In his comment to my post regarding the “PRS Conference on Effective Legislatures-Part 1”, Venkatesan has rightly pointed out that as per the Supreme Court’s judgment in Common Cause (A Registered Society) v. Union of India and others (1996) 2 SCC 752, political parties are required to keep accounts of expenses by leaders of a political party campaigning on behalf of their respective candidates. The Supreme Court held, “Superintendence and control over the conduct of election by the Election Commission include[s] the scrutiny of all expenses incurred by a political party, a candidate or any other association or body of persons or by any individual in the course of the election. The expression “Conduct of election” is wide enough to include in its sweep, the power to issue direction – in the process of the conduct of an election – to the effect that the political parties shall submit to the Election Commission, for its scrutiny, the details of the expenditure incurred or authorized by the parties in connection with the election of their respective candidates.” However, both the Supreme Court’s judgment and the Representation of the People Act, 1951 allow the possibility of expenditure on campaign funds by political parties on behalf of their candidates in the garb of expenditure on propagating the party’s political program on which there are no limits and no requirement for transparent accounting.
Section 77 of the of the Representation of the People Act, 1951 provides 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 authorized by him or by his election agent during the campaign period. Prior to 2003, Explanation 1 to section 77 provided that the expenditure incurred by 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 shall not be deemed to be expenditure incurred or authorised by the candidate and therefore did not need to be accounted for. In light of sustained criticism of this provision, vide the Election and Other Related Laws (amendment) Act in 2003, Explanation 1 to Section 77 was amended to provide that only, "the expenditure incurred by leaders of a political party on account of travel by air or by any other means of transport for propagating programme of the political party shall not be deemed to be [ ] expenditure in connection with the election incurred or authorised by a candidate of that political party or his election agent [ ]". The Amendment Act also inserted Explanation 2 that defines "leaders of a political party" to mean such persons whose names have been communicated to the Election Commission and the Chief Electoral Officers of the States by the political party to be leaders for the purposes of such election, within a period of seven days from the date of the notification for such election published in the Gazette of India or Official Gazette of the State, as the case may be. In the case of recognised political parties, the number of such persons shall not exceed forty and in case of non recognised political parties, this number shall not exceed twenty.
This amendment has considerably watered down the escape route provided by the previous version of Explanation 1 because now expenditure incurred by any person who is not a designated leader of the party can be considered as expenditure incurred on behalf of the candidate. However, this provision still allows party spending and spending by party supporters on propagating the party's program generally because surely party campaigns may be conducted in situations where it would be hard to attribute the expenditure to a particular candidate. Such expenditure is neither limited by any ceiling under the law (which fact is perhaps irrelevant as the ceilings are difficult to enforce and based on the CEC’s comments, not observed by politicians anyways) nor subject to transparent accounting. In fact, the Election Commission has recommended that political parties must be required to publish their accounts annually (at least in an abridged form) for information and scrutiny of the general public. These accounts must be audited by a firm of auditors approved by the Comptroller and Auditor General.
Dilip, a copy of the Indrajit Gupta Committee Report is not available on the internet, however, the recommendations made by the Committee are neatly summarized in paragraph 4.3.6 of the 170th Report of the Law Commission of India on the “Reform of the electoral laws” May 1999, which can be accessed at this link: http://lawcommissionofindia.nic.in/lc170.htm#LAW%20COMMISSION%20OF%20INDIA
A detailed discussion paper on “Regulation of Campaign Finance” can be found at this link: http://prsindia.org/docs/conference/Campaign_finance_draft_discussion_paper.pdf