Supreme Court junks electoral bonds over secrecy

NEW DELHI: In a major setback to the Centre ahead of the parliamentary polls, the Supreme Court, in a landmark verdict on Thursday, declared the anonymous electoral bonds scheme unconstitutional, saying it is violative of the right to freedom of speech and expression as well as the right to information.

A five-judge Constitution Bench of the apex court headed by CJI D.Y. Chandrachud struck down the scheme and directed the State Bank of India to disclose to the Election Commission the names of the contributors to the scheme launched in 2018.

The bench further ordered the SBI to disclose to the Election Commission by March 6 the details of each electoral bond encashed by political parties. The poll panel, on its part, will publish these details on its official website by March 13.

The bench ordered that the SBI must disclose to the Election Commission details of each electoral bond encashed by political parties, along with information like the date of encashment and the denomination of the bonds.

The Election Commission should publish the information shared by the SBI on its official website by March 13, the bench said.

The bench, also comprising Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala and Manoj Misra, delivered two separate and unanimous verdicts on the pleas challenging the electoral bond scheme. Justice Khanna delivered a separate concurring verdict on the issue.

Pronouncing the verdict, the CJI said the scheme is violative of the right to freedom of speech and expression under Article 19(1)(a) of the Constitution.

"The electoral bonds scheme and the impugned provisions, to the extent that they infringe upon the right to information of the voter by anonymising contributions through electoral bonds are violative of Article 19 (1)(a)," the CJI said while pronouncing the verdict.

The top court said the fundamental right to privacy also includes the citizens' right to political privacy and affiliation.

The CJI-led bench also held invalid the amendments made in various laws, including the Representation of Peoples Act, the RBI Act and the Income Tax laws, to facilitate the electoral bonds scheme.

The apex court further ordered that the SBI must stop issuing electoral bonds and submit details of bonds purchased since April 12, 2019 till date to the Election Commission. The SBI should also submit details of political parties that have received contributions through electoral bonds since April 12, 2019 till date to the poll panel.

In October last year, the bench began hearing arguments on the four petitions filed by Congress leader Jaya Thakur, the Communist Party of India (Marxist) and the NGO Association for Democratic Reforms (ADR). On November 2, the top court had reserved the verdict after hearing the petitioners for three days.

The bench said the reason for political contributions by companies was as "open as daylight" and even solicitor-general Tushar Mehta, who argued for the Centre in the matter, did not deny during the arguments that corporate donations are made to receive favours through quid pro quo arrangements.

"The deletion of the proviso to Section 182(1) of the Companies Act permitting unlimited corporate contributions to political parties is arbitrary and violative of Article 14 (equality before law)," the bench said.

The electoral bonds were issued in the nature of a promissory note, which is a bearer banking instrument and does not carry the name of the buyer. The scheme provided that the bonds may be purchased by a person who is a citizen of India or an entity incorporated or established in India. “Person” referred to (a) an individual (b) a Hindu undivided family (c) a company (c) a firm (d) an association of persons or a body of individuals, whether incorporated or not (e) every artificial juridical person, not falling within any of the above categories and (f) any agency, office or branch owned or controlled by such a person. An individual can buy bonds either singly or jointly with other individuals.

The critics of the scheme have argued that the anonymity factor of the donors eliminated transparency in electoral funding and gave an edge to the ruling parties.

In April 2019, the apex court declined to stay the scheme and made it clear that it will accord an in-depth hearing on the pleas as the Centre and the Election Commission had raised "weighty issues" that had "tremendous bearing on the sanctity of the electoral process in the country".

Holding that companies and individuals cannot be equated for the purpose of political contributions, the CJI said that companies, before the amendment to Section 182, could only contribute a certain percentage of the net aggregate profits. The provision (Section 182) classified between loss-making companies and profit-making companies for the purpose of political contributions and for good reason. The underlying principle of this distinction was that it is more plausible that loss-making companies will contribute to political parties with a quid pro quo and not for the purpose of income tax benefits.

“The provision (as amended by the Finance Act 2017) does not recognise that the harm of contributions by loss making companies in the form of quid pro quo is much higher,” reads the order.

“Thus, the amendment to Section 182 (of the Companies Act) is manifestly arbitrary for (a) treating political contributions by companies and individuals alike (b) permitting the unregulated influence of companies in the governance and political process, violating the principle of free and fair elections and (c) treating contributions made by profit-making and loss-making companies to political parties alike. The observations made above must not be construed to mean that the legislature cannot place a cap on the contributions made by individuals. The exposition is that the law must not treat companies and individual contributors alike because of the variance in the degree of harm on free and fair elections,” the CJI wrote in the order.

“In view of the discussion above, the following are our conclusions: a. The Electoral Bond Scheme, the proviso to Section 29C(1) of the Representation of the People Act 1951 (as amended by Section 137 of Finance Act 2017), Section 182(3) of the Companies Act (as amended by Section 154 of the Finance Act 2017), and Section 13A(b) (as amended by Section 11 of Finance Act 2017) are violative of Article 19(1)(a) and unconstitutional; and b. The deletion of the proviso to Section 182(1) of the Companies Act permitting unlimited corporate contributions to political parties is arbitrary and violative of Article 14,” reads the order.

In his concurring judgment, Justice Khanna said, “The scheme is unconstitutional and is accordingly struck down... deletion of proviso to Section 182(1) to the Companies Act of 2013, thereby permitting unlimited contributions to political parties is unconstitutional and is struck down, sub-section (3) to Section 31 of the RBI Act 1934 and the Explanation thereto introduced by the Finance Act 2017 are unconstitutional and are struck down.”

The Election Commission will ascertain the details from the political parties and the State Bank of India, which has issued the bonds and the bankers of the political parties and thereupon disclose the details and names of the donors and purchasers of the bonds and the amounts donated to the political party. The said exercise would be completed as per the timelines fixed by the CJI. Henceforth, as the scheme has been declared unconstitutional, the issuance of fresh bonds is prohibited and in case the bonds issued (within the validity period) are with the donor or purchaser, the donor or purchaser may return them to the authorised bank for a refund of the amount, Justice Khanna added.

Reacting to the development, former Chief Election Commissioner S.Y. Quraishi, in a post on X, said, "Electoral bonds declared unconstitutional by the Supreme Court. Three cheers for the SC!"

Advocate Prashant Bhushan, who represented ADR, said. "The Supreme Court has directed the SBI to furnish complete information about who purchased the bonds, who encashed the bonds... All this information will have to be submitted to the Election Commission, which will have to display it on its website so that people will know who purchased the bonds."

The government notified the electoral bonds scheme on January 2, 2018. The government had touted the scheme as an alternative to political funding in cash and that it was intended to curb black money as well as bring transparency in donations to political parties.