Why is it in the News?

The Supreme Court of India has recently mandated the public disclosure of all pertinent information regarding corporate funding of political parties, with the State Bank of India and other entities directed to comply with the court's directive.

Context:

• The recent landmark ruling by the Supreme Court's Constitution Bench, led by the Chief Justice of India, represents a pivotal moment in Indian democracy.
• This ruling specifically addresses the legality of the Electoral Bond Scheme (EBS) initiated through the Finance Act of 2017.
• Beyond its immediate implications, the verdict underscores fundamental principles such as equality, transparency, and proportionality concerning corporate contributions to election funding.

What is the Supreme Court verdict on the Electoral Bond Scheme?

• Nullification of Electoral Bond Scheme: The Supreme Court declared the Electoral Bond Scheme (EBS) unconstitutional, citing concerns over unrestricted donations, anonymity of contributions via promissory notes, and exemption of corporate donors from disclosure obligations.
  • This underscores the imperative of transparency in corporate election financing, aligning with constitutional rights outlined in Article 14 (equality) and Article 19(1)(a) (right to information).
• Immediate Cessation of Electoral Bonds and Disclosure Mandates: The Court mandated the immediate cessation of electoral bonds and directed all pertinent authorities to disclose relevant information dating back to April 12, 2019.
  • The State Bank of India's request for an extension was met with skepticism, prompting a contempt petition against them for non-compliance.
• Guidelines on Legislative Passage via Money Bill Route: While the verdict didn't specifically address the Speaker's authority to classify bills as money bills, it offered guidance suggesting that not all legislative determinations qualify as financial or economic decisions.
  • This challenges the presumption of constitutionality and underscores the need for a nuanced approach in evaluating bills passed via the money bill route.

What is the Reason Behind SC's Scrutiny of Electoral Bond Scheme (EBS)?

• Elimination of Donation Caps: The court closely examined the EBS due to its elimination of donation caps imposed on political parties, as outlined in the Finance Act 2017.
  • This removal of restrictions allowed for unrestricted inflow of funds into electoral campaigns, posing a potential threat to the democratic principle of a level playing field.
• Anonymity of Donations via Promissory Notes: An area of concern highlighted by the court was the provision in the EBS allowing for anonymous donations to political parties through promissory notes issued by recognised banks.
  • This mechanism raised significant issues regarding transparency and accountability, as it enabled substantial financial backing to political entities without disclosing the identity of the contributors.
• Exemption of Corporate Donors from Disclosure Requirements: The EBS faced scrutiny for exempting corporate donors from the obligation to disclose their contributions in balance sheets, a highly contentious feature.
  • This exemption created opacity surrounding corporate funding of political parties, undermining the transparency necessary for a robust democratic process.

SC’s Analysis of the Proportionality Doctrine: Its Implications on Legislative Goals and the Restriction of FR

• Evolution of the Proportionality Doctrine: The judgment highlights the proportionality doctrine as a tool for self-discipline in constitutional judicial review, aimed at balancing governmental powers with individual rights
  • Serving as a foundational aspect of constitutional discipline, it establishes parameters applicable to all governance institutions.
• Differentiation Between Manifest Arbitrariness and Reasonable Exercise of Power: A crucial distinction is drawn between manifest arbitrariness and the reasonable exercise of power, with the court emphasizing that restricting a fundamental right does not equate to abrogating it entirely.
  • This distinction safeguards against arbitrary exercise of governmental authority, stressing the necessity for reasonable and proportionate limitations on rights.
• Legitimate Goals and Appropriate Means: Applying the proportionality test, the court scrutinizes the legislative objectives behind the Electoral Bond Scheme, mandating that any restriction on a fundamental right must serve a legitimate goal and utilize suitable means.
  • Questions are raised regarding the legitimacy of curbing black money as a specific ground under Article 19(2), emphasizing the need for the state to justify its actions with reasonable objectives.
• Nexus Between Law and Stated Objectives: Introducing the concept of a reasonable nexus, the court holds that laws should demonstrate a rational connection between means employed and objectives sought to be achieved.
  • This requirement ensures that restrictions on fundamental rights are directly related to their intended purpose, avoiding arbitrary infringements.
• Balancing Conflicting Rights: A notable development is the introduction of the double proportionality test, addressing conflicts between equal rights such as donor privacy and voter information and influence.
  • The court mandates a secondary proportionality assessment to ensure that any infringement on one right is justified and not disproportionate in impact.
• Alternative Measures and Judicial Restraint: While advocating proportionality, the court suggests alternative measures to achieve legislative goals, such as setting up electoral trusts or imposing caps on corporate funding.
  • Additionally, it exercises judicial restraint, respecting the autonomy and powers of the executive and legislative branches.
• Chief Justice M C Chagla's Warning: The judgment recalls Chief Justice M C Chagla's 1958 caution regarding the influential role of big business and money in democracy, highlighting a long-standing concern about corporate influence.
  • Chagla's foresight underscores the judiciary's role in preventing improper or corrupt influence, emphasizing the need to safeguard democratic values.
• Historical Perspectives by the CJI: Chief Justice Chandrachud's historical perspective underscores the judiciary's responsibility to prevent improper influences on democracy, advocating for a proactive role in safeguarding democratic values.
  • The court's assertion aligns with the idea of acting as a check against attempts to compromise the democratic process, particularly by powerful corporate entities.

Conclusion

The Supreme Court's nullification of the Electoral Bond Scheme is a staunch defense of democratic principles. By rejecting elements that undermine transparency, equality, and accountability, the court reaffirms core democratic values. This landmark ruling signifies a crucial juncture in India's legal narrative, establishing a precedent for safeguarding democracy against opaque financial influences.