Electoral Bond : What is it? how it works? Issues and Challenges in SC.

Electoral bonds refer to interest-free financial instruments available for purchase by both companies and individuals in India through authorized branches of the State Bank of India (SBI). These bonds essentially serve as a means for making political donations, with anonymity being a key feature.

Electoral bonds are available in denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore, and can be obtained through a KYC-compliant account for the purpose of donating to political parties. Once purchased, political parties are required to redeem these bonds within a specified timeframe.

Electoral bonds are considered anonymous because they do not contain any information about the donor, including their name or other identifying details.

There is no limit on the quantity of electoral bonds that an individual or corporation can acquire.

The introduction of the Electoral Bond Scheme was facilitated by amendments to four Acts via the Finance Acts of 2016 and 2017. These Acts include the Representation of the People Act, 1951 (RPA), the Companies Act, 2013, the Income Tax Act, 1961, and the Foreign Contributions Regulation Act, 2010 (FCRA).

Prior to the implementation of the scheme, political parties were required to disclose all donations exceeding Rs 20,000 to the public. Additionally, corporate entities were restricted from donating more than 7.5% of their total profits or 10% of their revenue.

Electoral bonds can be received by political parties that have secured at least 1% of the votes polled in recent Lok Sabha or State Assembly elections and are registered under the Representation of the People Act (RPA). These parties can obtain a verified account from the Election Commission of India (ECI), into which the bond amounts are deposited within 15 days of purchase.

Upon receipt, the political party must encash the bonds within the stipulated 15-day period. The donated amount is then deposited into the Prime Minister's Relief Fund. It's important to note that electoral bonds are not available for purchase year-round; rather, they are accessible for a duration of 10 days in intervals of four months (January, April, July, and October). Additionally, in Lok Sabha election years, they are available for purchase for a period of 30 days.

Challanges:

Numerous challenges to the Electoral Bond Scheme's constitutionality and legality have been presented in the Supreme Court since the commencement of hearings by a five-judge constitutional bench on October 31. Senior advocates such as Prashant Bhushan, Nizam Pasha, Kapil Sibal, Vijay Hansaria, Sanjay Hegde, and Advocate Shadan Farasat have raised concerns about the scheme's potential threat to Indian democracy.

1. In court, it has been contended that the Electoral Bond scheme infringes upon citizens' fundamental right to information as guaranteed by Article 19(1)(a) of the Constitution, particularly regarding political parties. Quoting past rulings of the Supreme Court, Bhushan argued that if citizens are entitled to information about candidates, they should likewise have access to information regarding the sources funding political parties.

2. In court, Bhushan presented evidence suggesting that corporations have been using electoral bonds to pay kickbacks to political parties in power, potentially in exchange for favorable treatment. He pointed out that a significant majority of the bonds have been received by the ruling party. Bhushan also highlighted specific instances, such as donations from Vedanta Limited, a company bidding for mining licenses despite financial difficulties, as indicative of potential backdoor lobbying facilitated by the scheme. The petitioners argue that the Electoral Bond scheme effectively masks instances of corporate influence on political decisions.

3. It has been asserted that the removal of the 7.5% limit on annual profit for corporate donations to political parties, along with the permission for Indian subsidiaries of foreign companies to contribute, creates an opportunity for shell companies to engage in political funding. Bhushan informed the court that amendments to the Foreign Contributions Regulation Act (FCRA) allow even non-profitable or inactive companies (essentially shell companies) to donate.

4. Critics argue that Electoral Bonds lack complete anonymity, as only the government has access to information about the donors and recipients. Since the State Bank of India, which facilitates the bonds, is a government entity, donations to opposition parties could potentially face scrutiny by investigative agencies, leading to selective anonymity. Bhushan further contends that this lack of transparency has sparked concerns about corruption, with donors possibly using the bonds to offer kickbacks to political parties in exchange for policy favors. The secrecy surrounding these donations makes it challenging to trace any quid pro quo arrangements. Chief Justice of India (CJI) also noted that while the scheme anonymizes donations concerning society at large, it doesn't necessarily ensure anonymity regarding the recipient party. This implies that while the public remains unaware of the donors' identities, the political parties may still have knowledge of their funding sources.

5. Sibal argued in court that labeling these financial instruments as "Electoral Bonds" is misleading, as the funds can be utilized for purposes other than elections once withdrawn, without any accountability regarding how political parties spend the money. He emphasized that the scheme lacks any provision linking the donations to electoral participation, essentially serving as a means for political parties to enhance their financial resources. In response to Chief Justice's query about spending requirements, Sibal clarified that there are none. He stated that the funds can be used freely, such as for constructing office buildings or establishing nationwide internet networks.

6. Sibal argued in court that the flexibility for political parties to close the account at any time provides a window for promoting corruption. He contended that the Electoral Bond scheme serves as a shield for criminals against prosecution under the Prevention of Corruption Act (PCA) and Prevention of Money Laundering Act (PMLA). He highlighted Section 7 of the Prevention of Corruption Act, stating that due to the lack of disclosure, it becomes impossible to trace instances of bribery, including the amount and quid pro quo involved. Sibal also raised concerns about the reduction of the disclosure threshold from Rs 20,000 to Rs 2,000, suggesting that it may not effectively decrease cash usage in politics or enhance transparency, as parties can still declare small donations below Rs 2,000, similar to previous practices.Bhushan also informed the court that over the past five years since the inception of the electoral bonds scheme, political parties have received significantly higher contributions through this method compared to any other. He pointed out that the limit set per candidate is below Rs 1 crore (ranging from Rs 95 lakh to Rs 75 lakh depending on the state), potentially totaling less than Rs 500 crore for Lok Sabha elections. However, one particular party is reportedly receiving over ten times this amount. Bhushan emphasized that this disparity is having a detrimental impact on the democratic process in India.

7. Bhushan expressed to the court that more than half of the electoral bonds have been received solely by the ruling party at the national level, while the remaining have predominantly gone to ruling parties in various states. He highlighted the stark contrast, noting that opposition parties in non-ruling states have received less than 1% of these bonds. Furthermore, Bhushan pointed out that the majority of these bonds, nearly 95%, have been purchased by corporate entities, with a significant portion in denominations of Rs 1 crore and above. He underscored that the government's removal of the cap on corporate donations and amendments to the Foreign Contributions Regulation Act (FCRA) exacerbate the imbalance, disrupting the democratic balance by favoring ruling parties over opposition parties and independent candidates.

8. Sibal pointed out in court that the Electoral Bond scheme provides anonymity to corporate donors, whereas citizens donating even Rs 2000 in cash are required to disclose their identities. This discrepancy could potentially result in the dominance of corporate voices over those of ordinary citizens in a democratic setup.

9. Sibal contended that shareholders invest in a company with the expectation that their funds will be utilized in accordance with the company's Memorandum of Understanding (MoU) or stated objectives. However, by contributing to Electoral Bonds, companies fail to inform shareholders about the destination of their funds, thus depriving them of transparency regarding the use of their investments.

10. During the hearing of Sibal's arguments against the Electoral Bond scheme, the Chief Justice of India (CJI) noted that although trading of electoral bonds is officially prohibited, there exists no effective mechanism to prevent it. The CJI further remarked that an individual could potentially act as an aggregator of bonds and distribute them to multiple recipients.

11. Advocate Farasat, representing the CPI (M), argued in court that the primary objective of the electoral bonds scheme was not to tackle the issue of black money but rather to redirect non-anonymous funding from conventional banking channels to anonymous Electoral Bonds. Farasat characterized the scheme as an "alternative channel for legitimate funds" established by the government to substitute existing disclosure-based channels like RTGS, bank drafts, and cheques, thereby introducing an additional layer of anonymity.