The Legality of Electoral Bonds

The right to information is one of the driving forces of our democracy. The citizen’s right to make an informed decision is as important as his/ her right to participate in the decision-making process. The Central Government had instituted the Electoral Bond Scheme (“Scheme”) in 2018 as a means to make the system of political funding more transparent. However, the introduction of the scheme raises significant doubts with respect to its legality in both procedural and substantive terms.

External Influence in Elections

An election is an important democratic process. Influence of entities other than the voter is undesirable in this exercise. The Scheme opens up the pernicious possibility of external interference from the corporate and foreign entities in the electoral process due to multiple reasons.

The Central Government had amended Section 182 of the Companies Act, 2013 thereby removing the stipulation that prohibits a company from contributing in excess of 7.5 per cent of its average net profits in the three preceding financial years. In light of this amendment, it is possible for loss-making companies and even shell companies (formed solely for the purposes of making a political contribution) to make donations to political parties. Furthermore, in light of the amended Section 2(1)(j)(vi) of the Foreign Contribution (Regulation) Act, 2010, political parties are now allowed to receive foreign funding from Indian companies that are compliant with the Foreign Exchange Management Rules and Regulations. This amendment weakens the scope and objective of the Act in as much as it allows the possibility of foreign sources to manipulate the electoral polity of the country. The sole respite that appears to come out of the electoral bond exercise is the amendment of Section 13A of the Income Tax Act, 1951 which now set the limit of Rs. 2,000 for contributions done in cash to political parties. While the sizeable reduction in the limit on cash transactions from Rs. 20,000 to Rs. 2,000 does take the system closer to transparency, it still leaves a huge scope for cash donations.

Money Bill Provisions – Application Beyond Article 110

The Scheme was instituted by the Government through an amendment to section 31 of the Reserve Bank of India Act, 1934 as part of the Finance Act, 2017 which was passed as a money bill. It is now an established judicial position that the certification of a bill as a money bill by the Speaker of the Lok Sabha is not beyond the purview of judicial scrutiny. Through Puttaswamy, the Supreme Court has categorically rejected precedence to establish that the term ‘finality’ as referred to in Article 110 does not give absolute supremacy to the Speaker’s decision regarding the certification of a bill as a money bill. Article 110 is an exceptional provision in that it limits the role of the Rajya Sabha in the passage of money bills.

In effect, this provision serves as an exception to the concept of bicameralism that forms a part of our constitutional scheme. Hence, it is of utmost importance that the Speaker of Lok Sabha exercises the power vested in him/her within the Constitutional limits as envisaged in Article 110. Furthermore, in light of Article 122, the view that judicial scrutiny is barred only in cases of irregularity and not illegality or unconstitutionality has been affirmed and reaffirmed since the nascent phases of the Indian judiciary. Every time the Speaker wrongfully circumvents the provisions of Article 110, the Rajya Sabha loses the opportunity to debate, discuss and importantly pass a bill that it is empowered to pass. Therefore, a deviation from the provisions of Article 110 by the Speaker is unconstitutional in as much as it jeopardises the bicameral virtue of the Indian parliamentary system.

Furthermore, the presence of the word “only” in Article 110 of the Indian Constitution is clearly indicative of the exhaustive nature of its provisions. Therefore, the Speaker is not free to certify a bill as a money bill based on factors completely extraneous to the Constitution. The amendments to Section 31 of the Reserve Bank of India Act, 1934, Section 29C of the Representation of the People Act, 1951 and Section 182 of the Companies Act, 2013 have no nexus to any activity pertaining to taxation or the Consolidated Fund or the Contingency Fund of India as mentioned in Article 110. Therefore, the certification of the Finance Bill, 2017 as a money bill suffers from constitutional infirmity.

Transparency versus Right to Information

Constitutional courts in India have over time expanded the scope of the citizens’ right to freedom of speech and expression enshrined under Article 19(1)(a). This fundamental right has now come to include the right to information (more commonly known as the right to know). The courts have on various occasions, expressed the importance of disclosure and the voter’s right to make an informed choice since the early phases of the judicial evolution in independent India. Right to information has been perceived as a negative right in as much as it is a right to receive information only from those willing to provide such information. In other words, the conception of the right to information does not ordinarily provide the right to obtain information from an unwilling speaker. However, it has to be noted that the judiciary had made an exceptional positive annotation to this right in the context of electoral laws.

In 2003, the Supreme Court had held that everyone has the right to know the details about the candidates in an election such as their qualification, financial status etc. It is important for the voter to know the source of a political party’s funds in order to ascertain the party’s (and in effect, its candidates’) stance on various issues. It might also help the citizenry to identify if the party in power is being unreasonably flexible to the interest of its donors. By way of the Finance Act, 2017, the Central Government had inserted a proviso to Section 29C of the Representation of the People Act, 1951 thereby removing contributions made by way of electoral bonds from the ambit of its applicability. This provision presents the political parties with an opportunity to refrain from revealing their donors’ identity thereby violating the right to information. There is no doubt that transparency in a democracy is a laudable ideal to strive for.

However, it is improper for the Government to trump one democratic virtue in furtherance of another. While transparency is indeed an important objective to ensure free and fair elections in a democracy, the citizen’s right to information that facilitates informed decision making is no less important. In fact, a truly free and fair election can take place only when both transparency and right to information go hand in hand. The scheme however is structured in a way to promote transparency at the cost of the right to information. Therefore, the Scheme which was instituted with an ostensible objective of cleansing the system of political funding in the country goes against the constitutional ethos that characterises the Indian democratic edifice.

R. Kavipriyan and Pranshu Gupta are Fourth Year students at NALSAR University of Law, Hyderabad. Vies expressed by the authors are personal.

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