Electoral bonds case: Do not nullify past transactions

The available data shows that companies have already made donations exceeding the earlier cap of 7.5%.  (HT_PRINT)
The available data shows that companies have already made donations exceeding the earlier cap of 7.5%. (HT_PRINT)

Summary

  • Donors need clarity from India’s Supreme Court on whether this political funding scheme has been axed retrospectively. This is critical in the context of law amendments it found unconstitutional that cover corporate disclosure norms and political donation limits.

One of the compelling stories during India’s ongoing general elections has concerned electoral bonds. On 15 February 2024, the Supreme Court (SC) struck down the electoral bond scheme for political donations as unconstitutional. 

This has meant serious ramifications for corporate houses that made contributions to political parties based on this scheme and the three statutes which were amended to facilitate it. If transactions done before the ruling are not preserved by the SC, it is going to cause donor companies a lot of hardship.

First, let’s look at what these amendments were and why the scheme was held unconstitutional. A related question also arises: Is the strike-down retrospective or prospective? And, if it is retrospective, what impact will it have on past actions under the scheme by corporates and political parties?

Also read: Supreme Court strikes down Electoral Bond Scheme: What is it? Who has the most funding? and concerns explained

The verdict scotched the scheme as it violated Article 19 of the Indian Constitution. Simultaneously, four amendments made in three different laws were also struck down as unconstitutional. These amendments pertained to exemptions given to political parties from publishing details of electoral bond contributions, maintaining records of the same and from disclosing the names and addresses of donors. 

Another amendment had removed the upper limit for corporate donations to political parties, earlier fixed at 7.5% of the company’s average net profits of the past three years. Perhaps the most telling was an amendment that exempted companies from disclosing the names of political parties favoured by donations in their profit-and-loss statements. Of all the strike-downs, this one has hit businesses the hardest.

A well settled position under Article 13(2) of the Constitution is that the state cannot make any law which takes away or abridges rights given by Part III of the Constitution. If any law is made in contravention of these rights, then to the extent of such a contravention, that law will be void. 

Part III deals with fundamental rights guaranteed by the Constitution. It was violations of Articles 14 and 19 on the rights to equality and information, respectively, that led to the scheme and related amendments being struck down. Article 13(2) makes it clear that once a law is struck down as being unconstitutional, it ceases to have effect.

Thus, the settled position is that judgements declaring any law as unconstitutional are retrospective. This issue was decided by the SC’s ruling in CBI vs. R.R. Kishore. In this case, an amendment made to the Delhi Special Police Establishment Act of 1946 (DSPE) was held to be unconstitutional from the very date it was inserted in the DSPE. 

The SC held that once a law is declared to be unconstitutional, then it is void since its beginning. Such a law would be still-born, unenforceable and have no legal effect.

In the electoral bond context, the critical question is this: What happens to deeds done in the past when the statutes were still considered valid?

Let’s look at the impact that the SC’s ruling could have on the past actions of companies and political parties if it has retrospective effect. The available data shows that companies have already made donations exceeding the earlier cap of 7.5%; companies with zero profits and even losses have made contributions and the names of favoured political parties were not disclosed in the profit-and-loss statements filed by most of these companies. For political parties, it is known they hadn’t published any details of electoral bond contributions and haven’t maintained records of the donations received.

Also read: From the ashes of electoral bonds, a new scheme is rising

So, we have a unique set of challenges if we reverse the actions retrospectively. How will contributions beyond the 7.5% limit or those made by loss- makers be returned to contributors? How will firms re-open or amend the duly audited and approved financial statements of past years, unless they approach the National Company Law Tribunal? This is a serious challenge for donors.

It was to avoid backtracking and incompatible reversals that the doctrine of prospective overruling was introduced in Indian jurisprudence. Taken originally from American jurisprudence, this doctrine was first applied in India in the 1967 case of I.C. Golaknath vs State of Punjab. There, the court held that only the SC can choose to apply this doctrine in matters involving the Indian Constitution. 

Recently, this was re-affirmed in its ruling on State of Manipur vs Surajkumar Okram. The SC held that it has the power to apply this doctrine to save past transactions under statutes which have been declared unconstitutional, or it can mould the relief provided by exercising its power under Article 142 of the Constitution. Conversely, if the SC chooses not to apply this doctrine, then past transactions executed under the aegis of the struck-down law will be void and null.

Unfortunately, from the language in the electoral bond ruling, it appears that the SC has applied this doctrine only to save electoral bonds that have already been encashed, but not for amendments made to the three statutes. Although unintentional, this has created ambiguity and uncertainty, with divergent views on the subject being taken by different stakeholders.

Given the magnitude of the issue, this needs a quick resolution. So, how can India Inc expect to get legal relief for past actions? For now, the only and best course would be to approach the SC for appropriate directions to be issued so that past transactions are saved. This would set a precedent and reduce ex-post facto complications.

These are the authors’ personal views.

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