"Political contributions give a seat at the table to the contributor. This access also translates into influence over policy-making,” said Supreme Court Chief Justice D Y Chandrachud while declaring the electoral bond scheme illegal in a landmark judgment on February 15. The CJI’s sharp words underscore the notion of the unholy nexus between money power and political parties, and how anonymous donors through electoral bonds could have played a dominant role in electoral outcomes.
It took seven years for the Supreme Court to invalidate it after multiple parties challenged the constitutionality of the electoral bonds scheme, which was introduced in 2017. The court directed the State Bank of India (SBI) to stop issuing electoral bonds with immediate effect. Significantly, while scrapping the scheme, the five-judge Constitution bench upheld the voter’s right to information about who is funding political parties and their campaigns under Article 19(1)(a) of the Constitution.
Coming on the eve of the Lok Sabha elections, the verdict also has the potential to alter the political landscape of the country, says Jagdeep S Chhokar of the Association for Democratic Reforms (ADR), one of the lead petitioners against the scheme. It has been a long battle for Chhokar who first moved the court in 2017 challenging the validity of the scheme, which allows complete anonymity in political funding.
Speaking to this newspaper, Chhokar said that in its judgment, the SC categorically stated that a level playing field amongst various political parties is a significant component of democracy and the bond scheme vitiated the political system.
“In its ruling, the court categorically said that the level playing field amongst various political parties is a significant component of democracy. It also observed that anything that disturbs the level playing field is unconstitutional. That’s an important observation, which has a bearing on a lot of things in our political system. Going by the data, the uneven distribution of money is disrupting the level playing field,” he said. Vipul Mudgal, director and Chief Executive of Common Cause, a co-petitioner in the case, echoes the view.
“We filed the petition because the scheme was a regressive step as far as transparency of donations is concerned. However, the court did the best thing by upholding the citizens’ right to information over the privacy of any donor or individual,” Mudgal told this newspaper.
BJP, the biggest benefactor
Data shows how the scheme completely changed political financing in India. The ruling BJP received nearly 56% of the electoral bond funds between 2018 and 2023 March. In contrast, the Congress, the principal opposition party, got only 9.3% during the same period. The BJP received Rs 210 crore in 2017-18 when the bond scheme was introduced. In a significant increase, the party got Rs 1,450.89 crore in 2018-19, Rs 2,555 crore in 2019-20, Rs 22.38 crore in 2020-21, Rs 1,033.70 crore in 2021-22 and Rs 1,294.14 crore in 2022-23. In comparison, the Congress got Rs 5 crore in 2017-18, Rs 383.26 crore in 2018-19, Rs 317.86 crore in 2019-20, Rs 10.07 crore in 2020-21, Rs 236.09 crore in 2021-22 and Rs 171.01 crore in 2022-23, according to data sourced from the Election Commission. In FY 2022-23, the BJP got seven times more funds than the Congress from electoral bonds.
The BJP collected a maximum of Rs 2,555 crore in 2019-20 when the last Lok Sabha polls were held. Incidentally, the 2019 Lok Sabha election has created a record of being the most expensive in the world with an expenditure of a whopping Rs 60,000 crore. However, Congress received only Rs 317.86 crore during the same period. In its verdict, the SC also pointed out that the income from electoral bonds between the years 2018-19 to 2021-22 constituted 58% of the total income of the national political parties. The ADR data also show that the BJP received the lion’s share through electoral bonds between 2018 and 2023. Out of the total Rs 850.40 crore donated to national parties in 2022-23, the BJP alone garnered Rs 719.80 crore.
The Centre told Parliament in February that bonds worth over Rs 16,518 crore have been sold since 2018. Though the government still maintains that electoral bonds bring more transparency, statistics don’t support the claim. As per the ADR data, the share of unknown sources of income for national parties increased from 66% between 2015 and 2017 to 72% in 2019-2022. Judge Sanjiv Khanna, in his judgment, said that 94% of the value of donations came from electoral bonds of Rs 1 crore donation which indicates the “quantum of corporate funding”.
What are electoral bonds
It is a bond issued like a promissory note which shall be a bearer banking instrument and shall not carry the name of the buyer or payee. Touted as an electoral reform measure, the electoral bond scheme was introduced by the Modi government in 2017, which allowed individuals and companies to donate unlimited money to political parties in an anonymous way. Pitched as an alternative to cash donations, the then finance minister Arun Jaitley claimed that the scheme would bring more transparency and prevent black money in the system. It allowed an individual, groups or corporates to buy electoral bonds from SBI and donate them to any political party of their choice.
The interest-free bonds are sold in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and Rs 1 crore. Political parties that secured at least 1% of the votes in the last Lok Sabha or assembly elections were eligible to accept the bonds.
Amendments
Though introduced in 2017, the electoral bonds scheme was notified in 2018. The government used the money bill route to bring in the laws to bypass scrutiny by the Rajya Sabha. The government also swiftly pushed through amendments to the Representation of the People Act and Income Tax Act, which made the donations anonymous.
It also made amendments to the Companies Act, the Reserve Bank of India Act, and the Foreign Contribution Regulations Act (FCRA). Chokkar points out that the amendments have done away with the cap that companies could only donate up to 7.5% of their profit to political parties without disclosing the details. Also, the amended FCRA allowed foreign companies and even shell companies to donate to political parties without revealing their identity.
“With this, foreign entities can take control of the Indian political system, which is a threat to the integrity and security of the country. Foreign companies can donate to political parties through shell companies, which is a very risky thing. It also enables foreign companies to set up their subsidiaries in Indian arms just to function as a conduit for giving funds to political parties,” said Chokkar.
Since the inception of the scheme, the government has tweaked many rules, says Chokkar. In November 2022, the government through an official gazette, allowed the sale of bonds for an additional 15 days in years that have state elections. According to the RBI rule, only an additional period of 30 days was allowed to be specified by the Central government in the year of the Lok Sabha elections. From 2018, the sale of bonds was allowed for state elections also, says Chokkar.
“The bonds were introduced for Parliament elections. However, the government changed the rules several times. The rules say that the sale of bonds should take place only in the first 10 days of January, April, July, and October. However, they sold the bonds on the eve of two state elections in May and November 2018,” he points out.
Red flags by RBI and ECI
Even before the introduction of the electoral bonds, the Election Commission of India (ECI) and the Reserve Bank of India (RBI) had misgivings about the scheme. Regarding the removal of the cap on corporate donations, the RBI felt that it would pave the way for the setting up of shell companies for donations to political parties. The ECI also expressed reservations about anonymous corporate funding and said that it would have “a serious impact on the transparency of political finance/funding of political parties”. By removing the cap on corporate funding, the government allowed the complete takeover by corporates, says Mudgal. “The pitfall is that deep pockets will fund everything and the parties will carry their agenda. No party would need my `5k or 2k. They don’t want to carry my agenda,” he said.
March 13 deadline
With the SC setting a deadline of March 13 to publish the names and details of all donors to political parties, CPI(M) Politburo member Subhashini Ali says it will help uncover the quid pro quo between parties and corporate donors. The court has directed the SBI to submit the details of their encashment since April 12, 2019, to the EC by March 6. The EC has been directed to publish on its website the information shared by SBI by March 13. The Communist Party of India (Marxist), one of the petitioners who filed the plea against the scheme in 2018, is the only political party that did not accept donations through electoral bonds, says Ali.
“The BJP has been defending the scheme which was struck down by the SC as it sabotages democracy. The court said this could mean that there are very serious concessions being made in exchange for this money which is given in an opaque manner. So once the names and the amounts are revealed, people who care about cleaning up the electoral process will start making the connections,” said Ali.
An RTI query showed that the latest tranche of electoral bonds worth more than Rs 570 crore have been sold from January 2 to January 11, 2024, at 29 locations across the country. Mudgal says with elections around the corner, parties must have already utilised the money for their campaigns. Ali says that the recipient parties have the moral responsibility to return the money after the publishing of the list of donors.
Implications of the SC verdict
The judgment has larger implications and will set a precedent for political parties, says Chokkar. “The government had argued that the citizens have a right to know about the sources of funding of the candidates, but not the sources of funding of the political parties. But the SC made it very clear that political parties are as much part of the electoral system, perhaps even more important than the candidates. Therefore, citizens have a right to know about the sources of funding of political parties. This judgment will be used in a variety of ways and will set a good precedent in election-related cases in the future,” he said.
In another significant move, the court also struck down the amendments that were made to the Income Tax Act, the Representation of the People Act and the Companies Act. Before the amendments, political parties were mandated to declare all donations more than Rs 20,000. Also, there was a ceiling on contributions by companies that could donate a maximum of 7.5% of their net profits from the preceding three years.
The court noted that “Before the amendment, loss-making companies were not able to contribute. The amendment does not recognize the harm of allowing loss-making companies to contribute due to quid pro quo. The amendment to Section 182 of the Companies Act is manifestly arbitrary for not making a distinction between loss-making and profit-making companies.”
Bonds vs electoral trusts
While scrapping the electoral bonds, the SC suggested bringing back the existing Electoral Trust scheme, which was introduced by the UPA government in 2013. Unlike the electoral bonds, the trusts were required to submit to the ECI data on contributions from individuals and companies, and their donations to parties every year. While there is a view that the trusts will have more transparency as they are required to maintain books of account and documents concerning receipts, distributions, and expenditures, some say that loopholes are plenty.
RBI’s objections
On 2 January 2017, the RBI objected to the proposal to enable scheduled banks to issue electoral bonds
The proposal militated against RBI’s sole authority for issuing bearer instruments which have the potential of becoming currency. Electoral bonds, it said, can undermine the faith in banknotes issued by the central bank if the bonds are issued in sizable quantities
Though the identity of the person or entity purchasing the bearer bond will be known because of the Know Your Customer requirement, the identities of the intervening persons/entities will not be known. This would impact the principles of the Prevention of Money Laundering Act, 2002
Instead, the intention of introducing electoral bonds can be accomplished by cheque, demand draft, and electronic and digital payments. There is no special need for introducing a new bearer bond in the form of electoral bonds, it suggested
The RBI on 4 August 2017 made a counter-proposal. It said the Centre can consider issuing the electoral bonds on a transitional basis through the RBI itself
However, the draft of the electoral bond scheme said notified scheduled commercial banks, apart from the RBI, would have the powers to issue electoral bonds
The RBI objected to it on 14 September 2017, saying permitting a commercial bank to issue bonds would have an adverse impact on public perception as also the credibility of India’s financial system
It flagged the possibility of shell companies misusing bearer bonds for money laundering. The RBI recommended that electoral bonds may be issued in electronic form because it would reduce the risk of money laundering; reduce cost; and be more secure
The RBI’s committee of the Central Board shared its reservations, underlining that electoral bonds may not only be seen as facilitating money laundering but could also be projected as enabling it
