Case Summary: Association for Democratic Reforms v. Union of India, 2024 INSC 113

Court: Supreme Court of India

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

Date of Judgement: February 15, 2024.

Relevant Provision/Statutes: Article 19(1)(a) and Article 14 of the Constitution

Brief Facts:

The Electoral Bonds controversy traces back to the Finance Act, 2016, which amended the Foreign Contribution Regulation Act, 2010, allowing foreign companies with a major share in Indian companies, to make donations to political parties. Finance Act 2017 made provisions with corresponding amendments in the Representation of the People Act, 1951 (RoPA), the Reserve Bank of India Act, 1934, the Income Tax Act, 1961, and the Companies Act, 2013 and omitted the first provision under Section 182(1) of the Companies Act, 2013.

• Permitted RBI to authorize any schedule bank to issue electoral bond
• Deletion of the cap on corporate funding
• Requirement of only full disclosure of the amount contributed to the political parties by a company.
• Permitted companies to donate to a political party only through cheque, bank draft, electronic transfer, or any instrument issued under a government-notified scheme for political contributions.
• Exempted political parties from maintaining records of contributors utilizing electoral bonds under the Income Tax Act.
• Mandated that donation exceeding Rs two thousand be made through cheque, bank draft, electronic transfer or electoral bonds
• Exempted political parties from disclosing electoral bond contributions to the Election Commission under the Representation of the People Act.

RBI and Election Commission of India expressed their concerns regarding the amendments made under the Finance Bill, 2017.

In 2018 Electoral Bonds scheme was introduced under Section 31(3) of the RBI Act. The key features of the Scheme are-

• It can be issued by any person who is a citizen of India, or incorporated/established in India.
• Bonds can be encashed only through an authorized bank account (SBI).
• Eligible parties must be registered under the Representation of the People Act, 1951, have secured at least 1% of votes in the previous general election.
• KYC norms apply to all purchasers
• Electoral Bonds are issued in fixed denominations, carry no interest, are non-refundable, and are valid for fifteen days from the date of issue. They are not transferable or tradable.
• Donor information is kept confidential by the issuing bank and disclosed only upon court orders or investigation by law-enforcement agencies.
• Bonds are available for purchase during limited windows each year, with extended availability during general elections.
• Amounts received through the scheme is exempted from in
• The Petitioners, Association for Democratic Reforms; Common Cause; Communist Party of India (Marxist), filed a writ petition challenging the Electoral Bonds Scheme against violation of citizen’s right to information under Article 19(1)(a), seeking invalidation of the provisions and corresponding amendments through Finance Bill, 2017. a declaration that provisions of Finance Bill 2017, along with the corresponding statutory amendments be deemed unconstitutional.

The petitioners also questioned the passage of the Finance Act, 2017 as a Money Bill under Article 110. However, this issue was kept open due to its pendency before a seven-Judge Bench.

Issues Involved:

Whether deletion of the cap on corporate funding, under the amended Section 182(1) of the Companies Act, 2013, violates the principle of ‘free and fair elections’ and Article 14 of the Constitution?

Whether the non-disclosure of contributions under the Electoral bonds scheme and amendments made under Finance Act, 2017 violative of Right to Information under Article 19 (1)(a)?

Arguments:

Petitioners Arguments

Issue I

• The deletion of the cap on corporate donations destroys the level playing field between political parties and individual candidates.
• Allowing corporate entities, who are not citizens, subverts representative democracy by aligning elected representatives’ interests with contributors rather than voters, undermining free and fair elections.
• The amendments permit loss-making and shell companies to make political contributions, facilitating quid pro quo arrangements and policy capture.
• The Scheme disproportionately benefits ruling parties, marginalizes regional and smaller parties, and raises barriers to the entry of new political parties[1].
• The doctrine of judicial restraint is inapplicable as the challenge concerns the electoral process, not economic policy.

Issue II

• The Electoral Bond Scheme and statutory amendments mandate anonymity in political funding, infringing the voters’ right to information under Article 19(1)(a) as the knowledge of their funding sources is essential for an informed electoral choice[2].
• It facilitates corruption and creates information asymmetry.
• The Scheme does not effectively curb black money, as cash donations remain permissible and anonymous electoral bond funding replaces disclosed banking donations.
• Donor privacy and curbing black money is not a legitimate ground, and the restriction fails the proportionality test, since less restrictive means exist to curb black money.

Respondents Arguments:

Issue I

• Corporate donations to political parties is permissible in law; the removal of the cap under Section 182 of the Companies Act is a legislative policy decision.
• The amendment does not violate Article 14 since it applies uniformly to all companies and political parties and is neither discriminatory nor manifestly arbitrary.
• free and fair elections do not require equality of financial resources among parties.
• Allegations of quid pro quo or misuse are speculative and cannot form the basis for striking down a statute.
• Courts should exercise judicial restraint.

Issue II:

• The right to information under Article 19(1)(a) can be reasonably restricted to achieve state interests.
• Non-disclosure of donor identity is necessary to protect privacy and prevent political retribution.
• The Electoral Bond Scheme aims to curb black money by shifting political funding to banking channels with KYC compliance through electoral bonds.
• Public disclosure is not constitutionally mandated till political funding is routed through regulated banking channels.
• The restriction satisfies the test of proportionality, as it balances transparency with privacy[3].

Judgement:

On February 15, 2024, the Supreme Court gave its landmark judgement and declared the Electoral Bond Scheme, 2018 and the Finance Act, 2017 amendments as unconstitutional. The Court found that unlimited corporate funding infringed the principle of free and fair elections and violated Article 14. “Unrestrained influence” given to the Companies violates the value of “one person, one vote”.  The Court held that anonymous and unlimited political funding led to a distortion in the electoral playing field.

On the second issue, the Court ruled that the electoral bonds scheme violates the Right to information under Article 19(1)(a). The Court held that donor privacy is not a legitimate ground to override the public interest in transparency and that the Scheme failed the proportionality test. The Court also noted that the Scheme creates information asymmetry, due to inaccessibility of data to the citizens.

The Court directed the State Bank of India to disclose details of electoral bonds purchased and encashed from April 12, 2019 to March 2024. This was to ensure transparency through data disclosure.

Ratio Decidendi:

• Violation of Right to Information under Article 19(1)(a): The case established the centrality of voter’s right to information with regards to the sources of political funding as a fundamental right, and its importance in preserving the free and fair nature of the elections.
• Failure of Proportionality Test: The Court applied the Proportionality Test and found that the anonymity of the scheme was not the “least restrictive means” to curb black money.
• Manifest Arbitrariness under Article 14: Removing the cap on corporate donations was held to be “manifestly arbitrary” because it allowed loss-making companies to influence politics, favouring corporate influence over the democratic process.
• Rejecting “Donor Privacy”: The Court held that informational privacy does not apply to political contributions
• Clarification: There is a distinction in challenge for being manifestly arbitrary against plenary legislation and subordinate legislation, wherein the latter is tested based on its conformity with the parent statute as compared to the former which exercises greater immunity.

[1] Modern Dental College & Research Centre v. State of Madhya Pradesh, (2016) 7 SCC 353.

[2]Union of India v. Association for Democratic Reforms, (2002) 5 SCC 294; People’s Union for Civil Liberties (PUCL) v. Union of India, (2003) 4 SCC 399.

[3] Modern Dental College & Research Centre v. State of Madhya Pradesh, (2016) 7 SCC 353.