ASSOCIATION FOR DEMOCRATIC REFORMS & ORS. V. UNION OF INDIA & ORS. (2024 INSC 113)

Introduction

On February 15, 2024, the Supreme Court of India issued a significant ruling, deeming the Electoral Bond Scheme (EBS) of 2018 unconstitutional. The court pointed to the scheme’s infringement on the fundamental right to information enshrined in Article 19(1)(a) of the Indian Constitution. This ruling represents a pivotal moment in the broader discussion surrounding transparency, democratic accountability, and the integrity of elections in India.

The situation arose due to worries expressed by civil society groups and political figures over the anonymous political contributions facilitated by the EBS. The petitioners contended that this arrangement fostered a lack of transparency in political funding, paving the way for quid pro quo transactions and jeopardizing voters’ ability to make well-informed choices. The Supreme Court’s decision underscores that the principles of free and fair elections, an informed populace, and transparency in political financing constitute essential components of the Constitution’s fundamental framework.

Case Details

Case Title: Association for Democratic Reforms & Ors. v. Union of India & Ors.

Citation: 2024 INSC 113

Writ Petition: (Civil) No. 880/2017

Court: Supreme Court of India

Bench: D.Y. Chandrachud, CJI, Sanjiv Khanna, J., B.R. Gavai, J,.J.B. Pardiwala, J., Manoj Misra, J.

Date of Judgment: February 15, 2024

Relevant Statutes and Constitutional Provisions

• Article 19(1)(a) – Freedom of speech and expression (includes right to information)
• Representation of the People Act, 1951 – Section 29C
• Companies Act, 2013 – Section 182
• Income Tax Act, 1961 – Section 13A
• Reserve Bank of India Act, 1934 – Section 31
• Finance Act, 2016 & 2017
• Foreign Contribution Regulation Act (FCRA), 2010 – Section 2(1)(j)(vi)
• Article 110 – Definition of a Money Bill

Background and Brief Facts

To regulate political financing and curtail the influence of unaccounted money in elections, the Government of India launched the Electoral Bond Scheme (EBS) in 2017. This initiative was enacted through revisions to the Finance Act, 2017, and was formally announced in January 2018. The scheme allowed individuals and corporations to buy electoral bonds from specified branches of the State Bank of India (SBI) and contribute them to political parties they preferred. These bonds functioned as bearer instruments, meaning they did not disclose the identity of the buyer. After the donation, political parties could cash these bonds without having to reveal the donor’s identity.

According to the government’s declaration, the aim was to facilitate a more transparent election financing process by advocating for the use of formal banking avenues instead of untraceable cash contributions. Nonetheless, a significant aspect of this initiative was the preservation of anonymity; while the State Bank of India (SBI) maintained the Know Your Customer (KYC) records of those making purchases, this data remained inaccessible to the public, the Election Commission, and other political entities.

To implement this scheme, several important laws were amended, including the Representation of the People Act of 1951, the Companies Act of 2013, the Income Tax Act of 1961, and the Foreign Contribution Regulation Act (FCRA) of 2010. These changes abolished limits on corporate donations, lifted transparency obligations, and even allowed foreign entities to make contributions to political parties. As a result, the scheme significantly transformed the political funding landscape in India by establishing donor anonymity and minimizing public oversight.”

Essential modifications were introduced to the:

Representation of the People Act, 1951 – Removed the requirement for political parties to disclose donations above ₹20,000.

Companies Act, 2013 – Removed the 7.5% cap on corporate donations and eliminated the requirement for companies to declare the names of political parties they donated to.

Income Tax Act, 1961 – Political parties were no longer obligated to maintain donor records for donations received via electoral bonds.

RBI Act and FCRA – Amended to allow foreign companies with Indian subsidiaries to donate, potentially introducing foreign influence in Indian politics.

The Democratic Reforms Association (ADR), along with Common Cause and the Communist Party of India (Marxist), has submitted a writ petition that contests the legal validity of the scheme, citing concerns over the erosion of transparency, the impact of corporate interests, and dangers to democratic principles.

Issues before the Court

1. Does the Electoral Bond Scheme violate the voters’ right to information under Article 19(1)(a)?
2. Can donor anonymity be constitutionally justified in the context of political funding?
3. Does the scheme promote corruption and hinder free and fair elections?
4. Are the amendments made through a Money Bill constitutionally valid?
5. Do the legislative changes enable foreign influence in Indian elections?

Arguments

Petitioners’ Contentions

• Right to Voter Awareness: Article 19(1)(a) includes the citizens’ entitlement to understand the financial backing of political parties. The lack of transparency in EBS hinders voters from evaluating the motives driving political positions and policies.
• Lack of Transparency in Funding: The elimination of disclosure requirements across various laws has led to the normalization of undisclosed contributions, heightening the potential for quid pro quo agreements.
• Corporate and Foreign Influence: Removing limits on donations and allowing foreign firms to contribute severely undermines democratic safeguards and fosters corporate lobbying and policy manipulation.

Improper Use of the Money Bill Procedure: The Finance Act brought about significant policy changes that extend beyond just taxation or public finances, thereby breaching Article 110 through the inappropriate application of the Money Bill process.

Respondent’s Contentions (Union of India & Election Commission)

• Controlled Banking Channel: The authorities contended that EBS represented a transition from cash-oriented to banking-oriented contributions, leading to a decrease in unaccounted money and enhanced traceability through KYC processes with SBI.
• Protection of Donor Identity: The program ensured the privacy and safety of financiers who could experience backlash due to their support for certain political groups.
• Participation was voluntary: Contributions made through bonds were entirely optional and without coercion. Individuals maintained the right to decide whether to disclose.
• Enhanced Clean Funding: Electoral bonds offer a more transparent method of financing when contrasted with the previously unrecorded cash contributions.

Judgment Summary

The Constitution Bench reached a unanimous decision declaring the Electoral Bond Scheme unconstitutional. The Supreme Court determined that the scheme significantly violates the fundamental right to information as guaranteed by Article 19(1)(a), representing a direct threat to the integrity of free and fair elections.

Key Observations:

1. The Right to Information is essential – It is crucial for voters to be aware of the financial backers of political parties, as this influences policy-making, governance priorities, and the democratic options available.
2. Anonymity Does Not Meet Proportionality Standards – Although the government’s goal of combating black money and safeguarding donor identities is valid, the total anonymity provided by the scheme is excessive and not the least restrictive alternative that could have been implemented.
3. 3. Foreign Influence Permitted – Changes to the FCRA and related laws may have permitted foreign organizations to donate to elections in India, which the court deemed concerning and unconstitutional.
4. Misuse of the Money Bill – While this matter was set aside for individual consideration in the ongoing Rojer Mathew case, the Court suggested that the amendments made through the Finance Act of 2017 warranted careful examination, as they introduced significant policy alterations disguised as a Money Bill.

Ratio Decidendi

• Article 19(1)(a) safeguards the right to information concerning political funding, which is a vital aspect of freedom of speech and expression.
• The use of anonymity in the EBS hinders transparency, facilitates corruption, and undermines electoral democracy.
• The modifications introduced by the Finance Act were devoid of protective measures, allowed for boundless and anonymous corporate contributions, and could potentially encourage foreign political interference.

Obiter Dicta

• Transparency is vital for the health of democracy: The Court underscored that citizens’ informed engagement is a cornerstone of democratic life.
• Financial contributions play a significant role in shaping policies, the Court cautioned, noting that unchecked political donations pose a direct risk to constitutional ideals and the fairness of political engagement.
• The state’s stance of neutrality is untenable; it cannot afford to be passive or indifferent to systems that threaten the integrity of elections.

Final Decision & Directions

The Electoral Bond Scheme enacted in 2018 was found to be unconstitutional and has been nullified. Consequently, the State Bank of India (SBI) has been instructed to halt the production of electoral bonds immediately.

The State Bank of India has been instructed to provide comprehensive records regarding the electoral bonds that were bought and redeemed starting from April 12, 2019, which include:

1. Names of purchasers
2. Amount of donation
3. Political parties that encashed the bonds.

The Election Commission of India (ECI) has been directed to make this information available on its website by March 13, 2024, thus ensuring public accountability is reinstated.

Conclusion

The case of the Association for Democratic Reforms versus the Union of India represents a pivotal moment in the evolution of constitutional law in India. It underscored the necessity of transparency in political financing as a constitutional obligation, rather than just an administrative decision. The Court’s judgment emphasized the significance of the right to information, the principle of proportionality, and the need for equitable elections, establishing a clear connection between financial power and the potential for democratic corruption.

This decision represents a courageous stance against the excessive use of executive authority in relation to Money Bills and highlights the risks associated with corporate dominance and external interference. As India advances in its democratic development, this judgment acts as a safeguard against hidden political funding practices and reestablishes voters’ right to access information, a fundamental principle of democracy.