Why did the Supreme Court strike down the Electoral Bonds Scheme?
New Delhi, February 16, 2024
“Information about funding of political parties is essential for the effective exercise of the choice of voting,” Chief Justice D Y Chandrachud said in his ruling.
Prioritising voters’ right to information regarding political parties’ sources of funding, the Supreme Court Thursday (February 15) struck down the Electoral Bonds Scheme (EBS).
Introduced by the Centre in 2018, EBS allowed individuals and corporations to anonymously fund political parties by purchasing electoral bonds from the State Bank of India.
The court also struck down the amendments made to key laws on electoral finance which were introduced in the lead up to the introduction of EBS.
The case was heard last year, from October 31 to November 2, by a five-judge bench led by Chief Justice of India D Y Chandrachud. Here is what was behind the apex court’s ruling.
EBS violates voters’ right to information
The petitioners, the Communist Party of India (Marxist), Common Cause and the Association for Democratic Reforms, argued that the scheme violates the right to information under Article 19(1)(a) of the Constitution. Advocate Prashant Bhushan in particular argued that voters have a right to information concerning the public and the government, which includes financial contributions to political parties.
Attorney General R Venkataramani had responded by saying that citizens do not have a “right to know” with regards to the funding of political parties. Further, he had argued that the legislature was best placed to examine the influence of political contributions from companies in the realm of politics, as opposed to the courts.
Nonetheless, the court unanimously held that voters have a right to information about political parties and their sources of funding. It highlighted the “deep association” between money and politics, and how economic inequality contributes to political inequality by increasing the possibility of quid pro quo arrangements for those with the ability to contribute larger amounts to political parties. These arrangements, the court said, could result in favorable policy changes and government licenses which the voters have a right to know about. This information is concealed under EBS.
Restrictions are disproportionate to the stated goal of curbing circulation of black money
By securing the anonymity of donors, Solicitor General Tushar Mehta had argued that cash donations would be replaced by electoral bonds and thus greatly reduce the influence of black money in politics. By protecting the confidentiality of donors, the apprehension of political retribution would also be greatly reduced, the central government argued. This is balanced with the right to information of citizens as political parties will still have to disclose the total amount of money received through electoral bonds, Mehta said.
Advocate Shadan Farasat, arguing for the petitioners, disagreed, saying that in reality a bond could be purchased and given to someone who could in turn make a cash donation to a political party. Further, the right to information under Article 19(1)(a) can only be restricted on the grounds listed in Article 19(2), which does not include the purpose of curbing black money, he argued. Even if this purpose was traceable to any of the grounds in Article 19(2), the petitioners claimed that EBS was a disproportionate measure to achieve this goal.
The court agreed with the petitioners’ submissions, and presented Section 29C of the Representation of People Act, 1951, as a viable, less restrictive alternative. The court noted that this section, before it was amended by the Finance Act, 2017, required all political parties to declare any contributions higher than Rs. 20,000. The amendment to the section, which exempted political parties from making declarations for donations received through electoral bonds, was struck down by the court.
Right to donor privacy is not absolute
Mehta had argued that the scheme protects the right to privacy of donors by maintaining their confidentiality. He stated that the political affiliation of citizens is an essential part of the right to privacy, and the ability to purchase electoral bonds without disclosing their identity is a key facet of this right.
Senior Advocate Kapil Sibal, appearing for the petitioners, countered this argument by stating that political funding is made to influence public policy, which in turn must be subjected to public scrutiny. Even if there is a necessity to protect donor privacy, the public interest in free and fair elections must outweigh the private interest of confidentiality.
The SC held that the right to privacy of political afficialiation only extends to contributions that are made as genuine forms of public support, not contributions that are made to influence the policies of a political party. Observing that absolute anonymity lies at the heart of the EBS, the court saw fit to strike down the entire scheme.
Unlimited political contributions by companies is unconstitutional
Advocates Prashant Bhushan and Shadan Farasat also drew the court’s attention to the rights of shareholders, who have a right to know how company resources are being utilised. This right is violated by preventing the disclosure of information to shareholders.
Senior Advocate Kapil Sibal also drew attention to the amendment (via the Finance Act, 2017) to Section 182 of the Companies Act, 2013. This amendment removed the cap on the amount of money a company is permitted to contribute to a political party (set at 7.5% of its average net profits from the preceding three years). Sibal argued that removing this cap would allow unlimited contributions, even by loss-making companies.
Solicitor General Tushar Mehta responded, stating that by removing the cap on contributions, companies would be disincentivised from creating shell companies. He further claimed that the mere possibility that a law might be abused cannot be a ground for the court to strike it down entirely.
The court, however, drew a stark distinction between contributions made by companies and those made by individuals. It stated that contributions from companies were purely business transactions made with the intent of securing benefits in return. The court also highlighted the fact that companies have a greater ability to influence politics through contributions, stating “permitting unlimited corporate contributions authorises unrestrained influence of companies in the electoral process”. This, the court held, would violate the right to free and fair elections.
The court also picked up on Sibal’s argument and explained that, without the cap, loss-making companies would be incentivised to make contributions in the hopes of making a quid-pro-quo arrangements with the government. As a result, the court struck down the amendment to Section 182 of the Companies Act and reinstated the cap on political contributions from companies.
[The Indian Express]
