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SC Before Electoral Bonds: Based on Second day arguments: Part 1

 [With case number W.P.(C) No. 880/2017 PIL-W Case, called: Association for Democratic Reforms and anr. v. Union of India and ors. The arguments went on second day were on First part which was on 30 October 2023, source: the reports of LiveLaw]

SC Questioning legalising ‘kickbacks’

Earlier, on 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 Judges also discussed if the bonds were actually confidential or merely “selectively anonymous”.

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?”.

Solicitor General of Tushar Mehta

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.

“Anonymity” and “opacity” or “confidentiality”?

The Solicitor General while arguments for Union on second day, he was 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 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.

The CJI asked:

Are you legalising illegal payments intended as compensation for favourable treatment from political parties?

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 favourable 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.

The CJI explains with the example:

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.

Mehta 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 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“.

The CJI amusingly

As the bench rose after the day long proceeding, the CJI amusingly

 said–

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

The SG Mehta raised element of confidentiality necessary in donations.

While explaining, 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?

Notes: 1: Based on the arguments before SC.

2. Reported from Livelaw.

3. Edited and Compiled by Prof M Sridhar Acharyulu

SC Before Electoral Bonds: Based on Second day arguments: Part 2

[With case number W.P.(C) No. 880/2017 PIL-W Case, called: Association for Democratic Reforms and anr. v. Union of India and ors. The arguments went on second day was onFirst part was on 30 October 2023, source: the reports of LiveLaw]

Electoral Bonds Scheme Not Confidential, Only Selectively Anonymous: Bench

While continuing the arguments on third day, (in Part 2), the Solicitor GeneralTushar Mehta 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.

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.

Also read: Why Anonymity of Electoral Bonds and Voters’ Right to Information?

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.

Victimisation by a donor from a party?

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.

‘Trust at some stage! Should be final fiduciary authority’ – SG

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.

SG Tushar Mehta explains 

At this juncture, the Solicitor General 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?

Electoral Bonds Scheme Part of Broader Effort of Government oo Combat Black Money – SG answers:

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.

Government identified 2,38,223 shell companies

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.

Notes: 1: Based on the arguments before SC.

2. Reported from Livelaw.

3. Edited and Compiled by Prof M Sridhar Acharyulu

SC Before Electoral Bonds: Based on third day arguments:

[With case number W.P.(C) No. 880/2017 PIL-W Case, called: Association for Democratic Reforms and anr. v. Union of India and ors. The third dayon 1t November 2023, before the Supreme Court. but reported next day, source: the reports of LiveLaw].

Why the Government promoting “Selective anonymity”?

A Constitution Bench led by CJI DY Chandrachud, Justices Sanjiv Khanna, BR Gavai, JB Pardiwala and Manoj Misraraised several pertinent queries to the Central Government about the scheme, flagging its “selective anonymity” and also asked whether it is legalising kickbacks for parties.

The Attorney General for India R Venkatramani raised some points in favour of ‘secrecy’. He asked: When the voters have a right to know about criminal antecedents of a candidate etc- they have a right because they have a task at hand which is a choice of a candidate. Therefore, you need to know…. This scheme is not concerned with political contributions per se. That’s why the court will not get into the larger question of where should political contributions should come from. All those questions are completely alien to this challenge.

The AG says that he will address SC on four important aspects, and “before I do that, a very broad brush has been stated in this case. It is said that the scheme violates Art 14,19,21 and also undermines the basic structure of the Constitution”.

Advocate Kanu Agarwal says: This is the pre-electoral bonds scenario. This below Rs 20,000 mechanism it was used as a loophole where parties would receive donations less than Rs. 20,000.These contributions below 20,000 Rs which were slightly dubious contributions have gone down. Contributions by Electoral Bonds have gone up.

Also read: Secrecy shrouding electoral bonds

Notes: 1: Based on the arguments before SC.

2. Reported from Livelaw.

3. Edited and Compiled by Prof M Sridhar Acharyulu

Prof. M. Sridhar Acharyulu
Prof. M. Sridhar Acharyulu
Author is Dean, Professor of law at Mahindra University at Hyderabad and former Central Information Commissioner. He published a number books in English and Telugu.

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