Authored by Dewansh Raj and Harshit Rai, 3rd-year law students at National Law University, Odisha.
The Supreme Court’s (SC) judgement in “Association for Democratic Reforms v Union of India (2024)” declaring the Electoral Bonds Scheme (EBS) as unconstitutional, was anticipated as one of the most consequential rulings that could significantly influence the dynamics of the 2024 elections. Although the verdict has not garnered extensive public disclosure since its delivery, it will have a profound impact on general elections and the future of political funding. The EBS was intended to usher in a transparent and democratic future. However, the irregularities in its implementation ultimately led to its validity being challenged. Had the court struck down only the problematic elements of the scheme while allowing a reformed version to remain operational with necessary safeguards and checks, this revised version could have greatly improved transparency and accountability in the political funding landscape.
About the Scheme
The electoral bond is a type of banking instrument which can be further classified as a bearer’s instrument having a non-revealing character, thus concealing the identity of the bearer and the recipient. Under the Electoral Bond Scheme, such bonds can be purchased by any Indian citizen or a registered Indian entity and with respect to encashment of the same, any registered political party which garnered more than 1% vote in previous polls can cash it out at the specified State Bank of India branches. The primary goal of the Electoral Bond Scheme (EBS) was to enhance transparency and accountability in political funding while curbing illicit practices in the electoral process.
The scheme through the issue of bonds by specified branches of SBI and proper procedure aimed to discourage and remove the large amount of cash transactions and formalise political funding. The bond to a great extent was successful in achieving this, as after its introduction nearly all the parties saw a huge rise in their funding. The increase in funding could be attributed to the fact that this was the first time when these were coming from a formal source.
The Supreme Court Judgement
The SC unanimously struck down the EBS scheme, it held that the scheme was violating the citizens right to information enshrined under Art 19(1)(a) of the constitution. It kept the right to information of voters on a higher pedestal than the right to privacy of the donors. It ordered an immediate cessation of the issuance of bonds under EBS and instructed the Election Commission of India (ECI) to publish the information received from SBI regarding the buyers of electoral bonds on its official website by the 13th of March 2024.
The judgement also struck down the strings of amendment to the RBI Act, Representation of People Act, IT Act, and Companies Act. These amendments allowed the government to issue bonds through scheduled banks, exempting political parties from disclosing and maintaining information about funding received through EBS and removing the cap on funding by the corporations to political parties and the need to disclose the same.
EBS and the Promise of Transparency and Confidentiality
Before EBS, political funding was hugely done through the medium of cash and the data for such funding was never disclosed in totality. This practice led to an infusion of black money into the electoral practice, moreover, undisclosed cash donations encouraged illicit practices like money laundering and even facilitated foreign powers to influence the overall electoral process. According to a report published by the Association for Democratic Reforms, which analysed the data of political funding between FY 2004-05 and FY 2010-11, the top receiver Indian National Congress had received 90.38 % of its total fund in cash, and the same was prevalent among other political parties during this period. Additionally, the report also pointed out that only 24.9 % of national party donors could be traced, highlighting a significant lack of transparency in political funding, as the data relating to the source of these cash fundings can be easily fudged, unlike bank transactions where exact details of the donors' account are available.
Now, with the Supreme Court striking down the EBS, there is an impending threat of a resurgence of these illicit practices as the scheme was designed to get away from cash donations by making the political donations a formal affair.
Under the EBS a donor was allowed to purchase a bond through SBI against cheque and digital payments only. This formalised the flow of money into political donations, moreover the limit of cash donations was reduced from Rs.20000 to Rs.2000 to discourage and eradicate cash transactions in political fundings. Through this scheme crores of funding money were brought into the banking system and the records of the same could have been disclosed when demanded by a competent court.
The Need for Confidentiality
The EBS introduced an element of confidentiality in the electoral funding process, this was done because donors expressed reluctance to donate through transparent mediums, as this could entail adverse consequences, including harassment, threats, denial of business licences and permissions.
Moreover, confidentiality allows citizens to choose the political party based on their political ideology freely and vote with their money discreetly. Thus, confidentiality may be seen as a cost of formalizing the funding process; however, in practice, this cost is negligible compared to the complete lack of transparency in the previous system.
After the EBS the donors had to declare the amount of bonds purchased, similarly, the parties had to disclose the amount of bonds received by them in their filings. How much a donor has contributed to a specific party would be kept confidential because if this data is published the donors will not find the EBS attractive consequently wanting to shift to cash donations. Maintaining confidentiality in political funding is analogous to maintaining confidentiality while exercising our right to vote.
The Issue of Corporate Funding
The Supreme Court in its judgement has repeatedly used the phrase quid pro quo to signify that the big corporates can use this scheme to anonymously fund a political party in return for favours in its business ventures. It was considered as one of the important reasons for striking down the EBS. But as discussed above the striking down of the EBS is not a solution for the same, the donors will automatically shift to cash-based donations which will have detrimental effects on the economy and the electoral process as there would be no record of money being donated to the political parties.
The political funding would no longer be channelled through the country’s banking system, the courts or investigating agencies would no longer be able to extract records of such funding and there would be a revenue loss to the government as the parties would no longer show the figures of donations which they were receiving through bonds thus not paying taxes on it. The lack of anonymity will discourage donors from using transparent methods for donations and will force them to use cash as was the case before the introduction of EBS.
Moreover, the quid pro quo logic of the Supreme Court cannot be applied to small donors, close to half of the total number of electoral bonds purchased were in smaller denominations of Rs. 10 lakh and less according to a report of the Association of Democratic reform (ADR). The judgements did not take into account the diverse range of donors beyond large-value corporate donors who are not interested in quid pro quo from politicians.
One of the arguments that these electoral bonds facilitated the ruling party to get funds from the corporate bodies and provided them an edge over the parties in the opposition cannot find ground as even after the introductions of the EBS the ruling party was defeated in some of the significant state elections.
The electoral bond scheme was implemented with the purported objective of fostering transparency in political funding. It sought to channel donations to political parties through official means, ostensibly to enhance the visibility of the money flow ultimately combating money laundering. Analysis of the available data reveals that the scheme did succeed in shifting political contributions away from cash transactions, thus meeting its main objective.
Suggestions
The SC instead of striking down the entire scheme could have just brought a few changes to it. EBS was intended to be a progressive and positive step by the legislature to formalise political funding and weed out the black money involved in the process but sadly the true benefits could never be realised.
The confidentiality of the donor is one of the important features for formalising the flow of electoral funds, so it cannot be done away but an alternative can be suggested for the same. The Election Commission can be entrusted with the information and as this information will not be shared with the government or the opposition the threat of partiality being met to the donors and the practice of quid pro quo between the parties and the corporates can be minimized. Secondly, the SC could have reinstated the cap on corporate funding which was 7.5% of the average profits of the preceding three years. This would have dissuaded and acted as a barrier to huge corporate fundings which are made for quid pro quo purposes.
Thirdly, the Supreme could have differentiated between corporate and individual donors by introducing disclosure requirements based on the donation amount. This approach would have safeguarded individual donors’ privacy by preventing public disclosure of their identities, while mandating the corporate entities to disclose only the total donation amounts, without revealing the recipient political parties.
The EBS was never intended to be a perfect solution, as acknowledged by Mr. Arun Jaitley in his writing. He stressed on the fact that the electoral bond although not being the perfect solution is a marked improvement to the completely anonymous cash donations and has the potential to formalise the political donation process thus helping in weeding out unaccounted money which was earlier being poured into the electoral funding.
Conclusion
The Electoral bond scheme in its original form though was not constitutional and against the right to information of a voter. However, the court could have examined the positive aspects of the EBS and selectively struck down the parts which were leading to the concealment of the information applying the doctrine of severability. This nuanced approach would have allowed the court to balance the principle of transparency while preserving the positive intentions of EBS and protecting the privacy concerns of individual donors.