BREAKING : Supreme Court Reserves Orders On Plea To Stay Electoral Bonds; Election Commission Opposes Stay

Submissions by ADR

Advocate Prashant Bhushan, appearing on behalf of ADR, highlighted the objections raised by the Reserve Bank of India and the Election Commission, on the sale of anonymous Electoral Bonds (EBs).

He referred to the communications sent by the former RBI Governor Urjit Patel to the then Finance Minister Arun Jaitley, expressing "discomfiture" about EBs. He pointed out that the RBI Governor had called the bonds a "fraud scheme" having implications on banking system and "possibility of misuse, more particularly through shell companies".

He emphasized that anonymous electoral bonds is "legalized corruption" and will pave way for shell companies to essentially offer bribes. He submitted that at least the Reserve Bank should be informed as to who the initial subscriber is. "Now it is issued in scripted form, like cash, and no one except SBI knows the donor identity," he said.

When the CJI commented that the bonds can be given to any political party, and not necessarily the ruling party, Bhushan responded,

"It can be given to any political party. But ruling party is in a position to give favours. So, companies will support ruling parties, as they are in a position to give benefits. It might go to the party ruling the state govt or central govt depending on what the quid pro quo is."

Bhushan also referred to the objections raised by the Election Commission on sale of EBs.

He submitted,

"The only person who wants anonymity is the person who is paying bribe to the party in power…there is no justification for the argument that anonymity is maintained for the safety of donor. Because, it is not anonymous to the Government who the donor is. Govt can track identity. But it is anonymous to everyone else."

The CJI asked if the petitioner is seeking complete anonymity.

"No, no. I want complete transparency. This Court has held that candidates should disclose their assets, criminal background etc. Even without a law, this Court directed that. This court has held that transparency is absolutely necessary in an election," he responded.

Bhushan further took objection to the manner in which the provisions of EB were inserted by way of an amendment to the Finance Bill, essentially to circumvent the mandate of the Upper House of the Parliament.

He said,

"These amendments are made through the Finance Bill, in order to avoid going to the Rajya Sabha where the Government did not have a majority. This cannot be done through Finance Bill."

He submitted that the Finance Bill 2017 allowed foreign companies to donate through Indian subsidiaries, thereby allowing foreign companies to influence Indian elections. Even the Election Commission has called this a "retrogade step", he argued. He added that the Finance Bill 2017 removed the requirement of profit threshold for donations, allowing shell companies to donate.

At this juncture, the CJI said that if the submissions made by Bhushan are taken on face, then the Court will have to strike down the impugned law.

"If what you are saying is correct, we will have to strike down the law. How can it be done through an interim order?" the CJI asked.

Bhushan then clarified that as of now, they are only seeking a stay on a fresh tranche of bonds that are proposed to be sold from next week, ahead of assembly polls in West Bengal, Kerala, Assam, Puducherry etc.

He then continued his submissions on the concerns raised by Election Commission with respect to EBs.

"Election Commission said that at least to them it should be reported", he said while referring to its affidavit.

He further submitted that the Court's order passed in April 2019 will not suffice because of the very nature of the bonds.

In the said order, the Top Court had directed all parties to furnish by the information as to the donations received by way of EBs, including the identity of the donors, amounts received, details of payments, bank accounts etc. to the Election Commission in sealed covers,

Bhushan said that the RBI has also expressed concerns that the bonds can be transferred, facilitating money laundering and kickbacks.

"Your arguments at this stage is more on the point of political morality. This question of morality or ethics regarding black money, was it not considered by this court in the RK Garg case…" the CJI intervened.

Bhushan however urged the Bench to stay the upcoming sale of EBs. He said,

"It is not a question of morality. It is a question of democracy. The electors have the right to know the source and background. If you remove transparency in political funding, it goes to the heart of electoral democracy."

He submitted that stopping bonds will not harm anyone. "Legitimate donations can be made. They have to maintain transparency", he argued. He added, "There is no public interest to be served by allowing these anonymous electoral bonds."

He submitted that the ECI has also recommended disclosure of donors of parties.

"Mere fact that the scheme says that the bonds are not for trading does not mean anything, as there is anonymity involved at every levels…ECI has comprehensively pointed out that in order to maintain purity of election process, complete transparency in political funding. This (bonds) is driving a coach through transparency."

He submitted that earlier the law was that only donations less than Rs 20,000 can be kept undisclosed however, the Government has now removed the 7.5 % cap and has allowed foreign companies to donate.

Stand of Election Commission

ECI's counsel Senior Advocate Rakesh Dwivedi however submitted that the Election Commission is supporting electoral bonds and not opposing it as such. "Without electoral bonds, we will go back to earlier cash system, which was unaccounted. Bonds is one step forward, as all transactions are through banking channels," he said.

But on the second aspect transparency, he added, "we want transparency."

"But that is a matter for final hearing. We are against stay of electoral bonds as then we will go back to the unacccounted cash system," Dwivedi said.

Govt's submissions

The Attorney General of India, appearing for the Central Government submitted, that the Election Commission has allowed the sale of electoral bonds from April 1 to April 10.

He maintained that EBs will serve in eradicating black money from political funding, and to prevent the donors from being victimized. He submitted, "The then Finance Minister Arun Jaitley said that blackmoney was a huge menace in political funding. Therefore, this bond was devised…All payments have to made through banking channels. Therefore, no cash, no blackmoney".

On being asked if these (donated) amounts will be brought to tax anywhere, the AG informed the Bench, "All payments need to be through cheque, or DD, so it has to be through banking channels, so no blackmoney."

Advocate Prashant Bhushan interjected at this juncture, to state that subsequent purchaser of EBs can buy through cash. That was also an objection of the RBI.

"That can be said of any transaction, unless you make it non-transferable," CJI said brushed.

The Solicitor General interjected here to submit that no one can buy EBs subsequently, as trading in bonds is not permitted. He further informed that that bonds are purchased following KYC norms.

Use of EBs to fund protests, terrorism

During the hearing, the CJI expressed apprehension that political parties may use the funds secured by way of EBs for purposes other than political activities.

"There are political parties who do terrorism," the CJI said. He added, "This angle of possibility of funding of terrorism through funding needs to be examined. It is possible that funds through this mechanism are diverted by particular people for other purposes with an agenda…You can start a protest, with this funding. You can start many things."

The Solicitor General submitted that only political parties with at least 1% vote share can take EBs.

Unconvinced, the CJI remarked, "We are sure that there are parties who meet this criteria and have violence as an agenda."

He added, "We don't want to get into political arena and don't want to comment on any political party. Suppose, there is a party which wants to finance a protest, which has the potential of violence, can't they use bonds to fund it?"

Turning to the AG, the CJI asked whether the Government exercises control on the money being used after encashing the bonds.

"The bonds are valid only for 15 days. After that, it is paper," the AG said.

He added,

"Political parties have to file income tax returns. Except the CPI(M) and another party, no other national parties filed the returns. Case came to Supreme Court. Supreme Court condemned the parties and directed them to file returns.

Even the Congress party did not file. It was after Supreme Court judgment that all started filing. So now question of such misuse cannot arise. They have to file returns."

The CJI then asked if the April 2019 order has been complied with. Senior Advocate Rakesh Dwivedi (for EC) informed that the information is kept in sealed covers but all major parties have furnished the information.

Discussion on Demat EBs

Bhushan further submitted that the RBI is of the opinion that the Electoral Bonds scheme will be seen as facilitating electoral bonding and it may "offset a war" against black money.

The CJI interjected at this juncture to point out that RBI has supported the option of issuing EBs in demat form.

"Yes. But they have expressed concerns about money laundering," Bhushan responded.

The CJI then sought to know the difference between demat form and scripted form? "We want someone to explain the difference," he said.

On being informed that under the Demat form, identity of the donors cane be tracked, the CJI said that the Bench was told that demat was in in anonymous form.

He said that his pointed query is, if has RBI shown the readiness and concurrence to issue EBs in demat form with anonymity, what is the difference?

Background

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 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".

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