Electoral bonds case: Live updates from Supreme Court | Day 2

Highlighting a benefit of the present scheme, the CJI points out–

‘Now it goes to the party, does not go to the individual. That is the benefit. The party gets it as opposed to the individual. We have no way of knowing whether this is legalising the motive for the in flow of the fund.’

Justice Khanna asks– ‘If confidentiality is given, how do we ensure what was called quid pro quo - how do we ensure that this is checked?’

In response, the Solicitor General says that there is complete confidentiality.

‘The government cannot find out whether my learned friend has given to A party or B. That I will show from the scheme. But ultimately, you have to trust somewhere’, he adds.

Outlining the issue in dispute, the CJI says–

‘The heart really is whether we accept this submission - that look, if you require disclosure of identity, whether we like it or not, our political system is such that there would be a sense of vindication - that you paid this to this political party.’

CJI Chandrachud says– ‘The donor does not necessarily buy this bond. The person who buys the bond may not be the donor. The person who buys - their balance sheets will reflect the amount of bonds. The balance sheets of purchaser will reflect, not the donor.’

The Solicitor General refers to former Finance Minister Arun Jaitley’s 2017 Budget speech which introduced the electoral bonds scheme in the Parliament

“An effort, therefore, requires to be made to cleanse the system of political funding in India. Donors have also expressed reluctance in donating by cheque or other transparent methods as it would disclose their identity and entail adverse consequences.” [Text from the speech]

Addressing the Solicitor General’s argument on how the scheme avoids retribution, CJI Chandrachud points out–

‘Retribution is not avoided by the scheme. I will tell you the simple reason. Under the Companies Act, now modified, a company does not have to disclose to which political party it has contributed. But it has to show how much it has contributed. So a company says I have contributed Rs 400 crores this Financial Year. Now the party in power knows how much has come to it in terms of electoral bonds from that company...That mismatch is sufficient to know as to how much money has gone to the party in power.’

Justice Khanna highlights how the scheme disadvantages opposition parties and says–

‘Because of this selective confidentiality, the opposition party may not know who are your donors. But donors to the opposition party can be ascertained, at least by the investigative agencies. So they are at a disadvantage to question you on your donations. On the other hand, the opposition parties’ donations will be questioned.’

Justice Khanna says– ‘Victimisation and retribution is normally by a party in power, not by a party in opposition. So the figures which you are saying - that maximum donations are to the party in power, may not be logically flowing from the argument. The other issue is selective confidentiality...there are ways to get the information. It is easier for a party in power to get the information.’

Highlighting that confidentiality is required to prevent victimisation, the Solicitor General says–

‘Anything else other than keeping it confidential will not be able to address the problem of victimisation. And victimisation incentivises payment in cash.’

Flagging concerns with the scheme, CJI Chandrachud says– ‘What we are now doing is that in the effort of bringing white money in the process, essentially, we are providing for a complete information hole! That is the problem. The motive may be laudable. But the question is have you adopted proportional means?’

‘We are not saying what the scheme should be. Maybe the earlier scheme failed. Maybe it did not get you as much white money into the electoral funding as you otherwise would have liked but look at the safeguards in the earlier provisions’, the CJI says further.

Addressing the Solicitor General, the CJI says– ‘Your argument that look if you strike down the scheme, you will go to a situation which existed prior- that cannot be valid for the reason that we are not precluding the government from coming out with a transparent scheme or a scheme with a level playing field. The purpose of ensuring that electoral funding relies less and less on the cash component and more and more on the accountable component is a work in progress. We are with you on that.’

CJI Chandrachud says– ‘What will really happen is this- a large donor will never put his/her head on the line by being in the books of account of the SBI’.

Outlining how selective anonymity in the scheme is a problem, CJI Chandrachud says–

‘The problem with the scheme is that it provides selective anonymity. It is not completely anonymous. It is not confidential qua the SBI. It is not confidential qua the law enforcement agency. So a large donor would never take the risk of buying the electoral bonds. All that the large donor has to do is to disaggregate the donation, get people who will purchase electoral bonds with small amounts which will be then purchased by official banking channels, not through cash.’

SG Mehta points out that anonymity is required in political donations to ensure that there is no retribution.

‘If I gave to Party ‘A’ and Party ‘B’ formed the government, I would be facing victimisation and retribution and vice versa..practicality requires that I do so anonymously so that I am not victimised’, he says.

Elucidating upon the motivations guiding political donations, the Solicitor General says–

‘They know that if this party forms the government it would be more beneficial for us...by and large they decide as per their interest. They are not doing charity. They are doing their own business. It is market-driven. The more powerful the leader, the more capable the party, the more chances of success- I feel that I would be more comfortable doing my business. These factors are the ones based on which donations are made.’

Responding to the CJI, SG Mehta clarifies– ‘I would not be able to hazard a guess but figures say that whoever was ruling party possibly received...This is my reply, not the government’s reply. This is my assistance. Generally, every political party has its program and policies etc. They have their own working styles.’

The Solicitor General says that it is a norm for the ruling party to receive a majority of the donations.

Responding to this, CJI Chandrachud asks– ‘Why is it the norm that the ruling party is receiving the substantial part of donations?’

The Solicitor General refers to ADR’s 2017 report titled ‘Analysis of Sources of Funding of National and Regional Parties- FY 2004-05 to 2014-15’ to show the sources of political funding before the introduction of the electoral bonds.

He reads from the report– ‘The income of National Parties from unknown sources increased by 313%, from Rs 274.13 cr during FY 2004-05 to Rs 1130.92 cr during FY 2014-15.’

Outlining the ambit of the present hearing, SG Mehta says– ‘One thing is clear- your Lordships are not examining whether there can be political donations or not, you are examining how.’

‘If the element of confidentiality goes from the scheme, the scheme goes and we are back to the 2018 regime. Your Lordships may ask the petitioners what benefit they would get if we go ten steps back?’, SG Mehta says.

Informing the court about steps taken by the government to penalise shell companies, the Solicitor General says– ‘The second step was the registration of shell companies. Between 2018 and 2021, the Government of India identified 2,38,223 shell companies, and actions were taken. This is one of the vehicles through which unclean money passes.’

SG Mehta says– ‘Your lordships would recall that when the digitisation drive started, the government was being mocked- people said what is this? It is a utopian idea. Would a vegetable vendor accept digital payment? Now, a vegetable vendor does it. This is a part of this process. Our digital payment in India is seven times more than that of the US and EU put together. It is three times that of China.’

SG Mehta says that every country is grappling with the problem of black money in politics including India. He adds that every government did its bit to ensure that some methodology was adopted to eradicate black money from the electoral process. He points out that the present scheme is a deliberate attempt to ensure that clean money comes through banking channels to political parties.

As per an affidavit filed in the Supreme Court, the BJP has received over Rs. 5,271 crores as donations through electoral bonds, so far (Rs. 5271,97,58,000), while the Congress has received over Rs. 952 crores (Rs. 952,29,56,000).

Among regional parties, Biju Janata Dal received over Rs 622 crores, while YSR Congress got over Rs. 330 crores (Rs. 330,44,00,000).

Solicitor General (SG) Tushar Mehta responds– ‘I have an answer to that. But for the time being, to appreciate my arguments, remove the two expressions used repeatedly - anonymity and opacity. It is a restricted, limited, confidentiality which can be opened and the veil can be lifted by judicial direction.’

Justice Khanna enquires– ‘Because we have this opacity with regards to who is funding, the issue that may come up is, if there is a quid pro quo, how does anyone establish it?

Hegde submits– ‘Today whether it is a sum of Rs 1 crore or 10 crores, all that is required is that one page- in a brief envelope. That brief envelope can go on for 15 days. This is the currency of power....As an intervenor, I support the petitioner and I make a further case that even the law as it currently stands- your Lordships can make further directions to reduce opacity.’

Highlighting how electoral bonds can be used for trading, CJI Chandrachud says–

‘Say a contribution has to be made of Rs 500 crores to a party. Technically, you can find 500 people who would each make a contribution of Rs 1 crore. Each of those persons gets an exemption of Rs 1 crore, a deduction of that 1 crore. Political party is exempt. But the person who is aggregating and actually contributing Rs 500 crores- all that they have to do is to trade electoral bonds, and pay cash. The actual contributor is not necessarily the person who is purchasing the electoral bonds through banking channels.’

Similar concerns were raised by the CJI on Tuesday. Read here: Supreme Court flags possibility of electoral bonds being used to trade favours

Hansaria says– ‘Your lordships had asked what is ‘manifestly arbitrary’. The distinction made between a normal bank transfer from this... you are making an artificial distinction between an honest contributor who is making a disclosure to all...to shareholders, the public at large...with another who wants to be anonymous. There is no intelligible differentia. One is transparent and one is opaque’.

CJI Chandrachud says– ‘Originally, our law did not speak of political parties at all. The law spoke of a party after the tenth schedule (anti-defection law) was introduced in the Constitution.’

CJI Chandrachud enquires– ‘Was there any restraint on how the electoral trust could contribute? Was there a requirement of disclosure, maintaining accounts etc? Could an electoral trust say that we are going to give money only to one party?’

In response, Hansaria says that functions of electoral trusts are provided under Rule 17(c)(a) of the Income Tax Rules, changed in 2013.

Hansaria submits– ‘In 2009, the scheme of electoral trust is introduced. I will explain the concept of electoral trust. Five companies can make an electoral trust. The company can donate to the trust. It reflects that I’ve made a donation to the trust- the companies only have to show that. The trust has to make 95% of donations to parties. Through that route, companies can make donations to political parties. Any donor through electoral trust also gets an exemption.’

Also Read: BJP got 76% of donations to parties by electoral trusts: ADR

BJP got 76% of donations to parties by electoral trusts: ADR

The seven electoral trusts that were analysed received a total of ₹363.51 crore from various corporates and individuals.

Hansaria apprises the court that Section 11 of the Finance Act, 2017 amended Section 13A of the Income Tax Act, 1961, exempting political parties from their obligation to keep a detailed record of contributions received through electoral bonds.

‘The exemption was provided to address the issue that such taxation reduces disposable income affecting their financing’, he adds.

‘So it is not a question of what a legislature enacts. It can take that away. But when you are making an enabling provision for contributions and taking away the restraints of a company, that taking away of restraints is amenable to be tested under Article 14’, CJI Chandrachud adds.

Addressing Hansaria, CJI Chandrachud says– ‘Suppose there was no provision for political contributions in the 1956 Act, what would be the consequence? The consequence is not that companies are free to donate for political purposes untrammeled by any other provisions...So though it is a matter of statutory regulation, absent an enabling provision, a company cannot contribute to a political party. So if constraints subject to which those contributions are permissible are lifted by the legislature, they are amenable to be tested under Article 14.’

Hansaria apprises the court that under the Companies Act, 1956, donations to a political party by a corporation could not exceed the ceiling limit of 7.5 percent of the average net profit during the three immediately preceding financial years. However, a 2017 amendment removed a proviso under Section 182 of the Companies Act which mandated this requirement. It also exempted the disclosure of the name of the political party to which the donation is made. Only the total amount of the donation has to be disclosed.

‘A company is now required to only declare that x amount has been donated without declaring which party they have donated to’, he adds.

Hansaria says that free and fair elections constitute a part of the basic structure of the Constitution and that kickbacks received for anonymous corporate funding strike at the root of democracy and demeans transparency.

‘Opaqueness allows transactions behind iron curtains that leads to the improper influence of money power and allows wealthy contributors to influence policy making resulting in loss of public trust in governance’, he adds.

Senior advocate Hansaria refers to Justice Chagla’s judgment in Jayantilal Ranchhoddas Koticha v. Tata Iron And Steel Co. Ltd (1957).

‘...Therefore, any proposal or suggestion which is likely to strangle that democracy almost in its cradle must be looked at not only with considerable hesitation but with a great deal of suspicion’. [Text from the judgment].

Between 2016-17 and 2021-22, the seven national and 24 regional parties received a total donation of ₹9,188.35 crore from Electoral Bonds out of which the BJP’s share was ₹5,271.9751 crore, while all other national parties together amassed ₹1,783.9331 crore, according to the report by the Association of Democratic Reforms (ADR).

Read more here.

Electoral Bonds chief source of donations for political parties: Report

More than 52% of the BJP’s total donations came from Electoral Bonds worth ₹ 5,271.9751 crore, while all other National parties amassed ₹1,783.9331 crore.

A five-judge Constitution Bench comprising Chief Justice of India (CJI) DY Chandrachud and Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra will continue hearing submissions on behalf of the petitioners. The proceedings can be watched here–

A Constitution Bench on October 31 raised the scenario of influential entities covertly setting up persons with verified accounts to purchase electoral bonds for them through the regular banking route in order to curry favour or anonymously enter into a quid pro quo with ruling political parties.

Read more here.

In an affidavit filed before the Supreme Court in 2019, the ECI said that electoral bonds would wreck transparency in political funding and invite foreign corporate powers to impact Indian politics.

Here is The Hindu’s detailed explainer on the reservations expressed by the ECI and the RBI against the scheme.

The legality of the electoral bonds scheme | Explained

With the Supreme Court set to hear final arguments on the validity of the electoral bonds scheme on October 31, The Hindu looks at the contentious issues surrounding the legality of the scheme