Author: Pratyush Mahapatra

Introduction

India’s political funding system was fundamentally changed when the Supreme Court ruled the electoral bond scheme unconstitutional. This scheme allowed individuals and corporations to make anonymous donations to political parties through “electoral bonds” purchased at the State Bank of India (SBI). The Court held that the lack of transparency in this scheme prevented citizens from obtaining critical information necessary for exercising their democratic rights protected by Article 19(1)(a) of the Constitution.

As of when this decision was made, political parties had received an unprecedented amount of money from the sale of electoral bonds, and official statistics showed that the ruling party received a disproportionately large share of total funding revealed under the new transparency rules created after the court’s ruling. Therefore, the lack of transparency also created real concerns regarding quid pro quo relationships, corporate lobbyists, and the significant imbalance in the flow of information with regard to participating in democracy. This article will look at the Supreme Court’s review of the statutory framework that created this scheme, how it interpreted the constitutional and statutory principles involved, and the anticipated impact this ruling will have on political finance reform in India.

The Legislative Background of Electoral Bond Scheme

The introduction of the Electoral Bonds Scheme occurred via amendments made by the Finance Act of 2017 that amended the Representation of The People’s Act Of 1951, The Companies Act Of 2013 and The Income Tax Act Of 1961. This amendment changed the legislation governing the way in which political parties must disclose funds received from individuals or businesses; specifically, it creates an allowance for businesses to provide monetary assistance to political parties with limited transparency to the general public.  Barred from being identified either as to who is making the contribution or who is receiving the contribution, these bonds provide no information to the public regarding either the purchaser or the recipient. 

The Government is supporting the Scheme as a way to help eliminate the use of “black money” when funding political candidates, while simultaneously making political candidates financially operationally viable through more efficient means of funding. On the other hand, many people are critical of this action; the critics argue that the concept of electronic political financing would be preventing any other forms of financing and placing power in the hands of those with the most financial ability to contribute.

Constitutional Issues raised before the Court

The main court case, which is associated as the ‘Association for Democratic Reforms versus the ‘Union of India’, was a coalition formed to challenge the constitutionality of the funding mechanism for political parties in India. This coalition included both citizens and political actors who believe that this funding mechanism is a violation of their fundamental rights as well as the democratic norms of the country. A five-member Constitution Bench of the Supreme Court, with Chief Justice D Y Chandrachud, examined if the statutory framework that created electoral bonds violated citizens’ right to access information and related freedoms.

A. The Constitution protects individuals’ rights to freedom of expression under Article 19 (1) (a). The Court interpreted this article as giving individuals a broader right to access information regarding the political processes occurring within their country. One of the arguments made by petitioners was that when voters do not have access to data regarding where political funding is generated from, how much money is being generated, and who is benefiting from that money, they do not have the ability to make an informed choice when voting. The Court accepted the view of petitioners that “information about funding of political parties is necessary for the effective exercise of the choice of vote”.

The Court held that the anonymity of individual and corporate donors and recipients imposed by the Electoral Bond Scheme limited voters’ rights to access information and thereby interfered with voters from being able to make informed choices. The Supreme Court found that the lack of transparency between donors, recipients and the amounts donated would result in the electorate not having the ability to participate meaningfully in the electoral process.

B. By establishing equality before all laws and creating a rational distinction between prior statutory frameworks concerning political donations to corporation(s), the amendment legislation appears to violate this law by creating the ethical obligation for the corporation to disclose those contributions in excess of prescribed levels. The scheme allows limitless corporate contribution to political parties and candidates and does not require public disclosure of these contributions, which is clearly against the principle of equality or the concept of manifestly arbitrary behaviour.

Interpretation of the Supreme Court

The Supreme Court’s ruling was based on numerous interrelated conclusions: 

1. Right to Information violated – The Electoral Bond Scheme did not grant adequate information to a citizen relating to an important element in making an informed voting decision and as such violated Article 19(1)(a) of the Constitution of India. 
2. Lack of proportionality – The Court applied a proportionality-based approach when ruling that the Electoral Bond Scheme failed to satisfy both the requirement of being the “least restrictive means” as well as being the only means of controlling ‘black money’ in political funding, and therefore failed to successfully balance competing interests.
3. Unregulated corporate contribution – The Amendments to the Companies Act allowing unlimited corporate contributions to politicians were ruled to be arbitrary under Article 14 of the Constitution of India. 
4. Mandated disclosure – The Court ordered the State Bank of India (SBI) to disclose specific information to the Election Commission of India (ECI), including the dates of purchase and encashment, the names of purchasers, and the denominations of the encashed bonds, with the ECI publishing the information on its website. 
5. Cessation of electoral bonds – The Court terminated both the issuance and encashment of electoral bonds, thus putting an end to the use of electoral bonds as a form of political financing. 

The overall outcome of this decision demonstrates that the principles of democratic transparency cannot be sacrificed for the sake of administrative convenience or for the false assertion that the use of electoral bonds represents a form of political reform without at the same time undermining the power of the citizenry and ensuring the continuation of democracy.

Problem of Anonymous Political Finance

On the point of political funding in India, the ruling is seen as a “Game-Changer” to the law. The Court held that because the right to democratic participation resides in the Fundamental Rights, when the public does not have knowledge of political funding through Financial Influences, democratic participation is diminished. Further, in order for an informed electorate to exist, transparency in the election process and political contributions is a critical part of the process for both preventing undue Influences on political candidates and preventing the potential for Corruption.

In line with the Court’s Ruling on the issue of political Funding, after April 2019, the State Bank of India has now furnished the Court with information regarding the transactions of their electoral bond program. The findings indicate that the majority of political donations have been made by a limited number of corporate entities to a small number of political parties. Clearly indicating the basis for the Judicial Review of this issue.

The Decision also carries with it implications for the Institutional Environment. Political Parties will now have to operate in an environment with an increasing emphasis on Disclosure. There may also be a need for the Parliament of India to pass additional legislation regarding the practice of Political Funding to ensure that evaluations between Transparency and Donor Privacy are done fairly.

Democratic Accountability after the Verdict

The Supreme Court’s review mirrors the growing interest internationally regarding political financing and election law. Many democratic nations require disclosure of political donations that exceed a certain dollar amount and limit the amount that corporations or foreign persons can contribute to promote the integrity of the election process. While prior to the court’s ruling, India had required all political parties to disclose all contributions received over ₹20,000 under Section 29C of the Representation of the People Act, the introduction of the electoral bond system diminished this requirement. The judgment issued by the Court reflects this same principle that a citizen’s ability to make an informed choice is paramount in establishing a legitimate government.

Conclusion 

The Supreme Court’s ruling on Electoral Bonds is a turning point for democracy in India and its relationship with political financing. Contrary to what the previous system had indicated (where anonymity was placed above transparency) and in accordance with democratic principles, the Supreme Court reaffirmed that voters must have the information needed to make informed choices to be politically active. Also clarified in this ruling is that any limitations on voters’ ability to know who provides financial support to candidates cannot be justified without being proportional to the funding process itself.

While the Supreme Court’s decision invalidates the legality of the Electoral Bonds, it does mean that the Legislature still has the responsibility of creating an appropriate and constitutionally compliant statutory framework which will adequately balance voters’ rights to obtain information about political candidates and finance with privacy and legitimate needs of funding. Thus, the Supreme Court has established a solid constitutional base on which the Legislature may develop the process for accountability in political financing, along with a well-defined desire and obligation for governmental transparency.