2024 (2) TMI 812 - SC - Indian Laws

Unlimited corporate funding to political parties - Infringement of principle of free and fair elections - violation of Article 14 of the Constitution - non-disclosure of information on voluntary contributions to political parties - Application of the doctrine of proportionality Challenging the constitutional validity of the Electoral Bond Scheme Electoral Bond Scheme or Scheme which introduced anonymous financial contributions to political parties -Challenge to the provisions of the Finance Act 2017 which, among other things, amended the provisions of the Reserve Bank of India Act 1934, Section 135 of the Finance Act 2017, the Representation of the People Act 1951, Section 137 of the Finance Act 2017, the Income Tax Act 1961, Section 11 of the Finance Act 2017, and the Companies Act 2013, Section 154 of the Finance Act 2017. Whether unlimited corporate funding to political parties, as envisaged by the amendment to Section 182(1) of the Companies Act infringes the principle of free and fair elections and violates Article 14 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? HELD THAT - Doctrine of proportionality - The test of proportionality comprises four steps (i) The first step is to examine whether the act/measure restricting the fundamental right has a legitimate aim (legitimate aim/purpose). (ii) The second step is to examine whether the restriction has rational connection with the aim (rational connection). (iii) The third step is to examine whether there should have been a less restrictive alternate measure that is equally effective (minimal impairment/necessity test). (iv) The last stage is to strike an appropriate balance between the fundamental right and the pursued public purpose (balancing act). The test of proportionality is now widely recognised and employed by courts in various jurisdictions like Germany, Canada, South Africa, Australia and the United Kingdom. However, there isn t uniformity in how the test is applied or the method of using the last two prongs in these jurisdictions. The first two prongs of proportionality resemble a means-ends review of the traditional reasonableness analysis, and they are applied relatively consistently across jurisdictions. Courts first determine if the ends of the restriction serve a legitimate purpose, and then assess whether the proposed restriction is a suitable means for furthering the same ends, meaning it has a rational connection with the purpose. In the third prong, courts examine whether the restriction is necessary to achieve the desired end. When assessing the necessity of the measure, the courts consider whether a less intrusive alternative is available to achieve the same ends, aiming for minimal impairment. As elaborated, this Court Anuradha Bhasin 2020 (1) TMI 1387 - SUPREME COURT , relying on suggestions given by some jurists, emphasised the need to employ a moderate interpretation of the necessity prong. To conclude its findings on the necessity prong, this Court is inter alia required to undertake an overall comparison between the measure and its feasible alternatives. We will now delve into the fourth prong, the balancing stage, in some detail. This stage has been a matter of debate amongst jurists and courts. Some jurists believe that balancing is ambiguous and value-based. This stems from the premise of rule-based legal adjudication, where courts determine entitlements rather than balancing interests. However, proportionality is a standard-based review rather than a rule-based one. Given the diversity of factual scenarios, the balancing stage enables judges to consider various factors by analysing them against the standards proposed by the four prongs of proportionality. This ensures that all aspects of a case are carefully weighed in decision-making. This perspective finds support in the work of jurists who believe that constitutional rights and restrictions/measures are both principles, and thus they should be optimised/balanced to their fullest extent. While balancing is integral to the standard of proportionality, such an exercise should be rooted in empirical data and evidence. In most countries that adopt the proportionality test, the State places on record empirical data as evidence supporting the enactment and justification for the encroachment of rights. This is essential because the proportionality enquiry necessitates objective evaluation of conflicting values rather than relying on perceptions and biases. Empirical deference is given to the legislature owing to their institutional competence and expertise to determine complex factual legislation and policies. However, factors like lack of parliamentary deliberation and a failure to make relevant enquiries weigh in on the court s decision. In the absence of data and figures, there is a lack of standards by which proportionality stricto sensu can be determined. Nevertheless, many of the constitutional courts have employed the balancing stage normatively by examining the weight of the seriousness of the right infringement against the urgency of the factors that justify it. Examination under the first three stages requires the court to first examine scientific evidence, and where such evidence is inconclusive or does not exist and cannot be developed, reason and logic apply. We shall subsequently be referring to the balancing prong during our application of the test of proportionality. In our view, proportionality analyses would be more accurate when empirical inquiries on causal relations between a legislative measure under review and the ends of such a measure are considered. It also leads to better and more democratic governance. While one cannot jump from is to ought , to reach an ought conclusion, one has to rely on accurate knowledge of is , for is and ought to be united. While we emphasise the need of addressing the quantitative/empirical deficit for a contextual and holistic balancing analysis, the pitfalls of selective data sharing must be kept in mind. After all, if a measure becomes a target, it ceases to be a good measure It is held in the present case as follows - a. 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. The deletion of the proviso to Section 182(1) of the Companies Act permitting unlimited corporate contributions to political parties is arbitrary and violative of Article 14. The following directions are issued a. The issuing bank shall herewith stop the issuance of Electoral Bonds; b. SBI shall submit details of the Electoral Bonds purchased since the interim order of this Court dated 12 April 2019 till date to the ECI. The details shall include the date of purchase of each Electoral Bond, the name of the purchaser of the bond and the denomination of the Electoral Bond purchased; c. 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. SBI must disclose details of each Electoral Bond encashed by political parties which shall include the date of encashment and the denomination of the Electoral Bond; d. SBI shall submit the above information to the ECI within three weeks from the date of this judgment, that is, by 6 March 2024; e. The ECI shall publish the information shared by the SBI on its official website within one week of the receipt of the information, that is, by 13 March 2024; and f. 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. The issuing bank, upon the return of the valid bond, shall refund the amount to the purchaser s account.

Summary

Issues Involved:
1. Unlimited Corporate Funding to Political Parties.
2. Non-Disclosure of Information on Voluntary Contributions to Political Parties.
3. The Scope of Judicial Review.
4. The Close Association of Politics and Money.
5. The Right to Information of the Voter and its Infringement.
6. Validity of the Electoral Bond Scheme and Related Provisions.
7. Challenge to Unlimited Corporate Funding.

Summary:

Unlimited Corporate Funding to Political Parties
The petitioners challenged the amendment to Section 182(1) of the Companies Act, which permits unlimited corporate funding to political parties, arguing it infringes the principle of free and fair elections and violates Article 14 of the Constitution. The Court held that unlimited corporate funding allows certain entities to wield undue influence over the political process, violating the principle of free and fair elections and political equality. The amendment was deemed manifestly arbitrary for treating corporate and individual contributions alike and not distinguishing between profit-making and loss-making companies.

Non-Disclosure of Information on Voluntary Contributions to Political Parties
The petitioners argued that the non-disclosure of information on contributions received through electoral bonds violates the right to information of citizens under Article 19(1)(a) of the Constitution. The Court held that the right to information includes the right to know about financial contributions to political parties, as it is essential for the effective exercise of the choice of voting. The Court found that the Electoral Bond Scheme and related amendments infringe the right to information by anonymizing contributions, which is not justified by the purpose of curbing black money or protecting donor privacy.

The Scope of Judicial Review
The Court rejected the Union of India's argument that the amendments relate to economic policy and should be subject to judicial restraint. It held that the amendments pertain to the electoral process and not economic policy, necessitating a stringent form of judicial review. The presumption of constitutionality is rebutted when a prima facie case of violation of a fundamental right is established, shifting the onus to the State to justify the infringement.

The Close Association of Politics and Money
The Court recognized the influence of money on electoral politics, noting that financial contributions can impact electoral outcomes and governmental decisions. The legal regime does not distinguish between campaign funding and electoral funding, allowing financial contributions to influence policy-making. The Court emphasized that transparency in political funding is crucial to prevent quid pro quo arrangements and ensure free and fair elections.

The Right to Information of the Voter and its Infringement
The Court held that the right to information of voters extends to information about political parties, as political parties play a central role in the electoral process. The Court found that information about political funding is essential for voters to exercise their choice effectively. The Electoral Bond Scheme's anonymity provision was deemed to infringe this right without sufficient justification, as it fails the proportionality test.

Validity of the Electoral Bond Scheme and Related Provisions
The Court struck down the Electoral Bond Scheme, the proviso to Section 29C(1) of the Representation of the People Act, Section 182(3) of the Companies Act, and Section 13A(b) of the Income Tax Act as violative of Article 19(1)(a) and unconstitutional. The Court directed the disclosure of information on contributions received by political parties under the Electoral Bond Scheme.

Challenge to Unlimited Corporate Funding
The Court found that the deletion of the cap on corporate funding by the Finance Act 2017 was manifestly arbitrary and violated Article 14. The amendment was held to permit unregulated influence of companies in the political process, undermining free and fair elections.

Conclusion and Directions
1. The Electoral Bond Scheme and related amendments were declared unconstitutional.
2. Unlimited corporate funding was deemed arbitrary and violative of Article 14.
3. The Election Commission of India (ECI) was directed to publish information on contributions received through electoral bonds.
4. The issuance of new electoral bonds was prohibited.
5. Existing bonds within the validity period were to be returned for refunds.

This summary preserves the legal terminology and significant phrases from the original text while providing a comprehensive issue-wise breakdown of the judgment.