The making and unmaking of the Electoral Bond Scheme: Part 2

This is the second and final part of our feature on the Electoral Bond Scheme. Part 1 is here. You can access the case background and detailed hearing reports here.

A counsel’s opening remarks in a case can often set the mood in a hearing, especially in matters of national importance. On the first day of hearings in the challenge to Article 370, Senior Advocate Kapil Sibal bellowed: “This is indeed, according to me, a historic moment in many ways.” This was followed by a dramatic pause. “First, [the Court] would be analysing why history was tossed out on the 6th of August 2019….whether the will of the people of Jammu and Kashmir could be silenced in this fashion.” Even through a livestream, one could sense the air in the Court change immediately. 

Advocate Prashant Bhushan’s opening arguments in the Electoral Bonds case may not have had the same effect. When he began by saying “First of all, My Lord, I wish to say that this is a case which goes to the very root of our democracy,” the Chief Justice was talking to his Court Masters, requesting certain books to be handed over. Bhushan waited, committed to delivering the compelling opener. “I have been in the PIL space for many years,” he continued, “but I have never seen this kind of public interest involved in any PIL that I have ever done.” 

For the average citizen, the words ‘Electoral Bond’ might not quite ring in the ear as ‘Jammu and Kashmir’ but there’s no doubt that the case was one where every voter in a representative democracy had a stake. At its heart, it was about the voter’s right to know who is funding political parties.

Fittingly, the Right to Information framework played a pivotal role in how the events played out. Citizen-activists relied on it to extract information that supported their challenge of the Scheme. Journalists used some of the information to reconstruct how the Scheme was bulldozed through the bureaucratic apparatus, despite bodies like the Reserve Bank of India and the Election Commission having clear reservations. We covered this latter story in Part 1 of this feature. In this part, we tell the story of what transpired in the Supreme Court. It was a long and arduous battle for the petitioners. 

First challenges, sales cycles 

The Electoral Bonds Scheme had been notified on 2 January 2018, but the Association for Democratic Reforms (ADR) had already approached the Court in September 2017. President Pranab Mukherjee assented to the 2017 Finance Bill in April that year. ADR’s petition referred to the Scheme as making the “unholy nexus between politics and corporate houses more opaque and treacherous.” Shivani Kapoor, from ADR’s legal team, told me that they had a sense of how opaque the Scheme was long before the notification. “We decided then and there that we are going to challenge it,” she said. “If people don’t know, how will they question?” 

Two weeks after the Scheme’s notification, the Communist Party of India (Marxist) joined ADR in mounting a legal challenge. It would be the only political party to challenge the Scheme in its own name. Advocate Shadan Farasat, CPI(M)’s lawyer, told the Supreme Court Observer that the brief from his client was very clear: “They had a principled stance that this is an opaque scheme, which far from curing the ills of electoral financing, is going to worsen it.”

Together, the petitioners contended that the Scheme threatened free and fair elections as voters were deprived of crucial information on the allegiances of their representatives. The petitioners also challenged the way in which the Scheme was introduced—it had been pushed through as a Money Bill when it clearly wasn’t.

Ultimately, there were no substantial hearings on the merits of the case for six years. When the matter did come up between 2017 and October 2023, it was because petitioners filed interim applications in the face of an upcoming election or a cycle of bond sales (The bonds were sold for a 10-day period every quarter). 

Interim applications, matching columns 

In this period, the most notable series of hearings and orders came during the 2019 General Election. Over a month before the polls began, on 5 March 2019, petitioners sought a stay on the Scheme. They had raised concerns that the Bharatiya Janata Party, which was in power,  was the beneficiary of 95 percent of donations through bonds. The Union government had responded by saying that the success of the Scheme could only be gauged after the results of the election were announced. Then Attorney General K. K. Venugopal argued that “The government must be allowed a free hand to implement measures in execution of policies framed…”

On 12 April 2019, as the General Election was underway, the Court stated that an interim relief that “tilt(s) the balance in favour of either of the parties” must be avoided. Instead, it decided to ask all political parties to disclose details of donations received through Electoral Bonds to the Election Commission of India in a sealed cover. This was a victory for the Union government because the petitioners had asked for the Scheme to be stayed or for the Court to issue an order directing the public disclosure of the names of the purchasing and receiving parties. 

On 29 November 2019, ADR filed another interim application. No substantial hearings took place. In October 2020, close on the heels of the State Bank of India opening up another sale window, ADR filed yet another application to alert the Court that the present window was suspiciously close to the Bihar legislative assembly elections. There had been no sales in April to July that year. 

On 9 March 2021, petitioners approached the Court again. This time, state elections in West Bengal, Tamil Nadu, Kerala, Puducherry and Assam were around the corner. On 26 March 2021, the Court rejected the interim application. That “the Scheme is intended to ensure that everything happens only through banking channels” seemed sufficient basis for the CJI S.A. Bobde-led three-judge Bench to dismiss the interim application. 

The Court also dismissed arguments that the Scheme facilitated foreign funding, stating that the “contention arises out of ignorance of the Scheme” as only Indian citizens are permitted to purchase the bonds. They found no merit in ADR’s argument that the Scheme did not have safeguards against trading of bonds, as the “first buyer will not stand to gain anything out of such sale except losing white money for the black.”

Further, the Court said, the State Bank of India had all the information on transactions due to the collection of KYC details of the buyer, and that companies were required to disclose donations in their financial statements. “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’,” they said. 

The Court also said “that there cannot be repeated applications seeking the same relief, merely because the interim reliefs sought, relates to something that is to happen at periodical intervals of time.”

In November 2022, the Scheme was amended to increase the number of days of sale from 10 to 15 in a year of several assembly elections. With the Interim Application route precluded due to the Court’s previous order, ADR and other petitioners filed an additional affidavit stating that the amendment had been made to ensure that donations increased around election season. The petitioners also filed a supplementary affidavit pointing out that the amendment was introduced while the Model Code of Conduct was in force for the 2022 Assembly elections in Gujarat and Himachal Pradesh. 

The case inched forward when the year turned. On 31 January 2023, heeding to the petitioners’ request, the Court bifurcated the case into three separate issues—challenges to the Electoral Bond Scheme; political parties as public authorities under the RTI Act; and the validity of the amendments to the Foreign Contribution (Regulation) Act, 2010. The legal question on the use of money bills to pass amendments will be heard along with the challenge to the amendments to the Prevention of Money Laundering Act (PMLA). 

On 16 October 2023, the petitioners approached the Court again to request a speedy hearing and for the case to be referred to a five-judge Constitution Bench. The 2024 General Election was only months away. Time was running out again. 

Information blackholes, practical politics 

Finally, on 31 October 2023, the hearings began. “There are 23 lakh registered companies in India. 23 lakh!” Prashant Bhushan exclaimed during the hearings, responding to the Court’s earlier suggestion to embark on a “match the following” exercise to track transactions. The exercise was not something that even civil society organisations could reasonably take on, so there was no question of the average voter doing so. Bhushan insisted that though the voter is kept in the dark, the Union government could extract information by exerting pressure on the State Bank of India, which was in its control. 

Farasat, appearing for CPI(M) submitted that the Electoral Bonds Scheme was a “legally ordained information blackhole” which violates the idea of an “informed electorate” under Articles 19(1)(a) and 326.

The crux of the matter, petitioners argued, was that the Scheme’s much-vaunted quality of anonymity was a hoax. “Let’s talk practical politics,” Kapil Sibal said. He was arguing for petitioner Dr. Jaya Thakur, who is associated with the Madhya Pradesh women’s wing of the Congress party. Sibal suggested that any company that makes a large donation that has the flavour of a kickback will itself approach the beneficiary political party with the news of their purchase.

Sure enough, corporate donations formed a massive chunk of the bonds purchased. ADR’s research, which Bhushan submitted to the Constitution Bench, showed that 94.25 percent (₹12,999 crore) of all the bonds purchased between March 2018 to July 2023 were in the ₹1 crore denomination. “Capital and influence go hand in hand,” Sibal said in Court. 

Hopeful hearings, clouds of doubt 

When I asked Bhushan about the proceedings, he said that the Constitution Bench gave the petitioners “a good hearing.” “From their body language and from their questions, we were confident that they would probably allow our petition,” he said. “The questions they asked were mostly for the government. With us, they were mostly listening and trying to understand all the laws that had been amended, et cetera.” 

Farasat, too, recalled the Bench being alive to the arguments about transparency and the voters’ right to information. “You get a sense, normally, by the end of the hearing,” he said. “Of course, one never knows fully. But from the questions, from the responses, and how they receive different arguments, one does have a broad professional sense of where the matter is going.” 

Through the three days, the Court asked questions about how the Scheme played out practically. Chief Justice D.Y. Chandrachud zeroed in on the untraceability of the Bonds. “They say trading is prohibited, but there’s no way you can prohibit trading in the bond,” he said. Since the only information sought by the bank was the KYC details of the purchaser, one could simply appoint a person to make the purchase officially for a small fee. A donor with the vested interest could back the purchaser of the bond, exchange it with a political party in return for favours, and never have their name come up in the flow of transactions. Justice Sanjiv Khanna added “Because of the curtain, there cannot be any questions with regard to quid pro quo.” 

The Court also spent considerable time on the issue of the Scheme creating an uneven playing field among parties. Petitioners had argued that “more than 50 percent of the donations have been received only by the ruling party at the Centre and the rest have been received only by the ruling party in the States.” 

Solicitor General Tushar Mehta, on his part, had retorted that this couldn’t be helped. But the Bench was alive to the power imbalance inherent in the circumstance. CJI Chandrachud stated, “The party in power is in a much more vantage position (sic) to secure a greater amount of funding through the electoral bonds because of its ability to dole out a quid pro quo in the form of government contracts or government leases or licences or concessions. Or policy changes which will benefit that particular industry.” 

Though the Court’s sharp observations had raised hopes among the petitioners, they were aware that getting a decision in their favour was not a cinch. Bhushan told me he was particularly wary because, in the recent past, the Supreme Court had ruled in favour of the government in matters where he felt that the Union didn’t have a strong case. He specifically referred to the Court’s refusal to order a Special Investigative Team (SIT) probe into the Adani-Hindenburg controversy, and the series of decisions in the Gyanvapi Mosque case, including its refusal to hear a plea against the permission granted by a Varanasi court to conduct Hindu pujas in the mosque. Bhushan also brought up what he said was a pattern of assignment of personal liberty cases to specific benches. (He had previously written an open letter to the CJI about irregularities in the listing of cases.)

Shadan Farasat’s concern was that the Court could have said that there was a confidentiality element in the Scheme which they couldn’t breach. 

Sufficient gaps, illegitimate acts 

The concerns of the petitioners’ counsel were laid to rest when the Court unanimously held the Scheme to be unconstitutional on 15 February 2024. “The Scheme is not fool-proof,” they said, rejecting the idea that it offered confidentiality. “There are sufficient gaps in the Scheme which enable political parties to know the particulars of the contributions made to them.” CJI Chandrachud, writing on behalf of three other judges wrote that “electoral bonds provide economically resourced contributors who already have a seat at the table selective anonymity vis-à-vis the public and not the political party.” 

The Court also upheld voters’ right to information: “We are of the opinion that the information about funding to a political party is essential for a voter to exercise their freedom to vote in an effective manner.” 

The Court categorically rejected the Union’s contention that the Scheme’s tackling of black money was sufficient reason to restrict voters’ right to information. They found that “the purpose of curbing black money is not traceable to any of the grounds in Article 19(2).” Even if curbing black money was understood to be a legitimate goal, there were other legitimate and non-restrictive ways to achieve this, such as electronic transfers and Electoral Trusts. 

On privacy, the Court held that privacy of political affiliation was part of the right to expression of political beliefs guaranteed under Article 19(1)(a). However, the Court saw that the Scheme only grants privacy to donors at the cost of voters, and not against political parties as promised. Since there was “no constitutional hierarchy between the right to information and the right to informational privacy of political affiliation,” the Court had to decide if the restriction on information in this instance balanced out the right to privacy. They found that it did not. The Scheme ensured that the voter never found out about the donations. 

Further, there was already a mechanism under the Representation of the People Act, 1951 and the Income Tax Act, 1961 to ensure that donations below ₹20,000 (a threshold the Court said Parliament had set in its wisdom) did not have to be disclosed. 

Finally, they held that companies cannot be allowed to donate unlimited amounts of money to political parties. Amendments to the Companies Act, 2013 had removed any eligibility criteria. Allowing any company—whether they were profit-making or not—to donate allowed them “unrestrained influence…on the electoral process.” 

Rivers of cash, public trust 

My one question to the activists and lawyers associated with the case was: why does this case matter? RTI responses collected by transparency activists, and data put together by ADR showed that in the 30 phases of sale between 2018 and 2024, a total of ₹16,518.10 crore worth of bonds had been sold. In contrast, data put together by the Centre for Media Studies show that between ₹55,000-60,000 crore was collectively spent by political parties during the 2019 General Election. In the river of cash that is constantly flowing towards political parties through means fair and foul, what was the extent of the impact of ₹16,000 crores of electoral bond money? 

Bhushan told me that there was a much larger issue at play beyond the quantum: democracy itself. In India’s multi-party system, in his view, a scheme like Electoral Bonds “skewed the level playing field.” 

Indeed, there has been a slew of reporting on these lines in the past few weeks. At ₹1,368 crores, Future Gaming and Hotel Services, a leading lottery company in India, emerged as the biggest corporate donor. The company has reportedly been under investigation for money laundering. Megha Engineering and Infrastructures Ltd was second with a total donation value of ₹966 crores. The company has reportedly won several giant government tenders including ones to build the Kaleshwaram Lift Irrigation Project worth ₹1.15 lakh crore and the Thane-Borivali Twin Tunnel Project for ₹14,400 crore. 

Farasat said that it was now up to the Opposition to figure out what to make of the fact that the “government flagship scheme for electoral funding has been found to be blatantly unconstitutional.” “They need to decide how to speak about it to the public,” he said. 

Amrita Johri, member of the Satark Nagrik Sangathan (SNS) and National Campaign for People’s Right to Information (NCPRI), told me that it all boiled down to trust. “I think the Scheme has created suspicion in the mind of the public. And I think that you have to judge government actions from a prism of public trust.” Johri was part of the team that filed the early RTIs around the Scheme. 

“All of this is very much about citizens feeling that their vote counts,” said Anjali Bhardwaj, a transparency activist and co-founder of SNS and NCPRI. “Who I am electing should actually be working for me as a citizen and not for a corporate interest or an industry simply because that’s where they are getting money from.”