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Constitution Bench to pronounce judgement in Electoral Bonds Scheme (EBS) case, submissions in the Supreme Court

Written By mediavigil on Wednesday, February 14, 2024 | 9:50 AM

The Constitution Bench of Supreme Court comprising the Chief Justice, and Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala and Manoj Misra will pronounce the judgment in Writ Petition (Civil) No. 880 of 2017 etc. in Chief Justice’s Court at 10.30 a.m. on February 15, 2024. Besides Association for Democratic Reforms (ADR), CPI (M), Spanadan Biswal and Dr. Jaya Thakur are petitioners in the Electoral Bond Scheme (EBS) case. All the petitions are tagged together. Originally, Writ Petition (Civil) No. 333/2015 of ADR and Indian National Congress- SLP (Civil) No.18190/2014 was tagged with the ADR's new petition on October 3, 2017 by Supreme Court's 3-judge bench of Chief Justice and Justices Hima Kohli and J.B. Pardiwala. Jaya Thakur's petition was tagged with it on November 22, 2022. 

Earlier, Indian National Congress was "instructed to withdraw these petitions" on November 29, 2016 by Justices Jagdish Singh Khehar, Arun Mishra A.M. Khanwilkar. It was "Dismissed as withdrawn". Prior to this the petitioner had sought "an adjournment, so as to enable him to obtain instructions about the effect of the amendment to the provisions of the Foreign Contribution (Regulation) Act, 1976" on November 22, 2016. 

Notably, ADR had pursued a similar case [Writ Petition (Civil) 131 of 2013] in Delhi High Court from 2013 till October 9, 2017. ADR and E.A.S. Sarma, ex-Finance Secretary had filed this case. The court had pronounced its judgement on February 28, 2014 directing the Home Ministry to take appropriate action within 6 months, against the political parties for violating the Foreign Contributions (Regulation) Act (FCRA), 1976 and FCRA, 2010. The Court found that BJP and Congress had accepted donations from foreign sources year after year, in violation of provisions of FCRA, 1976 and FCRA, 2010. Both BJP and Congress chose to contest the judgement before Supreme Court (SLP No 18190/2014) and during the proceedings before the Supreme Court, following detailed arguments on our behalf, the two political parties withdrew their SLPs. In this backdrop, they withdrew their petitions. It is recorded in the Court’s order dated November 29, 2016. 

In his letter to Rajiv Gauba, Cabinet Secretary wrote, “In the normal course, if the government had any respect for maintaining the integrity of the electoral process, it would have immediately proceeded to take action against the political parties including BJP, for violating the FCRA, especially in view of the fact that foreign donations to political parties can hurt the sanctity of our democracy, much more than in the case of anyone else receiving such donations." But “Instead of this, the present NDA government quickly took the extraordinary step of retrospectively altering the laws that stood in the way of foreign donations flowing into the bank accounts of the political parties.” These amendments enabled changes to the Finance Acts of 2016 and 2017 and the Companies Act, 2013 to enable private companies to make unlimited donation to political parties. He wrote,  “It is bizarre that an ordinary citizen has to comply with all kinds of cumbersome Know-Your-Customer (KYC) requirements for a meagre account opened in a bank but the political parties should go scot-free when they blissfully receive thousands of crores of rupees without having to answer anyone!” He added, “While we have separately contested the propriety of the government retrospectively amending the two FCRA legislations, prima facie, there is no ethical justification for legalising an offence already committed by a political party under the FCRA and for condoning foreign donations to be received in the future, as by whatever name one may call it, foreign funding of elections is unacceptable." He asked, "“Why should companies, especially, foreign companies, give donations to political parties? Certainly not for promoting democracy, but more for quid pro quos from a willing political executive to enable them to profiteer, at the cost of the public.” He concluded that “Foreign donations to political parties are a threat to India’s democracy.”

It is in this backdrop, that the petitions of ADR  and others were mentioned in the Supreme Court on October 16, 2023. A 3-judge bench of Chief Justice and Justices J.B. Pardiwala and Manoj Misra passed an order saying "In view of the importance of the issue which is raised and having due regard to the provisions of Article 145(3) of the Constitution, we are of the considered view that the batch of petitions be listed before a Bench of at least five-Judges." 

A 5-judge bench partly heard the matter on October 31, 2023 and on November 1, 2023. On November 2, 2023, arguments were concluded and judgment was reserved. 

The Court's order dated Novemver 2 reads: "We have heard Mr Prashant Bhushan, learned counsel, Mr Kapil Sibal, learned senior counsel, Mr Shadan Farasat and Mr Nizam Pasha, learned counsel, appearing on behalf of the petitioners. Mr Vijay Hansaria, Mr Sanjay R Hegde, learned senior counsel, and Mr P B Suresh, learned counsel, appearing on behalf of the intervenors, supported the petitioners. On behalf of the Union of India, we have heard Mr R Venkataramani, learned Attorney General for India and Mr Tushar Mehta, learned Solicitor General with Mr Kanu Agrawal, learned counsel. Submissions have been advanced on behalf of the Election Commission of India by Mr Amit Sharma, learned counsel. On 12 April 2019, an interim direction was issued by this Court to the Election Commission of India. The Election Commission of India has produced in a sealed packet data in terms of the interim order as of April 2019. The order of this Court was not restricted to the date on which it was pronounced. If there was any ambiguity, it was necessary for the Election Commission to seek a clarification from this Court. In any event, we now direct that the Election Commission shall produce up-to-date data until 30 September 2023 in terms of the interim directions which were issued on 12 April 2019. This exercise shall be carried out on or before 19 November 2023. Data in a sealed packet shall be handed over to the Registrar (Judicial) of this Court." The 19-page long interim order in the ADR case [Writ Petition (Civil) No.333/2015] was delivered by Chief of India headed bench comprising of Justices Deepak Gupta and Sanjiv Khanna.

Prior to this, a 3-judge bench of CJI S. A. Bobde, Justices A. S. Bopanna and V. Ramasubramanian had reiterated the interim order in a 20-page long order dated March 26, 2021. Originally, the petitioners had prayed for declaration of "(i) Section 135 of the Finance Act 2017 and the corresponding amendment carried out in Section 31 of the Reserve Bank of India Act, 1934, (ii) Section 137 of the Finance Act, 2017, and the corresponding amendment carried out in Section 29C of the Representation of the People Act, 1951 (iii) Section 11 of the Finance Act, 2017 and the corresponding amendment carried out in Section 13A, the Income Tax Act, 1961 (iv) Section 154 of the Finance Act, 2017 and the corresponding amendment carried out in Section 182 of the Companies Act, 2013 and (v) Section 236 of Finance Act, 2016 and the corresponding amendment carried out in Section 2(1)(j)(vi) of the Foreign Regulations Contribution Act, 2010 as being unconstitutional, illegal and void." The 3-judge bench did "not see any justification for the grant of stay" on Electoral Bond Scheme. Hence, two applications of ADR and Common Cause-Interlocutory Application No. 183625 of 2019 and Interlocutory Application No. 36653 of 2021 in ADR case [Writ Petition (Civil) No. 880 of 2027)] seeking stay Electoral Bond Scheme were dismissed. 

In compliance with the Court's order dated November 2, 2023, the  Election Commission of India wrote a letter dated November 3, 2023 to all Chief Electoral Officers of all States and Union Territories on the Subject of "Submission of details in respect of Electoral Bonds".

Excerpts from submissions in Supreme Court in Electoral Bonds Scheme (EBS) case in Dr. Jaya Thakur v. Union of India. 

This petition was filed on October 18, 2022 and registered as Writ Petition (Civil) No. 975 of 2022 on November 5, 2022. It was verified on November 17, 2022.  The 45-page long written submission on behalf of Kapil Sibal, Senior Advocate for Dr, Jaya Thakur, the petitioner challenges the Electoral Bonds Scheme of 2018 (as amended in 2022), issued by the Department of Economic Affairs, Ministry of Finance, by way of Notification No. S.O. (E) 29/2018 dated January 2, 2018, in purported exercise of power under the Finance Acts of 2016 and 2017.

The petition concludes that regulation of spending in elections is a delicate process that necessarily must take into account the following factors:
a. Elections need funding.
b. Individuals ought to have the freedom to contribute to political candidates or issues of their choice.

However, excessive funding corrupts the political process in at least two ways.
a. It gives rise to a “pay for play” political culture where wealthy corporations or persons pay high amounts in order to influence the political process in a way so as to ensure that they obtain the “gratitude” of the powerful which is often expressed in the form of policies and laws that favour these donors over others. A political system where the rich have unhindered access to power leads to cynicism among the other persons and a corresponding lack of faith in the fairness of the democratic process. Public faith in democracy is what is ultimately the final line of defence for a democratic system. The perception of a “quid pro quo” often spells the death knell for public faith in the system.
b. Public policy is dictated by the desires of a few over the needs of the many. This leads to laws that serve private or public interests, and which favour the priorities of a few over everyone else.

Keeping in mind these dangers, India, before the EBS scheme, carefully regulated political donations in the following manner:
a. An elaborate system of disclosure was prescribed. First, Political parties were to give the data of the donations received to both the EC and the Income Tax authorities. Second, Companies that made political donations were required to disclose political contributions in their profit and loss statements. Thus, the public had the opportunity to find out how candidates were raising funds and could exercise their vote keeping this in mind.
b. In order to ensure that shell companies are not set up to fund political parties, companies could donate only up to 7.5% of their profits.
c. Political parties were forbidden from obtaining foreign funds under the FCRA.

It is the wanton destruction of this carefully calibrated structure by the EBS scheme that is under challenge in the present petitions.

The removal of restrictions on corporate funding- i.e. the 7.5% of profit cap that was imposed under the Companies Act, violates Article 19(1)(a) insofar as it permits deep pocketed companies to flood out the voice of citizens who do not have access to such funds. It also violates the “equal treatment” clause as it permits some people more political access than others based on money power.

The removal of the transparency and disclosure requirements violates the rights of citizens to know the candidates, their antecedents and their big money associations which are valuable to those seeking to exercise their ballots. This is in violation of rights under Article 19(1)(a), and 19(1)(c). Further, it utterly destroys the ability of shareholders to influence the political activities of companies. The Boards decide on donations and the profit and loss statement only records political donations and not to whom they were made. As such, shareholders have been denied complete agencies on how companies owned by them act politically. This is in violation of Article 300A of the Constitution.

The 23-page long rejoinder submissions in response to the respondent’s written submission which was tendered on October 31,2023 was filed on behalf of Kapil Sibal in Writ Petition (Civil) No. 975 of 2022. It was drafted by Gautam Bhatia, Rupali Samuel, Aparajita Jamwal, Rishabh Parikh and  Prasanna S. The respondent, the union government does not deny that the EBS infringes upon the voters’ right to information. It argues that the EBS strikes a “balance” between free and fair elections (powered by clean money), and the right to information. 

The rejoinder submits that the EBS is an executive instrument that deals with political party funding, and, therefore, indisputably, with entities that participate in the electoral process. It submitted that this Court ought to subject legislation that affects or alters the rules relating  to the electoral process (including election funding) to heightened and  anxious scrutiny. The impugned amendments brought in
through the Finance Act, 2017 and the Electoral Bonds scheme ought not to be accorded a presumption of constitutionality. The EBS bears no rational nexus to either election funding or clean money. This lack of
nexus was conceded by the Solicitor General in his arguments, who stated that the bonds are not related to elections and can be used for any activities by the party. Thus, the EBS only enables the enrichment
of political parties, without any transparency and accountability.

The term “electoral bond” is a complete misnomer. Payments made to political parties through these bonds are not at all related to election funding. The window for purchase of the bonds opens four times a year regardless of any election. he operation of the Current Account in which the electoral bonds are encashed by political parties is not restricted or regulated or monitored in any way. Spending from these accounts is not legally required to be linked to the conduct of elections. 

It is unfounded and disingenuous to suggest that confidentiality of donors is the only incentive for resorting to black  money in politics. Corruption is well documented as an endemic problem in politics in India, with politicians obtaining kickbacks in exchange for government favours. Thus, when analysed from the perspective of moral and societal harm, the problem of black money in politics arises from the use to which money is put (such as, for example, a quid pro quo between a donor and a politician). Under the EBS, at best, the aspect of transfer of money could be said to be brought into the banking stream (and that too, only in those cases of direct donation by the original purchaser of the bond), but even so, the use of money for an immoral and societally harmful purpose is not prevented or deterred. Indeed, the legitimising of the means of transfer of such money through an anonymous bearer bond only makes it more difficult to discover that the illegitimate use of money has occurred, even when it is done in plain sight. In other words, the harm from corruption is not eliminated by offering legitimate channels for funnelling such money towards such illegitimate uses. For example, corruption in the form of a quid pro quo which was undertaken through cash payments remains harmful to society even when such payment for an undue favour is made through a bond, since the use of the money is for a harmful purpose.

As a matter of law, if those engaging in criminal activities and hence operating through cash enter the EBS system, then the EBS is abetting crimes by offering a non-transparent, legitimate channel for transfer of bribe money. The confidentiality granted by the EBS makes it impossible for regulators, investigators, opposition parties and the public to identify the existence of any quid pro quo since no correlations
between receipt of funds and government benefits can ever be discerned or red flagged in the first instance for further detailed examination. Conversely, if the EBS does not shield criminals, and the bribe masked as donations would render the donor/donee liable for criminal prosecution, then all such criminal actors continue to be incentivised to resort to black money. Thus, the EBS is no answer to preventing use of black money for criminal activity. The only deterrent to criminality is a robust and fair investigation agency coupled with a speedy and just criminal justice system.

The expenditure of a candidate in an election is capped by Section 77(3) of the Representation of the Peoples Act 1951 read with Rule 90 of the Conduct of Election Rules 1961. The present cap is either Rs 95 lakhs or Rs 75 lakhs per candidate for Parliamentary constituencies and Rs 40 lakhs or Rs 28 lakhs per candidate for state legislative assembly constituencies. Any spending above this limit is illegal and amounts to a corrupt practice under Section 123(6) of the Representation of the Peoples Act 1951. Therefore, such illegitimate and illegal utilisation of funds over and above the expenditure cap can never be done through open and lawful means. Those resorting to expenditure in excess of the cap would continue to use black money. 

The claim that the total cash circulating in the economy has fallen after the EBS is not factually correct. The RBI’s Annual Report for 2022-23 states that as of March 2023, the total currency circulating
in cash is worth Rs.33,48,228 crores. The RBI’s own official data shows that this number has been steadily increasing over the last six years. Source: RBI Annual Reports dated 2019-20 and 2022-23 at https://rbidocs.rbi.org.in/rdocs/AnnualReport/PDFs/8CURRENCYMANAGEMENT31110531A057411F9EADC90842596B4B.PDF and https://rbidocs.rbi.org.in/rdocs/AnnualReport/PDFs/0RBIAR201920DA64F97C6E7B48848E6DEA06D531BADF.PDF 

The EBS does not tackle the problem of black money. Consequently, the issue of “confidentiality” in order to ensure clean money in election funding does not arise. 

The confidentiality under the EBS remains an asymmetric, or partial confidentiality and cannot protect against reprisals. This is because, first, it is always possible for the ruling political party to discern broad
patterns of donation via electoral bonds: for example, the ruling party will know how much it has received from a particular corporate donor; it will also know the “total” of how much that donor has donated via
electoral bonds under the disclosure in its books of accounts required by Section 182 of the Companies Act, 2013. Thus, if the total donations disclosed by the corporate donor exceeds the amount the party in
power has received, it will immediately know that the said corporate donor has patronised its political opponents. Consequently, the EBS does not solve the problem of “victimisation” and “reprisals” that the
Respondent expresses concern about; rather, it exacerbates it since corporates cannot resist demands made by ruling parties for donations under the EBS on the ground that these payments would expose them
to criminal liability. Secondly, the trigger for full disclosure under the EBS is the existence of a First Information Report (FIR), which is an extremely low threshold for the political Executive which has the
instruments of law and order at its disposal. Once again, information about donations - upon this trigger being met - will be to agencies or instrumentalities under control of the incumbent. During the course of
oral argument, the Learned Solicitor General invited this Court to “read down” this clause to add in the requirement of a court order; it is respectfully submitted that the impugned Scheme must stand or fall
on its own terms; it cannot be altered on the basis of concessions made across the bar.

Ever since the 1970s, it is well accepted that the test for a violation of fundamental rights - including
Article 14 - is the test of effect. The effect of the EBS - both structurally and empirically - is an undue pro-incumbent benefit; this, it is submitted, should attract this Court’s anxious scrutiny, as one of the surest signs of democratic decay is when legal regimes are designed in a manner so as to concentrate greater economic or political power within incumbents, and thus impede the periodic transfer of power that marks all healthy democracies.

The asymmetric confidentiality incorporated by design into the scheme of the EBS has a spin-off harm, in that it keeps the political opposition as well as the voter in the dark about donations to the ruling party, and whether those donations have (or have not) reflected in policy outcomes. This prevents open debate, since the lack for information precludes lawful critique or questions about potential crony capitalism, and further undermines the democratic public sphere.

Even if the Respondent’s arguments about confidentiality are to be accepted, the EBS fails to pass the test of proportionality. The threats of victimisation or harassment can be dealt with on a case-by-case basis, rather than through a blanket denial of the voter’s right to know. Respondent has failed to engage with this argument.

The EBS clearly fails the final prong of the proportionality standard. While denying any possibility of favour as a result of donations, it presumes the fact of disfavour and invokes the possibility of victimisation (which, it may be stated, assumes the failure or partisanship of the State, the investigative
agencies, and the courts), which may be suffered by an indeterminate set of big-money political donors, as a justification for denying every voter the right to know who funds political parties. This is not, under
any circumstances, a constitutionally compliant “balancing of interests” under the proportionality standard.

The EBS grants a privilege to corporations to make unlimited and anonymised contributions to political parties without any oversight whether externally by regulators or internally by the requirement for shareholder approval. By way of the EBS, a corporate entity is permitted to (i) be equated with a citizen of India; (ii) interfere and influence with the electoral process; (iii) give unlimited funding, irrespective of its profitability, thereby permitting the Board of Directors to forego their fiduciary duty towards its shareholders and (iv) hide from the shareholders as to which political party the Company has given
funding to. The Solicitor General has already conceded in his oral arguments that to the extent that the present scheme allows a company that does not even make profits to make donations, it may be struck
down. This all-encompassing privilege cannot be justified on the single plank of “donor privacy.”

The union government has argued that the amendment to the Reserve Bank of India Act, 1934 was to only facilitate the issuance of bearer bonds by the State Bank of India. However, the amendment made to sub-section 3 of Section 31 of the Reserve Bank of India Act, 1934 grants power to the Central Government to
“authorise any scheduled bank to issue an electoral bond” without requiring any RBI approval. Further, this amended provision does not set out any legislative policy for the exercise of this power and amounts
to excessive delegation which is unconstitutional. The contours of the scheme are thus not legislatively set out, but are within the domain of the Executive to frame. The EBS was notified on 02.01.2018 in
purported pursuance of power under sub-section 3 of Section 31 of the Act by the mere issuance of a notification by the Ministry of Finance. Similarly, the EBS was amended on 07.11.2022 to allow a 15 day window of purchase to be notified before elections to state legislative assemblies by the mere issuance of a notification by the Ministry of Finance, without RBI needing to give any approval.

It concluded that the EBS, and the legislative amendments that enable it, are violative of the Constitution and this Court may be pleased to strike them down as unconstitutional. 

Oral Arguments 

Introduction of the Scheme of Electoral Bond

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