Sanat Nandkishore and Netraa Rathee
Introduction
The Hon’ble Supreme Court of India (“Court”) on 15th February 2024, in a landmark judgment, struck down the Electoral Bonds Scheme (EBS) for being unconstitutional and manifestly arbitrary. The Court reasoned that EBS violated the fundamental right of Freedom of Speech and Expression enshrined under Article 19 (1)(a). Freedom of Speech is the bulwark of democratic government. This freedom is essential for the frictionless functioning of the democratic process. The authors have interpreted the rationale of this judgment while juxtaposing the petitioners’ and respondents’ contentions, attempting to augment a finer understanding of the judgment. The viewpoints of either side have been examined, clarifying their arguments for readers.
Journey of Political Funding in India
Before understanding the judgment, it is cardinal to know the journey that political funding has travelled. Political funding in India has persistently been a controversial issue, the earliest instance is the Companies Act of 1956 which allowed partial corporate donations to political parties. After the recommendations of the Santhanam Committee in 1969, the Government introduced a total ban on political funding by corporations. This total ban was relaxed partially in 1985 where Corporate Funding was restricted and conditions were imposed.Between 2003 and 2009, wide-ranging amendments were made to the Representation of People Act, 1951 (RoPA), the Income Tax Act, 1961, and the Companies Act, 1956. These amendments gave statutory recognition to tax deductions by corporations, and accepting donations by corporations. The Companies Act of 1956 was replaced by the Companies Act 2013. The new act increased the limit of contribution to 7.5% of the average profit of the previous three years.
Establishment of EBS
Like a promissory note, an Electoral Bond allows anonymity by omitting payment and recipient information. The main objective of this scheme was to curb black money and prevent a parallel economy.The setting up of a legal framework to introduce EBS was witnessed by the slew of amendments introduced in 2017 by the Finance Act. Section 182(3). Section 13(b) of the Income Tax Act was amended to require details of individuals contributing over twenty thousand rupees, excluding electoral bonds. Section 31 of the Reserve Bank Of India Act (RBI),1934 notified that an electoral bond can be issued by any scheduled bank as notified by the Central Government. This allowed the Union of India (UOI) to authorize the State Bank of India (SBI) in this case as the issuer of bonds. A proviso to Section 29C of RoPA was added, which exempted political parties from disclosing contributions made through electoral bonds in their Contribution Reports.
Petitioner’s Contention
The Petitioners were the only political party that refused to accept funding through means of EBS, cementing their assertion of questioning the EBS. The Petitioners questioned the constitutional validity of removing the 7.5% cap, contending that this modification would enable the proliferation of numerous shell corporations. EBS was born to propagate ideas of a transparent democracy. The EBS Act regulates and caps the electoral expenditures of political parties and candidates, thereby imposing penalties. This is an effort to change the financial aspects that have the power to affect the electoral process.
I. Free and fair elections
The EBS was linked to the idea of free and fair elections. This forms a part of the basic structure doctrine as propagated by the Court. A jurisprudential litmus highlights the system of a participatory democracy that India enjoys which already suffers from huge income disparity. Corporations funding political parties may create a situation of quid pro quo. This would dilute the equal participation of all shareholders within a democracy.
II. Transparency
Allowing unlimited funding, the scheme equates corporations with citizens. Since a company is a juristic person, as opposed to a citizen, it is not accorded the same rights under the Constitution.A well-aligned and transparent electoral process resonates with democratic legitimacy. Funding for politics is essential; lack of it reduces voter awareness.
Respondent’s Arguments
I. Curbing the parallel economy
UOI submitted that the current scheme aims to overcome donor resistance by encouraging clean money through official banking channels while preserving donor anonymity. The entire purpose of EBS was to shield the donor’s privacy; if confidentiality is removed, then the whole purpose becomes redundant. EBS regulates corporate donations to electronic channels to shrink the flow of illicit cash and solve India’s black money problem.
II. Rationale of EBS
According to the Solicitor General, electoral bonds protect citizens’ privacy by withholding names, allowing contributors to support political parties without worrying about repercussions. Interestingly, the obiter of Vinay Narayan Sharma v UOI has been mentioned wherein the Court has seemed to appreciate measures taken by the Centre to curb black money. The Right to Information (RTI) cannot be applied within the present case because, at least on paper, even the Central Government is oblivious to the donors’ data. Whatever the State does not know, it cannot transmit and give to others. Legitimate governmental interest is a prerequisite for constitutional rights.
III. Tying a common thread to secret ballot
Legal experts would contend that absolute transparency in all facets of government is neither feasible nor desirable.Further, it has been suggested that if a secret ballot, a universally accepted way of expression of opinion, can be used to vote, then applying the same sense of secrecy, donor anonymity can be maintained. All this would be in pursuit of free and fair elections. Respondents urged that the Court must consider the public interest in fair elections and transition to banking for donations, balancing with Article 21.
Interpreting the Judgment
The Court ruled that EBS is not a manifestation of economic policy. This is because the former deals with trade and commerce while EBS closely regulates issues regarding the electoral and subsequently, the democratic process. The third requirement of the standard ‘Measure that is least restrictive and equally effective’ again brought the EB Scheme’s main objective to the forefront, a ghost of the past was awakened – Electoral trusts. Transparent electoral trusts effectively counteract illicit money donations from sources that cannot be tracked. The authors have further divided the same into four categories that the judgment dealt with and disseminated information upon.
I. Provisions declared unconstitutional
The Court declared the amendment to Section 182(3) through Section 154 of the Finance Act, 2017 as unconstitutional. It removed the mandate faced by corporations where they were required to disclose the details of the contributions made in their profit and loss account. The Court held that this amendment violates the right to information; as discussed above, it is essential for a voter to rule out the possibilities of a quid pro transaction. Along with this, Section 137 and Section 11 of Finance Act 2017 were declared violative of Article 19(1)(a) and hence, unconstitutional. Deletion of the provision in Section 182(1) of the Companies Act which capped contributions by corporations was declared violative of Article 14. The Court issued several directions to the State Bank of India and the Election Commission to bring the issuance of Electoral Bonds amongst others to a standstill.
II. Right to know
Respondents’ claim was quashed as the Court equated the right of knowing about the criminal antecedents of a candidate to knowledge about the funding of parties since they are at the pinnacle of elections. These factors help shape the material and conscious choice of a voter and State cannot deny the same.
III. The proper prongs to proportionality
The Lordships have resorted to a four-prong proportionality test as a yardstick. The four prongs are:
- Determining whether the measure has a legitimate goal,
- Verifying that the measure and its goal make sense together,
- Examining whether the same objective could be accomplished with a less intrusive method, and
- Finding a balance between the public interest and fundamental rights.
Necessity cements the assertion that measures linked to the objective justify infringing on fundamental rights. Here, three aspects, “victimization, retribution, and retaliation” were the reasons given by the UOI for formulating the confidentiality and anonymity in EBS. The Court believes that these three means do not ensure a rational connection with the said measure adopted. Additionally, the objectives in question do not hold up in terms of “necessity and the balancing test, as the Court has identified a less restrictive alternative (electoral trusts referenced). The objectives submitted give a lackadaisical attitude, as it accepted these wrongs rather than taking steps to correct them.
IV. Donor identity
The whole assertion, the bedrock of the EBS schemes, was related to donor identity. Moreover, the identity of the donor is “asymmetrically” revealed to the bank officials and the bank where the bonds were purchased. This is because SBI is owned by the Union. The identity of donors could also be revealed to law enforcement agencies, but the fear of revelation would still hang over the donor’s head. A profound rational connection has been established concerning black money and donor anonymity. It therefore fails the second prong of proportionality.
V. Parallels with the secret ballot
The Court slammed the respondents’ contention that secrecy is an essential prerequisite for a healthy democratic election. While maintaining secrecy in individual voting is essential, transparency regarding political party funding sources is equally imperative, advocating for a clear distinction between the two.
Suggestions and Conclusions
The Supreme Court’s attempt to make the electoral process fully transparent is a welcome step. Setting a precedent, the Court struck down a set of legislations for it believed that the State could have applied a less restrictive and less encroached approach towards Fundamental Rights.
The way forward could be the formulation of a new scheme on similar lines with the erstwhile Electoral Trust. To enable public funding of elections and guarantee that all parties get set quantities during the elections, a National Election Fund that offers 100% tax exemption for business and individual contributions might be established.
Independent audits by third parties is also a viable solution. Transparency in the transactions of political parties would be guaranteed by independent audits. This would assist in locating the funding sources and verifying their legitimacy.
The legislature must keep in mind accountability and transparency as paramount factors while forming electoral policies. This ruling certainly will have long-term effects on the election process and is unarguably one of the most important rulings of recent times.
The Authors are first-year students of National Law Institute University, Bhopal
Image Credit: India Today
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