Menu

Association for Democratic Reforms vs Union of India

Case Comment, Publications

JUDGMENT DATE – March 26, 2021

PETITIONER  – ASSOCIATION FOR DEMOCRATIC REFORMS AND ANOTHER

RESPONDENT(S)- UNION OF INDIA & ORS

BENCH -S. A. Bobde (CJI), A. S. Bopanna, and V. Ramasubramanian

CITATION: Association for Democratic Reforms v. Union of India, [2021] 2 SCR 851 : Writ Petition (Civil) No 880 of 2017 – referred to

FACT

The case Association for Democratic Reforms (ADR) vs. Union of India (2024) revolves around the Electoral Bond Scheme (EBS), which has been introduced by the Government of India in 2018 to facilitate and promote political donations in an anonymous way. Under the scheme, corporations, individuals, and other entities could procure electoral bonds from banks designated for the purpose and donate them to any political parties of their choice. While the purpose of this scheme was to curb black money and promote transparency in the electoral process, it facilitated for donations in anonymous way, thus making it impossible for voters to track the source of political funding. Further this raised alarming concerns about the potential for corporate and foreign nations’ influence in Indian politics, with critics putting forward that it could lead to undue influence on policy making of the government for public and compromise the democratic process of the same. In response to the concerns, the Association for Democratic Reforms (ADR), along with the Communist Party of India (Marxist) (CPI(M)), filed a petition which shall challenge the constitutionality of this scheme, arguing that it is a clear violation of right to information which is guaranteed under the Article 19(1)(a) of the Constitution of India. The petitioners further contended that voters have the right to know the sources of funding for the political donations to make electoral choices in an informed manner, and the scheme’s lack of transparency is a potential threat to the very integrity of the electoral process itself. On the Contrary the government has been defending this scheme, arguing that it is necessary to handle the problem arising due to black money and to protect the donor’s privacy, and also to comply with existing laws.

ISSUSE RAISED

The petitioners have challenged the Electoral Bond Scheme on various grounds:

  1. Unconstitutionality of the Scheme: Whether the Electoral Bond Scheme infringes upon the right to information and the principles of free and fair elections.
  2. Violation of Article 14: Whether the scheme’s provisions are arbitrary and discriminatory, thus breaching the right to equality.
  3. Infringement of Right to Information: Whether the non-disclosure of donor information contravenes citizens’ right to information under Article 19(1)(a).

CONTENTIONS BY PETITIONER: 

The above said petitioners were the only political party that has rejected funding through the Electoral Bond Scheme (EBS), henceforth their challenge to its true nature and validity. They concerns were about the legitimacy of the constitution by exempting of the 7.5% cap on such donations, arguing that this shall facilitate the establishment of numerous shell companies. The EBS in its true form intends to promote transparency in democracy. The EBS Act regulates by imposing caps on the expenditures of political parties and candidates for electoral spends, with penalties for any such non-compliance. Thereby representing an effort in order to reform the financial mechanisms which has an influence in the electoral process.

Free and Fair Elections

The EBS is in clear approach to the concept of free and fair elections vide the nation, which is believed to be a part of basic structure doctrine upheld by the Court. The Indian democratic system in is based on participatory democracy, which has been facing challenges due to significant inequality of income among the citizens. Corporate funding of political parties may lead to a quid pro quo situation, causing unequal participation of all citizens in the democratic process.

Transparency

The EBS, by allowing unlimited funding, treats corporations on equal footing with citizens. However, as a juristic person, a corporation does not enjoy the same constitutional rights as an individual. A transparent and well-regulated electoral process is vital for maintaining democratic legitimacy. Political funding is necessary for informed voter engagement, and the lack of transparency in funding would reduce voter awareness and weaken the democratic process.

CONTENTIONS BY DEFENDANT:

Curbing the Parallel Economy

The Government of India (UOI) argued that the Electoral Bond scheme (EBS) helps to address donor reluctance by promoting the use of legal banking options for contributions while maintaining the anonymity of donors’ identity. The sole purpose of the Scheme was to protect donor confidentiality, and if this privacy were to be compromised, it would surpass the entire purpose of the scheme. EBS mandates company/corporate donations through electronic banking modes to minimise the circulation of black money and to address nations black money problems.

Rationale of EBS

The Solicitor General stated that the Scheme (ESB) protect the privacy of donors by withholding the identities of the citizens, helping them to support political parties without fear of consequences. In this framework, the Court’s observation in Vinay Narayan Sharma v. UOI was allude to, where the Court seemed to recognize the steps taken by the government to battle black money. Furthermore, the Right to Information (RTI) Act shall not apply in this case, since the Central Government also does not have access to contributor’s identity. Hence the government cannot disclose what it does not know about. It was argued that genuine governmental interest is a requirement for the exercise of constitutional rights.

Tying a Common Thread to Secret Ballot

Legal experts have reasoned that whole transparency in all aspects of government is neither practical nor desirable. It was also proposed that if secret ballots, a commonly accepted method of articulating one’s opinion, are used in voting, the same shall be applied to donor anonymity. This would support to protect the veracity of free and fair elections. The respondents accentuated that the Court should consider the public interest in guaranteeing fair elections, transitioning to a banking scheme for contributions, while also bearing in mind the right to privacy under Article 21 of the Constitution.

RATIONLE/JUDGEMENT: 

This Supreme Court judgment lectures petitions seeking to declare the Electoral Bond Scheme, 2018 unlawful and to stay the sale of electoral bonds. The petitioners contended that the scheme’s concealment provisions were harmful to a healthy democracy. The Court eventually dismissed the applications for a stay, finding no reason for it at that point. The Court emphasized the prevailing safeguards within the scheme, including transactions through approved banking methods, KYC compliance for procurers, and the prerequisite for political parties and companies to file audited financial statements that would eventually reflect these transactions. The Court also noted that repetitive applications seeking for the same relief were not acceptable.

Key Themes and Arguments:

Challenge to the Electoral Bond Scheme:

  • The Association for Democratic Reforms (ADR) and Common Cause filed a Public Interest Litigation (PIL) challenging the legitimacy of modifications made to various acts (Reserve Bank of India Act, Representation of the People Act, Income Tax Act, Companies Act, and Foreign Regulations Contribution Act) through the Finance Acts of 2016 and 2017. These modifications enabled the Electoral Bond Scheme. The petitioners also pursued a direction that no political parties would agree to take contributions in the form of cash.
  • The fundamental argument of the petitioners, chiefly Prashant Bhushan, orbited around the anonymity provided for donors under this scheme, which they argued was harmful to a healthy democracy. They proposed this would lead to quid-pro-quo provisions, predominantly favouring the ruling party.

Government’s Defence of the Scheme:

  • The Attorney General argued that the Scheme was intended to control the use of black money in elections by delegating transactions through approved banking modes of transactions only.
  • The Election Commission of India (ECI) braced the Scheme.

RBI’s Initial Reservations and Subsequent Position:

  • The court accredited that the Reserve Bank of India (RBI) initially had hesitations about the scheme. However, the court elucidated that the Reserve Bank of India (RBI) did not oppose the scheme in principle.
  • “Therefore, it may not be correct to say that the Reserve Bank of India (RBI) was divergent to the Scheme in principle. RBI’s objection was to the bonds were issued in the form of scripts rather than in the form of demat. RBI’s intentions were to achieve, in their own words, the twin advantage of (i) providing anonymity to the contributor; and (ii) ensuring that consideration for transfers is through banking channels and not cash or other means. In fact, RBI called Electoral Bonds as ‘a stable reform, reliable with the Government’s digitization push’.”
  • The RBI’s concerns were chiefly about the form of the bonds (physical scrip vs. dematerialized form) and the likelihood for misuse. They suggested safety measures, many of which were merged into the final scheme released:
    1.  The EBBs may have a tenor of maximum 15 days.
    2.  The purchase of EBBs would be allowed from a fully KYC compliant bank account of the purchaser.
    3. The EBBs can be redeemed only by way of deposit into the designated bank account of an eligible political party.

Court’s Reasoning and Interim Orders:

  • The Court had previously passed an interim order on 12.4.2019, directing the political parties to submit detailed particulars of donors to the ECI in sealed covers.
  • The Court emphasized that repeated applications seeking the same relief were generally not permissible. “Therefore, once this Court has passed an Order on 12.4.2019 directing some interim arrangement, thereafter applications for the same interim relief cannot be made, every time the window for the purchase under the Scheme is opened.”
  • The Court stated that the interim arrangement was made because it was not possible to decide all the issues within the limited time available before the process of funding through Electoral Bonds came to a closure.

Safeguards within the Scheme:

  • The Court iterated various safeguards built into the Electoral Bond Scheme which includes:
  • Eligibility criteria for political parties to receive bonds (registration under Section 29A of the Representation of the People Act, 1951, and securing at least 1% of the votes polled).
  • Encashment is possible only through designated bank accounts.
  • Mandatory KYC compliance for every buyer.
  • Validity period being 15 days for the bonds before which it shall be redeemed.
  • Payments for bonds strictly to be made in Indian rupees only and only through approved banking channels.
  • The Court stated that while the Scheme provides anonymity, it needs to ensure that transactions shall occur through existing approved banking channels only: “Despite the fact that the Scheme provides anonymity, the Scheme is intended to ensure that everything happens only through banking channels…As a result the information about the purchaser would certainly be available with the SBI which alone is authorised to issue and encash the bonds as per the Scheme”.
  • The Court has addressed concerns pertaining to the transparency of the scheme, advising to publish the audited accounts of political parties and make financial statements of companies purchasing the bonds publicly available. “Since the Scheme requires political parties to file audited statement of accounts and also since the Companies Act requires financial statements of registered companies to be filed with the Registrar of Companies, the purchase as well as encashment of the bonds, happening only through banking channels, is always reflected in documents that eventually come to the public domain.”

Dismissal of Stay Applications:

  • The Court established there was no justification rendered for granting a stay on the scheme, since its inception in 2018, its periodical implementation, and the existing interim order.
  • The Court dismissed the concerns relating to foreign corporates and nations might influence the electoral process as the scheme clearly specifies that the electoral bonds can only be procured / purchased by Citizens of India or entities established/incorporated in India. “Under Clause 3 of the Scheme, the Bonds may be purchased only by a person, who is a citizen of India or incorporated or established in India.”

Key Facts:

  • The Electoral Bond Scheme (EBS 2018) was introduced by the Central Government on 2.1.2018.
  • The scheme facilitates the purchase of bonds from KYC-compliant bank accounts.
  • Political parties registered under Section 29A of the Representation of the People Act, 1951 and securing a minimum of 1% of the votes polled or more in the last general election to the legislative assembly or the House of the people shall be entitled to receive funds through the bond.
  • The State Bank of India (SBI) has been the only bank authorized for issuance and encashing of electoral bonds.
  • The bonds are not tradable.
  • Under this scheme, it mandates all participating political parties shall file audited statements of the respective accounts for scrutiny.

Defects of the Law:

  1. Anonymity in Political Donations:
    • The Court highlighted the lack of transparency in regards to political donations is an immense flaw. The electorate should be able to access the information pertaining to political donations for assessing whether the political parties are being influenced by corporations or foreign entities as undisclosed sources.
  2. Unregulated Political Funding:
    • The scheme paves way for unlimited contribution of funds to the political parties, which, the Court observed, shall cause undue corporate influence on the electoral process and policy making. The Court noted that this compromises the equitable nature of electoral system and elections.
  3. Failure to Protect Electoral Integrity:
    • The judgment held that the Electoral Bond Scheme exposes the electoral process to risk by no assuring to safeguard electoral integrity. The Court stated on a deep note that the political transparency is key factor to ensuring that elections are held democratically and not unduly influenced by financial forces hidden.
  4. Absence of Adequate Scrutiny:
    • The Court criticized the lack of public debate in a comprehensive way, regarding the amendments introduced to the laws governing political funding. It noted that reforms to the policies needs to undergo public and legislative scrutiny before implementation.

INFERENCE BY THE COURT 

The Supreme Court judgment upheld a cautious approach towards balancing concerns about transparency and democratic principles with the government’s motives of curbing unaccounted money in elections. The court acknowledges few merits in the scheme’s safeguards while also reinforcing the importance and need for further examination of the concerns raised by the petitioners.

NAME:  GAYATHRI M

COLLEGE: TAMIL NADU Dr AMBEDKAR LAW COLLEGE, SCHOOL OF EXCELLENCE IN LAW, CHENNAI