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Supreme Court of India starts hearing Electoral bond scheme petitions: A close eye on why it matters?

ANM Bureau

Electoral Bond Scheme: Ever since Electoral Bond Scheme was launched in India in 2017, it has been a bone of contention between various political quarters. Supreme Court of India is hearing a petition challenging the Electoral Bond scheme. In a recent turn of events, Chief Justice of India, D.Y. Chandrachud, has directed the challenge to the validity of the electoral bonds scheme to be referred to a Constitution Bench composed of five judges. This decision comes in response to a plea requesting the transfer of the case from the current three-judge Bench to a larger one.

As a result, a five-judge Constitution Bench led by Chief Justice of India D.Y. Chandrachud began hearing a series of petitions challenging the electoral bonds scheme on Tuesday, including those from Congress leader Jaya Thakur, the Communist Party of India (Marxist), and the NGO Association for Democratic Reforms (ADR).

Day 1 hearing

During the hearing, senior advocate Prashant Bhushan, representing the ADR, argued that electoral bonds are a means to enrich political parties without any mechanism to ensure that the money is used for election-related purposes. Kapil Sibal, another senior advocate, highlighted the opacity of the scheme, contending that it is arbitrary and should be struck down.

Sibal pointed out the lack of spending requirements, enabling parties to use funds for purposes other than elections, such as building offices or running advertising campaigns. He also emphasized the connection between corporate influence in the media and funding for political parties.

Prashant Bhushan discussed the amendments made to several acts and the introduction of the electoral bond scheme, highlighting that the sources of funds via these bonds remain anonymous, undermining transparency and the public’s right to know.

He stated that these anonymous instruments promote corruption, with a majority of the bonds going to ruling parties, particularly the BJP. Bhushan also referred to the Election Commission of India and the Reserve Bank of India expressing their objections to the electoral bond scheme.

Sibal further argued that the electoral bond scheme protects those contributing funds, as they remain anonymous, while ordinary citizens making smaller contributions are named. He stated that the recipient political parties are aware of their major donors’ identities.

Attorney General Venkataramani, representing the Central government, stated that citizens do not have the right to know the source of funds for electoral bonds. He opposed the petitioners’ claim that citizens have the right to know contributions to political parties through electoral bonds as an aspect of freedom of expression.

The Constitution Bench is hearing petitions challenging the electoral bond scheme, which allows anonymous funding to political parties. The scheme was introduced as part of the Finance Acts of 2016-2017 and is regarded as a money bill.

What does it mean?

By choosing not to postpone the hearing in favor of forming a five-judge Bench, the court sends a clear message to the government that it intends to proceed without further delay. This case has remained pending in the Supreme Court for over eight years. Chief Justice Chandrachud emphasized during the October 10 hearing that the court’s purpose is to resolve the case.

Chief Justice of India, D.Y. Chandrachud, had decided to refer the matter concerning the validity of the electoral bonds scheme to a bench composed of at least five judges. The decision, based on the importance of the issue raised, comes after a plea to refer the case to a Constitution Bench had been made earlier. The case was scheduled for a hearing on October 31, as set during the hearing on October 10.

This matter involves multiple petitions, including those from Common Cause, the Association for Democratic Reforms (ADR), Congress leader Jaya Thakur, and the CPI(M), challenging the electoral bonds scheme. The government views this scheme as a significant step toward electoral reform, enhancing transparency and accountability. However, the petitioners argue that it hinders transparency in political funding by allowing political parties not to disclose their annual contribution reports to the Election Commission of India (ECI) and the identities of Electoral Bonds donors.

In April 2019, a three-judge Supreme Court bench issued an interim order instructing political parties that received donations through Electoral Bonds to immediately submit bond details to the ECI. Although a plea to halt the sale of new bonds was dismissed in March 2021, the Supreme Court disagreed with the petitioner’s claim of complete anonymity for bond purchasers, stating that the operations under the scheme were not entirely secret.

The electoral bonds scheme in India, which allows individuals and corporations to make anonymous donations to political parties, has generated significant debate regarding its validity, transparency, and impact on the political system.

What is the challenged Finance Ministry’s Electoral Bonds Scheme, 2018

The Finance Ministry’s Electoral Bonds Scheme, introduced in 2018, enables anonymous donations to political parties. It has facilitated the transfer of around Rs 13,000 crore between March 2018 and July 2023, according to information obtained through Right to Information (RTI) inquiries. The State Bank of India (SBI) is the sole authorized bank for selling these bonds.

The scheme was initially proposed by the late Arun Jaitley in the 2017 Budget speech. Both the Reserve Bank of India (RBI) and the Election Commission of India (ECI) expressed concerns about the scheme during discussions.

The government’s argument for introducing the scheme was to clean up political funding by enhancing transparency. The transactions are conducted by individuals and companies completing SBI’s Know Your Customer (KYC) formalities, and political parties must open special accounts with SBI to receive electoral bonds (EBs). The government asserted that donor anonymity was a crucial aspect of the scheme.

In a letter to the RBI, then Economic Affairs Secretary Subhash Chandra Garg emphasized that the scheme aimed to make political funding more transparent and accountable. He rejected the RBI’s suggestion to issue the bonds in dematerialized (demat) form, opting instead for bearer bonds to maintain donor anonymity.

The RBI shared the potential benefits of the scheme but expressed concerns about the use of bearer instruments, which could be susceptible to misuse, especially through shell companies. RBI Governor Urjit Patel recommended selling EBs in digital form (demat) instead. However, the government amended the RBI Act to allow other authorities to issue bearer instruments.

In another letter, Patel expressed concern about diluting the RBI’s authority and suggested that no other institution be authorized to issue EBs after amending the RBI Act. However, when the scheme was implemented, SBI was authorized to issue EBs, not the RBI.

The Election Commission also had reservations. In a meeting in 2017, Chief Election Commissioner A K Joti and other commissioners raised concerns about potential misuse by shell companies and inconsistencies between the Income Tax Act and the Representation of the People Act. Despite these concerns, the scheme was opened to any political party registered with the ECI that had received 1% of votes in the previous election, with 25 parties having opened accounts to cash EBs.

Let’s briefly compare it to the campaign financing systems in the USA and leading European nations.

1. India:
  • Electoral Bonds: Introduced in 2017, electoral bonds aim to bring transparency to political funding by channeling contributions through banks. However, critics argue that they compromise transparency because donors remain anonymous.
  • Validity Concerns: Concerns about the scheme’s validity relate to the anonymity of donors and the potential for misuse or corruption. Critics argue it may not be an effective solution to eliminate “black money” in politics.

2. USA:
  • Campaign Financing: The United States has a complex campaign financing system, which includes individual donations, political action committees (PACs), and Super PACs. Contributions are subject to disclosure laws.
  • Validity: The U.S. system, while criticized for the influence of money in politics, is generally considered valid. Disclosure requirements ensure transparency, although there are debates on the influence of large donors.

3. Leading European Nations:
  • Many European nations have comprehensive campaign financing regulations with varying degrees of public funding for political parties.
  • Validity: European systems often place a higher emphasis on public funding and transparency. Validity concerns are generally lower compared to India, but issues like influence from vested interests can still be present.
1. Germany:
  • Germany has a robust public financing system, where political parties receive public funds based on their performance in elections. It aims to reduce the influence of large donors.
2. France:
  • France has a mixed financing system, with a combination of public funds, capped individual donations, and restrictions on corporate contributions. This system emphasizes transparency.
3. Sweden:
  • Sweden offers extensive public financing to political parties, with a focus on transparency and reducing private influence on politics.
4. United Kingdom:
  • The UK relies more on private donations to political parties, which has led to debates on transparency and influence, but there are disclosure requirements.
5. Norway:
  • Norway has a comprehensive public financing system for political parties, aiming to minimize the role of private donations in politics.

Each of these European countries has its own campaign financing regulations, emphasizing a balance between public funding, transparency, and reducing the influence of private money in politics. These differences in approaches can serve as a useful context for understanding variations in campaign financing systems.

The electoral bonds scheme in India has faced scrutiny for its anonymity provisions, leading to concerns about its validity. In the USA, campaign financing is complex but generally valid due to disclosure laws. European nations often prioritize transparency and public funding, resulting in more established systems. The validity of each system depends on factors like transparency, potential for corruption, and the degree to which they ensure the integrity of the political process.

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