Electoral Bonds Constitution Bench | Day 1: Anonymous corporate funding decimates a representative democracy

Constitutionality of the Electoral Bond Scheme

Judges: D.Y. Chandrachud CJI, Sanjiv Khanna J, B.R. Gavai J, J.B. Pardiwala J, Manoj Misra J

Today, a five-judge Constitution Bench led by CJI D.Y. Chandrachud began hearing the challenges to the electoral bonds scheme. 

Advocate Prashant Bhushan, appearing for the lead petitioner Association for Democratic Reforms (ADR), opened the arguments for the day. 

At the outset Bhushan clarified that he will not be arguing on the challenges to the amendments made to the Foreign Contribution Regulation Act, 2010 through the Finance Act, 2016. This specific challenge is pending before a seven-judge Constitution Bench. He explained that the present hearing will be limited to the challenge to the electoral bonds scheme, as he wants this case to be decided before the 2024 general elections. 

Dedicated to hearing the case effectively, the Court pushed advocates to avoid long-winded explanations and encouraged them to formulate their arguments crisply and clearly. The Bench also firmly discouraged repetition of arguments, egging counsel to move on, every time they began to repeat contentions. The court managed to hear arguments from Bhushan, Senior Advocate Kapil Sibal, and Advocates Shadan Farasat and Nizam Pasha today. 

Right to information on public funding under Article 19(1)(a)

The 2018 Notification, which laid down the electoral bond scheme, does not require disclosure of the details of the buyer “to any authority for any purposes,” unless a Court or, if a criminal case is registered, a law enforcement agency demands it.

Bhushan argued that this ensured that the larger public could not access this information. Even the Election Commission of India was privy only to the quantum of donation—not its source. 

In an interim order from 2021, the Supreme Court had said that the transactions are not “behind iron curtains” and that “all that is required is a little more effort to cull out such information.” Noting that financial statements of companies were easily accessible on the Ministry of Corporate Affairs website, and that political parties filed mandated statements of accounts, the Court had held that the information could be put together using a “match the following” approach. Bhushan argued that there are 23,00,000 registered companies in India and one would have to comb through it all to ascertain how much each company had donated. “Ordinary citizens,”he said, could not collect this information. 

Bhushan read out Chief Justice M.C. Chagla’s judgement in Jayantilal Ranchhoddas Koticha v Tata Iron And Steel Co. Ltd. (1975) where he said that “Democracy cannot function unless the voters have all the necessary information about the parties for whom they are going to vote.” Further, in Union of India v Association for Democratic Reforms (2002) the Court had held that freedom of speech and expression included “right to get material information with regard to a candidate who is contesting elections.” 

Farasat, appearing for Communist Party of India (Marxist) added that the electoral bonds scheme was a “legally ordained information blackhole” and that it violates the idea of an “informed electorate” under Articles 19(1)(a) and 326

No real anonymity or bar on trading of electoral bonds

Bhushan then explained that authorities and the larger public were the only ones kept in the dark on the details of the donations made through electoral bonds. The scheme ensures that only the State Bank of India and law enforcement agencies, both controlled by the government, can access this information. In that sense, the ruling party could, after exerting some pressure, ascertain the details of the donations. 

Sibal brought in another angle to this concern. “Let’s talk practical politics,” he said, arguing that any corporation that makes a sizable donation will themselves disclose information to the political party, in return for favours. Therefore, in reality, political parties need not go to the SBI seeking details of the donor—they themselves will come forward with that information, he said. 

At this point, the Chief added that there was no way to control trading of the bonds in reality. ‘A’, a person who is eligible to purchase the bond could do so, hand it to ‘B’ who could then hand it to ‘C’ who would give it to the political party. If they so wished, ‘B’ could trade on that bond for cash or favour, as there is no way to control the transaction between ‘A’ to ‘B’ or then to ‘C’. Neither ‘B’ nor ‘C’ would have to buy the bond through official banking channels, and disclose their details to SBI. ‘B’ could even be an aggregator of Bonds, the bench suggested. 

Sibal further pointed to the Frequently Asked Questions (FAQs) section of the SBI’s website. SBI clarifies that an electoral bond is a “bearer banking instrument”, and that the “holder of Electoral Bonds is the Bonafide owner.” Further, each application to purchase a bond will be treated as a fresh request. There would be brokers and other middlemen involved in this process, Sibal said, adding to the Bench’s concerns that bond trading can be avoided.

Quid pro quo and kickbacks between corporate donors and political parties 

“Instead of breaking a rule or regulation, the [electoral bonds] system is bent enough to benefit” the corporate sector, Bhushan argued. With no way to track sources of political financing, quid pro quo, kickbacks and money laundering have become rampant.

Bhushan referred to the Association of Democratic Reforms’ Report on “Electoral bonds and opacity of political funding” which found that 94.25% (₹12,999 crore) of all the bonds purchased between March 2018 to July 2023 were in the denomination of ₹1 crore. Therefore, ADR concluded that this meant that the bonds were being purchased by corporates, not individuals. 

CJI Chandrachud added that the way to “formulate” this is that “a party in power is in a much more vantage position to secure greater amount of funding through the electoral bonds because of its ability to dole of a quid pro quo in the form of government contracts, or leases, or licences, concessions…or policy changes that benefit” a particular industry. He went on to say that “by concentrating the allocation of electoral bonds to the party in power, this is an important source of perpetrating power.” Therefore, it is contrary to democracy. Agreeing with the Chief, Bhushan added that the unequal use of “money power” through electoral bonds is “making the playing field” uneven between the ruling party and the opposition and other individual candidates. 

The Bench added that though before the electoral bonds regime was introduced, corporate companies could still donate to political parties, a limit was set to how much could be donated at 7.5 percent of three years of the company’s net profits. Further, they had the obligation to disclose such a donation, subjecting such a transaction to public scrutiny. Under the scheme, anonymity was maintained not just between the donor and donee, but with society at large as well. 

Sibal submitted that “capital and influence go hand in hand. In a market economy, capital symbolises power.” In his written submissions, he stated that quid pro quo is not always direct. The “influence of large political donations is indirect and subtle,” as they give corporations heightened access to lawmakers who can introduce favourable policies. This, he argued, “severs the link between the voter and the representative.” Further, he argued that there is a nexus created through these donations—the corporate sector funds a political party, who then together own a media house, which is further used by the party. Solicitor General Tushar Mehta interrupted, saying that Sibal was “talking about some instances”, to which Sibal responded that he was merely demonstrating the “scale” of impact that funding has. 

No guidelines on utilisation of funds

Sibal went on to argue that the real effect of the electoral bonds scheme was vastly unrelated to elections itself. “There is nothing in the scheme,” he said, “which connects the donation made to the participation in the electoral process. It is a means for political parties to be enriched.” 

He took the Court’s attention to SBI’s FAQ section, which clarified that a political party may use the account it creates (to redeem the bonds), for any other operations. Further, the party may continue to use the account after the election “for normal Banking operations”, and may close the account “at any point of time.”

“What are you hinting at Mr. Sibal?” Justice Khanna asked. Sibal explained that the party could receive funds and close the account and use it for absolutely nothing. There is no spending requirement and no accountability. 

No consent from, or consultation with, shareholders

Sibal argued that the electoral bond scheme eliminated any requirements to disclose the details of political donations by corporations to its shareholders. In his written submissions, he argued that the scheme permits the “Board of Directors to forgo their fiduciary duty towards its shareholders” and to “hide” the details of which political party the company has funded.

If they so wished, a company could make losses to “funnel money” to political parties “without any transparency and shareholder oversight.” Shareholders completely lose their agency to decide how a company owned by them should “act politically”.

Farasat argued that the scheme went “against popular democracy and shareholder democracy.” He argued that political views are a part of the right to conscience under Article 25. Each shareholder may have a certain political view, which they cannot exercise if they are not made privy to which political party their company is donating to. 

Arguments will resume tomorrow, on 1 November 2023. 

This report will be updated.