The Supreme Court on Monday referred to a Constitution bench of five judges the final adjudication of a clutch of petitions that have challenged the validity of the central government’s electoral bonds (EB) scheme as a source of political funding.

A three-judge bench, led by Chief Justice of India Dhananjaya Y Chandrachud, highlighted that the importance of the matter calls for setting up a larger bench to deliver an authoritative verdict.

“In view of the importance of issue raised, and with regard to article 145 (3) of the Constitution of India, the matter be placed before a bench of at least five judges. The matter will be retained on October 31,” said the bench, which also included justices JB Pardiwala and Manoj Misra.

Article 145(3) lays down that the cases that involve a substantial question of law in the matter relating to the interpretation of the Constitution should be heard by at least five judges.

On October 10, the three-judge bench had fixed October 31 and November 1 to finally hear the matter, clarifying that the arguments in the matter will be wrapped up over the two dates being fixed and directed the Centre and other parties to submit their written submissions in the meantime. The assignment of dates for final hearing came after a gap of more than two years as the last effective hearing of the matter had taken place in March 2021.

On the day, the court said that the issue of money bill, which has already been referred to a seven-judge bench and is pending there, would not be raked up before it and that the adjudication of the EB scheme will confine to a raft of other issues flagged by the petitioners.

During the brief proceedings on October 10, advocates Prashant Bhushan and Shadan Farasat, highlighted the chief grounds of challenge to the EB scheme, arguing that the funding is anonymous at various levels: identity of donors are not known; the amount donated by each of such donors is kept under wraps; and even the shareholders are not apprised of the details of their company’s donation to the political parties.

Bhushan appeared for a petition filed jointly by the Association for Democratic Reforms (ADR) and non-profit Common Cause in 2017 while Farasat represented the Communist Party of India (Marxist)

According to Bhushan and Farasat, EBs reek of secrecy that violates the people’s right to know, besides promoting corruption in elections that go to the root of democratic functioning in the country.

Bhushan, during the hearing, also urged the bench to decide the matter as early as possible, and preferably before the EB window for the 2024 Lok Sabha elections open.

Representing the Centre, attorney general R Venkataramani said that though the government is ready to argue the matter, the challenge to certain amendments passed as money bill could keep cropping up during the hearing of the matter and therefore, a clarity is required on the point.

The bench agreed with the A-G and asked the petitioners whether they wish to await the outcome of a case where the contours and features of a money bill are to be determined or want to go ahead without a reference to the money bill. Both Bhushan and Farasat said that they would want the matter to be argued expeditiously without the reference to the money bill.

The A-G, on October 10, also informed the bench that the next 10-day window for purchasing EBs will open on October 14.

In order to bring in the EB scheme, the Centre had made multiple amendments by way of two Finance Acts— Finance Act, 2017 and Finance Act, 2016, both passed as money bills (not necessitating the oversight of the Rajya Sabha). The petitioners challenged the amendments as being “unconstitutional”, “violative of doctrines of separation of powers” and violative of an array of fundamental rights. The passage of the amendments as money bills were also challenged.

The EB scheme was first announced by former finance minister Arun Jaitley during the 2017 budget session and was notified in January 2018 as a source of political funding by way of money bills introducing amendments in the Finance Act and the Representation of the People Act. There were certain amendments also carried out in the Companies Act, Income Tax Act Foreign Contribution Regulation Act (FCRA) and the Reserve Bank of India Act, to implement the EB scheme.

These bonds are issued by the State Bank of India and donations made under this scheme by corporate and even foreign entities enjoyed 100% tax exemption while identities of the donors are kept confidential both by the bank as well as the recipient political parties.

Under the 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 the Election Commission of India. The donor can donate the bond to a party of their choice, which can cash it within 15 days, only through the allotted account.

The bonds go for sale in 10-day windows in the beginning of every quarter -- in January, April, July and October, besides an additional 30-day period specified by the central government during the Lok Sabha election years.

In March 2021, the top court had dismissed two stay applications moved by the ADR to stop the sale of the electoral bonds ahead of elections in West Bengal, Tamil Nadu, Assam, Kerala and Puducherry. It held that there was no justification to block their sale over concerns of anonymity in political party funding or apprehensions of their misuse and that the sale had continued “without any impediment” in 2018, 2019 and 2020 as well.

Earlier, in April 2019, the top court introduced an interim “safeguard” by directing all political parties to submit details of receipts of the electoral bonds to the Election Commission of India (ECI) in a sealed cover. This was done as an interim measure till the pending petitions challenging the validity of these electoral bonds were decided.

At that time, the ECI had supported the existing system of political party funding through electoral bonds although the constitutional body flagged lack of transparency which it said could be considered at a later stage.

The Centre has however maintained that the EB scheme ensures transparency and is a powerful check on the use of illicit money in elections. In October last year, solicitor general Tushar Mehta, appearing for the Centre, had told the court that the methodology of receiving money though EBs is “transparent”, adding it is impossible to get any money in black anymore.

The petition by ADR and Common Cause, filed in September 2017, claimed that such an anonymous route of funding amounted to legitimizing bribery as corporates could fund the party in power in a state or Centre as a matter of quid pro quo. These donations enjoy 100 per cent tax exemption and even foreign companies can donate through Indian subsidiaries, they added.

“The Electoral Bonds Scheme has opened the floodgates to unlimited corporate donations to political parties and anonymous financing by Indian as well as foreign companies which can have serious repercussions on the Indian democracy,” the ADR claimed, adding that the Finance Act of 2017 exempts contributions by way of electoral bonds to be disclosed to the EC under Section 29C of the Representation of Peoples Act.

Petitions by CPI(M) and advocate Ashwini Upadhyay have also raised issues pertaining to electoral bonds and have been tagged with the ADR’s plea, which is the lead matter in the case.

(Only the headline and picture of this report may have been reworked by the LatestLaws staff; the rest of the content is auto-generated from a syndicated feed.)

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