On the Politics of Non-Transparent Electoral Funding in India
The Supreme Court’s Electoral Bonds Verdict
Last week, a five-judge bench of the Indian Supreme Court delivered a significant verdict adjudicating the constitutionality of the Electoral Bond Scheme (“EBS”), as introduced by the ruling government in January 2018. The EBS introduced a novel method of making ‘anonymous’ donations to Indian political parties, both by individuals and a body of individuals. It empowered the authorized bank to issue bonds in the nature of a promissory note containing no details of the buyer/donor and cashable by the political parties within 15 days from their date of issue. The EBS mandated the bank to keep the donor’s details confidential and to not disclose them to any authority ‘except when demanded by a competent court or upon registration of a criminal case by any law enforcement agency.’ [See Clause 7(4)]
The scheme was introduced as a package along with amendments to the Companies Act, Representation of the People Act, Income Tax Act, and the Reserve Bank of India Act by way of an omnibus Finance Act, 2017. In their cumulative essence, these amendments removed the legal obligation of the donors and political parties to disclose the details of voluntary donations made and received via electoral bonds, respectively. Amendments to the Companies Act also removed the cap on the amount of funding companies could extend to the political parties. Now, companies were only required to record the total amount of donations in their financial documents without mentioning any particulars.
The government introduced this scheme despite several objections from the Reserve Bank of India and the Election Commission of India. It justified this scheme as a mechanism to curb black money and incentivize donors to make contributions through the banking route without anticipating retribution. Despite the claims of anonymity, it is evident that the scheme intended to make electoral funding non-transparent. Though the bonds were not to carry the name and other details of the donor, the government had access to this information as it owned the authorized bank. Therefore, on the one hand, the scheme could possibly enable quid pro quo arrangements between the donor and the government without any third-party oversight; on the other, it would create an environment where voters will have to make their voting decisions without complete knowledge of the funding channels of the political parties in the fray.
In a welcoming and democracy-enabling judgment, the Indian Supreme Court, speaking unanimously, held the EBS and the relevant amendments introduced by the Finance Act of 2017 unconstitutional. In the remainder of this blog, I discuss the reasoning of the Court and the implications of the decision.
The Decision of the Court
The Court framed two issues for its consideration: first, whether the non-disclosure of information on electoral funding under the EBS and other relevant amendments violates the right to information of citizens as guaranteed under Article 19(1)(a) of the Indian Constitution; second, whether unlimited corporate funding to political parties violates the principle of free and fair elections and the right to equality as guaranteed under Article 14.
On the first question, the Court undertook a multilayered analysis of Article 19(1)(a) of the Indian Constitution to hold that the non-disclosure of information about political funding is unconstitutional. Article 19(1)(a) guarantees the right to freedom of speech and expression to every Indian citizen, which has been interpreted to include the right to information for the effective exercise of free speech. In the Court’s jurisprudence, such an interpretation of Article 19(1)(a) performs two crucial roles: first, it furthers ‘the values of good governance, transparency, and accountability’ by enabling the citizens to hold the government accountable with adequate and relevant information [¶60]; and second, it helps the citizens in forming ‘views on social, cultural, and political issues, and participate in and contribute to discussion’ [¶65]. Bereft of information, the right to free speech loses its essence.
Once these two roles are analyzed from the lens of elections and the need for the voters to make informed choices for the success of the democratic model of governance, Article 19(1)(a) could be read to include the right of the voters to have access to information ‘which would enable them to cast their votes rationally and intelligently’ [¶77]. In the past, the Indian Supreme Court had used this reasoning to mandate the disclosure of certain essential information about the candidates, such as details about their assets, possessions, and criminal records. [See here and here].
In the current case, the Court built on this jurisprudence to hold that the right to information of the voters is extendable against political parties, and their funding information is one such essential information that must be disclosed in a transparent manner to enable the voters to effectively exercise their rights [¶104]. The Court reasoned that the Indian Constitution recognizes political equality as one of its fundamental tenets, which, from an electoral point of view, could be translated into a promise of equality in influence over political decisions irrespective of one’s financial situation. Non-transparent electoral funding by routes such as the EBS allows the ‘economically resourced contributors … selective anonymity vis-à-vis the public’, possibly giving rise to quid pro quo situations and an imbalance of influence. Funding information, therefore, becomes crucial for the voters to analyze if the party in power has unduly favoured its donors. As the Court observed,
“Economic inequality leads to differing levels of political engagement because of the deep association between money and politics. … An economically affluent person has a higher ability to make financial contributions to political parties, and there is a legitimate possibility that financial contribution to a political party would lead to quid pro quo arrangements because of the close nexus between money and politics. … The money that is contributed could not only influence electoral outcomes but also policies particularly because contributions are not merely limited to the campaign or pre-campaign period. … Information about political funding would enable a voter to assess if there is a correlation between policy making and financial contributions.” [¶100]
In response, the government argued that the infringement of this right to information of the voters is justifiable for two purposes: first, to curb black money; and second, to protect donor privacy. Under the Indian constitutional jurisprudence, the right to free speech can be restricted only in the interest of the grounds specifically mentioned under Article 19(2). As curbing the circulation of black money in the economy, considered as an action in the public interest, does not find any trace under Article 19(2), the Court rejected the government’s argument [¶116]. Irrespective, the Court applied the proportionality analysis and held that non-transparent electoral funding by way of the EBS is not the least restrictive means to curb black money from the electoral exercise [¶129]. Several other mechanisms, like donation by way of electoral trusts, could achieve this purpose suitably.
On the aspect of donor privacy, the Court applied the double proportionality standard as it involved a clash between two fundamental rights: the right to information of the voters and the right to privacy of the donors [¶157]. Applying this standard, the Court concluded that,
“This alternative [the alternative being privacy of donations of the amount below a certain threshold] realizes the objective of securing disclosure for an informed voter and informational privacy to political affiliation in a ‘real and substantial manner’. The measure in the Electoral Bond Scheme completely tilts the balance in favor of the purpose of informational privacy and abrogates informational interests. On an overall comparison of the measure and the alternative, the alternative is better suited because it realizes the purposes to a considerable extent and imposes a lesser restriction on the fundamental rights.” [¶168]
Hence, the Court nullified the government’s argument that the EBS reasonably restricts the right to information of the voters.
On the second question about permitting unlimited corporate funding, the Court applied the doctrine of manifest arbitrariness to hold unlimited funding unconstitutional for the following reasons:
- It arbitrarily treats companies and individuals in a similar manner when the ability of companies to influence elections and policymaking is significantly higher than that of individuals due to the ability to make higher political funding;
- Unlimited corporate funding ‘is antithetical to free and fair elections because it allows certain persons/companies to wield their clout and resources to influence policy making’, thus violating the fundamental principles of free and fair elections and political equality [¶210];
- It arbitrarily treats profit-making and loss-making companies alike, which could give rise to situations of loss-making companies contributing to political parties in the anticipation of a quid pro quo treatment and perhaps even the incorporation of shell companies merely for the purposes of political funding. [¶215]
Concluding Remarks
This judgment of the Indian Supreme Court is significant for multiple reasons. To start with the most obvious one, it takes a democracy-enabling jurisprudential step in extending the right to information of voters to the details of political funding received by political parties in an effort to cement transparency and accountability as the central values of the electoral exercise. More importantly, it does so before the upcoming national elections, breaking the sequence of constant adjournments since the scheme was judicially challenged. Remember that multiple state elections and the 2019 national election have taken place while this scheme was in force and the data, in consonance with our expectation, shows that the largest beneficiaries of this scheme have been the ruling parties [¶68-70, Concurring opinion by Justice Sanjiv Khanna].
The judgment is also important from the viewpoint of the judiciary’s perception as an independent institution. The Court made some important choices along the way to reach its judgment – for instance, it considered the EBS and other relevant amendments introduced through the Finance Act of 2017 as electoral reforms rather than economic reforms and it gave primacy to the values of free and fair elections and the right to information of the voters over donor privacy. A different outlook on these questions would result in a completely different outcome.
Lastly, I would like to highlight an observation by the Court about how transparency and disclosure of information could help the voters in making their decisions. This speaks to the important role that media and civil society play in controlling and influencing the societal discourse, and is also relevant from the perspective of arguments pushing for public participation in constitution/lawmaking:
“For the information on donor contributions to be relevant and essential, it is not necessary that voters have to take the initiative to peruse the list of contributors to find relevant information which would enable them to cast their vote effectively. Electronic and print media would present the information on contributions received by political parties, and the probably link between the contribution and the license which were given to the company in an accessible format. The responses to such information by the Government and political parties would go a long way in informing the voters.”
