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

While hearing the batch of petitions challenging the anonymous electoral bonds scheme, the Supreme Court today commented on the lack of control over transactions involving Electoral Bonds owing to the transferability of the bonds. 

The Constitution bench comprising Chief Justice of India DY Chandrachud, Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra considered arguments raised by the petitioners today. The bench delved into the discussion of anonymity of the Electoral Bonds when Senior Advocate Kapil Sibal, appearing for the petitioners submitted that in its practical application, the electoral bonds scheme was not "really anonymous" as the person who donated to a political party would himself inform the said party about the donation to derive benefits by means of engaging in a quid pro quo arrangement. At this juncture, CJI DY Chandrachud orally illustrated a scenario to show the lack of control over transactions involving Electoral Bonds. He underlined how since an Electoral Bond was a bearer bond and it could be transferred to anyone, the trading or transferring of the said bond could not be practically prohibited. He said–

"Suppose 'A' purchases a bond worth 100 crores. 'A' is only the person who is being put up to purchase the bond because 'A' has KYC etc. 'A' has to only physically hand over the bond to 'B'. 'B' gives to 'C' who will in turn give it to a political party. Now there is no control over the transaction between 'A' and 'B'. So 'B' can trade on that bond for cash or for other considerations...So the person who has satisfied the requirement of transaction being through normal banking channels is 'A'. But this doesn't obviate the fact that people behind it...all they have to say is that they used authorised banking channels. Trading is prohibited. But there is no way to prohibit trading the bond."

The CJI also remarked that any person could even become an aggregator of Electoral Bonds and transfer these bonds to others.

Justice Khanna added that since such transactions could create a veil over the real purchaser of the bonds, there would not be questions regarding quid pro quo with the beneficiary party.

"Because of the curtain there cannot be any questions regarding quid pro quo," Justice Khanna said.

"That's right. Ultimately, people who actually invested in it will tell the political party," Sibal agreed with Justice Khanna.

Following the observations by the bench, Sibal emphasized the broader implications of the issue, stating that the lack of transparency regarding donors' identities and transactions hinders citizens' participation in the democratic process. He argued that the scheme's reach extends beyond elections, lacks proportionality, and may unfairly favor the party in power, potentially violating Article 324 of the Constitution.

Electoral Bonds Scheme Enriches Political Parties & Protects Corrupt People: Senior Advocate Kapil Sibal

In his arguments, Senior Advocate Sibal broadly made five submissions–

1. The Relationship Between Capital and Influence: Sibal highlighted the inseparable connection between capital and power in a market economy. He argued that capital symbolizes influence, implying that the use of financial resources in the political process can significantly impact decision-making and governance.

2. Level Playing Field in Electoral Process: Sibal emphasized the fundamental principle of providing a level playing field for all participants in the electoral process. He asserted that free and fair elections are an essential part of the basic structure of the Indian Constitution, underscoring the need for a fair and equitable political environment.

3. Corporate Donations and Shareholders' Consent: Sibal expressed concerns about corporate sector donations to political parties, emphasizing the potential inconsistency with the purpose for which shareholders invest in a corporation. He questioned the lack of consultation or consent from shareholders when their funds are used for political contributions. Sibal contended that Electoral Bonds fail to inform shareholders about how their money will be spent, creating a serious issue. He said "The shareholders put in their money to ensure that the corporation functions within the framework of MoA. Now you give the power through an amendment of this nature to allow shareholders money to be used inconsistent with the MoA. And this is done without consultation or consent of shareholders. Under which law can this ever be allowed?"

4. Electoral Bonds' Misalignment with Purpose: Sibal argued that the nomenclature of "Electoral Bonds" suggests a connection to elections, but the scheme lacks provisions linking donations to the participation in the electoral process. He asserted that the scheme essentially allows political parties to enrich themselves without any specific requirements for the use of funds, potentially leading to scenarios where the money is used for purposes unrelated to elections. He illustrated the issue by stating– "I make a donation of 10 crores to a political party through Electoral Bonds. The party can give it to a mainstream media channel and say propagate my ideology or give a present to someone. There is no spending requirement. You can spend this money however. You can build your office. You can set up a whole internet network throughout the country. You can use advertising campaign - show your face 20 times a day."

5. Protection of Those Who Commit Corruption: Sibal raised concerns about how the nature of the Electoral Bonds scheme might protect individuals who have engaged in corrupt practices. He referred to Section 7 of the Prevention of Corruption Act (POCA) and the Prevention of Money Laundering Act (PMLA), suggesting that the scheme could obscure instances of bribery and quid pro quo arrangements, making it difficult to trace and prosecute such offenses. Sibal questioned the rationale for granting anonymity to corporate donors while citizens' names are disclosed, raising concerns about the impact on the democratic process and the potential for corporate influence to overshadow citizen voices.

Concluding his arguments, Sibal stated–

"If you want corporate funding then that corporate funding must be for electoral process, not for political parties. Otherwise it's not free and fair elections. If the voice of the corporate sector drowns the voice of the citizens - that's very dangerous."

Electoral Bonds Against Concept Of Informed Electorate: Advocate Shadan Farasat

Advocate Shadan Farasat, appearing on behalf of the Communist Party of India (Marxist) (CPI(M)), commenced his arguments before the bench by highlighting the "principled Stance of CPI(M)" and stating that the CPI(M) was the only ruling political party that had taken a stance against accepting any Electoral Bonds, despite this decision being made at a significant cost to the party. Farasat made the following submissions–

1. Electoral Bonds Scheme Not For Reducing Black Money: Farasat argued that the architecture and effect of the Electoral Bonds scheme did not primarily aim to reduce black money but rather it aimed to reroute non-anonymous funding from normal banking channels to anonymous Electoral Bonds. Farasat described the Electoral Bonds scheme as an "alternative white money channel" created by the government to replace the already existing disclosure-based channels, such as RTGS, bank drafts, and cheques.  He added that the new channel simply added anonymity to the process. Thus, the scheme, in his view, did not address black money and, instead, shifted the existing disclosed white money into anonymous bonds.

2. 'Informational Black Hole' Against Concept Of Informed Electorate: The creation of a "legally ordained informational black hole", according to Farasat, went against the concept of an informed electorate, as guaranteed under Article 19(1)(a) read with Article 326 of the Constitution. Farasat stressed that the matter at hand was not solely about contribution and expenditure limits but pertained to the core principles of democracy and disclosure. He argued that the scheme shifted the gravity of political discourse and influence away from elected representatives and the public, all without the public's knowledge. Farasat also emphasized the scheme's impact on two forms of democracy: popular democracy and shareholder democracy. He argued that while the scheme excludes shareholders from knowledge about their money's use, they are the only ones part of the company and, therefore, have the right to be informed about the party receiving their funding.

3. Electoral Bonds Scheme Cannot Help Goverment Transition Away From Cash Donations: In his arguments, Farasat asserted that the government's contention that the electoral Bonds scheme was meant to help it move away from cash donations fell flat. He stated that this was because the same would not possible unless the cash economy ceased to operate entirely. He added that cash donations could not be replaced by the Electoral Bonds even if the cash donations were barred or prohibited. At this juncture, Justice Khanna remarked that the government's argument was that it was trying to transition away from cash. He said, "We can't say that this attempt shouldn't be made." However, Farasat reiterated that the scheme's true impact was on the disclosed white money channel, effectively moving it into the anonymous realm, and not on cash at all. He contended that this shift violated the principle of manifest arbitrariness, as it contradicted the stated purpose of the scheme.

4. Shareholders' Right Of Conscience Is Violated: Taking Sibal's argument that shareholders had a right to be informed of where their money was being donated a step forward, Farasat asserted that the scheme could violate a shareholder's right to conscience under Article 25 of the Constitution. He stressed that shares in a company represented the property of the shareholders. As such, shareholders had a vested interest in how their property, in the form of shares, was being used, particularly when it came to political contributions made using their invested funds. Farasat drew a link between a shareholder's right to conscience and their property. He stated that the right to conscience, as previously acknowledged by the court, also implied that an individual should not be compelled to support or fund any political party or ideology that contradicts their personal beliefs or conscience. He pointed out a significant flaw in the Electoral Bonds scheme: shareholders were left unaware of which political party or cause their money is supporting. This lack of transparency may infringe upon an individual's right to conscience, as they could unintentionally be funding a party or ideology they do not support, he argued. He said – "A person with X conscience may not want to fund a right wing party. A person with Y conscience may not want to fund a left wing party. It may infringe on his conscience to use his property to support and fund a particular party."

The hearing will continue tomorrow.

Earlier in the day, Advocate Prashant Bhushan opened the arguments on behalf of the petitioner Association for Democratic Reforms (separate report on that can be read here).

Live updates from the hearing available here.