A Fillip To Democracy : Supreme Court's Electoral Bonds Case Verdict

On Thursday(February 15), the Supreme Court of India gave a much needed fillip to our democracy. Through a unanimous verdict of five judges, in Association for Democratic Reforms v. Union of India (with opinions written by Chief Justice DY Chandrachud for himself and three others and by Justice Sanjiv Khanna for himself), the Court affirmed the central idea that our freedom to vote with full information is inherent to our right to political equality. In so declaring, the court ruled as unconstitutional a series of parliamentary laws that has had a deep and deleterious bearing on India's democracy.

Under challenge before the Court were amendments introduced by the Finance Act, 2017, to, among other laws, the Representation of the People Act, 1951, the Income Tax Act, 1961, and the Companies Act, 2013. Through these amendments, Parliament introduced a new arrangement for financial contributions to political parties, the “Electoral Bond Scheme.”

The law now allowed an individual or any “artificial juridical person,” including corporations, to buy bonds issued by the State Bank of India during stipulated periods of the year. These bonds, which were akin to promissory notes, were issued in denominations ranging from Rs. 1,000 to Rs. 1 crore. On purchasing a bond, a buyer could donate it to any political party of their choice and the party could encash the instrument on demand. The upshot: recipients were not obliged to disclose these contributions and donors were allowed to keep private the details of contributions made by them.

What is more, the amendments also removed critical safeguards that previously existed. Earlier, companies could donate no more than 7.5% of the net profits secured by them over the course of the preceding three years. The law also mandated that a corporation must have been in existence for at least three years before it could donate. The electoral bond scheme lifted these requirements. In doing so, it allowed the possibility of shell companies being created with the sole view of channelling money into politics and it made possible virtually unlimited corporate funding.

The Court identified two issues for consideration. First, would the maintenance of secrecy over the identity of political contributors and the extent of their contributions violate the right to information? Second, would limitless corporate funding infringe the principle of free and fair elections and therefore violate the right to equality?

Preserving the right to information

On the first question, the Court asserted the time-honoured principle that voters in a democracy must have a right to information. Unless people have full knowledge, they would scarcely be able to vote with reason and express themselves freely in a manner guaranteed under Article 19(1)(a) of the Constitution. To that end, the Court noted that it had previously recognised that candidates must disclose all relevant information. Chief Justice Chandrachud found that this standard must extend to political parties too. For under India's Westminster system, political parties represented an integral unit in the electoral process.

The Union government suggested that the contributor's identity was unknown even to the beneficiary. This, the Court easily rebuffed. As the judgment demonstrated, the scheme envisaged, for example, a situation where a contributor could simply hand over physically an electoral bond to a party's office-bearer, who could then submit the instrument for encashment.

But are there at all circumstances where the electorate's right to information could be legitimately curtailed? To judge this the Court adopted a rule of proportionality. The government would have to establish that the law restricting the right was in furtherance of a legitimate goal; that the option chosen represented a suitable means of furthering that goal; that the scheme was the least restrictive option available to achieve the law's objective; and that the measure adopted balanced people's rights with its goals.

The scheme's purported aims

The State claimed that two aims were at play here: (a) curbing black money and (b) protecting donor privacy. The first of these did not fit into any of the permissible restrictions stipulated in Article 19(2) of the Constitution—which contains the grounds on which the right to free expression can be limited. But even if curbing black money represented a legitimate purpose the scheme, according to the Court, was still disproportionate. This was because the idea of limiting contributions to political parties in cash to less than Rs. 2,000, by mandating that any contribution above this amount must only be made through banking channels, was a measure that was already in place with a view to controlling illegal funds.

On the second aim, no doubt the Constitution guaranteed people a right to privacy over political affiliation. The question then was this: how must this right be balanced with the electorate's claim to free information? In response, the Court invoked a doctrine of “double proportionality.” In doing so, it relied on a House of Lords judgment in Campbell v. MGM Limited. There a newspaper had published details of a supermodel who was struggling with drug addiction. The publications gave instance of therapy she had received from a self-help group, private meetings that she had attended, and even displayed photographs of her in a street as she was leaving one such group meeting.

The House of Lords examined how to balance Campbell's right to privacy—protected under Article 8 of the European Convention of Human Rights—with the right to freedom of expression granted to the press under Article 10. Baroness Hale, who was part of the majority which ruled in favour of the model, held that the double proportionality rule would involve a three step process. One, an analysis of the comparative importance of the actual rights claimed. Two, an examination of the respective justifications for the infringement of the rights. Three, an independent application of the proportionality standard to both the rights.

This approach, wrote Chief Justice Chandrachud, would have to be somewhat modified in the Indian context. Here, in theory, since Modern Dental College & Research Centre v. State of Madhya Pradesh, (2016) 4 SCC 346, courts have used a four step proportionality test. In this version of the doctrine, the final stage involves an evaluation of the cost of the interference with the right and its proportionality to the fulfilment of the law's perceived objective. “It is in this step,” wrote Chief Justice Chandrachud, that the Court undertakes an analysis of the comparative importance of the considerations involved in the case, the justifications for the infringement of the rights, and if the effect of infringement of one right is proportional to achieve the goal.”

To examine whether the Electoral Bond Scheme met this test, the Court had to determine whether the means used by it were “suitable, necessary and proportionate” to both the fundamental rights at stake—the right of the electorate to full information and the rights of donors to informational privacy—and a concluding analysis on whether a fair balance had been achieved. The Court ruled that the law failed to harmonise the interests involved. It found that the Representation of the People Act [RPA] used to mandate disclosure of contributions exceeding Rs. 20,000 from any person. This ensured that privacy rights of individual donors—who donate less than the stated amount—were well preserved. But when larger contributions are made there is every chance that the donation isn't merely an expression of political affiliation but also involves some quid pro quo. Therefore, in Chief Justice Chandrachud's ruling the alternative previously available under the RPA realised the objective of securing disclosure from an informed voter while ensuring that their privacy over political affiliation was adequately maintained.

To be sure, this wasn't the hardest of cases to apply the doctrine of double proportionality. The balance here was so unduly tilted towards donor anonymity that the electorate's right to know how political parties were funded was altogether compromised. But there may well be future cases where the doctrine comes of greater use, where its application may turn on narrower grounds—cases, for example, where the right to religious freedom might clash with the rights of individuals to personal liberty; cases, such as Campbell v. MGM, where the media's right to freedom of expression might conflict with the rights of an individual to privacy and dignity.

Unlimited corporate funding

Permitting unlimited corporate funding of parties, as the Electoral Bond Scheme did, comes with obvious dangers. In quashing the measure for this reason, the Court espoused a principle of manifest arbitrariness. To test plenary legislation on this ground, the Court held that it must examine whether the statute is either capricious, irrational or without adequate determining principle, or see whether it imposes measures that are excessive and disproportionate.

Two kinds of cases, it found, usually fall into these categories. One, cases where a law fails to make a classification by recognising different degrees of harm. And two, cases where the law's purposes are not in consonance with our most fundamental constitutional values. In the case of electoral bonds, the law, Chief Justice Chandrachud found, failed to make classifications that were essential with a view to obviating harm.

In allowing loss-making corporations, for instance, to contribute to a political party, the law failed to understand that the likelihood of such donations involving a quid pro quo was substantial. Moreover, the law also failed to make a distinction between donations by individuals and donations by corporations. With the latter, contributions invariably partake the form of a business transaction, while with the former they might well constitute an expression of political affiliation.

This view on corporate funding brings to mind an episode from the television series The Wire. Idris Elba, who plays a cerebral drug overlord and who takes a course on macroeconomics on the side, is appalled when he finds that his ability to channel his gang's illicit money into a real estate project is thwarted by administrative hindrances. He's told by his consultant that all it takes to get over these delays is to put money into the right hands, into the right political project. This, the consultant adds, is “democracy in action.”

The Supreme Court's judgment might not cleanse our electoral process of all its evils. That requires a more thorough, and far-reaching, reform touching the foundations of how our elections are funded. But when anonymity is granted not merely to individual donors but to corporations too parties in power—both at the centre and at the states—find themselves in a position of unequal dominance. To that end, the judgment in the Association for Democratic Reforms must be seen as representing a stirring defence of our republic's most cherished ideals.

Suhrith Parthasarathy is an advocate practising in the Madras High Court.