SUPREME COURT DECLARES ELECTORAL BONDS SCHEME UNCONSTITUTIONAL

1. In February 2024, The Supreme Court of India has made a significant ruling regarding the electoral bonds scheme, declaring it unconstitutional.
2. Additionally, the court has nullified the amendments made to several key acts, including the Companies Act, Income Tax Act, and Representation of Peoples Act, which facilitated the implementation of the electoral bonds scheme.

Directive to SBI and ECI

1. The court has directed the State Bank of India (SBI) to provide details of electoral bonds encashed by political parties to the Election Commission of India (ECI) by March 31, 2024.
2. The ECI will subsequently publish these details on its website, allowing for public scrutiny.

Detailed Explanation of the Verdict

Issue 1: Violation of Right to Information

1. Verdict: The electoral bonds scheme was found to violate the right to information guaranteed under Article 19(1)(a), ensuring freedom of speech and expression.
2. Rationale: Money plays a significant role in politics, affecting access to lawmakers and potentially leading to favorable policy changes.

Issue 2: Restriction to Curb Black Money

1. Verdict: Restricting the right to information for curbing black money isn't a legitimate reason, as per Article 19(2) of the Constitution.
2. Rationale: The restrictions imposed by the electoral bonds scheme failed the court's proportionality test, established in the KS Puttaswamy case concerning the right to privacy. Limiting the right to information excessively isn't justified to tackle black money in electoral financing.

Issue 3: Right to Privacy of Donors

1. Verdict: The court ruled that the right to privacy regarding political affiliation doesn't extend to corporate contributions aimed at influencing policies.
2. Rationale: Hiding the purpose behind financial contributions, particularly significant ones from corporations, should not be permissible. Privacy rights should protect genuine political support, not attempts to influence policies through corporate contributions.

Issue 4: Unlimited Political Contributions by Companies

1. Verdict: The court held the amended section 182(3) of the Companies Act 2013 unconstitutional, as it allowed unlimited political contributions by companies.
2. Rationale: Contributions by companies are transactional and aimed at securing benefits. Allowing unlimited contributions gives companies excessive influence over the political process, violating the principle of equality under Article 14 of the Constitution.

Implications of the Judgment

1. Enhanced Transparency and Accountability: Public access to information regarding political funding will increase accountability and scrutiny of political parties.
2. Reduction in Corporate Influence: Anonymity of donors enables corporate influence, which will be curtailed, ensuring political parties serve public interests.
3. Level Playing Field: Smaller parties will have a fair chance to compete with larger parties, fostering genuine democratic choice for voters.

Understanding Electoral Bonds

1. Definition: - Electoral bonds are interest-free "bearer instruments", similar to promissory notes, payable to the bearer on demand.
2. Introduction: - Electoral Bonds were introduced through the Finance Bill 2017 and officially notified on January 29, 2018.
3. Eligibility of Donors:-

1. Any citizen of India or entities incorporated or established in India can purchase these Bonds.
2. Citizens can buy electoral bonds either singly or jointly with other individuals.

4. Eligibility of Political Parties: - Electoral bonds can only be received by political parties registered under Section 29A of the Representation of the People Act, 1951, and those who secured at least 1% of the votes in the last general election to either the House of the People or the Legislative Assembly of the State.
5. Functioning of the Electoral Bond Scheme

1. The State Bank of India (SBI) issues electoral bonds in January, April, July, and October.
2. Electoral bonds are available in denominations ranging from Rs 1,000 to Rs 1 crore.
3. Donors purchase electoral bonds and transfer them to the accounts of political parties as donations, while maintaining donor confidentiality.
4. Political parties create specific accounts verified by the Election Commission of India (ECI), where they encash electoral bonds.
5. Bonds remain valid for 15 days, within which political parties must encash them into the designated accounts.

Reasons behind Introducing the Electoral Bonds Scheme in 2018

1. Transparency in Political Funding: - Electoral bonds were introduced to establish a transparent route for political parties to collect funds. These bonds are exclusively sold through SBI and can only be purchased by KYC validated individuals, ensuring transparency in the process.
2. Mitigation of Misuse: - The scheme aims to reduce the likelihood of misuse by providing a limited window for bond sale and a short maturity period of 15 days. This makes it challenging to misuse the bonds for unlawful purposes.
3. Anonymity Protection: - Electoral bonds offer anonymity to donors, shielding them from potential intimidation or harassment by political opponents after elections, thereby protecting their privacy and safety.
4. Enhanced Political Accountability: - Political parties are mandated to disclose details of contributions received via electoral bonds to the Election Commission, ensuring accountability and transparency in their financial dealings.
5. Curbing Black Money in Political Funding: - The Electoral Bond scheme reduces the permissible cash donations from anonymous sources from Rs 20,000 to Rs 2,000, aiming to diminish the influence of black money in elections and promote clean and fair political financing practices.

Arguments against Electoral Bonds

1. Violation of Right to Information: - Electoral bonds hides the identity of donors and recipients, compromising citizens' "Right to Know" under Article 19(1) of the Constitution. Previously, political parties were required to disclose donors contributing more than Rs. 20,000, but this transparency is compromised by electoral bonds.
2. Information Asymmetry: - While electoral bonds ensure anonymity for donors, the ruling government can access donor details from the State Bank of India (SBI), creating an information imbalance. This empowers the ruling party to intimidate donors supporting opposition parties.
3. Transparency Concerns with Corporate Donations: - Removal of transparency requirements from the Companies Act 2013 raises concerns about black money in political funding through shell companies. Previously, companies could only donate if their net average profit met certain criteria, ensuring transparency.
4. Shareholder Rights Compromise: -The electoral bonds scheme allows companies to contribute to political parties without shareholder oversight, denying shareholders, who are the company owners, the right to determine their company's political involvement.
5. Questionable Donor Anonymity: - Historical corporate donations to political parties suggest that donor anonymity may not be effective. Instances of donors funding rival parties without repercussions undermine the argument for donor anonymity.
6. Potential for Crony Capitalism: -Electoral bonds could facilitate the conversion of cash from tax havens to political favors through shell companies, fostering crony capitalism and undermining democratic principles.
7. Increase in Corporate Donations: -Despite the intention to allow easy funding by common people, the majority of electoral bonds have been of the highest denomination (Rs. 1 crore), indicating a dominance of large corporate donations.
8. Passage as Money Bill: -The passage of the Electoral Bonds scheme as a money bill circumvented Rajya Sabha scrutiny, raising questions about the democratic process and accountability.
9. Foreign Funding Issues: -Retroactive amendments shield foreign financing of Indian elections from scrutiny, contravening laws prohibiting political parties from accepting contributions from foreign sources.
10. Undermining Free and Fair Elections: - Electoral bonds undermine free and fair elections, a fundamental aspect of the constitution's basic structure, by compromising transparency in political funding, as repeatedly emphasized by the Supreme Court.

Proposed Solutions for Reform

1. Partial State Funding of Elections: -The Indrajit Gupta Committee has advocated for partial state funding of recognized political parties, a strategy proven effective in countries like Germany, Japan, Canada, and Sweden.
2. National Electoral Fund Exploration: -Considering alternatives to electoral bonds, establishing a National Electoral Fund could allow all donors to contribute, with funds allocated to parties based on their electoral performance. This system would safeguard donor anonymity and curb black money in political financing.
3. Limiting Anonymous Donations: -The Law Commission of India's 255th Report proposes capping donations from anonymous sources at Rs. 20 crores or 20% of a party's total funding, promoting transparency in funding sources.
4. Ban on Cash Donations: -To enhance transparency, a complete prohibition on cash donations from individuals or companies to political parties should be implemented. Currently, parties can accept cash donations below Rs. 2000.
5. Mandatory Audit of Political Party Accounts: -Following the recommendations of the Venkatachaliah Committee Report (2002), strict regulatory frameworks for auditing and disclosing party income and expenditure are essential for accountability.
6. Adopting Global Best Practices: -Learning from international examples:

1. Emulating laws like the Publicity Act (USA), Elections and Referendums Act 2000 (UK), and EU regulations, which impose restrictions on political party donations and mandate source disclosure.
2. Following France's lead in banning corporate funding in 1995 and capping individual donations.
3. Brazil and Chile implemented a ban on corporate donations following a string of corruption scandals associated with corporate funding.

Recommendations on Electoral Finance by the Law Commission (255th Report)

1. Expansion of Expense Regulation: -Extend the regulation of election expenses from the date of nomination to the date of notification.
2. Corporate Funding Authorization: -Require authorization of political funding by a corporate entity at the Annual General Meeting (AGM) rather than at a Board of Director (BoD) meeting.
3. Enhanced Disclosure Norms: -Expand norms for candidates to disclose election expenses, including funding from non-governmental corporations or individuals, as well as from the parent political party.
4. Public Disclosure of Expense Documents: -Mandate public disclosure of electoral expense documents submitted by candidates.
5. Submission of Audited Annual Reports: -Require political parties to submit audited annual reports detailing all funds received and expenditures incurred, with the Election Commission of India (ECI) responsible for public disclosure.
6. Disclosure of Small Contributions: -Mandate disclosure of contributions less than INR 20,000 if such contributions exceed either INR 20 crore or 20% of the party's total contributions, whichever is less.
7. Strengthening Consequences for Non-Disclosure: -Increase the penalty for failure to disclose expenses from disqualification for 3 years to 5 years, rendering the candidate ineligible for the next election.
8. Penalties for Contributions from Ineligible Donors: -Impose a penalty of 5 times the contribution received if such contribution is from an ineligible donor under the Companies Act and Representation of the People Act (RoPA).
9. Feasibility of State Funding: -Determine that direct state funding of elections is not feasible, suggesting in-kind subsidies as an alternative.Top of Form

Conclusion

1. A clean and transparent electoral funding process is crucial for maintaining a fair electoral democracy.
2. Many developed countries in the West have established robust mechanisms to ensure transparency in their political systems. As India aims to achieve developed country status by 2047, it must also strive for similar standards of transparency in the political arena.
3. The Supreme Court's ruling on electoral bonds marks a historic milestone, upholding citizens' constitutional rights and democratic values. By striking down the electoral bonds scheme and ensuring transparency in political funding, the judgment aims to strengthen democracy in India