Explained | The electoral bonds scheme and the challenges to it in Supreme Court

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So far, from March 2018 to April 2022, over 18 thousand bonds worth over ₹9.8 thousand crore have been sold by the SBI in 20 tranches

So far, from March 2018 to April 2022, over 18 thousand bonds worth over ₹9.8 thousand crore have been sold by the SBI in 20 tranches

The story so far: The Supreme Court is expected to hear the petition filed by the Association for Democratic Reforms (ADR) challenging the Centre’s electoral bonds Scheme soon. . The plea has been pending since 2017.

The interim petitions seeking to stay the electoral bonds scheme were taken up twice in the past, in 2019 and 2021 before elections but such a stay was not granted by the apex court. The main case challenging the constitutionality of the scheme is yet to be heard and ADR’s plea appeared on the cause list for Monday, September 19, while a Bench has not been assigned yet. The scheme has generated much debate since its announcement in 2017, inviting concerns from the Election Commission, Reserve Bank of India, Parliament, and civil society.

What is the electoral bonds scheme?

Electoral bonds are money instruments like promissory notes that can be bought by companies and individuals in India from the State Bank of India (SBI) and donated to a political party, which can then encash these bonds. The electoral bond does not bear the name of the donor and is, in effect, anonymous.

The scheme was first announced by former Finance Minister Arun Jaitley during the 2017 budget session and was notified in January 2018. It was introduced to ”cleanse the system of political funding in the country” by eradicating the “menace of unaccounted money coming into the country’s economy through political funding”. The government contended that it would make political donations transparent while also protecting the identity of the donor.

Under the scheme, bonds are available for purchase at any SBI branch in multiples of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh and ₹1 crore and can be bought through a KYC-compliant account. There is no limit on the number of electoral bonds that a person or company can purchase.

Every party registered under section 29A of the Representation of the Peoples Act, 1951 (43 of 1951) and having secured at least one per cent of the votes polled in the most recent Lok Sabha or State election has been allotted a verified account by the Election Commission of India. The donor can donate the bond to a party of their choice, which can cash it within 15 days, only through the allotted account.

The bonds go for sale in 10-day windows in the beginning of every quarter, i.e. in January, April, July and October, besides an additional 30-day period specified by the Central Government during Lok Sabha election years.

So far, from March 2018 to the last tranche of sales in April 2022, over 18,000 bonds worth over ₹9,800 crore have been sold by the SBI in 20 tranches as per information compiled by ADR. As per ADR’s analysis, the ruling BJP received ₹210 crore in contribution as electoral bonds in FY 2017-18, which was 95% of the total bonds purchased that year. In FY19, three national parties — BJP, Congress, and Trinamool Congress — received ₹1931.43 through the scheme, while the highest share (₹1450.89 crore) went to the BJP.

Electoral bonds are not the only way in which parties now receive donations. They can also receive cash donations of less than ₹2,000 from anonymous sources through cheque or by digital mode, in addition to electoral bonds.

What are the pleas challenging the scheme in the Supreme Court?

There are two petitions challenging the scheme — one jointly filed in 2017 by ADR and non-profit Common Cause, and another filed in 2018 by the Communist Party of India (Marxist) — both largely asking for the same relief. The Election Commission of India (ECI), which was a respondent to the petition, filed a counter-affidavit questioning the electoral bonds scheme in its current form.

Since ADR’s plea is due to be heard by the apex court soon, here are the grounds on which the petitioners oppose the scheme and the apprehensions expressed in ECI’s affidavit:

Concerns about electoral corruption: They argued that the amendments made to multiple Acts to make way for the electoral bonds scheme would open the “floodgates” to unlimited political donations and anonymous funding of political parties by Indian and foreign companies, “legitimizing electoral corruption at a huge scale”, and would have “serious repercussions on the Indian democracy”. The Election Commission submitted that contrary to the government’s claims, donations received through electoral bonds would cause a “serious impact” on transparency.

Amendments to Finance Acts: In order to bring in the scheme, the Centre had made multiple amendments by way of two Finance Acts— Finance Act, 2017 and Finance Act, 2016, both passed as money bills (not necessitating the oversight of the Rajya Sabha). The petitioners challenged the amendments as being “unconstitutional”, “violative of doctrines of separation of powers” and violative of some fundamental rights. The ECI said that the amendments would pump in black money for political funding.

Amendment to the Representation of the People Act: The government amended Section 29C of the Representation of the People Act, 1951, effectively exempting political parties from informing the ECI about the details of contributions made to them through electoral bonds. ADR argued that this would impact transparency and keep citizens from vital information about how much contribution a political party received and through what source, as the source or donor is anonymous under electoral bonds. The ECI said that would prevent it from ascertaining whether the donations were received illegally from government companies or foreign sources, calling it a “retrograde step” for transparency.

Companies Act amendment: The petitioners also objected to the amendment to the Companies Act 2013 such that no companies are required to give details of political contributions in their annual profit and loss accounts. The petitioners argued that this would increase “opacity” in political funding and the danger of “quid pro quo” in return for benefits passed to such companies by political parties.

They also opposed the removal of the cap or ceiling for companies to make donations. Prior to 2017, companies were only permitted to make political donations of up to 7.5 % of net profits in the previous three years. This change, ADR argued, would allow even loss-making companies to make donations and result in the creation of unscrupulous companies only to route funds to political parties. The ECI too flagged similar concerns about shell companies.

Amendment to the FCRA Act: The petitioner opposed an amendment to the Foreign Contribution Regulation Act, 2010 (FCRA), allowing foreign companies with subsidiaries in India to fund Indian political parties, stating that it would expose “Indian politics and democracy to international lobbyists” having their own agendas. The ECI too flagged concerns about this, saying it would invite foreign corporate powers to influence Indian politics.

Income Tax Act amendment: The ECI also raised concerns about the amendment to the Income Tax Act 1961, allowing anonymous donations only less than Rs. 20,000. The poll panel said that due to this, ​many political parties had started “reporting a major portion of the donations received as being less than the prescribed limit of Rs. 20,000”.

Infringing the ”Right to Know”: The petitioner ADR argued that the amendments infringed upon the citizen’s fundamental ‘Right to Know’, which various Supreme Court judgements have interpreted as part of the freedom of speech and expression. The plea said that the opacity and anonymity made political parties more “unanswerable and unaccountable” to the citizens at large.

Derailing of ECI guidelines: The ECI said that the amendments derailed its 2014 guidelines on disclosure of expenditure and contributions received by political parties. It added that it had “time and again voiced the importance of the declaration of donations received by political parties” for “better transparency and accountability in the election process”.

What were the RBI’s concerns?

Media reports revealed that former RBI Governor Urjit Patel had, in 2017, expressed concerns about the scheme in its current form. Mr. Patel had said that the issuance of the bonds in the physical form or as bearer instruments would actually not serve the purpose of transparency as they are transferable, meaning that who finally contributes to the party “may not be known”. He insisted that the bonds be issued in digital (demat) format, sincephysical ones could be transferred without leaving a trail, leading to possible money laundering.

What did the Supreme Court say in its previous two orders?

The petitioners approached the Supreme Court before the 2019 Lok Sabha elections, seeking interim relief in the form of either a stay on the issuance of electoral bonds or a disclosure of the names of the donors to ensure transparency in the poll process. The government, meanwhile, argued that the amendments were to rid the political funding system of black money, adding that the government “must be allowed a free hand to implement measures” and it would be premature for the court to render an opinion or pass an order. 

In its interim order on April 12, 2019, a Bench led by former Chief Justice of India Ranjan Gogoi said the issue of electoral bonds was a “weighty” issue having a “tremendous bearing on the sanctity of the electoral process in the country,” and that it required an in-depth hearing which could not be done in the limited timeframe.

The Bench wanted to ensure that any interim arrangement did “not tilt the balance in favour of either of the parties” but at the same time provided safeguards against the competing claims of the petitioners and respondents.

The Court directed political parties to provide complete information to the ECI in sealed covers on every single donor and contribution received by them till that date through electoral bonds.

In March 2021, the petitioner, through advocate Prashant Bhushan, again approached the Court asking for a stay on the scheme before Assembly elections in multiple States, but the Bench led by former CJI N.V. Ramana refused the same. “If the matter has been argued for stay and it was not granted, we will also not grant it,” the CJI had said. The Bench had added that the sale of bonds in 2018, 2019, and 2020 had happened “without any impediment”.  

The Bench contended that just a little effort was required to pierce the veil of anonymity around electoral bonds. “All that is required is a little more effort to cull out such information from both sides (purchaser of the bond and political party) and do some ‘match the following’. Therefore, it is not as though the operations under the scheme are behind iron curtains incapable of being pierced.”

As for concerns related to the repurchase of bonds from the first buyer, also expressed in RBI communications, the court said that the bond was not tradable and asked why the first buyers would sell the bond to get black money in return for white.