SC strikes down electoral bonds scheme as unconstitutional
Context:
- Recently five-judge bench of the Supreme Court gave its verdict on the legality of the electoral bonds scheme holding it “unconstitutional” in two opinions that pointed to a unanimous judgment.
What is the electoral bonds scheme?
- The electoral bonds scheme allows corporations and also individuals to anonymously donate money to political parties by purchasing electoral bonds from the State Bank of India (SBI).
- Notably only the SBI has sole access to the details of those who purchased electoral bonds.
- According to the electoral bonds scheme, the proceeds from any bonds, which are not encashed within 15 days of being issued, are to be deposited in the Prime Minister Relief Fund.
- It was first mentioned in a Union Budget speech in 2017 by the then Finance Minister Arun Jaitley.
- The scheme was pushed as a solution to the issue of opacity in the process of political parties’ funding.
- Political parties still continue to receive most of their funds through anonymous donations which are shown in cash.
- Electoral Bonds were introduced specifically as an integral component of the Union Budget and hence it is classified as a Money Bill.
Main features of the bill:
- Electoral Bond is a type of instrument which functions like a Promissory Note and an interest-free banking tool.
- Any Indian citizen or organization which is registered in India can buy these bonds after fulfilling the KYC norms laid down by the RBI.
- It can be procured by a donor solely through the means of cheque or digital payments in various denominations, like one thousand, ten thousand, one lakh, ten lakh, and one crore from specific branches of the State Bank of India(SBI).
- Within a span of 15 days of issuance, these electoral bonds can be redeemed in the designated account of a legally registered political party.
- The stanches of bonds will be available for purchase for 10 days in the month of January, April, July, and October with an additional time-frame of about 30 days in the year of General Elections for Lok Sabha.
- It is important to note that only political parties registered under Section 29A of the Representation of the People Act, 1951, and those that secured at least one percent of the votes in the last general election to the Lok Sabhaor state legislative assembly are eligible to receive electoral bonds.
Why was the electoral bonds scheme challenged in court?
- Petitions were filed by the Communist Party of India (Marxist), and also NGOs Common Cause and ADR.
- Advocate Prashant Bhushan, representing Common Cause and ADR, argued that the citizens have a right to information about the parties and candidates seeking their votes.
- Bhushan pointed out that there are roughly around 23 lakh registered companies in India.
- He argued that figuring out how much each company had donated using this method would not be possible for an ordinary citizen.
- Bhushan added that the scheme would distinctly favour the ruling government of the time, as the guarantee of anonymity would allow the government to provide concessions in the form of licenses, leases, policy changes and also government contracts.
- Senior Advocate Kapil Sibal drew the court’s attention to how the scheme could result in companies failing their duties towards their own shareholders.
- Allowing companies to “funnel money” to political parties without any oversight from shareholders denies the owners of the said company the ability to decide how their company should act in the political sphere.
What has the SC said in its verdict?
The court raised several issues:
Issue 1: Does the electoral bond scheme violate the Right to Information under Article 19(1)(a)?
- The apex court held that information on the funding of political parties is essential for voting.
- Economic inequality contributes to political inequality due to the deep association between the money and politics.
- Money enhances access to legislators and raises the legitimate possibility of quid pro quo or mutually beneficial arrangements such as favourable policy changes or others.
- Therefore the court held that the scheme violates the right to information under Article 19(1)(a), which guarantees the freedom of speech and expression.
Issue 2: Is curbing the circulation of black money in electoral financing a legitimate reason to restrict the right to information (RTI)?
- The court noted that the RTI can only be restricted based on Article 19(2), which speaks of the reasonable restrictions to freedom of speech and expression.
- It does not include curbing black money as a restriction, the court pointed.
- Even assuming curbing black money is a legitimate purpose, it is not proportional to the restrictions posed by the same scheme.
- Further, it said this scheme is not the only means to curb the black money in electoral financing.
- Other options are less restrictive and fulfil the same purpose.
- For the electoral bonds scheme to be considered legitimate, the government scheme would have to essentially satisfy three aspects.
- This was based on the court’s proportionality test which is laid down in its 2017 verdict in the KS Puttaswamy case over the right to privacy.
- The first test is the existence of a law.
- The electoral bond key was brought through the Finance Act which introduced the series of amendments in the Income Tax Act and also the Representation of People’s Act.
- The second test is the law must demonstrate a legitimate state interest, which has nexus to the object sought to be achieved by the Parliament.
- The government argued that the objectives range from curbing black money to protecting the privacy of the donors related to the donation.
- The third test is the most crucial is whether the encroachment on fundamental rights is proportional to the objection sought to be achieved.
- Here, the CJI noted that the state did not adopt the least restrictive method.
- As an example of the least restrictive methods, he cited the ₹20,000 cap on anonymous donations is a way.
- Therefore, an infringement of the right to information is not proportionally justified to curb black money in electoral financing through electoral bonds.
