Flaw in Supreme Court’s electoral bonds verdict leaves room for another similar scheme to be floated

The Supreme Court’s decision on February 15 to strike down the electoral bonds scheme has been received positively.

The scheme that required the State Bank of India to maintain the confidentiality of the purchasers of electoral bonds has been declared unconstitutional in its entirety. There has been no objection to the merits of the decision being declared unconstitutional, along with the host of amendments in different laws specifically designed to implement the scheme.

However, by equating the privacy rights of corporate donors with individual donors, the court has left open the possibility for future mischief. The judgement quashed the current iteration of the scheme but the fault in its reasoning makes it possible for another mutation to emerge once the dust settles.

The operational order

In terms of the final operational order, there is not much more that the court could have done at this point. The fact that the court took six years to reach the stage where it could not have done more is a stain that will not wash easily.

The proviso to Section 29C (1) of the Representation of People Act and Section 13A of the Income Tax Act that exempted political parties from maintaining records of contributions received through electoral bonds, even if they are above Rs 20,000 have been held unconstitutional.

The court also categorically struck down the proviso to Section 182 of the Companies Act that removed the cap of 7.5% of the average net profits over a period of last three years as the maximum that a corporation could contribute through electoral bonds in a given financial year.

Companies now have to disclose in their statement of accounts the political parties to which they have made contributions through electoral bonds and the amount contributed.

As a consequence of these rulings, no fresh electoral bonds can be issued with effect from February 15.

To remedy the delay in its judgement, the court has ordered the State Bank of India and the Election Commission to make public by march 13 all contributions made through electoral bonds between April 12, 2019, and February 15, 2024.

Reasoning of the court

The reasoning in the judgement rests on the following sequential findings. First, that the fundamental right of informational privacy includes information about a citizen’s political affiliations. Second, that financial contribution to a political party is a facet of such political affiliation. The combined effect of the above two findings is that according to the court, donors to political parties have the fundamental right to privacy in terms of their contribution.

Third, voters have a fundamental right to know about who is contributing to political parties. Fourth, the privacy rights of donors and the right to information of voters do not have a clear hierarchy and thus one cannot be excessively restricted for the sake of the other. In other words, any law or policy must provide for a harmonious balance between these two rights.

Finally, that the electoral bonds scheme and the other statutory amendments referred to above do not balance these two competing rights and thus are liable to be held unconstitutional.

Companies do not vote

Chief Justice of India DY Chandrachud’s ruling that the right of informational privacy includes information on political affiliation imagines a citizen and a voter as the central figure for recognising such a right.

Chandrachud states that for effective exercise of the freedom to vote, privacy of political affiliation is essential. He also highlights how knowledge about the political affiliation of voters can trigger efforts towards voter dis-enfranchisement, targeted propaganda and also gerrymandering.

“Informational privacy to political affiliation is necessary to protect the freedom of political affiliation and exercise of electoral franchise,” he wrote.

There is no problem with this reasoning itself, especially if electoral bonds could be purchased only by voters.

But electoral bonds can be purchased by individuals, a Hindu undivided family, a company, a firm, an association of persons and every artificial juridical person – who do not fall under these categories.

In fact, companies account for the biggest purchasers of electoral bonds and companies do not vote. The proportion of electoral bonds purchased by individuals and companies will become clear once the data is published.

But as Justice Khanna points out, bonds valued at more than Rs 1 crore constitute 94.25% of the total value of bonds purchased till July 2023 and it is reasonable to assume that the majority of the purchases are by companies.

Justice Chandrachud’s reasoning makes perfect sense for individual donors who can vote, but it makes no sense at all to treat corporate donors with the same reasoning. This hesitation has been articulated by Justice Khanna.

Justice Khanna notes that companies may claim right to privacy on the very limited ground to protect the privacy of individuals responsible for conducting the business of the company.

However, he does not take this hesitation to its logical conclusion in distinguishing clearly between individual donors and corporate donors in terms of being entitled to the right to privacy of political affiliation.

Privacy jurisprudence

The privacy jurisprudence emanating from the 2017 Puttaswamy judgement and in subsequent cases is focussed on the privacy rights of individuals. The Puttaswamy judgement did not directly address the question of whether the right to privacy extends to corporations.

The right to privacy is understood in the context of protecting the privacy and autonomy of individuals rather than entities such as corporations.

However, the judgement emphasised the broad and evolving nature of the right to privacy, which could potentially have implications for corporate privacy rights in certain contexts, such as data protection and confidentiality. Nevertheless, corporations typically rely on other legal doctrines and statutes to protect their interests, rather than the right to privacy as recognised in the Puttaswamy judgement.

Even in the Puttaswamy judgement, examples given by judges to exemplify facets of privacy are primarily the ones which can be vested only in an individual and not a company: choice of music, decision on medical treatment, decision on pregnancy, freedom from corporal punishment and more.

Even where Chandrachud has relied on the Puttaswamy judgement in paragraph 132 of his judgement, it is primarily in the language of privacy rights of individuals such as “freedom from unwanted stimuli”, “intimate decisions”, “personal choices” and “privacy over thought”.

Against this backdrop and in light of the fact that considerations that exist for the protection of voters do not exist for companies, the court’s recognition of the informational privacy rights of corporate donors is devoid of any persuasive justification.

Capping contribution

It is not that Chandrachud is not alert to the need of treating individual donors and corporate donors separately. He has held that allowing companies to make unlimited contributions to political parties is not healthy for democracy, even though such a prohibition has not been deemed necessary for individual donors.

The justification for recognising the need of such a limitation for companies but not for individuals was the reality of companies being more powerful in terms of financial capabilities than individuals and hence having greater power to corruptly influence the electoral process through their political contributions.

In fact, the proviso to Section 182 of the Companies Act was struck down on the explicit ground that it treated individuals and corporations in the same manner when it came to the quantum of contribution.

The door is ajar

The court could have held that while individual donors have the right to informational privacy of their political affiliation, corporate donors do not. This is because electoral franchise, or the right to vote, which is the foundation for recognising political affiliation as part of privacy rights, is applicable only to individuals and not to companies.

This would have meant that while there would have been a need to balance the privacy rights of individual donors and the voters’ right to information, it would not have been necessary to do so for corporate donors. It would have foreclosed an attempt by any government to provide any degree of anonymity to corporate donors.

It is important to emphasise that the court has found this particular iteration of the electoral bonds scheme excessively restrictive towards voter rights and tilted heavily in favour of donor privacy.

But by conceding that corporate donors have informational privacy of political affiliation, the court has left it open for the government to design a mutation of an electoral bonds scheme that may not be as lopsided but may still be inherently damaging.

Rangin Pallav Tripathy is Professor of Law and Director, Centre for Public Policy, Law and Good Governance at National Law University Odisha. Mrinalini Banerjee is Assistant Professor of Law and Co-Director, Centre for Natural Resources Management at National Law University Odisha. The authors acknowledge the help of Md Sikandar and Biswjeet Mishra for their research inputs.