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Report No. 255

(ii) Legal lacunae

2.27.7. There are various loopholes in the laws regarding election expenditure, contribution and disclosure. First, and most importantly, despite the Election and Other Related Laws (Amendment) Act 2003, the subject of regulation under Section 77 of the RPA only covers individual "candidates", and not on political parties.

This is evident from the stipulation requiring "every candidate" (or his electoral agent) to keep a separate account of the expenditure which has been "incurred or authorized by him" between the date of nomination and declaration. Consequently, political parties and candidate supporters are allowed unlimited expenditure in propagating the party program, as long as no specific candidate is favoured.100

100. Gowda, supra note 94, at 230.

2.27.8. The implications of the wording of Section 77(1) are evident in the ECI guidelines on expenditure allocation in the General Observers Handbook. The ECI has categorised the advertisements published by political parties in the following three categories:

(i) "Expenditure on general party propaganda seeking support for the party and its candidates in general, but, without any reference to any particular candidate or any particular class/group of candidates.

(ii) Expenditure incurred by the party, in advertisements etc., directly seeking support and / or vote for any particular candidate or group of candidates.

(iii) Expenditure incurred by the party, which can be related to the expenditure for promoting the prospects of any particular candidate or group of candidates."

2.27.9. According to the ECI, the first case will not be included in the candidate's expenditure limits under Section 77(1) of the RPA, while the second and third cases shall be included in the expenditure incurred or authorised by the candidates or their election agents.101

101. ECI, Instructions on Expenditure Monitoring in Elections,
at paras 10.2-10.3. See also ECI, General Observers Hand Book 2014,

2.27.10. Second, clever accounting can allow parties to attribute large amounts of expenditure to their "leaders" and hence, avail of the exception under the Explanation to Section 77. For instance, the ECI states that when leaders of a political party travel to and from their constituency to other constituencies as star campaigners, the expenditure on their travel would fall within the exempted category.102 As the above break down of expenditures for the 2009 Lok Sabha Elections reveal, expenditure incurred on vehicle usage and transport comprise the largest proportion of a candidate's declared expenses.

102. ECI, Instructions on Expenditure, supra note 101, at para 10.4.

2.27.11. Third, the scope of Section 77(1) is very narrow and applies only from the date of nomination to the date of declaration and thus any expenditure incurred in the remaining period is exempt from any limit or regulation.

2.27.12. Fourth, regarding political contribution, the Rs. 20,000 disclosure limit can be easily evaded by writing multiple cheques below Rs. 20,000 each, or giving the money in cash. Nor is the profit-linked contribution limit of 7.5% a significant restriction for large companies. As per Gowda and Sridharan while the law creates incentives for disclosure vide tax exemptions, it can be outweighed by the disincentive created by the loss of anonymity, especially given that in many instances big donors support multiple parties, or change their support, and do not want this information to be disclosed for fear of reprisal.103

103. Gowda, supra note 94, at 230, 236.

2.27.13. Fifth, the authorisation of corporate contribution requires a resolution to be passed to such effect at the meeting of the Board of Directors under Section 182(1) of the Companies Act, 2013. The empowerment of a small group to decide how to use the funds of a company for political purposes, instead of involving the vast numbers of shareholders (being the actual owners of the company) has also been criticised.104 Britain follows such a shareholder approach where British companies require shareholder approval before they can make any political contribution or incur any political expenditure.105

104. Samya Chatterjee, Campaign Finance Reforms in India: Issues and Challenges, ORF Issue Brief #47, December 2012, 39
< 379618.pdf at 8>

105. ICSA Guidance on Political Donations, REFERENCE NUMBER 081110,

2.27.14. Finally, disclosure norms need to be strengthened. As we have seen, the ECI's transparency guidelines do not have statutory authority and there is no legal consequence for non-compliance. Further, unlike many of the countries discussion in the previous section, political parties and candidates file their returns with the ECI, without putting up the information online (on the ECI's website) or making it easily available for public inspection (barring an RTI).

This is essential to bring about transparency in the public domain and to let the voters know the donors, contributions and expenditures of the parties and candidates. Moreover, in many cases such as compliance with section 29C of the RPA (regulating political party disclosure) the only penalty for noncompliance is losing the income tax exemption. This is not a significant enough deterrent to parties.

2.27.15. Despite the various legal lacunae, electoral reform is possible and will not be impeded by free speech claims as in the United States, evident in the Citizens United and McCutcheon decisions. In India, Article 19(1) of the Constitution only extends to citizens and natural persons, and corporations have not been considered citizens with free speech rights, State Trading Corporation v. CTO, AIR 1963 SC 1811; Barium Chemicals v. Company Law Board, AIR 1967 SC 295; Municipality v. State of Punjab, AIR 1969 SC 1100; TELCO v. State of Bihar, (1964) 6 SCR 885 which can only be exercised by shareholders.

Divisional Forest Officer v. Bishwanath Tea Company, AIR 1981 SC 1368; Bennett Coleman v. Union of India, AIR 1973 SC 106 Thus, corporations do not have a right to make a political contribution as part of their exercise of free speech rights, especially given the non-involvement of shareholders in this decision making process.

Apart from that, countervailing interests of equality, anti-corruption, and public morality will provide a constitutional basis for any election finance reform.

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