What is the Constitutional Validity of the Electoral Bond Scheme?

The Electoral Bond Scheme was introduced through a Gazette Notification on January 2. The only challenge to the Scheme so far has come from the CPI(M) petition in the Supreme Court of India. The petition has challenged the Scheme on several issues such as legitimising foreign donations, the opaque nature of the Scheme, and lowering the restrictions on corporate donations. On the grounds of Constitutionality, the challenge to the Scheme is that it violates Articles, 110, 19 (1) (a), and Article 14. The petition also challenges the Scheme based on a legislative defect, i.e. excessive delegation.

Article 110 of the Constitution deals with ‘Money Bills’. Money Bills are the only Bills which can only be introduced in the Lok Sabha and they need not be assented to by the Rajya Sabha to be passed. Clause 1 of Article 110 states; “[f]or the purposes of this Chapter, a Bill shall be deemed to be a Money Bill if it contains only provisions dealing with all or any of the following matters, namely

(a) the imposition, abolition, remission, alteration or regulation of any tax;

(b) the regulation of the borrowing of money or the giving of any guarantee by the Government of India, or the amendment of the law with respect to any financial obligations undertaken or to be undertaken by the Government of India;

(c) the custody of the Consolidated Fund or the Contingency Fund of India, the payment of moneys into or the withdrawal of moneys from any such Fund;

(d) the appropriation of out of the Consolidated Fund of India;

(e) the declaring of any expenditure to be expenditure charged on the Consolidated Fund of India or the increasing of the amount of any such expenditure;

(f) the receipt of money on account of the Consolidated Fund of India or the public account of India or the custody or issue of such money or the audit of the accounts of the Union or of a State; or

(g) any matter incidental to any of the matters specified in subclause (a) to (f)”

While Clause 1 of Article 110 defines the characteristics of a Money Bill, the definition is very wide, for this reason, Clause 2 is a better guide to defining the limits of a Money Bill. Clause 2 states; “[a] Bill shall not be deemed to be a Money Bill by reason only that it provides for the imposition of fines or other pecuniary penalties, or for the demand or payment of fees for licences or fees for services rendered, or by reason that it provides for the imposition, abolition, remission, alteration or regulation of any tax by any local authority or body for local purposes”.

The Electoral Bond Scheme was passed under Section 31 (3) of the Reserve Bank of India Act, 1934. Subsection (3) was introduced through the Finance Act 2017, which was introduced and passed as a Money Bill. Through a series of such Money Bills, the Government has been able to create the legislative legitimacy to launch the Electoral Bond Scheme. Though the bulk portion of the Money Bills passed do pertain to the items listed under Clause 1 of Article 110, what has enabled the launch of the Electoral Bond Scheme are the minor seemingly innocuous amendments to various legislations such as, the Income Tax Act, Foreign Contributions (Regulating) Act, Representation of the People Act, and the Reserve Bank of India Act. Had these ‘amendments’ not been added to the Finance Acts of 2016 and 2017, the legislative backing for the scheme would not have been present. Section 236 of the 2016 Finance Act amends a definition clause in the FCRA and does not pertain to any transactions to do with the Consolidated Fund, nor the Contingency Fund. The same can be said for Sections 11, 135, 137 and 154 of the 2017 Finance Act which pertain to the Income Tax Act, the Reserve Bank of India Act, the Representation of the People Act, and the Companies Act. Though this is for the Courts to decide, a surface reading of these laws makes it clear that these amendments do not fall within the ambit of Article 110.

Regarding the violations of Fundamental Rights through the Scheme, Article 19 (1) (a) and Article 14 should come to mind. Article 19 (1) (a) deals with the Right to Freedom of Speech and Expression. Through an extensive list of case law, it has been established by the Supreme Court of India that this Article includes the ‘Right to Information’ which has resulted in the enactment of the Right to Information Act, 2005. It should be further stressed that the Central Information Commission in 2013 declared six national parties to be ‘public authorities’ as per the definition under the RTI Act. In this regard, Clause 7 (4) obscures the information of the buyer of the Bond. Though the political party receiving the Bond will declare in its balance sheets the receipt of the Bond, the information of the source of the Bond will be treated as confidential by the SBI.

Article 14 deals with the Right to Equality, the Right to Equality is predicated on the premise of equality among equals, this is what enables special provisions for socially disadvantaged sections of society. Clause 3 (3) of the Scheme limits the Bonds to be received only by political parties registered under the Representation of the People Act. A further condition is that the party must have received not less than 1% of the votes polled in the previous election whether to Parliament or to the Legislative Assembly. This flies in the face of Article 14 wherein independent candidates will not be eligible to receive Bonds, even newly formed political parties that have never contested an election will be ineligible. The result of this should be fairly obvious, these two categories of persons will be severely disadvantaged when it comes to funding an election campaign.

On the issue of ‘excessive delegation’, the legal position in India is that the Constitution ‘delegates’ the power of legislation to the Legislature, and in this regard, the Legislature cannot delegate substantive legislative powers to the Executive. The Electoral Bond Scheme was passed by the Department of Economic Affairs, which is an executive body. The power to pass the Scheme originated in the amendment to Section 31 of the RBI Act which inserted Clause (3) which states; “[n]ot withstanding anything contained in this section, the Central Government may authorise any scheduled bank to issue electoral bond.

Explanation.–– For the purposes of this subsection, ‘‘electoral bond” means a bond issued by any scheduled bank under the scheme as may be notified by the Central Government.”

In 'In re Delhi Laws Act', Justice Mukherjee observed in 1951 that “[t]he essential legislative function consists in the determination or choosing of the legislative policy and of formally enacting that policy into a binding rule of conduct. It is open to the legislature to formulate the policy as broadly and with as little or as much detail as it thinks proper and it may delegate the rest of the legislative work to a subordinate authority who will work out the details within the framework of that policy. ―So long as a policy is laid down and a standard established by statute no constitutional delegation of legislative power is involved in leaving to selected instrumentalities the making of subordinate rules within prescribed limits and the determination of facts to which the legislation is to apply.”

Therefore, it should be clear that thought the amendment to Section 31 of the Reserve Bank of India Act empowered the Union Government to pass notifications on the Electoral Bond Scheme, the policy was not adequately laid down in the amendment. In fact, the policy has only become clear from the Scheme as passed by the Department of Economic Affairs. The question for the Supreme Court is whether a passing mention amounts to the establishment of a policy.