The electoral bond scheme of political funding suffers from “serious deficiencies”, the Supreme Court observed on Thursday.

The electoral bond (EB) scheme of political funding suffers from “serious deficiencies”, the Supreme Court observed on Thursday, adding that the Union government ought to consider designing a new tailor-made system which balances proportionality and paves the way for a level playing field instead of “putting a premium on opacity”.

A five-judge Constitution bench, headed by Chief Justice of India (CJI) Dhananjaya Y Chandrachud, also directed the Election Commission of India (ECI) to submit within two weeks complete information on each and every donor and contributions received by political parties through EBs till September 30, as it reserved the judgment in a batch of petitions challenging the validity of the scheme.

The report has to be submitted by the election watchdog confidentially after collating the required information from all political parties that have received funds through EBs since 2018, when the scheme came into being. ECI was ready with data till 2019 in terms of an order of the court on April 12 2019, but the court held that its previous order meant a “continuing mandamus” to the poll body to keep up-to-date data till the final decision of the court in the case. “We would like to know the quantum,” the bench, also comprising justices Sanjiv Khanna, BR Gavai, JB Pardiwala and Manoj Misra, told ECI’s counsel Amit Sharma.

During the third consecutive day of the Constitution bench hearing, the bench picked holes in the 2018 EB scheme flagging a spate of “flaws” while the Centre mooted two suggestions in its endeavour to defend it. First, the Centre said the court could consider substituting the State Bank of India (SBI) with the Reserve Bank of India (RBI) as the statutory bank for issuing EBs and keeping accounts; and second, the court could criminalise any instance of breach of confidentiality regarding donors.

Asked by the bench, the government, however, refrained from making a statement that it was willing to make suitable amendments in the Companies Act to ascertain that only profit-making companies could make political donations, which will be capped at a fixed percentage of their profits.

Representing the Centre, Solicitor general Tushar Mehta said that making laws was a legislative function. He adduced a letter by the SBI chairman to buttress his contention that even the Union government has no access to information on EBs and that the court could consider making RBI the bank to issue EBs if it was of the view that certain additional safeguards were required to be incorporated in the scheme.

The court, however, repeatedly pointed out that though the emphasis on reducing the cash element in electoral process by encouraging the use of authorised banking channels was a laudable objective, the EB scheme appeared not to augur well with the need of transparency regarding such donations as well as to avert the possibility of such donations being kickbacks in reality.

“This should not become a legitimisation of kickbacks and quid pro quo between the power centres and people who are benefactors of that power. It’s not like either you do this or go back entirely to cash. You can design another system which doesn’t have the flaws of this system...this puts a premium on opacity. You can still design a system which balances out these aspects in a proportional way. How it is to be done, that’s up to you; that’s not our arena,” the bench told Mehta.

To take forward its point on legitimising kickbacks through the scheme, the bench said that prior to the EB scheme, there was a requirement under the Companies Act that political donations could only be given up to 7.5% of net profit by a company.

“Now, you (EB scheme) say it has nothing to do with profits. So, a company may have zero profit and it may get revenue only for donations. The reason why these caps were introduced, and they stood the test of time was for a very legitimate reason- because you are a company. Your purpose is to carry business, not to donate to political parties. And if your purpose is not to donate, you must donate small amounts,” the bench told the SG.

“Is the government making a statement that we will amend the Companies Act to bring back the position that donations will be a percentage of profit? We don’t have to go into the motives of the government at all. We entirely respect that process. The point is not that. We don’t want to go back to a cash only system...All we are saying is that do it in a proportional, tailor-made manner which takes care of the serious deficiencies of this,” the bench said.

Responding, Mehta said that amending laws is a legislative function that he could not commit nor was he of the view that donations had to be a percentage of profit of a company.

At this, the bench remarked: “There are two conflicting rights -- one is confidentiality, and the other is kickbacks and quid pro quo... political parties know who have donated to them. Donors of course know. Why not disclose it to everyone? The only people deprived of this information are the voters.”

The SG said that confidentiality is necessary so that no political party gets to know as to which entities have not donated to it but have given funds to some other party. “The right is to know is about knowing how much money has come to a party and that information is already in public domain. It’s a utopian principle that everyone should know who has donated what money to which party. Purity of the electoral process is more important than what a voter may want to know. It’s also about a donor’s informational privacy. Go to court if there is a larger public interest but otherwise, privacy cannot be breached only to serve someone’s curiosity,” argued Mehta.

Attorney general (AG) R Venkataramani also argued on behalf of the Centre, saying there cannot be a general right to know everything under the sun and that the petitioners had failed in showing what larger public purpose would be served by disclosing the identity of the donors whereas there were enough for the government to corroborate how the EB scheme was helping weeding out black money.

For the petitioners, senior counsel Kapil Sibal and Vijay Hansaria, along with advocates Prashant Bhushan, Shadan Farasat and Nizam Pasha, attacked the scheme, arguing that either the scheme must go on account of violating people’s right to know and affecting free and fair election, or the court ought to direct for full disclosure of the purchasers and donors of EBs.

Introduced in 2018, EBs are issued by SBI and donations by corporate and even foreign entities through Indian subsidiaries get 100% tax exemption while the identities of donors are kept confidential both by the bank and the recipient political parties. The public sector bank, however, is obligated to disclose the details following a court order or a requisition by the law enforcement agencies.

On October 16, the court referred the clutch of petitions against the EB scheme to a Constitution bench of five judges. It started hearing the petitions, filed by Association for Democratic Reforms (ADR), non-profit Common Cause, Congress leader Jaya Thakur, and the CPI (M), among others, on October 31.

Under the 2018 EB scheme, bonds are available for purchase at any SBI branch in multiples of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh and ₹1 crore and can be bought through a KYC-compliant account. There is no limit on the number of electoral bonds that a person or company can purchase. Every party registered under section 29A of the Representation of the People Act and having secured at least 1% of the votes polled in the most recent Lok Sabha or state election has been allotted a verified account by ECI.