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

• Case Title: Association for Democratic Reforms & Ors. v. Union of India & Ors.
• Citation:2024 INSC 113
• Court:Supreme Court of India.
• Bench: Constitution Bench of:

1. Dr. D.Y. Chandrachud, C.J.
2. Sanjiv Khanna, J.
3. B.R. Gavai, J.
4. J.B. Pardiwala, J.
5. Manoj Misra, J.

• Date of Judgment: February 15, 2024.

Relevant Statutes / Key Provisions

The Court examined the constitutional validity of the Electoral Bonds Scheme, 2018, introduced through the Finance Act, 2017. The scheme and its supporting framework involved amendments to multiple laws:

• Representation of the People Act, 1951 – relating to disclosure of political party donations.
• Companies Act, 2013 – which removed the cap on corporate political contributions and eliminated the requirement to disclose beneficiary political parties.
• Income Tax Act, 1961 – providing tax deductions for contributions made through electoral bonds.
• Reserve Bank of India Act, 1934 – enabling the State Bank of India to issue electoral bonds.
• Constitution of India – particularly Articles 19(1) (a) (freedom of speech and expression, including right to information), 14 (equality before the law), and 110 (definition and scope of a Money Bill).²

Brief Facts

The Electoral Bonds Scheme, 2018, was introduced by the Government of India through the Finance Act, 2017, as a reform measure for political funding. Electoral bonds, similar to promissory notes, were issued in denominations ranging from ₹1,000 to ₹1 crore by the State Bank of India (SBI). Indian citizens or companies could purchase these bonds and donate them to political parties, which could redeem them through designated bank accounts.³

The government argued the scheme increased transparency by shifting donations from cash to banking channels. However, donor identities were not disclosed publicly, raising concerns over accountability and potential corporate influence in elections.

Petitions were filed by Association for Democratic Reforms (ADR), Common Cause, and other civil society groups, challenging the constitutionality of the scheme under Article 19(1) (a) and contesting amendments to the Representation of the People Act, Companies Act, and Income Tax Act, which enabled unlimited undisclosed corporate donations.

Petitioners also challenged the Money Bill route, contending that the Finance Act, 2017, bypassed Rajya Sabha scrutiny, since the provisions did not exclusively pertain to taxation or expenditure. Interim applications were initially rejected, allowing the scheme to operate during the 2019 General Elections.⁴ Over time, criticism grew due to the concentration of donations among ruling parties and the opacity of funding.

In October 2023, the Supreme Court referred the matter to a Constitution Bench of five judges, which commenced hearings in October and reserved judgment in November. On 15 February 2024, the Court delivered a unanimous verdict striking down the scheme and enabling amendments as unconstitutional.⁵

Issues Involved

The Supreme Court, while adjudicating the constitutional validity of the Electoral Bonds Scheme and the amendments enabling it, identified several core legal issues for determination:

1. Whether the Electoral Bonds Scheme, 2018, and the corresponding amendments to the Representation of the People Act, Companies Act, and Income Tax Act violate the right to information under Article 19(1) (a) of the Constitution?
2. Whether the removal of caps on corporate donations and the anonymity of donors undermine the principles of free and fair elections guaranteed by the Constitution?
3. Whether the Finance Act, 2017, introducing the Electoral Bonds Scheme, could validly be passed as a Money Bill under Article 110 of the Constitution?
4. Whether unlimited corporate political donations, permitted by the amended Companies Act, are consistent with constitutional principles of equality (Article 14) and representative democracy?
5. Whether the scheme disproportionately benefits ruling political parties and, therefore, distorts the level playing field in elections, thereby violating the democratic ethos enshrined in the Constitution?⁶

Petitioners’ Arguments

• Violation of Right to Information and Transparency:
  The petitioners, led by Association for Democratic Reforms (ADR) and Common Cause, argued that the Electoral Bonds Scheme violated the citizens’ fundamental right to information under Article 19(1) (a) of the Constitution. They contended that the anonymity granted to donors effectively concealed the source of political funding, thereby depriving voters of critical information about financial influences on political parties. This, they argued, undermined the principle of informed voting and transparency in a democratic society.⁷
• Unconstitutional Use of Money Bill Procedure:
  The Finance Act, 2017, which introduced the scheme, had been passed as a Money Bill, bypassing Rajya Sabha scrutiny. Petitioners contended that the provisions of the Act did not relate exclusively to matters listed under Article 110, such as taxation or expenditure, and thus the procedure violated bicameral legislative principles guaranteed by the Constitution.
• Disproportionate Advantage to Ruling Parties:
  Petitioners highlighted that electoral data indicated a disproportionate concentration of bonds being redeemed by ruling political parties, giving them an unfair electoral advantage. This, they argued, violated Article 14 (equality before law) and skewed the level playing field in elections.
• Unrestricted Corporate Donations:
  The removal of limits on corporate donations, coupled with anonymity, allowed large companies to influence political parties without public scrutiny, potentially encouraging policy capture and undermining democratic governance.

Respondent’s Arguments

• Ensuring Donor Privacy:
  The Union of India and supporting political parties argued that donor anonymity was essential to protect contributors from potential political retribution or harassment. Public disclosure, they asserted, could deter citizens and companies from making donations, thereby reducing funding for legitimate political activity.
• Promoting Banking Channels and Reducing Cash Donations:
  The scheme encouraged donations through formal banking systems, replacing opaque cash contributions and thereby increasing transparency in indirect terms.
• Legal Validity of Money Bill Procedure:
  The Union contended that the Finance Act fell within the ambit of Article 110, as it related to taxation and fiscal measures. The introduction of electoral bonds, they argued, was merely incidental to revenue and financial regulation and therefore the procedural challenge lacked merit.⁸
• Consistency with International Practices:
  The government emphasized that many democracies maintain mechanisms for anonymous political contributions to protect donor rights, and the Electoral Bonds Scheme aligned with global best practices while also formalizing political funding.

Judgment

The Supreme Court, in a unanimous verdict delivered on February 15, 2024, struck down the Electoral Bonds Scheme, 2018, along with the enabling amendments to the Representation of the People Act, Companies Act, and Income Tax Act, declaring them unconstitutional.⁹ The Court meticulously analyzed the case under constitutional, procedural, and democratic principles, emphasizing transparency, accountability, and the right of citizens to know the sources of political funding.

Key Reasoning:

• Right to Information under Article 19(1) (a):
  The Court observed that citizens have a fundamental right to know the source of political funding, which is essential for informed electoral choices. By allowing donations through anonymous bonds, the scheme effectively shielded donor identities, violating the voters’ right to information and undermining electoral transparency. The Court held that transparency in political funding is a prerequisite for free and fair elections.
• Money Bill Challenge:
  The Court examined whether the Finance Act, 2017, could legitimately be classified as a Money Bill under Article 110. It concluded that the provisions allowing anonymous political donations were not exclusively financial measures as contemplated by Article 110. Hence, the procedure bypassed Rajya Sabha scrutiny unconstitutionally, infringing the bicameral legislative framework.
• Impact on Equality and Democracy:
  The Court found that the scheme disproportionately benefited ruling parties due to the concentration of bond redemption, undermining Article 14 guarantees and the democratic principle of a level playing field. It further highlighted the danger of corporate influence and policy capture, given the lack of disclosure and limits on contributions.
• Proportionality and Balancing Interests:
  While the Court recognized the government’s argument of protecting donor privacy, it emphasized that the right to information and transparency in funding outweighs the need for complete anonymity, particularly when secrecy compromises democracy itself.

Consequently, the Court struck down the Electoral Bonds Scheme and related statutory amendments but left the door open for a reformed scheme that ensures transparency while safeguarding legitimate donor privacy.¹⁰

Ratio Decidendi

The core legal principle emerging from the Supreme Court’s judgment is that citizens have a fundamental right to know the source of political funding, and any statutory framework that undermines transparency in elections violates Articles 14 and 19(1)(a) of the Constitution. The Court affirmed that while Parliament may regulate political funding, such regulation cannot compromise democratic accountability or circumvent legislative scrutiny, as attempted via the Money Bill procedure. The ratio decisively establishes that transparency in political funding is integral to free and fair elections.

Obiter Dicta

The Court made several persuasive observations beyond the binding ratio:

1. Electoral reforms must balance donor privacy with public accountability, emphasizing that absolute anonymity in political funding is incompatible with democratic principles.
2. While recognizing the government’s concern for donor safety, the Court suggested that technological and procedural safeguards could protect contributors without eroding transparency.
3. The judgment highlighted that leveling the electoral playing field is not only a constitutional mandate but also a moral obligation for sustaining public trust in governance.

These observations, while not strictly binding, provide guidance for future reforms in political financing.

Final Decision

The Supreme Court struck down the Electoral Bonds Scheme, 2018, and all enabling statutory amendments. The Court directed that any future scheme should:

Ensure full transparency of political donations,

Protect legitimate donor privacy without anonymity that compromises accountability, and

Be legislated through proper parliamentary procedure, respecting bicameral scrutiny.

In effect, the judgment invalidated the scheme in its current form while setting a framework for constitutionally compliant electoral finance reforms.

Impact of the Judgment

The judgment carries far-reaching implications for Indian democracy:

• Electoral Transparency: It establishes that citizens have a right to know funding sources, strengthening accountability and public trust in elections.
• Democratic Equality: By preventing disproportionate advantage to ruling parties, the ruling upholds level playing field principles under Article 14.
• Corporate Funding: Companies and political parties must now operate within transparent financial disclosure norms, reducing the risk of policy capture.
• Parliamentary Procedure: The judgment reinforces the limits of Money Bill classification, ensuring bicameral legislative scrutiny in matters beyond revenue or taxation.
• Future Reforms: The Court’s guidance encourages the government to design electoral funding mechanisms that balance transparency, privacy, and democratic integrity.¹⁰

References

1. Association for Democratic Reforms v. Union of India, 2024 INSC 113 (Supreme Court of India, Feb. 15, 2024).
2. Finance Act, 2017, No. 7, Acts of Parliament, 2017 (India); Representation of the People Act, 1951, No. 43, Acts of Parliament, 1951 (India); Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India); Income Tax Act, 1961, No. 43, Acts of Parliament, 1961 (India); Reserve Bank of India Act, 1934, No. 2, Acts of Parliament, 1934 (India); INDIA CONST. arts. 14, 19(1) (a), 110.
3. Ministry of Finance, Notification No. S.O. 29(E) (Jan. 2, 2018) (India) (introducing Electoral Bonds Scheme, 2018).
4. Association for Democratic Reforms v. Union of India, (2019) 2 SCC 796 (interim order declining stay of scheme before 2019 General Elections).
5. Association for Democratic Reforms v. Union of India, 2024 INSC 113 (Supreme Court of India, Feb. 15, 2024).
6. Supreme Court Observer, Electoral Bonds Scheme Case Background (Oct. 2023), https://www.scobserver.in/cases/association-for-democratic-reforms-electoral-bonds-case-background/.
7. Petitioners’ Written Submissions, Association for Democratic Reforms v. Union of India, W.P. (C) 365/2017 (Supreme Court of India, Oct. 2023).
8. Respondent’s Written Submissions, Association for Democratic Reforms v. Union of India, W.P. (C) 365/2017 (Supreme Court of India, Oct. 2023).
9. Association for Democratic Reforms v. Union of India, 2024 INSC 113, ¶¶ 45–67 (Supreme Court of India, Feb. 15, 2024).
10. Id. ¶¶ 68–92.