Electoral Bonds Put A Premium On Opacity, Have Serious Deficiencies; Do It In A Proportional Manner: Supreme Court Tells Union [Day 3]

On the final day of arguments in the case pertaining to the Electoral Bonds Scheme case, the Supreme Court asked the Union Government if it was planning to amend the Companies Act to reintroduce a profit percentage-based limit on donations by Companies. The court also remarked that while it was not asking the government to go back to a cash-based system, it was asking the scheme to be made in a proportional, tailor made manner which took care of the serious deficiencies arising out the current scheme. The Constitution Bench comprising Chief Justice of India DY Chandrachud, Justices Sanjiv Khanna, BR Gavai, JB Pardiwala and Manoj Misra discussed various aspects of the scheme, including its impact on transparency and the potential for corruption. The bench also reserved its judgement. The discussion started on the objective of maintaining transparency in political donations and discouraging shell companies from contributing large amounts. The SG argued that the amendments aimed to encourage clean money to enter the system and to avoid cash transactions. However, CJI DY Chandrachud underlined that before the scheme was introduced, companies could only donate 7.5% of their net profit of last three financial years. Per contra, post the introduction of the scheme, any company regardless of its profit or loss situation could contribute. The Solicitor General stated that a company which was not running in profit could not donate. Providing reason for the same, he added– "Because then a shell company can donate. That defeats the objective.”The CJI asked the Solicitor General:"So what will you do? You'll bring an amendment in Companies Act?...Is the government making a statement that we will amend the Companies Act to bring back the position that donations will be a percentage of profit?"The SG responded in a negative and stated that he was only asserting that a profit making company alone could donate. The CJI then questioned the rationale behind allowing a company to donate its entire profit, whether it was 1 Re or 100 Rs, without any proportional limit. He asked–"Assuming it is profit making - it may have a 1 Re profit or 100 Rs profit - if you don't have a percentage, why would a company, for what possible reason would it donate 100% of its profits? The reason why these caps were introduced and they stood the test of time was for a very legitimate reason- because you're a company- your purpose is to carry business, not to donate to political parties. And if your purpose is not to donate, you must donate small amount."SG explained that past experiences had revealed that some companies in certain sectors wished to donate more than the 7.5% limit, leading them to create shell companies to circumvent the cap. To address this issue and discourage the formation of shell companies for political donations, the government chose to eliminate the cap entirely, he said. Further, he added that the decision was made to allow companies to decide the extent of their contributions, as long as they were profit-making entities and the objective was to disincentivize shell companies. To this submission, the CJI stated–"By having narrowly tailored provisions that you must carry on business for certain years, you must have a certain turnover, asset base- these are usually accepted yardsticks to prevent shell companies from carrying out business, We don't have to go into motives of the government at all. We entirely respect that process. The point is not that. We don't want to go back to a cash only system. All we are saying is that do it in a proportional, tailor made manner which takes care of the serious deficiencies of this."He further asked–"Would that be valid- if a company was to donate even 100% of its revenue? Is that guided by altruistic motives?"Scheme Has Sufficient Safeguards: SG Mehta SG highlighted that the objective of the Electoral Bonds Scheme was to discourage the use of shell companies and cash transactions in political donations. He argued that the scheme aimed to bring transparency to political funding by channeling clean money into the system. The SG noted the significant role the commercial sector had played in the country's development and referred to the ongoing case involving the largest public sector bank in India, emphasizing the need for robust regulation in this area. He further explained that the scheme had introduced various measures to ensure transparency, such as the requirement for both donors and political parties to have designated accounts and branches. SG justified the 1% vote threshold for political party eligibility, stating that it was intended to prevent the formation of fake parties solely for the purpose of claiming exemptions. To address concerns about anonymous donations, SG explained the KYC (Know Your Customer) requirements, which included providing Aadhar numbers and addresses. He also addressed concerns about potential aggregators, stating that the system would require donors to find...

Electoral Bonds Put A Premium On Opacity, Have Serious Deficiencies; Do It In A Proportional Manner: Supreme Court Tells Union [Day 3]

Padmakshi Sharma

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