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Title: Association for Democratic Reforms & Anr. Versus Union of India & Ors.

Citation: Writ Petition (C) No. 880 of 2017

Date of Judgment: New Delhi; February 15, 2024

Coram: Justice J.B. Pardiwala, Justice Manoj Mishra

Facts of the Case:

The petitioners have initiated proceedings under Article 32 of the Constitution, contesting the constitutionality of the Electoral Bond Scheme, which introduced a mechanism for anonymous financial contributions to political parties. Additionally, they have challenged certain provisions of the Finance Act 2017, specifically amendments made to the Reserve Bank of India Act 1934, the Representation of the People Act 1951, the Income Tax Act 1961, and the Companies Act 2013.

Central to the petition is Section 31 of the RBI Act, which originally mandated that only the Reserve Bank of India (RBI) or the Central Government, authorized by the RBI Act, could draw, accept, make, or issue any bill of exchange or promissory note for payment of money to the bearer of the note or bond. However, the Finance Act amended this provision by introducing Section 31(3), granting authority to the Central Government to authorize any scheduled bank to issue electoral bonds. This significant alteration to the RBI Act forms the crux of the petitioners’ contention.

In order to grasp the significance of these legislative amendments, it is essential to contextualize them within the framework governing financial contributions to political parties. This framework primarily revolves around three key aspects: (a) contributions made by corporate entities, (b) the disclosure of information regarding contributions, and (c) the provision of income tax exemptions for donations. The amendments introduced through the Finance Act 2017, particularly in relation to electoral bonds, disrupt the existing landscape of political financing, raising concerns regarding transparency, accountability, and potential implications for the democratic process.

Given these circumstances, the appellants have invoked Article 32 of the Constitution, seeking judicial review of the Electoral Bond Scheme and the associated legislative amendments. Their petition underscores the need to uphold the principles of transparency and fairness in political funding, as enshrined in the constitutional framework, and seeks to challenge the validity of the amendments that they perceive as undermining these foundational principles.

Laws Involved:

• The Finance Act 2017
• The Reserve Bank of India Act 1934
• The Representation of the People Act 1951
• The Income Tax Act 1961
• The Companies Act 2013

Issues framed by the Court:

1. 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.
2. 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.

Courts Judgment and Analysis:

The court’s analysis on various legal points in this case revolves around two primary issues: the legality of unlimited corporate funding to political parties under the amendment to Section 182(1) of the Companies Act, and the non-disclosure of information on voluntary contributions to political parties under the Electoral Bond Scheme and related amendments to the Representation of the People Act (RPA), Companies Act, and Income Tax Act.

1. Unlimited Corporate Funding (Amendment to Section 182(1) of the Companies Act):

The court finds that the deletion of the proviso to Section 182(1) of the Companies Act, which permitted unlimited corporate contributions to political parties, is arbitrary and violative of Article 14 of the Constitution. This provision allowed corporations to donate unlimited funds to political parties, potentially skewing the democratic process by giving undue influence to corporate interests. The court likely reasoned that such unlimited corporate funding undermines the principle of free and fair elections by potentially allowing wealthier corporations to exert disproportionate influence over political outcomes, thereby infringing upon the equal treatment of all citizens under Article 14.

2. Non-disclosure of Information under the Electoral Bond Scheme and Related Amendments:

The court finds that the non-disclosure of information on voluntary contributions to political parties under the Electoral Bond Scheme, as well as amendments to Section 29C of the RPA, Section 182(3) of the Companies Act, and Section 13A(b) of the IT Act, violates the right to information of citizens under Article 19(1)(a) of the Constitution. By not mandating disclosure of contributions made through electoral bonds and related mechanisms, the transparency and accountability of political funding are compromised. Citizens have a fundamental right to know the sources of funding for political parties to make informed decisions, and the non-disclosure impedes this right, undermining the democratic process.

In conclusion, the court upholds the following:

– The deletion of the proviso to Section 182(1) of the Companies Act, prohibiting unlimited corporate contributions to political parties, is arbitrary and violative of Article 14 of the Constitution.

– The non-disclosure of information on voluntary contributions to political parties under the Electoral Bond Scheme and related amendments to the RPA, Companies Act, and IT Act infringes upon the right to information of citizens under Article 19(1)(a) of the Constitution.

Therefore, the court issues directions to stop the issuance of Electoral Bonds, mandates disclosure of information on bond purchases and contributions received by political parties, and orders the return and refund of unused Electoral Bonds.

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Written by- Aditi

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