The petitioners have also challenged the provisions of the Finance Act 2017 which, among other things, amended the provisions of the Reserve Bank of India Act 1934, the Representation of the People Act 1951, the Income Tax Act 1961, and the Companies Act 2013. Section 31 of the RBI Act stipulates that only the RBI or the Central Government authorized by the RBI Act shall draw, accept, make, or issue any bill of exchange or promissory note for payment of money to the bearer of the note or bond. The provision stipulated that companies cannot contribute to (a) any political party; and (b) to any individual or body for any political purpose, amounts exceeding twenty-five thousand rupees in a financial year or five percent of its average net profits during the three financial years immediately preceding the contribution, whichever is greater. Further, the direct or indirect expenditure by companies on advertisements by or on behalf of political parties or publications for the advantage of a political party were also regarded as contributions for political purposes.
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The provision bars a Government company and a company which has been in existence for less than three financial years from contributing to a political party. Sub-section (3) of Section 182 mandates every company to disclose in its profit and loss account any amount contributed by it to any political party during the financial year with specific particulars of the total amount PART A 9 contributed along with the name of the political party to which the contribution was made. Section 182(3) was amended to only require a disclosure of the total amount contributed to political parties by a company in a financial year and excluded the requirement to disclose the particulars of the amount contributed to each political party; and c.
The political party had to maintain a record of voluntary contributions in excess of twenty thousand rupees, along with the name and address of the person who made such contributions; and c. The PART A 12 treasurer of a political party or any other person authorized by the political party must in each financial year prepare a report in respect of the contributions in excess of twenty thousand rupees received by the party from a person or company other than Government companies in that financial year. The provision was amended by the Finance Act 2017 to include a proviso by which the political party was not required to disclose details of contributions received by electoral bonds.
On 2 January 2017, the RBI wrote a letter to the Joint Secretary in the Ministry of Finance on the proposal of the Government of India to enable Scheduled Banks to issue electoral bearer bonds for the purpose of donations to political parties before the Finance Act 2017 was enacted. By a letter dated 4 August 2017, the Deputy Governor of the RBI stated that India can consider issuing the electoral bonds on a transitional basis through the RBI under the existing provisions of Section 31(1) of the RBI Act. The RBI stated that permitting a commercial bank to issue bonds would “have an adverse impact on public perception about the Scheme, as also the credibility of India’s financial system in general and the central bank in particular.” The RBI recommended that electoral bonds may be issued in electronic form because it would (a) reduce the risk of their being used for money laundering; (b) reduce the cost; and (c) be more secure.
Issuance of electoral bonds in the scrip form could also expose it to the risk of forgery and cross-border counterfeiting besides offering a convenient vehicle for abuse by “aggregators”; and d. Referring to the deletion of the provision in the Companies Act requiring companies to disclose particulars of the amount contributed to specific political parties, the ECI recommended that companies contributing to political parties must declare party-wise contributions in the profit and loss account to maintain transparency in the financial funding of political parties. A political party, to be eligible to receive an electoral bond, has to be registered under Section 29A of the RP Act, and ought to have secured not less than one per cent of the votes polled in the last general election to the House of the People or the Legislative Assembly of the State.
The scheme has notified the State Bank of India as the bank authorised to issue and encash bonds; c. No payment will be made to a political party if the bond is deposited after the expiry of fifteen days. The bond shall be available for purchase for a period of ten days on a quarterly basis, in the months of January, April, July, and October as specified by the Central Government. Section 135 of the Finance Act 2017 and the corresponding amendment in Section 31 of the RBI Act; b. The petitioners have also challenged the introduction of the Finance Act as a Money Bill under Article 110 of the Constitution. Whether the non-disclosure of information on voluntary contributions to political parties under the Electoral Bond Scheme and the amendments to Section 29C of the RPA, Section 182(3) of the Companies Act and Section 13A(b) of the IT Act are violative of the right to information of citizens under Article 19(1)(a) of the Constitution. The statutory amendments and the Electoral Bond Scheme which mandates non-disclosure of information of electoral funding are unconstitutional because: i.
They violate the rights of shareholders of Companies who are donating money to political parties by preventing disclosure of information to them; and e. The amendments and the Electoral Bond Scheme skew free and fair elections by permitting unlimited contributions to political parties by corporate entities and removing the requirement of disclosure of information about political funding; b. The funds contributed to the Electoral Bond Scheme can be used in any manner and their use is not restricted to electoral campaigns; g.
The amendment to Section 182(3) permits: (i) loss making companies to contribute to political parties; (ii) unlimited contributions to political parties enabling significant policy influence; and (iii) non-disclosure of information on political funding to shareholders; k. The infringement of the right to information does not satisfy the proportionality standard vis–vis the purpose of guaranteeing informational privacy because: i. The right to information on political funding which is traceable to Article 19(1)(a) can only be restricted on the grounds stipulated in Article 19(2). Even if the purposes are traceable to Article 19(2), the Scheme is unreasonable and disproportionate to the purpose of “increasing political funding through banking channels and reducing political funding through non-banking channels” because: i. The statutory amendments and the Scheme are manifestly arbitrary because (i) large scale corruption and quid pro quo arrangements would go unidentified to the non-disclosure of information about political funding; (ii) they enable capture of democracy by wealthy interests; and (iii) they infringe the principle of ‘one person-one vote’ because a selected few overpower the voice of the masses because of their economic wealth; e. Once a PART C 32 shareholder comes to know that a company is financing a political party and their conscience does not permit it, as an exercise of the right to conscience, the shareholder should be entitled to sell those shares; and ii. The amendments to Section 29C of the RPA and Section 182 of the Companies Act serve no purpose other than perpetuating illegal ends, PART C 33 as they exempt companies’ purchase of electoral bonds from public disclosure. Since 1959, when companies were permitted to contribute to political parties, all companies were required to mandatorily disclose the total contributions made and the name of party to which they have contributed. Thus, the amendment to the Companies Act which removes the requirement of disclosure of information about political contributions is violative of the right to information of shareholders which flows from Article 19(1)(a); b. The Scheme and amendments violate Articles 14 and 15 by disproportionately impacting regional political parties and political parties which represent marginalised and backward sections of the society. The Scheme ensures confidentiality of the contributions made to political parties. Citizens do not have a general right to know regarding the funding of political parties. The legal framework prior to the enactment of the Electoral Bond Scheme was mostly cash-based which incentivized infusion of black money into political parties, and consequently, into the electoral process in India. The right of a buyer to purchase electoral bonds without having to disclose their preference of political party secures the buyer’s right to privacy; PART C 38 e. Clause 4 requires a buyer of electoral bonds to meet the requisite KYC Norms. Clause 11 mandates that all payments for the purchase of electoral bonds shall be accepted through banking channels. The amendments to the RBI Act, RPA, and the IT Act are intended to curb donations made by way of cash and other means to political parties and secure the anonymity of donors; j.
The Union of India submitted that this Court must exercise judicial restraint while deciding the challenge to the Electoral Bond Scheme and the statutory amendments because they relate to economic policy. Union of India, this Court while deciding a challenge to the constitutional validity of provisions of the Insolvency and Bankruptcy Code 2016 observed that the legislature must be given “free play” in the joints to experiment with economic policy. Thus, the PART D 42 submission of the Union of India that the amendments deal with economic policy cannot be accepted. The premise of the argument is that the presumption of constitutionality is based on the principle that the elected body must be trusted to make decisions and that principle should not be applied when the rules changing the electoral process are themselves in challenge. In the challenge to PART E 44 electoral law, like all legislation, the petitioners would have to prima facie prove that the law infringes fundamental rights or constitutional provisions, upon which the onus would shift to the State to justify the infringement. The maximum limit of election expenses in an Assembly constituency varies between rupees twenty eight lakhs and forty lakhs depending on the size of the State.
However, expenditure by the candidates and not the political party is regulated. Be that as it may, the underlying understanding of the legal regime regulating electoral finance is that finance is crucial for the sustenance and progression of electoral politics. The impact of campaigns on an informed voter is supplementary because campaign activities enable an informed voter to be further informed about the policies and ideology of the political party and the candidate, and their views on specific issues. Studies have shown that money influences the selection of candidates by political parties because parties would prefer fielding candidates who would be able to substantially PART E 47 self-finance their campaign without relying on the party for finance. Political parties which do not have enough finance have had to form electoral coalitions with other established political parties who would in exchange shoulder a lion’s share of the campaign expenditure of the newly established political party extending to costs related to coalition propaganda, print and digital advertising, vehicle and equipment hire, political rallies, food transportation, and daily expenditure for party cadres. Such political disparity, it was observed, results in “serious discrimination between one political party or individual and another on the basis of money power and that in turn would mean that “some voters are denied an ‘equal’ voice and some candidates are denied an ‘equal chance’”.
Union of India, a Constitution Bench of this Court was called upon to decide the validity of Explanation 1 to Section 77 of the RPA which allowed unlimited channelling of funds by political parties for the election of their candidates. Section 29C of the RPA as amended by the Finance Act 2017 stipulates that the political party need not disclose financial contributions received through electoral bonds. The amendments introduced by the Finance Act 2017 and the Electoral Bond Scheme are challenged on the ground that the non-disclosure of information PART F 51 about electoral contributions is violative of the right to information of the voter which is traceable to Article 19(1)(a) of the Constitution.
In the first phase, this Court delineated the scope of the right to information in the context of deciding the disclosure of evidence relating to affairs of the State. This Court observed that the underlying principle in the provisions of the Indian Evidence Act bearing on the disclosure of evidence related to the affairs of the State is that if such disclosure is denied, it would violate the private interest of the party. In his concurring opinion in the Constitution Bench, Justice KK Mathew observed that there is a public interest in the impartial administration of justice which can only be secured by the disclosure of relevant and material documents. Democratic governance, the learned Judge remarked, is not restricted to voting once in every five years but is a continuous process by which the citizens not merely choose the members to represent themselves but also hold the government accountable for their actions and inactions for which citizens need to possess information.
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This Court also recognised that freedom of speech and expression includes the right to acquire information which would enable people to debate on social, moral and political issues. A crucial aspect of the expansion of the right to information in the second phase is that right to information is not restricted to information about state affairs, that is, public information.
In ADR (supra), proceedings under Article 226 of the Constitution were instituted before the High Court of Delhi seeking a direction to implement the Law Commission’s recommendations to (a) debar candidates from contesting elections if charges have been framed against them by a Court in respect of certain offences; and (b) ensure that candidates furnish details regarding criminal cases which are pending against them.
The Court observed that the criminal background of a candidate and assets of the candidate (through which it could be assessed if the candidate has amassed wealth through corruption when they were elected previously) would aid the voters to cast their vote in an informed manner. In the six months prior to the filling of nomination papers, whether the candidate was accused in any pending case for an offence punishable with imprisonment for two years or more, and in which a charge is framed or cognizance is taken by the court of law; c. Justice M B Shah, writing for the majority, noted that the decision of the three-Judge Bench in ADR (supra) tracing the right to know the antecedents of candidates contesting elections had attained finality and Section 33-B was unconstitutional because it had the effect of rendering the judgment of this Court inoperative.
The learned Judge observed that the Constitution recognises the right of a voter to know the antecedents of a candidate though the right to vote is a statutory right because the action of voting is a form of expression protected by Article 19(1)(a): 72. The learned Judge observed that though the voters have a fundamental right to PART F 60 know the antecedents of candidates, all the conceptions of this right formulated by this Court in ADR (supra) cannot be elevated to the realm of fundamental rights. With respect to assets and liabilities, the learned Judge observed that the disclosure of assets and PART F 62 liabilities is essential to the right to information of the voter because it would enable voters to form an opinion about whether the candidate, upon being elected in the past, had amassed wealth in their name or their family Additionally, information about dues which are payable by the candidate to public institutions would enable voters to know the candidate’s dealing with public money in the past. Though mandating the disclosure of assets and liabilities would infringe the right to privacy of the candidate and their family, the learned Judge observed that disclosure which is in furtherance of the right to information would trump the former because it serves the larger public interest.
The common thread of reasoning which runs through both the first and the second phases is that information which furthers democratic participation must be provided to citizens.
While relying on the judgments of this Court in ADR (supra) and PUCL (supra) the petitioners argue that non-disclosure of information on the funding of political parties is violative of the right to information under Article 19(1)(a). This Court has to first analyse if the ‘political party’ is a relevant ‘political unit’ in the electoral process to answer the question whether funding details of political parties are essential information for the voter to possess. The difference in the procedure under the Symbols Order for allotting symbols to recognised political parties, registered but unrecognised political parties and independent candidates indicates both the relevance and significance of political parties in elections in India. Symbols other than those reserved for recognised political parties shall be available for allotment to independent candidates and candidates set up by political parties which are not recognised political parties in terms of the Symbols Order. Even within candidates who are set up by political parties, the Symbols Order creates a distinction between unrecognised but registered political parties and recognised political parties. The candidates of a registered but unrecognised political party may be represented by a common symbol but the people would not attach a specific symbol to the political party because the symbol by which it is represented may change with every election. The allocation of PART F 69 Symbols to political parties would help voters identify and distinguish between political parties which have similar sounding names. However, it cannot be concluded that the decision of voting is solely based on the individual candidate’s capabilities and not the political party merely because the voter has knowledge of the candidate who has been set up by the political party. Political parties publish electoral manifestos containing the ideology of the party, major policies of the political party, plans, programmes and other considerations of governance which would be implemented if they came to power. The time- honoured convention of the cabinet form of government is that the leader of the political party with absolute majority must be called to form the government. Voting or abstaining from voting in the House contrary to direction issued by the political party without obtaining prior permission from the political party and when such voting has not been condoned by the political party. Principal Secretary, Governor of Maharashtra, a Constitution Bench of this Court while interpreting the provisions of the Tenth Schedule held that the political party and not the legislature party (which consists of the members of the House belonging to a particular political party) appoints the Whip of a political party for the purposes of Paragraph 2(1)(b) of the Tenth Schedule. Thus, the observations of this Court in PUCL (supra) and ADR (supra) on the right to information about a candidate contesting elections is also applicable to political parties. The Constitution prescribes two conditions with respect to elections to seats in Parliament which guarantee the principle of “one person one vote” with respect to every voter and amongst every State: a. This guarantee ensures (a) equality in representation ; and (b) equality in influence over political decisions. The money which is donated to political parties is not used by the political party only for the purposes of electoral campaign.
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. However, to establish the argument of quid pro quo arrangements between the contributor and the political party, it is necessary that the political party has knowledge of the particulars of funding to its party. The submission of the Union of India is that the political party which receives the contribution does not know of identity of the contributor because neither the bond would have their name nor could the bank discloses such details to the political party. The contributor could physically hand over the electoral bond to an office bearer of the political party or to the legislator belonging to the political party, or it could have been sent to the office of the political party with the name of the contributor, or the contributor could after depositing the electoral bond disclose the particulars of the contribution to a member of the political party for them to cross-verify. Whether the infringement of the right to information of the voter is justified 105. The measure restricting a right must have a legitimate goal (legitimate goal stage); b. The legitimate goal stage requires this Court to analyze if the objective of introducing the law is a legitimate purpose for the infringement of rights.
They argue that the purpose of curbing of black money cannot be traced to any of the grounds in Article 19(2), and thus, is not a legitimate purpose for restricting the right to information. Article 19(2) stipulates that the right to freedom of speech and expression can only be restricted on the grounds of: (a) the sovereignty and integrity of India; (b) the security of the State; (c) friendly relations with foreign states, (d) public order; (e) decency or morality; (f) contempt of court; (g) defamation; and (h) incitement to an offence. Union of India, a Constitution Bench while deciding the constitutional challenge to the Working Journalists (Conditions of Service) and Miscellaneous Provisions Act 1955 held that a law violating Article 19(1)(a) would be unconstitutional unless the purpose of the law falls “squarely within the provisions of Article 19(2)”. Justice Reddi in his concurring opinion in PUCL (supra) observed that the right under Article 19(1)(a) can be PART F 83 restricted on grounds which are not “strictly within the confines of Article 19(2)”. However, while observing so, Justice P B Sawant states that the right to telecast can be PART F 84 restricted on the grounds mentioned in Article 19(2) and the “dictates of public interest”: 114. Justice Reddy observed that public interest is synonymous to state interest which is one of the grounds underlying Article 19(2): PART F 85 115. The observations in Cricket Association of Bengal (supra) cannot be interpreted to mean that other implied grounds of restrictions have been read into Article 19(2).
At this stage, the court is required to assess whether the means, if realised, would increase the likelihood of curbing black money. However, after the introduction of the Electoral Bond Scheme, forty- seven percent of the contributions were received through electoral bonds which is regulated money. Whether the alternative identified and the means used by the State impact fundamental rights differently; and d. Before we proceed to determine if the Electoral Bond Scheme is the least restrictive means to curb black money in electoral funding, it is important that we recall the regime on electoral funding. Restricting the contributions to political parties in cash to less than rupees two thousand and prescribing that contributions above the threshold amount must only be made through banking channels is itself intended to curb black money. Section 13B of the IT Act states that any voluntary contributions received by an electoral trust shall not be included in the total income of the previous year of such electoral trust if the it distributes ninety five percent of the aggregate donations received during the previous year.
Contributions made in cash shall not be accepted by the Electoral Trust; d. The political party to which the trust donated money shall provide a receipt indicating the name of the political party, the PAN and the amount of contribution received from the trust; f. On 6 June 2014, the ECI circulated Guidelines for submission of contribution reports of Electoral Trusts mandating in the interest of transparency that all Electoral Trusts shall submit an Annual Report containing details of contributions received and disbursed by them to political parties.
It is only where the Electoral Trust contributes to one political party, would there be a possibility of political consequences and witch-hunting (assuming that there is a link between anonymity and contributions). A voter would receive complete information about contributions made above twenty thousand to a political party in the case of electronic transfer made directly to a political party other than through electoral bonds. This Court in the interim order dated 31 October 2023 in the specific context of contributions made by companies through electoral bonds prima facie observed the voter would be able to secure information about the funding by matching the information of the aggregate sum contributed by the Company (as required to be disclosed under Section 182(3) of the Companies Act as amended by the Finance Act) with the information disclosed by the political party. Assuming that anonymity incentivizes contributions through banking channels (which would lead to curbing black money in the electoral process), electoral bonds would be the most effective means in curbing black money, followed by Electoral Trust, and then other means of electronic transfer. On an overall balance of the impact of the alternative means on the right to information and its ability to fulfill the purpose, for contributions below twenty thousand rupees, contributions through other means of electronic transfer is the least restrictive means.
The Union of India submitted that information about financial contributions to political parties is not disclosed to protect the contributor’s informational privacy to political affiliation. If the right to informational privacy extends to financial contributions to a political party, this Court needs to decide if the Electoral Bond Scheme adequately balances the right to information and right to informational privacy of political affiliation. A lack of privacy over thought (which leads to decision-making) would suppress voices and lead to homogeneity which is contrary to the values that the Constitution espouses ; c. The lack of privacy of political affiliation would also disproportionately affect those whose political views do not match the views of the mainstream. They also include undue influence of the voters by an attempt to interfere with the free exercise of electoral right, publication of false information about the personal character of any candidate, and providing vehicles for the free conveyance of electors.
Information about political affiliation could be used to engage in gerrymandering, the practice by which constituencies are delimited based on the electoral preference of the voters. Having concluded that the Constitution guarantees a right to informational privacy of political affiliation, it needs to be decided if the right can be extended to the contributions to political parties. However, that not being the case, this Court is not required to decide whether financial contribution to a political party is protected by Articles 19(1)(a) and 19(1)(c). Rather, the proposition in Justice KS Puttaswamy (9J) is that privacy (including informational privacy) is extendable to thoughts, beliefs, and opinions formed for the exercise of speech and action. When the law permits political contributions and such contributions could be made as an expression of political support which would indicate the political affiliation of a person, it is the duty of the Constitution to protect them.
However, to not grant the umbrella of informational privacy to political contributions only because a portion of the contributions is made for other reasons would be impermissible. The second issue is whether the right to privacy of political contributions can be extended to include privacy vis–vis the political party to which contributions are made since according to the Union of India under the Electoral Bond Scheme, the political party to which the contribution is made would not know the particulars of the contributor. Countries with a written Constitution attempt to resolve these conflicts by creating a hierarchy of rights within the constitutional order where a few fundamental rights are subjected to others. The first exercise that the Court must undertake while balancing two fundamental rights is to determine if the Constitution creates a hierarchy between the two rights in conflict.
Before the proportionality standard was employed to test the validity of the justification for the infringement of fundamental rights, Courts balanced conflicting fundamental rights by according prominence to one fundamental right over the other based on public interest. A two- Judge Bench of this Court observed that those who make noise often justify their actions based on freedom of speech and expression guaranteed under Article 19(1)(a). State of Bihar, this Court held that when there is a conflict between two individuals with respect to their right under Article 21, the facts and circumstances must be weighed “on the scale of constitutional norms and sensibility and larger public interest.” In PUCL (supra), one of the issues before this Court was whether the disclosure of the assets of the candidates contesting the elections in furtherance of the right to information of the voters violates the right to privacy of candidates. This Court observed that the Court must while balancing two fundamental rights examine where the larger public interest lies. In Mazdoor Kisan Shakti (supra), this Court applied one of the prongs of the proportionality standard (the least restrictive means prong) while balancing the right to protest and the right to peaceful residence. Union of India to balance the conflict between two fundamental rights. This Court followed the Canadian approach in evolving a two prong standard to balance fundamental rights through neutralizing devices which partly resembled the structured proportionality standard. However, the single proportionality standard which is used to test whether the fundamental right in question can be restricted for the State interest (that is, the legitimate purpose) and if it can, whether the measure used to restrict the right is proportional to the objective is insufficient for balancing the conflict between two fundamental rights.
If this Court were to employ the single proportionality standard to the considerations in this case, at the suitability prong, this Court would determine if non-disclosure is a suitable means for furthering the right to privacy. MGM Limited, Baroness Hale adopted the double proportionality standard to adequately balance two conflicting fundamental rights. Referring to the double proportionality standard, the concurring opinion observes that the Court while balancing between two fundamental rights must identify the precise interests weighing in favour of both disclosure and privacy and not merely undertake a doctrinal analysis to determine if one of the fundamental rights takes precedence over the other: PART F 112 156.
If not, the following standard must be PART F 113 employed from the perspective of both the rights where rights A and B are in conflict: b. Section 137 of the Finance Act amended Section 29C of the RPA by which a political party is now not required to include contributions received by electoral bonds in its report. Amendments had to be made to Section 13A of the IT Act and Section 29C of the RPA to implement the Electoral Bond Scheme because the EBS mandates anonymity of the contributor. However, the right to privacy of financial contributions to political parties can also be traced to Article 19(1) because the informational privacy of a person’s political affiliation is necessary to enjoy the right to political speech under Article 19(1)(a), the right to political protests under Article 19(1)(b), the right to form a political association under Article 19(1)(c), and the right to life and PART F 115 liberty under Article 21.
The Union of India submitted that Clause 7(4) of the Electoral Bond Scheme balances the right to information of the voter and the right to informational privacy of the contributor. This Court while applying the suitability prong to the purpose of privacy of political contribution must consider whether the non-disclosure of information to the voter and its disclosure only when demanded by a competent court and upon the registration of criminal case has a rational nexus with the purpose of achieving privacy of political contribution. However, let us proceed to apply the PART F 117 subsequent prongs of the double proportionality analysis assuming that the means adopted has a rational nexus with the purpose of securing information about political funding to voters. Section 29C states that contributions in excess of rupees twenty thousand received from a person or company for that financial year must be disclosed by the political party through a report. On the other hand, Section PART F 118 29C mandates disclosure of information of contributions beyond rupees twenty thousand per person or per company in one financial year. The PART F 119 underlying rationale of Section 29C(1) is that contributions below the threshold do not have the ability to influence decisions, and the right to information of financial contributions does not extend to contributions which do not have the ability to influence decisions. It only extends to contributions made as a genuine form of political support that the disclosure of such information would indicate their political affiliation and curb various forms of political expression and association. The Union of India has been unable to establish that the measure employed in Clause 7(4) of the Electoral Bond Scheme is the least restrictive means to balance the rights of informational privacy to political contributions and the right to information of political contributions.
Before the 2017 amendment, Section 182(3) of the Companies Act, mandated companies to disclose the details of the amount contributed to a political party along with the name of the political party to which the amount was contributed in its profit and loss account. For example, under Section 182(3) as it existed before the amendment, if a Company contributed rupees twenty thousand to a political party, the company was required to disclose in its profit and loss account, the details of the specific contributions made to that political party. It is crucial to note here that contributions to political parties by companies were regulated long before the IT Act was amended in 1978 to exempt the income of political parties through voluntary PART F 122 contributions for tax purposes (ostensibly to curb black money). Companies have always been subject to a higher disclosure requirement because of their huge financial presence and the higher possibility of quid pro quo transactions between companies and political parties. The amendment to Section 182(3) of the Companies Act becomes otiose in terms of our holding in the preceding section that the Electoral Bond Scheme and relevant amendments to the RPA and the IT Act mandating non-disclosure of particulars on political contributions through electoral bonds is unconstitutional. The petitioners submitted that the non-disclosure of the details of the political contributions made by companies in the financial statement would infringe upon the right of the shareholders to decide to sell PART G 124 the shares of a company if a shareholder does not support the political ideology of the party to which contributions were made. Ltd., the decision of the company to amend its memorandum enabling it to make contributions to political parties was challenged before the High Court of Judicature at Bombay.
The provision also mandated every company to disclose in its profit and loss account any amount contributed by it to any political party or for any political purpose to any individual or body during the financial year to which that account relates by giving particulars of the total amount contributed and the name of the party, individual, or body to which or to whom such amount has been contributed. The Committee suggested “a total ban on all donations by incorporated bodies to PART G 126 political parties.” Subsequently, Section 293A of the 1956 Act was amended through the Companies (Amendment) Act 1969 to prohibit companies from contributing funds to any political party or to any individual or body for any political purpose. Section 154 of the Finance Act 2017 amended Section 182 of the 2013 Act to delete this limit contained in the first proviso of the provision. Article 14 is an injunction to both the legislative as well the executive organs of the State to secure to all persons within the territory of India equality before law and equal protection of the laws. Justice P N Bhagwati (as the learned Chief Justice then was), speaking for the Bench, observed that equality is a dynamic concept with many aspects and dimensions which cannot be confined within traditional and doctrinaire limits. Justice Bhagwati observed that the doctrine of non-arbitrariness can also be extended to a legislative action. It was held that to declare a delegated legislation as arbitrary, “it must be shown that it was not reasonable and manifestly arbitrary.” This Court further went on to define “arbitrarily” to mean “in an unreasonable manner, as fixed or done capriciously or at pleasure, without adequate determining principle, not founded in the nature of things, non-rational, not done or acting according to reason or judgment, depending on the will alone.” 184. State of Tamil Nadu, a three-Judge Bench of this Court invalidated a legislation on the ground that it was arbitrary and in violation of Article 14. McDowell & Co., another three-Judge Bench of this Court held that a plenary legislation cannot be struck down on the ground that it is arbitrary or unreasonable. Union of India, another three-Judge Bench of this Court invalidated Section 17(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 for being unreasonable and arbitrary.
Justice R F Nariman, speaking for the majority, held that Triple Talaq is manifestly arbitrary because it allows a Muslim man to capriciously and whimsically break a marital tie without any attempt at reconciliation to save it. Therefore, Justice Nariman held that arbitrariness of a legislation is a facet of unreasonableness in Articles 19(2) to (6) and therefore arbitrariness can also be used as a standard to strike down legislation under Article 14. In Navtej Singh Johar (supra), Section 377 of the Indian Penal Code 1860 was challenged, inter alia, on the ground it is manifestly arbitrary. In Joseph Shine (supra), one of us (Justice D Y Chandrachud) observed that the doctrine of manifest arbitrariness serves as a check against state action or legislation “which has elements of caprice, irrationality or lacks an adequate determining principle.”
The learned Judge further observed that the “ostensible object of Section 497” as pleaded by the State which is to preserve the sanctity of marriage is not in fact the object of the provision because: (a) the sanctity of marriage can be destroyed even if a married man has sexual intercourse with an unmarried woman or a widow; and (b) the offence is not committed if the consent of the husband of the woman is sought. Justice DY Chandrachud in his opinion observed that a provision is manifestly arbitrary if the determining principle of it is not in consonance with constitutional values. In applying this standard, 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 Courts based on the available material such as a reading of the provision ; and b.
The second is the reading of Article 14 to include the facets of formal equality and substantive equality. The corollary of the proposition that it is reasonable to identify the degrees of harm, is that it is unreasonable, unjust, and arbitrary if the Legislature does not identify the degrees of harm for the purpose of law. Therefore, the delegate must enact the subordinate legislation “consistent with the law under which it is made and cannot go beyond the limits of the policy and standard laid down in the law.” Since the power delegated by a statute is limited by its terms, the delegate is expected to “act in good faith, reasonably, intra vires the power granted and on relevant consideration of material facts.” This Court has to be cognizant of this distinction.
Therefore, in situations where a subordinate legislation is challenged on the ground of manifest arbitrariness, this Court will proceed to determine PART G 140 whether the delegate has failed “to take into account very vital facts which either expressly or by necessary implication are required to be taken into consideration by the statute or, say, the Constitution.” In contrast, application of manifest arbitrariness to a plenary legislation passed by a competent legislation requires the Court to adopt a different standard because it carries greater immunity than a subordinate legislation. Validity of Section 154 of the Finance Act 2017 omitting the first proviso to Section 182 of the Companies Act 199. Section 182 of the 2013 Act is one such legal provision allowing companies to contribute to political parties. The Preamble to the Constitution describes India as a “democratic republic”: a democracy in which citizens are guaranteed political equality irrespective of caste and class and where the value of every vote is equal. That being the case, the question that we ask ourselves is whether the elected would truly be responsive to the electorate if companies which bring with them huge finances and engage in quid pro quo arrangements with parties are permitted to contribute unlimited amounts. Union of India, a Constitution Bench of this Court held that a democratic form of government depends on a free and fair election system. Union of India, this Court held that free and fair elections PART G 143 equal opportunity to all people. However, it is not the sole duty of the Election Commission to secure the purity and integrity of the electoral process. The learned Solicitor General further submitted that companies who wanted to donate in excess of the statutory cap would create shell companies and route their contributions through them.
This condition was also included to prevent loss-making companies and shell companies from making financial contributions to political parties. One of the reasons for which companies may contribute to political parties could be to secure income tax benefit. Unlimited contribution by companies to political parties is antithetical to free and fair elections because it allows certain persons/companies to wield their clout and resources to influence policy making. The amendment to Section 182 of the Companies Act must be read along with other provisions on financial contributions to political parties under the RPA and the IT Act.
Justice Steven writing for the minority on the issue of corporate funding observed that companies and natural persons cannot be treated alike for the purposes of political funding: PART G 148 213. Thus, the amendment to Section 182 is manifestly arbitrary for (a) treating political contributions by companies and individuals alike; (b) permitting the unregulated influence of companies in the governance and political process violating the principle of free and fair elections; and (c) treating contributions PART H 149 made by profit-making and loss-making companies to political parties alike. The Electoral Bond Scheme, the proviso to Section 29C(1) of the Representation of the People Act 1951 (as amended by Section 137 of Finance Act 2017), Section 182(3) of the Companies Act (as amended by Section 154 of the Finance Act 2017), and Section 13A(b) (as amended by Section 11 of Finance Act 2017) are violative of Article 19(1)(a) and unconstitutional; and b. During the course of the hearing, Mr Amit Sharma, Counsel for the ECI, stated that the ECI had only collected information on contributions made in 2019 because a reading of Paragraph 14 of the interim order indicates that the direction was only limited to contributions made in that year. SBI shall submit the details of political parties which have received contributions through Electoral Bonds since the interim order of this Court dated 12 April 2019 till date to the ECI.
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. [Dr Dhananjaya Y Chandrachud]
Case Title: ASSOCIATION FOR DEMOCRATICS REFORMS Vs. UNION OF INDIA (2024 INSC 113)
Case Number: W.P.(C) No.-000880 / 2017
