In a landmark unanimous verdict, a five-member Constitution Bench of the Supreme Court has declared the Electoral Bonds Scheme, 2018, as unconstitutional. The Court found the scheme to be in violation of the fundamental ‘Right to Information’ under Article 19(1)(a). Consequently, the State Bank of India (SBI) has been directed to cease the issuance of these bonds and submit comprehensive data of all donors and recipients to the Election Commission of India (ECI).

About the Electoral Bond Scheme (2018)

The scheme was introduced as a financial instrument for making donations to political parties, with the stated objective of promoting transparency and curbing the use of black money in political funding.

• Nature of Instrument: Interest-free bearer instruments, similar to a promissory note.

• Purchaser: Can be purchased by Indian individuals, companies, or firms.

• Issuer: Exclusively issued by the State Bank of India (SBI).

• Eligibility for Parties: Only political parties registered under Section 29A of the Representation of the People Act, 1951, which have secured at least 1% of the votes polled in the last Lok Sabha or State Assembly election, are eligible to receive these bonds.

• Anonymity: The scheme maintained the anonymity of the donor.

Supreme Court’s Rationale for Striking Down the Scheme

The Court’s decision was based on several key constitutional principles:

1. Violation of the Right to Information (Article 19(1)(a)):

   • The Court held that voter’s right to know about political funding sources is essential for making informed choices and ensuring government accountability.

   • It rejected the government’s argument for donor anonymity, stating that the scheme’s opacity infringes upon the citizen’s fundamental right to information.

   • The judgment highlighted the deep nexus between money and politics, noting that anonymous contributions could lead to quid pro quo arrangements, thereby corrupting the democratic process.

2. Failure of the Proportionality Test:

   • Applying the proportionality test established in the KS Puttaswamy (Right to Privacy) case, the Court found that curbing black money, while a legitimate aim, did not justify such a drastic infringement on the right to information.

   • It pointed out that less restrictive methods to achieve this aim already exist, such as the $₹20,000$ cap on anonymous cash donations and the framework of Electoral Trusts.

3. Unlimited Corporate Donations as “Manifestly Arbitrary”:

   • The Court struck down the amendment to Section 182 of the Companies Act, 2013, which had removed the cap on corporate donations (previously 7.5% of the average net profits of the preceding three years).

   • It observed that treating contributions from individuals and companies equally is flawed, as corporate donations are often made with the intent of influencing policy. This provision facilitated unlimited and anonymous corporate funding, which is detrimental to free and fair elections.

4. Reversal of Amendment to RPA, 1951:

   • The Court invalidated the amendment to Section 29C of the Representation of the People Act, 1951, which had exempted political parties from declaring contributions received through electoral bonds.

   • The original provision, requiring disclosure of donations above $₹20,000$, was seen as a reasonable balance between donor privacy and public transparency.

Key Concerns and Issues Associated with the Scheme

The scheme was widely criticized for several reasons that ultimately formed the basis of the legal challenge.

• Information Asymmetry: While donors were anonymous to the public, the government could access donor details from the SBI, creating an unfair advantage for the ruling party and a potential for victimisation of those funding the opposition.

• Promotion of Crony Capitalism: The removal of caps on corporate donations allowed companies to make unlimited contributions, potentially to secure favourable policies and contracts.

• Skewed Funding (ADR Report Insights):

  • Over 55% of the total donations (`$₹16,437$ crore) received by 31 major political parties came from electoral bonds.

  • National parties saw a 743% increase in donations via bonds between FY 2017-18 and FY 2021-22.

  • The ruling party received the largest share, amounting to `$₹5,271.97$ crore, highlighting the power-biased nature of the donations.

Way Forward: Suggestions for Electoral Funding Reforms

The judgment opens the door for comprehensive reforms in political financing. Key suggestions include:

1. Regulating Donations:

   • Re-imposing limits on corporate donations to prevent policy capture.

   • Establishing clear regulations on sources of funding, potentially banning contributions from specific entities.

2. Enhancing Transparency and Accountability:

   • Balanced Disclosure: Adopting a system where small donations remain anonymous to protect donors from retribution, while large donations are publicly disclosed (e.g., the UK model with a $£7,500$ threshold).

   • Mandatory Audits: Requiring political parties to have their accounts audited annually by firms approved by the Comptroller and Auditor General (CAG), as recommended by the Election Commission.

3. Exploring State Funding of Elections:

   • The Indrajit Gupta Committee (1998) recommended partial state funding in-kind (e.g., providing office space, free airtime) to create a level playing field.

   • The Law Commission (1999) supported the idea of state funding, provided that private funding for parties is completely banned.

4. Establishing a National Election Fund:

   • A proposed mechanism where all donors contribute to a central fund, which is then allocated to political parties based on their electoral performance. This would sever the direct link between donors and parties, reducing the risk of quid pro quo.

Conclusion

The Supreme Court’s verdict striking down the Electoral Bonds Scheme is a significant step towards reinforcing transparency and accountability in Indian democracy. By prioritising the citizen’s ‘right to know’ over donor anonymity, the Court has upheld the principles of free and fair elections, which form part of the Constitution’s basic structure. This judgment serves as a crucial opportunity for the legislature and the Election Commission to collaborate on building a more transparent and equitable framework for political funding in India.