Spectrum Books - Supreme Court Declares Electoral Bond (EB) Scheme Unconstitutional

Supreme Court Declares Electoral Bond (EB) Scheme Unconstitutional

In a landmark verdict delivered just weeks before the Lok Sabha elections, the Supreme Court, led by Chief Justice D.Y. Chandrachud, issued a definitive ruling on the contentious issue of electoral funding. The court meticulously scrutinised the Electoral Bond (EB) Scheme introduced in 2017, designed to facilitate anonymous political contributions, and declared it unconstitutional. This decision marks a pivotal moment in India’s democratic landscape, with far-reaching implications for transparency and accountability in political financing.

The EB scheme was designed to facilitate anonymous political contributions and allowed for interest-free bearer bonds (electoral bonds) to be purchased from authorised branches of the State Bank of India (SBI) by companies and individuals in India, with no limit on purchases. The scheme is implemented through amendments to four acts, namely, the Representation of the People Act, 1951 (RPA), the Companies Act, 2013, the Income Tax Act, 1961, and the Foreign Contributions Regulation Act, 2010 (FCRA) via the Finance Act of 2016 and 2017. The scheme aimed to clean up political funding by permitting anonymous donations to political parties. The court emphasised transparency in political funding as crucial for democracy and found that the scheme violated constitutional safeguards, infringing upon fundamental rights like freedom of speech and expression, and the right to information. Mandating stringent disclosure requirements, the court instructed the SBI to disclose details of electoral bonds purchased since April 12, 2019, to the Election Commission of India (ECI) for public dissemination. Addressing privacy concerns, the court acknowledged the significance of privacy in political affiliation but criticised the scheme’s failure to ensure true anonymity for contributors. Highlighting potential loopholes that could compromise donor privacy, the judiciary underscored the imperative of safeguarding the integrity of political expression and participation.

The Hindu BusinessLine in its article, SC declares electoral bonds scheme ‘unconstitutional’, written by Krishnadas Rajagopal, published on February 15, 2024, mentions that the Supreme Court delivered a landmark verdict, declaring the EB scheme unconstitutional, along with amendments allowing unlimited political donations by corporations as “manifestly arbitrary”. Chief Justice D.Y. Chandrachud, leading a five-judge bench, emphasised that these measures violated voters’ right to information about political funding, a fundamental aspect of democracy under Article 19(1)(a) of the Constitution.

The ruling directed the SBI to cease issuing electoral bonds immediately and mandated the submission of bond purchase details from April 12, 2019, to the ECI. The bank must disclose the purchase date, buyer’s name, and bond denomination. The ECI is required to publish this information on its website by March 13, 2024.

Furthermore, electoral bonds yet to be encashed, with a validity period of 15 days, must be returned to the bank by political parties or purchasers for a refund. Chief Justice Chandrachud highlighted that the scheme’s absolute non-disclosure of funding sources promoted corruption and favoured corporate interests over ordinary citizens, impacting the democratic principle of ‘one person, one vote’.

The judgment emphasised the nexus between money and politics, noting contributions from companies aimed at securing benefits in return. The court dismissed the government’s argument that anonymity incentivised banking channel contributions, stressing a balance between privacy and voters’ right to information. The ruling found the EB scheme is ineffective in curbing black money and criticised amendments that circumvented transparency provisions in existing laws, labelling them arbitrary and less restrictive.

The judgment underscored the significance of maintaining a balance between privacy and transparency in political funding. It highlighted amendments that lifted donation caps and provided blanket anonymity to corporate donors, ignoring distinctions between profit-making and loss-making companies. Overall, the verdict addresses crucial issues surrounding political funding, safeguarding democratic principles and promoting transparency in India’s electoral process.

The Hindustan Times in its article, Electoral bonds verdict: Here are the three directions issued by Supreme Court, written by Manjiri Chitre, published on February 15, 2024, mentions about the Supreme Court significant ruling, unanimously declaring electoral bonds as unconstitutional due to their allowance of anonymous funding to political parties, thus violating the right to information and Article 19(1)(a) of the Constitution. The verdict came in response to multiple pleas challenging the legality of the scheme, marking a setback for the BJP, which has been the scheme’s primary beneficiary since its introduction in 2017.

The article mentions three key directives issued by the court which are as follows:

Political parties must return all electoral bonds within the 15-day validity period to purchasers.
The ECI is mandated to disclose all donations publicly within one week of receiving the information.
The SBI is ordered to halt the issuance of the electoral bonds immediately and provide all details to the ECI by March 6, 2024.

The EB Scheme, introduced in 2018 via amendments to various acts including the Finance Act and the Representation of the People Act, aimed to facilitate political funding. However, it faced legal challenges from several quarters, including Congress leaders, CPI(M), and NGOs, who argued that it facilitated corruption and enabled shell companies to influence politics. The scheme restricted eligibility for receiving bonds to political parties meeting certain criteria under the Representation of the People Act, 1951.

The Indian Express in its article, SC strikes down electoral bonds scheme as ‘unconstitutional’: What grounds did the verdict rely upon?, written by Ajoy Sinha Karpuram, published on February 15, 2024, mentions that the SC, in a landmark verdict, declared the EB scheme unconstitutional on Thursday, February 15. This scheme, which allowed for anonymous donations to political parties, was challenged in the court by various parties and NGOs, arguing that it violated the voters’ right to information. The scheme, introduced in 2017, enabled corporations and individuals to donate money anonymously by purchasing electoral bonds from the SBI.

The court addressed several key issues in its judgment. Firstly, it ruled that the EB scheme violates the right to information under Article 19(1)(a) of the Indian Constitution, as transparency regarding political party funding is essential for voters’ decision-making. Secondly, the court examined whether curbing black money in electoral financing justifies restricting the right to information. It concluded that while curbing black money is a legitimate goal, the scheme is not proportionate to achieving this objective, as less restrictive measures exist. Additionally, the court deliberated on the protection of donor privacy, stating that while political affiliation is protected under the right to privacy, financial contributions made by corporations should not be allowed to obscure contributions from other sections of society. Finally, the court addressed the constitutionality of unlimited political contributions by companies, emphasising that such contributions are purely transactional and aimed at securing benefits.

Overall, the Supreme Court’s verdict highlighted the importance of transparency in political funding and underscored the need to balance the right to information with privacy concerns and the influence of corporate contributions on the democratic process.

WION, a news channel, in its article, India Supreme Court strikes down electoral bonds. Why are they controversial? written by Riya Teotia, published on February 15, 2024, describes that as the Supreme Court has declared the EB scheme unconstitutional, citing concerns that the anonymity it provides to donors could lead to potential quid pro quo arrangements. This landmark ruling, coming just before the 2024 general elections, follows petitions challenging the scheme’s validity. Electoral bonds were introduced in 2018 as part of electoral reforms to enhance transparency in political funding. They allow individuals and organisations to anonymously donate to political parties in denominations ranging from Rs 1,000 to Rs 1 crore. However, critics argue that the scheme lacks transparency and accountability, as it shields donors’ identities. Several petitions were filed in the Supreme Court, claiming that the scheme violates the right to information and facilitates corruption. In its verdict, the Supreme Court unanimously struck down the EB scheme as unconstitutional, ordering the immediate cessation of bond issuance by the SBI. The court emphasised the importance of transparency in political funding for informed voting and held that there are alternative means to curb black money without compromising citizens’ right to information.

Live Law, an independent media, in its article, Supreme Court Strikes Down Electoral Bonds Scheme As Unconstitutional, Asks SBI To Stop Issuing EBs, written by Awstika Das, published on February 15, 2024, mentions that the Supreme Court recently ruled that anonymous electoral bonds violate the right to information guaranteed under Article 19(1)(a) of the Constitution. The decision was made by a constitution bench, comprising Chief Justice D.Y. Chandrachud and Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala, and Manoj Misra, who provided two concurring opinions. Chief Justice Chandrachud, writing for himself and three other justices, balanced individuals’ right to information with contributors’ right to informational privacy. The court outlined a test to resolve conflicts between fundamental rights, which was applied to the EB Scheme. The court concluded that Clause 7(4) of the scheme does not adequately balance the right to informational privacy and the right to information about political funding. Consequently, the court declared the entire EB scheme unconstitutional, upholding voters’ right to information over the anonymity of contributors in political funding. The court also issued directions to stop the issuance of electoral bonds and instructed the SBI to submit details of electoral bonds purchased and political parties receiving contributions through them to the ECI.

JURIST, a US legal news platform, in its article, India Supreme Court strikes down electoral bonds scheme, written by Ritisha Sinha, published on February 16, 2024, explains that the Indian Supreme Court ruled the EB scheme unconstitutional. Introduced in 2018 by the central government, the scheme allowed individuals and corporations to anonymously fund parties by purchasing bonds from the SBI. The court directed the halting of further bond issuance, citing voters’ right to information under Article 19(1)(a) of the Constitution. Petitioners argued that voters deserve transparency in political funding, highlighting disproportionate funding distribution, with the BJP receiving over 57 per cent of bond proceeds. The court suggested Section 29C of the Representation of People Act, 1951, mandating disclosure of contributions exceeding Rs 20,000, as a less restrictive alternative. It emphasised the vital link between money and politics, stating that voters must know about party funding to make informed choices. The verdict coincides with upcoming national elections in India.

Scroll.in, an Indian digital news publication, in its article, Why the Supreme Court struck down the electoral bonds scheme, written by Vineet Bhalla, published on February 16, 2024, unfolds that the Supreme Court has declared the EB scheme introduced by the government in 2017–18 as unconstitutional due to its disproportionate restriction on voters’ fundamental right to information about political party funding. The scheme allowed individuals and corporations to anonymously donate money to political parties through financial instruments called electoral bonds. However, parties were not required to disclose the source of these donations to the ECI. The court’s ruling, delivered by a five-judge Constitution bench, emphasised the importance of transparency in political funding for informed voting. The judgment highlighted that voters associate voting with political parties, making information about party funding crucial for assessing policy influence and possible quid pro quo arrangements. While acknowledging the right to informational privacy of political affiliation, the court stated that this right does not extend to contributions aimed at influencing policy. The judgment also assessed the reasonableness of restrictions imposed by the scheme on citizens’ right to information under Article 19(1)(a) of the Constitution and found them unjustified. It suggested alternative means of political contributions that are less restrictive and fulfil the purpose of combating black money in electoral finance. Additionally, the court criticised the provision allowing unlimited corporate donations, stating that it violates principles of free and fair elections and political equality.

India Today in its article, Why was electoral bonds (scheme) scrapped: Supreme Court order explained in 5 points, written by Abhishek De, published on February 15, 2024, mentions that the Supreme Court’s five-judge constitution bench declared the EB scheme unconstitutional, citing violations of freedom of speech and expression under Article 19(1)(a) of the Indian Constitution. This scheme, allowing anonymous donations to political parties, was struck down just months before the Lok Sabha elections. Chief Justice Chandrachud emphasised the importance of transparency in political funding for effective voting choices.

Key points from the Supreme Court’s verdict include:

The EB scheme violated citizens’ right to information, impacting free speech and expression.
Transparency in political funding cannot be achieved by granting absolute exemptions, according to the Supreme Court.
The SBI, the issuing bank, was ordered to halt the issuance of electoral bonds immediately. It was also instructed to provide details of donations through electoral bonds and the recipient political parties to the ECI by March 6, 2024.
Electoral bonds that have not been encashed by political parties must be returned to the purchaser.
Amendments to the Income Tax Act and the Representation of People Act, which had made donations anonymous, were quashed.
The Supreme Court observed that the electoral scheme would benefit the political party in power and could not be justified as a measure to curb black money in politics.
The amendment to the Companies Act allowing blanket corporate political funding was deemed unconstitutional, as it violated citizens’ right to information about possible quid pro quo arrangements.

Overall, the Supreme Court’s ruling highlighted the importance of transparency and accountability in political funding to safeguard democratic principles.

Live Law in its article, How supreme Court Used Proportionality Test To Give Primacy to Voters’ Right To Information, written by Debby Jain, published on February 17, 2024, discusses the recent decision of the Supreme Court regarding the controversial EB Scheme. The court ruled that anonymous electoral bonds violate the right to information guaranteed under Article 19(1)(a) of the Constitution.

Chief Justice Chandrachud, writing for himself and three other justices, discussed various legal standards used in previous cases to balance conflicting fundamental rights, such as the public interest standard, the proportionality standard, and the single proportionality standard. The court also referred to past cases like Sahara India Real Estate Corporation Limited & Ors. vs Securities and Exchange Board of India & Anr. (2012) and Mazdoor Kisan Shakti Sangathan vs Union of India & Anr. (2018) to highlight relevant legal principles.

Furthermore, the court outlined a test to be applied when resolving conflicts between two fundamental rights. This test includes assessing whether there is a hierarchy between the rights, examining the suitability and effectiveness of measures taken, considering alternative measures, and analysing whether there is a disproportionate impact on either right.

Applying this test to the EB Scheme, the court concluded that Clause 7(4) of the scheme, which guarantees confidentiality of information about contributors, does not adequately balance the right to informational privacy and the right to information about political funding. The court suggested that alternative measures, such as Section 29C of the Representation of Peoples Act, 1951, could better protect both rights without excessively restricting either.

Ultimately, the court declared the entire EB scheme unconstitutional, reasoning that anonymity of contributors was integral to the scheme and could not be separated from it. Thus, the court’s decision upholds the voters’ right to information over the anonymity of contributors in political funding.

The Business Today in its report, Electoral bonds worth Rs 16,000 cr sold since its inception; BJP gets the lion’s share, published on February 15, 2024, highlights the significant contribution of electoral bonds to political parties in India, totalling over Rs 16,000 crore since the scheme’s inception in 2018. The ruling BJP received the majority of these funds, amounting to nearly 55 per cent, equating to around Rs 6,565 crore. The BJP’s income from electoral bonds has steadily increased, surpassing that of the Congress. Other parties also received substantial sums through electoral bonds, with some regional parties relying heavily on them for funding. The Supreme Court recently nullified the EB Scheme, citing violations of constitutional rights. Electoral bonds function as financial instruments for political donations, offering anonymity to donors and are exclusively sold through select branches of the SBI.

The Indian Express in its article, How political funding influences electoral outcomes: what studies say, written by Nirbhay Thakur, published on November 10, 2023, discusses the recent Supreme Court hearings on the validity of electoral bonds in India, highlighting the contrasting views between the ruling government and opposition parties regarding transparency in political funding. It reveals data showing that the ruling BJP received a significant majority of electoral bonds since the scheme’s introduction, raising concerns about fairness and accountability. The article also explores the relationship between political funding and electoral outcomes, citing studies that suggest a correlation between wealth and electoral success. Additionally, it touches upon objections raised by the Reserve Bank of India (RBI) and the ECI regarding the EB Scheme, as well as amendments to various laws that could impact political funding and electoral outcomes. Overall, the article sheds light on the complexities surrounding political funding in India and its potential implications on democratic processes.

The Indian Express in its report, Info about funding of political parties is essential: Top quotes from Supreme Court verdict on electoral bonds scheme, published on February 15, 2024, mentions that the Supreme Court delivered a verdict on Thursday regarding petitions challenging the electoral bonds scheme, declaring it unconstitutional and violative of Article 19(1)(a). The five-judge bench unanimously concluded that the scheme, which allowed anonymous and unlimited donations to political parties, infringes upon voters’ right to information. Chief Justice D.Y. Chandrachud emphasised that political contributions provide contributors with influence over policymaking, making transparency essential. The court highlighted the potential for quid pro quo arrangements and the disproportionate influence of corporate contributions. Additionally, it criticised the amendment to Section 182 of the Companies Act for allowing unlimited corporate donations, which it deemed arbitrary and violative of principles of free and fair elections.

The Hindu in its report, Unbonded: On the striking down of the Electoral Bond Scheme by the Supreme Court, published on February 16, 2024, applauds the Indian Supreme Court’s decision to strike down the EB Scheme, which allowed for anonymous donations to political parties. The court deemed the scheme unconstitutional, particularly violating voters’ right to information. It also criticised an amendment to the Companies Act that removed the cap on corporate donations without requiring disclosure. The judgment aligns with previous interventions by the court to uphold voter rights and election integrity. The court argued that the EB Scheme, purportedly aimed at curbing black money, did not proportionally restrict voters’ right to know. It highlighted the potential influence of undisclosed corporate donations on policymaking. The article questions why the scheme’s validity was not challenged earlier and suggests that the vast sums donated through it may have influenced policy decisions or election campaigns.

Overall, the verdict marks a significant milestone in Indian jurisprudence and political finance reform. The ruling strikes at the core of transparency in political funding. By overturning crucial amendments to the Income Tax Act and the Representation of People Act, the court effectively bans anonymous political contributions facilitated by electoral bonds. This decision resonates not only within courtrooms but also throughout the corridors of power, reshaping the landscape of political finance in India. The verdict underscores the importance of transparency in political funding, upholding the fundamental principles of democracy and safeguarding the integrity of the electoral process. Furthermore, the judgment highlights the need to balance privacy concerns with the public’s right to information, emphasising that political contributions play a pivotal role in influencing policymaking and democratic outcomes. Overall, the Supreme Court’s ruling sets a precedent for accountability and fairness in political funding, signalling a significant step towards enhancing democratic governance in India.