Electoral bonds have been scrapped but not corporate funding

The government argued that donors have a right to privacy which extends to their political affiliations, including political donations, and the scheme helped curb black money in politics as donors could make donations freely, without the fear of retaliation by a donee’s political opponents. (HT_PRINT)
The government argued that donors have a right to privacy which extends to their political affiliations, including political donations, and the scheme helped curb black money in politics as donors could make donations freely, without the fear of retaliation by a donee’s political opponents. (HT_PRINT)

Summary

  • The Supreme Court axed those bonds in the interest of Indian voters. A suitable mechanism is now needed that prioritizes transparency in efforts to curb corruption.

Last week, in Association for Democratic Reforms vs Union of India, a five-judge bench of the Supreme Court unanimously struck down the government’s electoral bonds scheme, finding that the voter’s right to know trumps a donor’s right to privacy. The judgement is welcome for its significant expansion of the voter’s right to know. However, while it strikes down funding through the seemingly anonymous electoral bonds route, it does not ban corporations from funding political parties altogether. Their role in electoral funding will have to be considered in future cases, laws and policies.

Introduced in 2018, the electoral bonds scheme allowed anonymity in political donations. Neither donors nor political parties had to reveal each other’s identity. Before its introduction, companies making donations had to be at least three years old, with donations capped at 7.5% of net profits for the past three years. Donations and the recipient’s name had to be reflected in the company’s profit-and-loss account. The electoral bond scheme lifted these limitations. Further, corporations could conceal these contributions from their shareholders, as donations only needed to be approved by a board resolution. Political parties were exempted from declaring these donations to the Election Commission of India.

The petitioners in the case argued that although the scheme provided formal anonymity, the party receiving the bond would likely know the donor’s identity. There was a real possibility of quid pro quo benefits to the donor by way of licences or influence on policy. Voters, thus, have a right to know.

The government argued that donors have a right to privacy which extends to their political affiliations, including political donations, and the scheme helped curb black money in politics as donors could make donations freely, without the fear of retaliation by a donee’s political opponents.

The judgement is significant for many reasons. First, the voter’s right to know has been extended to the funding of political parties. Till now, this right was limited to information on the criminal antecedents and assets of election candidates.

Second, the government argued that the scheme was an economic policy, in which courts typically do not interfere. But the court held that it is related to electoral policy, and thus well within the scope of judicial review. Further, the government argued that the scheme was intended to curb black money and corruption, objectives that had earlier led the court to uphold the Prevention of Money Laundering Act and demonetization. In this case, the court found that transparency, and not anonymity, would reduce black money and corruption in politics.

Third, the court fleshed out a proportionality test for administrative actions. It held that black money could only be curbed by a method that least restricted the fundamental rights of voters. The government had less restrictive options, such as electoral trusts under the Income Tax Act, and hence could not justify electoral bonds. Last, the court’s ruling requires a retrospective disclosure of all donations since 2019.

Though the scheme was not limited to corporate donors, the judgement finds that most bonds purchased were worth more than 1 crore and thus presumably bought by companies. Hence, the right at stake was a corporate donor’s to make political donations.

The judgement will evoke mixed feelings in boardrooms. On one hand, there may be relief owing to respite from any real or perceived pressure to make donations. On the other, existing donors will soon find their names in the public domain. These bonds were purchased under the cover of anonymity provisions, but the court has held that donors would have been aware of the pending case and that the scheme might be struck down.

The argument that corporations enjoy a right to privacy was always a hard sell, particularly in matters of political donations. Corporations enjoy certain fundamental rights under the Constitution, such as the right to equality, which is invoked every time a company challenges a tender before a high court. But a company is a statutory creation, and at a minimum, its shareholders are entitled to know how it spends its money. Directors also have a broader obligation to the “community" under Section 166 of the Companies Act to the “community." In the case of political donations, those rights and obligations arguably extend to a larger class of stakeholders—voters.

Corporations have been at the forefront of expanding the right to freedom of speech and expression. The Supreme Court has also protected advertising as a form of commercial speech. However, the argument that political funding is also a form of speech and expression was not made before the court, possibly because corporate donors were not represented in these proceedings. In Citizens United (2010), the US Supreme Court struck down a ban on independent political expenditure by corporations and labour unions as violating their freedom of speech.

The relationship between industry and political funding is an old one, dating back to the freedom struggle, and the court has not banned corporate funding of political parties. The government’s concern that black money should not fund politics is valid. The challenge is to find a suitable mechanism to regulate corporate donations. It will no doubt come back to the courts. In their next iteration, laws regulating corporate political funding must promote transparency as a value. Sunlight is the best disinfectant.

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