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4.1.1. Section 77 which occurs in Chapter VIII of Part V
of the Act, entitled "Election Expenses", is applicable
only to the elections to the Lok Sabha and the Legislative
Assembly of a State. As originally enacted, it provided
that "Every candidate at an election shall, either by
himself or by his election agent, keep a separate and
correct account of all expenditure in connection with the
election incurred or authorised by him or by election agent
between the date of publication of the notification calling
the election and the date of the declaration of result
thereof, both dates inclusive." The words "all expenditure
in connection with the election incurred or authorised by
him or by his election agent" fell for consideration of the
Supreme Court in Kanwarlal Gupta v. Amar Nath Chawla
(1975) 3 SCC 646. The court, in the first instance,
referred to sub-section (6) of section 123 of the Act which
says that " the incurring of authorising of expenditure in
contravention of section 77" is a corrupt practice which
disqualifies the person from contesting the elections for
the next six years. After referring to the language of
section 77, they observed that where the expenditure was
authorised by the candidate or by his election agent
expressly, there was no difficulty in determining the
meaning of the aforesaid words, but, the court observed,
difficulty arose where the expenditure was incurred not by
the candidate but by the political party which had
sponsored him or by his friends and supporters. The court
posed the question "Can the limit on the expenditure be
evaded by the candidate by not spending any money of his
own but leaving it to the political party or his friends
and supporters to spend an amount far in excess of the
limit?" and then proceeded to ascertain the object and
purpose underlying section 77. The court observed:
"The object of the provision limiting the
expenditure is two-fold. In the first place, it
should be open to any individual or any political
party howsoever small, to be able to contest an
election on a footing of equality with any other
individual or political party, howsoever rich and
well financed it may be, and no individual or
political party should be able to secure an
advantage over others by reason of its superior
financial strength."
4.1.1.1. The court then observed that money plays an
important part inasmuch as the paraphernalia required in an
election campaign can not be obtained except with the aid
of funds. Money is absolutely necessary for fighting an
election. The court further observed that the requirement
of the constitution was full and effective participation of
all citizen in the political process and to have an equal
voice in the election of the members of the legislatures.
It is the purpose of law, the court observed, to effectuate
the above objective and to ensure that every candidate and
every citizen participated in the election process of a
footing of equality. The next objective behind the said
provision, the court said, was limiting the expenditure on
elections so as to eliminate, as far as possible, the
influence of big money in the electoral process. If there
were no limit on expenditure, political parties would
resort to collection of contributions which would naturally
come only from the rich and affluent sections of the
society. The court then stressed the pernicious influence
of big money in derailing the democratic process and
referred in this connection to the evils of big money
influence on elections which had come to light in the USA.
The court opined that the aforesaid background should
inform the court in the interpretation of section 77 of the
Act and then made the following pertinent observations: "Now, if a candidate were to be subject to the
limitation of the ceiling, but the political party
sponsoring him or his friends and supporters were
to be free to spend as much as they like in
connection with his election, the object of
imposing the ceiling would be completely frustrated
and the beneficial provision enacted in the
interest of purity and genuineness of the
democratic process would be wholly emasculated.
The mischief sought to be remedied and the evil
sought to be suppressed would enter the political
arena with redoubled force and vitiate the
political life of the country. The great
democratic ideal of social, economic and political
justice and equality of status and opportunity
enshrined in the Preamble of our Constitution would
remain merely a distant dream eluding our grasp.
The legislators could never have intended that what
the individual candidate cannot do, the political
party sponsoring him or his friend and supporters
should be free to do. That is why the legislators
wise interdicted not only the incurring but also
the authorising of excessive expenditure by a
candidate. When the political party sponsoring a
candidate incurs xpenditure in connection with his
election, as distinguished from expenditure on
general propaganda, and the candidate knowingly
takes advantage of it, or participates in the
programme or activity or fails to disavow the
expenditure 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 rigour of the ceiling by saying
that he has not incurred the expenditure, but his
political party has done so. A party candidate
does not stand apart from his political party and
if the political party does not want the candidate
to incur the disqualification, it must exercise
control over the expenditure which may be incurred
by it directly to promote the poll prospects of the
candidate. The same proposition must also hold
good in case of expenditure incurred by friends and
supporters directly in connection with the election
of the candidate. This is the only reasonable
interpretation of the provision which would carry
out its object and intendment and suppress the
mischief and advance the remedy by purifying our
election process and ridding it of the pernicious
and baneful influence of big money. This is in
fact what the law in England has achieved. There,
every person on pain of criminal penalty, is
required to obtain authority from the candidate
before incurring any political expenditure on his
behalf. The candidate is given complete discretion
in authorising expenditure up to his limit. If
expenditure made with the knowledge and approval of
the candidate exceeds the limit or if the candidate
makes a false report of the expenditure after the
election, he is subject not only to criminal
penalties, but also to having his election
voided."(Italics added).
4.1.1.2. The court then referred to the earlier
decisions of the court supporting the construction bases
upon section 77 by them.
4.1.2. The Law Commission of India is of the opinion that
the decision in Kanwarlal Gupta's case rightly and
correctly interprets section 77. Indeed, it does more.
Besides furnishing the rationale for such a provision, it
also points out the desirability and necessity of having
such a provision to ensure free and fair elections and to
keep out the money-power.
4.1.3. Unfortunately, however, soon after the above
judgment, the President of India issued an Ordinance
amending the section 77 by inserting Explanation 1 in
sub-section (1) of section 77. Subsequently, Amendment Act
58 of 1974 was enacted in terms of the said Ordinance and
was given retrospective effect on and from October 19,
1974. Explanation I so inserted reads as follows -
Explanation 1 - Notwithstanding any judgment, order
or decision of any Court to the contrary, any
expenditure incurred or authorised 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 authorised by the candidate or by his
election agent for the purposes of this
sub-section.
Provided that nothing contained in this Explanation
shall affect -
(a) any judgment, order or decision of the
Supreme Court whereby the election of a candidate
to the House of the People or to the Legislative
Assembly of a State has been declared void or set
aside before the commencement of the Representation
of the People (Amendment) Ordinance, 1974 (Ord. 13
or 1974);
(b) any judgment, order or decision of a High Court
whereby the election of any such candidate has been
declared void or set aside before the commencement
of the said Ordinance if no appeal has been
preferred to the Supreme Court against such
judgment, order or decision of the High Court
before such commencement and the period of
limitation for filing such appeal has expired
before such commencement."
4.1.3.1. By a subsequent Amendment Act, (Act 40 of
1975), the words "the date of publication of the
notification calling the election" in section 77(1) were
substituted by the words "the date on which he has been
nominated". Explanation III was also inserted in
sub-section (1) of section 77.
4.1.3.2. The aforesaid amendments have the effect of
nullifying the object and purpose underlying section 77(1)
read with section 123(6) of the Act. The amendments create
an escape clause and have provided an easy way of
circumventing the legal requirement. Not only the
political party which has sponsored the candidate, but the
friends, relatives and supporters of a candidate can spend
any amount on the election of the candidate and yet all the
amount would not fall within the expenditure incurred by
the candidate or his agent. The validity of Explanation I
was challenged before the Supreme Court in P.Nallappa
Thampy v. Union of India (AIR 1985 SC 1133) but the
challenge failed. It may perhaps be appropriate to point
out that upholding the constitutional validity means
affirmation of the legislative power and of the provision
not being violative of the constitutional limitations. It
in no way amounts to a pronouncements upon the desirability
or necessity of such a provision.
4.1.4. More than one decision of the Supreme Court has
pointed out the undesirability of the said Explanation, the
mischief inherent in it and stressed the need to delete the
same. It would be sufficient to cite two decisions of the
Supreme Court, namely C.Narayanaswamy v. C.K. Jaffer
Sharief (1994 (Supp) 3 SCC 170) and Gadakh Yashwantrao
Kankarrao v. Balasaheb Vikhe Patil (1994(1) SCC 682. The
observations in the first mentioned decisions are to the
following effect.
"As the law stands in India today anybody including
a smuggler, criminal or any other anti-social
element may spend any amount over the election of
any candidate in whom such person is interested,
for which no account is to be maintained or to be
furnished and any such expenditure shall not be
deemed to have been expenditure in connection with
the election, incurred or authorised by the
candidate or by his election agent for the purpose
of sub-section (1) of Section 77, so as to amount
to a corrupt practice within the meaning of
sub-section (1) of section 77, so as to amount to a
corrupt practice within the meaning of sub-section
(6) of section 123. It is true that with the rise
in the costs of the mode of publicity for support
of the candidate concerned, the individual
candidates cannot fight the election without proper
funds. At the same time it cannot be accepted that
such funds should come form hidden sources which
are not available for public scrutiny. According
to us, sub-section (6) of section 123 declaring "incurring of authorising of expenditure in
contravention of section 77" a corrupt practice has
lost its significance and utility with the
introduction of the Explanation-I aforesaid which
encourages corruption by underhand methods. If the
call for "purity of elections" is not be reduced to
a lip service or a slogan, then the persons
investing funds, in furtherance of the prospect of
the election of a candidate must be identified and
located. The candidate should not be allowed to
plead ignorance about the persons who have made
contributions and investments for the success of
the candidate concerned at the election. But this
has to be taken care of by Parliament.
4.1.4.1. Similarly, in the latter decision, it was
observed:
"The existing law does not measure up to the
existing realities. The ceiling on expenditure is
fixed only in respect of the expenditure incurred
or authorised by the candidate himself but the
expenditure incurred by the party or anyone else in
his election campaign is safely outside the net of
legal sanction. The spirit of the provision
suffers violation through the escape route. The
prescription of ceiling on expenditure by a
candidate is a mere eye-wash and no practical check
on election expenses for which it was enacted to
attain a meaningful democracy. This lacuna in the
law is, however, for the Parliament to fill lest
the impression is reinforced that its retention is
deliberate for the convenience of everyone. If
this be not feasible, it may be advisable to omit
the provision to prevent the resort to indirect
methods for its circumvention and subvervision of
the law, accepting without any qualm the role of
money power in the elections. This provision has
ceased to be even a fig leaf to hide the reality."
4.1.5. It is a matter of regret that so far no action has
been taken by the Parliament in the light of the
observations of the Supreme Court.
4.1.6. In the year 1990, the then Law Minister, late Shri
Dinesh Goswami, had prepared a draft amendment Bill, based
upon the consensus of all the political parties. The said
bill provided inter alia for deletion of the Explanation I
to section 77(1). Though provisions in the said bill have
been given statutory shape by the Parliament by enacting
Act 21 of 1976, the particular provision in the bill
providing for deletion of Explanation I to section 77 was
not enacted.
Shri Som Nath Chatterjee, M.P., presided over the
session devoted to Election Expenses and State Funding at
the National Seminar held on 24th January, 1999. He
stressed the necessity of free and fair elections for a
successful democracy but regretted that over the last few
decades money power, muscle power and black money had been
troubling this nation. There is a feeling among the people
that some political parties are getting unfair advantage in
the elections because of their having larger financial
sources. For this reason, good persons were not able to
contest, he said, Shri K.K. Venugopal, Senior Advocate,
Supreme Court, and an expert on constitutional law, who was
the keynote speaker at the said seminar put forward certain
very pertinent ideas which may be referred to hereinbelow.
4.1.6.1. In the very scheme of things and as pointed
out by the Supreme Court in its various decisions, the bulk
of the funds contributed to political parties would come
only from business houses, corporate groups and companies.
Such a situation sends a clear message from the political
parties to big business houses and to powerful corporations
that their future financial well being will depend upon the
extent to which they extend financial support to the
political party. Indeed most business houses already know
where their interest lies and they make their contributions
accordingly to that political party which is likely to
advance their interest more. Indeed ensure of knowing
which party will come to power, they very often contribute
to all the major political parties. Very often these
payments are made in black money. Section 293A of the
Companies Act, 1965, as inserted in 1969, imposed a ban on
the companies making contributions to any political party
or for any political person or for any political purpose.
Unfortunately, this ban was lifted in 1985 by amending the
Act. Under the present provision, a company is permitted
to contribute amounts to a political party or for a
political purpose to any person provided that the amount
does not exceed five per cent of its average net profits.
In the case of an Indian company of a multinational stature
or in the case of any big business group, five per cent
would mean a mind-boggling figure. As far back as 1957,
Chagla C.J. pointed out the danger inherent in permitting
the companies to make contributions to political parties
(Koticha's case(1957) 27 Company Cases 604). He warned
that "it is a danger which may grow apace and which may
ultimately overwhelm and even throttle democracy in the
country". As a matter of fact, an attempt made in 1976 to
remove the ban imposed by Section 293A (as initially
enacted) failed. It is amusing to note the 'Statement of
Objects and Reasons' appended to the bill prepared in 1976.
It stated that the ban was proposed to be lifted "with a
view to permit the corporate sector to play a legitimate
role within the defined norms in the functioning of our
democracy!" Mr. Venugopal raised an interesting question
of law in this behalf. He said that according to section 7
of the Prevention of Corruption Act 1988, "whoever, being,
or expecting to be a public servant, accepts or obtains or
agrees to accept or attempts to obtain for any person, for
himself or for any other person, any gratification
whatever, other than the legal remuneration, as a motive or
reward for doing or forbearing to do any official act or
for showing or forbearing to show, in exercise of his
official functions, favour or disfavour to any person or
for render or attempting to render any service or
disservice to any person, with the Central Government or
any State Government or Parliament or the Legislature of
any State or with any local authority, corporation or
Government company referred to in clause (c) of section 2,
or with any public servant, whether named or otherwise,
shall, be punishable...". A Member of Parliament or a
Member of Legislature is a public servant. A candidate
contesting an election to Parliament or Legislative
Assembly is a person who is expecting to be a public
servant. If he becomes a public servant and then a
minister, or even otherwise if it is found at any time in
future that he has returned the favour of being funded by a
business house or a company, directly through himself or
any other person for rendering any service with the Central
Government or any State Government etc., he would be guilty
of the aforesaid offence of corruption for which a
mandatory imprisonment of not less than 6 months is
provided which may extend to 5 years. After the decision
of the Supreme Court in the case of A.R. Antulayl(AIR 1984
SC 718), he said, it is open today even for a private
individual to file a criminal complaint under the
Prevention of Corruption Act.
4.1.6.2. We endorse the views of Shri K.K.
Venugopal in their entirety.
4.1.7. Shri Shiv Raj Patil, M.P., and a former
Speaker, Lok Sabha, also stressed the necessity of curbing
the influence of money power in elections.
4.1.8. It must be mentioned at this stage that the
above proposal was opposed by Shri Kapil Sibal, M.P.
Indeed he was the only dissenting voice. The reason given
by him was that the suggested removal of ban on donations
by companies would encourage the parties and persons to act
behind the curtain and that influence of black money would
be more whereas under the existing system the funding of
political parties by companies is open. We are of the
opinion that the reason given is hardly acceptable and runs
against the uniform authority of the Supreme Court and the
unanimous opinion of all other participants including Shri
Ram Jethmalani, Union Minister, Shri P.P. Rao, Senior
Advocate, Shri C.R. Irani (Editor, The Statesman) and
several other intellectuals.
4.1.9. It is in the above circumstances that the Law
Commission of India had suggested in its working paper that
the said Explanation be deleted. In the seminars held and
in the responses received by the Commission, unanimous
support has been given to the proposal of the law
Commission. There has been no dissenting voice, except of
Shri Kapil Sibal, as mentioned hereinabove. Accordingly,
we reiterate our proposals along with the substitution of
definition of "original political party" by the new
definition of "political party".
4.1.10. In this connection, it is necessary to refer to the
Report of the Indrajit Gupta Committee appointed by the
Government of India to go into the question of State
Funding and Election Expenses. So far as deletion of
Explanation I in section 77(1) is concerned, the committee
has not made any specific recommendation (vide para 10 of
Chapter VI). The Report says that though some parties were
in favour of deletion of the Explanation, certain other
parties did not agree to it. It is not clear in what
circumstances and for what reasons the political parties,
which had supported the said deletion in 1989-90 (on the
basis of which the 1990 Bill aforementioned provided for
such deletion) have now turned round and are opposing the
deletion. It is difficult to perceive any justifiable
reason behind the said opposition when everyone is agreed
that the objective of electoral process is to obtain a free
and fair ascertainment of the will of the people. The Law
Commission hopes and trusts that in the interest of a
healthy parliamentary democracy, those political parties,
which are now opposed to the said deletion, will reconsider
and revise their opinion and support the said deletion as
indeed they had done in the years 1989-1990.
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