How long to adjudicate? Unpacking the controversial electoral bonds scheme

The electoral bonds scheme, despite its institutional framework aimed at regulating campaign finance, is replete with various inadequacies and vulnerabilities.
Supreme Court, Electoral Bonds
Supreme Court, Electoral Bonds

Political finance in India has long been the breeding ground for corruption, with the costs of elections spiraling ever higher and those in power honing their skills in manipulating the law and policy mechanisms at their disposal.

One such attempt is the electoral bonds scheme implemented to replenish political parties’ coffers for election campaign expenditures. What was introduced in the name of transparency in 2017 has only amplified opacity.

Here are how the lawmakers are ensuring that the grim reality of political funding remains shrouded from the public gaze and discourse.

The genesis

In contemporary politics, the coin of the realm is no longer the collective voice of the electorate, but rather the currency of cold, hard cash. This unsettling trend has led to a two-fold problem - institutionalized corruption and political inequality. In 2017, the Central government took a step towards combating this issue by introducing the Electoral Bonds Scheme (EBS) to promote transparency and accountability in political financing. Through this scheme, Indian citizens and incorporated companies could purchase a bond, issued by the State Bank of India, and donate it to political parties while maintaining anonymity. The bearer instrument, with limited period validity, ensured the use of banking channels while shielding the identity of the donor from the public, the Election Commission (EC), and Income Tax (IT) Department.

Casting aside the opinion of the RBI

Before the forthcoming presentation of the EBS in Parliament, the opinion of the Reserve Bank of India (RBI) was solicited, which opposed the scheme by enlisting four compelling reasons. The crux of such opposition was that introducing a new mechanism in the form of bearer bonds was superfluous, given that extant banking instruments such as cheques, drafts and digital modes can efficaciously accomplish the same. The RBI raised apprehensions regarding the possible misuse of these bearer bonds for purposes such as money laundering, as well as the potential to undermine the authority of the banknotes issued by the Central Bank.

Additionally, the objective of transparency would not be attained since the purchaser of the bond need not necessarily be the contributor, as the bonds in question can be transferred to various hands before they are donated.

The Central government, instead of presenting counterarguments to address the concerns regarding Section 31 of the RBI Act, 1934, simply noted that the RBI had not understood the proposed mechanism and that the advice had come quite late after the Finance Bill had already been printed.

Bypassing the Rajya Sabha

The NDA government’s decision to hastily pass the controversial EBS, impacting the dynamics of political funding in the form of a Money Bill under Article 110 - which the Rajya Sabha has no power to reject or amend - is an assault on the spirit of the Constitution. Even when the advice of the Law Ministry was sought, it remarked that the EBS cannot, in a strict sense, be called a Money Bill. The passing of a financial bill claiming it to be a Money Bill is not just a matter of procedural irregularity where the Speaker of Lok Sabha can exercise his discretion, but a matter of substantive illegality on which the judicial review must apply (See Raja Ram Pal v Hon’ble Speaker, Lok Sabha).

Also, Justice DY Chandrachud (as he then was), in his dissent in the Aadhaar review case, (Beghar Foundation v. Justice KS Puttuswamy (Ret'd)) has categorically pointed out that the Rajya Sabha's role in lawmaking is vital, and ignoring its authority undermines democracy and constitutes a fraud on the Constitution. Passing a Bill as a Money Bill when it doesn't qualify as one damages the balance of bicameralism in the Constitution.

Political parties not under RTI

Two amendments were brought in which violate citizens’ right to information about the political parties and their candidates, thereby infringing upon the right to make a fairly-informed decision in the electoral process. One such amendment was to Section 29C of the Representation of the Peoples Act 1951, whereby political parties were exempted from sharing details of contributions received through electoral bonds with the ECI. The ECI has described this as a "retrograde step as far as transparency of donations is concerned" and called for its withdrawal.

Another amendment was to Section 182 of the Companies Act, 2013, which exempted companies from declaring their contributions to political parties. It also removed the cap on corporate donations under which a company could not contribute more than 7.5% of its net profits for the previous three years. The ECI has opined that this opens up the possibility of shell companies being set up for the sole purpose of making donations to political parties.

Further, in 2021, a single-member bench of the Central Information Commission (CIC) in reply to information about the electoral bonds encashed by various political parties, decided that political parties were not covered within the definition of ‘public authority' under Section 2(h) of the RTI Act.

But when we look back at the CIC records, in 2013, a full bench including the Chief Information Commissioner in Anil Bairwal v. Parliament of India, pointed to the public nature of political parties. It also highlighted that the role played by these political parties in our democratic setup and the nature of duties performed indicate their public character, bringing them within the ambit of Section 2(h).  But since this order was not complied with by the political parties and the Commission was bereft of the tools to get its orders complied with, the matter was appealed before the Supreme Court and is pending since 2015.

Hence, without transparency in party activities, the EB scheme would not meet its objective, as nothing would stop parties from collecting black money for election spending apart from those funds received through EBs.

Burden on the taxpayer

It is a fact that the cost of administering electoral bonds such as banking fees, commissions, printing costs, and other charges are not inconsequential. When the Finance Ministry turned to SBI for managing this scheme, this point was brought up and the idea that donors donating should pay the fee was dropped. Further, the fact that the government wanted to keep this information restricted is evident, as a meeting involving the Finance Ministry, the Ministry of Law and Justice, and SBI’s law officers concluded that the official rules would not state that the government would use the Consolidated Fund of India to pay SBI's banking commissions. Instead, this detail would be conveyed through administrative orders, which are typically not accessible to the public.

It should be noted that the total amount collected through EBs has gone up to Rs 10,791 crore in 22 phases since its inception and the brunt borne by the taxpayers is over ₹7.63 crore for the sale of electoral bonds. Rubbing salt in the wounds, an amendment to Section 13A of the Income Tax Act, 1961 exempted the contributions received by political parties through electoral bonds from being taxed.

Role of the SBI

The design of the EBS imposes an uneven burden on institutions like the SBI, which are expected to remain impartial implementers. But in reality, they would succumb to political pressures. In November 2019, reports revealed how a secret number on each electoral bond allows SBI to trace every transaction from the beginning to the end, which is contrary to the claim of donor anonymity. It was also seen how the government has also made SBI accept expired electoral bonds worth ₹20 crore,

The Supreme Court’s abdication

Association for Democratic Reforms and CPI have challenged the amendments made through financial bills before the apex court and the matters have been pending for more than five years.

On March 1, 2018, the 2016 and 2018 retrospective amendments were challenged [vide WP (C) No. 434/2018] bby ADR. On July 2, 2018, notice was issued and it was tagged with another case filed by ADR which is already pending since 2015 [WP (C) No. 333/2015], which seeks applicability of the Right to Information Act on political parties.

The 2016 amendment has already been challenged, wherein notice was issued on October 3, 2017. The last order in these matters is dated March 26, 2021. The Court had then refused to stay the electoral bond scheme. An order dated April 12, 2019 directed all political parties who had received donations through electoral bonds to submit the details of the receipts to the Election Commission of India. The Court declined to stay the Centre's Electoral Bond Scheme as it considered it a "weighty issue" having "tremendous bearing on the sanctity of the electoral process in the country" and would consider it only after an in-depth hearing.

Recently, the Court bifurcated the batch of petitions concerning the Electoral Bonds scheme into three sets: the challenge to EBS; the issue of political parties under RTI; and the challenge to the amendment to the Foreign Contribution Regulation Act, 2010, and decided to hear them separately. Now the constitutionality of the EBS is pending before a two-judge Bench, which last heard the matter on January 31, 2023. Again, the issue that whether this should be referred to a Constitutional Bench came up. The matter is listed for April 11, 2023. 

Sealed covered jurisprudence

To the astonishment of many, the Court had called upon all political factions that have received donations from the EBS to disclose information regarding their contributions in a 'sealed cover'. The Reporters' Collective has since delved into this matter and brought to light that a mere 15 regional parties have received donations via these bonds, thereby raising concerns of potential financial scarcity. Unsurprisingly, the ruling party has emerged as the frontrunner with a commanding 67.9% share amounting to ₹ 4,215.89 crore from 2017-18 to  2019-20.  

It has been over two years since the sealed envelopes were presented to the Court, with no official revelations made thus far. Paradoxically, the Court has been recently advocating for the end of sealed cover jurisprudence.

To call a nation a democracy doesn’t just simply mean equality of vote to everyone (even though it is greatly valued). What matters is free and fair elections, implying elections which are transparent, inclusive and accountable, and provide equitable opportunities to compete. The EBS, despite its institutional framework aimed at regulating campaign finance, is replete with various inadequacies and vulnerabilities, which is the antithesis of the object with which it was implemented.

Those with law-making power are busy enriching their campaign needs through EBS. On the other hand, the courts, where the last ray of hope resides, have inordinately delayed hearing such an important constitutional issue.

Pavan Kasturi is an LL.M. Candidate at The National Law School of India, Bengaluru.

Disclaimer: The above-mentioned views are personal.

Bar and Bench - Indian Legal news