This article has been written by RAJESH YADAV, completed my B.A LL.B ( HON.) from Aligarh Muslim University Kerala Centre.
Introduction
In a landmark Judgement of Association of Democratic Reform v. Union of India (INSC 2024,113) on February 26,2024, Five Judges Bench led by CJI. DY. Chandrachud along with Justices Sanjiv Khanna, J B Pardiwala, B R Gavai, Manoj Mishra unanimously invalidates the Electoral Bond Scheme. In this Article We will try to examine the verdict of the Supreme Court in the following manner.
- What is electoral bond
- History of Electoral Bond along with Its Provisions
- Argument of Petitioners
- Arguments of Defendant
- Concurring Judgment of Justice Sanjiv Khanna
- Verdict of Judges
- Conclusion
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What is an Electoral Bond:-
The electoral bond is a promissory note. Which is a banking instrument, It is introduced to do a Contribution /Funding to the Political Parties. Only those Political Parties can get the contribution through this medium who is registered political parties under the Representation of People Act 1951.
It was introduced by the NDA Govt through the Finance Amendment Act 2017. The main purpose behind the introduction of the Finance Amendment Act 2017 is
- Exempt the political parties to disclose the contribution received through Electoral Bond
- To exempts the Companies from disclosing the contribution made in any form
- To allow the Unlimited Corporate funding
Essential Feature of Electoral Bond Scheme(Finance Amendment Act)
- The bonds are issued in the denominations of 1000,10,000,10,00,00 and 10,00,000[1]
- Only the registered Political parties can receive the contribution through the Electoral Bond Scheme. The registered political parties are those who is registered under the Representation of People Act 1951and Those political parties should also receive 1% votes in the last election of Lok Sabha or the legislature Assembly Election
- Political Parties are bound to enchased the bond within 15 days from the Registered bank. After the expiry of that period, No payment will be made to the Political Party and the Bank will deposit that bond with the PM Relief Fund [2]
- The bond is non-refundable [3]
- The information of the buyer shall be treated as confidential It can be disclosed only demanded by a competent court authority or upon the registration of a criminal case by law enforcement authority [4]
- The Bond may be purchased by a person who is (i) a citizen of India; or (ii) incorporated or established in India.25 ‘Person’ includes (a) an individual; (b) a Hindu undivided family; (c) a company; (c) a firm; (d) an association of persons or a body of individuals, whether incorporated or not; (e) every artificial juridical person, not falling within any of the above categories; and (f) any agency, office, or branch owned or controlled by such a person. An individual can buy bonds either singly or jointly with other individuals[5]
Key Provision of the Finance Amendment Act 2017
Before the introduction of the EBS, 2018 through the Finance Act, 2017, the following provisions of various parliamentary legislations were amended by the Parliament:
(a) Section 31 of the RBI Act: Before the amendment, Section 31 authorized only the RBI or the Central Government (on authorization by the RBI to draw, accept, make, or issue any bill of exchange or promissory note for payment of money to bearer of the note or bond). However, post-amendment of 2017, the Central Government was authorized to permit any scheduled bank to issue EBs, with the insertion of a specific Section 31 Clause 3
(b) Section 182 of the Companies Act, 2013: Before this amendment, Section 239-A of the previously existing Companies Act, 1956, provided several checks upon corporate donations to political parties, as also to any individual or body for any political purpose of an amount exceeding Rs 25,000. Firstly, there was a cap on the contributions of 7.5% of the net annual profits in the preceding three years cap/upper limit. Secondly, the donor company should have been in existence for more than 3 years and contributions should only be made through a resolution passed by the Board of Directors authorizing the contribution for the particular purpose. Thirdly, there were penal consequences attached to the violations of provisions laying down conditions for political donations. Fourthly, the company was also required to disclose in its profits and loss account any amount contributed by it to any political party during the financial year with specific particulars of the total amount contributed with the name of the political party to which the contribution was made.
(c) Post the amendment of 2017, Section 182 was amended to remove the upper cap/limit on corporate funding. Names of political parties to which donations are made were all exempted from disclosure, which was to be made only of a limited nature of the total amount contributed to all the political parties cumulatively, instead of the specific individualized particulars. Companies were also allowed to donate through any scheme framed by the Central Government
(d) Section 13-A of the Income Tax Act, 1961: Prior to the amendment of 2017, there were certain conditions for claiming exemption of income for political parties received through financial contributions. Books, accounts, and other documents with all details of donations and contributions were required to be maintained, and received in excess of Rs 20,000. Such books and accounts were required to be audited by an authorized accountant, and to be furnished to the Election Commission of India yearly.
(e) However, the amending Act of 2017 dispensed with the requirement of maintaining a record of contributions with specific particulars of the name, address, and other details of the contributor, if the donation was received through EBs. Donations in excess of Rs 2000 could be received only through cheque, bank draft, ECS, or through an electoral bond.
(f) Section 29-C of the Representation of the People Act, 1951: Before the amendment, the political party was required to declare all the details of the contributions received and furnish the said report with all the individualized details of the donor/contributor to the ECI. Failure to furnish the report disentitled the claim for exemption under the IT Act.
(g) Through the amendment of 2017, political parties were exempted and relieved of the responsibility of disclosing details of contributions received through EBs to ECI….
Key Issue
- Does allowing Unlimited Corporate funding by introducing 182(1) of the Companies Act violate the principle of free and fair election?
- Whether the non-disclosure of information Under the Electoral Bond Scheme violates the Voter’s right to information Under Article 19(1)(a) ?
Arguments by the Petitioners
- The main objective of introducing the Electoral Bond Scheme was to make a legal channel for making contributions to Political Parties Even Today Cash donations are permitted therefore it does not serve its purpose.
- Unlimited corporate funding by the Companies encourages corruption because most of the Electoral bond have been purchased the denomination of 1 crore.
So we can say that most of the contributions to the Political Parties has been through this medium have been done by the Companies not individuals.
- The Electoral Bond Scheme violates Articles 14 and 15 Because Only Political parties can receive the fund through this medium who received the minimum 2%vote in either the Previous Lok Sabha Election or State Legislative Election
These conditions violate the principle of equality which has also been mentioned in the Preamble of Our Constitution
- The EBC allows the non-disclosure of the donor’s information is violative of the Votar’s right to Information Under Articl19(1)(a) This includes also the right to information about financial contributions to political parties because the Constitution through the Tenth Schedule recognizes that political parties have decisive control over the formation of Government and voting by members of the Legislature in the Legislative Assembly
Argument By the Union
- As far as the concern of voter’s right to know, Voters do not have a general right to know about the funding sources of Political Parites. The right to know is not a general right available to citizens
- In the case of contribution by the Public Company. They have the right to declare the contributed amount in their book of account without disclosing the name of the political parties. The same Rights are available to the Political Parties also
- The right to information only operates against information in the possession or in the knowledge of the state. It cannot operate for seeking information not in the knowledge or possession of the state[6]
- The EBC is a part of the Financial Policy . and the Court should not have the right to judicial review related to the Financial and Economical Policy of the Govt. It is in the domain of the Parliament
The Constitutional Bench of the Supreme Court led by Hon CJI DY. Chandrachud along with Justices B.R. Gavai, J.B. Pardiwala, Justice Manoj Mishra, and Sanjiv Khanna unanimously declares the Electoral Bond Scheme as Unconstitutional and a violation of Article 19(1)(a) However Justice Sanjiv Khanna Concurring opinion The term concurring opinion mean by adopting own reasoning arrived at the same conclusion
Concurring opinion of Justice Sanjiv Khanna
The Hon’ble Justice Sanjiv Khanna adopted the Doctrine of proportionality over the doctrine of arbitrariness for declaring the unlimited funding by the companies to the political parties
(a) The four-pronged test of proportionality was held to be comprising the following steps:
- Whether the Act restricting Fundamental rights have a legitimate aim and purpose?
- Whether the restriction have a rational connection with the aim?
- Whether there should have been a less restrictive alternative measure that is equally effective.
- To strike an appropriate balance between the fundamental right and the perused public purpose?
On the test of legitimate aim or purpose, it was held that retribution, victimization or retaliation against a donor exercising their choice to donate to a particular political party is an abuse of law and power and such a wrong cannot be a valid justification
Passionately, he wrote, The voter’s right to know and access to information is far too important in a democratic setup so as to curtail and deny essential information on the pretext of privacy and the desire to check how of unaccounted for money to the political parties [7]
On Privacy, he held that the claim of privacy by corporate, companies especially by Public limited Companies would be very restrictive because its affairs open to shareholders and activities also. An Individual within the company can claim the right to privacy but not the company itself
Majority Verdict
Hon’ble CJI DY. Chandrachud wrote a judgment for the Justices Manoj Mishra, J.B Pardiwala, and B.R Gavai.
- Whether the Court has the power of judicial Review of this scheme
On the issue of the Power of Judicial review, He wrote that The true nature of the law did not reflect that this scheme was an economic policy. The main objective behind the introduction of this scheme is to promote anonymous donations by the persons, Companies or artificial Persons to Political Parties
- Whether the non-disclosure of the information is a violation of the citizen’s right under Article 19(1)(a)?
The CJI further held that the Unlimited contribution by companies to political parties is a threat to free and fair elections because it allows certain persons/companies to wield their clout and resources to influence policy making . Giving Companies unrestrained influence may increase the economical inequality in the country
- Whether the Unlimited Corporate funding is constitutional?
As per the Amendment Act 2017, There is no limit of Corporate funding to political parties. The Court adopted the arbitrariness method to decide whether Unlimited Corporate Funding is constitutionally valid.
The Court held that the amendment to Section 182 is manifestly arbitrary for (a) treating political contributions by companies and individuals alike; (b) permitting the unregulated influence of companies in the governance and political process violating the principle of free and fair elections; and (c) treating contributions made by profit-making and loss-making companies to political parties alike. The observations made above must not be construed to mean that the Legislature cannot place a cap on the contributions made by individuals. The exposition is that the law must not treat companies and individual contributors alike because of the variance in the degree of harm to free and fair elections.
Direction of The Court
- 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 the Finance Act 2017), and Section 13A(b) (as amended by Section 11 of Finance Act 2017) are violative of Article 19(1)(a) and unconstitutional; and
- The deletion of the proviso to Section 182(1) of the Companies Act permitting unlimited corporate contributions to political parties is arbitrary and violative of Article 14.[8]
Conclusion
The decision of the Supreme Court to invalidate the electoral bond scheme is a positive sign in the direction of free and fair elections. Which is an essential feature of the democratic type of Govt. Transparent political funding if left unchecked, can erode public trust over time
By mandating disclosure of donor details for electoral bonds and all large contributions. The Supreme Court strictly revives transparency norms in India’s Election finance system
[1] Electoral Bond Scheme, Clause 6
[2] Electoral Bond Scheme , Clause 12(2)
[3] Electoral Bond Scheme , Clause 7(6)
[4] Electoral Bond Scheme , Clause7(4)
[5] Electoral Bond Scheme , Clause 3(3)
[7] https://www.scobserver.in/reports/electoral-bonds-constitution-bench-judgement-summary/
