(15 February, 2024)
Background and Facts:
The case of Association for Democratic Reforms v. Union of India revolves around the fundamental issue of transparency in Indian democracy. When presenting Union Budget of 2017-18 Former Finance Minister (Arun Jaitley) stated that after 70 years of Independence, country has not evolved for the transparent method for funding of political parties which is crucial for conducting free and fair elections. He then proposed Electoral bond scheme which was effective by 2018. The scheme allowed foreign and domestic corporations to make donations to the political parties through State Bank of India (bank channel) rather than cash to curb corruption and increase transparency within the system. The donation is made in the form of promissory note whereas, information related to the donor was kept confidential. The Association for Democratic Reforms (ADR), a non-governmental organization (NGO), filed a petition with the High Court of Delhi seeking directions to compel to disclose information about the donations. The High Court ordered Election Commission that all the information related to candidates shall be furnished to the public. Aggrieved by the decision Union of India challenged the decision through an appeal in the Supreme court contending that High Court and Election Commission do not hold such powers and voters do not have any right to such information as it impedes right to privacy of the candidates. The Election Commission of India supported the plea, emphasizing the need for voters to have access to comprehensive information about candidates to make informed choices during elections. The Union of India, however, opposed the petition on grounds that compelling candidates to disclose such information violated their right to privacy under Article 21 of the Constitution.
Key Issues:
- Whether unlimited donations by the companies to political parties infringes the process of conducting free and fair elections envisaged by the 182(1) of the companies Act?
- Whether the amendment violative of Article 19 of the Indian Constitution?
- Whether the disclosure of assets, liabilities, educational qualifications, and criminal records violates candidates’ right to privacy.
Contentions –
Association for Democratic Reforms (ADR):
- The petitioners argued that Electoral Bond Scheme has made harmful alterations to the legal regime which possess threat to transparency and disclosure requirements secondly, delinking the tax exemptions availed by the companies in return of political funding which is against the nature of free and fair elections. Therefore, they advocated for transparency in electoral processes to promote informed voting which is basic feature of the constitution in the case of Kihoto Holohon v. Zachillhu.
- Argued that voters have a right to know about the criminal, financial, and educational backgrounds of candidates because the non-disclosure of crucial information has created an ample space for quid pro quo donations which will heavily influence the policy formation in favour of the companies who have donated a huge amount. Emphasized that such disclosures would strengthen democracy by curbing criminalization and corruption in politics.
Union of India:
- They argued that Electoral Bond Scheme was introduced solely for the purpose of preventing the cash donations to the political parties. The process was incentivised to online system through an official banking channels which also maintained the confidentiality of the donor. The process was shifted from unregulated cash donations system to regulated online system and argued that compelling candidates to disclose personal information violates their right to privacy. The scheme was implemented in the interest of the state which aligned with the landmark judgement KS Puttuswamy v Union Of India.
- Expressed concerns about potential misuse of disclosed information and its impact on candidates’ safety and reputation. The Union argued that disclosing the information will victimize the donor and their affiliation with the parties. Therefore, the court shall strike a balance between the voter’s right to information and donor’s right to privacy.
- Union also argued that the scheme do not cause prejudice to anyone and it is true level playing system as the current government is not entitled to know that the purchaser of the electoral bonds were bought to donate the government or the opposition. Moreover, they asserted that disclosure of information is not impassable it shall be disclosed if asked by the court or the agency.
Decision and Rationale:
The Supreme Court of India, in its landmark watershed judgment, upheld the right of voters to have access to information about candidates contesting elections. The court reasoned that transparency and accountability are essential pillars of democracy, and voters’ ability to make informed choices is fundamental to the democratic process. The judgment highlighted the importance of preventing criminalization of politics and promoting clean governance.
Corporate funding to political parties were strictly regulated since 1960’s by Company’s (Amendment) Act 1960 which introduced a cap for funding political parties. Later, Santhanam Committee’s Report highlighted a huge level of corruption which ultimately created a ban on corporate funding till 1985. However, 254 section of the Finance act 2017 outrightly removed the restriction by bringing the amendment in the Companies act which deleted the limit. The Petitioners invoked Article 14 and called it unconstitutional. Justice Nariman sticks to the doctrine of ‘manifest arbitrariness’ which he took from the judgement of (Shayara Bano Case) where it was first articulated, which means for law to be manifest arbitrariness it shall be “irrational, capricious and without any determining principle”.
While, Justice Chandrachud took an unambiguous approach and his version of the test comprises of the two contrasting prongs that the law makers have failed to create a classification or purpose of the law is not in alignment with constitutional values. However, the Court invokes doctrine of non- classification because the amendment fails to identify between the ‘corporations’ and ‘individuals’. The panel further explains that cap was never limiting the individual’s donations to the political parties rather it only restricted the companies and the reason being was to prevent shell companies from donating large amount to the parties.
The Supreme Court found that the amendment which was done as per to remove the cap was manifestly arbitrary and violative of Article 14 because after eradicating the cap from the donations given by the companies it treated both companies and individuals on the same pedestal. Therefore, the concern is companies have a huge influence in the process of elections in terms of money the donate and the purpose of donating as donation is solely for the purpose of quid pro quo and therefore individuals and companies cannot be put on the same pedestal.
Furthermore, the Court ruled that unlimited contributions by companies to political parties are unconstitutional to conduct free and fair elections. This allows certain individuals or companies to influence policy making, violating the principles of political equality and free and fair elections. And therefore, Court found the unlimited contributions is arbitrary and capricious with the constitutional value of free and fair elections.
Furthermore, it did not create a distinction between the profit and loss making companies for donations to the political parties.
In deciding the case, court has faced two constitutional rights to create a balance and give a justiciable judgement. (i.e. donor’s right to privacy and voter’s right to information). Court while striking a balance between both the constitutional rights court came to a conclusion transparency triumphs over confidentiality. Court observed that in the case of Puttuswamy v union of India it protects the right to privacy of political affiliation and it does not extend to protect the information which are done to influence the policy formation. Emphasizing the public interest in transparency, the court ruled that the disclosure of information serves a larger democratic purpose, outweighing individual privacy concerns of candidates. The Court made the watershed ruling and stated that the opacity of right to donor’s privacy is disproportionate to the citizen’s right to information. Therefore, the Electoral Bond Scheme is unconstitutional because they failed to appeal the court the rationality of the scheme.
Defects of the law :
1960 – Companies Act 1960 (Amended) – Companies can contribute to the political parties up to 25000 or up to 5% of the net profit whichever is greater. As per the compliance rule companies were required to disclose the amount in their accounts with the total amount contributed.
1969 – Companies Act (Amended) 239A and created a ban on the political contribution by the companies.
1985 – Companies Act 1985, it again permitted contribution of 5 % of the net profits by the prior approval of the board of directors.
2013 – Companies Act 2013 – It permitted corporate donations to political parties up to 7.5% with the approval of directors of the company. They were required to make the disclosure in their accounts of the amount contributed.
2017 – Finance Act – They made certain changes in the companies act by removing the cap of the contribution. Disclosure requirements were omitted and even a loss making company could make a contribution to avail benefits from the party and moreover, there was no distinction between companies and individual in the amendment made. Therefore, the 2017 amendment was shifted to legal regime to political oriented approach as they were merely no disclosure requirements and it was liberal in nature. Due to which both profit and loss making companies were making unlimited contributions to the political parties.
Inference :
The judgment in Association for Democratic Reforms v. Union of India marked a significant milestone in Indian jurisprudence, reinforcing the principles of transparency, accountability, and electoral reform. It set a precedent for subsequent cases addressing the intersection of privacy rights and public disclosure in the context of democratic governance. The Court has yet again proved to be an independent body. It was the first time in the history where a court had to create a balance between two constitutional rights with a reasoned judgement. The decision empowered voters by providing them with essential information to make informed electoral choices, thereby promoting cleaner politics and deterring criminal elements. It also underscored the judiciary’s role in safeguarding democratic values and upholding the integrity of electoral processes. Association for Democratic Reforms v. Union of India stands as a testament to the judiciary’s commitment to strengthening democratic institutions through transparency and accountability. The case delved deep with the electoral bond practices and history and uncovered that the respondents were trying to protect themselves under the aid of Article 21 of the constitution. The Court reaffirmed the principle that in a democratic setup, the right to information and the public interest in clean governance has outweighed individual and companies’ privacy concerns that was done with sole intention of quid pro quo. Court has yet again strengthen the pillars of democracy. The dynamics of the politics has yet again changed due to increased transparency due to disclosure of information. The Court has asked State Bank Of India to furnish the unique bond number for all the transactions to introspect and furnish the details to the public.The judgement will continue to influence electoral laws and practices, advocating for greater transparency in electoral processes in the future and will lead a way.
Samiksha Singh
Student at Jindal Global Law School