Supreme Court declaring electoral bonds unconstitutional is a monumental defence of democracy

A landmark verdict demanding transparency in political funding challenges the Modi government’s moral high ground on fighting corruption.

The Supreme Court building in New Delhi. A Constitutional Bench comprising the Chief Justice of India, D.Y.Chandrachud, and Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala and Manoj Misra, on February 15 declared electoral bonds scheme unconstitutional. | Photo Credit: MANISH SWARUP

The central issue before the five-judge Constitution Bench in Association for Democratic Reforms vs Union of India, was plain and simple: Does the Electoral Bond Scheme (EBS), 2018, guaranteeing anonymity to the corporate donors to political parties, go against the spirit of free and fair elections, considered a basic feature of the Constitution?

The bench comprising the Chief Justice of India, D.Y. Chandrachud, and Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala, and Manoj Misra, while declaring the EBS unconstitutional, broke down the issue before it in terms of the rich jurisprudence that the Court had laid down in its previous cases.

The first question that the bench considered was whether the non-disclosure of the identity of the contributors to the political parties violates the right to information of the voters.

Having held in previous cases that the right to information about the candidates contesting an election is part of the right to freedom of expression under Article 19(1)(a), the bench found it easier to extend the logic to include the right to information about the political parties under the same Constitutional provision.

This has interesting implications as political parties, in the past, resisted civil society’s attempts to bring them under the Right to Information Act. The February 15 judgment makes it clear that political parties cannot claim any exemption from being accountable to the electorate.

This clarity led the bench to examine the related issue of whether guaranteeing the anonymity of corporate donors to political parties could be construed as a reasonable restriction on the freedom of expression, under Article 19(2) of the Constitution, which lists certain specified grounds, such as sovereignty and integrity of India, the security of the State, friendly relations with foreign states, public order, decency or morality or in relation to contempt of court, defamation or incitement to an offence.

The Union of India (UoI), defended the guarantee of anonymity to corporate donors, on the ground that it sought to minimise the influence of black money in the electoral process, even though “public interest”, which could have justified the ostensible fight against black money, is not among the listed grounds under Article 19(2).

The Constitution Bench unanimously called the UoI’s bluff, by holding that of the rights recognised under Article 19, only Article 19(1)(g) which guarantees the freedom to practise any profession or to carry on any occupation, trade or business can be restricted on the ground of public interest.

The UoI submitted that providing anonymity to the contributors incentivises them to contribute through the banking channel. Assuming for the purpose of hypothesis that the UoI is right on this prong, what it urges is that nondisclosure of information about political expenditure has a rational nexus with the goal, that is, curbing black money or unregulated money, the bench pointed out.

The bench, however, concluded that EBS is not the least restrictive means to achieve the purpose of curbing black money in the electoral process. For contributions below Rs.20,000, contributions through other means of electronic transfer are the least restrictive. For contributions above Rs. 20,000, contributions through the Electoral Trust are the least restrictive means. There are better alternatives to EBS that impact the right to information minimally, the bench ruled. The doctrine of proportionality, which the Court has been using in similar cases impinging on fundamental rights, made the bench’s task easier.

The UoI has been unable to establish that the measure employed in Clause 7(4) of the EBS is the least restrictive means to balance the rights of informational privacy to political contributions and the right to information about political contributions.

This clause stipulates that the information furnished by the buyer shall be treated as confidential by the authorised bank. The bank has to disclose the information when it is demanded by a competent court or upon the registration of a criminal case by a law enforcement agency. The purpose of securing information about political funding can never be fulfilled by absolute non-disclosure; the measure adopted does not satisfy the suitability prong vis-a-vis the purpose of information on political funding, the bench found.

Section 29C of the Representation of the People Act, 1951, as amended by the Finance Act 2017 stipulated that the political party need not disclose financial contributions received through electoral bonds. Section 13A of the Income Tax Act, 1961, as amended did not require the political party to maintain a record of contributions received through electoral bonds.

Section 182 of the Companies Act 2013, as amended by the Finance Act, 2017, deleted the earlier requirement of disclosure of particulars of the amount contributed by companies to political parties in their profit and loss accounts. The company that had made financial contributions was only required to disclose the total amount contributed to political parties without disclosing the specific particulars about the political party to which the contribution was made.

An economically affluent person has a higher ability to make financial contributions to political parties, and there is a legitimate possibility that financial contribution to a political party would lead to quid pro quo arrangements because of the close nexus between money and politics, the bench reasoned.

Advocate Shadan Farasat, who represented CPI(M) in the case, speaks to the media on the Supreme Court striking down the Central Government’s electoral bond scheme in New Delhi on February 15. | Photo Credit: ANI

Quid pro quo arrangements could be in the form of introducing a policy change, or granting a license to the contributor. The money that is contributed could not only influence electoral outcomes but also policies particularly because contributions are not merely limited to the campaign or pre-campaign period. Financial contributions could be made even after a political party or coalition of parties form the government. The possibility of a quid pro quo arrangement in such situations is even higher. Information about political funding would enable a voter to assess if there is a correlation between policy-making and financial contributions, the bench held.

While it is true that the law prescribes anonymity as a central characteristic of electoral bonds, the de jure anonymity of the contributors does not translate to de facto anonymity, the bench held. “The scheme is not fool-proof. There are sufficient gaps in the scheme which enable political parties to know the particulars of the contributions made to them”, the bench explains.

Clause 12 of the EBS states that the bond can be encashed only by the political party by depositing it in the designated bank account. The contributor could physically hand over the electoral bond to an office-bearer of the political party or to the legislator belonging to it, or it could have been sent to the office of the political party with the name of the contributor, or the contributor could after depositing the electoral bond disclose the particulars of the contribution to a member of the political party for them to cross-verify, the bench explained.

Further, according to the data on contributions made through electoral bonds, 94 per cent of the contributions have been made in the denomination of one crore. Electoral bonds provide economically resourced contributors who already have a seat at the table selective anonymity vis-a-vis the public and not the political party, the bench found.

Information about funding to a political party is essential for a voter to exercise their freedom to vote effectively. The EBS and the impugned provisions to the extent that they infringe upon the right to information of the voter by anonymising contributions through electoral bonds are violative of Article 19(1)(a), the bench held.

The bench agreed with the petitioners that informational privacy does not extend to political contributions because they are by their very nature public acts which influence public policy, and thus, must be subject to public scrutiny.

The bench found the argument of the UoI that the EBS protects the confidentiality of the contributor akin to the system of secret ballot as erroneous.

The deletion of the mandate of disclosing the particulars of contributions violates the right to information of the voter since they would not possess information about the political party to which the contribution was made which is necessary to identify corruption and quid pro quo transactions in governance. Such information is also necessary for exercising an informed vote, the bench held.

The doctrine of manifest arbitrariness can be used to strike down a provision where the legislature fails to make a classification by recognising the degrees of harm and if the purpose is not in consonance with constitutional values.

Unlimited contribution by companies to political parties is antithetical to free and fair elections because it allows certain persons/companies to wield their clout and resources to influence policy making, the bench held.

The amendment to Section 182 of the Companies Act, 2013, permitting unlimited corporate contributions (including by shell companies) authorises unrestrained influence of companies on the electoral process. This is violative of the principle of free and fair elections and political equality captured in the value of “one person one vote”, the bench held.

The bench made it clear that the ability of a company to influence the electoral process through political contributions is much higher when compared to that of an individual. Contributions made by companies are purely business transactions, made with the intent of securing benefits in return, the bench pointed out.

Companies before the amendment to Section 182 could only contribute a certain percentage of the net aggregate profits. The provision is classified between loss-making companies and profit-making companies for the purpose of political contributions and for good reason. Loss-making companies contribute to political parties with a quid pro quo and not for the purpose of income tax benefits. The amendment to Section 182 is manifestly arbitrary for not making a distinction between profit-making and loss-making companies for the purpose of political contributions, the bench has held.

The bench’s specific directions have evinced a lot of interest in whether they will be duly complied with by the UoI, which would like to exhaust all its remedies, like using the court’s review jurisdiction, to delay their implementation. Keeping in view that the 2024 general elections are imminent, the Court has directed the State Bank of India (SBI), which is the issuing bank, to stop selling EBs, and to submit the details of their encashment since April 12, 2019, to the Election Commission by March 6. The EC has been directed to publish on its website the information shared by SBI by March 13.

V. Venkatesan is an independent legal journalist based in New Delhi. Formerly Senior Associate Editor with Frontline, he has been reporting and commenting on legal issues for news portals.