Case Description

The Supreme Court is deciding whether the current electoral bonds scheme facilitates anonymous corporate funding to political parties and whether it was wrongly certified as a Finance Act.

Background

The electoral bonds scheme was notified by the Central Government on 2 January, 2018. CPI (Marxist) and two NGOs — Association for Democratic Reforms (ADR) and Common Cause — filed petitions before the Supreme Court to challenge the scheme. 

 

An electoral bond, like a promissory note, is a bearer instrument payable to the bearer on demand. It can be used to donate to political parties by individuals and corporations incorporated in India. Bonds can be purchased in denominations ranging from Rs 1,000 to Rs 1 crore from the State Bank of India using a KYC compliant bank account, with no upper limit on the donation amount. Political parties can encash the bond within 15 days. The identity of the donor is anonymous and only known only to the bank.

 

The current electoral bonds scheme was  introduced through the Finance Acts of 2016 & 2017, which amended four legislations – Foreign Contribution Regulation Act, 2010 (FCRA), Representation of the People Act, 1951 (RoPA), Income Tax Act, 1961 and the Companies Act, 2013.

 

The petitioners allege that the scheme should not have been introduced through the Finance Acts, as this bypasses scrutiny by the Rajya Sabha. They argue that the four amendments should have been examined by the Rajya Sabha. Additionally, the petitioner ADR has filed a stay application on the Electoral Bond Scheme upon two grounds:

  1. Almost all electoral bond donations have been in favour of the political party comprising the  Union Government. 

  2. Most bonds use the 1 million and 1 crore denominations. This suggests that the scheme is primarily used by corporates (with the benefit of anonymity under the scheme), rather than individuals.

 

The Election Commission (EC) submitted an affidavit in the Supreme Court  contending that the scheme is adverse to making political finance transparent. It claims that the amendment to the Companies Act could lead to the infusion of black money through shell companies and  make political parties vulnerable to influence by foreign companies. Further, it emphasised that the amendments to FCRA 2010 allow foreign companies owning majority stakes in Indian companies to donate to political parties.

 

The amendment to the RoPA dispenses with the requirement on political parties to record donations received through electoral bonds in their contribution reports to the Election Commission. The Election Commission alleges that the amendment to the RoPA exempts political parties from reporting donations by electoral bonds in their contribution reports. The EC has no means of ascertaining if the donations are received from domestic or foreign companies.

 

The amendment to the Income Tax Act allows  anonymous donations up to Rs 20,000 and  donors need not provide their names or PAN details. Thus, political parties can avoid scrutiny by recording donations as being less than Rs 20,000 and facilitating anonymous donations. 

 

The Government’s defence of the scheme is that it will promote transparency in political donations as it requires donors to donate through a verified KYC account with an audit trail. 

 

On 12 April, the Bench passed an interim order directing all political parties to submit the details of all bonds received until 15 May to the Election Commission by 30 May, 2019.

 

Issues

1) Was introducing the Electoral Bond Scheme as a Finance Act and thereby bypassing the Rajya Sabha justified?

2) Does the scheme facilitate unaccounted anonymous political donations by corporations?

Judges