Supreme Court Strikes Down Electoral Bond Scheme, Mandates Transparency in Political Funding

Constitution Bench Rules Key Amendments Violative of Fundamental Rights; Orders Disclosure of Electoral Bond Donors and Prohibits Fresh Issuance

In a landmark judgment delivered on February 15, 2024, the Constitution Bench of the Supreme Court of India declared the Electoral Bond Scheme and several related statutory amendments unconstitutional. The Court held that the scheme, which allowed anonymous donations to political parties via bearer bonds, violated the fundamental right to information under Article 19(1)(a) of the Constitution. Additionally, the bench struck down the removal of limits on corporate contributions to political parties as arbitrary and violative of Article 14.

The judgment arises from petitions filed by the Association for Democratic Reforms (ADR) challenging the constitutional validity of the Electoral Bond Scheme notified in 2018, and amendments introduced by the Finance Act, 2017 to the Representation of the People Act, Companies Act, Income Tax Act, and Reserve Bank of India Act. These amendments allowed political parties to receive contributions via electoral bonds without disclosing donor identities and removed caps on corporate donations.

Right to Information vs Donor Privacy

The Court extensively analyzed the scope of the right to information, tracing it to Article 19(1)(a), and held that voters have a fundamental right to know the funding sources of political parties to cast informed votes. It rejected the Government's argument that donor anonymity was necessary to protect privacy and to encourage clean money through banking channels. The Court found that the Electoral Bond Scheme's complete non-disclosure of donor information was neither the least restrictive means nor rationally connected to curbing black money. Alternative mechanisms such as contributions via electoral trusts and electronic transfers already provide means to incentivize legitimate funding with greater transparency.

The Court emphasized that political parties are the relevant political units in the electoral process, citing the centrality of party symbols, the cabinet form of government, and anti-defection laws. Thus, transparency in political party funding is essential for participatory democracy and free and fair elections.

Unlimited Corporate Funding Violates Equality

The judgment also invalidated the Finance Act's deletion of the cap on corporate contributions, noting that allowing unlimited donations without restrictions enables undue influence and quid pro quo arrangements that undermine political equality and the principle of ‘one person, one vote’. The Court observed that companies and individuals cannot be equated for funding political parties given the disproportionate influence wielded by corporate entities.

The Court applied the doctrine of manifest arbitrariness, holding that the removal of limits on corporate funding lacked adequate determining principles and was inconsistent with constitutional values of democracy and equality.

Directions and Implementation

The Supreme Court ordered an immediate halt to the issuance of electoral bonds. The State Bank of India, the sole authorized bank under the scheme, was directed to submit detailed information on electoral bonds purchased and encashed since April 12, 2019, including purchaser names, bond denominations, and political parties receiving funds, within three weeks. The Election Commission of India (ECI) was mandated to publish these details on its official website within a week of receipt.

Further, electoral bonds that are valid but unencashed must be returned by the holder (donor or political party) to the issuing bank, which shall refund the amount to the purchaser's account. Failure to do so will result in the amount being credited to the Prime Minister’s Relief Fund.

Justice Sanjiv Khanna, in a separate opinion concurring with the majority, applied the doctrine of proportionality to reach similar conclusions, emphasizing the importance of transparency in electoral democracy.

Background and Key Issues

The judgment provides a detailed background of the legislative changes from the Companies Act of 1956 to the Companies Act of 2013 and amendments by the Finance Act, 2017, which introduced the Electoral Bond Scheme. It highlights objections raised by the Reserve Bank of India and Election Commission of India regarding the risks of anonymous bearer bonds facilitating money laundering and undermining transparency.

The Court rejected the Government’s plea to treat the matter as one of economic policy subject to judicial restraint, ruling that electoral funding relates directly to democratic rights and cannot be insulated from rigorous constitutional review.

Significance

This judgment marks a pivotal moment in Indian electoral law, reinforcing the constitutional mandate for transparency in political financing and curbing the influence of undisclosed corporate funding. By striking down provisions that anonymize political donations and permit unlimited corporate contributions, the Court has sought to strengthen the democratic process and empower voters with essential information.

The ruling mandates systemic reforms to political funding disclosure, balancing the need to protect donor privacy with the fundamental right of citizens to an informed electoral choice.

Statutory provisions

Representation of the People Act, 1951 Section 29C(1), Companies Act, 2013 Section 182(3), Income Tax Act, 1961 Section 13A(b), Reserve Bank of India Act, 1934 Section 31(3), Finance Act, 2017 amendments to the above statutes

Association for Democratic Reforms v. Union of India (SC)(Constitution Bench) : Law Finder Doc Id # 2496043