Association For Democratic Reforms vs Union Of India 2024 INSC 113 :: [2024] 2 S.C.R. 420 – Electoral Bonds Unconstitutional

Electoral Bond Scheme – 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 – We direct the disclosure of information on contributions received by political parties under the Electoral Bond Scheme to give logical and complete effect to our ruling – Directions: 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 PART H 152 return of the valid bond, shall refund the amount to the purchaser’s account. [Para 216-219 of CJI’s judgment]

Constitution of India, 1950 ; Article 14 – Whether a legislative enactment can be challenged on the sole ground of manifest arbitrariness? – The doctrine of manifest arbitrariness can be used to strike down a provision where: (a) the legislature fails to make a classification by recognizing the degrees of harm; and (b) the purpose is not in consonance with constitutional values – A statute can be challenged on the ground it is manifestly arbitrary – A provision lacks an “adequate determining principle” if the purpose is not in consonance with constitutional values. In applying this standard, Courts must make a distinction between the “ostensible purpose”, that is, the purpose which is claimed by the State and the “real purpose”, the purpose identified by Courts based on the available material such as a reading of the provision – A provision is manifestly arbitrary even if the provision does not make a classification – In situations where a subordinate legislation is challenged on the ground of manifest arbitrariness, this Court will proceed to determine whether the delegate has failed “to take into account very vital facts which either expressly or by necessary implication are required to be taken into consideration by the statute or, say, the Constitution.”- In contrast, application of manifest arbitrariness to a plenary legislation passed by a competent legislation requires the Court to adopt a different standard because it carries greater immunity than a subordinate legislation – A legislative action can also be tested for being manifestly arbitrary – There is, and ought to be, a distinction between plenary legislation and subordinate legislation when they are challenged for being manifestly arbitrary – Referred to Shayara Bano v. Union of India, (2017) 9 SCC 1; Navtej Singh Johar v. Union of India (2018) 10 SCC 1; Joseph Shine v. Union of India (2019) 3 SCC 39. (Para 209, 180-198)

Presumption of constitutionality – Presumption of constitutionality is based on two premises. First, it is based on democratic accountability, that is, legislators are elected representatives who are aware of the needs of the citizens and are best placed to frame policies to resolve them. Second, legislators are privy to information necessary for policy making which the Courts as an adjudicating authority are not. However, the policy underlying the legislation must not violate the freedoms and rights which are entrenched in Part III of the Constitution and other constitutional provisions – The presumption is rebutted when a prima facie case of violation of a fundamental right is established. The onus then shifts on the State to prove that the violation of the fundamental right is justified. – Applicability to challenge against Electoral Laws – Courts cannot carve out an exception to the evidentiary principle which is available to the legislature based on the democratic legitimacy which it enjoys. In the challenge to electoral law, like all legislation, the petitioners would have to prima facie prove that the law infringes fundamental rights or constitutional provisions, upon which the onus would shift to the State to justify the infringement. (Para 42-45)

Fundamental Rights – Standard which must be followed by Courts to balance the conflict between two fundamental rights is as follows: a. Does the Constitution create a hierarchy between the rights in conflict? If yes, then the right which has been granted a higher status will prevail over the other right involved. If not, the following standard must be PART F 113 employed from the perspective of both the rights where rights A and B are in conflict: b. Whether the measure is a suitable means for furthering right A and right B; c. Whether the measure is least restrictive and equally effective to realise right A and right B; and d. Whether the measure has a disproportionate impact on right A and right B? (Para 157)

Proportionality standard to determine if the violation of the fundamental right is justified: a. The measure restricting a right must have a legitimate goal (legitimate goal stage); b. The measure must be a suitable means for furthering the goal (suitability or rational connection stage); c. The measure must be least restrictive and equally effective (necessity stage); and d. The measure must not have a disproportionate impact on the right holder (balancing stage) – . The legitimate goal stage requires this Court to analyze if the objective of introducing the law is a legitimate purpose for the infringement of rights. At this stage, the State is required to discharge two burdens. First, the State must demonstrate that the objective is legitimate. Second, the State must establish that the law is indeed in furtherance of the legitimate aim that is contended to be served. (Para 106)

Right To Information of Voters – Right to information of the voter includes the right to information of financial contributions to a political party because of the influence of money in electoral politics (through electoral outcomes) and governmental decisions (through a seat at the table and quid pro quo arrangements between the contributor and the political party). (Para 167)

Companies Act 2013 ; Section 182(3) – Section 182(3) as amended by the Finance Act 2017 is unconstitutional – This provision mandates the disclosure of total contributions made by political parties. This requirement would ensure that the money which is contributed to political parties is accounted for. However, the deletion of the mandate of disclosing the particulars of contributions violates the right to information of the voter since they would not possess information about the political party to which the contribution was made which is necessary to identify corruption and PART F 123 quid pro quo transactions in governance. Such information is also necessary for exercising an informed vote. – The amendment to Section 182 is manifestly arbitrary for (a) treating political contributions by companies and individuals alike; (b) permitting the unregulated influence of companies in the governance and political process violating the principle of free and fair elections; and (c) treating contributions made by profit-making and loss-making companies to political parties alike. The observations made above must not be construed to mean that the Legislature cannot place a cap on the contributions made by individuals. The exposition is that the law must not treat companies and individual contributors alike because of the variance in the degree of harm on free and fair elections.(Para 199-215)

Political Party – a ‘political party’ is a relevant political unit in the democratic electoral process in India for the following three reasons: a. Voters associate voting with political parties because of the centrality of symbols in the electoral process; b. The form of government where the executive is chosen from the legislature based on the political party or coalition of political parties which has secured the majority; and c. The prominence accorded to political parties by the Tenth Schedule of the Constitution. (Para 94)

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