Case Description

The Supreme Court is assessing whether the electoral bonds scheme in its current form facilitates anonymous corporate funding in Indian elections. Further, it will evaluate whether the legislation that introduced the scheme was wrongly certified as a finance act, so as to circumvent the Rajya Sabha.

Background

CPI (Marxist) and two NGOs -- Association for Democratic Reforms (ADR) and Common Cause -- filed petitions before the Supreme Court challenging the electoral bonds scheme, notified by the Centre on January 2, 2018.

 

An electoral bond is a bearer instrument like a promissory note that is payable to the bearer on demand. Both individuals as well as corporations incorporated in India can donate to political parties using electoral bonds. Bonds can be purchased from the SBI Bank and can be encashed by political parties within 15 days. Any donor can purchase an electoral bond using a KYC compliant bank account and can donate to any political party in the denomination of Rupees 1000, 10000, 1 Lakh, 1 million and 1 Crore. The identity of the donor will be anonymous and will be known only by the bank.

 

The scheme were introduced through the Finance Acts 2016 & 2017, which mendmended four statutes – Foreign Contribution Regulation Act, 2010 (FCRA), Representation of Peoples Act 1951 (RoPA), Income Tax Act 1961 and the Companies Act 2013.

 

The petitioners allege that the scheme and the consequent amendments should not have taken the finance act route, thereby by-passing the Rajya Sabha's scrutiny. They argue that as it amended four statutes, it should have been tabelled in the Rajya Sabha.

 

In addition, the petitioner ADR has also filed a stay application on the Electoral Bond Scheme. The stay application is on two grounds:

  1. Almost all electoral bond donotions have been in favour of the Union Government
  2. Most bonds use the 1 million and 1 crore denominations, hinting that the scheme is primarily used by corporates and not individuals, who enjoy donor anonymity under the scheme.

 

The Election Commission (EC) submitted an affidavit in the Supreme Court opposing the government’s claims and saying that the electoral bonds will wreck its efforts to make political finance more transparent.

 

The EC alleges that the latest amendment to the Companies Act could lead to the infusion of black money through the route of shell companies and as a result, open up political parties to influence by foreign companies. Further, it emphasised that the amendments to FCRA 2010 make it possible for foreign companies owning majority stakes in Indian companies to donate to political parties.

 

The amendment to the RoP Act dispenses with the requirement on political parties to record donations received through electoral bonds in their contribution reports to the Election Commission. The Election Commission alleges that as a result of this amendment, it has no way of ascertaining if the donations received are from domestic companies or from foreign companies.

 

Similarly under the amendment to Income Tax Act, anonymous donations up to Rs 20000 have been allowed where the donor need not provide their names or PAN details. The Commission alleges that the political parties are facilitating anonymous donations by recording donations as being under Rs. 20000 to avoid any scrutiny.

 

The Government has defended the scheme as one which will promote transparency in political donations by prompting donors to take the banking route . The scheme envisaged a system where donations can be done through a verified KYC account and leave an audit trail for later investigations. 

 

On 12th April, the Bench passed an interim order, directing all political parties to submit to the Election Commission details of all bonds received until 15th May by 30th May 2019.

Issues

1) Whether the Electoral Bond Scheme was rightly passed as a Finance Act, bypassing the Rajya Sabha?

2) Does the Electoral Bond Scheme facilitate unaccounted anonymous political donations by corporations?

Judges