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Supreme Court Strikes Down Electoral Bonds, Calls It Unconstitutional

In a landmark judgement, the Supreme Court of India struck down the 2018 Electoral Bonds scheme, calling it unconstitutional and violative of the right to information under Article 19(1)(a) of the Constitution. The court has also struck down the amendments made to the Companies Act, the Income Tax Act, and the Representation of Peoples Act that enabled the scheme.

The verdict was delivered by a fiver-judge bench headed by the Chief Justice of India, D.Y. Chandrachud. The court ordered the State Bank of India to provide details of bonds to the Election Commission by 13 March. 

 

Electoral Bonds

Electoral Bonds allow individuals and entities to donate to registered political parties while keeping the donor’s identity anonymous. SBI issues the bonds in denominations of Rs 1,000 to Rs 1 crore. They are valid for 15 days and can be purchased digitally or by cheque. Only eligible political parties can receive the bonds, and they can only be encashed through an authorized bank account of the party.

 

Concerns Associated

RBI and the Election Commission raised their concerns when the finance bill to bring this law was being discussed. The Reserve Bank of India is the only authority with a mandate to issue Bearer instruments that have the potential to become currency. 

RBI also argued that electoral donations can be made using cheques, demand drafts, or digital payments without bringing any new special bearer bonds in the form of electoral bonds.

Another concern was money laundering and lack of transparency. Experts argued that this bill defeats the very purpose of its existence. Rather than bringing transparency to the process, it makes the process more opaque, which is susceptible to money laundering and the use of black money in political funding.

The bonds are sold through a government-owned bank, SBI. This gives the government access to information about those who are funding its opponents. This access can be used to extort money, especially from big companies, or to victimize them for not supporting the ruling party. Either way, this practice provides an unfair advantage to the party in power.

Electoral Bonds Scheme permits unlimited corporate donations and anonymous financing by Indian and foreign entities to political parties, which can adversely impact Indian democracy. Donations made under this scheme by corporations and foreign entities enjoy 100% tax exemption, benefiting wealthy corporations.

 

The Supreme Court’s Judgement

The court did not agree with the centre’s contention that the law was meant to bring transparency in elections and curb the use of black money in political funding. Along with the electoral bond scheme, the Supreme Court struck down amendments in 3 laws that the government made to facilitate donations to political parties.

Before the Electoral Bonds scheme was presented, the Finance Act 2017 amended the Representation of the People Act of 1951, The Companies Act of 2013 and the Income Tax Act of 1961 to bypass the restrictions on political party funding by doing away with the donation limit for companies and removing any requirements to declare and maintain a record of political funding received through electoral bonds.

The apex court’s judgement has restored the status quo that existed before the Finance Act 2017 was passed into all these statutes.

 

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