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The ED’s attempts to book the party in the alleged liquor policy scam may come to naught as there is no separate law for financial misdemeanours of political parties

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By Sanjay Raman Sinha

An innocuous courtroom exchange has snowballed into potential trouble for the Aam Aadmi Party (AAP). The Enforcement Directorate (ED) has expressed its intention to book the party as a beneficiary of the alleged liquor policy scam.

Two weeks earlier, while hearing bail applications filed by former Delhi Deputy Chief Minister Manish Sisodia in the liquor policy scam case, the Supreme Court had asked the ED why the AAP was not added as an accused when it was alleged to be the beneficiary.

Additional Solicitor General (ASG) SV Raju, who appeared for the ED, had then asked for time to get instructions on the matter. When the hearing took place, Raju told the bench that the AAP might be booked under the Prevention of Money Laundering Act (PMLA) to probe it additionally with respect to vicarious liability. Vicarious liability is when a party is held responsible for the misdeeds of a third party, though the third party also carries a share of the liability. 

The ED has sought to impute this principle to implicate the AAP. Raju also told the Court that it was contemplating invoking Section 70 of the PMLA. This Section deals with offences by companies and states: “Where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder is a company, every person who, at the time the contravention was committed, was in charge of and was responsible to the company, for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.”

So can a political party be considered a “company” incorporated under the Companies Act, 2013? The law doesn’t sanctify this classification. However, there is a provision which can bring a political party under the scope of the anti-money laundering act. Section 70 of the PMLA defines “company” as a corporate and includes “a firm or other association of individuals”. The phrase “association of individuals” can mean a political party in money laundering cases. 

Let’s look at how the Representation of the People Act (RPA) defines a political party. Section 29A(1) of RPA states: “Any association or body of individual citizens of India calling itself a political party and intending to avail itself of the provisions of this part shall make an application to the Election Commission for its registration as a political party for the purposes of this Act.’’ Here, the operative phrase is “is any association or body of individual citizens of India calling itself a political party”. By invoking this definition of a political party, the ED can initiate action against the AAP.

If and when the ED books the party in a PMLA case, the Election Commission (EC) will have to deal with the situation. This is the first time it will be dealing with such a situation and many provisions and legalities will have to be examined. 

It must be noted that trusts and NGOs are already under the ambit of the PMLA. Currently, two main AAP functionaries are in remand on charges of money laundering—Sisodia and AAP MP Sanjay Singh.

As far as taking penal action against a party is concerned, the EC has limited scope. It can, at best, suspend or withdraw a party’s recognition under The Election Symbols (Reservation and Allotment) Order. Even here, Para 16A of the Symbols Order clearly defines the conditions under which the EC can take such action against a political party. The action can be taken when the concerned party fails to observe the Model Code. There is no mention of provisions if the party is accused of an illegal action.

The strongest punitive action the EC can take against a political party is to derecognise or de-register it. This can be taken under three specific circumstances. First, if the party has been registered by fraudulent means. Secondly, if the party publicly proclaims or informs the EC that it has no allegiance to the Constitution and its basic values and that it questions the sovereignty and integrity of the nation. And lastly, if the party is declared unlawful by the centre.

These conditions are not met by the AAP and hence, even if the party is convicted under the PMLA, the law has no provision to deregister it. 

Former Chief Election Commissioner TS Krishnamurthy told India Legal: “The Election Commission of India has the power to register and recognise political parties for election purposes. Registration is subject to compliance with the Constitution of India and laws of the land. Unless a political party is convicted by a court of law, no action can be taken by the Election Commission suo motu on the basis of allegations or investigation of alleged offences.” So, in the overall scheme of things, the EC has limited power to strongly penalise political parties. 

Though the EC is the enrolling authority under Section 29A of the Representation of the People Act, 1951, it has no power in enforcing inner-party democracy and regulation of party finances. If the financial irregularities are serious and investigative agencies have taken cognizance of the matter, then it becomes a criminal case and is handled accordingly. 

There is no separate law for financial misdemeanours of political parties. It is individual members of a political party who are often accused of scams and criminal and court proceedings are initiated accordingly. Political parties, by and large, stay overboard in their dealings, and if any misappropriation of funds or a scam happens, the onus falls on the shoulders of the politician concerned.

Take the 2008 cash for vote scam case. It was allegedly masterminded by an Opposition BJP politician Sudheendra Kulkarni. The UPA was in a majority in Parliament and led by Congress president Sonia Gandhi. The prime minister was Narasimha Rao. After the CPI (M)-led Left Front withdrew support from the government on the US-India nuclear deal, the Congress allegedly bribed BJP MPs in order to survive a confidence vote on July 22, 2008. The case was filed not against the BJP or the Congress, but against the BJP party functionary.

However, if and when financial irregularities happen, courts have been unsparing. In Common Cause Registered Society vs Union of India & Ors case of 1996, Justices Kuldip Singh and Faizan Uddin passed a scathing verdict against law breaking political parties. The plea was to know the source of expenditure incurred by political parties. It was contended that mandatory provisions of law were being violated by political parties with impunity.

The bench said: “In the opinion of some of the judges constituting the majority in Bharati’s cases Rule of Law is a basic structure of the Constitution apart from democracy. The rule of law postulates the pervasiveness of the spirit of law throughout the whole range of government. And the supremacy of valid law over the Commission argues itself- No one is ‘an imperium in imperio’ (sovereign within the government) in  our constitutional order.’’

In another case, the judges gave primacy to the power of the Election Commission to oversee the expenses of the parties (during election time). The bench said: “Superintendence and control over the conduct of election by the Election Commission include the scrutiny of all expenses incurred by a political party, a candidate in the course of the election.”

Clearly, if money laundering charges are ascribed to a political party, its expenses can be scanned and the EC can ask for expense records during the election period.

The 2017 Finance Act removed the ceiling on corporate contributions from 7.5% of the net profit of the past three financial years of the company. It also relaxed the obligation to display such contributions in the company’s profit and loss account. This provision is a loophole to channel black money through shell companies. If individual bungling by a politician is sought to be checked in the party books, it will be an impossible task.

All said, the words of judges, “No one is ‘an imperium in imperio’  (sovereign within the government)”, is the Rosetta Stone with which to judge financial inscrutability and criminal culpability of political parties.

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