Challenge to the Electoral Bonds Scheme | Day 2

On Day 2, Solicitor General Tushar Mehta argued that the Electoral Bond Scheme ensures confidentiality and not anonymity


Hello everyone and welcome to SCO Daily. I’m Gauri Kashyap and today we’ll be breaking down Day 2 of the Constitution Bench hearings in the challenge to the 2018 Electoral Bond Scheme

In the first half of the day, petitioners completed their arguments and focussed specifically on how the amendments introduced through the 2016 and 2017 Finance Acts, created a system of opaque political funding. These Finance Acts introduced amendments to 4 key legislations. Senior advocate Vijay Hansaria took the Court through the amendments made to the Reserve Bank of India Act (1934), Representation of the People Act (1951), Income Tax Act (1961), and the Companies Act (2013). For instance, amendments to the Companies Act allowed companies to donate without disclosing which party they are donating to. The amendments to the Income Tax Act allowed a company only to disclose the total amount contributed by it to a political party in its profit and loss account without being required to disclose the name of that party.
In the second half of the day, Respondents began their arguments. Before diving into the specifics of his argument, Solicitor General Tushar Mehta requested the Court to first stop using the terms “anonymity” and “opacity” in the context of electoral bonds. He argued that it was, in fact, “confidentiality” that was at the heart of the scheme. He argued that all countries struggle with election funding and that in India, every ruling party over the years has made “several attempt(s)” to “eradicate the menace of the use of unclean money”. 

The 2018 Electoral Bond Scheme was simply one such attempt, which focused on large-scale digitisation of financial transactions. Because of this, Mehta said, we now have “more clean money” in the economy.

Starting from 1956, Mehta took the Court through the key list of dates plotting the evolution of political donations and corresponding laws. He noted that in 1969, an amendment was introduced to the Companies Act, following recommendations of the Santhanam Committee, prohibiting any kind of political funding by large corporate entities. This ban, he argued, opened “several backdoor routes” and started a practice of “Briefcase Politics” where government permits were sold in exchange for a number of briefcases filled with money.

Mehta then referred to a debate in Parliament on 16 May 1985, where it was said that companies are “entitled to support a political party which believes in a certain amount of freedom of private business.” Further, they said that companies believe in their ability to “resist any pressure from any political party for “out of the books donations” if they are permitted to donate through lawful channels. Members believed that the “evil [of black money] which we want to remove cannot be removed by imposing a ban.” 

Mehta argued that several governments in power had tried several schemes, amendments and policies to curb the flow of illegal cash. He said that it was only “after experimenting” with all methods, the electoral bonds scheme was introduced. 

He read out speeches and letters of former Finance Minister Arun Jaitley on the need for the Electoral Bond Scheme. Jaitley noted that the issue of unclean money in political funding had “only marginally improved” through all the changes introduced over the years. Mehta said, “unless you accept the problem, a solution cannot be found.” This solution, Jaitley proposed, was in the form of the Finance Acts 2016 and 2017. Jaitley had further said that donors’ balance sheets will reflect how much they donated and political parties’ balance sheets will disclose how much was received. This, he said, will bring in “significant amount of transparency” in election funding in India. 

At this stage, the Bench raised concerns. Chief Justice D.Y. Chandrachud stated that the transparency in the system is hinged on the premise that the donors buy these bonds. “But the donor does not have to buy the bonds”, he said, indicating that the person who buys the bond and the actual donor could be different people. How will the “source of the money, the donor and where it is spent” be known? In response to this, Mehta assured the Bench that a closer look at the scheme would make it clear that there are various steps inbuilt, to ensure transparency in the Electoral Bond Scheme.

Mehta then went on, warning that if the electoral bonds scheme is interfered with, and the confidentiality of the donor is removed, “we go back to [the pre-2018] regime”. This regime, he warned, is fraught with opacity, threat to donors and lack of control over the flow of illegal cash in electoral funding. Relying on a report published by the lead petitioner, Mehta argued that in the period before the Electoral Bond Scheme, that is between the Financial Years of 2004/2005 to 2014/2015, 69% of the total income of the parties came from “unknown sources”. This, Mehta argued, is indicative of the fact that when there is no confidential mechanisms in place for donors to contribute without detection, they choose cash-based donations, which would not be detected by political parties. 

If the confidentiality of donors is not ensured, Mehta argued, they would be apprehensive about “victimisation and retribution” from political parties whom they did not fund. This would encourage them to convert white money to black, that is, to use legitimate funds in cash form to avoid detection as donations. Any political funding that follows will likely be through black channels and unofficial means, he said. 

The Bench suggested that though the previous regime did not provide for the confidentiality of the donors, it at least had safeguards to ensure that there was transparency of donations from the voters’ point of view. The Bench said that the 2018 Electoral Bond Scheme was offering selective confidentiality. While some amount of confidentiality is ensured for the donor, parties in power have the means to access that information. So, in reality, it would only be authorities such as the Election Commission of India and the citizens who would be in the dark—not the party from whom the confidentiality was sought in the first place. 

The Bench also stated that this would mean that the ruling party would have the power to ascertain information about the political funding for the opposition party, while the opposition party would have no means of equipping themselves with this information. The Bench posed these questions in light of the petitioners’ argument from Day 1, that electoral bonds created an uneven playing field between the ruling and the opposition parties.

Mehta appeared certain throughout the hearing that the Bench’s concerns around confidentiality, circulation of black money and transparency would be dealt with by looking at the features of the Scheme. He did this on day 3 of hearings, which we will break down in our next episode. 

With this, hearings of the second day of the Electoral Bond Scheme concluded.

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