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Unveiling the Veil: Assessing Corporate Donor Privacy in Electoral Funding

Updated: Jul 24

Authored by Kunal Parihar, a 3rd-year law student at National Law School of India University, Bangalore.


Unveiling the Veil: Assessing Corporate Donor Privacy in Electoral Funding
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Introduction

In a unanimous decision in Association For Democratic Reforms vs Union Of India, 2024 on February 15 this year, the five-judge bench of the Supreme Court headed by CJI Chandrachud struck down the Electoral Bonds Scheme as unconstitutional. This scheme granted anonymity to political donors and permitted unlimited political donations by corporations, violating the right to information of voters regarding political funding under Article 19(1)(a) of the Constitution. This piece will provide an in-depth analysis of how the court in the present case blurred the distinction between the rights of citizen donors and corporate donors.


Background and Ruling

Introduced through the Finance Bill 2017 the Electoral Bonds Scheme allows anonymous donations to political parties in various denominations, maintaining donor confidentiality.  Amendments under the Finance Act 2017 exempt political parties from disclosing electoral bond contributions in "Contribution Reports" Section 29C of RPA, maintaining detailed records under the Income Tax Act 1961 Section 13A(b) of IT Act, and reporting donations by companies Section 182(3) of Companies Act. The petitioner, the Association for Democratic Reforms (ADR), argued that this scheme fostered opacity and legitimized electoral corruption, violating the right to information protected under Article 19(1)(a).


CJI Chandrachud, writing for Justice Gavai, Pardiwala, and Misra, answered the question of whether the non-disclosure of information on voluntary contributions to political parties under the Electoral Bond Scheme and Finance Act amendments violate citizens' right to information under Article 19(1)(a) of the Constitution? Whether the infringement of the right to information of the voter is justified on the grounds of protecting the right to privacy of Donors?


The State argued that the Electoral Bond Scheme, ensuring donor confidentiality, protects informational privacy which, is needed to safeguard freedom of political affiliation under Article 19(1)(a). However, the Court observed that while the scheme provides legal confidentiality (de jure), it lacks actual confidentiality (de facto) regarding the donor's political party affiliation. The Court proposed a double proportionality standard to address the conflicting fundamental rights of information and donor privacy.


Firstly, the Court assessed whether a hierarchy exists between the two rights and concluded that there is no such hierarchical order. Secondly, it examined the suitability of the means to achieve the goal and found no connection between a donor’s right to non-disclosure and the objective of ensuring an informed electorate. The Scheme ensured that contribution details were never disclosed to the voter. Thirdly, regarding the least restrictive method, the Court noted that existing frameworks under RoPA and the IT Act already protect both donor privacy and the voters’ right to know, requiring disclosure of donations above ₹20,000. Thus, balancing both rights at the same time.


Given the scheme's failure to meet three out of four tests, the Court deemed it unnecessary to apply the balancing prong of the double proportionality standard. The court declared the scheme and the respective amendments unconstitutional. It also directed SBI to stop the issuance of electoral bonds and disclose purchase and party contribution details since April 12, 2019, to ECI within three weeks.


Corporate Donors v. Citizen Donors: Unraveling the Constitutional Implications

When delivering the judgment, the Chief Justice of India (CJI) employed the term ‘donor’ to encompass all individuals or entities who financially supported political parties, without specifically differentiating between ‘corporate donors’ and ‘citizen donors.’ This lack of distinction is crucial for grasping the legal underpinnings concerning the right to informational privacy regarding the political affiliation of corporate donors and is especially pertinent considering reports indicating that contributions from corporations make up over 92 per cent of the total bond value.


In several landmark judgments, the Supreme Court has firmly established that corporations do not hold citizenship status and consequently do not possess the rights guaranteed under Article 19 of the Constitution. In State Trading Corporation v. CTO,1963, Chief Justice Sinha emphasised the necessity of maintaining the distinction between natural persons and artificial juristic entities, precluding the extension of citizenship to corporations within the constitutional framework. Similarly, in TATA Engineering Company v. State of Bihar,1964, the Court reiterated that corporate activities are separate from the personal endeavours of shareholders or founders, necessitating the assessment of corporate rights within the context of their corporate identity. This interpretation is consistent with constitutional intent, as confining Article 19 rights solely to citizens ensures clarity and coherence in legal interpretation.


In the present case, the application of the double proportionality test by the CJI to navigate the supposed conflict between voters' right to information and the purported right to informational privacy to political affiliation of donors demands scrutiny. This is warranted due to the absence of any genuine clash of rights. The Supreme Court notes that “Informational privacy to political affiliation is necessary to protect the freedom of political affiliation and exercise of electoral franchise.” The freedom of political affiliation, encompassed within Article 19, is inherently a facet of freedom of political expression, a right not extended to corporations. Therefore, the assertion of a right in the current case to informational privacy about the political affiliation of donors appears baseless, especially given that corporations predominantly constitute the financial support base for political parties. Since corporations lack entitlement to such freedom of political affiliation under Article 19, any alleged infringement upon their privacy regarding their freedom of political expression is rendered inconsequential.


Furthermore, even if one were to consider the possibility that corporations, as delineated in certain Supreme Court cases, such as newspaper corporations and publishing press, possess limited rights similar to those given under Article 19, it is crucial to recognize that these rights are circumscribed to specific contexts. The extension of corporate rights to influence the electoral process goes beyond the intended scope of limited rights given to corporations. As a general principle, corporations as artificial juristic entities, do not possess the same inherent rights and privileges as individuals. Had the legislature intended to extend such rights to corporations, it would have expressly done so through the formal process of amending the definition of 'citizen' via legislative channels empowered by Article 11 of the Constitution. However, no such amendment has been pursued or enacted to date.


The inherent disparities in the legal structure and objectives of corporations render them distinct from natural persons. Failure to distinguish between individual and corporate donors in terms of rights under Article 19 could result in unforeseen consequences, potentially granting entities rights beyond what the Constitution envisioned. This oversight may unintentionally blur the distinction between the rights granted to individuals and those extended to corporate entities, thus paving the way for potential future claims by corporations based on rights not originally intended for them. Therefore, the application of the double proportionality test in this case appears misdirected, as it operates under the presumption of conflict between the two rights where none inherently exist.


Instead, employing a single proportionality test would have been more appropriate, mitigating unnecessary complexity while effectively evaluating the proportionality of any restrictions imposed on individual rights. By applying the legitimate aim prong of the test, it becomes evident that the electoral bond scheme fails, as prioritizing the aim of protecting donor privacy over the broader public interest and the democratic functioning of the country is untenable. Moreover, the anonymisation of donor names through the bonds does not act as a suitable means to achieve donor privacy, as highlighted by the court, only ensures de facto confidentiality. Considering the considerable control of the state over the State Bank of India, it is not difficult for the ruling party to ascertain the names of donors, thus rendering the scheme ineffective in this regard. Additionally, the availability of less restrictive alternatives such as Electoral Trusts presents a superior option to bonds. Therefore, it is evident that applying the simple proportionality test allows us to conclude that the scheme is unconstitutional without creating an artificial conflict between the two rights created using the double proportionality test.


One more aspect that was overlooked by the court in the current case was the impact of the electoral bond scheme on the rights of shareholders. Shareholders have a vested interest in understanding how their resources are used, requiring transparency in corporate financial decisions. Non-disclosure of pertinent information regarding political contributions infringes upon their constitutional rights under Article 19(1)(a) and 19(1)(g). However, the court sidelined this issue, focusing instead on the broader impact of non-disclosure on political funding from the perspective of citizens and voters. Yet, addressing the concerns of shareholders is crucial as it affects their right to make informed choices, protected under Article 21, ensuring life and personal liberty. Neglecting the rights of shareholders undermines their meaningful participation in corporate decision-making and diminishes transparency and accountability in governance. Therefore, ensuring shareholders are informed about corporate political contributions is essential to uphold their rights and promote ethical corporate conduct. It is perplexing that the Court while neglecting the fundamental rights of shareholders acknowledges the right of informational privacy to political affiliation of corporate donors.


Putting aside the above-mentioned concerns, the overall determination by the court that electoral bonds are unconstitutional is well founded, primarily due to the paramount importance of safeguarding the right to information of voters, which, as per Aditya Sondhi, constitutes the cornerstone of a fair electoral process and embodies the essence of democratic governance.  Voter freedom empowers informed decisions based on comprehensive information, including political financing transparency to uphold election integrity. Any breaches of electoral integrity not only contravene constitutional norms but also pose a threat to the very foundations of democracy itself. Thus, the decision of the court serves to uphold these fundamental principles and reinforce the importance of transparency and accountability in the electoral process.


Conclusion

Despite acknowledging shortcomings like blurred rights and overlooked shareholder rights, the judgment marks a significant step in bringing down a scheme detrimental to the democratic functioning of the nation. By declaring the electoral bond scheme unconstitutional, the court rightly prioritizes preserving voter information rights crucial for transparent and fair elections, thereby upholding democratic and constitutional principles.

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