The Supreme Court issued notices to Centre and Election Commission of India on a petition filed by Association of Democratic Reforms and Centre for Public Interest Litigation challenging various amendments made via Finance Act 2017 and the Finance Act 2016 in the Companies Act, Income Tax Act, Representation of People’s Act, Reserve Bank of India Act and Foreign Contribution Regulations Act. The petition, filed through advocates Prashant Bhushan and Neha Rathi, also sought a direction that political parties must not be allowed to accept any cash donations.
SYNOPSIS
The Petitioners are filing the instant Public Interest Litigation under Article 32 of the Constitution of India on the issue of corruption and subversion of democracy through illicit & foreign funding of political parties and opaqueness in the accounts of all political parties. The petitioners are seeking directions from this Hon’ble Court to strike down amendments made through Finance Act, 2017 and earlier Finance Act, 2016, both passed as money bills, and which have opened doors to unlimited political donations, even from foreign companies and thereby legitimizing electoral corruption at a huge scale, while at the same time ensuring complete non-transparency in political funding.
The petitioners submit that the amendments in question have opened the floodgates to unlimited corporate donations to political parties and anonymous financing by Indian as well as foreign companies which can have serious repercussions on the Indian democracy. The said amendments have removed the caps on campaign donations by companies and have legalised anonymous donations. The Finance Act of 2017 has introduced the use of electoral bonds which is exempt from disclosure under the Representation of Peoples Act, 1951, opening doors to unchecked, unknown funding to political parties. The Finance Act, 2016 has also amended the Foreign Contribution Regulation Act (FCRA), 2010, to allow foreign companies with subsidiaries in India to fund political parties in India, effectively, exposing the Indian politics and democracy to international lobbyists who may want to further their agenda. These Amendments pose a serious danger to the autonomy of the country and are bound to adversely affect electoral transparency, encourage corrupt practices in politics and have made the unholy nexus between politics and corporate houses more opaque and treacherous and is bound to be misused by special interest groups and corporate lobbyists.
Petitioners submit that there is a fear that if the recent amendments are not set aside, these corporate houses and extremely wealthy lobby groups can have a stranglehold on the electoral process and governance. Such activities, if allowed, can result in a situation that legislation, regulations etc. can be ultimately be passed and laws brought in to favour of these corporates and lobby groups at the expense of the common citizens of the country.
The petitioners also submit that such wide-ranging amendments in various statutes were brought in illegally as a “Money Bill”, in order to bypass the Rajya Sabha.
The details of the amendments made in various statutes introduced through Finance Act, 2017 and Finance Act 2016
i. Section 31, the Reserve Bank of India Act, 1934 through Part III, Section 135 of the Finance Act, 2017,
ii. Section 29C, the Representation of the People Act, 1951 through Part – IV, Section 137 of the Finance Act, 2017
iii. Section 13A, the Income Tax Act, 1961 through Chapter III, Section 11 of the Finance Act, 2017 and in
iv. Section 182 of the Companies Act, 2013 through Part-XII, Section 154, the Finance Act, 2017.
v. Section 2 of the Foreign Contribution Regulation Act, 2010 (FCRA) through Finance Act, 2016
The petitioners are challenging these amendments as being unconstitutional and violative of doctrines of separation of powers and citizen’s fundamental right to information which are parts of the basic structure of the Constitution. The aforesaid amendments are also patently arbitrary, capricious and discriminatory as they attempt to keep from the citizens crucial information regarding electoral funding.
Background:
That the Finance Act, 2017 was introduced in Lok Sabha as Bill No. 12 of 2017 on February 1, 2017 to give effect to the financial proposals of the Union Government for the Financial Year 2017-18. The Finance Act, 2017, which was enacted as a money bill has introduced a system of electoral bonds to be issued by any scheduled bank for the purpose of electoral funding. The Act has also removed the previous limit of 7.5 per cent of the company’s average three-year net profit for political donations with the result that a company is no longer required to name the parties to which such contributions are made. That the new amendments are a mala fide attempt to bypass the approval of the Rajya Sabha, which holds an important place in the Constitutional and democratic framework of law-making.
That the said amendments to the Reserve Bank of India Act, 1934, Representation of the People Act, 1951 and Income Tax Act, 1961 have affected transparency in political funding. The consequence of the amendments is that now the annual contribution reports of political parties to be furnished to the Election Commission of India need not mention names and addresses of those contributing by way of electoral bonds. This will have a major implication on transparency in political funding as now the political parties are free not to file contributions received through electoral bonds. Election Commission regularly displays political party’s contribution reports on its website through which citizens get to know about the contributions made to various political parties and the source of such contribution. But with the introduction of electoral bonds, Election Commission and the citizens of the country will not get to know the vital information regarding political contributions.
That the aforesaid amendment to the Companies Act, 2013 has also done away with a limiting clause for companies to make donations. Prior to the amendment, there existed a cap on the donations permitted up to 7.5 percent of net profits of the last 3 years for the companies. But the aforesaid amendment has removed the said limit for contributions that a company may make to political parties and the requirement of a company to disclose in its annual statement of account the name(s) of the political parties to which a contribution has been made. The companies are no longer required to disclose the break-up of contributions made to different political parties. The result of this would be that now corporate funding will increase manifold as there is no limit to how much the companies can donate. Removal of the statutory ceiling of 7.5% of average profits on donation to political parties now enables even loss-making companies to make donations of any amount to political parties out of their capital or reserves . Further, it opens up the possibility of companies being brought into existence by unscrupulous elements primarily for routing funds to political parties through anonymous and opaque instruments like electoral bonds. This has increased the opacity of funding of political parties and the danger of quid pro quo for benefits passed on to such companies or their group companies by the elected government.
That these amendments infringe the citizen’s fundamental ‘Right to Know’ and is not saved by any of the eight reasonable restrictions under Article 19(2). That such an unreasonable and irrational restriction on information at the cost of larger public interest is a severe blow to the very fundamentals of transparency and accountability. Making the political class even more unanswerable and unaccountable and causing of annoyance, inconvenience, obstruction to the citizens at large by withholding crucial public information from them regarding electoral funding are all outside the purview of Article 19(2) as well as the very basis of democracy.
That the primary objective of the Finance Act, 2017 was to curb the ever growing menace of deep-rooted corruption and black money circulating within the political class. However, by allowing donations to political parties through electoral bonds and removing the name of the recipient brings in complete opacity in political funding. Removal of the company’s limit of 7.5% of the average net profit of the last three financial years will not only heightens the odds of conflict of interest but will also drastically increase black money and corruption. This will also lead to the creation of shell companies and rise of benami transactions to channelize the undocumented money into the political and electoral process in India. The new amendments contravene the bare text of the Constitution. The present petition therefore, highlights this breach which is particularly disturbing, because the legislation imperils our core liberties and rights guaranteed under the Constitution, in manners both explicit and insidious.
That the reluctance of the existing Political Establishments to introduce transparency and accountability within parties has only permitted corruption to percolate further in the electoral process. Over a period, we have observed burgeoning election expenditure, political party funding, and inadequate reporting and disclosure laws. Sometimes black money is generated by business houses and individuals to evade corporate and income taxes, later it is pumped back to political parties and candidates to garner favourable policy decisions. In our current electoral and political system, those who are willing and are able to utilise black money, dominate politics.
In light of the above, the petitioner urges this Hon’ble Court to pass an appropriate write, order or directions to the respondents to stay the operation and strike down Section 135, Section 137, Section 11 and Section 154 of the Finance Act, 2017 as being ultra vires the Constitution of India.
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