Electoral Bonds Constitution Bench | Day 3: EB Scheme protects donors’ right to privacy, Union argues

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

After three days of hearings, the Supreme Court reserved judgement in the challenge to the 2018 electoral bonds scheme today. The Bench kept a close track of time today, ensuring that the respondents’ arguments as well as the rejoinder from the petitioners were heard. 

On Day One of hearings, petitioners argued that the electoral bonds scheme allowed an increase in corporate funding, black money circulation and corruption. They also pointed out that only government controlled entities (the State Bank of India or enforcement agencies) could access information about the funds. The ruling party could, after exerting some pressure, ascertain the details of the donations.

On Day two, petitioners completed arguments, and Solicitor General Tushar Mehta began to argue in support of the scheme. He stated that the scheme promoted confidentiality and not anonymity. Confidentiality was crucial as it protected the donor from “victimisation and retribution” from political parties who they do not fund.

In the hearings today, Solicitor General Tushar Mehta, Attorney General R. Venkataramani, Advocates Amit Sharma and Kanu Agarwal argued for the respondents. Advocate Prashant Bhushan, Senior Advocate Kapil Sibal, Advocate Shadan Farasat, Senior Advocate Vijay Hansaria and Advocate Nizam Pasha submitted their rejoinders, in that order. To ensure that there is no spillover of hearings to another day, the court heard arguments for 15 minutes past 4:00 PM.

The mechanism of confidentiality is “fool proof” and “unbreachable’ even by the Union government

Mehta explained that the State Bank of India has been chosen to be the “authorised bank” as it is the largest public sector bank. He assured that SBI has mechanisms that ensure that confidentiality is maintained even from the Union government. He read out a letter written to him by the Chairman of SBI who explained that there is ”fool proof” and “scientific” mechanism to ensure this secrecy. While the nature of the mechanism itself cannot be disclosed due to confidentiality, Mehta submitted that “we must trust institutions that they will go by the law.” Further, he argued, designated branches were identified to ensure that an obscure bank in the “corner” of a city is not used to deposit money. 

He explained that the information provided by the donor shall be treated as confidential, except when a court demands it, or if there is a criminal case and law enforcement agencies seek such information. Mehta assured the Court that if there was an attempt made to breach this confidentiality, a “digital footprint” will be left. “You have the assurance of the chairman of the biggest public sector bank” that any breach will attract penal consequences, Mehta said.

In response to the petitioners’ argument that the Union government could wield their power to deploy law enforcement agencies to procure the data, Mehta argued they would need a court order to do so. This was a barrier that ensured that no one, including the party in power could access information. 

In his rejoinder, Sibal argued that to file a case alleging misconduct or corruption in political funding in the first place, the public would first need access to data on the donations. Without it, the petitioner would attract defamation. “What Court order are we talking about?!” Sibal exclaimed. 

Each provision in the 2018 Electoral Bonds Scheme is designed to ensure legitimacy in political funding

Taking the Court through the provisions of the 2018 Electoral Bonds Scheme, Mehta sought to explain that every part of the scheme has been designed to ensure complete confidentiality of the donor, and to bring transparency in transactions. 

Further, he noted that the scheme is made for a variety of donors—transport business, contractors, small business, Hindu Undivided Families, and other such entities. The petitioners, Mehta noted, had created a “false” perception that it was only companies that donated. Next, to be eligible to encash the bond, a political party has to have 1 percent of the votes in the relevant election. Mehta explained that before this barrier was introduced, “fake parties” had “mushroomed” to unlawfully seek the benefits of electoral bonds. The 1 percent requirement ensured that they were a “serious” party, while also ensuring that it was an achievable limit. 

Mehta then explained that a key requirement to purchase electoral bonds was Know Your Customer (KYC) details. This ensured that SBI could know and verify the donor. More importantly, he said, India is a signatory to the Vienna Convention, which sought to eradicate money laundering and drug money in the economy. A Financial Action Task Force periodically assessed each signatory country on their compliance with the Convention, the results of which determined India’s eligibility for financial assistance. A step towards creating a robust system to eradicate black money was KYC details, Mehta said.

Next, he explained that the scheme was specifically designed only to dispense bonds of 1000, 10,000, 1,00,000, 10,00,000 and 1,00,00,000, “administrative simplicity”. Mehta also tried to answer the Bench’s previous concern that a donor could use aggregators—people who they would hire to buy bonds on their behalf—to hide the identity of the original donor. He said that with this, it was easier with the scheme to simply buy 50 one crore bonds. Presumably, the Solicitor General sought to argue that the mechanism provided for simpler transactions, thus encouraging legitimate transactions in political donations. 

Mehta then moved on to the validity period of the bond. The 2018 Scheme gives 15 days for the bond to be encashed, after which it will be transferred to the Prime Minister Relief Fund. Mehta explained that this was a check to ensure that the bond does not become a currency that can be traded. More importantly, he stated that it eliminated kickbacks, as donors could not buy bonds, keep them and promise them to a political party in return for a favour at a later time. 

Response to challenges to the amendments made in the 2016, 2017 Finance Acts

Chief Justice D.Y. Chandrachud asked Mehta to deal with the challenge to the statutory amendments. “My answer is a one-line answer”, Mehta said. “Statutory amendments are there to ensure that the scheme can be framed and operated.”

Confidentiality of the donor is part of their right to privacy

Mehta referred to K.S. Puttaswamy v Union of India (2019) where he said the court had recognised a right to “informational privacy.” If a system is in public interest, he said, the court can “accept [one’s] right to informational privacy as against the general right to know.” If there is a “genuine” public interest in finding out this information, one may approach the Court. “Merely for your curiosity, you cannot invade somebody’s privacy,” if it ultimately serves public interest, Mehta argued. The intention of the scheme is not to ensure that there is an unequal playing field, or creating opacity of information for the public. The Scheme, he said, sought to balance the privacy of donors with the public interest and the idea of a free and fair election. In fact, donor privacy furthered free and fair elections, as it allowed persons to donate without fear and controlled black money in the market. 

In the rejoinder, Bhushan argued that privacy is an individual right, flowing from the right to life—it cannot be enjoyed by a company. Further, he argued that the citizens’ right to information under Article 19(1)(a) could not be overridden by the donor’s privacy. 

Farasat argued that privacy cannot be invoked when the degree of participation of an entity as a political actor increases to a point where it can impact the entire political system. Corporations cannot seek to exercise this power to influence elections in India “secretly, as a matter of right.” The proportionality doctrine ensures that as power of political influence increases, the extent of privacy decreases. 

“Any system can be misused” but the electoral bonds scheme brings corruption and black money to a minimum

Mehta read out words from Commr., H.R.E. v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt (1954), which held that “An apprehension that the powers conferred by this section may be abused in individual cases does not make the provision itself bad or invalid in law.” 

“There can never be a system which is so fool proof, that it can never be misused” Mehta argued. He strongly insisted that the 2018 Scheme had already “begun…giving fruits” with digitisation bringing clean money into the economy. Mehta read from Kesavananda Bharati v State of Kerala (1973) which stated that “Courts cannot be oblivious of the practical needs of the government. The door has to be left open for trial and error.” He insisted that a few lacunae in the system cannot be reason to scrap it altogether. 

Mehta concluded that the government has the right to trial and error, unless it is “ill intended, so atrociously arbitrary that it shakes” the Court’s “conscience, or it does not achieve the object that it seeks to achieve.” 

Disproportionate donations to the ruling party is not a consequence of the scheme, but a result of the wisdom of the voter

First, Mehta explained that whether there is an “incumbent bias” in the ruling party receiving more donations was irrelevant to the constitutionality of the case. 

Second, any such bias that may be prevalent was unconnected with the scheme itself. There has been a trend historically, as the ruling party typically holds the confidence of the people. Which means that they naturally receive support from more donors than the opposition. “The average Indian voter…is a very intelligent decision maker,” Mehta said. “The ruling party in 2013, may not get maximum contribution, because the voter knows that in 2014, the wind is somewhere else” Mehta explained, before dropping his voice to baritone to say “we have to trust his [the voter’s] discretion. 

In his rejoinder Sibal argued that the electoral bonds scheme was an “unconstitutional, undemocratic, unfair power given to the ruling party.” On one hand, companies could not refuse donations as they succumbed to political pressure, and on the other hand the ruling party continued to grow and benefit from the scheme.