The Supreme Court on Thursday junked the electoral bonds scheme that allowed anonymous funding to political parties by striking down the legal provisions introducing and laying down its framework.
A five-judge constitution bench headed by Chief Justice D Y Chandrachud held that the 2018 scheme was 'violative' of the constitutional right to freedom of speech and expression and right to information.
It also held as 'unconstitutional' the proviso to Section 29C(1) of the Representation of the People Act, Section 182(3) of the Companies Act of 2013 and Section 13A(b) of the Income Tax Act of 1961, as amended by the Finance Act, 2017.
The bench, also comprising Justices Sanjiv Khanna, B R Gavai, J B Pardiwala and Manoj Misra, refused to uphold the deletion of proviso to Section 182(1) to the Companies Act and Section 31(3) of the RBI Act along with its Explanation, introduced by the Finance Act, 2017.
Below is a brief outline of what these legal provisions laid down:
Section 31(3) of the RBI Act and its Explanation
Section 31 authorises the RBI or the central government to draw, accept, make, or issue any bill of exchange or promissory note for payment of money to the bearer of the note or bond.
The Finance Act, by introducing sub-section (3), however granted power to central government to authorise any scheduled bank to issue electoral bonds.
As an 'Explanation', It also defined 'electoral bond' as a bond issued by any scheduled bank under the scheme as may be notified by the central government.
Proviso to section 29C(1) of the Representation of the People Act
Section 29C deals with 'Declaration of donation received by the political parties' and broadly states that the treasurer of a political party or any other authorised person shall prepare a report each financial year with respect to the contribution in excess of Rs 20,000 received from any person or company.
The proviso was introduced through the Finance Act and it stipulated that political parties are not required to disclose the details of contributions received through electoral bonds.
'Provided that nothing contained in this sub-section (on declaration) shall apply to the contributions received by way of an electoral bond,' the proviso said.
Section 182(3) and deletion of proviso to Section 182(1) of the Companies Act, 2013
Section 182 deals with 'Prohibitions and restrictions regarding political contributions' and states that a company, other than a government company and a company which has been in existence for less than three financial years, was free to contribute any amount directly or indirectly to any political party.
The Finance Act deleted the proviso to Section 182(1) that capped corporate funding to other entities.
The proviso said the aggregate amount which a company may contribute in any financial year shall not exceed seven and a half per cent of its average net profit during the three immediately preceding financial years.
The Finance Act also amended sub-section (3), now requiring only a disclosure of the total amount contributed to political parties by a company in a financial year and excluded the requirement to disclose the particulars of the amount contributed to each political party.
'Every company shall disclose in its profit and loss account any amount or amounts contributed by it to any political party during the financial year to which that account relates, giving particulars of the total amount contributed and the name of the party to which such amount has been contributed,' the provision said prior to the amendment.
Section 13A(b) of the Income Tax Act
Section 13A exempts income of political parties, including financial contributions and investments, from income tax.
By the Finance Act, the section was amended to provide that a political party was not required to maintain a record of the contributions received by the electoral bonds and the name and address of the person who has made such contribution in order to claim tax exemption.
