Analyzing the Supreme Court of India’s Devil-may-care posture in refusal to stay unholy bonds

This article is authored by Pragun Goyal, a first year student of NLU Delhi.


Introduction



Information is the currency of democracy. Its denial must always be suspect. – Ralph Nader


The bench comprising Chief Justice of India SA Bobde, Justices AS Bopanna and V Ramasubramaniam of the Supreme Court of India (‘SC’) in Association for Democratic Reforms & Anr. Vs. Union of India nixed to stay the application seeking stay of electoral bonds. It afflicts hardhanded detriments to the essence of democracy as it injures the voter’s right to know under article 19(1)(a). The SC failed to consider several intricacies of electoral bonds and did not break down the concerns raised by Election Commission of India (‘ECI’) and the Reserve Bank of India (‘RBI’). The underpinning ratiocination for the stay’s denial, that the release of electoral bonds in 2018, 2019 and 2020 was "without any impediment", is insufficiently persuasive and chuckle some. Going by this reasoning, then there was no need to abolish even female foeticide, triple talak etc., as even these were in practice for ages without much hue and cry. Besides not addressing the concerns, the delay in taking up the matter since 2017 also adds fuel to the fire especially when electoral bonds raises several question marks on the health of the Indian democracy.


Background of electoral bonds

Electoral bonds trace their lineage to the Finance Act 2017, which introduced certain amendments to the Foreign Contributions Regulation Act, Companies Act, Income Tax Act and Representation of Peoples Act. Due to its anonymity characteristics, it was flagged as an ‘obscure funding system which is unchecked by any authority’. Electoral bonds raised several issues through amendments which the ECI described as ‘a retrograde step as far as transparency of donations is concerned’. Important amendments crucial before us are:


  • According to the amendment to section 29C of Representation of Peoples Act 1951, political parties are under no obligation to report to the ECI, the donations received through electoral bonds.

  • The amendment to Section 182 of the Act took away the restriction that contributions can be made only to the extent of 7.5% of the net average profit of three prevenient financial years, which might allow newly formed/shell companies to anonymously donate through electoral bonds.

  • Section 182(3) was amended to remove the requirement that businesses disclose their political donations in their profit and loss statements.


Concerns not satiated

In its affidavit, ECI submitted that if donations are not reported to it, it would be impossible to ascertain if the political parties have taken donations from government companies and foreign companies, as prohibited under section 29B of Representation of Peoples Act 1951. The SC slap-happily observed that information could be extracted by doing ‘match the following’ of the accounts of the companies. The SC failed to take into account that companies need not separately specify in their profit and loss accounts the contributions made by them to different parties after the Finance Act 2017. ECI also flagged this as it would ‘compromise transparency’ and buoy up use of ‘black money for use of political funding through shell companies’.


Anonymous donations up to Rs 20,000 is the new mandate of the amendment to Income Tax Act. Forbye this, donors need not even provide their names or PAN details according to the amendment. As a result, political parties can escape scrutiny by documenting donations under Rs 20,000 and allowing anonymous donations. But the SC slurred over it by mentioning that since the law mandates political parties to file audited statement of accounts and the Companies Act requires financial statements of registered companies to be filed with the Registrar of Companies, the purchase as well as encashment of the bonds, happening only through banking channels, is always reflected in documents which are accessible to the public. Involvement of banking system does not ensure efficiency and accountability. The SC failed to consider that the Indian banking system is frequently under the spotlight, and usually for unflattering reasons, from an insupportable pileup of loans gone bad (non-performing assets or NPAs in banking parlance) to outright fraud to cronyism or worse.


The SC denied the aspect of increased foreign influence in Indian politics due to electoral bonds by saying that electoral bonds could be purchased only by a person, who is a citizen of India, or incorporated or established in India. But this reasoning is also puerile because the amendments to the Foreign Contributions Regulation Act, reveal that even foreign companies who have majority stake in Indian companies, can donate through electoral bonds under FEMA guidelines. The ECI has also flagged this as an amendment to ‘allow unchecked foreign funding of political parties in India which could lead to Indian policies being influenced by foreign companies’.


Reserve Bank of India’s ‘Let it be’ version

The then governor of RBI, Urjit Patel, mentioned concerns over physical format/scrip form of electoral bonds. He emphasised that physical electoral bonds can pass through many hands before reaching the political party, which would “leave no trail of the transactions and in the process of providing anonymity to the contributor and to the political party, anonymity will be provided to several others in the chain of transfer of the electoral bonds. This can render the scheme open to abuse by unscrupulous elements”. Due to these apprehensions, RBI preferred demat form to scrip form with it being the regulator. But the government maintained a hard stance on scrip form and bypassed concerns of the RBI. The RBI chose not to pursue the matter further due to its dissatisfaction with the government's response. The RBI unanimously decided, according to the minutes of an internal meeting held on October 18, 2017, that “if the Government decides to issue electoral bonds in scrip form through SBI, the Bank should let it be”. The SC also neglected concerns of RBI by saying that ‘Under Clause 14 of the Scheme, the bonds are not tradable. Moreover, the first buyer will not stand to gain anything out of such sale except losing white money for the black’. This is also misunderstood as issue of electronic bonds in scrip form is fraught with serious risk of money laundering as consideration for transfer of scrips from the original subscriber to a transferee and thereafter, till it is eventually given to the political party for encashment, will be paid in cash leaving no train of transactions which would be anonymous in character.


Denouement

The only thing in the garb of ‘safeguards’, that SC did was to direct political parties to share the information about the contributions received through electoral bonds with ECI in 2019. It’s amusing that the SC mentioned these as ‘safeguards’ in its latest judgment. Apparently, these directions applied only to bonds issued till Lok Sabha polls of 2019 and not further.


It’s disheartening that this refusal of stay on superficial grounds adds to the troubling track record of the SC. The SC should have discerned issues aptly as electoral bonds concern the health of our democracy. By refusing to stay, the SC seems to stray into pastures where it has no plausible fodder to chew. The SC should have taken into account the voters’ right to know, when it is the same court which strongly upheld the Right to Information as a fundamental right. Anonymity of the scheme, should have made the court double alert so that the electoral democracy of India is not defiled. Moreover, right to know is like the right to live. In the words of George Bernard Shaw, ‘it is fundamental and unconditional in its assumption that knowledge, like life, is a desirable thing’.


 
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