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Supreme Court Refuses To Stay Electoral Bonds, Says Sufficient Safeguards Already There

LIVELAW NEWS NETWORK
26 March 2021 5:59 AM GMT
Supreme Court Refuses To Stay Electoral Bonds, Says Sufficient Safeguards Already There
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The Supreme Court on Friday refused to stay the release of the fresh set of electoral bonds from April 1 for the assembly polls in West Bengal, Kerala, Tamil Nadu, Assam and Puducherry.The Court dismissed the application filed by NGO Association for Democratic Reforms seeking stay of the bonds.Since the bonds were allowed to be released in 2018, 2019 and 2020 without interruption,...

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The Supreme Court on Friday refused to stay the release of the fresh set of electoral bonds from April 1 for the assembly polls in West Bengal, Kerala, Tamil Nadu, Assam and Puducherry.

The Court dismissed the application filed by NGO Association for Democratic Reforms seeking stay of the bonds.

Since the bonds were allowed to be released in 2018, 2019 and 2020 without interruption, and sufficient safeguards are there, there is no justification to stay the electoral bonds at present, the Court said in its order.

"...in the light of the fact that the Scheme was introduced on 2.1.2018; that the bonds are released at periodical intervals in January, April, July and October of every year; that they had been so released in the years 2018, 2019 and 2020 without any impediment; and that certain safeguards have already been provided by this Court in its interim order dated 12.4.2019,we do not see any justification for the grant of stay at this stage.Hence both the applications for stay are dismissed", the Court said in the order.

A bench comprising Chief Justice of India SA Bobde, Justices AS Bopanna and V Ramasubramaniam had reserved order on the application filed by NGO 'Association for Democratic Reforms' on Wednesday.

The bench heard the arguments of Advocate Prashant Bhushan for the petitioner, Attorney General for India KK Venugopal, Solicitor General Tushar Mehta and Senior Advocate Rakesh Dwivedi for the Election Commission of India.

Notably, the Election Commission of India opposed stay of electoral bonds. The ECI said they are not opposed to electoral bonds, but want more transparency. But Electoral Bonds is one step ahead unaccounted cash system, ECI said. The issue of transparency can be considered at the final argument stage, and there should be no interim stay, the ECI's counsel Senior Advocate Rakesh Dwivedi told the SC.

The Court observed that it was not correct to say that the Reserve Bank of India was completely opposed to the electoral bonds scheme in principle, as its objection was only to the form and not its substance.RBI's objection was to the issue of bonds in scrip form rather than in demat form.

The bench also observed that though the scheme provides anonymity, all transactions happen through banking channels in accordance with KYC norms.

"We do not know at this stage as to how far the allegation thatunder the Scheme, there would be complete anonymity in the financing of political parties by corporate houses, both in India and abroad, is sustainable", it observed.

"If the purchase of the bonds as well as their encashment could happen only through banking channels and if purchase of bonds are allowed only to customers who fulfill KYC norms, the information about the purchaser will certainly be available with the SBI which alone is authorised to issue and encash the bonds as per the Scheme. Moreover, any expenditure incurred by anyone in purchasing the bonds through banking channels, will have to be accounted as an expenditure in his books of accounts. The trial balance, cash flow statement, profit and loss account and balance sheet of companies which purchase Electoral Bonds will have to necessarily reflect the amount spent by way ofexpenditure in the purchase of Electoral Bonds".

It said that the Financial Statements of the companies will have to be filed with the Registrar under the Companies Act 2013, and they are accessible to anyone online.

"Since the Scheme mandates political parties to file audited statement of accounts and also since the Companies Act requires financial statements of registered companies to be filed with the Registrar of Companies, the purchase as well as encashment of the bonds, happening only through banking channels, is always reflected in documents that eventually come to the public domain.All that is required is a little more effort to cull out such information from both sides (purchaser of bond and political party) and do some"match the following". Therefore, it is not as though the operations under the Scheme are behind iron curtains incapable of being pierced", the order said.

As regards the concern expressed by the petitioner regarding repurchase of bonds by blackmoney, the Court noted that as per the scheme, the bonds are not tradeable.

"Moreover, the first buyer will not stand to gain anything out of suchsale except losing white money for the black", it added

"The apprehension that foreign corporate houses may buy the bonds and attempt to influence the electoral process in the country,is also misconceived. Under Clause 3 of the Scheme, the Bonds maybe purchased only by a person, who is a citizen of India or incorporated or established in India", the order added.

Prashan Bhushan argued that the anonymous electoral bonds was a scheme to facilitate money laundering and funding by shell companies, and thereby undermined transparency in political funding. Bhushan placed heavy reliance on the concerns expressed by the ECI and the Reserve Bank of India regarding the anonymity of the bonds.

The Attorney General submitted that the bonds ensured that political funding was completely routed through banking channel, thereby eliminating black money.

During the hearing, the bench had expressed concerns about the possible misuse of funds procured by political parties through electoral bonds and asked the Centre if it has any control of such use of money.

The CJI also had orally remarked that if the arguments of Bhushan were correct, the law will have to be struck down.

Background

The petitions were filed in 2017 challenging the provisions of Finance Act 2017 which paved the way for anonymous electoral bonds. The Finance Act 2017 introduced amendments in Reserve Bank of India Act, Companies Act, Income Tax Act, Representation of Peoples Act and Foreign Contributions Regulations Act to make way for electoral bonds.

The petitions have been filed by political party Communist Party of India(Marxist), and NGOs Common Cause and Association for Democratic Reforms(ADR),which challenge the scheme as "an obscure funding system which is unchecked by any authority". The petitioners voiced the apprehension that the amendments to Companies Act 2013 will lead to "private corporate interests taking precedence over the needs and rights of the people of the State in policy considerations".

However, the case became alive only by March 2019, by which time most of the electoral bonds have been purchased.

On April 12, 2019, after several sessions of hearing held during the run up to the 2019 Lok Sabha polls, a three judges bench of the SC comprising the then CJI Ranjan Gogoi, Justice Deepak Gupta and Sanjiv Khanna had directed the political parties to submit the details of donations received to the ECI in sealed cover by May 30.

The Election Commission of India has already filed a counter-affidavit in the case expressing its concerns about the anonymous nature of bonds. The ECI has described this a "retrograde step as far as transparency of donations is concerned" and called for its withdrawal.

By virtue of the 2017 amendment made to Section 29C of the Representation of Peoples Act 1951(RPA), political parties need not report to ECI the donations received through electoral bonds. The ECI has described this a "retrograde step as far as transparency of donations is concerned" and called for withdrawal of the amendment.

The ECI said that if contributions are not reported, it will not be possible to ascertain if political parties have taken donations from government companies and foreign sources, which is prohibited under Section 29B of RPA.

The amendments made to Companies Act 2013 were also flagged by the ECI. The amendment to Section 182 of the Act took away the restriction that contribution can be made only to the extent of 7.5% of net average profit of three preceding financial years, enabling even newly incorporated companies to donate via electoral bonds.

"This opens up the possibility of shell companies being set up for the sole purpose of making donations to political parties, with no other business consequence of having disbursable profits", said the ECI.

Also, the amendment to Section 182(3) abolished the provision that companies should declare their political contributions in their profit and loss accounts. Now, this requirement is diluted to only showing the total expenditure under the head. This would "compromise transparency" and could lead to the "increased use of black money for political funding through shell companies" expressed the ECI.

ECI had urged the Ministry to ensure that only profitable companies with proven track record should be permitted to make political donations.

The ECI had informed the Ministry that these amendments will have "serious repercussions/impact on the transparency aspect of political finance/funding of political parties".

It has also taken a stand against the amendment to Foreign Contributions Regulation Act with permitted acceptance of donations from foreign companies with retrospective effect. "This would allow unchecked foreign funding of political parties in India which could lead to Indian policies being influenced by foreign companies", said the ECI.

The ECI added that it had suggested amendments to RPA Act to make reporting compulsory even for cash donations less than the existing limit of Rs.20,000, if the total cash contributions exceeds 20 crores or 20 percentage of total contributions, whichever is lesser. It further suggested that reports of contributions of political parties should be uploaded in the website of ECI. It had also suggested that anonymous contributions above or equal to Rs.2000 should be prohibited, instead of the present limit of Rs.20,000.

But the scheme was implemented without paying any heed to the concerns expressed by the poll body.


The petitions also raise the contention that the scheme was made into effect through amendments made to RP Act, IT Act and RBI Act through a money bill - the Finance Act. This is alleged to be a colourable exercise of the money bill provision in order to circumvent scrutiny by the Rajya Sabha.

The bonds can be bought for any value, in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh or Rs 1 crore. The name of the donor will not be there in the bond. The bond will be valid for 15 days from the date of issue, within which it has to be encashed by the payee-political party. The face value of the bonds shall be counted as income by way of voluntary contributions received by an eligible political party, for the purpose of exemption from Income-tax under Section 13A of the Income Tax Act, 1961.

The Centre claims that the schemes will bring in more transparency in political funding. The anonymity of the scheme was intended to protect the privacy of the donor, stated the centre.

Case Title : Association for Democratic Reforms vs Union of India and others
Coram : Chief Justice of India SA Bobde, Justices AS Bopanna and V Ramasubramaniam
Citation : LL 2021 SC 183







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