An analysis of the Constitutional Legitimacy of Electoral Bonds

by Samarth Nayar and Sarthak Dewan

INTRODUCTION

Through Finance Act 2016 and 2017, three major electoral reforms were introduced to ‘formalise’ the system and make the political funding, as Arun Jaitley, then Finance Minister claimed, more “transparent and accountable”. However, all the three provisions can be used as an argument to the contrary of what Arun Jaitley and the government is claiming. 

The first reform[1] was the introduction of electoral bonds, a method of political funding riddled with anonymity. These bonds will be sold during a ten-day window, four times in a year, and for thirty additional days in a general election year. Jaitley justified the provisions by saying that anyhow “political parties will have to show all the money that they received in their returns.” He further backed the anonymity provision and claimed that the lack of anonymity will force the donors to “donate in cash”. So, in essence, Jaitley criticized cash donations because they don’t reveal the names of the donors and can be hidden from returns, but upheld electoral bonds as it also did not reveal the name of the donor. And since showing returns is not mandatory for any political party, they might just not show it.

The second electoral reform[2] allows unhampered political funding of any amount by removing the earlier cap of 7.5% of net profits of three years on political funding by corporations. So, effectively, a company can donate its entire revenue to a political party. This is an alarming situation and points towards legalised money laundering.

The third reform[3] legalised foreign donations made to political parties after 1976 so long so it has an Indian Subsidiary. This opens doors to foreign companies’ intervention in the Indian elections. Something is seen recently in the West.

These amendments are discussed as the scheme cannot be analysed in a vacuum and the insidious nature of the scheme would be better understood through a brief understanding of the aforementioned amendments.

The authors argue that:

  • The scheme violates the individual’s right to know, protected under Article 19(1)(a) of the Indian Constitution.
  •  The scheme smacks of arbitrariness and is devoid of reasonableness, which means it falls foul of Article 14 of the Indian Constitution.
  •  The scheme contravenes basic structure namely democracy and sovereignty

RIGHT TO KNOW

Supreme Court, in a catena of judgments, has affirmed that the right to know is an implicit part of Art 19(1)(a)[4]. The Right to know, as postulated under Article 19(1)(a) gives the person the right to acquire information.[5] In People’s Union for Civil Liberties (PUCL) v. Union of India,[6] It was observed that Fundamental Rights do not have fixed contents but are made vibrant by interpretation to create a truly republic democratic society. Keeping that in mind, the Supreme Court recognised the citizen’s right to know about the antecedents of a candidate for MP/MLA seat[7] and also struck down legislatures’ attempt to exclude assets and liabilities, educational qualifications of a candidate from the ambit of the disclosure.[8] The concomitant of the right to vote, which is a basic postulate of democracy, is twofold- (i) Formulation of opinion about the candidate (ii) Expression of choice at the polling booth which is recognized as a part of Article 19(1)(a)[9]. Access to information and knowledge of the activities of political parties is essential for the meaningful exercise of suffrage under Article 326, Section 62 of the Representation of the People Act, 1951, and Article 19(1)(a) of the Constitution.

Applying these principles, it can be reasonably contended that the scheme is not contemporaneous with the citizen’s right to know. To make a citizen’s right to vote meaningful, acquiring relevant information has been deemed as a prerequisite for the expression of the vote under Article 19(1)(a)[10]. To further crystallise this argument, it needs to be understood that a candidate and his political affiliation aren’t mutually exclusive. A political party’s priorities and considerations have an overarching influence on the candidate’s agenda. The vote of a parliamentarian is subject to the legislative agenda and policies of the party and those who don’t toe the line, have to meet with Anti defection rules. The aforementioned factors reflect the all-pervasive impact of the political affiliation of a candidate which makes it imperative that all the factors which can influence the ideology and policy proposals of the party, in this case, donations received, be disclosed to the public. The scheme tarnishes this aspect by active concealment of donations received through electoral bonds. The reasoning, that disclosure will serve as a check against the misuse of power for making money and assessing the propensity of dealing with public finances, which was adopted by the SC in ADR and PUCL squarely applies in this scenario as well. Depriving the voter of relevant details like the donor’s identity leaves a scope interference with the purity of elections[11]. Such deprivation is bound to colour the formulation of opinion since the voter is not fully aware of whether party X or Y is backed by a corporate and subsequently during its tenure has it worked to unjustly enrich the said corporate.

The notion of anonymity in public funding has been deplored by SC on numerous occasions. Neither the scheme nor the objective of anonymity of the scheme is protected by any reasonable restrictions[12].

Article 14

In this section, we argue that the scheme neither passes the threshold of non-arbitrariness nor does it satisfy the traditional test of reasonable classification. SC in EP Royappa vs State of Tamil Nadu[13] emphatically declared that when an act is arbitrary it is implicit that it is unequal, therefore violative of Article 14. The principle of reasonableness was also incorporated within the ambit of non-arbitrariness in Maneka Gandhi v. Union of India[14]. Justice Nariman in Shayera Bano v. Union of India[15] while overruling State of Andhra Pradesh v. Mcdowell,[16] declared that Sunil Batra, which held arbitrariness as a ground for striking down a legislative provision, is binding upon the Supreme Court. The arbitrary nature of the scheme lies in the unreasonable restrictions imposed on the right to know regarding the identities of persons or corporations making contributions to political parties. As a natural corollary, along with the scheme, the notification giving effect to the scheme suffers from the vice of arbitrariness and falls foul of Article 14.

The scheme fails the test of reasonable classification as it does not have a rational nexus with the stated object[17] i.e. transparency in political funding. It has also been argued by the government that the scheme would reduce the black money as KYC (Know Your Customer) checks are performed on donors by SBI (State Bank of India). Two arguments, mentioned below, render the scheme’s contribution to the elimination of black money nugatory. Firstly, even after the enactment of the scheme, the risk that a donor will funnel ‘black money’ through a ‘clean’ company/individual persists. Secondly, entities that prefer to make donations through black money are not incentivised to purchase such bonds. These bonds will be of utility for donors who employ “white money” for donations and those who have black money will remain outside the legal framework to escape the compliance of KYC norms. On the question of transparency, the scheme rather facilitates pernicious quid pro quo arrangements by blocking exposure to public scrutiny.

The aforementioned averments indicate that the scheme fits the description of colourable legislation[18] since the real object of the scheme is to secure anonymity to big corporate donors and the said object is not attainable by the reason of constitutional limitation prescribed by Article 19(1)(a) as explained in the first section.

BASIC STRUCTURE OF THE CONSTITUTION

The Parliament through electoral bonds coupled with amendments to the Companies Act, 2013, and Foreign Contribution (Regulation) Act, 2010 presents dangers towards the election process and sovereignty of the country. It signals breaking barriers to unlimited and anonymous political funding in exchange for ‘governmental awards’.

Funding can affect political decisions in a very straightforward process of a quid pro quo and can bias the legislators towards the interests of the funders. Hence, campaign finance disclosures are extremely important to “provide the electorate with information as to where political campaign money comes from and how it is spent by the candidate in order to aid the voters in evaluating those who seek federal office.”[19]

The removal of the earlier cap of 7.5% of net profits of three years on political funding by corporations drafts dark clouds over the veracity of the electoral processes of a country. “History of democracy has proved that democracy has been smothered by big businesses and money bags playing an important role in working of democratic institutions”[20]. The influence of big money is further exacerbated by the anonymity prescribed by the bonds which are a dent on the virtues of free and fair elections, namely transparency and accountability. Political funding through shell companies and benami transactions can wreak havoc, now legally, to channelize the undocumented money into the political and electoral process of the country.

Election Commission of India in a written reply to the standing committee and its affidavit to SC[21] has stated that the introduction of electoral bonds would compromise transparency in political funding and termed it as a “retrograde step”. SC, in numerous judgments, has condemned big money’s influence in politics[22] and rejected the proposition of funds coming from hidden sources unavailable for public scrutiny.[23]

Moving towards the issue of allowing foreign funding, the amendment blatantly allows foreign corporations to make uncapped, anonymous donations, through electoral bonds, to political parties within India. The harms are inherent in allowing foreign funding were recognized by the Delhi High Court by citing an Intelligence Bureau (IB) report which essentially said that the Indian Elections of 1967 was financed by the Central Intelligence Agency, The United States Intelligence Agency, which was subtly overturned by the government through these ‘electoral reforms’. Both foreign contributions and aid can have different effects on diplomacy. It has the potential of procuring international favours, and even influence or impose political ideology[24]. Muammar Gaddaffi’s interference in the 2007 French election serves as a case in point.

After the adjudication of Madras Bar Association v Union of India[25], the barrier of the basic structure now extends to all legislative enactments, including the impugned scheme. It is highly unlikely that a scheme, whose inherent objective is securing anonymity, would pass an examination of constitutional legitimacy from the touchstone of the basic structure doctrine, wherein the courts have recognized that purity of elections is fundamental to democracy[26], and included free and fair elections[27] within the purview of basic structure doctrine[28]. This obscure funding system, unchecked by any authority, allows private and foreign interests to take over the democratic government, compromises the sovereignty of state[29] which is a part of the basic structure doctrine.

CONCLUSION

The SC’s interim order came after a whole year of it being filed, and serves as a living testimony to the concept of ‘judicial evasion’. The Court while highlighting the dangers of electoral bonds, failed to provide either a stay on the scheme or another date for its hearing and has thus become an accomplice in the Government’s Modus Operandi. The aforementioned averments indicate that the scheme won’t stand constitutional scrutiny in a Court of law.

Opinion expressed by the authors are personal.


[1] Section 135, 137 of Finance Act, Act no. 7, (2017).

[2] Section 154 of Finance Act 2017, Act no. 7 (2017).

[3] Section 236 of Finance Act 2016, Act no. 28 (2016).

[4] State of UP v. Raj Narain, AIR 865 (1975).

[5] Secretary, Ministry of IB v. CAB, AIR 1236 (1995).

[6] People’s Union for Civil Liberties v. Union of India, 4 SCC 399 (2003).

[7] Union of India v. ADR, 5 SCC 294 (2002).

[8] Supra, note 6.

[9] ibid.

[10] Supra, note 5.

[11] Gajanan Bapat v. Dattaji Meghe, AIR 2284 (1995).

[12] Indian Const. Art 19(2).

[13] EP Royappa v. State of Tamil Nadu, AIR 555 (1974).

[14] Maneka Gandhi v. Union of India, AIR 597 (1978).

[15] Shayera Bano v. Union of India, 9 SCC 1 (2017).

[16] State of Andhra Pradesh v. Mcdowell, AIR 1627 (1996).

[17] State of West Bengal v. Anwar Ali Sarkar, AIR 75 (1952).

[18] KC Gajapati Deo v. State of Orrisa, AIR Ori 185 (1953).

[19] Buckley v. Valeo. 1 U.S. 424 (1976).

[20] Jayantilal Koticha v. Tata Steel, AIR Bom 155 (1958).

[21] Krishnadas Rajagopal, Electoral bonds hit transparency in political funding, The Hindu, Mar 27, 2019,  https://www.thehindu.com/news/national/electoral-bonds-hit-transparency-in-political-funding-says-election-commission/article26656311.ece.

[22] Kanwar Gupta v. AN Chawla, AIR 308 (1975).

[23] Common Cause v. Union of India, 3 SCR 208 (1996).

[24] John D. Montgomery, Foreign Aid in International Politics, Prentice-Hall (1967).

[25] Madras Bar Association v. Union of India, SCC OnLine SC 388 (2015).

[26] Supra, note 20.

[27] Kihoto Hollohan v. Zachillhu, 2 SCC 651 (1992).

[28] Kesavananda Bharati v. State of Kerala, AIR 1461 (1973).

[29] ibid.

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