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Supreme Court Upholds Unconstitutionality of Electoral Bond Scheme Due to Violation of Right to Information and Equality Before Law

Case Name: State Bank of India v. Association for Democratic Reforms and Others

Case Number: Miscellaneous Application No. 486 of 2024 in Writ Petition (Civil) No. 880 of 2017

Date of Order: March 11, 2024

Quorum: The bench comprised the following justices: Chief Justice (CJI) Dr. Dhananjaya Y Chandrachud, Justice Sanjiv Khanna, Justice B.R. Gavai, Justice J.B. Pardiwala, Justice Manoj Misra

FACTS OF THE CASE

In February 2024, the Supreme Court of India declared the Electoral Bond Scheme and parts of the Finance Act 2017 unconstitutional. The Court found that non-disclosure of political funding violated citizens’ right to information under Article 19(1)(a) and that unlimited corporate funding of political parties was arbitrary, violating Article 14. The State Bank of India (SBI), responsible for handling Electoral Bonds, was ordered to submit detailed information on bonds purchased and redeemed from 12 April 2019 to 15 February 2024. This information was to be provided to the Election Commission of India (ECI) by 6 March 2024 and published by the ECI by 13 March 2024. SBI requested an extension until 30 June 2024, citing difficulties due to the information being stored in separate silos and the complexity of matching donor and redemption details. The Supreme Court rejected this request, emphasizing that the necessary information was available and that confidentiality provisions did not preclude court-ordered disclosure. The Court directed SBI to comply by 12 March 2024 and the ECI to publish the information by 15 March 2024. SBI’s Chairman and Managing Director were required to file a compliance affidavit. The Court warned of potential contempt proceedings for non-compliance but refrained from immediate action.

ISSUES

  • Whether the Electoral Bond Scheme, which allows anonymous donations to political parties, violates citizens’ right to information under Article 19(1)(a) of the Constitution.
  • Whether the amendments introduced by the Finance Act 2017 to the Companies Act 2013, permitting unlimited corporate funding of political parties, are arbitrary and violate Article 14 of the Constitution, which guarantees equality before the law.
  • Whether the State Bank of India (SBI) should disclose detailed information on the purchase and redemption of Electoral Bonds to ensure transparency in political funding, and whether SBI’s request for an extension to comply with the Supreme Court’s disclosure order was justified.

LEGAL PROVISIONS

Article 19(1)(a) of the Constitution of India:

This article guarantees the right to freedom of speech and expression, which includes the right to information. The petitioners argued that the Electoral Bond Scheme violates this right by allowing anonymous political donations, thereby depriving citizens of information about political funding.

Article 14 of the Constitution of India:

This article guarantees equality before the law and equal protection of the laws. The petitioners contended that the amendments allowing unlimited corporate funding of political parties are arbitrary and violate this principle of equality.

 Representation of the People Act, 1951:

The amendments introduced by the Finance Act 2017 to this act facilitated anonymous donations through Electoral Bonds. The constitutionality of these amendments was challenged.

Income Tax Act, 1961:

The Finance Act 2017 also amended this act to exempt political parties from disclosing donations received through Electoral Bonds in their contribution reports, thus enabling anonymity.

Companies Act, 2013:

The amendments to this act removed the cap on corporate donations to political parties and eliminated the requirement for companies to disclose the names of the political parties to which they donated. These changes were challenged as being arbitrary and in violation of Article 14.

Finance Act, 2017:

This act introduced the Electoral Bond Scheme and amended the above statutes to incorporate provisions facilitating anonymous donations to political parties. The overall constitutionality of these amendments was questioned.

CONTENTIONS OF THE APPELLANT

SBI argued that the information required by the Supreme Court regarding the purchase and redemption of Electoral Bonds was maintained in two separate silos to ensure confidentiality. The process of “decoding the Electoral Bonds and matching the donor to the donations” was complex and time-consuming. They emphasized that the Electoral Bond Scheme mandated confidentiality of donor information, and the data was stored securely in separate physical silos, necessitating a detailed and labor-intensive matching process to compile the required information. SBI highlighted several operational challenges that hindered immediate compliance with the Court’s order. They pointed out that the information on bond purchases, including KYC details, was not maintained in a digital format within the core banking system. The details were instead kept in sealed covers at designated branches and periodically sent to the Mumbai main branch. Similarly, details of bond redemptions by political parties were stored separately. The task of manually matching over 22,000 bonds with their corresponding redemption data, totaling around 44,000 data sets, was argued to be extremely resource-intensive and time-consuming. Based on the operational difficulties and the volume of data involved, SBI sought an extension until 30 June 2024 to comply with the Supreme Court’s order. They contended that while they were committed to fulfilling the Court’s directive, the complexity of the task and the need to maintain the integrity and confidentiality of the information required additional time. SBI assured the Court that the matching of information and subsequent disclosure could be completed within this extended timeframe, allowing for accurate and thorough compilation of the data. SBI’s contentions aimed to explain the practical difficulties in immediate compliance and sought the Court’s understanding and additional time to meet the disclosure requirements fully.

CONTENTIONS OF THE RESPONDENT

The respondents argued that the Electoral Bond Scheme violated the citizens’ right to information under Article 19(1)(a) of the Constitution. They contended that the anonymity provided by the scheme deprived citizens of essential information regarding political funding, which is crucial for a transparent democratic process. The lack of transparency in the sources of political donations hindered the voters’ ability to make informed choices, thereby undermining the democratic process. The respondents challenged the amendments introduced by the Finance Act 2017 to the Representation of People Act 1951, the Income Tax Act 1961, and the Companies Act 2013. They argued that these amendments were arbitrary and violated Article 14 of the Constitution, which guarantees equality before the law. By allowing unlimited corporate funding of political parties without disclosure, the amendments created an uneven playing field, favoring larger, well-funded political parties and disadvantaging smaller parties and independent candidates. The respondents contended that the information regarding the purchase and redemption of Electoral Bonds was readily available with SBI, despite being maintained in separate silos. They argued that SBI’s plea for an extension of time was unjustified and a tactic to delay compliance with the Supreme Court’s order. The respondents emphasized that the matching of donor and redemption details was feasible and necessary to uphold the Court’s directive for transparency in political funding. The respondents stressed that the Supreme Court’s order for the disclosure of Electoral Bond transactions was in the public interest. They argued that timely compliance with the Court’s directive was essential to ensure accountability and transparency in political financing. The respondents pointed out that the Supreme Court had already recognized the significance of this issue by declaring the scheme and the related amendments unconstitutional. Therefore, SBI’s request for an extension was viewed as an attempt to undermine the Court’s efforts to enhance transparency and accountability in the electoral process. Given SBI’s failure to comply with the Supreme Court’s order within the stipulated timeframe, the respondents invoked the Court’s contempt jurisdiction. They argued that SBI’s non-compliance amounted to willful disobedience of the Court’s directive, warranting contempt proceedings. The respondents urged the Court to take strict action against SBI to uphold the authority of the judiciary and ensure adherence to its orders. These contentions underscored the respondents’ insistence on transparency in political funding and their opposition to any delays in the implementation of the Supreme Court’s order.

COURT’S ANALYSIS AND JUDGEMENT

The Supreme Court critically examined SBI’s request for an extension of time to comply with its order. The Court noted SBI’s explanation regarding the complexities involved in matching donor information with bond redemption details due to the data being stored in two separate silos. However, the Court emphasized that the information required for compliance was already available, albeit in separate forms, and that the matching process, while detailed, was not an insurmountable task. The Court addressed the issue of confidentiality as stipulated in the Electoral Bond Scheme. It highlighted Clause 7(4) of the scheme, which mandates that information furnished by the buyer of an Electoral Bond should be treated as confidential and only disclosed upon a court’s directive or a law enforcement agency’s registration of an offense. The Court reiterated that, as a competent judicial authority, its directive for disclosure must be adhered to by SBI.

The Court found SBI’s arguments about operational challenges unconvincing. It pointed out that the Electoral Bond Scheme itself, as well as the FAQs published by SBI, indicated that necessary information, such as KYC documents and transaction details, was collected and maintained meticulously. The Court highlighted that both donor and redemption information were systematically stored and could be accessed and matched with reasonable effort. The Supreme Court underscored the significance of its earlier judgment declaring the Electoral Bond Scheme and related amendments unconstitutional. It reiterated that the lack of transparency in political funding violated citizens’ right to information under Article 19(1)(a) of the Constitution. Ensuring transparency in political funding was deemed essential for maintaining the integrity of the democratic process. The Court emphasized the urgency and public interest in disclosing the details of Electoral Bond transactions.

The Court dismissed SBI’s request for an extension of time until 30 June 2024. It mandated that SBI must disclose the required details by the close of business hours on 12 March 2024. The Election Commission of India (ECI) was instructed to compile and publish this information on its official website by 15 March 2024. The Court also required SBI to submit an affidavit of compliance from its Chairman and Managing Director by the stipulated deadline. While the Court refrained from exercising its contempt jurisdiction immediately, it issued a stern warning to SBI. The Court stated that if SBI failed to comply with its directives within the specified timeframe, it would consider initiating contempt proceedings for willful disobedience of its order.

The Supreme Court, thus, dismissed SBI’s Miscellaneous Application for an extension of time and directed immediate compliance with its earlier judgment. The Court reinforced the constitutional mandate for transparency in political funding and upheld the citizens’ right to information, ensuring that the details of Electoral Bond transactions were disclosed in a timely manner.

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Judgement Reviewed by- Shruti Gattani

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