Electoral Bond - Analysing Its Legislation & The Problem Of Transparency
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Category: General Law
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ELECTORAL BOND: ANALYSING ITS LEGISLATION &
THE PROBLEM OF TRANSPARENCY Sudhanshu Kumar, BA LLB, National Law School of India University, Bangalore Anwesha Dubey, BA LLB, KLE Law College, Bangalore
ABSTRACT
The apex court of India declared the Electoral Bond Scheme unconstitutional, which regulated the funding of political parties in India in its recent judgement. This article delves into the details of the legislation of the Electoral Bond Scheme. It explores how the scheme was legislated through the Finance Act 2017 by amending different statutes of the country. This article also explores one of the problems for which the scheme was declared unconstitutional: the problem of transparency. It also evokes the debate over the voters' right to information and donors' privacy Keywords: Electoral Bond, Right to Information, Donor’s privacy. Research Question
1. How does the electoral Bond Scheme implemented by the Indian government violate
the constitutional principle - the “Right to Information” of the voters? Hypothesis
1. The anonymity of donors guaranteed by the electoral bond scheme infringes upon the
citizens' fundamental right to information, as it prevents the public from knowing the funding sources for political parties.
1. Introduction
In a recent landmark judgement, the apex court scraped the Electoral Bond scheme1, which regulated and facilitated the political funding to the political parties, on two significant grounds; first, it violates the constitutional provisions of the right to information of the voters,
1 Assn. for Democratic Reforms (Electoral Bond Scheme) v. Union of India, (2024) 5 SCC 1
and second, the legislative construction is arbitrary in nature. This article will analyse the first ground for which the scheme was declared unconstitutional- the voters' right to information or the problem of transparency. The Ministry of Finance introduced the electoral bond scheme through a notification in the Department of Economic Affairs on January 02, 2018. The Electoral Bond scheme was legislated with the primary purpose of curbing black money in political funding, as stated by the then-minister of Finance, Arun Jaitley2. The scheme was controversial as the critique argued that it gives the ruling party a leading edge in electoral politics and hampers political funding transparency. The Electoral Bond was introduced by the Finance Act 20173, which amended several statutes, including the Reserve Bank of India Act, 19344 (R. B. I.
Act), and the Companies Act, 20135, the Representation of the People Act, 19516 (RoPA), the Income Tax Act, 19617, and Foreign Contribution and Regulation Act, 20108 (F. C. R. A. ). The amendments introduced by the Finance Act enabled the Union government to allow any scheduled bank to issue electoral bond(s). It also exempted the political parties from publishing and keeping a record of the donations received through the electoral bond. The amendments allowed electoral contributions from foreign sources and removed the upper cap for corporate donations. In September 2017 and January 2018, the amendments of the Finance Act 2017 were challenged by the two N. G. O. s- Association of Democratic Reforms and Common Cause (A. D. R.
)- and the Communist Party of India (Marxist) in the Supreme Court on the ground that the scheme allowed the “non-transparency in political funding” and legitimised the electoral corruption at a “huge scale. ” It also contended that the scheme was wrongfully passed as a money bill and avoided the scrutiny of the Rajya Sabha challenging the use of a money bill9. The Election Commission of India (E. C. I. ) warned the Union Government on 26 May 2017 through a letter against the impact on the transparency in political funding through the Electoral 2 Department of Economic Affairs, Ministry of Finance, Notification No. 1/2018, Department of Economic Affairs, January 2, 2018.
3 Finance Act, 2017, No. 7, § 5, Acts of Parliament, 2017 (India).
4 Reserve Bank of India Act, 1934, No. 2, Acts of Parliament, 1934 (India).
5 Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
6 Representation of the People Act, 1951, No. 43, Acts of Parliament, 1951 (India).
7 Income Tax Act, 1961, No. 43, Acts of Parliament, 1961 (India).
8 Foreign Contribution (Regulation) Act, 2010, No. 42, Acts of Parliament, 2010 (India).
9 Association of Democratic Reforms v. Union of India (SC) (2018) 3 SCC 1 (India).
Bond10. Later, on 25 March 2019, E. C. I. filed an affidavit opposing the Electoral Bond for the same consequential impact. The Union Government submitted a rejoinder claiming that the electoral bond is a pioneering step for electoral reforms and will ensure transparency and accountability in political funding. Electoral bonds redeemed between March 1, 2018, and January 11, 2024, in 31 phases amount to Rs. 16,492 crores. The ruling party, B. J. P. , cashed a significant chunk of the bond; it redeemed around 50% of the total bond encashed, amounting to Rs. 8,252 crores. The main opposition party, Congress, got 11. 8% of the bond to Rs. 1952 crores, and West Bengal-based All India Trinamool Congress got 10. 4% to Rs. 1,708 crores. Money plays a crucial role in Indian elections, and the scheme gives the ruling party an edge over other parties in elections11.
This article explores how the electoral bond hampers transparency in political funding, which is expected to be transparent to the citizens of a democratic country like India to conduct a free and fair election.
2. Legislation of Electoral Bond Scheme
The introduction of the electoral bond scheme through the Finance Act 2017 led to amendments in various acts, including the Representation of People Act of 1951, the Reserve Bank of India Act of 1934, the Companies Act of 2013, and The Income Tax Act of 1961, Foreign Contribution and Regulation Act, 2016.
2.1. Amendments in R.B.I. Act
Sect. 31 of the Reserve Bank of India Act had two clauses barring any person other than the Reserve Bank of India from issuing any bearer bond, but by adding clause 3 to Sect. 31 to the Act through part III, Sect. 135 of the Finance Act 2017 authorised the central government to issue electoral bonds through Scheduled banks12. The Reserve Bank of India opposed the amendment on two grounds: First, it could reduce the faith in the currency issued by the Central Bank if the bonds are issued in sizable quantities
10 Election Commission of India, Letter dated 26 May 2017, No. 56/PPEMS/Transparency/2017
11Abhishek Jha & Aditi Jha, Between Mar 2018 and Jan 2024, BJP redeemed 50% of bond donations, Hindustan times (Mar. 18, 2024), https://www.hindustantimes.com/india-news/between-nar-2018-and-jan-2024bjp-redeemed-50-of-bond-donations-101710703486623.html.
12 Finance Act, 2017, No. 7, § 5, Acts of Parliament, 2017 (India).
because it will enable multiple non-sovereign entities to issue bearer instruments. Second, it would impact the principles of the Prevention of Money Laundering Act of 2002 because the government would know the identity of the person purchasing the bond through the Know Your Customer (KYC) mandate, but the intervening person’s identity would not be known. Again, when the Committee of Central Board circulated the electoral bond draft to R. B. I. for its comment, R. B. I. objected that it would harm public perception of the scheme, the financial system in general, and the central bank in particular. It again flagged the possibility of shell companies purchasing the electoral bond for money laundering transactions.
It recommended issuing electoral bonds in electronic form because that would reduce the risk of being used for money laundering, reduce the cost of issuing, and make it more secure. However, the Committee of the Central Board did not accept the recommendation of R. B. I. 13
2.2. Amendments in the RoPA and Income Tax Act
Sect. 29C (1) of the Representation of Peoples Act, 195114 required political parties to report the funding to the Election Commission of India detailing contributions exceeding twenty thousand rupees from any sources to qualify for income tax relief under Sect. —13A of the Income Tax Act, 1961. Sect. 29B of the act states that the political parties cannot accept any political contribution from foreign sources because of its potential to alter the policy-making, endangering the nation's sovereignty15. The amendment brought to the act through Sect. 137 of the Finance Act of 2017 added to the Sect. 29C of the Representation of People Act (RPA) 1951 that the political parties should not publish the “Contribution Reports” of donations of Electoral Bonds to the public16. This amendment had two consequences: (1) E. C. I.
and citizens could no longer access the information about the funding sources of the political parties, which means it would violate the Right to Information available to the citizens guaranteed under Art. 19(1)(g) of the constitution to inform about public and government affairs, including information on the financial contribution of the political parties. 13Gaurav Vivek Bhatnagar, https://thewire. in/government/finance-ministry-electoral-bonds-rbi, the wire (Nov. 20, 2019), https://thewire. in/government/finance-ministry-electoral-bonds-rbi.
14 Representation of the People Act, 1951, No. 43, Acts of Parliament, 1951 (India).
15 Income Tax Act, 1961, No. 43, Acts of Parliament, 1961 (India).
16 Finance Act, 2017, No. 7, § 5, Acts of Parliament, 2017 (India).
(2) The previously obligatory condition of the political parties to declare donations exceeding
20 thousand to get tax relief has been addressed if the donation was through electoral bonds,
and political parties could get tax benefits without declaring the donation.
2.3. Amendments in Companies Act 2013
The two provisions of the Companies Act 2013 were amended by Sect. 154 of the Finance Act
2017. Firstly, Sect. 182(1) of the Companies Act 2013 states that the total amount the company
may contribute to any political in any financial year shall not be more than seven and a half per cent (7. 5%) of its average net profit of the last preceding financial years17. The amendment removed the cap on corporate contributions to political parties. It allowed corporate companies to contribute unlimited funds through which they gained more significant influence over political parties, drowning out the voices of individual citizens and smaller interest groups, undermining the principle of equal representation and the fundamental principle of one people, one vote in our democracy. Secondly, Sect. 182(3) states that every company shall disclose its profit and loss account of any amount contributed by it to any political party during the financial year with their name and amount contributed.
The amendment removed the Obligation of companies to disclose their accounts and the names of political parties to which they contributed. This lack of transparency undermined the principle of accountability, which was essential for maintaining the integrity of democratic governance.
2.4. Amendment Foreign Contribution and Regulation Act
Delhi High Court, in a judgement, declared two parties, B.J.P. and I.N.C., guilty of violating Sect—3(e), which prohibits acceptance of any foreign contribution by any political party of India.18 Both parties received contributions from England and Wales-based company Vedanta and its subsidiaries19. Then, Sect. 2 of the F.C.R.A. The Finance Act amended the Foreign Contribution and Regulation Act, enabling foreign-based companies to open subsidiaries and
17 Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
18 Association for Democratic Reforms & Another v. Union of India & Ors., W.P. (C) 131/2013, 2014 WL
1283947.
19 Foreign Funding Taken By BJP and INC, Association for Democratic Reforms
https://adrindia.org/content/foreign-funding-taken-bjp-and-inc. donate to political parties20. It violates the provisions of R.P.A. and F.C.R.A., prohibiting foreign contributions and creating the potential problem of influencing policy-making decisions and putting Indian sovereignty in danger.
3. Violation of Right to Information.
The Constitution guarantees the right to information under Art. 19(1)(a). It allows people to access information from public authorities and fosters transparency and accountability in governance21. Contrary to this right, the Electoral Bond Scheme hides information from citizens to protect donor privacy, raising two critical questions: First, which is more important, the Right to information of citizens or Donor Privacy? Second, Is the Right to information infringement justified to protect the donor's privacy?
3.1. Right to information of voters versus Donor Privacy
Democracy can neither endure without free and fair elections nor well-informed voters. Voting without complete and relevant information is a negative connotation for the Freedom to vote. Positive connotation includes casting a vote based on complete and relevant information. Votes cast by uninformed voters for any candidate would be meaningless. According to Justice Venkatraman Reddi, two postulates govern the right to vote: first, the formation of an opinion about candidates and second, the expression of that choice by casting votes for a preferred candidate22. The members of the democratic society must be adequately informed to make intelligent decisions that impact them, including casting their votes for a specific candidate. In the Union of India vs. Association for democratic reforms (A. D. R.
), the court recognised that the voter's right to know the background, including any criminal history, of electoral candidates is implied under Art. 19(1)(a) of the Indian constitution. The three-judge bench determined that the information that candidates must disclose is solely to help voters decide if they should vote for a particular candidate. The Court noted that knowledge of a candidate’s criminal history and assets (which could indicate whether the 20 The Hindu (Mar. 18, 2018), https://www. thehindu. com/news/national/lok-sabha-passes-bill-to-exemptpolitical-parties-from-scrutiny-on-foreign-funds-without-debate/article23285764. ece.
21 India Const. art. 19(1)(a).
22 (2003) 4 SCC 399 [96]
candidate accumulated wealth through corruption during previous terms) would enable voters to make informed decisions23. To uphold the integrity of elections and ensure transparency, the Commission may require candidates to disclose the expenses incurred by their political parties. This transparency encompasses the financial disclosures of any individual running for election or re-election. The Constitution acknowledges a voter's right to know a candidate's background, even though voting is a statutory right because voting is a form of expression protected by Art. 19(1)(a)24. Although mandating the disclosure of contribution liabilities would infringe upon the privacy rights of candidates and their families, the learned Judge observed that this requirement, which advances the right to information, outweighs privacy concerns because it serves the greater public interest.
The debate over political funding transparency and donor privacy shows the conflict between public and private in the public interest demands transparency and accountability to ensure that elections are free and fair. Political parties are obligated to declare their source of contribution to understand potential influences on policy decisions. Donors, especially corporations or wealthy individuals, prefer anonymity to avoid public scrutiny or backlash and seek influence on political outcomes or policies in their favour through significant donations. Our constitution upholds citizens' right to access government information in Art. 19(1)(g)25. It is essential for the public to be informed about all government activities, as transparency is crucial for a functioning democracy.
The right to information is derived from the fundamental concept of freedom of speech and is vital for voters to make informed decisions.
3.2. Is the Right to information infringement justified to protect the donor's privacy?
To answer the question, is the Right to information infringement justified by the electoral bond to protect the donor’s privacy? We must understand a crucial debate: whether the right to
23 (2003) 2 SCR 1136 (SC)
24 2003 AIR SCW 2353
25 India Const. art. 19(1)(a).
information is absolute or the state can curtail it. Art. 19(1)(a) of the Indian constitution states that the citizens of India have the right to freedom of speech and expression; it incorporates the right to information within its ambit. However, the rights given under Art. 19(1)(a) are not absolute, and the state can reasonably restrict them on some exceptional grounds mentioned in Art. 19(2)26. When the rights conferred in Art. 19(1)(a) goes beyond, (the interests of the sovereignty and integrity of India; the security of the State; friendly relations with Foreign States; public order; decency or morality; or in relation to contempt of court; defamation; or incitement to an offence) then these rights are subjected to reasonable restriction by the state.
The restriction on the right to information imposed by the electoral bond does not fall within any stipulated restricting grounds under Art. 19(2). In Express Newspapers v. Union of India27, a Constitution Bench, while deciding the constitutional challenge to the Conditions of Service of the Working Journalists and Miscellaneous Provisions Act 195528, held that a law violating Art. 19(1)(a) would be unconstitutional unless the purpose of restrictions falls under the prescribed restriction ambit of Art. 19(2). Moreover, the scheme does not follow the proportionality test between the means and the purpose. To curb the black money in electoral funding by restricting the fundamental right to information of the citizen is not a legitimate purpose and cannot be justified as it does not comply with the test of proportionality led in Om Kumar v.
Union of India29 for deciding the infringement of fundamental rights. It states the least restrictive means to attain the sought purpose.
4. Conclusion
Though the Electoral Bond Scheme was legislated to curb illegal funds in political financing, the whole idea itself was misconceived and wrongfully constructed. The most significant part of this was the anonymity of donors, which does not give the electorate their right to information, an indispensable characteristic of democratic states. The freedom of information to voters has been protected as an essential component of the right to freedom of speech and
26 State of Madras v. V.G. Row, AIR 1952 SC 196, 202.
27 Express Newspapers v. Union of India, AIR 1958 SC 578.
28 Working Journalists and Miscellaneous Provisions Act, 1955, § 2, Acts of Parliament, 1955 (India).
29 Om Kumar v. Union of India, AIR 2018 SC 1968.
expression under Article 19(1)(a) of the Constitution of India. The concealment granted under the Electoral Bond Scheme is the absolute antithesis of this constitutional principle. While the scheme permitted the anonymity of the donors, it also shielded the identity of those persons who could use their black money to exert moral imperfection in the political process. In such a way, this anonymity prevented the electorate from having adequate power of decision and was also a very severe threat to corruption because political parties may enter into quid pro quo deals with anonymous contributors. After apex court dismantling the legislation, it comes out that the public is entitled to know the identity of donors.
Besides, it also signifies that even legislative procedures, especially ones involving policy changes drastic in nature, would be better if they were transparent with opportunities for citizen participation and scrutiny. From that perspective, this ruling has wider implications beyond the scope of the Electoral Bond Scheme. As a result, it is very likely that this will in future establish a completely different principle in law making. Transparency of information and privacy of data on the one hand and the necessity to defend the democratic process from the corrupting effect of big donors are the opposition camps that are going to be discussed.
On a more practical note, that this also implies the ruling stands for a thorough evaluation of the existing political funding models in India and an urgent for the policy makers to design a system that guarantees- transparency, parity, and loyalty. The decision of the Supreme Court is an important event in the ongoing journey to restore the trust of the public to the Indian electoral system. The Court has, through the exercise of its legal authority, delegated sovereignty which was granted by the Constitution, further democratic principles. It is quite normal to give preference to democracy in the judgment, and it also serves to reassure the importance of the courts to the extent that they take actions not only to ensure that democracy is protected and processes are conducted in a free, fair, and transparent manner.
The principles of ensured by apex court of fairness and transparency are non-negotiable if our democracy is to become more efficient and profound.