[This is a guest post by Kieran Correia.]
On 15 February, a five-judge bench of the Supreme Court handed down judgement in Association for Democratic Norms v Union of India, popularly known as the Electoral Bonds Case. Two opinions were issued – the majority opinion authored by Chandrachud CJI, joined by Gavai, Pardiwala, and Misra JJ, and a concurring opinion by Khanna J. Both held the Electoral Bond Scheme (EBS) unconstitutional; supporting legislation – such as the amendments to the Representation of the People Act 1951 (RPA), Companies Act 2013, and the Income-tax Act 1961 (IT Act) so on made by the Finance Act 2017 – were also declared unconstitutional.
The Court also passed an order requiring, inter alia, the State Bank of India (SBI) to submit details of each electoral-bond contribution and purchase from 12 April 2019 till the present within three weeks, which the Election Commission of India (ECI) is to publish on its Web site within a week.
The Court’s judgement joins a vanishingly small number of pro-democracy verdicts in recent Indian constitutional jurisprudence. The verdict’s mobilization of the principle of political equality – in ensuring equality in influence over both electoral outcomes and policy – rests on the principle that elections in a democratic system must be subject to popular oversight and made available to public participation. Combined with a rigorous order, the Court’s intervention also promises to begin the process of levelling an electoral field that has become dangerously uneven over the past few years.
The majority opinion broadly deals with two issues: the non-disclosure provision – making it optional for parties to disclose information pertaining to their funding – and the unlimited donations provision, which eliminated the limit on how much each corporation could donate to a party.
In this post, we will examine the background of the judgement at some length and discuss the Court’s preliminary analysis of the scope of its review before moving on to its reasoning for the non-disclosure provision and how it infringes voters’ fundamental rights. We will also focus at some length on Chandrachud CJI’s proportionality analysis. A later piece will take up the Court’s treatment of the second issue of unlimited donations.
Electoral Funding and the EBS
Much has already been written on the EBS, including on this blog, so I will try to be light on the facts. Chandrachud CJI’s opinion begins by diving into the history of electoral funding in India. Electoral funding is regulated by a complex legal landscape, comprising three pieces of legislation – the RPA, IT Act, and Companies Act. The opinion specifically focusses on the regulation of corporate funding, tax regulation that attempted to curb black money, and election law that mandated transparency.
Barring a brief period between 1969 and 1985, when corporate funding was explicitly prohibited, such funding has been tightly regulated by law since 1960. There was a cap on corporate funding, disclosure requirements were high, and – this was implied – donations could only be made through ordinary instruments such as cheque, bank draft, and electronic clearing system. The Finance Act 2017 loosened or eliminated all of these restrictions.
Tax legislation exempted the income of political parties through financial contributions and investments from income tax. This was made subject to, inter alia, the requirement to maintain a record of contributions. However, the Finance Act 2017 eliminated this requirement as well if contributions were received by electoral bonds.
A similar transparency requirement existed in the RPA. Political parties had to declare the details of contributions in excess of a certain amount to receive tax exemptions under the IT Act. However, the Finance Act 2017 eliminated this requirement too for electoral-bond contributions.
On 2 January 2018, the Department of Economic Affairs in the Ministry of Finance notified the EBS. The EBS defines an electoral bond as “a bond issued in the nature of promissory note which shall be a bearer banking instrument and shall not carry the name of the buyer or payee.” Importantly, the EBS notified the SBI – a nationalized bank with direct government control – as the bank authorized to issue and encash bonds. Moreover, the information received by the authorized bank was to be treated as confidential.
Scope of judicial review
The Court begins its analysis with the smaller – but no less important – issues relating to the scope of judicial review. The Solicitor General, in his submissions, argued that the impugned amendments and the EBS pertain to matters of “economic policy” (Respondent’s Written Submissions, paras 172–201). One of the petitioners, on the other hand, in their Rejoinder Submissions rebutted this contention by highlighting that “the EBS is an executive instrument that deals with political party funding, and, therefore, indisputably, with entities that participate in the electoral process” (Petitioner’s Rejoinder Submissions, para 7) (emphasis in original).
Here, the Petitioner drew on John Hart Ely’s version of the representation-reinforcing justification of judicial review – in broad strokes, the idea that the rôle of judicial review, a counter-majoritarian force in a democracy, is to correct impairments in the representative process. Since the petitioners had challenged legislation and a scheme which fundamentally impacted the electoral – and therefore representative – process, the Court could not be light touch and afford a presumption of constitutionality.
The Court cleaves apart the two issues. In dealing with the first issue – whether the impugned pieces of legislation are “economic policy” – the Court agrees with the petitioners in tagging them as “amendments [that] relate to the electoral process” (para 41) and therefore proceeding with the ordinary level of scrutiny.
However, on the second, the Court remains reluctant to divest these amendments of the protection afforded to them by the presumption of constitutionality. Unfortunately, the Court does not supply much reason here apart from declaring that it “cannot carve out an exception to the evidentiary principle which is available to the legislature based on the democratic legitimacy which it enjoys” (para 45). The consequence of this is that the burden is on the petitioners to establish a prima facie violation of their fundamental rights by the State.
Political equality and the disclosure of information
The Court sets the stage for discussing the two main issues by underscoring the connexion between money and politics. This context-framing is important as it is the power that wealthy corporations and individuals exert over the political process that makes unregulated political contributions so dangerous to democracy. The Court – to its credit – recognizes this at the outset (para 55).
The amendments to the RPA, IT Act, and Companies Act – as mentioned earlier – eliminated the most elemental requirement of electoral-financing regulation: disclosure. Companies now needed only to disclose the total amount they contribute to political parties, not the specifics. The electoral bond itself was also shrouded in secrecy, as we have already seen.
The challenge to this new régime, then, was that the non-disclosure of information infringes on the right to information of the voter under article 19(1)(a) of the Constitution. The Court responds to this challenge by analysing the jurisprudence around the right to information. In tracing its evolution, the Court noted how it shifted from an instrumental right – to further transparent government – to a right with intrinsic value. In the latter phase of the Court’s jurisprudence, the Court recognized the “inherent value in [the] effective participation of the citizenry in democracy” (para 65).
The right to information, the Court notes, was extended to the requirement of candidates to disclose their criminal records and assets. The question that subsequently arises, however, is whether this jurisprudence would apply to political parties – and not to individuals alone. The analysis of the Court has two prongs: first, whether there exists a right to information about the funding of political parties; and secondly, whether the impugned provisions and the EBS constitute a “reasonable restriction” under article 19(2).
The Court here delves into the centrality of political parties in the electoral process in India. Despite the open-list first-past-the-post system used here, the candidate is not the focal point of the election; the political party plays a prominent rôle too. This is due to a variety of reasons: the ubiquity of a pre-election manifesto, the Westminster style of governmen, with a loose separation between legislature and executive, the use of symbols to denote parties by the Election Commission of India, and the object of India’s anti-defection law being the party – all point to the political party, despite not being mentioned in the original text of the Constitution, being a central unit of the electoral process (paras 79–93).
By placing the political party at the centre of our analysis, it only stands to reason that political parties must be subject to the same requirements candidates are. The Court recognizes this basic inference (para 95). However, it goes one step further and articulates a transformative principle undergirding the political process in India – political equality.
Political equality manifests itself in two ways: the principle of “one person, one vote,” and the promise of shielding the political process from socioeconomic equalities. The two are joined at the hip: if one person is to enjoy only one vote, it follows that individuals or corporations with disproportionate power cannot exert their oversize influence on the electoral process and distort the voting process. As the opinion notes, “This guarantee [of political equality] ensures (a) equality in representation; and (b) equality in influence over political decisions” (para 98).
To enforce political equality, then, the influence of moneyed interests on the electoral process must, at the very least, take place in plain sight. The electorate must be able to – by its own initiative or through the media – have access to this information. The Court, moreover, rejects the argument that the anonymity of the contributor goes both ways; parties can exploit various loopholes to ascertain the identity of the donor. Retrieving this principle of political equality – long ignored by Parliament and the judiciary – the Court holds that the voter has the right to information about party funding, and the EBS and impugned amendments are, therefore, violative of article 19(1)(a) of the Constitution. The next step is to see whether the impugned scheme and law are saved by article 19(2) or outweighed by another fundamental right.
Before we look at the Court’s proportionality analysis, however, let us briefly look at the Court’s analysis of the amended section 182(3) of the Companies Act, which emaciated the disclosure requirement. The Court finds the replacement of the requirement to disclose the particulars by that to disclose the total amount contributed to political parties unconstitutional. Under the amended section 182(3) of the Companies Act, the company did not need to disclose to which party it has contributed money; the amended section 29C of the RPA exempted parties from disclosing information of contributions received through electoral bonds.
This information, however, was “necessary to identify corruption and quid pro quo transactions in governance. Such information was also necessary for exercising an informed vote” (para 172), leading the Court to strike down section 182(3), as amended by the Finance Act 2017, unconstitutional, restoring the older version.
Proportionality and Double Proportionality
Before we actually dive into the opinion’s proportionality analysis, a brief note about the Court’s reluctance to employ the proportionality test is in order. Many scholars have noted how the Court’s proportionality jurisprudence is muddled, often confusing it with an older proportionality review used in fundamental rights cases. Others, including the editor of this blog, have pointed out how the Court has been unwilling to use proportionality in high-stakes cases against the executive.
The use of the classic four-part proportionality test in the majority opinion represents a stark departure from both these maladies. The proportionality test, as is well known, comprises four stages: legitimate goal, rational connexion, necessity (i.e., least restrictive and effective measure), and balancing. The Court extensively subjects the EBS and the impugned provisions to each stage of the proportionality test.
The Court finds that “curbing black money” and “protecting donor privacy” are the proposed aims of the impugned scheme and provisions. The Court, importantly, agrees with the Petitioners and finds that the legitimacy of a stated goal should be traceable to the article 19(2) grounds – unless it is a competing fundamental right. While “curbing black money” could plausibly trace itself to “public order,” the Court adopts a narrow meaning of the term and concludes otherwise.
A proportionality enquiry would ordinarily end there. However, the Court chooses to proceed with the next three stages. The second stage is whether the proposed measures bear a rational nexus to the stated goal. The State submitted that anonymity would incentivize contributors to contribute using licit channels, which the Court hypothetically accepts.
The third stage, at which the Court ends its enquiry, is whether the EBS and the non-disclosure requirement are any less restrictive – but equally effective – measures available to the State. Here, too, the Court rejects the State’s arguments. The Court brings up other measures – cheques, electronic transfers, and so on – and Electoral Trusts, another method of receiving political contributions which are also effective in curbing black money. Therefore, the Court answers this question in the affirmative.
However, in analysing the second ground – donor privacy – the Court adopts the double proportionality test, as two fundamental rights are in play here: the donor’s right to privacy and the voter’s right to information. As Chandrachud CJI writes, “[The proportionality standard] would prove to be ineffective when the State interest in question is also a reflection of a fundamental right” (para 152).
While this standard is not new to Indian jurisprudence, having been invoked by the Court in Central Public Information Officer, Supreme Court of India v Subash Chandra Agarwal, the Court articulates a clear, three-part test in this case to balance the conflict between two fundamental rights if the Constitution does not create a hierarchy between the conflicting rights:
- Whether the measure is a suitable means for furthering right A and right B (in other words, bears a rational nexus to both rights);
- Whether the measure is the least restrictive and equally effective to realize right A and right B; and
- Whether the measure has a disproportionate impact on right A and right B.
In the first stage, the Court finds that the EBS bears no rational nexus to the voter’s right of information as the information about contributions is “never disclosed to the voter” (para 163) (emphasis in original). It goes on to state that “[t]he measure adopted does not satisfy the suitability prong vis-à-vis the purpose of information of political funding” (ibid). Like the earlier proportionality enquiry, the Court should have stopped here but chooses to apply the next two stages.
The next stage is whether there are less restrictive measures available to the State. The Court answers in the affirmative. The RPA protects the privacy of contributions under twenty-thousand rupees. The Court understands this purpose as circumscribing the influence of money in shaping electoral outcomes and policy while still allowing the genuine expression of political views, protected by article 19(1)(a). The exact question of whether this threshold is sufficient is outside the Court’s purview; what matters is that an alternative, less restrictive, measure exists. This leads the Court to strike down the EBS as unconstitutional (para 169).
The Court – to be clear – did not need to undertake this double proportionality analysis. The principle here is not informational privacy; the stated aim, as the Petitioner argued, is unregulated donor privacy (Petitioner’s Written Submissions, para 65), which is not a legitimate state aim. However, the Court’s elaboration of the double proportionality standard supplies a useful tool for balancing two fundamental rights in a future case.
Conclusion
The Court’s judgement is a welcome departure from a long tradition of extending deference to Parliament and the Executive in matters of “policy.” Representative democracies are all too vulnerable to the problem of “the People,” as constitutional actors, retreating into their private lives as the whirring noise of legislation and government plays out in the background. The majority opinion, however, paves a path for the People to be active participants in everyday politics.
The Court’s rigorous proportionality analysis, too, is a significant positive development – possibly the first time that a majority opinion has invoked the doctrine to strike down legislation and executive policy in a high-stakes matter. If the opinion signals anything for future jurisprudence, it is that the proportionality test – and with it the culture of justification – is finally here to stay.
Knock nock 
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