Is Electoral Bonds Scheme Legalising Kickbacks? Are Means Proportional? Supreme Court Asks Union Govt [Day 2]

On the second day of the hearing in the Electoral Bonds case, the Supreme Court questioned if the scheme was legalising 'kickbacks' made to political parties. The Constitution Bench comprising Chief Justice of India DY Chandrachud, Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra also discussed if the bonds were actually confidential or merely "selectively anonymous".

During the proceedings, the CJI also remarked– "What we are now doing is that in the effort of bringing white money in the process, essentially, we're providing for a complete information hole! That is the problem. The motive may be laudable. But the question is have you adopted proportional means?". At this point, Solicitor General of Tushar Mehta said, "I take it that your lordships are just putting to me what is their contention."  "Obviously!...Our word is the last word only when the judgement is delivered," CJI clarified.

The Solicitor General commenced the arguments for Union today, requesting the bench to refrain from using the terms "anonymity" and "opacity" to describe the Electoral Bonds Scheme, as he stated the scheme only ensured "confidentiality" which could be opened by judicial direction. The SG submitted today that the donations made through bonds had to be confidential so as to protect the donor from victimisation and retribution they may face from a political party if the affiliation with another opposing party was made public. He added that the fear of this retribution may also push donors to donate through cash, converting white money into black money, if the donations made through electoral bonds were not kept confidential.

As the proceedings came to an end for the day, the bench asked the Union if this scheme was legalising illegal payments intended as compensation for favorable treatment from political parties. The CJI asked–

"Is it not liable to give rise to kickbacks or legalising kickbacks? It's a question. Not a hypothesis."

Elaborating further, the CJI orally remarked–

"In the earlier scheme, a candidate from the party collects 50 crores. He's not gonna deposit 50 crore in the coffers of the party. He has his share in that. Now it goes to the party, doesn't go to the individual. That's 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." 

To this, the SG responded–

"If this scheme didn't come, if I had to pay kickback. I will pay kickback by way of cash. Even considering the case to be a worst case, the amount will now come in white money in channels."

The CJI retorted–

"You can maintain confidentiality. We take your point that it's designed to ensure that people aren't victimised. We're not saying that that would be a better scheme or the government should adopt the scheme. But if you really wanted to have that scheme and have a level playing field, then all these donations should be given to the Election Commission of India which would then be distributed on an equitable basis!"

The SG responded to the same that in such a scenario, "nothing will come and everything will be by cash".

As the bench rose after the day long proceeding, the CJI amusedly said–

"You're absolutely right! That shows us the motivation for these donations."

Element Of 'Confidentiality' Necessary In Donations: SG Mehta

Aiming to explain the necessity of "confidentiality" under the Electoral Bonds scheme, the Solicitor argued that while previous government initiatives had tried addressing the use of black or unclean cash for political donations, such as tax exemptions and electoral trusts, the same had proven unsuccessful as the donors were insistent on maintaining their confidentiality. He stated that if the element of confidentiality was removed from the scheme, the country would go back to the 2018 regime. To underline the issues with the 2018 regime, the SG took the bench through a report by the ADR on sources of donations to political parties in 2018. He said–

"The income of national parties from unknown sources increased by 313% from Rs 274.13 crore during FY 2004-2005 to Rs 1130 crore during FY 2014-15."

The CJI said–

"The purpose of ensuring that electoral funding relies less and less on cash component and more and more on accountable component is work in progress. We're with you on that. The problem of the scheme is if it doesn't provide a level playing field to political parties and if it suffers from opacity, as the argument for the other side is. This is not to prevent the legislature from coming out with a scheme which deals with these deficiencies. We are not saying what the scheme should be. Maybe the earlier scheme failed. Maybe it didn't get you as much white money into the electoral funding as you otherwise would have liked but look at the safeguards in earlier provisions. What we are now doing is that in the effort of bringing white money in the process, essentially, we're providing for a complete information hole! That is the problem. The motive may be laudable. But the question is have you adopted proportional means?"

The SG asserted that if electoral bond scheme was not made confidential, the donors would keep converting white money into black money to funnel donations to political parties in a confidential manner to avoid retribution. He provided an example of a contractor during elections in a state with two closely competing parties. He stated, that here the fear was that if the contractor contributed to a party he supported in a non-confidential manner and the said party didn't come to power, he could face victimization or retribution from the winning party who would know that he contributed to the opposing party. In absence of confidentiality provided by the Electoral Bonds Scheme, he stated, the safest option was to make cash payments, ensuring anonymity so that neither party knew which party received the contribution, thereby protecting the contributor. However, this practice would have the adverse effect of converting clean money into black money, which was detrimental to the economy.

Electoral Bonds Scheme Not Confidential, Only Selectively Anonymous: Bench

On SG Mehta's argument pertaining that confidentiality within the scheme was necessary in light of the donors' fear of victimization and retribution caused by lack of anonymity, the bench remarked that the Electoral Bond scheme was not really anonymous or confidential and only ensured selective confidentiality. The CJI remarked–

"The problem with the scheme is that it provides with selective anonymity. It's not completely anonymous. It's not confidential qua the State Bank of India. It's not confidential qua the law enforcement agency."

In light of the same, the CJI remarked that any large donor would never take the risk of directly buying the Electoral Bond. Instead the donor would disaggregate the donation by getting other people to purchase electoral bonds with small amounts by official banking channels, buying the bonds by the said people without having to go through the banking channels, and then donating to the political party. The CJI said–

"A large donor will never put his/her head on the line by being in the books of account of the SBI having purchased these bonds. It's selective anonymity."

However, the SG reiterated that the problem of victimisation and retribution faced by a donor from a party he/she did not donate to could only be dealt with by anonymising donations. To this, Justice Khanna remarked–

"Just one caveat- victimisation and retribution is normally by a party in power, not by party in opposition. So the figures which you're saying - that maximum donations are to 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 party in power to get the information. Because of this selective confidentiality, the opposition party may not know who are your donors. But donors to the opposition party can be ascertained, atleast by the investigative agencies. So they're at a disadvantage to question you on your donations. On the other hand, the opposition parties' donations will be questioned."

To this, the Solicitor argued that there had to be trust at some stage on someone as the final fiduciary authority. Further, he asserted that as per the scheme, nobody, including the Central Government, could know of donor's details. 

The CJI did not seem convinced by this argument and stated that retribution was not avoided by the scheme as there were other ways to "mix and match" and figure out who donated to which party. In this context he stated that a company was bound to disclose the amount spent in donations through electoral bonds and the same was also present in the company's balance sheet, though it need not disclose the political party to which the donations were made.   

At this juncture, the Solicitor reiterated that there was no other alternative as donors had expressed reluctance in donating by cheque or other transparent methods as the same would disclose their identity and entail adverse consequences for them. 

This resulted in the CJI underlining that due to the bonds being bearer bonds and thus transferable, it was not necessary that a donor would buy the bond. He said–

"The person who buys the bond may not be the donor. Second, the person who buys - their balance sheets will reflect the amount of bonds. Balance sheets of purchaser will reflect, not the donor."

To this, SG Mehta stated that potential misuse of the scheme may not be the ground on which the validity of the scheme could be judged. He also asserted that as per the scheme, there was complete confidentiality and that the government could not find out whether a person had given donations to A party or B. He added–

"That I will show from the scheme. But ultimately, you have to trust somewhere."

The CJI remarked–

"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."

Ruling Party Receiving Substantial Part Of Donations Is The Norm: SG Mehta

The SG asserted that more contribution going to the ruling party was the norm. To this submission, the CJI asked–

"Why is it the norm that ruling party is receiving the substantial part of donations?"

SG Tushar Mehta responded that he couldn't provide a definitive answer but shared his personal perspective. He explained that every political party had its own program, policies, and working styles, and donors were likely to contribute to the party they believe would be more beneficial for their interests. Donors, including individuals, corporations, and Hindu Undivided Families (HUFs), made contributions based on their own self-interest and not out of charity. Stating that it was a market-driven approach where the more powerful the party and leader, the greater the chances of success, the SG stated that this made donors more inclined to support parties that aligned with their business interests.

Electoral Bonds Scheme Part Of Broader Effort Of Government To Combat Black Money

In his submission, SG Tushar Mehta also submitted that the Electoral Bonds Scheme was a part of a broader effort of the government to curb black money in the country. He highlighted that various countries were grappling with the problem of black or unclean money, and India had made efforts to address it in the electoral process. He submitted that the scheme aimed to ensure clean money was used by political parties by promoting transactions through banking channels. This was part of a broader effort to combat black money, including the digitization drive, which had significantly increased digital payments in India and had made it harder to hide financial traces. SG Mehta also mentioned the registration of shell companies as another step in curbing unclean money, stating that between 2018-2021, the Government of India identified 2,38,223 shell companies and took actions against the same. 

Case Title: Association For Democratic Reforms And Anr. v. Union Of India And Ors. W.P.(C) No. 880/2017 PIL-W

Previous reports :

No Way To Prohibit Trading Of Electoral Bonds Since They Can Be Transferred, Says Supreme Court During Hearing [Day 1]

Electoral Bonds Violate Citizens' Right To Information, Promote Corruption: Prashant Bhushan To Supreme Court [Day 1]