Why is it in the News?

A five-judge Constitution Bench of the Supreme Court on Thursday unanimously struck down the Centre’s electoral bond scheme which facilitates anonymous political donations for being unconstitutional.

Context:

• A five-judge Constitution Bench of the Supreme Court on Thursday unanimously struck down the Centre’s electoral bond scheme which facilitates anonymous political donations for being unconstitutional.
• It underscored that the scheme violates the right to information under Article 19(1)(a) of the Constitution.
• Additionally, the Apex Court nullified several amendments introduced by the government in vital laws to streamline corporate donations to political parties.
  • These amendments were incorporated through The Finance Act, 2016, and The Finance Act, 2017, preceding the implementation of the EBS in January 2018.
• The decision followed petitions from the Communist Party of India (Marxist) and NGOs Common Cause and ADR.

Key Highlights of the SC Judgement:

• Protection of Voters' Right to Information: The court emphasized that access to information regarding political party funding is crucial for informed voting.
  • It argued that economic disparities lead to political inequalities, as financial resources often translate into greater political influence and access to policymakers.
  • Thus, the Electoral Bonds Scheme (EBS) was deemed to violate Article 19(1)(a) of the Constitution, safeguarding freedom of speech and expression.
• Disproportionate Restrictions on Curbing Black Money: While acknowledging the importance of curbing black money, the court found the restrictions imposed by the EBS disproportionate.
  • It clarified that restrictions on the Right to Information (RTI) should align with Article 19(2) of the Constitution, which outlines reasonable restrictions on freedom of speech and expression.
  • Curbing black money was not deemed a valid reason for such restrictions.
• Right to Donor Privacy: The judgement delved into the notion of donor privacy, particularly regarding political contributions.
  • It affirmed that the right to informational privacy encompasses political affiliation.
  • However, it clarified that privacy does not extend to contributions aimed at influencing policies, emphasizing genuine political support over attempts to obscure motives, especially those of corporate entities.
• Limits on Corporate Political Contributions: The court declared unlimited political contributions by companies unconstitutional.
  • It highlighted the disproportionate influence of corporations on the political process compared to individuals.
  • Contributions from companies were viewed as business transactions aimed at securing benefits, which undermined the democratic process and equality in political participation.

What was the Existing System Before the Introduction of EBS?

• Before the enactment of The Finance Act 2016 and The Finance Act 2017, political funding operated under a different framework:
• Contribution Declarations: Political parties were mandated to declare all contributions exceeding Rs 20,000 without any exceptions.
  • Detailed records of donations exceeding Rs 20,000 were required for taxation purposes.
• Limits on Corporate Donations: Companies were subject to a cap on their political contributions, restricted to a maximum of 7.5% of their average net profits from the preceding three years.
• Amendments through The Finance Act 2017: The Finance Act of 2017 brought significant changes to political funding regulations by amending key legislations like the Representation of the People Act, 1951, the Income-tax Act, 1961, and the Companies Act, 2013.
  • These amendments introduced electoral bonds, altering the landscape of political party funding:
• Introduction of Electoral Bonds: Electoral bonds were introduced, effectively removing donation limits for companies.
  • The requirement to declare and maintain records of donations made through electoral bonds was eliminated, streamlining the process of political contributions.

Supreme Court Verdict:

• The recent Supreme Court verdict has reinstated the legal framework that existed before the enactment of the Finance Act, 2017, impacting various statutes:
• Representation of the People Act, 1951: The original Section 29C of the Act mandated political parties to report all donations exceeding Rs 20,000, specifying whether they were from individuals or companies.
  • Amendments introduced by the Finance Act, 2017 exempted donations via Electoral Bonds from this reporting requirement.
  • The Supreme Court overturned this amendment, asserting that the original provision effectively balanced voters' right to information with donors' right to privacy.
• Companies Act, 2013: Section 182(1) previously limited corporate donations to political parties to 7.5% of average net profits over three years.
  • Section 182(3) requires disclosure of all political contributions made by companies.
  • Amendments removed the donation cap and reduced disclosure requirements.
  • The Supreme Court struck down these changes, citing concerns about unchecked corporate influence in electoral processes.
• Income-tax Act, 1961: Section 13A(b) mandated political parties to maintain records of donations above Rs 20,000, including donor details.
  • Amendments exempted Electoral Bond contributions from these reporting requirements and introduced new donation methods.
  • The Supreme Court ruled that exempting Electoral Bond donations from record-keeping violated voters' right to information and struck down both amendments.

Supreme Court's Directives:

• Instructions to SBI: SBI is instructed to immediately halt the issuance of any further electoral bonds.
  • Provide detailed information on electoral bonds purchased by political parties since April 12, 2019, to the Election Commission of India (ECI) by March 6.
  • Furnish specifics including the purchase date, purchaser's name, and bond denomination for each transaction.
• Election Commission's Obligations: The ECI is directed to publish all received data from SBI on its official website by March 13, 2024.
• Return of Electoral Bonds: Electoral bonds within the 15-day validity period, yet to be encashed by political parties, must be returned.
  • The issuing bank will then reimburse the amount to the purchaser's account.

Evaluation of the Latest Ruling:

• The recent Supreme Court ruling establishes a rigorous standard for the state to justify its interference with fundamental rights, even when pursuing a conflicting right.
• It mandates that the state must prove that its action is the "least restrictive" and that no other methods of equal effectiveness exist to achieve its goal.
• Traditionally, the judicial balance between two fundamental rights has often favoured one right over the other.
• In numerous instances, the court has prioritized public interest over individual fundamental rights, thereby granting the state considerable authority.
• For instance, in 2018, the Supreme Court curtailed the right to protest near Delhi’s Jantar Mantar to uphold the right to a peaceful residence and the state's regulatory power over such activities.

What are Electoral Bonds and Why Were They Introduced?

• An electoral Bond is a type of financial instrument that functions like a Promissory Note and an interest-free banking tool.
• Any Indian citizen or organisation registered in India can buy these bonds after fulfilling the Know Your Customer (KYC) norms laid down by the Reserve Bank of India (RBI).
  • Before the introduction of Electoral Bonds, political parties in India relied heavily on donations from individuals and corporate entities to fund their election campaigns and day-to-day activities.
• The need for electoral reforms to address these concerns was highlighted by various stakeholders, including civil society organisations, electoral watchdogs, and the judiciary.
• In response, the government initiated efforts to reform the electoral system and enhance transparency in political funding.
• Electoral Bonds were introduced in India through the Finance Act, of 2017, as a means of reforming political funding and promoting transparency.

Key Features of Electoral Bonds:

• Anonymity: One of the key features of Electoral Bonds is the anonymity of the donor.
  • Unlike traditional forms of political donations, where the identity of the donor is disclosed to the public and the receiving political party, Electoral Bonds allow donors to remain anonymous.
  • This was intended to protect the privacy and security of donors and shield them from potential retribution or harassment.
• Denominations: Electoral Bonds are available in various denominations ranging from ?1,000 to ?1 crore (10 million).
  • Donors can purchase these bonds from notified banks in India, with the State Bank of India (SBI), the largest public sector lender in the country, being the only authorised institution to issue Electoral Bonds.
• Validity: Electoral Bonds have a validity period within which they must be redeemed.
  • As per the existing regulations, the bonds have a validity of 15 days from the date of issuance.
  • This timeframe is designed to ensure that the bonds are promptly encashed by the receiving political parties.
• Transparency: While the identity of the donor remains anonymous, the sale and redemption of Electoral Bonds are recorded electronically by the issuing bank.
  • This electronic tracking system is intended to enhance transparency in the overall process of political funding and enable regulatory authorities to monitor the flow of funds.