What’s in today’s article?

• Why in news?
• Existing system before the introduction of EBS
• The Verdict of the Supreme Court
• Directions issued by the court
• Analysis of the recent verdict

Why in news?

• Along with the Electoral Bonds Scheme (EBS), the Supreme Court struck down several amendments that the government made in key laws to facilitate corporate donations to political parties.
• The amendments were made through The Finance Act, 2016, and The Finance Act, 2017, before the EBS was introduced in January 2018.

Existing system before the introduction of EBS

• Situation before The Finance Act 2016, and The Finance Act 2017
  • Before the two Finance Acts were passed, political parties were required to;
    • declare all contributions more than Rs 20,000 with no exceptions, and
    • maintain a record of all donations more than Rs 20,000 for purposes of taxation.
  • Also, there was a cap on the amount of money that a company could donate to a political party in a financial year.
    • Companies could contribute a maximum of 7.5% of their average net profits from the preceding three years.
• Amendments introduced through The Finance Act, 2017
  • The Finance Act of 2017 amended several key laws including the Representation of the People Act, 1951, the Income-tax Act, 1961, and the Companies Act, 2013.
  • These changes introduced electoral bonds, which significantly eased restrictions on political party funding.
  • Electoral bonds removed donation limits for companies and eliminated the need to declare and maintain records of donations made through them.

The Verdict of the Supreme Court

• Recent judgment by the Supreme Court has restored the status quo that existed before the Finance Act, 2017 was passed, in all of these statutes.
• The Representation of the People Act, 1951
  • Section 29C of the Act requires political parties to prepare a report detailing the donations received by them in a financial year.
  • Parties are required to declare all contributions higher than Rs 20,000 in this report, and specify whether they were received from individual persons or from companies.
• Finance Act 2017 and amendments in RPA 1951
  • The Finance Act, 2017, amended the RP Act to include an exception to Section 29C.
  • It said that the requirement to declare all donations in excess of Rs 20,000 would not apply to donations received through Electoral Bonds.
• SC Judgement and RPA 1951
  • The Supreme Court struck down the amendment.
  • It observed that the original requirement to disclose contributions of more than Rs 20,000 did an effective job of balancing voters’ right to information with the right to privacy of donors.
    • Donations below this threshold were far less likely to influence political decisions.
• The Companies Act, 2013
  • Section 182(1) of the act placed a cap on the amount of money a company could donate in a single financial year, limiting it to 7.5% of the company’s average net profits during the previous three financial years.
  • Section 182(3) required a company to disclose any amount contributed to any political party along with the particulars of the amount donated and the name of the receiving party.
• Finance act 2017 and the Companies Act
  • This section was amended to remove the cap on the amount of money a company could donate to a political party.
  • Also, only the total amount contributed had to be disclosed — and the company would no longer be required to declare which political party it had sent a donation to, nor the specific amount.
• SC Judgement and Companies Act 2013
  • The court struck down this amendment.
  • It observed that “permitting unlimited corporate contributions authorises unrestrained influence of companies in the electoral process”.
• The Income-tax Act, 1961
  • Section 13A(b) of The Income-tax Act says that a political party shall not include voluntary contributions as part of its total income.
  • However, it is required to maintain a record of all contributions received that are above Rs 20,000.
  • This record must include the name and address of the person who has made the donation.
• Finance Act 2017 and Income Tax act
  • The Act amended this section to include the words “other than contribution by way of Electoral Bond”.
  • Also, a new Section 13A(d) was added, which required that all donations exceeding Rs 2,000 must be given through certain methods, which included Electoral Bonds.
• SC Judgement and Income Tax Act
  • The court held that exempting political parties from maintaining a record of donations received through Electoral Bonds would violate the right to information of voters under Article 19(1)(a) of the Constitution.
  • The court struck down both the amendment to Section 13A(b), and the new Section 13A(d).

Directions issued by the court

• Direction to SBI
  • The SBI has been ordered to;
    • immediately stop the issuance of any further electoral bonds and
    • Furnish details of such bonds purchased by political parties since April 12, 2019, to the ECI by March 6.
  • Such details must include the date of purchase of each bond, the name of the purchaser of the bond and the denomination of the bond purchased.
• Directions to Election Commission of India
  • The ECI shall subsequently publish all such information shared by the SBI on its official website by 13 March 2024.
• Direction towards return of electoral bonds
  • Electoral bonds that are within the validity period of fifteen days but have not yet been encashed by the political party will have to be returned following which the issuing bank will refund the amount to the purchaser’s account.

Analysis of the recent verdict

• The Supreme Court has set a higher standard for the state to justify encroaching on a fundamental right,even when its action is perceived to further a competing right.
• It ruled that the state must demonstrate that its action is the "least restrictive" and that no other "equally effective" methods exist to achieve its objective.
• The judicial approach in balancing two fundamental rights has largely been done by attaching significance to one right over the other.
• The court has also, in several cases framed this debate by placing public interest over individual fundamental rights which gave the state an upper hand.
  • For example, in 2018, the Supreme Court had restricted the right to protest around Delhi’s Jantar Mantar to give effect to the right to a peaceful residence and the state’s power to regulate such activities.

Q1) What is State Bank of India (SBI)?

State Bank of India (SBI) is a public sector bank and financial services company owned by the Government of India. It was nationalized in 1955 and is headquartered in Mumbai, Maharashtra. SBI has thousands of branches across India and offices in other countries. 

Q2) What is Finance Act?

The Finance Act is a fiscal legislation enacted by the Indian Parliament once a year. It is a crucial financial document that outlines the tax proposals and budgetary allocations of the Indian government for the fiscal year. The Finance Act contains provisions relating to income taxes, customs, excise, Central and Integrated GST and other cess, exemptions, and reliefs.

Source: Electoral Bonds: How SC struck down amendments in three key laws, restored status quo restricting political donations | Indian Express | The Hindu

What’s in today’s article?

• Why in news?
• What are Electoral bonds (EBs)?
• What are the key features of electoral bonds?
• Proportionality test and Electoral Bond Scheme (EBS)
• News Summary; Supreme Court strikes down electoral bonds scheme
• Key highlights of the SC judgement

Why in news?

• A five-judge Constitution Bench of the Supreme Court unanimously struck down the Centre’s Electoral Bond Scheme (EBS) for being unconstitutional.
  • It underscored that the scheme violates the right to information under Article 19(1)(a) of the Constitution.
• Along with the EBS, the Apex Court also struck down several amendments that the government made in key laws to facilitate corporate donations to political parties.
  • The amendments were made through The Finance Act, 2016, and The Finance Act, 2017, before the EBS was introduced in January 2018.

Electoral bonds (EBs)

• About
  • Electoral bonds are a financial instrument introduced by the Government of India in 2018 to facilitate anonymous political donations.
  • An electoral bond is a bearer instrument, like a promissory note, that is payable to the bearer on demand to donate their contributions to political parties.
• Who are eligible to receive electoral bonds?
  • There are certain criteria that political parties must meet to be eligible to receive electoral bonds. These are:
    • Recognition: The political party must be registered under Section 29A of the Representation of the People Act, 1951.
    • Recent Election Performance: The party must have secured at least 1% of the votes polled in the most recent Lok Sabha or State Assembly election.
• Available denominations
  • The Government of India has specified various denominations for electoral bonds, ranging from Rs. 1,000 to Rs. 1 crore.
• Authorized bank: SBI is the only bank authorised to sell these bonds.
• Working
  • A citizen of India or a body incorporated in India is eligible to purchase the bond.
  • EBs are issued/purchased for any value, in multiples of Rs 1,000, Rs 10,000, Rs 1,00,000, Rs 10,00,000 and Rs 1,00,00,000 from the specified branches of SBI.
  • The bonds shall be available for purchase for a period of 10 days each in the months of January, April, July and October as may be specified by the Central Government.
  • The bond can be encashed by an eligible political party only through a designated bank account with the authorised bank.

Key features of electoral bonds

• Anonymity:
  • Electoral bonds provide anonymity to the donor by not revealing the identity of the donor to the public or the recipient political party.
• Purchase and Redemption:
  • Electoral bonds can be purchased from authorized banks using legal tender.
  • They are available in fixed denominations, and the minimum value of an electoral bond is set by the government.
• Validity:
  • Electoral bonds are valid for a limited period, typically 15 days, during which they can be used for making donations to eligible political parties.
• Transparency:
  • While the names of donors remain anonymous, the political parties receiving the electoral bond donations are required to disclose details of the donations in their financial statements to the Election Commission of India.

Proportionality test and Electoral Bond Scheme (EBS)

• For the scheme to be considered legitimate, the government scheme would have to essentially satisfy three aspects.
  • This was based on the court’s proportionality test, laid down in its 2017 verdict in the KS Puttaswamy case over the right to privacy.
• First, the existence of a law.
  • The electoral bond key was brought through the Finance Act which introduced the series of amendments in the Income Tax Act and the Representation of People’s Act.
• Second, the law must demonstrate a legitimate state interest, which has nexus to the object sought to be achieved by the Parliament.
  • As per the govt, the objectives of EBS range from curbing black money to protecting the privacy of the donors.
• The third is whether the encroachment on fundamental rights is proportional to the objection sought to be achieved.
  • As per the apex court, in EBS, the state did not adopt the least restrictive method.
  • As an example of the least restrictive methods, the court cited the ₹20,000 cap on anonymous donations.
• Hence, the apex court held that an infringement of the right to information is not proportionally justified to curb black money in electoral financing.

News Summary; Supreme Court strikes down electoral bonds scheme

• Prioritising voters’ right to information regarding political parties’ sources of funding, the Supreme Court struck down the Electoral Bonds Scheme (EBS).
  • Petitions were filed by the Communist Party of India (Marxist), and NGOs Common Cause and ADR.
• The court also struck down the amendments made to key laws on electoral finance which were introduced in the lead up to the introduction of EBS.

Key highlights of the judgement

• EBS violates voters’ right to information
  • The court held that information on the funding of political parties is essential for voting.
  • Economic inequality leads to political inequality because money is closely tied to politics.
  • Having more money provides better access to lawmakers and raises the potential for quid pro quo or mutually beneficial deals, like favourable policy changes.
  • Therefore, the scheme violates the right to information under Article 19(1)(a), which guarantees the freedom of speech and expression.
• Restrictions are disproportionate to the stated goal of curbing circulation of black money
  • The court held that the RTI can only be restricted based on Article 19(2), which speaks of the reasonable restrictions to freedom of speech and expression.
  • It does not include curbing black money as a restriction.
  • Even assuming curbing black money is a legitimate purpose, it is not proportional to the restrictions posed by this scheme.
• Right to donor privacy is not absolute
  • The court considered whether the right to donor privacy includes information about a citizen’s political affiliation.
  • If yes, is a financial contribution to a political party an aspect of political information?
  • In the Puttaswamy judgment, the court said that the right to informational privacy includes political affiliation.
    • Forming political beliefs is the first stage of political expression, and political expression cannot be expressed freely without the privacy of political affiliation.
    • Information can be used by the state to suppress dissent and discriminate by denying employment.
  • The court highlighted two main reasons for financial contributions to political parties: support and quid pro quo.
  • It rejected the notion of allowing corporate donations to obscure the motives behind contributions from other groups.
  • The court affirmed the right to informational privacy for political contributions, regardless of corporate involvement.
  • However, it clarified that privacy does not cover contributions aimed at influencing policies, only genuine political support.
    • Hence, the apex court was of the view that the right to donor privacy is not absolute.
• Unlimited political contributions by companies is unconstitutional
  • The court said this cannot be permitted. The ability of companies to influence the political process through contributions is much higher compared to individuals.
  • Contributions made by companies are purely business transactions made with the intent of securing benefits in return.

Q1) What is Representation of the People Act, 1951?

The Representation of the People Act, 1951 is a law that regulates the conduct of elections in India. It was passed by Parliament in accordance with Article 327 of the Constitution of India. 

Q2) What is Article 19(1)(a) of the Constitution?

Article 19(1)(a) of the Constitution of India guarantees all citizens the right to freedom of speech and expression. This includes the right to express their views and opinions freely, not only through words but also through writings, pictures, movies, and banners.

Source: SC strikes down electoral bonds scheme as ‘unconstitutional’: What grounds did the verdict rely upon? | Indian Express | The Hindu

What’s in Today’s Article?

• Why in News?
• Broader Issues in the Political Funding Framework
• Key Aspects of Regulating Party Funding Framework
• Political Funding Rules Around the World - The Chilean Experiment
• Case of India
• Need of the Hour for India - Balancing Transparency, Anonymity

Why in News?

• In a judgement in the electoral bonds case, the Chief Justice of India (CJI) dwelt at length on the close association of money and politics, and the influence of money over electoral outcomes.

Broader Issues in the Political Funding Framework

• The CJI summarised the two issues raised by the petitions in the Electoral Bonds case as:
  • Whether unlimited corporate funding to political parties infringes the principle of free and fair elections and violates Article 14 of the Constitution; and
  • Whether the non-disclosure of information on voluntary contributions are violative of the right to information of citizens under Article 19(1)(a).
• Unlike in the US, where elections revolve around the campaign of individual candidates, in India (like most other parliamentary systems) parties are central to electoral politics.
• Thus, the primary focus of the campaign finance framework in India needs to be parties and the question of the funding of political parties goes to the heart of India’s democracy.

Key Aspects of Regulating Party Funding Framework

• Regulation of Donations:
  • Some individuals or organisations may be banned from making donations. For instance, foreign citizens or companies.
  • There may also be donation limits, aimed at ensuring that a party is not captured by a few large donors - whether individuals, corporations, or civil society organisations.
  • Some jurisdictions rely on contribution limits for regulating the influence of money in politics.
    • For example, the US federal law imposes different contribution limits on different types of donors.
• Limits on Expenditure:
  • Expenditure limits safeguard politics from a financial arms race and relieve parties from the pressure of competing for money even before they start to compete for votes.
  • Therefore, some jurisdictions impose an expenditure limit on political parties.
    • For example, in the UK, political parties are not allowed to spend more than £30,000 (about Rs 30 lakh) per seat.
• Public Financing of Elections:
  • Many countries provide public funding of parties and the most commonly used method is to set predetermined criteria.
    • For instance, in Germany, parties receive public funds on the basis of their importance (votes they received in past elections, etc) within the political system.
  • A relatively recent experiment in public funding is that of “democracy vouchers” (distributed to eligible voters), which is used in local elections in Seattle, US.
    • Voters can use these vouchers to donate to the candidate of their choice.
• Disclosure Requirements:
  • This aspect of the regulation of private money in politics formed the crux of the Electoral Bonds case.
  • Disclosure as regulation rests on an assumption that the information supply and public scrutiny may influence politicians’ decisions and the electorate’s votes.
  • It does not outrightly prevent parties or donors from receiving or making donations.

Political Funding Rules Around the World - The Chilean Experiment

• Under the Chilean system of “reserved contributions”, donors could transfer to the Chilean Electoral Service the money they wished to donate to parties.
• The Electoral Service would then forward the sum to the party without revealing the donor’s identity.
• If the complete anonymity system worked perfectly, the political party would not be able to ascertain the sum donated by any specific donor.
• However, various scandals revealed that Chilean politicians and donors had coordinated with each other to effectively erode the system of complete anonymity.

Case of India

• In India, there are no donation limits on individuals, also no legal expenditure limit on parties.
• Therefore, a party can spend as much as it wants for its campaign as long as this expenditure is not for the election of any specific candidate.
• The Electoral Bonds Scheme enabled large donors to hide their donations if they used official banking channels.
• Also, Indian electioneering is no longer restricted to parties and candidates.
  • Over the last decade, there has been a staggering rise in the involvement of political consultancies, campaign groups, and civil society organisations in online and offline political campaigns.

Need of the Hour for India - Balancing Transparency, Anonymity

• Many jurisdictions strike this balance by allowing anonymity for small donors, while requiring disclosures of large donations. For example,
  • In the UK, a party needs to report donations received from a single source amounting to a total of more than £7,500 in a calendar year.
  • The analogous limit in Germany is €10,000.
• The argument in favour of this approach is: small donors are likely to be the least influential in the government and most vulnerable to partisan victimisation, while large donors and parties are mutually benefited.

Q1) What are India's Electoral Bonds?

Under the electoral bond system introduced by the Government of India in 2018, these bonds must be bought from the State Bank of India (SBI) but can be donated to parties anonymously.

Q2) Why was the Indrajit Gupta Committee constituted by the Government of India?

The Indrajit Gupta Committee (1998) endorsed state funding of elections, seeing “full justification constitutional, legal as well as on ground of public interest” in order to establish a fair playing field for parties with less money.

Source: Expert Explains | Regulating political funding: Rules around the world, India’s challenge

What’s in Today’s Article?

• Why in News?
• About the Schengen Area
• What are the Advantages of the EU’s Border-Free Policy?
• Is Admission to Schengen Mandatory for EU members?
• Challenges Faced by the Schengen Region
• Why was Kosovo’s Application Kept Pending for Years?

Why in News?

• Kosovo recently secured visa-free access to the Schengen zone in Europe, world’s largest zone of free movement, becoming the last western Balkan non-European Union (EU) nation to waive visa requirements.
• Citizens of Kosovo can now enter the Schengen as tourists for 90 days within 180 days.

About the Schengen Area

• The zone is known after Schengen, the tiny Luxembourg village bordering France and Germany, where the agreement was signed in 1985 among five of the six EU founding members except Italy.
• Currently, it is an area encompassing 27 European countries that have officially abolished border controls at their mutual borders.
• It mostly functions as a single jurisdiction under a common visa policy for international travel purposes.
• Croatia, a EU member since 2013, joined Schengen in 2023, while Romania and Bulgaria, EU members since 2007, will gain partial Schengen entry from 31 March 2024.

What are the Advantages of the EU’s Border-Free Policy?

• For nationals of any country, the benefit is the freedom to travel with a single Schengen visa to other European nations within the borderless area.
• For EU states, the Visa-free borderless travel, alongside the single currency adopted by 20 EU countries, is the most visible symbol of European integration.
  • The integrity of Schengen was critical for the success of the post-war European project.

Is Admission to Schengen Mandatory for EU members?

• When the Schengen agreement took effect in 1995, only 7 of the entire 15-member union at the time joined the passport-free area.
• Today, 23 of the 27 EU states are part of the passport-free zone, excluding Cyprus, Romania, Bulgaria and Ireland.
• Additionally, the Schengen area comprises 27 countries, including four non-EU members: Iceland, Liechtenstein, Switzerland and Norway.
• It is important not to confuse the status of the four countries with the recent entry of Kosovo and the other five western Balkan entrants which are not counted among the Schengen 27 members.

Challenges Faced by the Schengen Region

• Schengen had come under enormous strain following the Eurozone sovereign debt crisis during the last decade.
• The arrival of thousands of migrants from conflict zones in Africa and West Asia and the anti-immigrant-politics stoked by the continent’s far-right populist parties also strained the region.
  • The EU had even considered removal from Schengen, countries located on the bloc’s Mediterranean border, as individual states contemplated unilateral reinstatement of borders.

Why was Kosovo’s Application Kept Pending for Years?

• The case of Kosovo is appalling given that the European Commission had in 2018 cleared Pristina’s (capital) preparedness to tackle illegal migration and corruption, preconditions for the entry.
• The single biggest obstacle to the country’s Schengen visa waiver was strong opposition from several EU members, which do not recognise the 2008 unilateral declaration of independence by the breakaway state from Serbia.
  • Kosovo has not been accorded legal statehood by the UN and denied recognition by Russia and China.

Q1) What is the European Union (EU)?

The EU is a supranational political and economic union of 27 member states that are located primarily in Europe. It was established by the Maastricht Treaty (1993), and was incorporated as an international legal juridical person by the Treaty of Lisbon (2009).

Q2) What was the Eurozone crisis?

The European debt crisis, often also referred to as the eurozone crisis or the European sovereign debt crisis, was a multi-year debt crisis that took place in the EU from 2009 until the mid to late 2010s.

Source: Why did Kosovo face delays in Schengen approval? | EXPLAINED | EUROPA