SC verdict on electoral bonds nullifies 3 amendments made through finance act

To bring in the EB scheme, the Centre made multiple amendments by way of two Finance Acts— Finance Act, 2017 and Finance Act, 2016

​New Delhi: The Supreme Court in its judgement on Thursday struck down three amendments made by the Centre through the 2017 Finance Act to create the architecture of the electoral bond (EB) scheme, with keeping the secrecy of political funding at the core of it.

The Constitution bench held that the amendments violated “the right to information” under Article 19(1)(a) and are thus unconstitutional (Sanjay Sharma)

The Constitution bench held that the amendments violated “the right to information” under Article 19(1)(a) and are thus unconstitutional. HT analyses the salient feature of the scheme and the court’s reasoning in nixing the amendments.

Introduced in 2018, EBs are available for purchase at any SBI branch in multiples of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh and ₹1 crore and can be bought through a KYC-compliant account. There is no limit on the number of electoral bonds that a person or company can purchase. Donations made under this scheme by corporate and even foreign entities through Indian subsidiaries enjoy 100% tax exemption while identities of the donors are kept confidential both by the bank as well as the recipient political parties. The public sector bank is obligated under the scheme to disclose the details only pursuant to a court order or a requisition by law enforcement agencies.

To bring in the EB scheme, the Centre made multiple amendments by way of two Finance Acts— Finance Act, 2017 and Finance Act, 2016, both passed as money bills (not necessitating the oversight of the Rajya Sabha). The passage of the amendments as money bills has also been challenged but was not being dealt with in the present batch of petitions since that issue is pending before a seven-judge bench. The three amendments annulled by the court on Thursday were brought in 2017.

In its judgment, the court struck down the amendments to Section 29C of the RP Act, Section 182(3) of the Companies Act and Section 13A(b) of the Income Tax for violating “the right to information of citizens guaranteed in Article 19(1)(a) of the Constitution.” These three amendments created a structure for non-disclosure of information on voluntary contributions made to political parties by individuals or corporate entities.

Section 29C of the RP Act stipulates that the political party need not disclose financial contributions received through electoral bonds. Similarly, Section 13A of the IT Act does not require a political party to maintain a record of contributions for contributions received through EBs. Section 182 of the Companies Act 2013, as amended, deleted the earlier requirement of disclosure of particulars of the amount contributed by companies to political parties in their profit and loss accounts. The company which has made financial contributions was now only required to disclose the total amount contributed to political parties without disclosing specific particulars about the political party to which the contribution was made.

But the bench held that “the information about the funding of political parties is essential for the effective exercise of the choice of voting”, adding the EB scheme further failed the test of proportionality because it was neither the least restrictive method of curtailing the voter’s right to know nor was the only way to curb black money.

Even as it acknowledged that financial contribution to a political party is a facet of informational privacy for the donors, the court said that clauses of absolute non-disclosure did not effectively and meaningfully strike a balance between the right to information necessary for an informed voter and the privacy of political affiliation information. “The right to privacy of political affiliation does not extend to contributions may be made which may be made to influence policies. It only extends to contributions made to the genuine form of political support,” added the bench.

On amendment to Section 182 of the Companies Act permitting unlimited political contributions to companies, the court said the new provision is “manifestly arbitrary for not making a distinction between profit-making and loss-making companies for the purposes of political contributions.” Before the amendment, it noted, the provision allowed contribution to a certain percentage of the net aggregate profits, adding the underlying principle of this distinction was that it is more plausible that loss-making companies will contribute to political parties with a quid pro quo and not for the purpose of income tax benefits.