FACTS OF THE CASE:
- On 1st February 2017, the Finance Bill, 2017 introduced an Electoral Bonds Scheme which allowed domestic and foreign corporations to make donations to political parties while improving transparency in electoral funding. The scheme came into force in 2018.
- To facilitate the donations, the donor can purchase electoral bonds from the State Bank of India at mandated periods, instead of using cash. Under this scheme, the donations are made in the nature of a promissory note where the identity of the donor is kept confidential.
- The petitioners (Association for Democratic Reforms and the Communist Party of India-Marxist [CPI-M]) filed a writ petition under Article 32 of the Constitution on the grounds that the concerned amendments violate the right to information under Article 19(1)(a), the right to free and fair elections and that it does not fall under any of the reasonable restrictions mentioned under Article 19(2).
ISSUES RAISED:
- Whether unlimited corporate funding to political parties, as envisaged by the amendment to Section 182(1) of the Companies Act 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 to political parties under the Electoral Bond Scheme and the amendments to Section 29C of the RPA, Section 182(3) of the Companies Act and Section 13A(b) of the IT Act are violative of the right to information of citizens under Article 19(1)(a) of the Constitution?
ARGUMENTS PRESENTED BY BOTH THE SIDES:
- ISSUE I:
Arguments of the Petitioner:
[A] The Amendment to Section 182(1) of the Companies Act infringes the principle of free and fair elections.
- The petitioners vehemently contended that the Scheme skews the concept of ‘free and fair elections’. Section 182 of the Companies Act, 2013 incorporated the provisions of its predecessor wherein the following conditions had to be fulfilled in order for the company to make donations for political purposes:
- The company should have been in existence for at least 3 years. The aggregate of contributions made in any financial year should not exceed 7.5% of its average net profits during the three immediately preceding financial years.
- The contribution can be made only after a resolution affirming the same has been passed by the board of directors. The company cannot be a government company.
- With the introduction of the Scheme, the cap on the contribution was omitted and companies, whether foreign or domestic, could make unlimited donations. It was asserted that the removal opened up contributions from loss-making companies as well as the creation of shell corporations solely to route funds to political parties. The scheme, instead of increasing transparency, increases the opacity of funding and the possibility of crony capitalism.
[B] The amendment to Section 182(1) of the Companies Act, 2013 violates Article 14 of the Constitution.
- It was contended that the objective of the Finance Act, 2017 was to curb black money and strike corruption at its root. However, the scheme as well as its incidental amendments widens the gap between the national and regional parties, as well as, independent candidates as the former have established networks with companies other than those representing the marginalised, backward sections and new entrants.
- Article 14 mandates that if any classification is made it must be based on reasonable intelligible differentia and have a rational nexus with the object. The means adopted to achieve the object must be the least restrictive and balance must be maintained between the object to be achieved and the harm that it causes. Further, it must have sufficient provisions to prevent abuse. It was asserted that the impugned scheme fails this proportionality test due to its deleterious effects on the right to know.
Arguments of the Respondents:
[A] The statutory amendment to Section 182 of the Companies Act, 2013 is to incentivise the contribution of clean money to political parties.
- The Respondents compared the situation existing prior to the scheme with that of the present and contended that corporate donors to political parties largely preferred to donate in the form of cash as banking instruments (cheques, bank drafts) which required the disclosure of the receiver’s details. This exposed them to conflict with the party in power or the one coming to power. With confidentiality brought through this scheme, the donor is able to use other channels of money transfer that are transparent to a certain extent and convert from the previously black-money-driven corporate donations.
- The Solicitor-General presented that the earlier cap of 7.5% on political donations under Section 182 of the Companies Act, 2013, did not stop the donation of excess funds through opaque means. The removal of this restriction is to discourage the creation of shell companies.
[B] The Scheme is not violative of Article 14.
- The respondents relied upon the observation under the Shayara Bano case wherein the bench laid down the ‘twin test of classification’. The objective of the scheme is to curb the evil of black money donations in elections realistically and practically. The bonds, issued periodically and valid for a limited time, are designed to prevent misuse.
- Only those political parties that have received at least 1% of the votes in the last general election are eligible to encash the bond. This is a significant check against fallacious political parties created solely to receive unaccounted funds.
ISSUE II:
Arguments of the Petitioner:
[A] The Amendments made to accommodate the scheme are violative of the right to information of citizens under Article 19(1)(a) of the Constitution.
- Section 29C of the Representation of People’s Act requires the political party to disclose details as to the donations it received from companies or other persons, exceeding twenty thousand rupees to the Election Commissioner every financial year. The amendment made by the scheme excludes donations received in the form of electoral bonds from its purview. The right to information of the citizen is a fundamental right and includes the knowledge of financial contributions to political parties, which the scheme blatantly overrides.
[B] The amendment to Section 182(3) is violative of Article 19(1)(g) of the Constitution.
- The scheme allows the company to disclose only the aggregate of political donations made and overrides the right of the shareholders to be aware of the company’s donations thus depriving of them of information crucial to their trade. The amendment to the Companies Act is manifestly arbitrary as it allows for unlimited contribution with no control of the shareholders over the decision of their Board of Directors. The Scheme and the amendments on the whole are designed to foster informational imbalance among the company auditors, the Election Commission the Income Tax Authorities and the public at large, at the cost of the donor’s privacy.
Arguments of the Respondent:
The incidental amendments are solely to increase transparency in political funding:
[A] The amendment to Section 29C of the RPA, 1951.
- To facilitate an indispensable shift to a more transparent political funding system, the anonymity of the donors is a pre-requisite at this point. The right of the donors to be able to support their chosen party without fear of recoil is also an important facet of the rights contained under Article 19(1)(a). The citizens’ right to know is general and does not extend to the funding of political parties. The two rights have to be considered harmoniously and balanced to achieve the greater objective of eradicating corruption and unaccounted money.
- The political parties are exempt from taxation for funds received through electoral bonds. However, a book of accounts has to be maintained, and audited and a report of the same should be submitted to the Election Commission.
[B] The amendment to Section 182(3) of the Companies Act, 2013.
- The amendments made to the aforementioned section and the addition of Section 13A in no way affect the right of the shareholder, as the only information that is withheld is the identity of the political party. The shareholders can be aware of the aggregate sum that is donated to political parties during the Annual General Meeting.
[C] The amendment to Section 13A of the Income Tax Act, 1961.
- The incidental amendments exempt the amount received through electoral bonds from taxation and mandate the use of cheques, bank drafts, electronic transactions or electoral bonds. Cash donations above Rs.2000 cannot be made. On the whole, the effect is to reduce cash-based transactions and reroute the funds through formal channels. The tax deduction is available only if the aforementioned routes are followed and the political party is exempted from declaring funds through electoral bonds as income provided they fulfil the conditions under Section 13A.
RATIONALE OF THE CASE:
Whether the citizen’s right to information include the knowledge of financial contributions to the political parties?
- The Supreme Court held that the Scheme infringed upon the voter’s right to information at the cost of maintaining the anonymity of the donors. The Court reiterated that though the right to vote is a statutory right, the casting of which is a form of expression under Article 19(1)(a). Informed voters are crucial for a functioning democracy and are entitled to be sufficiently informed to exercise their democratic will diligently.
- Political parties form an integral part of the electoral process in India and have a significant influence on the formation of the government. However, the scheme offers only de jure anonymity as a check for quid pro quo arrangements between donors and the parties. The Court relied upon statistics which indicated that 94% of the bonds were of high denominations and thus bought by corporations.
Whether the restriction of the right is justified?
- While the Court agreed it is sufficient if one among the many methods that have a rational nexus with the object can be used, it held that the Scheme does not fulfil the least restrictive means test. The Court discussed the viability of ‘electoral trusts’ alongside electronic transfers for transparency in political donations. This contrasts with the impugned scheme, which is more restrictive.
- Regarding the first issue, The Court noted that the amendment undermines shareholder rights, transparency, and accountability by removing higher disclosure requirements for companies, allowing unlimited political donations even from loss-making and shell companies. This favours economically privileged corporations, undermining the principle of ‘free and fair elections.’
- The Hon’ble Court also considered whether the right to privacy includes information about one’s political affiliation and whether financial contribution is a facet of the same. The Court held that the right to privacy concerning political affiliation is guaranteed under the Constitution as otherwise the electoral process in India will be overwhelmed by undue influence.
- The Court applied the double proportionality standard to determine whether the right to information and that of privacy are adequately balanced under the Scheme. While the non-disclosure requirements protect the privacy of the donor to a great extent, the provisions for disclosure of the aggregate amount and keeping books of accounts do not fulfil the right to information about campaign funding. There is a greater degree of restriction on the right of the voter where information as to political funding is blocked from all sides and the scheme tilts in favour of the right to privacy.
DEFECTS OF LAW:
The extension of the right to information under Article 19(1)(a) to political contribution is appreciable. However, with the Electoral Bonds Scheme struck down by the Apex court, there seems to be no improvement in the transparency and accountability situation concerning political funding. As contended by the respondents, the existing framework and incentives have not performed well in routing clean funds and curbing black money. A set of guidelines delineating the checks and balances is prudent given the crucial nature of the case.
INFERENCE:
This case is undoubtedly a landmark judgment, offering clarity in balancing non-hierarchical fundamental rights. It serves as a crucial guide for protecting the common man’s right to an informed vote and privacy in political affiliation. By safeguarding these rights, the judgment upholds core constitutional principles like free and fair elections, an effective democratic process and transparency.
Written by:
Akshaya P.A
School of Excellence in Law, TNDALU.