GS Paper II

News Excerpt:

The Supreme Court's five-judge bench will resolve the conflict between voters' right to know the source of political funding and companies' right to privacy and confidentiality while choosing which party to fund in the validity of the electoral bond scheme.

Background:

• According to the report released by the Association for Democratic Reforms (ADR) in July 2023, Electoral bonds have emerged as the primary source of donations for political parties in India, with the ruling party securing the majority share.
  • It reveals that between 2016-17 and 2021-22, political parties received a total donation of ₹9,188.35 crore through electoral bonds. The BJP received ₹5,271.97 crores, while other national parties collectively received ₹1,783.93 crores.

About:

Issues to be resolved in the current hearing by a five-judge bench:

• Electoral bonds legalised anonymous donations to political parties. This violation of citizens' right to know about the funding of political parties ultimately leads to corruption.
• The above two issues concern violating Articles 14, 19, and 21 of the Constitution of India.

Issues to be resolved later by the seven-judge bench:

• The electoral bonds scheme was passed as a money bill, circumventing the Rajya Sabha. A subsequent seven-judge SC bench will be hearing whether the electoral bond bill could be designated as a money bill.

Arguments in favour:

• Right to privacy: The government is constitutionally obligated to respect the zone of privacy, which includes political self-expression through voting or donations to one's preferred party or candidate.
• Tax obligations: The benefit of confidentiality is extended to the contributor under the electoral bonds scheme. It guarantees and encourages contributions of clean money. It ensures abiding by tax obligations.
• Digital transactions: Confidentiality in electoral bonds aims to convert the informal cash economy into a digital payments economy. To incentivise citizens to adopt this transition, anonymity requirements encourage people to use banking channels and reduce black money.
• It furthers the goal of Digital India as all transactions of electoral bonds are carried out via cheques or digitally.
• May aid the Opposition’s donors: Donations to groups not in power can be made without fear of retaliation because of confidentiality. The regulations protect fair elections, advance the public interest, and balance conflicting needs and the right to know. It also protects the donor from political targeting.
• Transparency: All electoral bonds issued are to be redeemed by the party's bank account, which is disclosed to the Election Commission of India. This streamlines the funding of the political party.
• Weeding out inactive parties: The use of electoral bonds helps to hold back political parties that are solely operated to collect funds from the public and are not politically active.
• Accountability: It makes the election funding safe and accountable, as any donation going above Rs 2000 is not legally required to be in the form of electoral bonds and cheques.

Arguments against:

• 90% of donations to ruling parties: The electoral bonds are “legalised kickbacks", destroying democracy and skewing the level playing field during elections. Over 90% of the donations go to ruling parties, making it apparent that they are meant for favours done or anticipated.
• Tool of favour and corruption: The influential entities may have covertly set up persons with verified accounts to purchase electoral bonds for them through the regular banking route to give favour or anonymously enter into a quid pro quo with ruling political parties.
• “Suppose ‘A’, a person, purchases electoral bonds worth ₹100 crores. ‘A’ is only used by ‘B’ for the purchase as he has a [verified or know-your-customer] KYC account. It is ‘B’ who donates to the political party. ‘B’ can also be an aggregator of electoral bonds by having 100 people buy bonds worth ₹1 crore each.
• The scheme promoted corruption. The donations could even be kickbacks from criminals seeking to avoid prosecution.
• Opacity: It does not require political parties to mention the names and addresses of those contributing to the reports filed with the Election Commission of India annually.
• It significantly affects transparency in political party finances and fundamentally alters the perception around political donations.
• Unaccountability: Electoral bonds infringe on citizens' fundamental ‘Right to Know’. It makes the political parties unanswerable and unaccountable by withholding crucial public information, which goes against the spirit of “Democracy” and the “Rule of law”.
• While people cannot acquire donor details through electoral bonds, the government may obtain donor information by requesting data from the State Bank of India (SBI).
• Amendments made via the Finance Acts of 2016 and 2017: Passed as money bills, the electoral bonds scheme has resorted to unlimited political donations. The amendments have removed the caps on campaign donations by companies and have legalised anonymous contributions.
• The Finance Act of 2017 has introduced the idea that the use of electoral bonds will be exempted from disclosure under the Representation of People Act, 1951.
• The Finance Act of 2016 has also amended the Foreign Contribution Regulation Act (FCRA), 2010, to allow foreign companies with subsidiaries in India to fund political parties in India.
• The amendments in the electoral bond scheme have allowed the corporate sector to conceal individual political donations from their shareholders.
• Such corporate donations violated the “right to conscience” — under Article 25 — of the shareholders, who may not support the political party that benefited from the contribution.
• Central agencies and lawmakers have repeatedly warned that it can potentially increase black money circulation and money laundering and termed it as a “bad precedent”.

Views on electoral bonds:

• Supreme Court: The Supreme Court had earlier requested that all political parties provide the ECI with a record of all donations made through electoral bonds.
• Additionally, it requested that the Finance Ministry shorten the 10-day timeframe to a 5-day during which electoral bonds may be purchased.
• Election Commission of India (ECI): The ECI told the Supreme Court of India that it does not approve anonymous donations to political parties.
• Reserve Bank of India (RBI): The central bank had warned the government that the bonds would "undermine the faith in Indian banknotes and encourage money laundering." 

Way Forward:

• Since the electoral bonds were launched, controversies have marred their implementation. Opacity and the unaccounted financing of political parties will have a counter-effect on democracy and should not be promoted. 
• The right to know about political party funding must be balanced with the right to maintain personal privacy.  Also, no right can be absolute.
• The judiciary must maintain separation of powers from other organs and not transgress the legislative comprehension field.