A Pyrrhic victory

SC’S electoral bonds verdict turns back clock, is more idealistic than pragmatic

THE SUPREME COURT (SC), on February 15, extinguished the Electoral Bonds (EB) Scheme (2018), by holding all the amendments made in the Representation of People Act (RPA), the Companies Act (CA) and the Income Tax Act (ITA) violative of the fundamental right to information under Article 19(1)(a) and the right to equality (Article 14) of the Constitution.

The amendment in Section 29C of the RPA excluded the EBS from the requirement of mandatory reporting by political parties to the Elections Commission of India (ECI). Section 13A(b) of the ITA was amended to make cash donations of only Rs 2,000, received other than by way of cheque, bank draft, electronic clearing system or electoral bonds, eligible for tax exemption from income tax.

The amendment of Section 182(1) and Section 183(3) of the CA had the effect of making every company, loss-making or profit-making, eligible to make unlimited corporate funding to political parties as the earlier ceiling of 7.5 per cent of profits was removed.

The SC has not laid down any alternative scheme of political funding. As all the above amendments have been held to be unconstitutional and no alternative funding system has been prescribed, the EBS go out of business completely and the pre-ebs regime of cash donations and corporate donations will be restored.

The SC judgment stops the State Bank of India (SBI) from issuing any more EBS forthwith. The SBI has also been directed to submit the details of EBS purchased since April 12, 2019 (the date of the interim order of the SC) to the ECI. The details to be submitted shall include the date of purchase of each electoral bond, the name of the purchaser and the denomination of the electoral bonds purchased.

The SBI has also been directed to submit the details of the political parties, which received and deposited the contributions through EBS from the date of the same interim order. The details to be furnished shall include the date of encashment and the denomination of each of the electoral bonds. These details have been directed to be furnished by March 6. The ECI has been directed to publish the information received from the SBI on its website by March 13.

By this date, most details of the EBS issued after April 12, 2019, would be in the public domain — which companies purchased the EBS with details of each EB purchased and details of each EB received by the political parties. The SC has taken care to prescribe the mode of disposal of EBS currently in transit as well. The EBS, which are within the validity period of 15 days but have not been encashed by the political parties so far, will be returned by the political party to the purchaser-donor. Upon deposit, the issuing bank shall refund the EB amounts in the purchaser’s account.

The SBI has not been asked to provide the specific identification number of each EB issued and received. It has also not been asked to match the purchaser and depositor for each EB. Therefore, the information to be furnished by SBI and to be placed by the ECI on its website will not lead to the discovery of exact information relating to which company provided which EB to which political party. Perhaps a data analyst would figure it out in due course. That, however, will not be easy.

From the judgment read out by the Chief Justice of India, DY Chandrachud, and major details available so far, the five-judge bench, including Justices Sanjiv Khanna, B R Gavai, J B Pardiwala and Manoj Misra, appears to have based the judgment on two major principles.

The SC laid stress on the virtues of “open governance” and accepted the idea that “information about funding of political parties is essential for the effective exercise of the choice of voting”. Further, the SC wanted to discourage/stop corporate funding for political favours. The SC said: “At a primary level, political contributions give a seat at the table of contributors, i.e. it enhances access to legislators. This access also translates to influence over policymaking. There is also a legitimate possibility that financial contributions to a political party would lead to quid pro quo arrangement because of the close nexus between money and politics.”

The Court did apply the restrictive means test of the doctrine of proportionality but found that the EB system did not satisfy the same. The SC accepted the argument that there are means other than EBS to achieve the purpose of curbing black money, even assuming it to be a legitimate objective. It viewed EBS as infringing, to an unjustifiable degree, on the right to information.

EBS are now history.

Only profitable corporates would be able to make political donations within the limit of a maximum of 7.5 per cent of profits — though this route was always available, it was seldom used. It is unlikely to be used going forward as well. Political parties will need funding for the upcoming Lok Sabha elections. How will they receive contributions?

Most likely, the corporates and the political parties will fall back upon the pre-2018 route of splitting the funding into cash donations of less than Rs 20,000 per donation. Or, they may resort to making completely unaccounted political donations. In sum, India will have a Pyrrhic victory. It is a triumph of idealism over pragmatism.