Electoral bonds fail to provide a level playing field: Supreme court

The Supreme Court on Wednesday asked the Union government if electoral bonds (EB) for political funding “legalise kickbacks” to political parties, and observed that the scheme not only seemed to create an “information hole” by perpetuating “selective anonymity” of the donors but also failed to provide a level playing field.

The five-judge Constitution bench, led by Chief Justice of India (CJI) Dhananjaya Y Chandrachud, further observed that striking down the EB scheme would not mean pushing political donations to the era of unaccounted cash and black money because the government is not precluded from coming out with a “transparent scheme or a scheme which has a level playing field”.

As it heard a batch of petitions challenging the validity of the EB scheme, the bench questioned the government over the scheme’s confidentiality clause that prevents the public or even the shareholders of a donor company from accessing the details of contribution to political parties.

Introduced in 2018, EBs are issued by the State Bank of India (SBI) and donations by corporate and even foreign entities through Indian subsidiaries get 100% tax exemption while the identities of donors are kept confidential both by the bank and the recipient political parties. The public sector bank, however, is obligated to disclose the details following a court order or a requisition by the law enforcement agencies.

“The problem with the scheme is that it provides for selective anonymity. It’s not completely anonymous. It’s not confidential qua SBI or the law enforcement agencies. So, a large donor will never take the risk of buying these bonds for tendering it to a political party. All that a larger donor needs to do is to disaggregate the donation to several people who will purchase the EB with small amounts through official banking channel. A large donor will never put his head on the line by being in the books of account of SBI. This is what the scheme is capable of because it provides for selective anonymity,” the bench told solicitor general (SG) Tushar Mehta, who appeared for the Centre, defending the scheme.

While Mehta argued that potential abuse cannot be a ground to hold the scheme bad in law when it really intended to move the cash-driven political donations to formal banking channels, the bench, also comprising justices Sanjiv Khanna, BR Gavai, JB Pardiwala and Manoj Misra, pointed out that the “opacity” of the EB scheme also leads to disturbing the level playing field in the electoral polity with the majority of funds invariably going to the party in power, whether at the Centre or in the states.

“What we are now doing is that in the effort to bring in white money into the electoral process, essentially, we are providing for a complete information hole. That is the problem. The motive may be perfectly laudable, but the question is whether you have adopted means which are proportional or do the means meet the test of Article 14 (right to equality)?” remarked the court, which will continue hearing the case on Wednesday.

Responding, Mehta called the confidentiality clause the “heart and soul” of the EB scheme, arguing that protecting the identity of donors was to incentivise them to shift the cash-based economy to the regulated legal economy, besides warding off backlash or reprisals from parties that do not receive donations from such entities.

But the bench asked Mehta whether there is a way to find out if the confidentiality clause is paving the way for a quid pro quo. “Does it give rise to a possibility of legalising kickbacks? Let’s talk about positives...you are legalising the funding. Whatever be the motivation for the receipt of the fund is, it’s the party that gets it and not the individuals or the rainmakers. But we have no way of knowing whether this is also legalising the motive for the inflow of the fund,” it added.

The bench clarified that it’s not concerned as to whether the present ruling political party is going to be the beneficiary or not. “We are testing a question of constitutionality. We take your point that it is part of our political system that whosoever is in power gets the larger share of the pie...Your case is whether you like it or not, this is the political system. This is how it operated. We have at least tried to improve upon it. The fact that we don’t succeed doesn’t reach out to the constitutional validity of the scheme,” it told Mehta.

Read Here: Centre has no access to details of donors of electoral bonds, SG Mehta tells Supreme Court

The SG, on his part, emphasised that there was a major change from the pre-2018 era when direct and usually untraceable cash dominated political donations. “Even if I assume the worst case against this scheme, the money will now come in white and through the banking channels,” he stressed.

The bench, however, retorted: “No, it’s legalising the kickback but giving the money to the political party as opposed to people who were earlier involved in it. That’s all. The difficulty is that even if the money is to be given through EBs, it’s under an umbrella of confidentiality.”

The bench suggested that the Centre could consider a scheme where all donations could be handed over to the Election Commission of India (ECI) for distributing it to the parties concerned. “If you really want to have the scheme on a level playing field then all these donations should go to the Election Commission of India and let them distribute it. You will realise no donation will come,” the bench told Mehta, who agreed with the bench that nobody will perhaps come forward to route donation through the election watchdog.

Hearing the case on the second consecutive day, the court also responded to Mehta’s concerns that quashing the EB scheme, as demanded by the petitioners, would lead to the times of cash-based unregulated funding system.

But the argument did not cut ice with the bench, which said: “Your submission is that if you strike down the scheme, you will go back to a situation which was prevalent earlier. But that will not be valid in itself for the reason that we are not precluding the government from coming out with a transparent scheme or a scheme which has a level playing field.”

It added: “The problem with the scheme lies in the facts that A: It does not provide a level-playing field for political parties and B: If it suffers from opacity, as the argument of the other side is, this is not to prevent the legislature or executive from coming out with a scheme which deals with these issues. We are not saying what it should be because that’s not our remit or the function of this court.”

On October 16, the court referred the clutch of petitions against the EB scheme to a Constitution bench of five judges. The petitioners included Association for Democratic Reforms (ADR), non-profit Common Cause, Congress leader Jaya Thakur, and the CPI (M). Arguing on Monday, the petitioners attacked the scheme, contending it has opened floodgates to unlimited corporate donations to political parties and anonymous financing by Indian as well as foreign companies.

Under the 2018 EB scheme, bonds are available for purchase at any SBI branch in multiples of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh and ₹1 crore and can be bought through a KYC-compliant account. There is no limit on the number of electoral bonds that a person or company can purchase.

Every party registered under section 29A of the Representation of the People Act and having secured at least 1% of the votes polled in the most recent Lok Sabha or state election has been allotted a verified account by ECI.