Supreme Court Refuses to Stay Electoral Bond Scheme: Association for Democratic Reforms vs. Union of India (26 March 2021)

Date of the Judgment: 26 March 2021

Citation: 2021 INSC 158

Judges: S. A. Bobde (Chief Justice of India), A. S. Bopanna J., V. Ramasubramanian J.

Can a scheme allowing anonymous donations to political parties be detrimental to the democratic process? The Supreme Court of India addressed this crucial question in a Public Interest Litigation (PIL) concerning the Electoral Bond Scheme, 2018. The petitioners sought a stay on the scheme, arguing it compromised transparency and accountability in political funding. The Supreme Court, however, declined to grant an interim stay, allowing the scheme to continue while the main issues remain under consideration. The judgment was authored by Chief Justice S.A. Bobde, with Justices A.S. Bopanna and V. Ramasubramanian concurring.

Case Background

The Association for Democratic Reforms and Common Cause filed a Public Interest Litigation (PIL) challenging the constitutionality of certain amendments made by the Finance Acts of 2016 and 2017. These amendments introduced the Electoral Bond Scheme, which allows for anonymous donations to political parties through the State Bank of India (SBI). The petitioners argued that these amendments and the scheme were unconstitutional, illegal, and void. They also sought a direction that no political parties should accept donations in cash.

Initially, the writ petition was tagged with other related petitions. An interim order was passed on April 12, 2019, directing political parties to submit details of donors to the Election Commission of India in sealed covers. Subsequently, the petitioners filed applications seeking a stay on the Electoral Bond Scheme, arguing that it allows for anonymity in political funding, which is detrimental to democracy.

Timeline

Course of Proceedings

The Supreme Court had previously passed an interim order on April 12, 2019, directing all political parties to submit details of donors who had donated through electoral bonds to the Election Commission of India in sealed covers. This was done because the court could not fully examine the issues in the limited time available before the closure of the electoral bond issuance schedule. Following this, the petitioners filed two applications, I.A. No. 183625 of 2019 and I.A. No. 36653 of 2021, seeking a stay on the Electoral Bond Scheme. The Court noted that repeated applications for the same relief are not permissible, but it heard the matter due to the seriousness of the issues raised.

Legal Framework

The core of the legal challenge revolves around the amendments introduced by the Finance Acts of 2016 and 2017, which altered the following:

• Section 31 of the Reserve Bank of India Act, 1934: Amended to allow the issuance of electoral bonds.
• Section 29C of the Representation of the People Act, 1951: Amended to accommodate the new donation method through electoral bonds.
• Section 13A of the Income Tax Act, 1961: Amended to provide tax exemptions for donations received through electoral bonds.
• Section 182 of the Companies Act, 2013: Amended to align with the electoral bond scheme.
• Section 2(1)(j)(vi) of the Foreign Contribution Regulations Act, 2010: Amended to include electoral bonds.

The petitioners argued that these amendments, by allowing anonymous donations, violated the principles of free and fair elections, which are fundamental to the Constitution of India. The Electoral Bond Scheme, 2018, was introduced by the Central Government under the powers conferred by Section 31(3) of the Reserve Bank of India Act, 1934.

Arguments

Arguments by the Petitioners:

• The petitioners argued that the Electoral Bond Scheme allows donors to maintain anonymity, which is detrimental to a healthy democracy. While the government might be able to trace the donors through banking channels, the public and other political parties would not have access to this information.
• They contended that the scheme would lead to increased funding for the party in power, as it would be reciprocated with favors.
• The petitioners highlighted the reservations expressed by the Reserve Bank of India (RBI) and the Election Commission of India regarding the scheme. They argued that the scheme facilitates money laundering and is designed to enable it.

Arguments by the Respondents:

• The Attorney General argued that the scheme was introduced to prevent unaccounted money from influencing elections. He stated that the scheme ensures that all donations are made through banking channels, thus curbing the use of black money.
• The Election Commission of India supported the scheme, stating that it ensures transparency in the process of funding to political parties.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in this order, as it was dealing with interim applications. However, the core issue before the court was:

• Whether the Electoral Bond Scheme, 2018, should be stayed pending a final decision on the writ petition.

Treatment of the Issue by the Court

The following table demonstrates how the Court dealt with the issue of granting a stay on the Electoral Bond Scheme:

Authorities

The Court considered the following authorities:

• Reserve Bank of India (RBI) Letters: The Court examined letters from the RBI, noting that while the RBI had reservations about the scheme, its primary concern was with the physical form of the bonds rather than the scheme itself. The RBI had suggested safeguards that were largely incorporated into the scheme.
• Election Commission of India’s (ECI) Stand: The Court noted that the ECI supported the scheme and had received details of donations from political parties in sealed covers, as per the court’s previous order.
• Companies Act, 2013: The Court referred to provisions of the Companies Act, 2013, specifically Section 128 (1), Section 2(40), Section 129(1) and Section 137, emphasizing that companies are required to maintain books of accounts and financial statements, which are accessible to the public.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• RBI Letters: The Court acknowledged the RBI’s initial concerns but highlighted that the RBI’s final position was supportive of the scheme’s objectives, provided that the bonds were in demat form. The Court noted that many of the RBI’s recommendations were incorporated into the scheme.
• ECI Stand: The Court noted that the ECI supported the scheme and had received the required details from political parties as per the court’s earlier order.
• Companies Act, 2013: The Court used the provisions of the Companies Act to demonstrate that the financial transactions of companies purchasing electoral bonds would be reflected in their financial statements, which are publicly accessible. This was used to counter the argument that the scheme is completely opaque.

What weighed in the mind of the Court?

The Supreme Court’s decision to not grant a stay on the Electoral Bond Scheme was influenced by several factors. The Court recognized that while the scheme provides anonymity to donors, it also ensures that all transactions occur through banking channels, which provides a degree of transparency. The Court also noted that the financial transactions of companies purchasing electoral bonds would be reflected in their financial statements, which are publicly accessible. Additionally, the Court considered the fact that the scheme had been in operation for several years without any impediments and that the Court had already put in place safeguards through its interim order of 2019. The Court also took into account the fact that the RBI’s concerns were primarily about the form of the bonds rather than the substance of the scheme.

Logical Reasoning:

The Court considered the arguments for and against the stay, noting that while the scheme does provide anonymity, it also ensures that all transactions are through banking channels. The Court also considered that financial statements of companies are publicly available and that the scheme had been operational for several years. The Court rejected the argument that the scheme was completely opaque, noting that the information is available with some effort. The Court also rejected the contention that the bonds could be repurchased using black money, clarifying that the bonds are not tradable. The Court also clarified that foreign corporate houses cannot purchase the bonds. The Court also noted that the concerns of RBI were mainly regarding the form of the bonds rather than the substance and that the RBI itself had called the Electoral Bonds as “an enduring reform, consistent with the Government’s digitization push”. The Court ultimately decided that there was no justification for a stay at this stage.

The Court quoted from the RBI letter dated 27.9.2017:

“If the government is aggreable to revisit its stance on issuing EBs in scrip form, we can discuss the modalities of issuance of EB in demat form, including the facility for multiple transfers before the proceeds are eventually credited to a political party’s designated bank account, and with the Reserve Bank being the sole custodian of the information of the initial subscriber and the subsequent transferees.”

The Court also quoted from the RBI letter, where it called the Electoral Bonds as:

“an enduring reform, consistent with the Government’s digitization push”

The Court also noted that:

“Under Clause 14 of the Scheme, the bonds are not tradable.”

Key Takeaways

• The Supreme Court refused to stay the Electoral Bond Scheme, 2018.
• The Court acknowledged the anonymity provided by the scheme but emphasized that all transactions occur through banking channels.
• The financial statements of companies purchasing electoral bonds are publicly accessible.
• The Court noted that the scheme had been operational for several years without any impediments.
• The Court clarified that the concerns of RBI were mainly regarding the form of the bonds rather than the substance.

Directions

No specific directions were issued by the Supreme Court in this order. The Court simply dismissed the applications for a stay on the Electoral Bond Scheme.

Development of Law

The ratio decidendi of this case is that the Supreme Court found no sufficient grounds to stay the Electoral Bond Scheme at the interim stage. The Court clarified that the scheme ensures transactions through banking channels, that the financial statements of companies are publicly accessible, and that the scheme had been operational for several years. This decision did not change the previous position of law but rather maintained the status quo.

Conclusion

In conclusion, the Supreme Court dismissed the applications seeking a stay on the Electoral Bond Scheme, 2018. The Court found that the scheme, while providing anonymity, ensures transactions through banking channels and that the financial statements of companies are publicly accessible. The Court also noted that the scheme had been operational for several years without any issues and that it had already provided safeguards through its interim order in 2019. The decision allows the scheme to continue while the main writ petition remains pending.