Challenges To Electoral Bond Scheme In SC: Enables Corporate Lobbying, Violates RTI & More

In 2023, the five-judge constitutional bench of Supreme Court concluded hearing all arguments on legality of the Electoral Bond Scheme. Here are key challenges to the scheme raised in court

Electoral bonds are interest-free money instruments or bearer bonds or that can be purchased by companies as well as individuals in India from branches of the State Bank of India (SBI). These are anonymous instruments by which a person or a company can donate to a political party as the name and other information of the donor are not entered on the instrument.

They are sold in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore. To purchase them, one has to have a KYC-compliant account. The political parties have to encash the donation within a specified time. There is no limit on the number of electoral bonds that a person or company can purchase.

The scheme was introduced by the government through amendments to four Acts by the Finance Act of 2016 and 2017.

The four Act amended by the government were-- Representation of the People Act, 1951, (RPA), the Companies Act, 2013, the Income Tax Act, 1961, and the Foreign Contributions Regulation Act, 2010 (FCRA).

Before the scheme was implemented the political parties were required to declare all donations above Rs 20,000. There was also a check on corporate donations as companies were not allowed to make donations amounting to more than 7.5% of their total profit or 10% of revenue.

Who Can Get These Donations via Electoral Bonds?

Political parties with at least 1% of the votes in the Lok Sabha or State Assembly elections and are registered under the RP Act can get an ECI verified account. The bond amounts are deposited in this account within 15 days of their purchase.

If the party fails to encash the amount within those 15 days, the donation received from purchase of electoral bonds gets transferred to the Prime Minister's Relief Fund. These bonds are available for purchase for a period of 10 days in January, April, July and October. They are also open for purchase for a period of 30 days in Lok Sabha election years.

Challenges to the scheme in the Supreme Court:

In 2023, the five-judge constitutional bench of the Supreme Court concluded hearing all arguments against the Electoral Bond Scheme. Senior Advocates Prashant Bhushan, Nizam Pasha, Kapil Sibal, Vijay Hansaria, Sanjay Hegde and Advocate Shadan Farasat appeared on behalf of petitioners in the apex court.

Here are key contentions to the scheme raised by them:

1) Violates Right To Information:

It was argued in the court that the electoral bond scheme violates the fundamental right to information under Article 19 (1). The lawyers submitted in court that if the citizens have the right to know about candidates then they also have the right to know about who is funding the political party they vote for.

2) Enables Lobbying By Corporates

It was alleged that the scheme enables kickbacks to be paid by corporations via electoral bonds to political parties in power to get a favorable policy passed. Bhushan also cited data on funds received by political parties through the scheme and highlighted that almost all bonds have been purchased for the party in power.

3) Opens doors to shell companies:

The scheme removes the 7.5 percent of profit cap from companies to make donations to political parties. It also allows Indian subsidiaries of foreign companies to make donations, which has allegedly opened doors for shell companies to make legal donations to political parties. It was argued that even a loss-making company that can also be a shell firm can donate.

4) Not Completely Anonymous:

It was contended that  the Electoral Bonds are selectively anonymous instruments. It was submitted in the top court that the government can know who contributed to whom as the SBI comes under the government. This can lead to scrutiny over donations received by the opposition. 

The CJI had remarked that a point  to be explored here is that this scheme anonymised donations in relation to the rest of the society and not the donee.

"Another point you may want to also explore is that this is not an anonymised donation in relation to a donee. It's anonymised in relation to the rest of society. The donee may or may not but could know of the sources."

5) Can Be Used For Other Purpose Than Elections:

Senior Advocate Kapil Sibal submitted before the court that the name Electoral Bond is a "misnomer" as the money can be used for any purpose other than fighting elections after it is withdrawn as no one is checking how the parties spent the money.

6) Not A Check On Cash Flow

It was contended in court that the scheme protects criminals from being prosecuted under the Prevention of Corruption Act (PCA) and Prevention of Money Laundering Act (PMLA).

The reduction of the disclosure threshold from Rs 20,000 to Rs 2,000 will not reduce  the cash in politics and promote intended transparency. The court was told that in the last five years since the scheme was introduced, the contribution to political parties by way of electoral bonds has far exceeded any other method.

"The limit fixed per candidate is less than Rs 1 cr (Rs 95-75 lakh depending on the state). The total spent can be less than 500 crore in Lok Sabha. One party is getting more than 10 times the amount. Please see this is affecting our democracy," Bhushan had told the Supreme Court.

7) Overshadowing Of Citizens' Voices By Corporates

It was also pointed out in court that the scheme treats common man differently from big corporations as it gave anonymity to corporate donors but citizens who were donating Rs 2000 in cash will have to disclose their names. 

8) Unfair To Shareholders In Companies:

The provisions for corporate donations were also challenged on grounds that shareholders are not informed how their money is being spent. By donating to the scheme, the firm is not telling the shareholders how his money will be spent when the shareholder invests on the basis of a set MOU.

9) Can Be Traded

This observation was made by the CJI himself. While hearing arguments against the scheme, he had remarked that even as trading of electoral bonds is not allowed, there is no way to check it. A person could be an aggregator of bonds and may give the bonds to ten others.

10) Alternative White Money Channel 

Advocate Farasat appearing for the CPI (M) called this scheme an alternative white money channel and contended that the electoral bonds scheme rerouted non-anonymous funding from normal banking channels to anonymous Electoral Bonds.
It was submitted that it was a mere replacement for the existing disclosure-based channels, like RTGS, bank drafts, and cheques with more anonymity.