In a significant verdict just months ahead of the Lok Sabha elections, a five-judge bench of the Supreme Court on Thursday held electoral bonds as unconstitutional, stating that it was violative of Article 19(1)(a) that guarantees the freedom of speech and expression under the Constitution of India.
The unanimous verdict, delivered by a bench led by Chief Justice of India DY Chandrachud, and comprising Justices Sanjiv Khanna, BR Gavai, JB Pardiwala and Manoj Misra, delved into two key issues. The first was whether the anonymity clause envisaged through the electoral bonds scheme, and the subsequent amendments to Section 29(C) of the Representation of People Act, Section 183(3) of the Companies Act and Section 13A(b) of the Income Tax Act are violative of the Article 19(1)(a) of the Constitution.
The second issue considered by the court was whether unlimited political funding to political parties, allowed through an amendment to Section 182(1) of the Companies Act, was violative of the principle of free and fair elections.
‘Not the only way to curb black money’
On the first issue, the Supreme Court held that the anonymity of donors infringed upon a voter’s right to information under Article 19(1)(a) of the COnstitutional and thus needs to be struck down. The court further held that the Right To Information (RTI) can only be restricted based on Article 19(2) — discussing reasonable restrictions to freedom of speech and expression — which does not include curbing black money as a restriction.
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The most crucial aspect that the government must demonstrate in order to make the scheme legitimate is whether the encroachment on fundamental rights is proportional to the objection sought to be achieved, the court said. The CJI observed that the State did not adopt the least restrictive method and cited the anonymous cap on donations of Rs 20,000.
“The electoral bonds scheme is not the only means for curbing black money in electoral financing. There are other alternatives which substantially fulfil the purpose and impact the right to information minimally when compared to the impact of electoral bonds on the right to information,” CJI Chandrachud stated in his judgment.
The court held that these alternative means have a less restrictive impact on the right to information while having the same ability to fulfil the purpose. “Thus the infringement on the right to information is not proportionately justified for the purpose of curbing black money in electoral financing,” the court additionally held.
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‘Unlimited corporate donations violate free and fair elections’
Addressing the concerns around the potential of electoral bonds to facilitate quid pro quo arrangements, the court made some stinging observations while striking down the amendments to Section 182 of the Companies Act, 2013. The Act, prior to the amendments, necessitated that corporate political contributions be authorised by the company’s Board of Directors, not be made in cash, and be transparently disclosed in the company’s Profit and Loss account.
However, the Finance Act 2017 introduced some key changes that allowed companies unlimited donations to political parties instead of the 7.5 per cent of the average profit of three preceding years. It also eliminated the provision that mandated companies to disclose the name of the political parties to which donations have been made in the Profit and Loss accounts.
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In its verdict, the court noted that Section 182(3) of the Companies Act and Section 29C of the Representation of the People Act, as amended by the 2017 Finance Act, must be read together. While Section 29C exempts political parties from disclosing information of contributions received through electoral bonds, Section 182(3) of the Companies Act applies to contributions made through all modes of transfers, including electoral bonds.
“The only purpose of amending Section 182(3) was to bring the provision in tune with the amendment under the RP Act, exempting the contributions through electoral bonds from disclosure requirements. The amendment to Section 182(3) of the Companies Act becomes otiose in terms of our holding that the electoral bonds scheme and relevant amendments to the RP Act and the Income Tax Act mandating non-disclosure of political contributions’ particulars through electoral bonds is unconstitutional,” the court’s verdict read.
The court also pointed out that the amendment to Section 182 effectively brought companies at par with individuals, disregarding their disproportionate influence to the electoral process, was arbitrary. “The ability of a company to influence the electoral process through political contributions is much higher when compared to that of an individual. A company has a much graver influence in the political process, both in terms of the quantum of money contributed to political parties and the purpose of making such contributions. Contributions made by individuals have a degree of support or affiliation to a political association. However, contributions made by companies are purely business transactions.
“The amendment to Section 182 by permitting unlimited corporate contributions authorises unrestrained influence of companies in the electoral process, which is violative of the principles of free and fair elections and political equality captured in the value of ‘one person, one vote’,” the court said in its verdict.