Electoral Bonds Judgment: Experts Weigh In

The Supreme Court of India, on February 15, declared the Electoral Bonds Scheme unconstitutional, citing a violation of Article 19 (1)(a) of the Indian Constitution.

Bench comprising Chief Justice of India DY Chandrachud, Justice Sanjiv Khanna, Justice BR Gavai, Justice JB Pardiwala and Justice Manoj Misra directed the State Bank of India to cease issuance of electoral bonds and publish a list of political party donations from 2019.

Chief Justice of India expressed concerns about the scheme's lack of transparency, potentially leading to quid pro quo situations due to undisclosed donor identities. Additionally, the amendment to the Companies Act allowing corporate funding to political parties was deemed unconstitutional.

BW Legal World spoke with Manmeet Kaur, Partner at Karanjawala & Co. and Arjun Rajgopal, Partner at Saraf and Partners to discuss the judgment. Here is an excerpt of the conversation: -

What is your reaction to the Court's decision to strike down Section 182 of the Companies Act in the Electoral Bonds judgment?

Arjun Rajgopal: Section 182, as amended for the purposes of the electoral bonds scheme, removed most checks and balances and disclosure requirements from corporate political contributions, presenting a path for companies to make political contributions with limited oversight.

The amendments effectively permitted loss-making companies and shell companies, including with foreign funding, to make political contributions. Given that a number of large companies aren’t necessarily profitable, an argument could be made that profitability should not be a criterion for political contributions. However, losses per se could equivalently be seen as a perverse incentive to request a quid pro quo in exchange for a political contribution. Shell companies created for the sole purpose of making political contributions, similarly give an impression of potential money laundering. Having shareholder oversight and a limit on contributions would seem fair, given the potentiality for misuse stated above.

Manmeet Kaur: The judgement of the Supreme Court has restored the earlier position of law where in only profit making companies to the maximum extent of 7.5% per cent of its average net profits in last three financial years,  could donate to political parties. The court has found that the amended section 182 permitted unlimited corporate contributions even by loss-making companies which authorise un restrained influence of companies on the electoral process. 

What, according to you, should be the future of political donations, in order to improve electoral democracy in terms of transparency?

Manmeet Kaur: As held by the Supreme Court, political donations are essentially required to be transparent. An open and transparent system is an important factor for any democracy.

Arjun Rajgopal: While the goal of transparency is laudable, it is systemic democratic maturity that is necessary in order to prevent the risk of reprisal for a political contributor to provide contributions to a party that is not in power. As long as this maturity does not exist at a systemic level, no person will be able to make a transparent political contribution without fear of reprisal. In essence, a transparent system can only work where there is no fear of backlash for contributing to the opposition. In terms of an extant system that can be used to permit political contributions through non-cash transactions, the court itself in its judgment has suggested using the extant system of electoral trusts.

What is your take on the Court's reasoning that the voter has the right to know about political donations under Article 19(1)(a)?

Arjun Rajgopal: The Court’s reasoning emphasized the need for a voting citizen to have complete and transparent information regarding both the candidates and the political parties seeking their votes. This reasoning is sound and relies on multiple precedent judgments which have examined the need for transparency at the level of the political party as well as the individual candidate. The electoral bonds scheme, in its construction, seemed to have effectively sidestepped the net effect of these rulings.

Manmeet Kaur: In the concurring judgement by Supreme Court, it has been held that the right to know is paramount for free and fair elections and democracy. It has further been held that confidentiality of the voting booth does not extend to anonymity in political contribution.

Do you think the Centre will bring an ordinance to nullify the effect of the Supreme Court's judgment? What will be the implications of such a scenario?

Arjun Rajgopal: An ordinance designed specifically to overturn a court decision suffers from certain constitutional defects in and of itself. The Chief Justice of India has stated this in no uncertain terms. In any event, it is not viable to speculate on these matters unless such actions are actually taken.

Donors of political parties were assured of income tax benefits under Section 80GG and 80GGB of Income Tax Act? Will firms and entities still be able to avail tax benefits for contributions made in the financial year 2023-2024?

Manmeet Kaur: Sections 80GGB and 80GGC were inserted in the Income Tax act in 2003 to make contributions to political parties tax deductible. This was done with the purpose of incentivising contributions through cheque and other banking channels. Since these sections apply to all donations and are not part of the electoral bond scheme, which has been struck down by the Hon’ble Supreme Court, taxpayers will continue to benefit from deduction authorised by Section 80GGB and 80GGC.

There is a line of thought that the striking down of Electoral Bonds will bring back the era of cash being used in political donations which will increase the amount of black money flowing in the system. What is your view on this perception? Does it hold water?

Arjun Rajgopal: While an increase in cash contributions cannot be ruled out as a consequence of the removal of electoral bonds as an option for political contributions, there are other methods that can be used to fund political parties without resorting to cash, such as electoral trusts. In any event, it would not be possible to comment on an activity that is inherently ‘under the table’ and for which no formal statistics are available either before, during or after the subsistence of the electoral bonds scheme.