Parliament Logjam Part 7: Political parties must be tamed, their incomes regulated to revive Indian democracy

Editor's note: The recently concluded Budget Session of Parliament was, by all accounts, the least productive in at least a decade, marked by protest, adjournment, and very little constructive debate, let alone passage of bills. Firstpost will examine, by way of a multi-part series spread across a six-week span, the reasons why the Parliamentary process in particular, and the democratic apparatus in general, has failed India's citizens. The clutch of essays, written by experts in the Constitution and constitutional law, will investigate the defects, introduced by design, that have enabled the degeneration of legislative functioning. Series has been curated by Bangalore-based lawyer and tutor of democracy and active citizenship, Malavika Prasad.

On 26 January, 1950, India was proclaimed as a Sovereign and Democratic Republic. Part XV of the Constitution related to elections and provided for the Election Commission. Article 326 provided that elections to the Lok Sabha and the state legislative assemblies will be on the basis of adult suffrage. It was also provided that no person shall suffer any discrimination in this regard on the basis of religion, race, caste, sex, etc.

But it was left to Parliament (by Article 327) to regulate and legislate "from time to time" the "rules of democracy" and to enable the largest single electorate to exercise this franchise. This task was largely left to be done by Sukumar Sen, the first Chief Election Commissioner of India. He drafted, and Jawaharlal Nehru piloted, the Representation of Peoples Acts of 1950 and 1951 through the Assembly. It was this anachronism that had caused the Supreme Court to regard the right to vote for a long time as a statutory, not a constitutional right.

In what could only be attributed to their idealism or naivete, the entire scheme of the Acts only dealt with candidates and voters; they did not anticipate the central and important role that would be played by the political party and its organisation. To be fair, this is a problem faced by all nations ever since the creation of indirect democracies. It was hoped that elected candidates would regulate and create parties, and not the other way around. The success of democracy everywhere can be judged by the ability of the electoral system to create a level playing field between political parties.

 Parliament Logjam Part 7: Political parties must be tamed, their incomes regulated to revive Indian democracy

Representational image. PTI

But as the Indian democracy got more and more competitive and authoritarian tendencies became evident, all parties continued to centralise and the candidate became a secondary unit of democracy. Political activity became an expensive and capital-intensive business. The survival and viability of parties depended on their ability to source funds.

With our politicians being among the lowest paid in the world, they increasingly resorted to the political party as a safe haven for funds collected from all sources. Moreover, a complete absence of any internal democracy in the functioning of political parties preventing any internal accountability within the party itself. This dominance also allows the larger parties to effectively prevent the rise of smaller parties.

Instead of regulating political parties, this vested interest of larger parties caused more laxity in enforcement, and further income tax exemptions followed by Parliament. Section 13A was introduced into the Income Tax Act 1961 by the Taxation Laws (Amendment) Act 1978 and granted a near-total exemption to political parties. Even though the law required the filing of returns to claim the exemption, it was not enforced until a resurgent Election Commission backed by the Supreme Court mandated it in Common Cause versus Union of India (1996).

The Companies Act, 1956 sought to introduce some regulation on political funding by corporate entities by requiring them to seek shareholder approval in a general meeting for any donation above Rs 25,000 or five percent of the average net profit of the previous three years.

However, in 1969, the Indira Gandhi government decided to ban corporate donations to political parties completely by amendment of the Companies Act, 1956. While this should have been welcomed in most circumstances, there is considerable evidence to show that this and bank nationalisation was done by the government to target the funding of the free market-oriented Swatantra Party led by C Rajagopalachari and the Congress (O).

With no accountability standards, compliances or disclosures required by political parties, ruling parties continued to receive large donations while Opposition parties were placed at a disadvantage in not being able to offer any favours or patronage in exchange of funds.

The Rajiv Gandhi government in 1985 removed the ban on corporate donations by amending Section 293A of the Companies Act, 1956 to permit corporate donations again, and this time not even requiring the approval of the general body but merely that of the board of directors

The Supreme Court attempted to partly rein in this unregulated beast in Kanwar Lal Gupta versus Amar Nath Chawla (1974), by declaring that a party's expenditure on behalf of its candidates would be included in the calculation of a candidate's election expense. The apex court correctly diagnosed the problem as being the "pernicious influence of big money" playing a decisive role in controlling the democratic process in the country. They concluded that this would inevitably lead to the worst form of political corruption and in its wake produce other vices at all levels.

Parliament responded almost immediately by amending Section 77(1) of the RPA 1951 and introducing Explanations 1 and 2 to specifically provide that unauthorised expenditure by a political party or supporters of a candidate would not be included in a candidate's election expenses.

In effect, this would give the candidate a final say on what could or could not be included in his election expenses, defeating in large part the purpose of this provision. However, the challenge to this amendment was upheld by a constitution bench of the Supreme Court in P Nalla Thampy Terah versus Union of India (1985).

While the 10th Schedule to the Constitution introduced by Constitution Amendment in 1985 mentions political parties, it is only for the specific purpose of stipulating disqualification of a person for membership of either House of Parliament or of the Legislative Assembly or Legislative Council of a State on the ground of defection from his political party.


In 1989, Parliament inserted Part IVA into the RPA 1951 providing for registration of political parties. But the Supreme Court in Indian National Congress (I) versus Institute of Social Welfare (2002) held that the Election Commission does not have the power to deregister or conduct an inquiry into the affairs of a political party. This finding was reflective of the actual legislative intent behind the enactment – to appear to have acted, but actually allowing things to continue as before.

All political parties have replicated this model of party organisation to compete in the political space. It is this dependence on big money, more even than muscle power, that has caused a fissure in our democratic credentials by giving a disproportionate influence to corporates without a vote.

Both the Congress and the BJP have introduced legislative changes to protect the anonymity of donors whether though electoral trusts or bonds; both parties have carried out and supported amendments to nullify judicial decisions introducing accountability and transparency in political parties and candidates. The Election Commission has taken steps to introduce accountability and transparency to the accounting of political parties but without legislative backing, they are powerless to discipline erring parties with penalties.

The asymmetry caused by the absence of regulation can most clearly be seen in the disproportionate income received by ruling parties, and in the fact that the total income received from named donors is much less than that received from undisclosed donors, contributing less than Rs 20,000 (now made Rs 2,000) which is the statutorily prescribed limit. A whopping 89 percent of all corporate donations through the opaque process of electoral trusts in 2016-17 was received by the ruling party at the Union level.

The remedy to the present malaise lies in recognising the urgent need for regulating parties and creating a truly independent ecosystem to level the playing field between political parties. The Law Commission of India, the Election Commission, and the National Commission to review the working of the Constitution, under Justice Venkatachaliah, have all recommended regulation of political parties in one form or another.

While one can criticise specific proposals or methods, all the recommendations are based on the understanding that funding, spending and disclosure standards must be introduced and enforced on political parties. Internal democracy in political parties is also a must to defeat the stranglehold that families and individuals have on the political organisation.

It must also be said that all these suggested reforms will come to nought if the Election Commission (or any other body with similar or stronger independence) is not insulated from all forms of political pressure, to be capable of taking effective action against political parties.

Democracy can only be sustained if the political parties are tamed and regulated, and legislative or constitutional amendments in this regard are not made for the benefit of the organisations only. Till such time as the legislature gathers the political will to make such radical change, or the judiciary asserts its authority, our far from perfect democracy will continue to hang in the balance facing the perennial danger of falling over the precipice.

The author is advocate practicing in the Supreme Court and Madras High Court; and co-wrote an independent report titled 'Money and Elections: Necessary Reforms In Electoral Finance' for the Vidhi Centre for Legal Policy.

Read about the series: Budget Session 2018 washout, worst in over a decade, shows why legislature desperately needs reform agenda

Read Part 1: Obsolete system of voice votes needs to be replaced with electronic voting

Read Part 2: Examining legislative avenues available to keep govt accountable, exercise necessary oversight

Read Part 3: Core problem cannot be fixed till we introduce checks on Speaker's discretionary powers

Read Part 4: Strengthening committee system can improve quality of drafted laws, fast-track implementation

Read Part 5: 'Bye-Partisanship'; What Indian legislature needs to break deadlocks, improve discourse

Read Part 6: Waning legislative influence, lack of clear mission flags need to redefine Rajya Sabha's functioning

Read Part 8: Anti-Defection Law must be curbed to empower legislature, promote deliberative democracy

Read Part 9: Corporate funding of elections continues to bankrupt legislative morality, weaken electoral integrity

Read Part 10: Enabling stakeholder consultations in policy-making can deepen democracy, improve transparency

Read Part 11: Time, the unseen yet powerful factor of politics, holds key to controlling legislative discourse

Read Part 12: Understanding 'political value' of time and how it is weaponised in democracy

Updated Date: Jun 21, 2018 15:34:00 IST