CONSTITUTION BENCH OF THE SUPREME COURT DECLARES ELECTORAL BOND SCHEME 2018 AS UNCONSTITUTIONAL AND DIRECTS SBI AND ELECTION COMMISSION OF INDIA TO DISCLOSE ALL DETAILS OF ELECTORAL BONDS

In a recent case of State Bank of India vs Association for Democratic Reforms and Others, Miscellaneous Application No 486 of 2024 in Writ Petition (Civil) No 880 of 2017 and along with other connected Petitions, a five-Judge Bench of the Supreme Court comprising of the Chief Justice of India (CJI), Dr Dhananjaya Y Chandrachud, Justice Sanjiv Khanna, Justice B R Gavai, Justice J B Pardiwala and Justice Manoj Misra passed a Judgment dated 11-03-2024 and reiterated its decision of holding the Electoral Bond Scheme 2018, as unconstitutional and further, extended the deadline for disclosure of all details of the Electoral Bonds which have been purchased and the information about political party’s encashment of Electoral Bonds, by the State Bank of India, to 12-03-2024.

Facts

1) That the Finance Act 2017 made certain amendments to the Representation of People Act 1951 (RP Act) and the Income Tax Act 1961 (IT Act), and provided that if a political party has received contributions or donations through Electoral Bonds, in such cases, the political party would not be required to maintain a record or disclose such contributions.

2) That earlier to such amendments, the Ministry of Finance had issued a Proposal to enable Scheduled Banks to issue electoral bearer bonds for the purpose of donations to political parties. However, the RBI had objected to such Proposal, (a) as it would affect the RBI’s sole authority for issue of bearer instruments, (b) further, the faith in bank notes would be undermined and (c) it may pave way for money laundering. (d) Even otherwise, instead of introducing new bearer / Electoral Bonds, the purpose can be achieved through demand draft, cheque, and electronic and digital payments.

3) The Election Commission of India also objected to such Scheme / Proposal as it would have a serious impact on transparency of political finance/funding of political parties.

4) However, the Ministry of Finance was of the opinion that (a) there is a time limit for redeeming the bonds, (b) the purchase of Electoral Bonds would be allowed from a KYC compliant bank account of the purchaser and (c) the redemption of Electoral Bonds can be done only upon being deposited in the designated bank account of the eligible political party. (d) Further, the Electoral Bonds would be issued only at RBI, Mumbai.

5) But later the Electoral Bond Scheme was notified on 02-01-2018 that empowered the State Bank of India (SBI) to also issue and encash Electoral Bonds.

6) As per the Scheme, the Electoral Bond is a bond issued in the nature of promissory note which is a bearer banking instrument and does not carry the name of the buyer. Further, an electoral bond can only be encashed by a political party that is registered under Section 29A of the RP Act (Registration with the Election Commission of associations and bodies as political parties) and ought to have secured not less than 1% of the votes polled in the last general election to the Lok Sabha or the Legislative Assembly of the State.

A brief of the Electoral Bond Scheme can be viewed at the link below:

https://dea.gov.in/sites/default/files/Electoral%20Bonds_Press%20RELEASE_2-1-2018.pdf

7) Aggrieved, the Association for Democratic Reforms approached the Hon’ble Supreme Court in Association for Democratic Reforms and Others vs State Bank of India, Writ Petition (C) No. 880 of 2017 and challenged the constitutional validity of the Electoral Bond Scheme and the amendments introduced by the Finance Act 2017 to the RBI Act 1934, the RP Act, the IT Act and the Companies Act 2013.

8) The Supreme Court, vide Order dated 15-02-2024, had declared the Electoral Bond Scheme and the provisions of the Finance Act 2017 which amended the provisions of the RBI Act 1934, the RP Act, the IT Act and the Companies Act, as unconstitutional, on the ground that the non-disclosure of information regarding the funding of political parties is violative of the right to information of citizens under Article 19(1)(a) of the Constitution (Protection of certain rights regarding freedom of speech, etc).

9) Further, the amendments which were introduced by the Finance Act 2017 to the provisions of the Companies Act 2013, permitting unlimited funding of political parties by corporate entities, were held to be arbitrary and violative of Article 14 of the Constitution (Equality before law). This is because a company, other than a government company and a company which has been in existence for less than three financial years, can contribute unlimited amounts to any political party and the same is manifestly arbitrary. Hence, such amendment to the Companies Act was also held unconstitutional.

10) The Apex Court, further, directed the Election Commission of India to ascertain the details from the political parties, the SBI, which issued the Bonds, and the bankers of the political parties and thereafter, disclose the details and names of the donor/purchaser of the Bonds and the amounts donated to the political party between 12-04-2019 till 15-02-2024.

11) The Constitution Bench also directed the issuing bank(s) to stop further issuance of Electoral Bonds and also directed the SBI to submit the details of (a) each electoral bond that has been purchased, the name of the purchaser and the denomination of such electoral bond, (b) the details of each electoral bond redeemed by the political parties including the date of encashment and the denomination of the Electoral Bond, by 06-03-2024 to the Election Commission of India.

12) Accordingly, the Election Commission of India (ECI) was directed to publish all such details on its Website by 13-03-2024.

13) However, the SBI filed a Miscellaneous Application No 486 of 2024 in the aforementioned Writ Petition (Civil) No 880 of 2017 before the Supreme Court two days prior to the expiry of the deadline, thereby, seeking an extension of time until 30-06-2024 for complying with the directions, on the grounds that (a) the process of decoding the Electoral Bonds, matching the donor to the donations and deciphering which donor contributed to which political party, was a complex and time-consuming exercise. (b) Further, as per the Scheme, the details of sale and redemption of Electoral Bonds were not kept in a digital format and that there were a large number of data sets to decipher.

14) Aggrieved, the Petitioners in the said Writ Petition i.e. Association for Democratic Reforms and the Communist Party of India (Marxist), instituted Contempt Petition (Civil) No 138 of 2024 and Contempt Petition (Civil) No 140 of 2024 in the aforementioned Writ Petition (Civil) No 880 of 2017, against SBI for wilful disobedience of the Order of the Apex Court.

Supreme Court (5-Judge Bench) Observations:

i) That as per the SBI issued FAQs on the Electoral Bond Scheme:

a) The ‘Know Your Customer’ documents have to be submitted by the purchaser each time the Electoral Bond is purchased, irrespective of whether the purchaser has a KYC verified SBI account. Further, contributors have to submit along with KYC documentation, the proof of payment through NEFT, cheque or demand draft.

b) Also, interested political parties would have to open a current account for electoral bond redemption in any of the 29 designated branches of SBI across India.

c) Thus, the Bench held that the details of the Electoral Bonds which have been purchased and the information about political party’s encashment of Electoral Bonds, which have been directed to be disclosed by the Supreme Court would be readily available at the SBI branches.

Conclusion

Therefore, based on the aforesaid observations, the Constitution Bench dismissed the Application filed by SBI and extended the deadline for disclosure of all the details by SBI, only till 12-03-2024. Accordingly, the deadline for publication of details on the ECI Website was extended to 15-03-2024.

However, the Bench refused to entertain the Contempt Petitions filed by the Petitioners in the said Writ Petition i.e. Association for Democratic Reforms and the Communist Party of India (Marxist) in view of the Application filed by SBI for extension of deadline. But the Bench noted that the Supreme Court would be inclined to proceed against SBI for wilful disobedience of the judgment, if it does not comply with the directions and timelines set by the Apex Court in its Orders dated 15-02-2024 read with 11-03-2024.

The Status Quo

As per various newspaper reports, the SBI has furnished all the details of Electoral Bonds to the ECI in two separate information files – the first, containing details of the purchasers of the Electoral Bonds, and the second, containing details of the political parties who have encashed these Electoral Bonds on 12-03-2024. The SBI has reportedly clarified that 22,217 Electoral Bonds were purchased between 01-04-2019 and 15-02-2024, while 22,030 Electoral Bonds were redeemed during such period.

Further, as per the Supreme Court’s Orders dated 15-02-2024 read with 11-03-2024, the ECI has to publish such details on its Website by 15-03-2024, 5 pm.

 

Hannah Marshall

Senior Associate

Hansen International Law Firm