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Unconstitutionality of Electoral Bonds & Corresponding Amendments, Retrospective or Prospective? An Analysis from the Constitution Stand-point

Written by  2024-02-21   311

Friends, much has already been spoken and written about the Electoral Bonds Unconstitutionality verdict of the hon’ble Supreme Court in the case of “Association for Democratic Reforms and Anr. v. Union of India & Ors. in Writ Petition (C) No. 880 of 2017 (hereinafter referred to as the ADR judgement).

In this landmark judgement the hon’ble Apex Court has held that:

(i) the Electoral Bond Scheme 2018, 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) of the Income Tax Act (as amended by Section 11 of Finance Act 2017) are violative of Article 19(1)(a) and unconstitutional; and

(ii) 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.

Thus, it is crystal clear that post SC’s verdict, it will not be possible for the political parties to receive, and for the companies and other persons to give, political contributions via the electoral bonds medium and accordingly the above amendments in various statutes, now being set at naught by the hon’ble SC, will not make much difference, going forward.

However, at the practical ground-level implementation of this SC judgement, the more pertinent, relevant and bigger questions which perhaps require immediate redressal by the hon’ble Apex Court are:

(a) What is the effect of the SC’s judgment on actions taken or omitted to be taken during the period when the Electoral Bond Scheme and the corresponding amendments in various statutes remained operational, viz. the period from 2018 till the date of SC’s verdict on February 15, 2024?

(b) Since the Electoral Bond Scheme, 2018, itself has been struck down as unconstitutional, by the hon’ble SC, so whether the political parties can be asked to refund the entire political contribution amount received by them, whether encashed or not, in the form of electoral bonds in the previous cycles.

The hon’ble Apex Court though has directed to refund only those electoral bonds contributions, which are still in their validity period and have not been encashed by the respective political parties. Practically speaking though, for the current FY 2023-24, the electoral bonds purchased by the Indian companies and individuals in the specified months of April, July, October 2023 and in January 2024, would have already been encashed by the respective political parties, as the validity period of 15 days has already expired for all these four specified months.

(c) Since the amendments to section 182 of the Companies Act, by the Finance Act 2017, have been held as manifestly arbitrary and unconstitutional by the hon’ble Supreme Court, can the contributions to political parties by the loss making companies or in excess of the pre-amended threshold prescribed limit of 7.5% of their aggregate net profits in their preceding three years, in the financial years 2017-18 till 2022-23 and even in the current FY 2023-24, till date, be considered as unlawful?

(d) Similarly, whether the companies, which had not made the item-wise disclosures of their political contributions and the names of the recipient political parties, can be asked or required to revise their already audited and laid down books of accounts and financial statements?

(e) Whether the deductions claimed by the respective donors, viz. corporates u/s 80GGB of the Income Tax Act and persons other than companies u/s 80GGC, in respect of their electoral bonds contributions to recognised political parties, in all past assessment years viz. AY 2018-19 till AY 2023-24, and even for the current AY 2024-25 can be revoked?

(f) Whether the exemptions claimed by the respective political parties u/s 13A of the Income Tax Act, for the past assessment years viz. AY 2018-19 till AY 2023-24, and even for the current AY 2024-25, u/s 13A of the Income Tax Act, can be revoked and cancelled, as they had not maintained the records of such electoral bonds contributions.

Well Friends, the answer to all the above intriguing practically relevant questions, in the context of Unconstitutionality of the Electoral Bonds Scheme, and the corresponding amendments in various Statutes, lies in the Constitution itself, and is given in sub article (2) of Article 13 of the Constitution of India.

Article 13 of the Constitution has two sub- Articles (1) and (2). They read as follows:

“13(1). All laws in force in the territory of India immediately before the commencement of this Constitution, in so far as they are inconsistent with the provisions of this Part, shall, to the extent of such inconsistency, be void

13(2). The State shall not make any law which takes away or abridges the rights conferred by this Part and any law made in contravention of this clause shall, to the extent of the contravention, be void.”

Under Article 13(1) all existing laws prior to the commencement of the Constitution, insofar as they are inconsistent with the provisions of Part-III, would be void to the extent of inconsistency.

Under Article 13(2), the State is prohibited from making any law which takes away or abridges the rights conferred by Part-III and further that any law made in contravention of this clause would be void to the extent of contravention. Article 13(2) prohibits making of any law so it would be relating to laws made post commencement of the Constitution, like the case at hand.

In the present case, as it has been held that the Electoral Bond Scheme, 2018 and the corresponding amendments in various Statutes (as mentioned supra) are unconstitutional and are violative of the Right to Information under Article 19(1)(a) and Right to Equality under Article 14 of the Constitution of India, and both these Articles are comprised in Part III of the Constitution, and as such, by virtue of Article 13(2), the same would be void.

The expression “void” has been interpreted in a number of judgments of the Constitutional Benches of the hon’ble Supreme Court, beginning 1951 till recently and it has been given different interpretations such as 'unenforceable', ‘non-est', ‘still born’, and 'void ab initio'. There are two sets of judgements of the constitutional benches of the hon'ble Supreme Court. In one set of judgements, the expression 'void' has been interpreted to have prospective applicability from the date of the court's verdict and not before. However in later second set of judgements, the expression 'void' has been interpreted to have retrospective applicabilty, since inception, unless its prospective overruling is specifically directed by the hon'ble court.

Let us deep dive further in the treasure trove of some ground-breaking and landmark judgements of the hon'ble Apex Court, addressing this intriguing issue.

(A) In the first set of earlier judgements of the Constitutional Benches of the hon’ble Supreme Court, the expression ‘void’ in Article 13(1) and 13(2) of the Constitution of India has been interpreted to mean ‘unenforceable’ and ‘inapplicable’ from the date of such law being held as unconstitutional by the Court and not before, i.e., prospective unenforceability of the unconstitutional law and not retrospective unenforceability. In these judgements it has been held that the word "void" does not mean "repeal" and a judgment does not amend or alter the statue. It remains in the statute-book but cannot be given effect to. These judgements are being discussed as under:

(i) Keshavan Madhava Menon Vs. The State of Bombay [1951 SCR 228]:

In this very first landmark judgement on this complicated issue, the 7 judge constitutional bench of the hon’ble Supreme Court has held that:

“16. As already explained above, Article 13(1) is entirely prospective in its operation and as it was not intended to have any retrospective effect there was no necessity at all for inserting in that article any such saving clause. The effect of Article 13(1) is quite different from the effect of the expiry of a temporary statute or the repeal of a statute by a subsequent statute. As already explained, Article 13 (1) only has the effect of nullifying or rendering all inconsistent existing laws ineffectual or nugatory and devoid of any legal force or binding effect only with respect to the exercise of fundamental rights on and after the date of the commencement of the Constitution. It has no retrospective effect and if, therefore, an act was done before the commencement of the Constitution in contravention of the provisions of any law which, after the Constitution, becomes void with respect to the exercise of any of the fundamental rights, the inconsistent law is not wiped out so far as the past act is concerned, for, to say that it is, will be to give the law retrospective effect. There is no fundamental right that a person shall not be prosecuted and punished for an offence committed before the Constitution came into force. So far as the past acts are concerned the law exists, notwithstanding that it does not exist with respect to the future exercise of fundamental rights.”

(ii) Behram Khurshed Pesikaka Vs. The State of Bombay [(1955) 1 SCR 613]:

In this case, a seven-judge constitutional bench of the hon’ble Apex Court was considering the legal effect of the declaration made in the case of State of Bombay Vs. F.N. Balsara, whereby part of Section 13 clause (b) of the Bombay Prohibition Act (Act 25 of 1949) was declared unconstitutional. It was held by the majority opinion that declaration of such provision as invalid and unconstitutional will only mean that it is inoperative and ineffective and thus unenforceable, prospectively from the date of verdict and not retrospectively.

(iii) M.P.V. Sundararamier and Co. Vs. The State of Andhra Pradesh & Another [1958 SCR 1422]

In this case also, the constitutional bench of the hon’ble Supreme Court has held that

“41. Now, in considering the question as to the effect of unconstitutionality of a statute, it is necessary to remember that unconstitutionality might arise either because the law is in respect of a matter not within the competence of the legislature, or because the matter itself being within its competence, its provisions offend some constitutional restrictions. In a Federal Constitution where legislative powers are distributed between different bodies, the competence of the legislature to enact a particular law must depend upon whether the topic of that legislation has been assigned by the Constitution Act to that legislature. Thus, a law of the State on an Entry in List 1, Schedule VII of the Constitution would be wholly incompetent and void. But the law may be on a topic within its competence, as for example, an Entry in List II, but it might infringe restrictions imposed by the Constitution on the character of the law to be passed, as for example, limitations enacted in Part III of the Constitution. Here also, the law to the extent of the repugnancy will be void. Thus, a legislation on a topic not within the competence of the legislature and a legislation within its competence but violative of constitutional limitations have both the same reckoning in a court of law; they are both of them unenforceable.

But does it follow from this that both the laws are of the same quality and character, and stand on the same footing for all purposes? This question has been the subject of consideration in numerous decisions in the American Courts, and the preponderance of authority is in favour of the view that while a law on a matter not within the competence of the legislature is a nullity, a law on a topic within its competence but repugnant to the constitutional prohibitions is only unenforceable. This distinction has a material bearing on the present discussion.

If a law is on a field not within the domain of the legislature, it is absolutely null and void, and a subsequent cession of that field to the legislature will not have the effect of breathing life into what was a still-born piece of legislation and a fresh legislation on the subject would be requisite. But if the law is in respect of a matter assigned to the legislature but its provisions disregard constitutional prohibitions, though the law would be unenforceable by reason of those prohibitions, when once they are removed, the law will become effective without reenactment.”

(B) In the second set of certain subsequent judgements of the constitutional benches of the hon’ble Apex Court, the expression ‘void’ in Article 13(2) of the Constitution of India, has been interpreted to mean ‘void-ab-initio’ i.e., unenforceability or nullity of the struck down unconstitutional law from the very beginning, or unenforceability with retrospective effect. 

(i) Deep Chand Vs. The State of Uttar Pradesh and Others [1959 SCR Suppl. (2) 8];

The challenge in the case of Deep Chand (supra) was with respect to the validity of the Uttar Pradesh Transport Service (Development) Act, 1955. The Constitution Bench, after discussing merit of Article 13(2) of the Constitution, was of the firm view that a plain reading of the Clause indicates, without any reasonable doubt, that the prohibition goes to the root of the matter and limits the State’s power to make law; the law made in spite of the prohibition is a still born law. The relevant extract which is part of the paragraph 13 (from the AIR reference), is reproduced hereunder:

“13. …A Legislature, therefore, has no power to make any law in derogation of the injunction contained in Art. 13. Article 13(1) deals with laws in force in the territory of India before the commencement of the Constitution and such laws in so far as they are inconsistent with the provisions of Part III shall, to the extent of such inconsistency be void. The clause, therefore, recognizes the validity of, the pre- Constitution laws and only declares that the said laws would be void thereafter to the extent of their inconsistency with Part III; whereas cl. (2) of that article imposes a prohibition on the State making laws taking away or abridging the rights conferred by Part III and declares that laws made in contravention of this clause shall, to the extent of the contravention, be void. There is a clear distinction between the two clauses. Under cl. (1), a pre-Constitution law subsists except to the extent of its inconsistency with the provisions of Part III; whereas, no post-Constitution law can be made contravening the provisions of Part III, and therefore the law, to that extent, though made, is a nullity from its inception. If this clear distinction is borne in mind, much of the cloud raised is dispelled. When cl. (2) of Art. 13 says in clear and unambiguous terms that no State shall make any law which takes away or abridges the rights conferred by Part III, it will not avail the State to contend either that the clause does not embody a curtailment of the power to legislate or that it imposes only a check but not a prohibition. A constitutional prohibition against a State making certain laws cannot be whittled down by analogy or by drawing inspiration from decisions on the provisions of other Constitutions; nor can we appreciate the argument that the words " any law " in the second line of Art. 13(2) posits the survival of the law made in the teeth of such prohibition. It is said that a law can come into existence only when it is made and therefore any law made in contravention of that clause presupposes that the law made is not a nullity. This argument may be subtle but is not sound. The words " any law " in that clause can only mean an Act passed or made factually, notwithstanding the prohibition. The result of such contravention is stated in that clause. A plain reading of the clause indicates, without any reasonable doubt, that the prohibition goes to the root of the matter and limits the State's power to make law; the law made in spite of the prohibition is a still- born law.

(ii) Mahendra Lal Jaini Vs. The State of Uttar Pradesh and Others [AIR 1963 SC 1019];

In this landmark judgement, the constitutional bench of the hon’ble Supreme Court, dealing with the validity of the U.P. Land Tenures (Regulation of Transfers) Act, 1952 as also the amendment of 1956 in the Forests Act, 1957 had the occasion to analyse the difference between Article 13(1) and 13(2). It was laid down that that there is one vital difference between ‘voidness’ referred to in pre-Constitution [Article 13(1)] and post- Constitution laws [Article 13(1)]. The voidness of the pre-Constitution laws is not from inception. Such voidness supervened when the Constitution came into force; and so, they existed and operated for some time and for certain purposes. However, the voidness of post- Constitution laws is from their very inception and they cannot therefore continue to exist for any purpose.

However, the meaning of the word void is used in both the sub-Articles clearly making the law ineffectual and nugatory, devoid of any legal force or binding effect in both the cases. The Bench proceeded to deal with the effect of an amendment in the Constitution, with respect to the pre-Constitutional laws [Article 13(1)], holding that removing the inconsistency would result in revival of such laws by virtue of doctrine of eclipse as the pre-existing laws were not still born. However, in the case of the post- Constitutional laws [Article 13(2)], the same would be still born, and as such doctrine of eclipse would not be applicable to the post-Constitutional laws.

The bench further held that in the case of pre- Constitution laws what an amendment to the Constitution does is to remove the shadow cast on it by this declaration. The law thus revives. However, in the case of the second clause, applicable to post Constitution laws, the Constitution does not recognise their existence, having been made in defiance of a prohibition to make them. Such defiance makes the law enacted void. In their case therefore there can be no revival by an amendment of the Constitution.

(iii) CBI vs R.R. Kishore Crl.Appeal No. 377/2007 dated 11.9.2023, the 5 judge constitutional bench of the hon’ble Supreme Court has summarised the entire legal jurisprudence in respect of the retrospective or prospective applicability of the voidness of any law/amendment in law, under Article 13(2) of the Constitution of India and has held as under:

“28. The principles that can be deduced from the law laid down by this Court, as referred to above, are:

I. A statute which is made by a competent legislature is valid till it is declared unconstitutional by a court of law.

II. After declaration of a statute as unconstitutional by a court of law, it is non est for all purposes.

III. In declaration of the law, the doctrine of prospective overruling can be applied by this Court to save past transactions under earlier decisions superseded or statutes held unconstitutional.

IV. Relief can be moulded by this Court in exercise of its power under Article 142 of the Constitution, notwithstanding the declaration of a statute as unconstitutional.”

Doctrine of Prospective Overruling:

The Doctrine of Prospective Overruling implies that a decision made in a particular case would have operation only in the future and will not carry any retrospective effect on any past decisions. This Doctrine was recognised and adopted in India for the first time by the hon’ble Supreme Court in the case of ‘I.C Golaknath vs. the State of Punjab (1967)’ (1967) 2 SCR 762. In this landmark judgement, the hon’ble Apex Court has propounded three essential conditions that were necessary for invoking the doctrine of prospective overruling, viz.,

(i) The doctrine of prospective overruling can be invoked only in cases that arise regarding the interpretation of the Constitution.

(ii) The doctrine of prospective overruling can be applied only by the Supreme Court.

(iii) The Court may modify the aspects of prospective application of its ruling in accordance with the justice of the cause or matter before it.

By applying the aforesaid conditions, the hon’ble Apex Court applied the doctrine of prospective overruling by observing that if it follows the principle of retrospective overruling, it would create chaos and will affect several transactions that were carried on under the old regime.

Conclusion: A perusal of the 232 pages comprehensive judgement of the hon’ble Supreme Court in “Association for Democratic Reforms and Anr. v. Union of India & Ors.”, makes it very clear, that the hon’ble Apex Court has held the Electoral Bonds Scheme and the corresponding amendments in various Statutes as Unconstitutional and violative of the Articles 19 and 14 of the Constitution of India, primarily on account of the ‘anonymity’ feature being deliberately inducted in the said scheme by way of subject amendments in various statutes, and thereby enabling anonymous political funding in contravention of the fundamental right of the Right to Information of the voters. The hon’ble Court has not held anything against political contributions or donations as such.

The adverse impact of the ‘unconstitutional anonymity’ feature of the Electoral Bond Scheme, and the corresponding amendments in various statutes, has been effectively remedied and corrected by the hon’ble Supreme Court by directing the issuing bank State Bank of India (SBI), to herewith stop the issuance of Electoral Bonds and to submit complete details of the purchase of each Electoral Bond, the name of the purchaser of the bond and the denomination of the Electoral Bond purchased. The SBI has also been directed to submit the details of political parties which have received contributions through Electoral Bonds since April 2019 till date to the Election Commission of India (ECI). SBI has also been directed to disclose details of each Electoral Bond encashed by political parties.

The hon’ble SC has further directed the SBI to submit the above information to the ECI by March 6, 2024. The ECI has been directed to publish the information shared by the SBI on its official website within one week by 13 March 2024.   

The above directed compulsory disclosures by 13.3.2024 on the website of the Election Commission of India, will surely remedy the unconstitutional ‘anonymity’ feature of the subject electoral bond political contributions. So, in view of this, it is desirable that the hon’ble Supreme Court may consider giving a clarificatory finding or observation in respect of the following critical practical by-products/after-maths of this otherwise path-breaking judgement on electoral reforms in India, viz.,

(a) The contributions to political parties, by the loss making companies or in excess of the pre-amended threshold prescribed limit of 7.5% of their aggregate net profits in their preceding three years, in the financial years 2017-18 till 2022-23 and even in the current FY 2023-24, till date, should not be considered unlawful.

(b) Similarly, such companies should not be required to revise their already audited and laid down books of accounts and financial statements.

(c) The deductions claimed by the respective donors, viz. corporates u/s 80GGB of the Income Tax Act and persons other than companies u/s 80GGC, in respect of their electoral bonds contributions to recognised political parties, in all past assessment years viz. AY 2018-19 till 2023-24, and even for the current AY 2024-25, should not be disturbed or revoked.

(d) The exemptions claimed by the respective political parties u/s 13A of the Income Tax Act, for the past assessment years viz. AY 2018-19 till AY 2023-24, and even for the current AY 2024-25, u/s 13A of the Income Tax Act, may not be revoked and cancelled, as their earlier non-disclosure of electoral bonds contributions, will be made good by 13.3.2024.

[For any related queries, the author of this article, Mr. Mayank Mohanka, may be reached at mayankmohanka@gmail.com].

[This Article has also been published in Taxsutra]