Notes Raw Data

Question(s):

(i) Whether the non-disclosure of funding to political parties under the Electoral Bond Scheme violates voters’ right to information?
(ii) Whether unlimited corporate funding to political parties interferes with free and fair elections and equality?
Factual Background: 


The Finance Act, 2017 (“Finance Act”) amended the provisions of the Representation of the People Act, 1951 (“RP Act”), the Income Tax Act, 1961 (“IT Act”), and the Companies Act, 2013 (“Companies Act”).
Section 29C of RP Act was amended to allow political parties to not disclose campaign contributions received through electoral bonds. Section 182(3) of Companies Act was amended to allow companies to not disclose details of political contributions made by them. Section 182(1) of Companies Act, which provided a cap on political funding by companies, was removed to allow unlimited corporate funding. The provision also previously restricted the companies’ contributions to their profits, but the amendment allowed even loss making companies to donate. Section 13A of IT Act was amended to allow political parties to not maintain a record of contributions received by electoral bonds.
In January 2018, the government introduced the Electoral Bond Scheme, 2018. Under this Scheme, the State Bank of India (“SBI”) was authorised to sell Electoral Bonds in denominations of 1,000, 10,000, 1,00,000, 10,00,000, and 1,00,00,000. The Bonds allowed the identity of the purchaser to remain anonymous to everyone, except the SBI, who recorded the buyer’s Know Your Customer (“KYC”) details. The buyer of the Bond would then give the bond to a political party they wished to donate to. The Bonds would then be encashed by the political party.
The Petitioners challenged the constitutional validity of the Electoral Bond Scheme and the amendments made by the Finance Act arguing that they prevented voters from knowing who was donating to political parties and legitimised electoral corruption between donors and parties. The Union of India argued that Electoral Bonds were introduced for the purpose of curbing black money in electoral financing. The donors to a political party often apprehended retribution from other political parties (that they did not donate to). Such apprehension incentivized donors to contribute unaccounted money to political parties outside of formal banking channels. The Union argued that the Electoral Bond Scheme maintains the confidentiality of donors and thereby incentivizes them to contribute clean money to political parties through recognised banking channels.

Decision of the Supreme Court:
The Supreme Court held that the Electoral Bond Scheme, 2018 and the amendments made by the Finance Act to Section 29C of the RP Act, Section 182(3) of the Companies Act and Section 13A(b) of IT Act are unconstitutional. The Court also held the deletion of the proviso to Section 182(1) of the Companies Act permitting unlimited corporate contributions to political parties even for loss making companies is arbitrary and violative of Article 14. The judgment of the Court was authored by Chief Justice (Dr.) Dhananjaya Y. Chandrachud. Justice Sanjiv Khanna wrote a concurring but separate opinion.
The Supreme Court also directed that SBI shall submit to the ECI by 6 March 2024: (i) details of the Electoral Bonds purchased from 12 April 2019 till date, to the Election Commission of India (“ECI”). The details shall include the date of purchase of each Bond, the name of the purchaser and the denomination of the Bond purchased; and (ii) details of political parties which have encashed Electoral Bonds since 12 April 2019 to date to the ECI including details of each Electoral Bond encashed by political parties, the date of encashment and the denomination of the Electoral Bond.
The Court directed the ECI to publish the information shared by SBI on its official website within one week from the receipt of the information (by 13 March 2024).
 

Reasons for the Decision:
Close association of politics & money
The Supreme Court noted that finance is crucial for electoral politics (¶46). Expenditure on political campaigns affects voting behaviour because of the impact of television advertisements, campaign events, and personal canvassing (¶48). The Court noted money also creates an entry barrier to politics by limiting the nature of candidates who can contest elections (¶50).
Voter’s right to information
The Supreme Court held that the action of voting is a form of expression protected by Article 19(1)(a)(Freedom of Speech and Expression) (¶71). The Court noted that the voters have a right to information that would allow them to cast their votes rationally and intelligently (¶77), and this includes the right to information about candidates (¶79). The Court held that this right to information extends to political parties as well, as they are a relevant political unit in the democratic electoral process (¶94) and voters associate candidates with the ideologies of their respective parties (¶89).
The Supreme Court observed that an economically affluent person has a higher ability to make financial contributions to political parties, and there is a legitimate possibility that financial contributions to a political party could be exchanged for political favours such as introducing a policy change (¶100). The information about political funding would enable a voter to assess if there is a correlation between policy making and financial contributions (¶100).
Test of proportionality
The Supreme Court relied on the proportionality test to determine if the restriction on the fundamental right of right to information of voters is justified. The Court held that a measure restricting a fundamental right must have a “legitimate goal”, it must be a “suitable means” of reaching that goal, it must be the least restrictive measure, and must not have “a disproportionate impact” on the rights holder (¶105).
Privacy of Donors
The Supreme Court noted that a stated goal of the Electoral Bonds Scheme was to protect the donor’s privacy (¶131). The Court held that the citizens have informational privacy over their political beliefs. Information about a person’s political beliefs deduced through their political donations, can be used by both public and private actors to suppress dissent, discriminate, or harass individuals based on their political views (¶131).
The Supreme Court observed that Section 29C of the RP Act mandates disclosure of information of contributions beyond ?20,000 in one financial year (¶165). The rationale of Section 29C(1) is that smaller donations (upto ?20,000) made by individuals do not have the ability to influence policy decisions and thus, the right to privacy of donors outweighs the public's right to information. But in the case of larger donations that may influence policy, the right to information of the public outweighs the right to privacy of the donor (¶167).
Applying the proportionality test, the Supreme Court found that the Electoral Bonds Scheme did not balance fundamental right to information of voters with informational privacy of donors. The Scheme completely tilted the balance in favour of the purpose of informational privacy and underserved the informational interests of voters (¶168).
The Supreme Court also held that political parties in power may have additional access to information regarding donations, and thus the privacy of donors can be breached. Thus, the entire objective of the Scheme is contradictory and inconsistent (¶128, ¶73 J. Khanna).
Justice Khanna in his separate opinion held that the claim of privacy by a company would be restricted to the extent of protecting the privacy of individuals responsible for conducting the business of the company (¶73 J. Khanna). Since the affairs of a company have to be open to the shareholders and the public who interact with the body corporate, it is very difficult to claim a violation of privacy by such a body corporate (¶73 J. Khanna).
Curbing Black Money
The Supreme Court applied the proportionality test and noted that there are other alternatives to curb black money which are less restrictive to the voter’s right to information such as the Electoral Trusts provided under Section 2(22AA) of the IT Act (¶121). In an Electoral Trust details of both the political parties and the contributor are maintained and provided to the income tax authorities, but which contributor has donated what and how much amount to which political party is not disclosed, thus balancing the privacy of donors and right to information of voters (¶¶121-122). Further, the RP Act mandates disclosure by Political Parties only of contributions of more than 20,000 in a financial year. So, for contributions less than 20,000 thousand, there is already anonymity under the law (¶124).
The Supreme Court concluded that on an overall assessment, for contributions below ?20,000, contributions through other means of electronic transfer is a less restrictive means. For contributions above ?20,000, contributions through Electoral Trust is a less restrictive means. Hence, the Electoral Bonds Scheme is not the least restrictive means to achieve the purpose of curbing black money in the electoral process (¶129).
Constitutionality of unlimited corporate funding
The Supreme Court noted that Proviso of Section 182(1) of the Companies Act (before it was amended by the Finance Act, 2017) limited the contributions by companies for political purposes to seven and a half percent of its average net profits in the preceding three years (¶178). The Finance Act, 2017 removed the proviso and allowed unlimited contributions by companies to political parties and also, by removing the net-profit requirement, allowed even loss making shell companies to donate to political parties(¶178).
The Supreme Court noted that the main reason for corporate funding of political parties is to influence the political process which may in turn improve the company’s business performance (¶210). Unlimited contribution by companies to political parties is against free and fair elections because it allows companies to use their resources to influence policy making (¶210). The Supreme Court held that the amendment to Section 182 is manifestly arbitrary as it places a profit-making company and a loss-making company at an equal footing and also a corporate and an individual on an equal footing without realising that the degree of harm arising from donations is higher in case of companies and specially loss-making companies (¶214).
Justice Sanjiv Khanna in his separate opinion held that the invalidity of amendments to Section 182 of the Companies Act, which allowed unlimited donations, was more properly analysed using the proportionality standard than the manifest arbitrariness standard as the proportionality test ensures reasonableness (¶73 J. Khanna).