Case Analysis: Association for Democratic Reforms & Anr. v. Union of India & Ors. (2024) | Electoral Bonds Case

Case Title: Association for Democratic Reforms & Anr. v. Union of India & Ors.

Court: Supreme Court of India

Citation: Writ Petition (C) No. 880 of 2017

Judges: Dhananjaya Y. Chandrachud, C.J. and Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala and Manoj Misra, JJ.

Introduction

In any country with a democratic governance framework, the act of the State conducting elections and the people of the country engaging in them is of an inherent democratic nature. It is only through elections that people find the representation of ideologies/values similar to their own and satisfy the ‘of the people, by the people, for the people’ view as taken in democratic governance. Therefore, elections are equated to an act that is facilitating or instrumentalising democracy.

Considering the importance of elections, as detailed above, the Government of India on 2nd January 2018, notified of the Electoral Bond Scheme in exercise of the power entailed u/s 31(3) of the Reserve Bank of India Act, 1934. To further understand the nature of the scheme and its approach to relevant aspects, we may start with the definition of ‘electoral bonds’ as per Clause 2(a) of the 9 Electoral Bond Scheme ;

The Electoral Bond is a bond issued like a promissory note which is a bearer banking instrument and does not carry the name of the buyer.

Electoral bonds function similarly to promissory notes, available for purchase by both companies and individuals in India through the State Bank of India (SBI). These bonds can then be donated to political parties, which have the option to redeem them for cash.

Furthermore, the Scheme details that the said bonds may be purchased by any person who is a citizen of India, where ‘person’ includes a company, firm, HUF, association of persons either registered or not and every artificial judicial person not falling within such categories, and also any agency/office/branch of such a person. As per the scheme, only a political party registered u/s 29 of the Representation of Peoples Act, 1934 may be eligible to receive an electoral bond (Clause 3(3)). The non-refundable (Clause 7(6)) bonds, available for purchase for 10 days quarterly (Clause 8(2)), would be issued at values of Rs. 1000, Rs. 10,000, Rs. 1,00,000, Rs. 10,00,000 and Rs. 1,00,00,000 (Clause 5) having validity for 15 days (Clause 6)

In the present case, the Petitioners have challenged the Electoral Bond Scheme as well as a list of laws including, the Representation of Peoples Act, 1934, the Income Tax Act, 1961, the Companies Act, 2013 and the Finance Act, 2017, as unconstitutional and thereby sought to attract the Supreme Courts Writ Jurisdiction to be exercised over the matter.

Facts of the Case

The Government of India proposed to confer the authority of issuing electoral bearer bonds for donations to Scheduled Banks, compared to the original situation wherein only the Reserve Bank of India (hereinafter referred to as RBI) was accorded such powers. However, this was before the Finance Act, 2017 was passed.

Examining and assessing the situation, the RBI was threatened by the said proposal of the government and its potential to vitiate the sole authority to engage in such acts, vested with the RBI.

Thereafter, vide a letter dated 2nd January 2017 directed at the Finance Ministry, the RBI objected to such a proposal and fell back on 3 primary grounds to justify its objection of the same, they were;

• that the sole authority of the RBI, as the Apex Bank of India, to engage in such acts would be snatched from it, and that the issue of new electoral bearer bonds may result in wearing away the faith placed on bank notes,
• that although measures such as the ‘Know Your Customer’ procedure have been put in place, the identities of all of the subsequent intervening persons/entities will not be known, which would impact the principles of the Prevention of Money Laundering Act 2002, and
• that there was no requirement for there to be created, a new bearer bond in the form of electoral bonds, since the said intention could be accomplished through the already existing modes of payment/transfer of money such as cheques and demand drafts.

In response to the said letter, the Finance Ministry was of the view that the RBI had not properly understood the core objective behind issuing electoral bonds which was to ensure that the identity of the donor is anonymous and that only tax-paid money (money properly accounted for) is utilised for the said purpose. Further, as a counter to RBI’s contention that issuing such bonds may undermine faith in bank notes, the Ministry stated that the bonds being issued would only be valid for a certain period while being redeemed, after which they would be rendered ineligible for the same.

In light of the same, on 4th August 2017, the then Deputy Governor of the RBI, Shri B.P. Kanungo stated that India can consider issuing the electoral bonds on a transitional basis through the RBI under the existing provisions of Section 31(1) of the RBI Act and also laid out a list of safeguards that should be considered by the Ministry while issuing such electoral bonds. The safeguards related to the time frame of validity of such bonds, how easily available they are to be purchased, where they will be issued, KYC requirements and other such factors on similar lines.

Upon the draft Electoral Bonds Scheme being circulated to the RBI, it objected to the scheme granting commercial banks the power to issue such electoral bonds because it would harm the banking sector since the credibility of the central bank in particular might have been at stake.

Through a letter dated 14th September 2017, the RBI once again made suggestions to the Ministry to look at alternatives and thereby preferred for the electoral bonds to be issued in electronic form as they would place more security and oversight on related transactions. Moreover, the RBI regarded that doing so would also reduce the risk of the bonds being used for money laundering while simultaneously reducing the costs involved.

Subsequently, as a result of the conflict between the RBI and the Finance Ministry, the Scheme was put for deliberation/scrutiny before a Constitutional Committee which also, somewhat strongly, opposed the physical issuance of the forms. The Committee concluded that doing so runs the risk of not merely facilitating money laundering, but enabling it. The Committee also rightly pointed out threats relating to cross-border counterfeiting, and forgery, that could stem from executing the scheme in the said manner (physical issuance).

Finally, through an order dated 31 October 2023, the multitude of petitions was to be listed before a Bench of at least five judges given the provisions of Article 145(3) of the Constitution. It is in this background that the challenge to the Electoral Bond Scheme and the amendments is before the Constitution Bench.

Issues

• Whether the electoral bond scheme violated the right to information of the voters.
• Whether the lack of disclosure concerning voluntary contributions to political parties under the Electoral Bond Scheme and the amendments to the RPA, Companies Act and IT Act infringes upon citizens' right to information under Article 19(1)(a) of the Constitution.

Arguments Presented by the Parties

A. Petitioners

The Ld. Counsel representing the Petitioners contended that there was no need for the introduction of electoral bonds and also that the Scheme works somewhat counterproductively since cash donations are still allowed even after the introduction of the Scheme.

Moving on to the aspect of law which opened up the Supreme Court Writ Jurisdiction for the present matter was that of the nature of the amendments made to respective laws, which were observed as unconstitutional since;

(i) In terms of the Representation of Peoples Act 1934 - the amendments made therein i.e. introduction of Section 29C ran in retrograde to its objective of inducing transparency.

(ii) In terms of the Companies Act, the provisions of Section 293A as per the 1960 amendments to the 1956 Act were not in synchronicity with Section 182 of the 2013 Act.

(iii) There was no need to introduce Section 13A to the Income Tax Act, 1961, through the 1978 amendment, which would provide exemptions to political parties upon fulfilling certain conditions.

Furthermore, the Ld. Counsel on behalf of the Petitioners contended that the non-disclosure of information as detailed by the Scheme, was violative of Article 21 of the Indian Constitution based on the Right To Information and also that it has the potential to facilitate corruption.

Additionally, Ld. Senior Counsel Mr Kapil Sibal pointed out that the Scheme skews free and fair elections and also suggested that statutes which alter or purport to alter the electoral process should not be accompanied by a presumption of constitutionality.

B. Respondents (Union of India)

The primary rival contention was that the Scheme promotes confidentiality to contributors and also ensures that clean money is being utilised to fund political parties, which was otherwise allegedly not the case. Since the Scheme introduces electoral bearer bonds, it will spearhead change, since before the introduction of the Scheme, the process was mostly cash-based which incentivized the infusion of black money into political parties.

Furthermore, the Solicitor General of India stated:

“The state has a positive obligation to safeguard the privacy of its citizens, which necessarily includes the citizens’ right to political affiliation.” and relied further on the various provisions of the Scheme to portray how appropriate measures have been taken against problems made visible through foresight.

Supreme Court's Decision Invalidating the Electoral Bonds Scheme

While approaching the multi-faceted case at hand, the Supreme Court dwelled on several important aspects of law to carve out a baseline for determining the constitutionality of the said Scheme in question.

The matter is one relating to Article 21 and the well-recognised Right to Information, required for the Court to adapt its approach based on the question being asked. Thus, to arrive at a rational conclusion, the Supreme Court adopted a narrow view wherever necessary, and a broad view wherever necessary, signifying the importance of not confining to a specific bent of mind/judgement while hearing and deciding matters of varying nature.

Scope of Judicial Review

One of the first aspects elaborated upon by the Supreme Court was the scope of judicial review in the case, specifically in cases relating to economic policy. Relying on two major judgements i.e. Swiss Ribbons v. UOI and the case of Pioneer Urban Land and Infrastructure Limited v. Union of India, where the constitutionality of provisions of the Insolvency and Bankruptcy Code of 2016 were questioned, the Supreme Court in this case observed:

“The broad argument of the petitioners that the presumption of constitutionality should not apply to a specific class of statutes, that is, laws which deal with electoral processes cannot be accepted and that like a challenge to any other law, the petitioners would have to prima facie prove that the law infringes fundamental rights or constitutional provisions, upon which the onus would shift to the State to justify the infringement.”

Right to Information

Furthermore, the Supreme Court in this case paid heed to the Right to Information and its nature as a fundamental right, and whether the nature of such right changes if the subject is a voter and the matter is of elections/electoral processes. Tracing back of course to its root, the case of State of Uttar Pradesh v. Raj Narain sowed the seeds of the Right to Information being recognised as a fundamental right.

The Supreme Court therefore drew a tangent between the Right as it exists and its relation to open governance, further connecting it to the implications of the Scheme as discussed. This Court recognised that effective participation in democratic governance is not just a means to an end but is an end in itself. A few lines which accurately describe the stance of the Court in the context of the same are as follows:

A crucial aspect of the expansion of the right to information in the second phase is that the right to information is not restricted to information about state affairs, that is, public information. It includes information which would be necessary to further participatory democracy in other forms and is not restricted to information about the functioning of public officials.

In an attempt to tie up all the loose ends while contemplating such questions, the Court found itself struck with two further questions about the Right to Information on voting/election-related matters, which were,

(a) Whether the requirements of disclosure of information about “candidates” can be extended to “political parties”; and

(b) If the answer to (a) above is in the affirmative, whether information on the funding of political parties is “essential” for exercising choice on voting.

W.r.t Question (a), the Supreme Court began the discussion on India's preference towards an ‘open list’ rather than a ‘closed list’ election, which gives preference/primacy to candidates instead of political parties. On the flip side, however, the Supreme Court rightly pointed out that such a fact does not imply that the decision to vote is solely based on the individual candidate’s capabilities and not the political party. In the same context, the Supreme Court observed the prominence of political parties as electoral units in our Country, as intrinsic to our government and the process of government formation. Reliance was placed on the case of Rameshwar Prasad v. Union of India wherein priority was given to political parties, thereby making them ‘central to the governmental structure.”

The Court also incorporated principles relating to anti-defection law as laid out in the case of Kihotto Holohan v. Zachillu and finally, after much consideration, held that “the observations of this Court in PUCL (supra) and ADR (supra) on the right to information about a candidate contesting elections is also applicable to political parties.”

On 15th February 2024, in a unanimous verdict, the five-judge bench of the Supreme Court (SC), led by the Chief Justice of India (CJI), deemed the Electoral Bonds scheme as "unconstitutional." The SC, while scrutinizing the legality of the electoral bonds scheme, ruled that anonymous electoral bonds infringe upon the right to information and Article 19(1)(a).

On 18th March 2024, the Supreme Court mandated the State Bank of India to divulge all information regarding the electoral bonds by Thursday, March 21st.

On March 21, 2024, the State Bank of India notified the Supreme Court that it had fully disclosed all information related to the acquisition and redemption of electoral bonds to the Election Commission of India. This data will be published on the Election Commission's official website.

Conclusion

The electoral process stands as the cornerstone of democracy, ensuring that citizens can freely exercise their right to choose their representatives. Integral to this process is ensuring the upholding of our right to information which enables voters to make informed decisions by accessing transparent and comprehensive data about candidates, policies, funding and governance.

Ensuring the proper enforcement of the Right to Information fosters accountability, promotes civic engagement, and safeguards the integrity of democratic institutions, ensuring that all candidates/parties play by the rules, and a free and fair election process is carried out. As societies evolve, it remains imperative to fortify both the electoral process and the right to information, recognizing their symbiotic relationship in preserving the essence of democracy and empowering individuals to shape their collective future.

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