Report No. 255
(ii) Laws regulating election expenditure for political parties: Third party expenditure
2.20.1. Section 77 of the RPA does not directly limit the election expenditure of political parties, and this has given rise to the contested question of third party expenditure, namely the financing of a candidate's campaign by political parties, corporate donors, or well wishers.
2.20.2. Till 1975, the Supreme Court refused to regard third party expenditure as electoral expenditure within the meaning of Section 77 of the RPA. Karimji Rehmanji Chipa v. Abdurahim Tajuji, 36 ELR 283; Rananjaya Singh v. Baijnath Singh, (1955) 1 SCR 671; Magraj Patodia v. R. K. Birla (1970) 2 SCC 888. This changed with Kanwar Lal Gupta, where the Supreme Court relied on the "authorisation" of expenditure by a candidate in excess of the election expenditure limits to note:
"When a political party sponsoring a candidate incurs expenditure specifically in connection with his election, as distinguished from expenditure on general party propaganda, and the candidate knowingly takes advantage of it or participates in the programme or activity or consents to it or acquiesces in it, it would be reasonable to infer, save in special circumstances, that he impliedly authorised the political party to incur such expenditure; and he cannot escape the rigors of the ceiling by saying that he has not incurred expenditure but big political party has done so." Kanwar Lal Gupta v. Amar Nath Chawla, (1975) 3 SCC 646
2.20.3. Thus, the Court believed that the object of imposing individual expenditure limits would be frustrated if parties or other supporters were free to spend without any limits. Nevertheless, the RPA was amended in 1974 to nullify the effect of the above judgment by inserting an explanation to Section 77(1) to the effect that any third party expenditure in connection with a candidate's election shall not be deemed to be expenditure incurred or authorised by a candidate.
Explanation 1, inserted vide the Representation of People (Amendment) Act, 1974 read as follows:
"Explanation 1.- Notwithstanding any judgment, order or decision of any court to the contrary, any expenditure incurred or authorized in connection with the election of a candidate by a political party or by any other association or body of persons or by any individual (other than the candidate or his election agent) shall not be deemed to be, and shall not ever be deemed to have been, expenditure in connection with the election incurred or authorized by the candidate or by his election agent for the purposes of this sub-section."
2.20.4. The constitutionality of the 1974 amendment was challenged in P. Nalla Thampy Terah v. Union of India, (1985) Supp. SCC 189, at paras 13-15 on the grounds that it sanctioned discrimination between candidates and parties based on money power, and hence contravened Article 14. Rejecting this contention, albeit reluctantly, the Supreme Court held that it was not for the court to lay down policies in matters pertaining to elections and that:
"Election laws are not designed to produce economic equality amongst citizens. They can, at best, provide an equal opportunity to all sections of society to project their respective points of view on the occasion of elections. The method, somewhat unfortunate, by which law has achieved that purpose, is by freeing all others except the candidate and his election agent from the restriction on spending, so long as the expenditure is incurred or authorised by those others."
2.20.5. Subsequently, later benches criticised this decision and the position of law laid out in the 1974 amendment, noting that Section 123(6) of the RPA had become "nugatory and redundant", C Narayanaswamy v. C.K. Jaffar Sharief, 1994 Supp. (3) SCC 170 and that the practice of parties in not maintaining accounts of donations and expenses incurred in regard a candidate's election made it to difficult to determine "whose money was actually spent through the hands of the party".
Gajanan Bapat v. Dattaji Meghe, (1995) 5 SCC 437 Eventually in the seminal case of Common Cause, a Registered Society v. Union of India, (1996) 2 SCC 752 the Supreme Court reversed the burden of proof on the candidate claiming the benefit of the exception created by the Explanation to Section 77, holding that even when expenses are claimed by a party, the (rebuttable) presumption shall be that they have been incurred or authorised by the candidate. The Court noted:
"The expenditure (including that for which the candidate is seeking protection under Explanation I to Section 77 of R.P. Act) in connection with the election of a candidat.- to the knowledge of the candidate or his election agen.- shall be presumed to have been authorised by the candidate or his election agent. It shall, however, be open to the candidate to rebut the presumption in accordance with law "34
34. Id, at 764, para 23
2.20.6. Finally, owing to much criticism of the Explanation appended to Section 77(1) by the 1974 Amendment Act, the said Explanation was deleted by the Election and Other Related Laws (Amendment) Act 2003 and replaced with the current Explanation, referred to above. Outside spending by parties and independent supporters must now be reported by the candidate, and counted towards the expenditure ceiling.
2.20.7. Thus, the current position is that the expenditure incurred by (a) the leaders of political party on account of travel by air or by any other means of transport for propagating the party's programme and (b) the political parties or their supporters for generally propagating the party's programme shall not be deemed to be expenditure in connection with the election incurred or authorised by a candidate of that political party under Section 77, RPA.