Electoral Bonds Case | Supreme Court Bifurcates Petitions In Three Sets, Decides To Hear Each Set Separately

The Supreme Court of India bifurcated the batch of petitions concerning the Electoral Bonds scheme into three sets and decided to hear them separately. The matter was listed before a bench comprising Chief Justice DY Chandrachud and Justice PS Narasimha. 

The bench noted that the petitions could be divided in three distinct sets raising the following issues– 

1. The challenge to the Electoral Bonds Scheme;

2. Whether political parties should be bought within the purview of the Right to Information Act, 2005; and

3. The challenge to the amendment to the Foreign Contribution Regulation Act, 2010 through the Finance Act of 2016 and 2018.

"The petitions in the present batch are bifurcated with reference to the above three challenges. The three sets of the petitions need to be heard separated." said CJI DY Chandrachud while dictating the order. 

The Union Government had filed a counter affidavit in the matter earlier. However, the bench permitted the Union to file supplementary counter affidavit to deal with any issues which may not have been dealt with. The last opportunity was granted to UOI to file counter by end of February 2023. 

The first batch of petitions pertaining to the challenge to electoral bond scheme will be heard in the third week of March 2023. The second batch, dealing with petitions to bring the political parties within the purview of RTI Act will be heard in first week of April 2023, and the third batch concerning the FCRA Amendments will be heard in in mid April 2023.

In the last hearing, Advocate Prashant Bhushan, appearing for one of the petitioners Association for Democratic Reforms, had asked for the matter to be referred to a Constitution Bench as "weighty issues of public importance" were involved, on which an "authoritative pronouncement" was required. However, the bench had stated that even for reference, a preliminary hearing was required.

In 2021, the Supreme Court had refused to stay the scheme ahead of assembly elections in some states, saying that sufficient safeguards are inbuilt in it.

Background

By virtue of the 2017 amendment made to Section 29C of the Representation of Peoples Act 1951(RPA), a donor may buy an electoral bond at specified banks and branches using electronic modes of payment and after having completed the KYC (know your customer) requirements. However, political parties are not required to disclose the source of these bonds to the Election Commission of India (ECI). The bonds can be bought for any value, in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh or Rs 1 crore. The name of the donor will not be there in the bond. The bond will be valid for 15 days from the date of issue, within which it has to be encashed by the payee-political party. The face value of the bonds shall be counted as income by way of voluntary contributions received by an eligible political party, for the purpose of exemption from Income-tax under Section 13A of the Income Tax Act, 1961.

Accordingly, the petitions were filed in 2017 challenging the provisions of Finance Act 2017 which paved the way for anonymous electoral bonds. The Finance Act 2017 introduced amendments in Reserve Bank of India Act, Companies Act, Income Tax Act, Representation of Peoples Act and Foreign Contributions Regulations Act to make way for the electoral bonds.

The petitions have been filed by political party Communist Party of India (Marxist), and NGOs Common Cause and Association for Democratic Reforms(ADR),which challenge the scheme as "an obscure funding system which is unchecked by any authority". The petitioners voiced the apprehension that the amendments to Companies Act 2013 will lead to "private corporate interests taking precedence over the needs and rights of the people of the State in policy considerations".

The case became alive only by March 2019, by which time most of the electoral bonds have been purchased.

On April 12, 2019, after several sessions of hearing held during the run up to the 2019 Lok Sabha polls, a three judges bench of the SC comprising the then CJI Ranjan Gogoi, Justice Deepak Gupta and Sanjiv Khanna had directed the political parties to submit the details of donations received to the ECI in sealed cover by May 30.

The ECI has already filed a counter-affidavit in the case expressing its concerns about the anonymous nature of bonds. The ECI has described this a "retrograde step as far as transparency of donations is concerned" and called for its withdrawal. The ECI said that if contributions are not reported, it will not be possible to ascertain if political parties have taken donations from government companies and foreign sources, which is prohibited under Section 29B of RPA. The amendments made to Companies Act 2013 were also flagged by the ECI. The amendment to Section 182 of the Act took away the restriction that contribution can be made only to the extent of 7.5% of net average profit of three preceding financial years, enabling even newly incorporated companies to donate via electoral bonds. "This opens up the possibility of shell companies being set up for the sole purpose of making donations to political parties, with no other business consequence of having disbursable profits", said the ECI.

The ECI has also taken a stand against the amendment to Foreign Contributions Regulation Act with permitted acceptance of donations from foreign companies with retrospective effect. "This would allow unchecked foreign funding of political parties in India which could lead to Indian policies being influenced by foreign companies", said the ECI.

The ECI added that it had suggested amendments to RPA Act to make reporting compulsory even for cash donations less than the existing limit of Rs.20,000, if the total cash contributions exceeds 20 crores or 20 percentage of total contributions, whichever is lesser. It further suggested that reports of contributions of political parties should be uploaded in the website of ECI. It had also suggested that anonymous contributions above or equal to Rs.2000 should be prohibited, instead of the present limit of Rs.20,000. But the scheme was implemented without paying any heed to the concerns expressed by the poll body.

The petitions also raise the contention that the scheme was made into effect through amendments made to RP Act, IT Act and RBI Act through a money bill - the Finance Act. This is alleged to be a colourable exercise of the money bill provision in order to circumvent scrutiny by the Rajya Sabha.

The Centre claims that the schemes will bring in more transparency in political funding. The anonymity of the scheme was intended to protect the privacy of the donor, stated the centre.

Case Title: Association for Democratic Reforms And Anr. v. UoI WP(C) No. 333/2015 & Connected Matters 

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