Constitutionality Of The Electoral Bonds

The Electoral Bond Scheme of 2018, was introduced by the Ministry of Finance on January 02, 2018, provided for donations to political parties through issuance of electoral bonds using machinery of the State Bank of India (“SBI”). An electoral bond is like a promissory note. It is a bearer instrument payable to the bearer on demand. Unlike a promissory note, which contains the details of the payer and payee, an electoral bond has no information on the parties in the transaction at all, providing complete anonymity and confidentiality to the parties. It has inserted a striking feature that it would not carry the name or any other information of the donor, thereby making the donation anonymous. It could be encashed by an eligible political party through a bank account with an authorised bank. SBI had been authorised to issue and encash bonds under the Electoral Bond Scheme and there was no limit to the number of bonds that a person or company could purchase.

However, the constitutionality of the said scheme was challenged before the Hon’ble Supreme Court at multiple instances but it was finally put on record before the 5 Judge constitutional bench comprising of Chief Justice of India DY Chandrachud, Justices Sanjiv Khanna, BR Gavai, JB Pardiwala and Manoj Misra in the case of Association for Democratic Reforms & Anr. Vs Union of India and Ors. challenging the amendments in the Finance Act, 2017, which opened the path for the Electoral Bond Scheme, on the grounds that the anonymity associated with the issuance of electoral bonds weakens the transparency in political funding and invades upon the voter’s right to information. However, a political party eligible to run campaigns must register under Section 29A of the Representation of the People Act, 1951, to receive electoral bonds. It will have a life of only 15 days, during which it can be used to make donations to political parties.

The two crucial questions before the hon’ble constitutional bench was;

1. a) whether the non- disclosure of information on voluntary contributions to political parties under the Electoral Bond Scheme and the amendments to Section 29C of the Representation of People Act, Section 182(3) of the Companies Act and Section 13A (b) of the Income Tax Act were violative of the Right to Information of citizens under Article 19(1) (a) of the Constitution of India; and
2. b) whether unlimited corporate funding to political parties, as envisaged by the amendment to Section 182 (1) of the Companies Act infringes the principle of free and fair elections and violated Article 14 of the Constitution.

The constitution bench unanimously held that the said scheme is unconstitutional and violative of the citizens right to information under article 19(1)(a) of the Constitution of India. The Bench noted that despite constitutional measures, there is great political inequality in India. This inequality is driven by money. As a result, people with deep pockets influenced political decisions. “Economic inequality”, the Chief Justice of India wrote, “leads to differing levels of political engagement because of the deep association between money and politics.” It gives large donors a “seat at the table” and allows them to influence policy. The voter, therefore, must have access to information to assess whether “a correlation between policy making and financial contributions exists”.

The Bench relied on the proportionality test laid down in Modern Dental College & Research Centre v State of Madhya Pradesh (2016). In that case, a five-judge Constitution Bench of the Court had held that a measure restricting a fundamental right must have a “legitimate goal”, it must be a “suitable means” of reaching that goal, it must create the least amount of restriction as possible, and must be balanced and not have “a disproportionate impact” on the right holder.

The Scheme was proposed as a tool to curb black money. The Court held that “the purpose of curbing black money is not traceable to any of the grounds in Article 19(2),” which lists reasonable restrictions to Article 19. Even if it were to accept that curbing black money was a legitimate goal, the Court said, the Scheme would have to pass the second test of being a “suitable means” to achieve that goal. The Scheme would pass the test even if it was “one of the many methods” to achieve the goal or “only partially gives effect to the purpose.” Applying the “double proportionality standards”, the court said that the clause was unconstitutional as it did not balance the conflicting right to information of voters with contributors’ right to privacy regarding their political affiliations.

The Ld. Chief Justice of India further held that the “unlimited contribution by companies to political parties is antithetical to free and fair elections because it allows certain persons/companies to wield their clout and resources to influence policy making.” Giving companies this “unrestrained influence” violates the value of “one person, one vote”. The Supreme Court ordered banks to forthwith stop issuing Electoral Bonds and that the State Bank of India (SBI) shall furnish the details of Electoral Bonds encashed by the political parties. The court said that SBI should submit the details to the Election Commission of India and ECI shall publish these details on the website.

Hence, the scheme of 2018 allowing anonymous electoral bonds were held unconstitutional, by the Hon’ble High Court and The CJI while reading out his judgement said that the Supreme Court holds that anonymous electoral bonds are violative of Right to Information and Article 19(1)(a) and issuance of fresh bond was prohibited. The Supreme Court said that information about corporate contributors through Electoral Bonds must be disclosed as the donations by companies are purely for quid pro quo purposes. The court held that amendments in the Companies Act permitting unlimited political contributions by companies is arbitrary and unconstitutional. The Supreme Court said infringement of the Right to Information is not justified for the purpose of curbing black money.