Electoral Bond Judgment

The present article attempts to succinctly analyse and summarise the electoral bond’s judgment passed by the Constitution Bench of the Supreme Court (Assn. for Democratic Reforms v. Union of India1). The article in the process also analyses how the Supreme Court has reaffirmed and augmented various concepts and precepts of testing legislative action, balancing of ever conflicting exercise of fundamental rights, extent of right and reach of informational privacy, etc. How the Supreme Court of India has presented one of the everlasting exemplary verdicts showcasing the best illustration of social engineering.

The article is subdivided into following parts for ensuring an engaging read for the reader:

(a) About electoral bonds and the Electoral Bond Scheme of 2018.

(b) The legislative provisions in question, both pre-amendment as well as post-amendment that were laid to assail.

(c) Arguments and submissions of contesting parties.

(d) Issues framed by the court and their resolution.

(e) Concurring opinion of Justice Sanjiv Khanna.

(f) Ultimate directions.

(g) Fallout of the EB verdict on the Indian Democracy & Political Scenario.

A. All about electoral bonds & Electoral Bond Scheme of 2018

Electoral Bond ( “EB”) is a bond issued in the nature of a promissory note, akin to bearer banking instrument, not carrying the name of the buyer. Clause 2(a) of the Electoral Bond Scheme, 2018 (“EBS”), defines Electoral Bond vide Clause 2(a), which when read with Clause 11 stipulated that payments for the issuance of bond are accepted in Indian rupees, through demand draft, through cheque, electronic clearing system, or direct debit to the buyer’s account. They are generally issued in the denominations of Rs 1,000, 10,000, 1,00,000, 10,00,000, and 1,00,00,000. It possesses a validity of 15 days, within which it is supposed to be in cash, failing which the authorised bank is obligated to deposit the same with the Prime Minister’s Relief Fund.

The EBS was framed by the Ministry of Finance in January 2018 in exercise of powers conferred under Section 31(3) of the RBI Act. Salient features of the EBS introduced in 2018 were as follows:

(a) EB may be purchased by any person and can be encashed only by an eligible political party, entitled to receive an electoral bond, registered under Section 29-A of the Representation of the People Act, 1951 (“RP Act”) and meet other conditions therein.

(b) EB issued under the scheme is non-refundable vide Clause 7(6) and the information furnished by the buyer is to be treated as confidential by the authorised bank, to be disclosed only when demanded by competent court or upon a registration of a criminal case by any law enforcement agency.

(c) Vide Clause 13, value of the bonds is considered as income derived as voluntary contributions received by the political party, exempted from income tax under amended provisions of Section 13-A of the Income Tax Act, 1961 ( “IT Act”).

The EBS, prior to its final notification, was placed for deliberations and guidance by the RBI before the Committee of the Central Board under the RBI Act. The Committee conveyed serious reservations on the issuance of electoral bonds in the physical form (scrips). It was stated that issuance of EBs amounted to issuance of currency, a “monopolistic function of the RBI”, which function cannot be shared with any other entity or authority. The reservations further stated that issuance of EBs in physical form/script will lead to money laundering, without any digital trail of transactions. It may be exposed to the risk of forgery and cross-border counterfeiting besides offering a convenient vehicle for abuse by aggregators.

The Election Commission of India (ECI) also conveyed its reservation in May 2017 to the floating of EBS in the Indian economy. It stated that non-disclosure of EBs is a retrograde step against transparency of donations. It also red-flagged the permissibility of all the private and government companies from donating to political parties through EBs, without any upper cap/ceiling/limit. Any limited corporate funding would increase the use of black money for political funding, even loss-making companies without any track record would also donate for quid pro quo purposes to a particular political party. However, despite these reservations, EBS, 2018 was finally floated.

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B. The legislative provisions in question, both pre-amendment as well as post-amendment

Prior to 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: Prior to amendment, Section 31 authorised only the RBI or the Central Government (on authorisation 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 authorised 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: Prior to 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 last 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 authorising 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 individualised 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 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, received in excess of Rs 20,000. Such books and accounts were required to be audited by an authorised accountant, and to be furnished to the Election Commission of India yearly.

(e) However, amending Act of 2017 dispensed with the requirement of maintaining 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: Prior to amendment, the political party was required to declare all the details of the contributions received and furnish the said report with all the individualised 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.

Thus, the net effect of amendments introduced by the Finance Act, 2017 to the above-named legislation was as follows:

(a) A new scheme for financial contribution to political parties is introduced in the form of electoral bonds.

(b) The political parties need not disclose the contributions received through electoral bonds.

(c) Companies are not required to disclose the details of contributions made in any form.

(d) Unlimited corporate funding is permissible.

The amendments were therefore laid to challenge by way of the number of writ petitions heard by the Constitution Bench.

C. Issues before the Court

The writ petitions challenged declaration of EBS and following amending provisions to be declared unconstitutional:

(a) Amendment to Section 31 of the Reserve Bank of India Act (through Section 135 of the Finance Act, 2017).

(b) Amendment to Section 29-C of the RP Act (through Section 137 of the Finance Act, 2017 and the corresponding amendment).

(c) Amendment to Section 13-A of the IT Act (through Section 11 of the Finance Act, 2017 and the corresponding amendment).

(d) Amendment to Section 182 of the Companies Act (through Section 154 of the Finance Act, 2017 and the corresponding amendment).

The Court based on contentions advanced framed two issues for consideration and resolution in the proceedings as follows:

(a) Whether unlimited corporate funding to political parties, as envisaged by the amendment to Section 182(1) of the Companies Act infringes the principle of free and fair elections and violates Article 14 of the Constitution.

(b) Whether the non-disclosure of information on voluntary contributions to political parties under the Electoral Bond Scheme and the amendments to Section 29-C of the RP Act, Section 182(3) of the Companies Act and Section 13-A(b) of the IT Act are violative of the right to information of citizens under Article 19(1)(a) of the Constitution.

D. Contentions by the petitioners and the Union of India

It was broadly contended on behalf of the writ petitioners that:

(a) EBS mandates non-disclosure of information of electoral funding, which runs against the soul and spirit of checking “political funding” under the RPA and “corporate funding” under the Companies Act. It violates Article 19(1)(a) of the voter’s right to information concerning the affairs of the Government of the day. It is also violative of Article 21 because opaqueness of political contributions through EBs facilitates, and fosters corruption and quid pro quo arrangements associated thereof. Corruption eventually trickles down to the grassroot level, manifesting in the form of bad governance and framing of policies opposed to public interest.

(b) The statutory amendments and the EBS skews free and fair elections as unlimited contributions to political parties give an added advantage in promotion, campaigning, publicity, of the political party concerned, influencing the mind of the voter. It therefore interferes with the freedom to vote.

(c) The presumption of constitutionality cannot apply to statutes or very laws that set the condition under which the legislature comes into being or the political power forms the Government. The EBS severs the link between elections and representative democracy because those elected by utilising the donated/contributed fund are bound to reciprocate the obligations of contributors/donors and not the voters. The quid pro quo of the political party coming to power is inevitable towards its donor. EBS skews the principle of “one person-one vote” as it gives corporates (who are not citizens) a greater opportunity to influence political parties and electoral outcomes.

(d) Infringement of right to information (RTI) does not satisfy the proportionality standards or tests, vis-à-vis a purpose of curbing black money as non-disclosure of information is not the least restrictive measure to achieve the stated purpose of curbing black money.

(e) The EBS does not effectively curb black money as its Clause 14 prohibits de jure trading of EBs, but making de facto permissible. Deletion of cap/upper limit/ceiling on corporate contributions is manifestly arbitrary as it acquits and equalises both the categories of companies, viz. the loss-making companies and the listed profit-making companies. It also removes the control of shareholders over the decision of the Board permitting unlimited contribution by corporates and abrogating democratic principles.

The Union of India on the other hand contended broadly as follows:

(a) EBS is introduced with the laudable objective of checking cash-based incentivised infusion of black money. EBS acts as a check over all such modes of transfer of black money to political parties. Payment of consideration for EBs is only through banking channels, which maintains proper and complete trail of one’s donation.

(b) Political parties play an important role in administration of the affairs of the community in any vibrant democracy and they are entitled to receive all kinds of support, including financial contributions. EBS allows regulated ways of direct transfer and through legitimate banking channels to political parties, instead of unregulated illegal ones.

(c) Confidentiality of the contributions by any donor is necessary to protect him from victimisation or targeting by other political parties and opponents. It is a facet of protected right to privacy of the donor and that a voter or a citizen cannot claim a general right to know regarding funding of political parties.

(d) On disclosure of identity of any contributor or contributory, he is bound to suffer retribution from other competing political parties, which thus balances the interest of all.

(e) The provisions of EBS have specific objectives and purpose of curbing black money, whilst imposing preconditions on the donee, political parties. Ghost political parties are barred from seeking and receiving political funding. Only Know Your Customer (‘KYC’)compliant entities are entitled to buy electoral bonds and the limited validity period of 15 days ensures the bond does not become a parallel currency in the country.

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E. Resolution of the issues framed by the Court

The Court repelled the argument of EBs being a decision pertaining purely to economic policy. The amendments were rather held to be relating to the electoral process and pertaining to free and fair elections in the country. The Union of India itself throughout has been treating the amendments as facets of “electoral reforms” and thus now the same cannot be treated as mere economic policy. On the aspect of presumption of constitutionality, Court held that whenever fundamental rights are prima facie shown to have been violative, the presumption stands reverted, and the owners then shifts on the state to prove that violation of fundamental rights is justified. Referring to the judgment of Dharam Dutt v. Union of India2, it was held that the State has to justify the infringement of fundamental rights, whenever established to be occurring through constitutional provisions.

The Court then proceeded to analyse challenge to constitutionality of various amendments to the five enactments in question as follows:

(a) Finances are crucial for the sustenance and progression of electoral politics and money directly influences politics, having direct and immediate impact on electoral outcomes. Electoral campaigns affect the uninformed voters the most, who are assumed to be not possessing knowledge of policy positions of the contesting candidates. Besides innovative techniques of campaigning, beyond the traditional methods of advertisement can be resorted to for leaving long lasting impressions on the mind of one informed voter. Money also creates an entry barrier to politics by limiting the nature of candidates who can contest elections, as it provides cutting edge to those spending money for political campaigning. Referring to the judgment of Vatal Nagaraj v. R. Dayanand Sagar3 and P. Nalla Thampy Terah v. Union of India4, it was held that the amending provisions can be safely labelled guilty for diluting principles of fair and free elections.

(b) It is the effect and not the object of law on fundamental rights that determines the constitutional validity of any statutory provision. The effect of amending provisions cannot be determined without appreciating the deep and persuasive influence of money on politics.

(c) The essential attribute of EBS is maintaining the anonymity of the buyer/purchaser or in other words the contributor to the cause. Tracing the history of RTI under Article 19(1)(a), the Court held that there is a public interest in the impartial administration of justice, which can be secured only by disclosure of relevant and material documents. Referring to the judgment of State of U.P. v. Raj Narain5 and S.P. Gupta v. Union of India6, it was held that the first phase of jurisprudence on RTI focused on closed correlation between right and open guarantee. In the second phase of evolution of jurisprudence of RTI, court recognised the importance of information as seminal to form views on social, cultural and political issues. In a marketplace of ideas, the right to acquire information becomes important to effectively exercise various fundamental rights. This would also ensure effective exercise of choices about political affiliations.

(d) Referring to the judgment of Union of India v. Assn. for Democratic Reforms7 and People’s Union for Civil Liberties v. Union of India8, it was held that a similar argument of protection against disclosure of criminal antecedents of any candidate was rejected as it was held to be a public information. ECI was held to be empowered to seek information from candidates about expenditure incurred by them as also their criminal antecedents. Action of voting was held to be a form of freedom of expression protected under Article 19(1)(a).

(e) The Court then examined who is the focal point of the electoral process-candidate or the political party; whether political party per se is a relevant political unit. Referring to the Election Symbols (Reservation and Allotment) Order, 1968 framed under Article 344 of the Constitution of India, dealing with allotment of symbols to recognise political parties, it was held that election symbol creates a demarcation between candidate and the political party. Symbols get entrenched in the minds of voters who associate it with a particular political party and relate their affiliations to the said symbol. Symbols become more pronounced, when names of political parties sound similar. Ideology of the political party is one the main governing factors for any voter to vote for a candidate and in the Westminster system of Government followed by India, the leader of the political party with absolute majority heads the Government. Even the spirit of Schedule X to the Constitution of India is premised upon the identity of a political party as a whole. Thus, political parties are a vital unit in a democratic setup.

(f) Accordingly, it was held that the right of the voter to have information about the candidate applies equally on all the fours to political parties, and funding received by any political party therefore becomes essential for an informed voter to be aware about. The Constitution of India guarantees political equality for both the “voter/elector” as well as the “voted/elected”. This guarantee encapsulates equality in representation (1 person-1 vote) and equality in influence over political decisions. However, economic inequality, introduced through money may disturb this constitutional goal of political equality. Economic inequality may disturb this constitutional goal of political equality. The possibility of quid pro quo for financial contributions can never be ruled out and the de jure anonymity of the contributors does not necessarily translate to de facto anonymity. EB’s provide “seats at the table” to economically resourced contributors to any political party in power. Therefore, for exercising freedom to vote in an effective manner, information about funding to any political party is also essential.

(g) Infringement of RTI of any voter must be tested on well laid standards of “proportionality test”. Discussing the “legitimate goal test”, it was held that the objective of introducing the law must also be for the legitimate end especially when it leads to infringement of rights. If the law is indeed in furtherance of the legitimate aim, it is contended to preserve, then further enquiries of proportionality are undertaken. The EBS was introduced for twin purposes of curbing black money and protecting donor privacy. Referring to the judgment of Express Newspaper (P) Ltd. v. Union of India9 and Kaushal Kishor v. State of U.P.10, it was held that fundamental rights of any citizen cannot be restricted on grounds not falling within the confines of fundamental rights under Article 19(1). The purpose of curbing black money is not traceable to any of the grounds stipulated under Article 19(2) and therefore cannot be a reason or justification to restrict RTI available under Article 19(1)(a) of any citizen.

(h) Whether the means used are rationally connected to the purpose/objective is the second prong of proportionality analysis. The third prong is that the least restrictive means must be adopted to give effect to the purpose for which legislation is designed. The Court whilst analysing EBS discussed the pre-amendment scenario, especially the alternative legal regime of “electoral trust”, as provided under Section 2(22-AAA) read with Section 13-B of the IT Act. Thereunder, details of both the political parties as also the contributor are maintained and provided to the IT authorities. Which contributor has donated what and how much amount to which political party is not disclosed and thus anonymity of donation is maintained. Electoral trusts were thus held to be an effective alternative, addressing all the concerns of contributors. The EBS to the contrary does not have any opening through which disclosures of contributions are made available to the voter. It also does not possess any regulatory check for preventing trading of bonds to third parties. EBS thus is not the least restrictive means to achieve the purpose of curbing black money in any electoral process. It fails to qualify the least restrictive means test and cannot be held to be the only means for curbing black money in electoral finance.

(i) On the aspect of donor privacy as the justification, the Court referred to the judgment of K.S. Puttaswamy (Privacy 9-J) v. Union of India11 to hold that there is a fundamental right to informational privacy about a citizen’s political affiliation.

(j) One’s right to privacy over his intimate decision includes and extends to both the process as well as the thought leading to the decision. Privacy over intimate decisions leads to effective and meaningful exercise of fundamental freedoms like that of thought, expressions, speech, and association freely without coercion. Therefore, privacy of political affiliation is also a facet of privacy and denial of the same would be catastrophic. Information leakage or disclosure of information about political affiliation can be used to disenfranchise voters through voter surveillance. The said right extends to contributions to political parties as well. Merely because a portion of contribution may be made for ulterior reasons/oblique motives, does not warrant denial of informational privacy to political contributions to parties.

(k) However, equating the concept of anonymous political contributions under EBS with the one being made under electoral trust is erroneous, as both cannot be treated alike.

(l) The Court then undertook the delicate task of balancing RTI and the right to informational privacy of political contributions. Resorting to the proportionality test, the Court held that whilst balancing two fundamental rights, the Court must examine where lies the larger public interest. Referring to the judgment of Mazdoor Kisan Shakti Sangathan v. Union of India12 and Sahara India Real Estate Corpn. Ltd. v. SEBI13, it was held that the “structured proportionality standard” must be applied to balance two fundamental rights. In case of fundamental rights on both the sides of the see-saw, double proportionality standard is to be applied. Referring to the judgments of Campbell v. MGN Ltd.14 and Central Public Information Officer, Supreme Court of India v. Subash Chandra Agarwal15, it was held that balance must be struck by applying the following standards and tests:

  1. Does the Constitution create a hierarchy between the rights in conflict? If yes, then the right which has been granted a higher status will prevail over the other right involved. If not, the following standard must be employed from the perspective of both the rights where rights A and B are in conflict.
  2. Whether the measure is a suitable means for furthering rights A and B.
  3. Whether the measure is least restrictive and equally effective to realise rights A and B.
  4. Whether the measure has a disproportionate impact on rights A and B.

(m) Accordingly, analysing amended Section 13-A of the IT Act dispensing with the requirement of maintaining records of contribution by political parties, as also other amended provisions, the Court enquired whether the means used are suitable, necessary and proportionate to the fundamental rights violated, viz. the RTI. Held, that non-disclosure of information grants anonymity to the contributor satisfies the purpose of informational privacy, but it fails to meet the suitability prong. There is no nexus between the absolute non-disclosure of the information to the voter and the curbing of black money justification. It also fails to meet the necessity prong because there are multiple alternatives in which the information can be disclosed to various authorities under the respective enactments in the form of annual audit reports.

(n) The right to privacy of political affiliations does not extend to contributions which may be made to influence policies, above a particular amount and not made as a genuine form of political support or affiliation. EBS completely tilts the balance in favour of informational privacy of political contributions, whilst abrogating RTI and thus cannot be treated as the least restrictive means to balance the fundamental rights. The various amendments, specifically to Section 13-A of the IT Act and Section 29-CC of the RP Act were held to be unconstitutional for having an intrinsic element of anonymity of the contributors. The EBS was also consequently struck down.

(o) On the challenge to the constitutionality of the amended Section 182 of the Companies Act, 2013, it was held that in the unamended provisions disclosure requirements were included to ensure that corporate interests do not unduly influence electoral democracy and if they do so, then the electorate must be consciously aware of it. The pre-amended provisions required disclosure of specifics and particulars of the contributions, whereas post-amendment only the total contributions made to political parties is to be disclosed and not the individualised ones. The complete non-disclosure of the contributions by the companies was thus held to be unconstitutional.

(p) Referring to the judgment of Jayantilal Ranchhoddas Koticha v. TISCO Ltd.16, as also the Report of Santhanam Committee on Prevention of Corruption, 1963, it was held that corporate funding to political parties has always been shunned. Both the loss-making as well as profit-making companies are allowed to donate unlimited amounts to parties, without any upper limit/ceiling/cap, which fails to appeal to reason and rationality.

(q) Referring to the judgments of E.P. Royappa v. State of T.N.17, Malpe Vishwanath Acharya v. State of Maharashtra18 and Shayara Bano v. Union of India19, it was held that any legislative provision also can very well be tested and examined for its constitutionality on the grounds of being manifestly arbitrary. Manifest arbitrariness was held to be one of the basis for striking down any plenary legislation and provision, being violative of Article 14. Referring to the judgments of Navtej Singh Johar v. Union of India20 and Joseph Shine v. Union of India21, it was held that standards of manifest arbitrariness for examining and striking down any plenary legislation can be applied in the following contingencies and grounds:

  1. A provision lacks an “adequate determining principle” if the purpose is not in consonance with constitutional values. In applying this standard, the courts must make a distinction between the “ostensible purpose”, that is, the purpose which is claimed by the State and the “real purpose”, the purpose identified by the courts based on the available material such as a reading of the provision.
  2. A provision is manifestly arbitrary even if the provision does not make a classification.

(r) Accordingly, the Court concurred with the judgment of Shayara Bano case22 and held manifest arbitrariness to be one of the grounds for testing the validity of plenary legislation as well.

(s) Accordingly, applying the test of manifest arbitrariness to the amended Section 182 of the Companies Act, specifically removing the restrictions on contribution by corporates to political parties, it was held that it unduly interferes into the “republican and democratic form of Government”, held to be basic elements of constitutional structure. Unlimited corporate funding disturbs the integrity of the election process. This is more so when loss-making companies also contribute heavily. The Parliament thus failed to make a classification by recognising the degrees of harm and the purpose of amendment of Section 182 not being in consonance with constitutional values. The chief reason behind corporate funding is to influence the political process, which may in turn improve the company’s business performance. Thus, companies and individuals cannot be equated similarly for the purposes of political contributions and amended Section 182 introducing the element of quid pro quo behind corporate funding becomes manifestly arbitrary.

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F. Concurring opinion of Justice Sanjiv Khanna

Justice Sanjiv Khanna, concurring with the conclusion arrived at by the Court, penned his own separate opinion though reaching the same conclusion. The Judge applied the four-pronged test of the doctrine of proportionality, which subsumes the test of manifest arbitrariness to strike an appropriate balance between the fundamental right and the avowed objective of the restriction. It was further held that an analysis of proportionality would be more accurate when empirical inquiries on the relationship between the legislative measure and the ends of such measures are considered and would further lead to better democratic governance.

(a) The four pronged test of proportionality was held to be comprising the following steps:

  1. Whether the act restricting the fundamental right has a legitimate aim/purpose?
  2. Whether the restriction has a rational connection with the aim?
  3. Whether there should have been a less restrictive alternative measure that is equally effective?
  4. To strike an appropriate balance between the fundamental right and the pursued public purpose.

(b) On the test of legitimate aim or purpose, it was held that retribution, victimisation 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 or a purpose under the test of proportionality. Further, by providing a cloak of secrecy, this law leads to severe restriction and curtailment of the collective’s right to information. It was held that transparency and not secrecy is the cure and antidote.

(c) Even if the purpose is accepted to be legitimate, the fear of reprisal and vindictiveness subsists since the identity of the bond’s purchaser is recorded by the bank and can be revealed through the registration of a criminal case and therefore fails the rational nexus prong. Further, it was held since the purpose of curtailing black money has no relationship with the anonymity of the donor, this scheme also fails the rational connection test.

(d) Applying the necessity test propounded in Anuradha Bhasin v. Union of India23, the “electoral trust arrangement” was held to achieve the objectives of the Union in a real and substantive manner and at the same time, be less restrictive of the right to know of the voters. Under this scheme, contributions are to be made directly by the corporates to the electoral trust which are then transferred to the political party. The trust is ultimately treated as the contributor and under the guidelines issued by the ECI, transparency and openness in this process is maintained. In the presence of such equally effective alternate measure, the EBS fails the test of necessity.

(e) Relying on the judgment of Campbell case24 it was held that when two fundamental rights are in conflict, the single proportionality test cannot be applied on its own. It was held that when two fundamental rights are in conflict, the balancing test laid down in In Re. W25 must be applied. It was held that in a democracy, a voter’s right to know is far too important and neither the right to privacy nor the purpose of incentivising donations through banking channels can overshadow the same. The confidentiality of the voting process cannot be extended to anonymity in contributions to political parties and transparency in such funding is essential for free and fair elections.

(f) Further, on the issue of the right to privacy, relying on K.S. Puttaswamy (Privacy 9-J)case26 and Bernstein v. Bester NO27, it was held that as a person moves into communal relations and business interactions, the scope of personal space shrinks contextually and the right to privacy must yield when dissemination of information is legitimate and in public interest.

(g) Relying on the 255th Law Commission Report, the problem of financial superiority of corporates or individuals translating into electoral advantage was discussed. It was held that lobbying allows for undue advantage to big donors at the expense of the ordinary citizen. Further, the line between persuasion and corruption is blurred when money is exchanged as a quid pro quo. Relying on the judgment of an Australian High Court in Jeffrey Raymond McCloy v. State of New South Wales28, it was held that quid pro quo corruption, a type of subtle corruption arises when those in power prioritise the wishes and desires of wealthy contributors as opposed to the general desires of their constituencies which negatively affects the vitality and integrity of the Government, and poses a threat to the electoral process itself. The Supreme Court of the United States in James L. Buckley v. Francis R. Valeo29 also acknowledged that quid pro quo arrangements posed dangers to a fair and effective Government. Relying on Grosjean v. American Press Co.30, it was held that the most potent restraint upon misgovernment is informed public opinion. Analysing the quantum of the donations made anonymously through these bonds, it was held that the Scheme fails to meet the balancing prong of the proportionality test.

(h) It was further 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 and not on a wide range of other grounds. Further, 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 body corporate.

Accordingly, the concurring opinion directed the ECI to disclose in full the particular details of the donor and the amount donated and collected through EBs in compliance of the interim order dated 12-4-2019 passed earlier by the Supreme Court. Further, the Scheme was held to be unconstitutional based on the above reasoning and accordingly struck down in line with that so held by the majority opinion.

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G. Ultimate directions

Accordingly, after giving its reason, the Court held various provisions of enactments, viz. amendment to Section 31 of the RBI Act (through Section 135 of the Finance Act, 2017) and the corresponding amendment to Section 29-C of the RP Act (through Section 137 of the Finance Act, 2017)and the corresponding amendment to Section 13-A of the IT Act (through Section 11 of the Finance Act, 2017 and the corresponding amendment), amendment to Section 182 of the Companies Act (through Section 154 of the Finance Act, 2017), to be unconstitutional and issued the following directions:

(a) The issuing bank shall herewith stop the issuance of electoral bonds.

(b) SBI shall submit details of the electoral bonds purchased since the interim order of this Court dated 12-4-2019 till date to the ECI. The details shall include the date of purchase of each electoral bond, the name of the purchaser of the bond and the denomination of the electoral bond purchased.

(c) SBI shall submit the details of political parties which have received contributions through electoral bonds since the interim order of this Court dated 12-4-2019 till date to the ECI. SBI must disclose details of each electoral bond encashed by political parties which shall include the date of encashment and the denomination of the electoral bond.

(d) SBI shall submit the above information to the ECI within three weeks from the date of this judgment, that is, by 6-3-2024.

(e) The ECI shall publish the information shared by the SBI on its official website within one week of the receipt of the information, that is, by 13-3-2024.

(f) Electoral bonds which are within the validity period of fifteen days but that which have not been encashed by the political party yet shall be returned by the political party or the purchaser depending on who is in possession of the bond to the issuing bank. The issuing bank, upon the return of the valid bond, shall refund the amount to the purchaser’s account.

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H. Fallout of the EB verdict on the Indian Democracy and Political Scenario

The Supreme Court’s decision of declaring EBS as unconstitutional has firstly legitimised and reaffirmed the reservations conveyed by the RBI and the ECI as mentioned supra about the threat to democratic fabric of the country and also to the vision of free and fair elections of the Constitution makers. The potential for funneling funds from shell companies and money laundering through corporate funding by the corporate industry has received a blow, especially the flow of money from loss-making firms and companies. The judgment has ushered in a big electoral reform, as the problem of curbing black money was actually never obliterated by the EBS. The possible solution is a cap on funding of political parties, especially by the corporates, as was the situation prevailing prior to 2017. There cannot be any dragging of feet or procrastination of disclosure of funding received by the political parties, in view of the time-bound directions issued to SBI by the Supreme Court.

It also gives a fillip to the ECI, an institution which as constitutional watchdog has been seeking means to increase transparency on where the funds of election come from and where they are spent. The EBS was shrouded in mystery from the beginning, compromising not only transparency, but also the fundamental right of information of the voters. The Government of the day must take leads from the magnificent verdict of the Supreme Court and introduce a transparent dispensation of electoral funding through specific legislation in this regard, instead of a scheme or an executive instruction.

*           *           *

*Expert in Constitutional, Civil & Commercial Laws and Practising Advocate at the Supreme Court of India.

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