Why Electoral Bonds Are Unconstitutional

On Friday, a three-judge bench of the Supreme Court delivered an interim order pending a final judgment on a challenge made to the constitutional validity of the government’s electoral bond scheme, which was introduced in January last year. Regrettably, despite the palpably flagrant contents of the programme, the court refused to stay its operation. Instead, while terming the challenge “weighty,” and while being apparently mindful of unfavourably rewarding one or the other of the litigants before it, the court directed all political parties to furnish to the Election Commission, in sealed envelopes, details of electoral bonds received, including the identity of the donors and the quantum of the amounts deposited.

It’s hard to fathom, though, how this order balances the convenience.

Equally, it’s also difficult to understand the logic behind presenting details of the funding in sealed envelopes to the Election Commission. If there’s a single rudimentary principle at stake in the case, it is this: that the voters in a democracy have a right to know who funds the country’s political parties. But the interim order pays scant regard to such considerations, and, in the process, virtually sanctions the perpetuation of illegitimate political funding.

The electoral bond scheme, which was introduced through the Finance Act of 2017, allows an individual, or any “artificial juridical person,” including body corporates, to purchase bonds issued by the State Bank of India during specified days of the year. These bonds, which are in the nature of promissory notes, and which are issued in denominations extending from Rs 1,000 to Rs 1 crore, can be donated by the purchaser to a political party of its choice, and the party can then have the bonds encashed on demand. So far so good. But what the scheme also promises is complete anonymity of the donor. Not only is a bondholder entitled to keep its purchase secret, parties that receive donations are also mandated to maintain confidentiality of the donor’s identity.

This feature, as the petitioners in the Supreme Court argued, flouts the right to freedom of expression contained in Article 19(1)(a) of the Constitution. Voters and citizens, the court has previously held, are entitled to every piece of information that gives meaning and purpose to their right to freely express themselves during the electoral process.

It was with this principle in mind that the court in 2002 directed the Election Commission to mandate each candidate contesting election to Parliament or a state legislature to provide, as part of his or her nomination, among other things, information concerning any prior conviction or acquittal of a criminal offence, information concerning the assets owned by a candidate, and material on the nominee’s educational qualifications.

It was in the same vein that the court held, a year later, in PUCL v. Union of India, that while the right to vote may not be a fundamental right, the right to make a choice by means of the ballot is an imminent part of the right to freedom of expression. Freedom of voting as distinct from the right to vote is a species of freedom of expression, wrote Justice PV Reddi, carrying with it “the auxiliary and complementary rights such as right to secure information about the candidate which are conducive to the freedom.”

The electoral bond scheme, though, in allowing the clandestine funding of political parties clearly breaches this command. Consider, for instance, one of its plausible consequences: donors are now in a position to maintain secrecy of their identity to the public, but at the same time are in a position to reveal their identity to a political party, and seek smoothly, in return, for a deposit of an electoral bond, favours for their contribution.

Together with the introduction of the scheme, the Finance Act also removed a brace of existing standards that were meant to discourage the scourge of unlimited corporate financing of parties. The law eliminated an existing cap on donations, which permitted a corporation to contribute no more than 7.5 percent of its net profits over a course of the preceding three years. Therefore, not only can loss-making entities now contribute freely to political parties, now such companies are also under no concomitant obligation to disclose so much as the factum of the donation made to their shareholders.

Accordingly, as the petitioners in the Supreme Court pointed out, companies will likely be built—and perhaps have already been built—purely with a view to funnelling money into the coffers of specific political parties.

Shockingly, the Finance Act also amended the Representation of the People Act 1951, to remove an existing mandate that required political parties to submit details to the Election Commission every year of any contribution received by it in excess of Rs 20,000 from a person. In the absence of such a stipulation, it’s now impossible for the Election Commission to verify whether a party has received a donation either from a government company or from a foreign source, both of which are otherwise prohibited under the RPA.

In defence of the programme, the union government made two primary arguments. First, it claimed, rather incongruously, that the scheme helped remove black money from being used for election financing. But, as is evident from the various records of the court’s hearings, this argument appeared to have found little favour with the bench. Indeed, even the Election Commission, in its affidavit rebutting the government’s claims, had specifically asserted that the use of electoral bonds would affect transparency in political funding, by directly leading to the infusion of black money through shell companies.

Second, the government, represented by the Attorney General, argued that the public has no right to know where the political parties get their money from, so long as that money is legitimate. But this contention, as we’ve already seen, runs directly counter to the voter’s freedom under Article 19(1)(a), recognised by a long line of Supreme Court judgments.

The Supreme Court’s interim order may well have created a fait accompli insofar as the use of the scheme for funding the presently ongoing elections is concerned. But, ultimately, when the court hears final arguments and delivers its verdict one hopes it sees the scheme for what it is: an overt attempt at toppling the country’s democratic foundations.

Suhrith Parthasarathy is an advocate practicing at the Madras High Court.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.