “reasonable” restrictions. How can keeping the potential quid pro quo between donors and the government a secret from the public be a “reasonable” restriction? These statements would behove a banana republic, not the world’s largest democracy.
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