Introduction
The Hon’ble Supreme Court (‘SC’) in its landmark judgment of Association for Democratic Reforms & Anr. v. Union of India & Ors.[i] (popularly known as the (‘electoral bond case’) has held that an anonymous electoral bond (‘EB’) infringes upon the right to information (‘RTI’) under a. 19(1)(a) of the Constitution of India, 1949 (‘Constitution’). Consequently, the electoral bond scheme (‘Scheme’) launched by the government has been struck down as unconstitutional by the SC. Further, the SC invalidated amendments to the Income-tax Act, 1961 (‘IT Act’), the Representation of People Act, 1951 (‘RP Act’) and the Companies Act, 2013 (‘CA2013’) which facilitated such anonymous political contributions.
The judgment was delivered by a five-judge bench, led by Chief Justice DY Chandrachud, and Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra, who unanimously declared the Scheme unconstitutional. Notably, Justice Sanjiv Khanna provided a concurring opinion, offering distinct reasoning on specific facets.
Facts
A Brief Background
EBs are innovative financial instruments akin to promissory notes, designed to maintain anonymity in political donations, resembling a gift card where neither the donor’s nor the recipient’s identities are disclosed. This ensures both parties achieve their objectives while safeguarding privacy.
Introduced in the 2017-18 Union Budget by the then Finance Minister, Late Arun Jaitley, the Scheme aimed to enhance transparency in political funding. The Finance Act of 2016 (‘FA2016’) modified the Foreign Contribution Regulation Act, 2010, enabling majority-owned foreign entities to donate to political parties. Subsequently, the Finance Act of 2017 (‘FA2017’) amended several laws, including the IT Act and the RP Act, exempting political parties from maintaining detailed records of donations received through EBs and lifting the cap on corporate donations as per the CA2013.
Launched by the Ministry of Finance on 02.01.2018, EBs are available for purchase in denominations from Rs. 1,000 to Rs. 1 crore at select State Bank of India (‘SBI’) branches during specified periods each year. While donors’ identities are kept confidential, except from SBI through KYC procedures, political parties receiving over one per cent of the votes in the last general election are eligible to accept these donations. These bonds must be encashed within 15 days, with unclaimed funds redirected to the Prime Minister’s Relief Fund.
The Legal Trajectory Challenging the Scheme Leading to the Present Case
The Non-Governmental Organisations, along with the Communist Party of India (Marxist), promptly challenged the Scheme in the SC, arguing that the FA2016 and FA2017 were improperly classified as money bills, thereby circumventing scrutiny by the Rajya Sabha. They criticized the Scheme for undermining transparency in political funding and enabling electoral corruption.
The SC, under Chief Justice Ranjan Gogoi, mandated political parties to disclose donation details on 12.04.2019 but stopped short of imposing a stay on the Scheme. Subsequent pleas for a stay, even under Chief Justice S. A. Bobde in March 2021, were denied, with the SC dismissing concerns over foreign corporate influence and the repetitiveness of the requests for relief.
In October 2023, with the 2024 general elections approaching, the petitioners sought an expedited hearing, highlighting the case’s (supra) significance and leading to its referral to a Constitutional Bench.
The petitioners contended that the Scheme’s inherent secrecy compromised the transparency essential to political funding, infringing upon the voter’s right to information. They raised concerns about the possibility of contributions through shell companies, questioning the integrity and accountability of electoral finance.
In defence, the Scheme’s proponents emphasized its role in facilitating the use of legitimate funds for political financing via regulated banking channels, arguing that protecting donor anonymity was essential to shield contributors from potential political retribution. They also argued that the Constitution does not grant citizens a generalized RTI under a. 19(1)(a) concerning political party funding.
The SC was tasked with addressing two pivotal questions: whether the Scheme’s non-disclosure provisions and the related legislative amendments violated the RTI as enshrined in a. 19(1)(a) of the Constitution, and whether permitting unlimited corporate funding to political parties, as allowed under s. 182(1) of the CA2013, contradicted the principles of free and fair elections.
Held
RTI of Citizens
The SC, drawing on landmark cases like Union of India v. Association for Democratic Reforms[ii] and People’s Union for Civil Liberties & Anr. v. Union of India & Anr.[iii], highlighted the voter’s fundamental right to obtain crucial information to exercise their franchise effectively.
Recognizing the profound linkage between financial contributions and political influence, the SC raised concerns over EBs potentially facilitating quid pro quo scenarios, possibly swaying policy decisions. It asserted that transparency regarding financial donations is imperative, enabling voters to scrutinize the relationship between political donations and policymaking.
Further, the SC also opined that the voter should not be overburdened with the task of investigating the sources of political contributions. It proposed that the electronic and print media play a pivotal role in disseminating details about the financial contributions received by political parties and examining the potential nexus between these contributions and the awarding of licenses or contracts to the contributing entities, ensuring such information is accessible to the public in an understandable format.
Fail to Pass the Proportionality Test
The SC while addressing the argument of the respondent that the Scheme aids in curbing the black money circulation, held that the Scheme’s objective does not align with the permissible restrictions under a. 19(2) of the Constitution.
Despite the arguments that anonymity encourages contributions through banking channels, the SC noted that the Scheme failed the proportionality test’s third criterion—being the least restrictive measure. It identified alternatives like electronic contributions below Rs. 20,000 and electoral trusts for larger sums, as less restrictive yet equally effective methods.
Ultimately, the SC concluded that the infringement on the RTI caused by the Scheme is not proportionately justified for curbing black money in electoral financing.
Additionally, the SC revisited the proportionality test to address the contention of the respondent that the political parties’ information privacy rights were adequately balanced by the RTI of the citizen under s. 7(4)(c) of the Scheme.
While recognizing that the RTI privacy includes financial contributions, reflecting a facet of political affiliation, the SC applied a nuanced proportionality analysis. It weighed the conflicting interests of informational rights and privacy, ultimately refuting the argument that the Scheme adequately balanced these rights. The SC observed that the Scheme disproportionately favoured protecting informational privacy over ensuring transparency. As a result, the Scheme and the amendments made to the IT Act and the RP Act were struck down.
Amendment in the CA2013
The SC, alongside invalidating the Scheme, scrutinized the amendment to s. 182 of the CA2013, enacted through the FA2017. This amendment permitted companies to make unlimited political contributions, eliminating the prior limit of up to 7.5% of a company’s net profits over the preceding three years, along with the requirement for disclosure. The SC deemed this amendment manifestly arbitrary for not differentiating between profit-earning and loss-incurring companies, thereby overlooking the increased likelihood of quid pro quo arrangements with the latter and enabling unfettered corporate influence on electoral politics. It emphasized that such an amendment undermines the principles of free and fair elections and the doctrine of political equality, contravening the democratic ethos of ‘one person, one vote'. Consequently, this amendment to the CA2013 was also struck down.
In conclusion of the judgment, the SC has also issued the following directions:
A) The issuing bank shall herewith stop the issuance of electoral bonds.
B) The SBI shall submit the details of electoral bonds purchased since the interim order of the SC dated 12.04.2019 till date to the Election Commission of India (‘ECI’). The details shall include the date of purchase of each EB, the name of the purchaser of the bond and the denomination of the electoral bond purchased.
C) The SBI shall submit the details of the political parties which have received contributions through EBs since the interim order dated 12.04.2019 till date to the ECI. The SBI must disclose details of each EB encashed by the political parties, which shall include the date of encashment and the denomination of the EB.
D) The SBI shall submit the above information to the ECI within three weeks from today, i.e., by 06.03.2024.
E) The ECI shall publish the information received from the SBI on its website by 13.03.2024.
F) EBS which are within the validity period of 15 days but which have not been encashed by the political parties yet shall be returned by the political party to the purchaser. The issuing bank shall then refund the amount to the purchaser's account.
Analysis
This landmark judgment marks a significant advancement towards enhancing transparency and accountability within the realm of political financing, thereby bolstering the foundational democratic rights of citizens to vote and to be informed. The judgment is widely commended for its dedication to democratic values. However, it also introduces challenges, especially regarding the ambiguity surrounding the entitlement to a 100% tax deduction for donations made through this Scheme. The anticipation for guidance from the Central Board of Direct Taxes is notable, as taxpayers grapple with the uncertainty of deduction eligibility for EBs purchased before 15.02.2024. While the option to seek refunds from the SBI exists for recent purchases of EBs, the broader implications and potential complications of this judicial decision highlight the complexities introduced by such a significant legal development.
End Notes:
[i] Writ Petition (C) No. 880 of 2017.
[ii] (2002) 5 SCC 294.
[iii] (2003) 4 SCC 399.
Authored by Shivam Mishra, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.