Supreme Court Strikes Down Electoral Bonds Scheme As Unconstitutional, Asks SBI To Stop Issuing EBs

The Supreme Court on Thursday (February 15) delivered its highly-anticipated judgment in the electoral bonds case, holding that anonymous electoral bonds are violative of the right to information under Article 19(1)(a) of the Constitution. Accordingly, the scheme has been struck down as unconstitutional. A constitution bench comprising Chief Justice DY Chandrachud, and Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra heard a batch of cases challenging the controversial electoral bonds scheme over a period of three days, before reserving the verdict in November. This judgment was delivered on Thursday morning.

While the court arrived at an unanimous decision, with Chief Justice DY Chandrachud delivering the lead judgment, Justice Khanna has penned a concurring opinion with a slightly different reasoning. Both judgments answered two key questions, namely, first, whether the non-disclosure of information on voluntary contributions to political parties according to the electoral bond scheme and the amendments to Section 29C of Representation of the People Act, Section 183(3) of the Companies Act, Section 13A(b) of the Income Tax Act are violative of the right to information under Article 19(1)(a) of the Constitution, and second, whether unlimited corporate funding to political parties as envisaged by the amendment to Section 182(1) of the Companies Act violates the principles of free and fair elections.

"Information about funding of political parties is essential for the effective exercise of the choice of voting," Chief Justice Chandrachud stressed right at the outset, emphasising the importance of open governance. Authoring an opinion on behalf of himself and Justices Gavai, Pardiwala, and Misra, the chief justice crucially held that the electoral bonds scheme violated Article 19(1)(a) of the Constitution -

"At a primary level, political contributions give a seat at the table to contributors, i.e., it enhances access to legislators. This access also translates to influence over policymaking. There is also a legitimate possibility that financial contributions to a political party would lead to quid pro quo arrangement because of the close nexus between money and politics. The electoral bond scheme and the impugned provisions to the extent that they infringe upon the right to information of the voter by anonymising contributions through electoral bonds are violative of Article 19(1)(a)."
The court held that the restrictive means test of the doctrine of proportionality is not satisfied and that there are other means other than electoral bonds to achieve the purpose of curbing black money, even assuming it to be a legitimate objective. The infringement to the right to information is not justified, the Court held. Acknowledging the right of informational privacy extends to financial contributions which is a facet of political affiliation, Chief Justice Chandrachud revealed that a double proportionality standard was applied to balance the conflicting rights to information and to informational privacy. Rejecting the Union's argument that Clause 7(4)(c) of the scheme balances the two rights, the court said that the provision tilts the balance in favour of the right to informational privacy because the suitability prong of the proportionality standard is only partly fulfilled. Chief Justice Chandrachud accordingly held that the union government has failed to establish that the measure adopted in clause 7(4)(1) of the electoral scheme is the least restrictive measure.

Accordingly, the amendments to the Income Tax Act, the Representation of Peoples Act, the Companies Act have been held to be unconstitutional.

SBI asked to give details to ECI, ECI to publish the details on its website : Directions The Court issued the following directions : A. The issuing bank shall herewith stop the issuance of electoral bonds. B. The State Bank of India shall submit the details of electoral bonds purchased since the interim order of the Court dated April 12, 2019 till date to the Election Commission of India. The details shall include the date of purchase of each electoral bond, the name of the purchaser of the name of the purchaser of the bond and the denomination of the electoral bond purchased.

C. State Bank of India shall submit the details of the political parties which have received contributions through electoral bonds since the interim order dated April 12, 2019 till date to the ECI. SBI must disclose details of each electoral bonds encashed by the political parties, which shall include the date of encashment and the denomination of electoral bond.

D. SBI shall submit the above information to the ECI within three weeks from today, ie by March 6. E. ECI shall publish the information received from the SBI on its website by March 13, 2024. F. Electoral Bonds which are within the validity period of 15 days but which have not been encashed by the political parties yet shall be returned by the political party to the purchaser. The issuing bank shall then refund the amount to the purchaser's account. Senior Advocates Kapil Sibal, Advocate Prashant Bhushan, Advocate Shadan Farasat, Advocate Nizam Pasha, Senior Advocate Vijay Hansaria appeared for the petitioners.

Attorney General for India R Venkataramani, Solicitor General of India Tushar Mehta appeared for the Union Government.

Background At the heart of the petitions lie objections to the electoral bonds scheme, introduced through amendments in the Finance Act 2017. The petitioners, including the Association for Democratic Reforms (ADR), the Communist Party of India (Marxist), and Congress leader Jaya Thakur, argued that the anonymity associated with electoral bonds undermines transparency in political funding and encroaches upon voters' right to information. They further contend that the scheme facilitates contributions through shell companies, raising concerns about accountability and integrity in electoral finance.

In defence of the scheme, the union government had asserted its role in promoting the use of legitimate funds in political financing, ensuring transactions occur through regulated banking channels. Additionally, the government cited the need for donor anonymity to shield contributors from potential retribution by political entities.

Throughout the hearings, the bench posed probing questions to the government, questioning the rationale behind the scheme's 'selective anonymity' and expressing apprehension about its potential to institutionalise kickbacks for political parties. Notably, concerns were raised regarding the unequal access to donor information, with the ruling party potentially possessing insight into contributors' identities while opposition parties lack such access. The bench also scrutinised the removal of the cap on corporate donations, previously restricted to a maximum of 7.5 percent of net profits.

As the hearing drew to a close, the bench ordered the Election Commission of India to furnish details of political party contributions via electoral bonds up to September 30.

Other reports about the judgment can be read here.

Case Details

Association for Democratic Reforms & Anr. v. Union of India & Ors. | Writ Petition (Civil) No. 880 of 2017

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Supreme Court Asks ECI To Publish Details Of Electoral Bonds Encashed By Political Parties

While striking down the Electoral Bonds scheme as unconstitutional, the Supreme Court issued the following directions : A. The issuing bank(State Bank of India) shall herewith stop the issuance of electoral bonds. B. The State Bank of India shall submit the details of electoral bonds purchased since the interim order of the Court dated April 12, 2019 till date to the Election Commission of India. The details shall include the date of purchase of each electoral bond, the name of the purchaser of the denomination of the electoral bond purchased. Also Read - BREAKING | Supreme Court Strikes Down Electoral Bonds Scheme As Unconstitutional, Asks SBI To Stop Issuing EBs C.The State Bank of India shall submit the details of the political parties which have received contributions through electoral bonds since the interim order dated April 12, 2019 till date to the ECI. SBI must disclose details of each electoral bond encashed by the political parties, which shall include the date of 

encashment and the denomination of the electoral bond.

D. The SBI shall submit the above information to the ECI within three weeks from today, ie by March 6.

E. The ECI shall publish the information received from the SBI on its website by March 13, 2024. F. Electoral Bonds which are within the validity period of 15 days but which have not been encashed by the political parties yet shall be returned by the political party to the purchaser. The issuing bank shall then refund the amount to the purchaser's account. A 5-judge comprising Chief Justice of India DY Chandrachud, Justices Sanjiv Khanna, BR Gavai, JB Pardiwala and Manoj Misra delivered the judgment on a batch of writ petitions filed by the Association for Democratic Reforms, the Communist Party of India (Marxist), Dr Jaya Thakur.

Senior Advocate Kapil Sibal, Advocate Prashant Bhushan, Advocate Shadan Farasat, Advocate Nizam Pasha, Senior Advocate Vijay Hansaria appeared for the petitioners.

Attorney General for India R Venkataramani and Solicitor General of India Tushar Mehta appeared for the Union.

Detailed story about the judgment can be read here.

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Allowing Unlimited Corporate Donations Through Electoral Bonds Violates Free & Fair Elections : Supreme Court Voids Companies Act Amendment

In a landmark verdict today, the Supreme Court struck down the controversial electoral bonds scheme as unconstitutional, holding that the anonymity conferred by electoral bonds violates the right to information enshrined in Article 19(1)(a) of the Constitution.

This decision comes after a constitution bench, comprising Chief Justice DY Chandrachud and Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra, heard a series of petitions challenging the scheme. Chief Justice Chandrachud, delivering the lead judgment, underscored the fundamental importance of transparency in political funding. Justice Khanna penned a separate opinion, concurring with the chief justice's view but applying a slightly different rationale. The court's ruling addressed concerns about the electoral bonds' potential to facilitate quid pro quo arrangements, highlighting the need for open governance and access to information for voters 

In addition to striking down the electoral bonds scheme, the court also made crucial observations regarding Section 182 of the Companies Act and the issue of political contributions by companies. Section 182 of the Companies Act, 2013 allows Indian companies to make financial contributions to political parties under specific conditions. These conditions necessitated that such contributions be authorised by the company's Board of Directors, not be made in cash, and be transparently disclosed in the company's Profit and Loss (P&L) account. However, through the 2017 Finance Act, certain key changes were introduced which includes the removal of the previous cap on the amount that companies can donate to political parties, set at 7.5 percent of the average profits of the preceding three fiscal years. Additionally, requirement for companies to disclose the names of the political parties to which contributions were made in their P&L accounts was also eliminated.

In this highly-awaited judgment, the apex court observed - "Section 182(3) of the Companies Act and Section 29C of the Representation of the People Act, as amended by the 2017 Finance Act, must be read together. Section 29C exempts political parties from disclosing information of contributions received through electoral bonds. However, Section 182(3) not only applies to contributions made through electoral bonds but through all modes of transfers. In terms of the provisions of the RP Act, if a company makes contributions to political parties through cheque or electronic clearing system, the political party has to disclose the details in its report. Thus, the information about contributions by the company would be in the public domain. The only purpose of amending Section 182(3) was to bring the provision in tune with the amendment under the RP Act, exempting the contributions through electoral bonds from disclosure requirements. The amendment to Section 182(3) of the 

Companies Act becomes otiose in terms of our holding that the electoral bonds scheme and relevant amendments to the RP Act and the Income Tax Act mandating non-disclosure of political contributions' particulars through electoral bonds is unconstitutional."

The court found the amendment to Section 182, permitting unlimited political contributions by companies, to be manifestly arbitrary for several reasons. First, it noted the disproportionate influence wielded by companies in the electoral process compared to individuals, emphasising the potential for transactions made with the intent of securing benefits in return. Treating individuals and companies at par made the scheme manifestly arbitrary, the court held. Chief Justice Chandrachud explained –

“The ability of a company to influence the electoral process through political contributions is much higher when compared to that of an individual. A company has a much graver influence in the political process, both in terms of the quantum of money contributed to political parties and the purpose of making such contributions. Contributions made by individuals have a degree of support or affiliation to a political association. However ,contributions made by companies are purely business transactions made with the intent of securing benefits in return. The amendment to Section 182 is manifestly arbitrary for treating political contributions by companies and individuals alike.”

Second, the court highlighted the failure of the amendment to distinguish between profit-making and loss-making companies, thereby overlooking the heightened risk of quid pro quo transactions by the latter. 

“Companies before the amendment to Section 182 could only contribute a certain percentage of their net aggregate profits. The provision classify between loss-making companies and profit-making companies for the purpose of political contributions and for good reason. The underlying principle of this distinction is that it is more plausible that loss-making companies will contribute to political parties with a quid pro quo, and not for the purpose of income tax benefits. The provision, as amended by the Finance Act 2017, does not recognise that the harm of contribution by loss-making contributions in the form of quid pro quo is much higher. Thus, the amendment to Section 182 is manifestly arbitrary for not making a distinction between profit-making and loss-making companies for the purposes of political contributions.”

Finally, the court emphasised the amendment's authorisation of unrestrained corporate influence in elections, which contravenes the  principles of free and fair elections and political equality, saying – “The purpose of Section 182 is to curb corruption and electoral financing. For instance, the purpose of banning a government company from contributing is to prevent such companies from entering the political fray by making contributions to political parties. The amendment to Section 182 by permitting unlimited corporate contributions authorises unrestrained influence of companies in the electoral proces, which is violative of the principles of free and fair elections and political equality captured in the value of 'one person, one vote'.” The challenge to the electoral bond scheme was brought to the court by Association for Democratic Reforms (ADR), the Communist Party of India (Marxist), Congress leader Jaya Thakur and others, arguing that the anonymity associated with electoral bonds undermines transparency in political funding and encroaches upon voters' right to information. They also 

contended that the scheme facilitates contributions through shell companies, raising concerns about accountability and integrity in electoral finance. In defence of the scheme, the union government asserted its role in promoting the use of legitimate funds in political financing, ensuring transactions occur through regulated banking channels. Additionally, the government cited the need for donor anonymity to shield contributors from potential retribution by political entities. After a three-day-long hearing, the constitution bench reserved its verdict in the matter last November. The court also notably ordered the Election Commission of India to furnish details of political party contributions via electoral bonds up to September 30.
https://www.livelaw.in/top-stories/supreme-court-unlimited-corporate-contributions-electoral-bonds-companies-act-free-fair-elections-249575

Electoral Bonds Not The Only Way To Curb Black Money, There're Alternative Means Which Are Less Restrictive : Supreme Court

The Supreme Court has observed that the purpose of curbing black money is not a sufficient justification to anonymise the identities of donors and the details of the contributions in the electoral bonds scheme.

A Constitution Bench of the Supreme Court held that the anonymous electoral bonds scheme violated the right to information of a voter guaranteed under Article 19(1)(a) of the Constitution and struck down the same as unconstitutional.

The Union Government defended the scheme on the grounds that it curbed black money as it ensured that the contributions were coming through banking channels. However, the judgment authored by CJI DY Chandrachud noted that the "purpose of curbing black money is not traceable to any of the grounds under Article 19(2)." The fundamental rights guaranteed under Article 19(1)(a) can be restricted only on the grounds specified under Article 19(2). Further, such restrictions must fulfil the judicially evolved test of proportionality.

Electoral Bonds scheme does not satisfy the test The Court noted that in the financial year which immediately preceded 2016-17, in which the Electoral Bonds was introduced, 81% of the contributions, Rs 580.52 crores were received by political parties through voluntary contributions. Since the amount of voluntary contributions is not regulated, it allowed the circulation of black money. However, after the introduction of the electoral bonds scheme, 47% of the contributions were received through EBs, which is regulated money.

The Union Government submitted that anonymity incentivises contributors to contribute through banking channels. Therefore, non-disclosure has a rational nexus with the purpose of curbing black money, it contended.

However, the Court opined that the third prong of the proportionality standard, which mandates that the restriction must be the least restrictive option, was not satisfied in the case of Electoral Bonds. "The Electoral Bonds scheme is not the only means for curbing black money in electoral financing. There are other alternatives which substantially fulfil the purpose and impact the right to information minimally when compared to the impact of electoral bonds on the right to information," CJI DY Chandrachud stated in his judgment. The Court observed that for contributions below Rs 20,000, contributions through other electronic means are the least restrictive means. For contributions above Rs 20,000, contributions through electoral trust are the least restrictive means. The Court held that these alternative means have a less restrictive impact on the right to information while having the same ability to fulfil the purpose. "Thus the infringement on the right to information is not  proportionately justified for the purpose of curbing black money in electoral financing," the Court held.

Justices Sanjiv Khanna, BR Gavai, JB Pardiwala and Manoj Misra were the other members of the bench.

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