Abstract:
What is the one thing that you cannot fight an election without…? Out of various answers what really stands out is ‘money’. It’s no longer a secret that money and politics go hand in hand and it will not be an exaggeration to say that elections cannot be fought without money as well as most importantly it cannot be won without money. The truth of electoral politics is you need money for advertising, for campaigns and for grass root mobilization. Elections are an expensive spectacle and to win them you need money which is why political parties raise funds in India that happens through what we call electoral bonds (EBs) – the subject of our research paper.
Political finance has long served as the wellspring of corruption in India. The electoral bond scheme was incepted in Indian polity through the Finance Act of 2017. These instrument were designed with an intent to introduce transparency into political financing while preserving identity of donors. They have been subject of scrutiny and debate; moreover recently this scheme has been scanned by the apex court of the country. Fairness in elections is like a delicious cake at the birthday party. Everyone wants the slice but only a few get the real deal while the rest are left with crumbs and empty promises.
Following the recent Supreme Court verdict on electoral bonds, this research paper provides a comprehensive analysis of electoral bonds systems in other major countries and evaluate their effectiveness in promoting transparency in political financing. It also examines the prevailing scenario of electoral bonds in Indian politics and discusses their implications in the context of societal will. Proponents of the electoral bond scheme points out their dormancy to curb black money in politics, on the other hand critics worry about their negative effect on the transparency. Additionally, the research paper suggests potential reforms to increase accountable and democratic governance in India. The research aims to study the electoral bond system and explain the judicial stance in India in the light of recent legal developments.
Key Words: Electoral bonds, political financing, transparency, accountability, politics, Supreme Court, other countries, societal, comparative analysis, verdict, amendments, cap, donation, funding, corruption, money laundering, judiciary
Introduction:
A new political funding mechanism titled as ‘electoral bond scheme’ has been devised by the -centre through enactment of the Finance Act 2017. Their operational framework was simple. If any individual, partners, companies, associations or corporates desired to make donations to political parties, they could approach to the selected (notified by centre) branches of State Bank of India and brought (tax-free) time-limited bonds in specified denominations (starting with minimum of Rs. 1000) during first 10 days of the four quarters of the year throughout. Subsequently, they could deposit into the registered bank accounts of political parties within 15 days. If the bond would not have been deposited within the specified time window, the bank was authorized to deposit that money into the PM relief fund.
After the inception of electoral bond scheme, the centre began enacting various amendments in the finance laws including the Company’s Act, the Foreign Contribution Regulation Act, Reserve Bank of India Act and Income Tax Act.
It removed the cap on corporate donations which was restricted to 7.5 percent of a firm’s average net profits in the past three years. It eliminated the requirement imposed on the companies to disclose its political donations. By modifying the definition of “foreign firm”, it expanded the channels from where the funding for the political purpose can be broadened. The Reserve Bank of India reserved to validate modifications to the RBI Act stating that the electoral bond scheme was vulnerable to money laundering, opacity and potential abuse. Additionally, the Election Commission of India had placed twin-fold objections on the scheme. Firstly, it highlighted that the scheme may indulge greater foreign influence in economy, politics and administration. Secondly, the legal loophole in the scheme’s framework may give rise to the situational crisis such as routing of dodgy money through shell companies. The Association for Democratic reforms (ADR) filed a Right to Information request and the information that comes on the table revealed that 95 percent of the electoral bond purchases in 2017-18 went to the ruling party.
Soon after the scheme was implemented, multiple parties including CPM, Congress leader Jaya Thakur and non-profit Association for Democratic Reform legally challenged the scheme before the Supreme Court.
This research paper delves into the background of electoral bonds, analysing their objectives, implementation, and the controversies surrounding their use. We will take an overview of what was the notion of judiciary and how the judgement determined the scheme to be unconstitutional. Further, the research prominently describes how electoral bonds have been subjected to controversies since its induction and have sparked debates in legal, media, and political as well as social circles about their validity.
Research Methodology
The research methodology involves an extensive range of review of scholarly literature, reports, articles, guidebooks, legal documents and judicial opinions that come out through a meticulous deliberations. It incorporates critical examination and appreciation of primary and secondary sources in order to assess the socio-political results and reactions of the EBs verdict, supported by appropriate citations and footnotes.
Review of Literature
As quoted by Dr. B. R. Ambedkar, democracy is not a form of government, but a form of social organisation. The chief architect of the Indian Constitution states that “political democracy cannot last unless there lies at the base of it social democracy. What does social democracy mean? It means a way of life which recognises liberty, equality and fraternity as the principles of life.” These words of Mr. Ambedkar propounds that that political transparency is not just about procedural mechanisms but also about ensuring that all sections of society have equal opportunities to participate in the democratic process. If the electoral bond scheme is executed, the individuals or the corporations who are purchasing the bonds would be identified by the parties. This may lead to favouritism. The CJI lead bench observed that the electoral bonds should not become a legitimization of the quid pro quo between the power centre and people who are really in that sense benefactors of this power.
Joseph Stiglitz, a distinguished economist and Nobel laureate, eloquently encapsulates the essence of transparency and its pivotal role in governance quoting that “Transparency is one of the most powerful tools we have for ensuring accountability and promoting good governance. By shining a light on government actions and decisions, transparency enables citizens to hold their leaders accountable, fosters trust in institutions, and helps to prevent corruption. Stiglitz’s assertion reinforces the fundamental importance of transparency in democratic societies, highlighting its role in curbing corruption and promoting ethical governance practices. In the context of electoral bonds in India, the thought emancipated by Stiglitz advances the critical need for transparency in political funding. The quote underscores that the integrity of electoral process is based on democratic principles including transparency and accountability.
- Understanding Electoral Bonds:
Electoral bonds are financial instruments through which individuals, corporates, unions can donate money to political parties without revealing their identity. These are interest free bearer bonds that can be purchased from authorised branches of State Bank of India. The said money instruments then can be transferred to registered political parties within specified time frame. The anonymity feature has been purportedly introduced to protect the finance givers from potential repercussions and to encourage legitimate contributions to political parties.
According to Dr. Raghuram Rajan, a prominent economist and former Governor of the Reserve Bank of India, electoral bonds can be defined as “a financial instrument introduced by the government to facilitate transparent political funding by allowing individuals and corporate entities to make donations to political parties”.
Dr. Jagdeep Chhokar, a renowned political scientist and founding member of the Association for Democratic Reforms (ADR), defines electoral bonds as “a mechanism intended to formalize and regulate the process of political donations by providing a structured channel for contributions to political parties”.
Dr. Pratap Bhanu Mehta, a leading political theorist and Vice-Chancellor of Ashoka University, describes electoral bonds as “a controversial method of political financing introduced by the government with the aim of enhancing transparency and accountability in political funding”.
These definitions highlight the diverse perspectives and interpretations surrounding electoral bonds, reflecting the complexities and controversies associated with this mechanism.
Comparative Analysis of proposed Indian Electoral Bond Scheme with other countries
Money is a key factor in politics. Electoral campaigning, advertising and other kinds of political solicitation requires ample amount of money. Political parties and a candidate always hunts for the sources from which financing can be channelized. The centre must have looked towards the electoral bonds scheme as a latch to open the treasure. But these are not unique to India; several countries have adopted similar mechanism to regulate political funding. A comparative analysis of electoral bond system across different nations reveals varying approaches the outcomes.
1. India: In India, electoral bonds were introduced in 2017 as a means to promote transparency and curb the influence of black money in politics. However, concerns have been raised regarding the anonymity of donors and the lack of transparency in political funding.
2. United States: The similar system as electoral bond scheme is functioned in USA in the form of political action committees (PAC) and super PASs. The loopholes in the system allows for significant contributions to be made anonymously through shell corporations or other intermediaries. This is how the political donations are facilitated.
3. Germany: Germany utilizes a system of public funding for political parties, wherein parties receive government subsidies based on their electoral performance. This model aims to reduce the dependence of parties on private donations and promote transparency in political financing.
4. Canada: Political contributors are strictly obliged to certain disclosure requirements, If individuals and corporations wish to donate above specified threshold limits, they are required to report and evaluate their donations. Additionally, specific corporations and unions are debarred to make political contribution and their list has been maintained for the scrutiny.
5. United Kingdom: The United Kingdom has implemented regulations to enhance transparency in political funding, including strict disclosure requirements for political donations and limits on campaign spending by political parties and candidates.
- Judicial interpretation of Electoral Bond Scheme
On 15th February 2024, the Supreme Court of India delivered its verdict declaring the electoral bond scheme unconstitutional and violative of Right to information under Article 19(1) (a) of the Constitution. The amendments made to the Companies Act, the Representation of People Act (RPA), Income Tax Act (ITA) were also struck down and the State Bank of India was directed to furnish the details of encashment of electoral bonds by various parties to Election Commission of India (ECI). The ECI will publish this information in the public domain through its website.
Earlier, S. 29C of RPA 1951 made a compulsion on political parties to disclose donations exceeding R. 20,000 and balanced the right to information with donor privacy. Finance Act 2017 introduced an exception that exempted donations through electoral bonds from disclosure requirements. The verdict uphold the earlier harmony between importance of transparency and privacy and struck down the amendment. S. 182 of Companies Act, 2013 restricted corporate donations up to 7.5 percent of the average profits of the preceding three fiscal years. The amendment removed the cap and disclosure obligations shouldered upon the corporates. The Supreme Court through its verdict nullified this amendment and cited concerns about unchecked corporate influence of Indian internal politics and administration. Looking at the changes proposed to S. 13 A (b) ITA 1961, electoral bonds funding was exempted from record keeping requirements; SC struck down this provision and observed that voter’s right to information must be given paramount consideration.
Shedding light on a critical concern of electoral bonds that it has potential to be misused as an instrument for money laundering; the Apex court raised a red flag. System of electoral bonds formalises political contributions and aims to mitigate the incoming flow of black money in Indian politics. Inherent anonymity paves a clandestine pathway for illicit funds to infiltrate the political arena. On the pedestal of proportionality test, the verdict established an equilibrium between the voters’ fundamental right to information and the state’s action.
Curbing black money, eradication of corrupt practices and protecting the donor anonymity were the core contentions of the government. However, the SC prioritized the voter’s right to information under Article 19(1)(a). The judgement exemplified application of double proportionality test and balanced out two competing fundamental rights viz. right to information and right to privacy. SC reminded the centre of the electoral trusts scheme which was notified by Central Board of Direct Taxes in the year 2013, to achieve their motive to safeguard the donor’s right to privacy.
The justices emphasized the regulatory stumbling blocks posed by electoral bonds. Tracking the flow of funds through these instruments presents a formidable challenging task for regulators. Efforts to monitor money transactions can get hampered due to the opacity surrounding donor identities .This regulatory blind spot undermines the efficacy of anti- money laundering measures, leaving loopholes ripe for exploitation by nefarious actors. The concern about money laundering through electoral bonds extends beyond regulatory shortcomings; it strikes at the heart of democratic principles. Money laundering subverts the integrity of electoral processes, eroding public trust in the fairness and transparency of governance. By enabling the injection of illicit funds into the political bloodstream, electoral bonds creates a severe threat to the democratic fabric of the nation.
Furthermore, there is a pressing need for legislative reforms to bolster the regulatory framework governing electoral bonds. Clearer guidelines and stricter enforcement mechanisms can serve as deterrents to money laundering activities. By imposing greater accountability on donors and political parties, legislative reforms can fortify the defences against illicit financial flows.
Ultimately, safeguarding the integrity of electoral processes requires a concerted effort from all stakeholders. Political will and commitment to transparency are essential ingredients in the fight against money laundering through electoral bonds. By upholding democratic values and fostering a culture of accountability, the bindings pronounced by the judges has become tool to mitigate the risks posed by illicit money inflow through the system of electoral bonds.
In nutshell, the Supreme Court’s scrutiny of electoral bonds as potential conduits for money laundering underscores the intensity of this issue. The anonymity afforded by these financial instruments raises concerns about transparency and accountability in political financing. Addressing the challenge of money laundering through electoral bonds demands regulatory reforms, legislative action, public awareness, and international cooperation. A few merits of EBs scheme were appreciated by SC. The judges accepted that the scheme protects the donors from fear of certain party’s backlash if the donor chose to support another party through anonymous political funding. The anonymity encourages legitimate contributions, diversifies the funding base and reduces reliance upon only a wrist full wealthy donors.
The constitution bench led by CJI concluded observing that the unlimited corporate funding to political parties infringes the principle of free and fair elections. The anonymity embedded in the electoral bonds scheme substantially violated the voter’s right to information and fundamental right to equality embodied in the constitution. Thus, finally, the SC invalidated the EB scheme and amendments made through the Finance Act of 2017 and removed the hindrance which was effectuated on transparency and accountability on the government.
Socio-political impact of the judgement
Our 75-year-old court whose power is sourced directly from the constitution of India can nullify executive acts, parliamentary laws and statutory as well as constitutional amendments too. In the present case, discourse pronounced by the SC has created profound socio-political implications and shaped a constitutional frame around the prevalent politics. The judiciary strived hard and preserved sanctity and integrity of the electoral process. Ultimately, it served as a stabilizer of democracy. This case touches on the very nature of India’s democratic polity and determinants are enlisted as follows:
- Restoration of Public Trust: Integrity in the electoral procedure is of utmost importance. The SC restored the faith of society and highlighted the necessity of transparency and accountability for successful democratic governance.
- Empowerment of Civil Society: The SC verdict welcomed the perspective put forth by advocates on behalf on civil society organization and activists. The demands which were shaped out of the many thoughts from public got a legal voice through the present case and it was properly addressed by the Apex court of the country. It empowered the pressure groups advocating for the transparency from the government.
- Political Reforms: The judgment catalysed discussions on political reforms and regulatory mechanisms to address the shortcomings of electoral bonds. It prompted policymakers to reconsider existing laws and regulations governing political financing, with a focus on enhancing transparency and curbing illicit practices.
- Legal Precedent: The judgment established a legal precedent for future cases involving electoral bonds and political financing. It set out a clear sight through the judicial interpretation using legal and constitutional lenses.
In a ground-breaking ruling delivered in February 2024, the Supreme Court elucidated the paramount importance of transparency in political financing and emphasized the imperative for regulatory measures to rectify the deficiencies inherent in the EBS.
Justice Chandrachud’s analysis highlighted the broader implications of the electoral bond scheme on Indian democracy. By allowing for undisclosed political donations, the scheme perpetuates inequality in political influence, as wealthy donors can potentially wield disproportionate power over policymaking and political outcomes. This unequal access to political influence undermines the principle of equality before the law enshrined in Article 14 of the Constitution.
Conclusion
The contribution of the electoral bond judgment to curb evasive politics and intrinsic blame – games is immensely significant. The constitutional virtues such as equality, democracy, transparency and accountability are promoted well by the opinion of judiciary. By addressing the deficiencies of the electoral bond scheme, the judgment reinforces democratic governance and fortifies the integrity of electoral processes against practices that threaten the foundations of democracy.
The discussions about merits and demerits of the electoral bonds had begun since inception of its proposal in 2017. Its proponents emphasized that the bonds showcases modernisation in the political financing as it was a bank-based scheme. Adding to that, the anonymity cover served to be a protection shell concealing the identity money contributors.
However, critics expressed discontent considering EB scheme to be a transparency deficient system which ignores the voter’s right to be aware of the sources of political finances. They seem to be engrossed about the scheme’s instrumentality in fostering corruption and undue influence. Furthermore, their contentions sounded worrisome about the potential misuse of electoral bonds for money laundering or funnelling illicit funds into political campaigns.
Hon’ble Supreme Court’s electoral bond verdict indeed manifested the thought progressed by Franklin Roosvelt – “We want a Supreme Court which will do justice under the constitution – not over it. In our court, we want a government of laws and not of men.”
A radial coverage of this judgement in which the scheme has been declared as unconstitutional and the statutory amendments are annulled firmly laid down that:
- The EBS scheme was snowed under mystery from the beginning.
- It not only compromised the transparency but also undermined the public’s right to information.
- When we proclaimed out loud with a pride that India is mother of democracy, the democratic governance and its norms ought to be foreseen in the system.
- The ECI which is served as constitutional watchdog must inculcate the provisions to maximize the transparency and accountability in the electoral landscape.
- The government must introduce and formulate a transparent dispensation of electoral funding through legitimate means because popular participation in the election is central to the social dynamics.
Thus, the judiciary, through her democratic approach, fixed a political error which could have caused a grave legal injury to the common man.
Author: Adv. Mukta Zadgaonkar