‘Voters Don’t Need to Know Source of Party Funding’: Govt to SC

Govt asked court not to interfere till end of polls, claimed voters don’t need to know source of political funding.

SC to decide on interim stay of electoral bond scheme on 12 April.

(Photo: Kamran Akhter/The Quint)

Chief Justice of India Ranjan Gogoi said the Supreme Court will pronounce its order on whether to stay the electoral bonds scheme on Friday, 12 April, at 10:30 am. This decision will be an interim order, and not a final decision on the constitutionality of the electoral bonds scheme.

The petitioners who have filed the PILs challenging the scheme had also asked the court to grant an interim stay on the sale of the anonymous electoral bonds during the phases currently announced by the RBI (April and May) and till such time as the court decides on the constitutionality of the scheme as a whole. Alternatively, they have asked for full disclosure on any electoral bond sales, and of past sales as well.

The bench, made up of CJI Gogoi along with Justices Deepak Gupta and Sanjiv Khanna, conducted hearings on Wednesday and Thursday, during which the petitioners had argued how the scheme was a blow to transparency and disproportionately benefitted the ruling party.

Attorney General KK Venugopal, representing the government, defended the scheme as part of the government’s policy to curb black money, and argued that the court should not interfere in this policy “experiment”. He also made a number of extremely controversial statements in court, including that voters didn’t need to know the source of funding of political candidates.

What is the Case About?

The petitioners in the case include NGOs Common Cause and Association for Democratic Reforms (ADR) – represented by senior Prashant Bhushan – as well as the Communist Party of India (Marxist) – represented by senior advocate Raju Ramachandran.

According to them, the electoral bonds scheme is unconstitutional because it lowers transparency when it comes to political funding, given the anonymity of the bonds and the corresponding amendments to laws on disclosure of funds by parties and corporate donors.

The electoral bonds scheme allows individuals or corporations to purchase electoral bonds, which can then be provided to political parties. The bonds are bearer instruments, so the political parties just need to deposit them in their accounts to obtain the amount – the donor remains anonymous.

The Centre has defended the scheme, saying that it will help tackle black money, that it protects the privacy of donors, and that it cannot be misused since the scheme runs for a limited period of time and requires donors to complete a KYC process to purchase the bonds.

You can read more details about the arguments for and against the bonds here.

The Election Commission objected to the electoral bonds scheme soon after it was announced by the government in 2017 in a letter to the Law Ministry, (exclusively revealed by The Quint’s Poonam Agarwal) and also filed an affidavit in the Supreme Court arguing it makes political funding more opaque, potentially allowing black money and foreign funding into Indian politics.

You can read more about the EC’s objections to electoral bonds here.

The electoral bonds scheme is meant to run for 10 days every quarter. However, it can also run for 30 days during a general election, which means it has been announced for April and May as well. This is why a request for an interim stay was requested by the petitioners.

What Did the Government Argue in Court?

Wednesday

On Wednesday, Attorney General KK Venugopal spent a long time arguing about the menace of black money in Indian politics, relying on a report he claimed to have been published by the ‘Carnegie Endowment for International Peace’ on how black money was central to political funding.

During that first hearing, Venugopal tried to justify the anonymity of the bonds on the basis that donors were more willing to donate in clean money if they knew that they would not face any reprisals from the political party in power – this was also why other laws like the Companies Act also had to be amended.

The court then asked them if there really was no way for the government in power to know who purchased the electoral bonds – the Attorney General claimed this was not possible.

As The Quint had exclusively reported (Poonam Agarwal again) last year, however, each bond has a unique alphanumeric code on it, which can only be viewed under UV light. This code can technically be used to trace who bought each bond thanks to the KYC process when the bonds are purchased.

This was brought up by Prashant Bhushan, and the Attorney General said he would respond after taking instructions from the Centre.

Thursday

On Thursday Attorney General Venugopal submitted details of the scheme published by the government to explain how secrecy is maintained. He described the security features of the electoral bonds including the unique reference number that can be viewed under UV light, which he claimed was only looked at to verify if a bond is genuine.

He elaborated on how the scheme is part of a larger policy to tackle black money, pointing to recent reports of cash being seized in large quantities (from people connected to Opposition parties) as proof that the scheme is helping squeeze black money out of the system.

After this, however, he made a number of more controversial arguments:

• He said there is a “sinister purpose” behind the petitions challenging the scheme, during the hearing on Thursday. He said that the petitioners’ claim that 95 percent of the electoral bonds have gone to the BJP indicated the petitions were motivated – he had previously insinuated that Prashant Bhushan was representing the Congress.
• He said that contrary to what the petitioners were arguing, “Voters don’t need to know where money of political parties comes from, as long as it is legitimate money.” The voter’s right to information about political candidates (including their funding) is a crucial argument of the petitioners because they claims this comes under exercise of free speech, based on previous decisions of the Supreme Court.
• He also said that the government was entitled to conduct this experiment at least till the elections are over, since the electoral bonds scheme is “not worse off than what is existing.”
• He also tried to say that the anonymity and lack of disclosure requirements was in furtherance of the donors’ right to privacy as upheld by the Supreme Court itself.

“Transparency cannot be a mantra. It cannot be cited without looking at the facts and circumstances,” Venugopal concluded, adding that “this is the best scheme possible to combat the vice of black money in elections, and I hope the court upholds it.”

How Did the Judges React?

From an early stage, the judges asked the Attorney General a number of tough questions.

The court once again questioned whether the bank (State Bank of India, which issues the bonds) can identify the purchaser of a bond, an important issue since the Centre can direct SBI to provide all sorts of information, including details about bonds sold, presumably.

The Attorney General initially didn’t have a clear answer, even after conferring with an official from SBI. Eventually he clarified that no, the bank couldn’t identify who had bought a particular bond.

The CJI then astutely pointed out that this was the case, “your entire exercise of trying to fight against black money becomes futile. If the identity of the buyer of a bond cannot be traced, how can it prevent black money from being used?”

Venugopal responded by saying that black money couldn’t be used to buy a bond since this required a bank-to-bank transaction, and a KYC process by the bank. Justice Sanjiv Khanna disputed this, pointing out that black money can be routed through shell companies till it becomes ‘white’ – and that the removal of the 7.5 percent profit cap on corporate donations as part of the scheme meant shell companies could be used to buy these bonds using money like this.

Justice Khanna also pointed out that the KYC process only establishes the identity of a purchaser, and “is not a certificate of genuineness of the money, whether it is black or white.”

The only response Venugopal could muster to these questions was that the electoral bonds scheme was not worse than the older system of funding. He also spoke at length about how “black money is the greatest threat to democracy.”

In the midst of this, the Election Commission was also left red-faced after the CJI pointed out to them that under the proviso to Section 29C of the Representation of Peoples Act (which was inserted by Finance Act 2017 as part of the the electoral bonds scheme), parties don't need to disclose the amount of donations received by them in the form of electoral bonds.

The issue arose after the EC insisted that they could find out the amount of money received by each political party through electoral bonds. As CJI Gogoi pointed out, however, this was not a requirement by law thanks to the proviso, so political parties could refuse to provide them with this information.

“You said you were better off than the banks, but you’re not. You know nothing!”

Chief Justice of India to Election Commission

It is strange that this was a surprise to the EC, since they had flagged this amendment to Section 29C in their protest letter to the Law Ministry on 26 May 2017.

Justice Deepak Gupta then raised the issue of voter’s right to information, to which Venugopal made his stunning remark that voters didn’t need to know the source of political funding.

After Venugopal resumed, the petitioners made brief rejoinders, with Prashant Bhushan arguing that the electoral bonds scheme actually did nothing to curb the generation of black money, or the use of it for political donations. The CJI also noted that cash donations were still possible even now (as long as each donation doesn’t exceed Rs 2,000).

Addendum: The ‘Carnegie Report’ That Wasn’t & the 95% Claim

It was a little strange that on both days, the Attorney General kept using what he claimed was a Carnegie report on political funding to emphasise why electoral bonds are needed.

First, this was not a report by the Carnegie Endowment for International Peace as the A-G claimed, but an article in the Hindustan Times (which had been uploaded to Carnegie’s website). It is a survey of politicians in three Indian states, and as the author, Jennifer Bussell, pointed out to this reporter, it features as part of a book on campaign finance in India by Devesh Kapur and Milan Vaishnav.

Second, the same book it originates from also stresses on the need for transparency in funding. Bussell herself has opined that electoral bonds are “questionable” to the Financial Times. Milan Vaishnav, Senior Fellow and Director of Carnegie Endowment’s South Asia operations, has criticised the scheme in the The Indian Express (also uploaded to Carnegie’s site, by the way).

The Attorney General also insisted multiple times that the claim by petitioners that 95% of electoral bonds sold in March 2018 went to the BJP was unfounded. However, this figure was derived from the figures provided by the BJP to the Election Commission.

According to the BJP’s 2017-18 audit report, available on the EC website, the BJP received Rs 210 crore in the form of electoral bonds in March 2018. An RTI reply from the SBI revealed that Rs 222 crore worth of electoral bonds were sold during that period. The 95 percent figure is not therefore part of any sinister design, as Venugopal tried to suggest.