Case Commentary
Case Commentary On Association For Democratic Reforms & Anr. V. Union Of India & Ors (Electoral Bond Scheme case)
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CASE COMMENTARY ON ASSOCIATION FOR DEMOCRATIC REFORMS & ANR. V. UNION OF INDIA & ORS.
Authored By:
Chi. Vibhor Kathuriaa,
aLaw Student, Dr. Ram Manohar Lohiya, NLU Lucknow
mailto:vibhorkathuria17@gmail.com
Chi. Shailendar Kb
bLaw Student, School of Law, Sastra, Tamil Nadu
CASE NAME: ASSOCIATION FOR DEMOCRATIC REFORMS & ANR. V. UNION OF INDIA & ANR.
COURT: IN THE SUPREME COURT OF INDIA
JURISDICTION: WRIT JURISDICTION
CASE NO. W.P (C) No. 59 of 2018
With
W.P (C) No. 975 of 2022
With
W.P. (C) No. 1132 of 2022
BENCH: HON’BLE CJI DY CHANDRACHUD, HON’BLE JUSTICES SANJIV KHANNA, B.R. GAVAI, J.B. PARDIWALA & MANOJ MISHRA
PETITIONER/S: ASSOCIATION FOR DEMOCRATIC REFORMS; COMMUNIST PARTY OF INDIA (MARXIST)
RESPONDENT/S: UNION OF INDIA; ELECTION COMMISSION
The factual matrix of the case:
The Electoral Bond Scheme, as notified by the Ministry of Finance in 2018, allows for the issuance of bonds by the Reserve Bank of India (RBI) and authorizes scheduled commercial banks, which can be purchased by eligible individuals and entities. These bonds can be donated to eligible political parties registered under the Representation of the People Act 1951.
Under the scheme, electoral bonds can only be purchased in denominations of Rs 1000, 10,000, 1,00,000, 10,00,000, and 1,00,00,000. The bonds are valid for 15 days from the date of issue and can only be encashed by eligible political parties through a designated bank account. The scheme also requires the disclosure of contributions received through electoral bonds by political parties in their audited financial statements.
The petitioners have filed a writ petition under Article 32 of the Indian Constitution, challenging the constitutionality of the Electoral Bond Scheme. They have also challenged specific provisions of the Finance Act 2017, which introduced several significant amendments to various laws, including the Reserve Bank of India (RBI) Act, the Representation of the People Act (RPA), the Income Tax Act, and the Companies Act. These legislative amendments were designed to accommodate the Electoral Bond Scheme and alter financial contributions, disclosure, and taxation rules. Notably, the amendments allowed for unlimited corporate funding of political parties and removed the cap on corporate donations.
- Section 31 of the RBI Act stipulated that only the RBI or the Central Government authorized by the RBI Act could draw, accept, make, or issue any bill of exchange or promissory note to pay money to the bearer of the note or bond. The Finance Act amended this section by including Section 31(3), which permitted the Central Government to authorize any scheduled bank to issue electoral bonds.
- The Election and Other Related Laws (Amendment) Act 2003 introduced Section 29C of the RPA, which required each political party to declare details of contributions received, including those exceeding twenty thousand rupees. The Finance Act 2017 amended this provision by adding a proviso stating that political parties were not required to disclose details of contributions received through electoral bonds.
- The Taxation Laws (Amendment) Act of 1978 exempted the income of political parties from income tax if certain conditions were met. The Finance Act 2017 amended this provision by stating that political parties were not required to maintain a record of contributions received through electoral bonds.
- Section 182 of the Companies Act, 2013 allowed companies to contribute to political parties, subject to certain conditions. The Finance Act 2017 amended this section by removing the cap on corporate funding and the requirement for companies to disclose the details of contributions made.
These amendments collectively aimed to create a new scheme for financial contributions to political parties through electoral bonds. The amendments also reduced transparency requirements for political party funding, allowed unlimited corporate financing, and removed the company's need to disclose contributions details.
However, the Reserve Bank of India (RBI) and the Election Commission of India (ECI) expressed significant concerns about these changes. The RBI objected to the scheme, stating that it could undermine the country's financial system and increase the risk of money laundering. The ECI, on the other hand, highlighted concerns about transparency, particularly the lack of disclosure regarding political party funding.
The petitioners have raised several objections to the Electoral Bond Scheme and the amendments made by the Finance Act 2017. They argue that the scheme and the amendments undermine transparency in political funding, allow for unlimited corporate financing, and pose risks of money laundering and misuse of funds. They have sought a declaration that the scheme and the amendments are unconstitutional.
Substantial questions of law/ Issues before the court
- Whether the revision to Section 182(1) of the Companies Act, which envisions limitless corporate support to political parties, violates Article 14 of the Constitution and the concept of free and fair elections?
- Whether the Electoral Bond Scheme's non-disclosure of information regarding voluntary contributions to political parties and the amendments made to Section 29C of the RPA, Section 182(3) of the Companies Act, and Section 13A(b) of the IT Act violate citizens' constitutionally guaranteed right to information under Article 19(1)(a)?
ARGUMENTS
Submissions made by the petitioners:
Many of learned senior counsels made their submissions on the behalf of the petitioners:
1. Mr. Prashant Bhushan's Submissions:
a. The Electoral Bond Scheme does not enhance transparency in electoral funding, as cash donations are still permitted.
b. The objections raised by the Reserve Bank of India (RBI) and the Election Commission of India (ECI) were ignored.
c. The non-disclosure of political contributions is unconstitutional as it defeats the purpose of transparency and violates the right to information under Articles 19(1)(a) and 21.
d. The amendment to Section 182(3) allowing non-disclosure of political contributions is against the rights of shareholders.
e. The Electoral Bond Scheme interferes with free and fair elections by favoring the ruling party and creating a disparity in funding between parties.
2. Mr. Kapil Sibal's Submissions:
a. The amendments and the Electoral Bond Scheme skew free and fair elections by allowing unlimited corporate contributions and removing disclosure requirements.
b. The right to freedom of expression includes the right to vote based on complete information, including financial contributions to political parties.
c. The argument of judicial restraint is erroneous as these amendments pertain to the electoral process.
d. The presumption of constitutionality should not apply to laws that alter the electoral process.
e. Corporate funding violates Article 19(1)(a) as corporations are not citizens.
f. The Electoral Bond Scheme severs the link between elections and representative democracy.
g. The Scheme promotes information asymmetry and favors the ruling party.
h. The Scheme skews the principle of one person, one vote.
- The amendments to Section 182(3) allow loss-making companies to contribute and remove shareholder control.
3. Mr. Shadan Farasat's Submissions:
a. The Electoral Bond Scheme does not effectively curb black money as trading is still permissible.
b. The right to information on political funding is restricted without valid grounds.
c. The Scheme is unreasonable and disproportionate to its purpose.
d. The Scheme and amendments are manifestly arbitrary and promote corruption.
e. The deletion of the limit on corporate contributions is arbitrary.
f. The non-disclosure of funding by companies violates shareholders' rights.
4. Mr. Nizam Pasha's Submissions:
a. The Electoral Bond Scheme and amendments are arbitrary, discriminatory, and non-transparent.
b. The amendments serve no purpose and perpetuate illegal ends.
5. Mr. Vijay Hansaria's Submissions:
a. The amendments to the Income Tax Act and RPA are contrary to their original objectives.
b. The amendments remove transparency requirements.
c. International perspectives emphasize transparency in political contributions.
6. Mr. Sanjay R. Hegde's Submissions:
a. Public listed companies should disclose political contributions to shareholders.
b. Shareholders should consent to contributions.
c. Non-disclosure denies shareholders the right to choose and violates substantive equality.
7. Mr. PB Suresh's Submissions:
a. The Scheme and amendments disproportionately impact regional and marginalized political parties.
b. The presumption of constitutionality does not fully apply to electoral laws.
c. The removal of the cap on corporate donations favors major parties.
d. Political parties have a right to know the funding sources of rivals.
Overall, the arguments challenge the Electoral Bond Scheme and amendments on the grounds of transparency, constitutional rights, and fairness in elections. The counsels argue that the scheme favors the ruling party, suppresses information, and undermines democratic principles.
Submissions made by the respondant:
The learned Attorney General for India and the learned Solicitor General of India made several submissions regarding the Electoral Bond Scheme and the broader context of political party funding in India.
Attorney General's Submissions:
The Attorney General for India presented several submissions, including the Electoral Bond Scheme, which allows individuals to transfer funds to political parties of their choice through legitimate banking channels instead of unregulated methods like direct cash transfers. The scheme ensures confidentiality of contributions made to political parties, which promotes clean money contributions.
The right to know regarding the funding of political parties is not a general right available to citizens, and the Court has evolved this right to enable and further the voter's choice of electing candidates free from blemish. The influence of contributions by companies to political parties should not be examined by the Court, as it is an issue of democratic significance and should be best left to the legislature.
Solicitor General’s Submissions:
The Solicitor General of India also submitted that the legal framework prior to the enactment of the Electoral Bond Scheme was mostly cash-based, which incentivized the infusion of black money into political parties and the electoral process in India. The Electoral Bond Scheme maintains the confidentiality of donors and incentivizes them to contribute clean money to political parties. In case the donor is a public company, they must declare the amount contributed in their books of account without disclosing the name of the political party.
The State has a positive obligation to safeguard the privacy of its citizens, which necessarily includes the citizens' right to political affiliation. The right of a buyer to purchase electoral bonds without having to disclose their preference of political party secures the buyer's right to privacy.
The provisions of the Electoral Bond Scheme have a specific object and purpose of curbing black money and protecting donor privacy. Clauses 3(3), 4(4), 7(4), and 11 mandate that all payments for the purchase of electoral bonds shall be accepted through banking channels, which curbs the circulation of black money.
The right of a citizen to know how political parties are being funded must be balanced against the right of a person to maintain privacy of their political affiliations. Maintaining anonymity of donations to political parties is part of the concept of secret ballot, enabling a person to make political choices without fear of victimization or retaliation.
The amendments to the RBI Act, RPA, and IT Act are intended to curb donations made by way of cash and other means to political parties and secure the anonymity of donors. The amendment to Section 182 of the Companies Act removes the limitation of seven and a half percent of the net profits on the amount contributed by political parties.
The Court has recognized that the legislature has a wide latitude in matters concerning economic policy, and the mere possibility of the law being abused cannot be a ground for holding the provision procedurally or substantially unreasonable.
Judicial Interpretation that deduced the verdict
On the first issue of whether amendment to companies act violate Article 14 and the concept of free and fair elections, the court took a cue from the judgment in Kanwar Lal Gupta v. Amar Nath Chawla[1] in which it was observed that Money is a powerful tool for political solicitation, broadening a candidate's audience and providing greater opportunities for their program compared to their adversaries. In Vatal Nagaraj v. R. Dayanand Sagar[2], court acknowledged that Large financial contributions are "necessary evils of modern elections”
On the second issue relating to the crucial right of “right to information” the court considered the judgment in S.P Gupta v. Union of India[3] in which it was observed that Democratic governance is not limited to voting once every five years; rather, it is an ongoing process in which individuals select representatives to represent them and hold the government responsible for its deeds and inactions. To this end, citizens must be informed.
What kind of interpretation was put forth by the court
In Para 104 of its judgment, the court opined that Voters must be informed about political party funding in order to effectively exercise their right to vote. Article 19(1) is violated by the Electoral Bond Scheme and the impugned sections to the extent that they impede the voter's access to knowledge by making anonymous contributions through electoral bonds.
With regards to 29-C of RPA and section 182(3) of the companies act, the court observed that that such an exercise would not expose the specifics of the donations because the political party and the company, as required by Section 182, are only obliged to publish the total amount received and provided through Electoral Bonds, respectively. The matching exercise is unable to identify the specifics of the political party to whom the contributions were made, information that is essential to the right to know about political fundraising.
Justice DY Chandrachud made a interesting observation that If the fundamental tenet of a provision is inconsistent with constitutional ideals, it is obviously arbitrary by making a crude reference to Section 497 which makes a "ostensible" attempt to uphold the sanctity of marriage, but in reality, it is founded on the idea that women should be subservient to men in marriage, which is against the principles of the constitution.
Finally, referring to the judgment of Justice Stephen in Citizens United v. Federal Election Commission[4], the court opined that companies and individuals cannot be placed in equal footing for the purpose of political contributions
Vedict
The unconstitutional and in violation of Article 19(1)(a) are the Electoral Bond Scheme, the proviso to Section 29C(1) of the Representation of the People Act 1951 (as amended by Section 137 of Finance Act 2017), Section 182(3) of the Companies Act (as amended by Section 154 of Finance Act 2017), and Section 13A(b) (as amended by Section 11 of Finance Act 2017); additionally,
Permitting unlimited corporate contributions vide deletion of proviso to section 182(1) of the Companies Act is arbitrary and violative of Article 14.
Author’s opinion
Electoral bond scheme is nothing but a modern Swiss bank account (in which the account is identified by a number rather than the name to preserve the anonymity of the account holder). Similarly Preserving the contributor's identity is one of the most important and fundamental features of the Election Bond scheme. The only difference is we can get the money back from Swiss account whereas here it’s used by the companies for lobbying policy changes that benefit them. The electoral bond is defined as a bearer banking instrument that lacks the buyer's name.
The judiciary have stepped in at the right time to thwart the unrelenting efforts by this government to push the Indian democracy past the threshold point. In fact two constitutional bodies i.e., Judiciary and Election Commission of India had come together to protect the electoral democracy and ECI in its statement opined that amendments to section 182 of the companies act will open door for the mushrooming of shell companies whose sole purpose of setting up will be to make donations and hence this will act as laundromat to make the black money white.
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