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Electoral Bond Judgment: Complete Analysis

Electoral Bond Judgment: Complete Analysis


Writ Petition (C) No. 880 of 2017
Association for Democratic Reforms & Anr. �Petitioners


Union of India & Ors. �Respondents

The Electoral Bond Scheme:
1.    Electoral Bonds are promissory notes issued as bearer banking instruments without the buyer's name. Eligible buyers include Indian citizens or entities incorporated or established in India. The term 'Person' encompasses individuals, Hindu undivided families, companies, firms, associations of persons, artificial juridical persons, and agencies owned or controlled by such entities. Thus, individuals can purchase bonds individually or jointly with others.
2.    Only eligible political parties registered under Section 29A of the Representation of the People Act, 1951, and having secured at least one percent of the votes in the last general election to the House of the People or the Legislative Assembly of the State can encash Electoral Bonds.
3.    Bonds are issued in denominations of INR 1,000, 10,000, 100,000, 1,000,000, and 10,000,000.
4.    Bonds are valid for fifteen days from the date of issue. No payment will be made to a political party if the bond is deposited after the expiry of fifteen days. If not encashed within this period, the bond will be deposited by the authorized bank with the Prime Minister's Relief Fund.
5.    Eligible political parties can encash bonds only through a bank account with an authorized bank, with the State Bank of India designated as the authorized bank for issuing and encashing bonds.
6.    Bonds issued are non-refundable, and the buyer's information is confidential and disclosed only upon court demand or registration of a criminal case by a law enforcement agency.
7.    The value of the bonds is considered as income by way of voluntary contributions received by an eligible political party for exemption from Income Tax under Section 13A of the Income Tax Act, 1961, and they are not eligible for trading.

The petitioners initiated the aforementioned proceedings under Article 32 of the Constitution of India, seeking a declaration that the Electoral Bond Scheme and the following provisions be declared unconstitutional:
•    Section 135 of the Finance Act 2017 and the corresponding amendment in Section 31 of the Reserve Bank of India Act;
•    Section 137 of the Finance Act 2017 and the corresponding amendment in Section 29C of the RP Act;
•    Section 11 of the Finance Act 2017 and the corresponding amendment in Section 13A of the IT Act; and
•    Section 154 of the Finance Act 2017 and the corresponding amendment to Section 182 of the Companies Act.
The petitioners also contested the introduction of the Finance Act as a Money Bill under Article 110 of the Constitution.

The Hon'ble Supreme Court consequently framed the following issues:
i. Whether the unlimited corporate funding to political parties, as outlined by the amendment to Section 182(1) of the Companies Act, violates the principle of free and fair elections and infringes upon Article 14 of the Constitution; and
ii. Whether the lack of disclosure of information regarding voluntary contributions to political parties under the Electoral Bond Scheme and the amendments to Section 29C of the RP Act, Section 182(3) of the Companies Act, and Section 13A(b) of the IT Act, constitutes a violation of citizens' right to information under Article 19(1)(a) of the Constitution.
Submissions and Arguments advanced by the Petitioners :
1.    Rational Basis of Electoral Bonds: The introduction of electoral bonds lacks rationality since cash donations remain permissible alongside the Electoral Bond Scheme.
2.    Ignored Objections: The Central Government disregarded objections raised by both the RBI and the ECI regarding the Electoral Bond Scheme.
3.    Unconstitutionality of Non-Disclosure Mandate: The statutory amendments and Electoral Bond Scheme mandating non-disclosure of electoral funding information are unconstitutional because:
a.    They counter the purpose of enhancing transparency in electoral funding as intended by provisions in the RP Act and Companies Act.
b.    They violate Article 19(1)(a) by denying voters access to information about public affairs and government.
c.    They violate Article 21 by promoting corruption through undisclosed political contributions.
4.    Violation of Shareholders' Rights: Non-disclosure of political contribution information deprives company shareholders of their right to transparency.
5.    Unrestricted Use of Funds: Contributions to the Electoral Bond Scheme can be utilized beyond electoral campaigns.
6.    Skewed Free and Fair Elections: Amendments and the Electoral Bond Scheme allow unlimited corporate contributions to political parties, skewing electoral fairness.
7.    Freedom of Voter: Voters should be free from interference and intimidation when casting their votes.
8.    Presumption of Constitutionality: Statutes altering electoral processes should not automatically enjoy the presumption of constitutionality.
9.    Corporate Funding Violation: Corporate funding violates the Constitution as corporate entities lack citizenship rights under Article 19(1)(a).
10.    Severance of Electoral Democracy Link: The Electoral Bond Scheme detaches elections from representative democracy, potentially leading to favoritism towards contributors over voters.
11.    Information Asymmetry: Voters lack access to political donation information, creating information asymmetry.
12.    Denial of Shareholders' Right to Choice: Non-disclosure of political funding information denies shareholders their rights under Article 21.
13.    Right to Know Funding Sources: Political parties should have the right to know the funding sources of rival parties for public critique.
14.    Inefficiency in Curbing Black Money: The Electoral Bond Scheme inadequately addresses the issue of black money.
15.    Presumption of Constitutionality in Electoral Laws: Electoral laws should not enjoy full presumption of constitutionality due to the vested interests of incumbent legislators in shaping re-election laws.

Submissions and Arguments advanced by the Respondents (Union of India):
1.    Legitimate Banking Channels: The Electoral Bond Scheme enables individuals to transfer funds to political parties through legitimate banking channels, reducing unregulated cash transfers.
2.    Confidentiality Benefits: The Scheme ensures confidentiality of contributions, promoting clean money in political financing.
3.    Limited Right to Information: Citizens do not possess a general right to know about political party funding; it's not a universal right.
4.    Legislative Oversight: Examination of corporate contributions to political parties is a matter of democratic significance best left to the legislature.
5.    Pre-Electoral Bond Cash-Based System: The pre-Electoral Bond system was mostly cash-based, incentivizing black money infusion into politics.
6.    Shift to Regulated Framework: The Electoral Bond Scheme aims to transition from unregulated cash-based donations to a regulated, digital framework.
7.    Limitations of Right to Information: The right to information only applies to state-held information, not information beyond state knowledge.
8.    Confidentiality for Donors: Donors feared retribution from other parties; the scheme maintains their confidentiality.
9.    Anonymity and Secret Ballot: Anonymity in political donations aligns with the concept of secret ballot, enabling free political choices.
10.    Amendments for Curbing Cash Donations: Amendments aim to curb cash donations to political parties and secure donor anonymity.
11.    Legislative Latitude: Legislatures possess wide latitude in economic policy matters; potential abuse isn't grounds for unreasonableness.
12.    Unequal Party Support: Disproportionate support for one party isn't inherently a legal basis to challenge the Electoral Bond Scheme's validity.
13.    Removal of Contribution Limits: Amendments to the Companies Act aim to disincentivize shell company creation by removing contribution limits.
Brief Analysis or Reasoning for the Judgment:
1.    Quid Pro Quo Concerns: The scheme might foster quid pro quo arrangements between parties in power and corporate donors, potentially compromising fair governance.
2.    Violation of Right to Information (Article 19(1)(a)): The Court found that the Electoral Bond Scheme, by allowing anonymous political donations, violates the fundamental right to information under Article 19(1)(a). This right is crucial for holding the government accountable and fostering participatory democracy.
3.    Unlimited Corporate Donations and Fair Elections: Amendments allowing unlimited corporate donations, by removing caps and disclosure requirements, were deemed manifestly arbitrary and detrimental to fair elections.
4.    Quashing of RP Act Amendment: The amendment to Section 29C of the RP Act, exempting donations through electoral bonds from disclosure requirements, was held unconstitutional as it violated Article 19(1)(a).
5.    Failure to Meet Proportionality Test: The Electoral Bond Scheme failed the balancing prong of the proportionality test.
6.    Least Restrictive Means Test: The Scheme was found not to be the least restrictive means for curbing black money in electoral finance. Alternative methods exist that achieve the same goal with less impact on the right to information.
7.    Right to Information and Political Equality: Voters have a right to information necessary for exercising their freedom to vote. Electoral Bonds, by promoting political equality, should align with this principle.
Overall, the judgment highlights concerns regarding transparency, fair elections, and the balance between curbing corruption and upholding democratic principles.
Judgment Summary:
1.    Unanimous Striking Down of Electoral Bond Scheme: A 5-judge bench of the Supreme Court unanimously struck down the Electoral Bond Scheme.
2.    Constitutional Violations:
•    The Electoral Bond Scheme, the proviso to Section 29C(1) of the RP Act, Section 182(3) of the Companies Act, and Section 13A(b) of the Finance Act 2017 were found to be violative of Article 19(1)(a) and unconstitutional.
•    The deletion of the proviso to Section 182(1) of the Companies Act, which permitted unlimited corporate contributions to political parties, was deemed arbitrary and in violation of Article 14.
This judgment signifies the Court's stance on the importance of transparency in political funding, the protection of democratic principles, and the need to prevent undue influence of money in politics.
Directions Issued by the Supreme Court:
i. The issuing bank is instructed to cease the issuance of Electoral Bonds immediately.
ii. State Bank of India (SBI) must furnish details of Electoral Bonds purchased from the interim order of the Court dated 12 April 2019 until the present date to the Election Commission of India (ECI). This information should include the date of purchase for each Electoral Bond, the purchaser's name, and the denomination of each Electoral Bond purchased.
iii. SBI is obligated to provide details of political parties that have received contributions through Electoral Bonds since the interim order of the Court dated 12 April 2019 until now to the ECI. SBI should disclose specifics of each Electoral Bond encashed by political parties, including the date of encashment and the denomination of each Electoral Bond.
iv. SBI is required to submit the aforementioned information to the ECI within three weeks from the date of the judgment, specifically by 6 March 2024.
v. The ECI must publish the information provided by SBI on its official website within one week of receiving the data, which should occur by 13 March 2024.
vi. Electoral Bonds that remain within the validity period of fifteen days but have not been encashed by political parties must be returned by either the political party or the purchaser, depending on possession, to the issuing bank. Upon the return of a valid bond, the issuing bank must refund the amount to the purchaser's account.


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