Day 6 Arguments

Electoral Bonds

Day 6 Arguments: 24 March 2021

 

A three-judge bench of Chief Justice S.A. Bobde, Justice Bopanna and Justice V Ramasubramaniam is hearing a challenge to the Electoral Bonds Scheme.

 

An electoral bond, like a promissory note, is a bearer instrument payable to the bearer on demand. It can be used by individuals and corporations incorporated in India to make donations to political parties. 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 to the bank.

 

The current electoral bonds scheme was introduced through the Finance Acts of 2016 and 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 hearing began with Prashant Bhushan, representing the petitioner Association for Democratic Reforms (‘ADR’), pointing out that a new tranche of electoral bonds was set to be issued from April 1, 2021. This is in the context of the upcoming state elections.

 

Bhushan relied on the letters written by the Reserve Bank of India (‘RBI’) to the Ministry of Finance in 2017 to highlight the risks of the scheme. In a letter dated 14 September 2017, the RBI had conveyed its ‘discomfiture’ with the electoral bonds scheme. To allow any bank apart from the RBI would be ‘risky’, putting RBI’s reputation at stake for facilitating money laundering, the letter further added. Bhushan noted that electoral bonds function with an anonymity that facilitates bribing: as even the Election Commission will not have information about the donors. This system of political funding is unprecedented in any democracy, he added. Large corporations through shell companies are giving bribes to the ruling political party. He further highlighted that as of now, electoral bonds worth 7,000 crores have been issued.

 

Invoking another RBI letter to the Finance Ministry, Bhushan pointed out RBI’s concerns about the electoral bonds scheme. In the proposed form, it has a high risk of enabling money laundering, risk of forgery and cross-border counterfeiting. Moreover, electoral bonds will not be seen as a vehicle to combat money laundering but one that enables it. RBI had urged the Government to reconsider the scheme; or at least ensure that only RBI would be allowed to issue bonds, not any other commercial bank.

 

CJI Bobde asked Prashant Bhushan if he could distinguish between the D-MAT and the Script form of electoral bonds. Bhushan noted that RBI had objected to the Script form and favoured the D-MAT form. And that he was not fully aware of the technical differences between the two. CJI Bobde noted that he would ask the Government to clarify this point for the Court.

 

Next, Bhushan went on to highlight the objections from the Election Commission of India (‘ECI’). The ECI in its counter affidavit was not in favour of the electoral bonds scheme.

 

Bhushan went on to note that there was no justification behind the electoral bonds scheme. According to the Government, the electoral bonds scheme would protect donors from being victimised for their choice of political funding. This justification is invalid, as the Government can know information about donors and use that to target donors supporting opposition parties.

 

CJI Bobde asked, hypothetically, whether it would suffice if total anonymity were to be maintained. Bhushan urged that total transparency is essential for a democracy. The Supreme Court in the past had made it mandatory for all candidates to make their information public in the interest of creating transparency.

 

On another point, Bhushan noted that the amendments to facilitate the electoral bonds scheme were passed as a Finance Bill: this was done to circumvent the Rajya Sabha as the ruling government did not have a majority in the Rajya Sabha.

 

In the current form, foreign companies can donate to political parties through their Indian subsidiaries. The Election Commission believed that this could potentially allow foreign influence in Indian governance. The Government also removed the ceiling limit on corporate donations to political parties. Through these amendments, political funding has been made unlimited and opaque, Bhushan argued. He insisted that the new batch of electoral bonds scheduled to be issued from 1 April 2021 be stalled until the Supreme Court fully hears and decides the constitutional challenge to the electoral bonds scheme.

 

CJI Bobde pointed out that this court’s earlier interim order had directed the parties to submit information about donations received through electoral bonds in a sealed cover to the ECI. Bhushan responded that the electoral bonds are bearer bonds and even the political parties would not know the source of the original donation. The parties may claim that it was dropped off at their office. Moreover, even the law does not require them to know and disclose donors. Even the ECI would not know the source of the original bond.

 

CJI Bobde asked if Bhushan’s argument was on the issue of political morality and the ethics of money laundering. An issue that this Court had dealt with in R.K Garg v. Union of India.

 

Bhushan responded that the Supreme Court in an earlier ADR judgment addressed this issue. Electoral transparency is not just a question of morality but democracy. The ADR judgment had made it mandatory for electoral candidates to disclose information about their assets, educational qualifications, criminal antecedents. And recognised this not merely as a statutory right under the RTI Act but a right in our democracy.

 

The Attorney General, KK Venugopal informed the Court that the electoral bonds are scheduled to be issued from 1 to 10 April 2021.

 

CJI Bobde asked why there was selective anonymity with the current scheme. The Attorney General reasoned that the electoral bonds scheme was introduced to put a stop on black money from being used to donate. CJI further asked if the money spent on the electoral bonds was going to be taxed. The Attorney General answered in the affirmative. And highlighted that for electoral bonds to be purchased, it could be done through a demand draft, cheque, direct debit. Cash could not be used to buy the bonds. So only ‘white money’ would go through the banking channel.

 

Bhushan interjected to point out that the subsequent purchases of the electoral bonds could be through cash. The Attorney General responded that the scheme prohibits the trading of the bonds.

 

The Attorney General continued to highlight that the former Finance Minister Arun Jaitley was convinced that the malaise of black money could be countered with the electoral bonds.

 

CJI Bobde asked if electoral bonds could be bought to fund terrorism. Tushar Mehta, the Solicitor General, interjected to answer that only political parties could encash the electoral bonds – nobody else. CJI Bobde noted that some political parties could have terrorism on their agenda. Tushar Mehta clarified that only parties who have had at least 1% of vote share could encase the electoral bonds. CJI Bobde further asked if a political party wanted to use the electoral bonds to fund protest, could it do it. And what was the extent of Government control on where the money is used? The Attorney General noted that the electoral bonds had a short life – it would be encashed only within 15 days of its issuance. Therefore, once the parties encash it, it would be treated as normal income. And every political party is bound to file IT returns. Especially after a Supreme Court judgment mandating compulsory filing of IT returns by political parties. So, through this, the parties’ “each penny is examined”. In fact, the electoral bonds scheme is essential to ensure that black money is not used for terrorism, the Attorney General added.

 

CJI asked Rakesh Dwivedi, the advocate for the Election Commission of India if all the political parties had complied with the previous order of this Court of sharing information about the electoral bonds in a sealed cover. Dwivedi informed that all major political parties had complied with the order.

 

Bhushan in his rebuttal argued that even though the electoral bonds are not eligible for trading, because of anonymity at several levels, trading of bonds could be easily done. Only the original purchaser of the bonds cannot use cash, but subsequent purchaser easily could. In the past, ECI had suggested compulsory maintenance and audits of the accounts of the political parties. The political parties are major stakeholders in a democracy and they must be held accountable to the public. In order to ensure the ‘complete purity of elections, complete transparency must be achieved and maintained’, Bhushan added.  There would be no harm in halting the sale of electoral bonds in April, donations could still be made, albeit in a transparent manner, Bhushan added.

 

CJI asked the Government to examine and respond to whether the electoral bonds could be diverted for “activities outside of political agenda”, including for supporting terrorism or initiating protests.

 

Finally, Dwivedi submitted on record that the ECI supports the electoral bonds scheme. As, in the past political donations were made only in cash which could not be accounted for. Therefore, the electoral bonds scheme was “one step forward” in political funding. However, the ECI must be given the details about the purchaser/donor.

 

The bench has reserved its order