NEW DELHI: The Supreme Court on Thursday said the opaque electoral bond scheme, majorly used by corporate houses to anonymously donate to political parties, needs to be reformed and asked the Union government whether it would amend the Companies Act to cap the percentage of profit a company can earmark for political funding.
A bench of Chief Justice D Y Chandrachud and Justices Sanjiv Khanna, B R Gavai, J B Pardiwala and Manoj Misra said there were five considerations to keep black money out of the electoral system — reduce cash in the system, ensure transactions through authorised banking channels, incentivise such transactions, bring transparency, and curb kickbacks and quid pro quo.
Importantly, the government, while defending the concept of electoral bonds, said it was ready to improve the scheme by addressing shortcomings, if any.

After outlining the components for making the electoral system clean, CJI Chandrachud said, “When a balance is drawn, it is not the electoral bond or the previous system. This system puts a premium on opacity. It has to be removed. How it is to be done is for the government or legislature to decide.

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Referring to the five considerations, the bench said currently, there is no cap on the contributions that companies can make. “In the earlier regime, there was a cap of 7.5% (of the three-year average net profit of a company which from 1985 till 2013 was 5%). In the present regime, a company making a loss can also donate to political parties. This gives credence to allegations about shell companies being used by big corporations to donate to political parties.”
Solicitor general Tushar Mehta said operation of shell companies was a concern for the government and sustained action against them had resulted in elimination of more than 2,000 shell companies. He said, “I can make a statement that the SC can direct that only profit making companies can purchase electoral bonds for contributing to funds of political parties.”
Mehta said the cap was removed in 2018 as it was found that companies wishing to donate more than 7.5% of their net profit were using shell companies and cash for political funding. “Now, everything is through the banking channel,” he said. Significantly, he said the government had never claimed that electoral bonds were a perfect solution to the problem of black money in elections. He then read out the speech of the then finance minister Arun Jaitley, who had conceded that it was not a foolproof mechanism, but would help in substantially reducing the play of black money in the electoral system.

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Explaining the rationale behind confidentiality of identity of donors, which the petitioners and the court termed as opacity, the SG said no one, not even the government at the highest level, could seek details of who donates what amount to which party, a contention aimed at addressing the view that electoral bonds were a case of “selective confidentiality” with only the government equipped to access the details of donors.
“The information is stored in a layered fashion and any attempt to break into even one layer would leave a digital footprint. Moreover, the information about donors can be sought by a court or law enforcing agencies,” Mehta said.
Addressing the concern about information asymmetry, Mehta produced a letter from the SBI chairman stating that information on donors under electoral bonds was strictly confidential and was not given under any circumstance to even the ruling dispensation. The SG said to assuage the SC’s concerns, the government was ready to accept a direction from the court that any breach in confidentiality would be a crime under the IPC and that investigating agencies, which the petitioners said were under the control of the government, would get information about donors only on the directions of a court.
Mehta said electoral bonds was one of the steps in the long series of attempts by successive governments to eradicate illicit money in the electoral system. The confidentiality was to encourage donations only through banking channels, he said, adding that democracies across the world were grappling with the problem of black money in the electoral system.
“India is no exception. Governments are continuously developing the mechanism to counter the play of black money in the electoral system. There may be flaws and there is scope for improvement. But that is no ground for the court to invalidate electoral bonds, which is a policy decision of the government and backed by legislative action of Parliament,” he said. The bench reserved its verdict.

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