Examining the Supreme Court’s Stance on the Electoral Bond Scheme: Right to Know and the Span of the Scheme

Examining the Supreme Court’s Stance on the Electoral Bond Scheme: Right to Know and the Span of the Scheme

The Supreme Court in a recent order refused to stay the sale of electoral bonds under the Electoral Bond Scheme (“EBS”) before the legislative assembly elections. The EBS, brought in 2018, allows individuals, companies, Hindu Undivided Families, associations etc. to purchase electoral bonds and transfer them as donations to political parties, without revealing their identity. The scheme had been challenged earlier in 2019 on the ground that such anonymity in the donation process infringes the citizen’s right to know about the contributions made to political parties and their sources. However, the Supreme Court postponed the issue for a detailed hearing after the Lok Sabha elections and gave some directions to the political parties. The author in this piece examines the previous and the latest orders to argue that they have not looked at the scheme together with the amendments to existing acts, undervalued the right to know and are based on unsatisfactory reasoning.

Rationale in Context of Relevant Amendments

The then CJI, Justice SA Bobde ( “CJI”) while denying a stay on the scheme, observed that “it is not as though the operations under the Scheme are behind iron curtains incapable of being pierced.” In other words, it was said that there is no absolute opacity in the transactions under the EBS as it requires the political parties to give an annual audit report and further the companies act requires registered companies to file their financial statements. The court held that as these statements by the political parties and the companies can be matched together to find out which party has received how much donations from which company, there is no need to put a stay on the scheme. The order, however, lacks full consideration of the amendments which have been done in different acts for the implementation of EBS.

Firstly, not any section of the EBS but proviso (c) to section 13A of the Income Tax Act requires political parties to submit an annual audit report. Nevertheless, proviso (b) to the same section has been amended to implement the scheme to clearly state that there is no requirement for political parties to maintain a record of transactions done through electoral bonds. Thus, due to the exemption, electoral bonds have been completely rendered out of the scope of the annual audit. Moreover, as per the amendment to section 182(3) of the Companies Act, the companies are no longer mandated to disclose the name of the party or the particular amount it has donated to a specific party. Instead, they are only required to disclose the aggregate amount of money which has been contributed under the section. Thus, in the absence of any obligation either on the political parties or on the companies to keep a record of electoral bond based transactions and to disclose the same, it is inconceivable how any matching between the two can be done. 

Further, the court also summarily dismissed the contention of the petitioners that foreign corporate houses can buy the electoral bonds and can influence the Indian electoral process. According to the court, as per clause 3 of the EBS the electoral bonds can be purchased only by a person, who is an Indian citizen or incorporated or established in India. However, this statement also comes with a prima facie ignorance of relevant amendments to the Finance Act and Foreign Contribution Regulation Act (“FCRA”). After the amendment to section 236 of the Finance Act and the corresponding section 2(1)(j)(vi) of the FCRA, even if a foreign company has a greater than 50% stake in an Indian company, the entity would not be deemed to be a foreign source if it complies with the investment limits under the Foreign Exchange Management Act (“FEMA”).

This is problematic because the latest rules made under FEMA allow more than 50% investment and even 100% investment from foreign sources in many sectors like agriculture, railway infrastructure, pharmaceuticals etc. The EBS, therefore, has a potential to lead to a situation where Indian companies can be used just as a medium to bring political funding from foreign sources as foreign companies can practically own the entire stake in Indian companies in accordance with FEMA limits. Moreover, the feature of anonymity almost negates the possibility that any detail of such funding would be disclosed.

Aspersions on the Purpose of the Scheme

On the presumption that the court’s ruling is correct, the order despite upholding the validity of the scheme, leads to doubts on its object and purpose. As put forth by the government, during the release of the EBS notification, one of the main purposes behind the scheme was to ensure anonymity of the persons who make the donations. In response to the challenge to the scheme in 2019 it was responded from the government’s side that anonymity was necessary because the revealing of the identity of the donors would lead to pressure from other political parties for receiving donations. However, since the Supreme Court’s latest order observes that one can get the information about the identity of the bond’s purchaser (donor) and the party to which it has been donated by matching the financial statements of the two, the scheme in a way falls short of ensuring the anonymity of the donor. Thus, either the scheme is failing to serve one of its prime purposes or the court has erred in ruling that the public can easily get the information about such transactions. If the former is correct then the very need of the scheme in the first place becomes questionable as it is not performing the function for which it is claimed to have been brought. If the latter is correct then the scheme fails to explain how its procedure is not opaque and does not violate the citizen’s right to know.

Scope of the Right to Know and Its Constant Misinterpretation

Accountability of public institutions and transparency in their functioning are inevitable for a true democracy. Lack of information on the working of public/state authorities hinders the power of the people as it destroys the very basis on which they can scrutinise the functioning of the state and is therefore inconsistent with principles of representative government. In a 2013 ruling, the Central Information Commission (“CIC”) said that political parties are public institutions within the ambit of Right to Information Act. Also, it has been observed by the Supreme Court in the case of PUCL v UOI that citizens have a fundamental right to know the details of a contesting candidate under Article 19(1)(a) to properly exercise their right to expression through voting. Similarly, details of the sources of funding of political parties are equally important (considering the significance of political parties in Indian elections) as it makes the citizens aware of the covert inclinations of parties and thus allows them to take an informed decision in their choice of parties. In addition to the fact that the parties have not abided by the CICs ruling in giving data about their internal functioning, the EBS scheme is a supplemental violation of the same. Further, both orders of the Supreme Court have fallen short in giving adequate importance to the citizen’s right to know in the context of financial functioning of political parties. In the 2019 order, though the court directed political parties to submit details of the purchaser of the bond and its amount to the Election Commission of India (“ECI”), the same was to be done in a sealed cover. Meaning thereby that the general public would not be made aware of the details given to the ECI. This is problematic because it mistakes the people’s right to know about the sources of political funding (for taking informed decisions) with the need of regulating unauthorised financing of parties. Information about electoral bonds is essential for the public not only because the citizens should know if a party is being financed by unauthorised sources or not. But also because they should have access to the details about the authorised sources in order to understand the leanings of political parties and their hidden interests in making legislations or policy changes when in power.

In the latest order it was observed that as the purchase and encashment of the bonds can happen only through banking channels, it is necessarily reflected in the documents that eventually come into the public domain. In furtherance the CJI said “All that is required is a little more effort to cull out such information from both sides and do some ‘match the following’.”  This stance is both evasive and in disregard of the Right to know. Firstly, it circumvents the issue that even if such information at some point of time comes in the public domain, it may be at a time where its relevance would be diminished because elections would have already been conducted and people therefore, would not be able to incorporate this information while voting until the next elections. This dodging stand is further evident from para 21 of the order where the Court said that the issue of political parties not submitting their annual audited accounts is a different matter and cannot be considered under the present application. Secondly, the CJI’s statement treats the right to know as though it is not a right at all. It indirectly amounts to saying that the one seeking information should find it on one’s own. By denying the stay for the reason that the information about electoral bond transactions could be obtained by making “more efforts”, the order shifts the burden from the political parties to the individuals or organisations seeking such information. The approach therefore, rather than considering the right to know as a fundamental right treats it as a favor which could be done only if the information seeker is helpless in obtaining the information on its own.

Conclusion

The orders of the Supreme Court, have failed to correctly assess the degree and range of violations done by the EBS. The Court’s observation that the details of funding through electoral bonds can be accessed by the people is prima facie faulty in the light of amendments to the Income Tax Act and the Companies Act which exempt the disclosure of electoral bond transactions and names of parties with the specific amount donated to each of them. The order interprets the right to know in a very restricted manner and also sidelines the important issue of foreign funding without any due consideration. Therefore, in the author’s opinion the order requires reconsideration on the ground of violation of right to know, harm to electoral transparency and vulnerability of elections to foreign funding as a result of the EBS.


This article has been written by Vaibhav Yadav, student at National Law University, Delhi.