Global Voices
Kanav Narayan Sahgal

The court upheld political equality, transparency, and voter rights principles

The Indian Supreme Court handed down a landmark decision on February 15th, 2024, striking down the controversial Electoral Bond scheme as unconstitutional. Despite facing staunch opposition from the ruling Bharatiya Janata Party (BJP), the apex court upheld principles of political equality, election transparency, and voter rights in its judgment.

Electoral Bonds were introduced as a method for funding political parties in India through the Finance Act of 2017. On October 31, 2023, a Constitution Bench comprising five judges began hearing petitions alleging irregularities in the electoral bond scheme.

During the February 15th verdict, the court emphasized that permitting the unregulated influence of companies in the governance and political process violated the principle of free and fair elections. Also, the court directed the disclosure of information on contributions received by political parties under the Electoral Bond Scheme. Subsequently, on March 21, the electoral bonds data were released, including bond numbers issued by the State Bank of India (SBI) and redemption details, such as serial number, date of encashment, and the name of the political party, among other information.

Following the release of the data, Rajya Sabha Member and senior advocate Kapil Sibal highlighted apparent instances of quid pro quo, suggesting that individuals or entities under investigation by agencies like the Enforcement Directorate (ED) or the Central Bureau of Investigation (CBI) made donations through the electoral bonds scheme, after which no further action was taken against them.

The data also revealed that over 15 of the top 30 companies that donated to political parties through the scheme were subjects of investigation by these agencies, with investigations ranging in intensity from case filings to premises raids and asset attachments. Responding to allegations of a nexus between agency raids and firms purchasing election bonds, Finance Minister Nirmala Sitharaman dismissed these claims as based on “assumptions” during her speech at the India Today Conclave.

How did electoral bonds function?

The electoral bond scheme, brought in by the then Finance Minister Arun Jaitley in March 2017 through the Finance Bill of 2017, allowed anonymous donations to political parties via bonds purchased from banks.

The sub-section (3) of section 31 of the Reserve Bank of India Act (1934) defines an electoral bond as ‘a bond issued by any scheduled bank under the scheme as notified by the Central Government.’ These bonds were essentially bearer banking instruments issued in the form of promissory notes that did not carry the name of the buyer or payee. They could be purchased by Indian citizens and companies alike, either singly or jointly with others, to donate to political parties registered under section 29A of the Representation of the People Act, 1951.

To implement this scheme, the Finance Act 2017 introduced amendments to three key statutes.

Firstly, amendments were made to the Income Tax Act 1961 to exempt income received by political parties through electoral bonds from taxation. Secondly, amendments were made to the Reserve Bank of India Act 1934 to authorize the Central Government to empower any scheduled bank to issue electoral bonds. Lastly, amendments were made to the Representation of the People Act 1951 to eliminate the requirement for political parties to disclose contributions exceeding INR 20,000  (USD  240) received via electoral bonds to the Election Commission.

Additionally, Section 182 of the Companies Act was amended to remove the cap on corporate donations and removed the requirement to disclose details of individual party contributions.

Pushback to the scheme

The changes immediately sparked controversy. In October 2017, two NGOs, the Association for Democratic Reforms and Common Cause, filed a Public Interest Litigation (PIL) in the Supreme Court, challenging the amendments made through the Finance Act 2017. They argued that the amendments opened doors to unlimited and unchecked funding of political parties.

Both the Reserve Bank of India (RBI) and the Election Commission of India (ECI) had initially raised objections to the delegation of authority to other banks for issuing electoral bonds.

Furthermore, the very structure of the Finance Bill faced pushback in Parliament, with opposition parties arguing that the government included a large number of non-financial amendments in the bill to bypass scrutiny by the Rajya Sabha — the Upper Parlimentary House — where they were in the minority. This, they claimed, was a dishonest way to bypass crucial legislation by first framing it as a money bill and then including non-monetary matters in it.

Deliberations on constitutionality

As the case reached the Supreme Court, the BJP Government refuted allegations of electoral bonds serving as conduits for black money and money laundering, specifically addressing these concerns during the hearings. Instead, the Solicitor General, representing the government, argued that the electoral bond system was actually an improvement over the previous cash-based donation system. This former system incentivized the infusion of black money into political parties, thus affecting the electoral process in India. Donors often feared reprisals from rival political parties, motivating them to contribute unaccounted funds to avoid being identified and victimized. The Electoral Bond Scheme, by maintaining donor confidentiality, thus incentivized contributions of clean money to political parties.

During its deliberations, the Supreme Court meticulously analyzed the intricate relationship between money and its influence on electoral politics in its judgment and found that money not only creates barriers to political participation by limiting the types of candidates and political parties that can enter the electoral arena but also shaping the selection of candidates by political parties.

The final verdict and impact

In a unanimous ruling, the Court deemed the scheme unconstitutional and dismissed the government’s claims that it encouraged the flow of clean money into politics. On the contrary, the Court held that the scheme not only failed to be the least restrictive means but also was not the sole method for curbing black money in Electoral Finance. The Court identified other alternatives that effectively achieved the purpose while minimally impacting the right to information compared to the impact of electoral bonds.

The Court also found that the scheme violated Article 19(1)(a) of the Indian Constitution, guaranteeing political equality by denying voters the right to information about political funding.

The judgment has rightly been hailed as progressive, marking a victory for greater transparency in electoral politics and expanding the citizen's right to know while curbing unlimited political funding from loss-making companies.

However, this judgment’s impact on weakening the chances of the BJP-led National Democratic Alliance (NDA) of winning the upcoming Lok Sabha elections starting next week appears to be minimal. According to to pre-poll surveys conducted by CSDS-Lokniti, the Narendra Modi factor continues to play a significant role for voters, providing the NDA with a decisive advantage over the opposition Indian National Developmental Inclusive Alliance (I.N.D.I.A.) which is yet to declare a candidate for the Prime Minister position. Factors such as the construction of the Ram Mandir in Ayodhya, government efforts in employment generation, poverty alleviation, infrastructure development, addressing developmental issues, fostering economic growth, and foreign policy initiatives have contributed to increased voter support for the NDA over the I.N.D.I.A. alliance.

Furthermore, a substantial 48 percent of respondents favored Narendra Modi as their choice for Prime Minister in the pre-poll survey, while only 27 percent chose Rahul Gandhi.

While it is unlikely that this landmark judgment will sway public opinion away from Modi or the BJP-NDA, it is crucial to celebrate its impact on constitutional law and voter rights, at the very least.

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